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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: June 30, 2012

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

For the transition period from ____________to
_____________

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

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

560 S. Winchester Blvd., Suite 500San Jose, CA
95128(Address of principal executive offices)

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

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

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes
[X]          
             No [  
]

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

Yes [  
]          
             
 No [X]

---

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.

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

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

Yes [  
]                        
No [X]

The number of shares outstanding of each of the issuers
classes of common stock, as of June 30, 2012 is as follows:

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

2

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EXPLANATORY NOTE

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

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

3

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KRANEM CORPORATION

TABLE OF CONTENTS

|PART I                                                                                               |   
|---------------------------------------------------------------------------------------------------- | --
|FINANCIAL INFORMATION                                                                                |   
|                                                                                                     |   
|ITEM 1. FINANCIAL STATEMENTS.                                                                        | 5 
|ITEM 2. MANAGEMENTS DISCUSSION AND
      ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. | 18
|ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
      MARKET RISK.                            | 23
|ITEM 4. CONTROLS AND PROCEDURES.                                                                     | 23
|                                                                                                     |   
|PART II                                                                                              |   
|OTHER INFORMATION                                                                                    |   
|                                                                                                     |   
|ITEM 1. LEGAL PROCEEDINGS.                                                                           | 24
|ITEM 1A. RISK FACTORS.                                                                               | 25
|ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE
      OF PROCEEDS.                           | 25
|ITEM 3. DEFAULTS UPON SENIOR
      SECURITIES.                                                       | 25
|ITEM 4. MINE SAFETY DISCLOSURES                                                                      | 25
|ITEM 5. OTHER INFORMATION.                                                                           | 25
|ITEM 6. EXHIBITS.                                                                                    | 25

4

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PART IFINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

KRANEM CORPORATIONCONSOLIDATED BALANCE
SHEETS(Unaudited)

|                                                                                                               |   | June 30,   |   |   | December   |  
|-------------------------------------------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                                                                               |   | 2012       |   |   | 31, 2011   |  
|                                                                                                               |   |            |   |   |            |  
|ASSETS                                                                                                         |   |            |   |   |            |  
|Current Assets                                                                                                 |   |            |   |   |            |  
|Cash and cash equivalents                                                                                      | $ | 524,287    |   | $ | 420,012    |  
|Financial assets                                                                                               |   | 994,658    |   |   | 877,864    |  
|Accounts receivable, net of allowance for doubtful
      accounts                                              |   | 7,672,051  |   |   | 9,595,288  |  
|Accounts receivable - related parties                                                                          |   | 820,000    |   |   | 2,267,584  |  
|Inventories                                                                                                    |   | 393,155    |   |   | 207,345    |  
|Deferred tax assets, net                                                                                       |   | 321,933    |   |   | 99,035     |  
|Current tax assets net of provision for income tax                                                             |   | 289,792    |   |   | -          |  
|Prepaid expenses and other current assets                                                                      |   | 391,862    |   |   | 260,473    |  
|Total Current
      Assets                                                                                     |   | 11,407,738 |   |   | 13,727,601 |  
|Non-Current
      Assets                                                                                       |   |            |   |   |            |  
|Property, plant and equipment, net                                                                             |   | 372,142    |   |   | 375,383    |  
|Intangible assets, net                                                                                         |   | 3,965,786  |   |   | 4,420,902  |  
|Financial assets                                                                                               |   | 212,384    |   |   | 400,112    |  
|Deferred tax assets, net                                                                                       |   | 44,012     |   |   | 16,024     |  
|Other non-current assets                                                                                       |   | 134,658    |   |   | 116,624    |  
|Total Non-Current Assets                                                                                       |   | 4,728,982  |   |   | 5,329,045  |  
|TOTAL ASSETS                                                                                                   | $ | 16,136,720 |   | $ | 19,056,646 |  
|                                                                                                               |   |            |   |   |            |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                           |   |            |   |   |            |  
|Current
      Liabilities                                                                                      |   |            |   |   |            |  
|Accounts payable                                                                                               | $ | 4,221,532  |   | $ | 5,812,585  |  
|Accounts payable - related parties                                                                             |   | 1,358,549  |   |   | 1,110,383  |  
|Deferred revenue                                                                                               |   | 49,907     |   |   | -          |  
|Credit facilities                                                                                              |   | 767,224    |   |   | 612,914    |  
|Short-term notes                                                                                               |   | 2,440,158  |   |   | 1,700,000  |  
|Short-term notes - related parties                                                                             |   | 583,635    |   |   | 285,000    |  
|Convertible note, net of discount                                                                              |   | 109,814    |   |   | -          |  
|Accrued payroll                                                                                                |   | 660,002    |   |   | 370,979    |  
|Current tax liability, net of tax assets                                                                       |   | -          |   |   | 78,041     |  
|Other current liabilities                                                                                      |   | 709,948    |   |   | 863,009    |  
|Total Current
      Liabilities                                                                                |   | 10,900,769 |   |   | 10,832,911 |  
|Non-Current
      Liabilities                                                                                  |   |            |   |   |            |  
|Deferred benefit obligations                                                                                   |   | 115,707    |   |   | 121,867    |  
|Other non-current liabilities  related parties                                                                |   | -          |   |   | 16,144     |  
|Long-term notes                                                                                                |   | -          |   |   | 500,000    |  
|Long-term provisions                                                                                           |   | 226,497    |   |   | 220,539    |  
|Total
      Non-Current Liabilities                                                                            |   | 342,204    |   |   | 858,550    |  
|Total Liabilities                                                                                              |   | 11,242,973 |   |   | 11,691,461 |  
|                                                                                                               |   |            |   |   |            |  
|STOCKHOLDERS' EQUITY                                                                                           |   |            |   |   |            |  
|Preferred Stock, no par value, 10,000,000
      shares authorized, no shares issued and outstanding            |   | -          |   |   | -          |  
|Common Stock, no par
      value, 50,000,000 shares authorized, 39,959,338 shares issued and
      outstanding |   | 1,643,112  |   |   | 1,583,112  |  
|Additional paid-in-capital                                                                                     |   | 968,333    |   |   | 126,350    |  
|Stock payable                                                                                                  |   | 1,220,000  |   |   | 1,220,000  |  
|Retained earnings                                                                                              |   | 2,253,552  |   |   | 5,319,043  |  
|Accumulated other comprehensive income                                                                         |   | (1,191,250 | ) |   | (883,320   | )
|Total
      Stockholders' Equity                                                                               |   | 4,893,747  |   |   | 7,365,185  |  
|TOTAL LIABILITIES AND
      STOCKHOLDERS EQUITY                                                               | $ | 16,136,719 |   | $ | 19,056,646 |  

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

5

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KRANEM CORPORATIONCONSOLIDATED STATEMENTS OF
OPERATIONS(Unaudited)

|                                                                                           |  | Three Months Ended |   |  | Six Months Ended |  
|------------------------------------------------------------------------------------------ |  | ------------------ | - |  | ---------------- | -
|                                                                                           |  | June 30,           |   |  | June 30,         |  
|                                                                                           |  | 2012               |   |  | 2011             |  
|                                                                                           |  | US $               |   |  | US $             |  
|                                                                                           |  |                    |   |  | (Restated)       |  
|                                                                                           |  |                    |   |  |                  |  
|REVENUES                                                                                   |  | 1,331,945          |   |  | 1,013,041        |  
|COST OF REVENUES                                                                           |  | 1,436,441          |   |  | 384,463          |  
|GROSS PROFIT                                                                               |  | (104,496           | ) |  | 628,578          |  
|OPERATING EXPENSES                                                                         |  |                    |   |  |                  |  
|Research and
      development                                                             |  | 133,158            |   |  | 244,309          |  
|Selling and marketing                                                                      |  | 282,113            |   |  | 85,858           |  
|General and
      administrative                                                           |  | 801,995            |   |  | 332,548          |  
|Total
      Operating Expenses                                                             |  | 1,217,266          |   |  | 662,715          |  
|OPERATING INCOME/(LOSS)                                                                    |  | (1,321,762         | ) |  | (34,137          |  
|Finance Costs                                                                              |  | (218,019           | ) |  | (9,346           | )
|Non Operating Income                                                                       |  | 2,971              |   |  | 29,552           |  
|Income (loss) before Income Taxes                                                          |  | (1,536,810         | ) |  | (13,931          | )
|Tax Expenses                                                                               |  | 241,349            |   |  | 44,194           |  
|Net Income/(Loss)                                                                          |  | (1,295,461         | ) |  | (58,125          | )
|Earnings per Equity share                                                                  |  |                    |   |  |                  |  
|Basic                                                                                      |  | 0.03               |   |  | 0.00             |  
|Diluted                                                                                    |  | 0.03               |   |  | 0.00             |  
|Weighted average number of equity shares
      used in computing earnings per equity share |  |                    |   |  |                  |  
|Basic                                                                                      |  | 39,959,338         |   |  | 27,819,066       |  
|Diluted                                                                                    |  | 39,959,338         |   |  | 27,819,066       |  

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

6

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KRANEM CORPORATIONCONSOLIDATED STATEMENTS OF CASH
FLOWS(Unaudited)

|                                                                                       |   | SIX MONTHS ENDED |  
|-------------------------------------------------------------------------------------- | - | ---------------- | -
|                                                                                       |   | June
      30,   |  
|                                                                                       |   | 2012             |  
|                                                                                       |   |                  |  
|                                                                                       |   |                  |  
|Cash flows from Operating
      Activities                                             |   |                  |  
|Net Income/(Loss)                                                                      | $ | (3,065,490       | )
|Adjustments to reconcile net
      income/(loss) to net cash from operating activities |   |                  |  
|Depreciation and amortization                                                          |   | 397,352          |  
|Stock-based compensation                                                               |   | 890,983          |  
|Loss/(Profit) on sale of property, plant and equipment                                 |   | -                |  
|Provision for taxation                                                                 |   | (172,886         | )
|Dividend income                                                                        |   | -                |  
|Deferred taxes                                                                         |   | (13,699          | )
|Currency translation reserve                                                           |   | -                |  
|Financing cost                                                                         |   | 173,635          |  
|Interest (Accrual)/reversal on fixed deposits                                          |   | -                |  
|Provision for gratuity and leave
      encashment                                      |   | 11,496           |  
|Amortization of debt discount on
    convertible notes                                 |   | 31,314           |  
|Amortization of prepaid rent                                                           |   | 53,497           |  
|Changes in operating
      assets and liabilities                                      |   |                  |  
|Financial assets                                                                       |   | (43,556          | )
|Trade receivables                                                                      |   | 2,545,021        |  
|Inventories                                                                            |   | (195,766         | )
|Taxes assets                                                                           |   | (240,057         | )
|Prepaid expenses and other current
      assets                                        |   | (190,854         | )
|Other non-current assets                                                               |   | (24,330          | )
|Accounts payable                                                                       |   | (694,151         | )
|Deferred revenues                                                                      |   | 49,907           |  
|Due to related party                                                                   |   | 375,059          |  
|Long-term provisions                                                                   |   | (12,826          | )
|Other non-current liabilities                                                          |   | (92,392          | )
|Other, net                                                                             |   | (758             | )
|Net Cash from Operating Activities                                                     |   | (218,481         | )
|                                                                                       |   |                  |  
|Cash flows from Investing
      Activities                                             |   |                  |  
|Fixed deposits placed with banks                                                       |   | 22,822           |  
|Investment in mutual fund units                                                        |   | -                |  
|Redemption of mutual fund units                                                        |   | -                |  
|Proceeds from sale of fixed assets                                                     |   | -                |  
|Expenditures on property, plant and equipment                                          |   | (3,551           | )
|Net Cash from Investing Activities                                                     |   | 19,271           |  
|                                                                                       |   |                  |  
|Cash flows from Financing
      Activities                                             |   |                  |  
|Short-term loans                                                                       |   | 234,118          |  
|Convertible note                                                                       |   | 78,500           |  
|Issuance of common shares                                                              |   | -                |  
|Net Cash from Financing Activities                                                     |   | 312,618          |  
|                                                                                       |   |                  |  
|Translation effect of exchange rates                                                   |   | (9,133           | )
|Net change in cash and cash equivalents
      during the period                        |   | 104,275          |  
|                                                                                       |   |                  |  
|Cash and cash equivalents at the beginning
      of the period                         |   | 420,012          |  
|                                                                                       |   |                  |  
|Cash and cash equivalents at the end of
      the period                               | $ | 524,287          |  
|                                                                                       |   |                  |  
|Supplemental Schedule of Non-Cash
      Investing and Financing Activities:            |   |                  |  
|Non-Cash Investing and
      Financing Activities:                                     |   |                  |  
|Acquisition of Investco, shares issued                                                 | $ | -                |  
|Acquisition of Investco, note
      issued                                             | $ | -                |  
|Re-classification of accounts payable to
      related party accounts payable          | $ | 321,579          |  
|Common stock issued for
      accounts payable                                         | $ | 60,000           |  
|                                                                                       |   |                  |  
|Supplemental Disclosure of
      Cash-Flow Information:                                |   |                  |  
|                                                                                       |   |                  |  
|Net Cash Paid During the
      Period for:                                             |   |                  |  
|                                                                                       |   |                  |  
|Interest                                                                               | $ | -                |  
|Income Taxes                                                                           | $ | -                |  

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

7

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KRANEM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 – Organization and Basis of Presentation

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

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

Description of business

Kranem Corporation (hereinafter refer to as “Kranem”, “We” or “the Company”) was incorporated on April 18, 2002 in Colorado. The Company previously offered high-quality office and office supply products to
businesses, educational institutions, government agencies and individuals through our website, www.learningwire.com. We operated our business under our “Learningwire” trade name, which is registered with the Colorado Secretary of State.
However, we ceased our online operations in January 2006 and from that time until the acquisition of Xalted Networks, we did not engage in any active operations, other than our search for a privately owned corporation to merge with or acquire.
Xalted Networks Inc through its subsidiary Xalted Information Systems Pvt. Ltd. (hereinafter referred to as “Xalted”) provides advanced software solutions that enable companies and public organizations, including governments and law
enforcement agencies, to capture, manage and analyze structured and unstructured data to enhance business and operational performance and address security threats. The two principal markets that our software solutions address are the telecom
security market and the homeland security market. Xalted includes law enforcement as part of the homeland security market. Our current and past geographic focus is on India and the surrounding countries in Asia, Africa, and the Middle East.

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

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

8

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

Investco Asset Purchase Agreement

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

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

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

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

Acquisition of Adora ICT Srl (“Adora”)

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

9

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

Homeland Information Security Solutions

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

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

Telecom Information Security Solutions

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

10

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Note 2 -Short-Term Borrowings

(a)     Credit Facilities:

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

11

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(b)     Short-Term Notes Payable:

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

Note 3 - Earnings per share

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

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

12

---

|                                                                                                                                                             |   | Six Months
      Ended June 30, |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------ | - | ------------------------------- | -
|                                                                                                                                                             |   | 2012                            |  
|                                                                                                                                                             |   |                                 |  
|Net earnings/(loss)                                                                                                                                          | $ | (3,065,490                      | )
|Weighted average common shares outstanding
      assuming no exercise of outstanding warrants and options                                                    |   | 39,928,094                      |  
|Dilutive warrants and
      stock options using the treasury stock method.                                                                                   |   | -                               |  
|Dilutive common shares outstanding                                                                                                                           |   | 39,928,094                      |  
|                                                                                                                                                             |   |                                 |  
|Basic earnings/(loss) per common share                                                                                                                       | $ | (0.08                           | )
|Diluted earnings/(loss) per
      common share                                                                                                               | $ | (0.08                           | )
|                                                                                                                                                             |   |                                 |  
|Number of anti-dilutive
      warrants (2,470,000) and stock options (1,976,000) not included in the
      calculation of dilutive earnings/(loss) per share |   | 4,446,000                       |  

Note 4 - Segment reporting

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

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

Geographic segment

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

|              |   | Six Months
      Ended June 30, | 
|------------- | - | ------------------------------- | 
|              |   | 2012                            | 
|              |   |                                 | 
|Italy         | $ | 3,025,374                       | 
|India         |   | 129,238                         | 
|Nepal         |   | 99,616                          | 
|South Africa  |   | -                               | 
|United States |   | -                               | 
|Total         | $ | 3,254,228                       | 

13

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Note 5 - Contingencies and commitments

Contingencies

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

Legal Proceedings

|(a) | The Company has an ongoing dispute with one of their
      Customers in Africa in view of the SOW (Statement of Work) changing at
      regular intervals and new requirements being added regularly against what
      has been agreed as per Contract. The Company had received a Notice from
      the Customer about the cancellation of the Contract almost more than 8
      months back and has not heard from them thereafter. In view of the
      uncertainty in realization of the amount of $216,284 due from this
      Customer, the Company as a prudent and conservative measure had made a
      Provision in the books for the entire amount of $216,284.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(b) | In April 2010, a petition was filed against Xalted
      Information in the High Court of Karnataka at Bangalore by Arasor
      Corporation (Arasor), a Delaware company. The High Court is the
      principal court of original jurisdiction in the Indian state of Karnataka,
      sitting in the city of Bangalore. The petition sought an order under
      Sections 433 and 434 of the Companies Act of 1956 for the winding up of
      Xalted Information, based on allegations that Xalted Information did not
      pay for communications equipment sold and shipped by Arasor an aggregate
      of $4.5 million. The Company maintains that it never received the
      equipment which is alleged to have been shipped to them. This type of
      claim, and the type of relief sought, is not unusual in India.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The petition was heard by a single judge, sometimes also
      called a Single Bench Judge, in the High Court in Karnataka. Any
      judicial panel comprised of two judges in a given court is referred to in
      India as a Division Bench. The Single-Bench Judge found sufficient
      evidence to hold a hearing on Arasors complaint to wind- up Xalted
      Information Systems on November 10, 2010. On December 14, 2010, Xalted
      Information filed an appeal of that decision before a Division Bench of
      the same High Court. On January 19, 2011, the two- judge panel stayed the
      November 10, 2010 order of the Single Bench Judge and all further
      proceedings in the action filed by Arasor, pending the appeal.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | After submission of written arguments, a hearing on the
      appeal was conducted in March 2011, a further hearing was set for June 9,
      2011, and the earlier stay was continued during the pendency of the
      appeal. In June 2011, Xalted Information filed an additional application
      with the two-judge panel to request dismissal of the claims against it on
      the basis that Arasors corporate status was void in Delaware and
      forfeited in California, and that Arasor therefore was without corporate
      power and authority to maintain or prosecute the action. On October 15,
      2011, the Division Bench heard the appeal filed by Xalted Information and
      set aside the order of admission of the petition. The Division Bench Court
      determined that the order passed by the Single Judge Court did not fully
      take into consideration the defenses presented by Xalted Information and
      remanded the matter back to the Single Bench Judge to hear the evidence of
      both parties again, as to whether there was sufficient evidence to admit
      the petition for trial. The Divisional Bench Court also ruled that Xalted
      Information is permitted to raise all defenses, including the defense of
      the non-existence of Arasor Corporation. Xalted Information has petitioned
      the Single Bench Judge to hear the case as soon as possible. Arasor
      Corporation has requested a delay in the hearing, which the Singe Bench
      Judge granted until June 2012. A hearing was held during the last week of
      June 2012 before the Single Bench Judge. The Single Bench Judge stated
      that he would render his written decision by the end of July 2012. The
      Single Bench Judge at the end of July 2012, then requested additional
      documentation in the matter and has stated that he will render his written
      decision by the end of August 2012.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The Companys India lawyers have informed the Management
      that they believe the Company has a strong legal position and a good
      chance of success in the proceedings which will take place before the
      Single Bench Judge. However, if Xalted Information is unsuccessful in the
      proceedings before the Single Bench Judge, the Single Bench Judge decision
      can be appealed to the Divisional Bench and, if necessary, to the Supreme
      Court.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

14

---

|    | Should the appeals fail, there will be a trial before the
      Single Bench Judge on the Arasor winding up petition. Should Xalted
      Information lose the trial, Xalted Information would appeal the decision
      to the Divisional Bench and, if required, appeal the trial decision before
      the Supreme Court. Should Xalted Information fail in the hearing, the
      trail and its appeals, Xalted Information would be subject to judicial
      liquidation in India, if Xalted Information is unable to pay the amount of
      the judgment. The Companys India Lawyers have also informed the
      management that there is no loss contingency required, as the legal claim
      is not for payment of money but for the winding- up of the Company. The
      management team of the Company has determined based upon the merits of its
      legal case that the likelihood of a loss is remote and no financial
      reserve is required.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(c) | In November 2011, a civil lawsuit was filed against both
      Kranem Corporation and Xalted Networks, in the Superior Court of
      California, Santa Clara County, by Empirix, Inc., a Delaware company, in
      the amount of $316,625. The lawsuit alleges that Xalted Networks purchased
      monitoring surveillance and analysis technology and products from Mutina
      Technology S.R.L., an Italian company that is 100% owned by Empirix, Inc.
      We maintain that Xalted Networks, which was formed on March 14, 2011, and
      Kranem Corporation, which was part of a recapitalization in May 2011,
      could not have entered into a contractual relationship with Mutina
      Technology S.R.L. on August 17, 2009, as the Companies either did not
      exist or were dormant.                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | On January 5, 2012, both Kranem and Xalted Networks filed
      a Notice of Demurrer in the Superior Court of California, Santa Clara
      County, to have the civil action against both Kranem and Xalted Networks
      be dismissed based upon the fact that the Companies did not exist at the
      time that the contractual arrangement allegedly occurred. The hearing to
      determine the Notice of Demurrer occurred June 5, 2012 and the Judge later
      issued his decision on June 21, 2012. The Judge denied the Motion of
      Demurrer. Discovery has begun in the case.                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | The Companys California counsel has informed us that he
      believes both Kranem and Xalted Networks has a strong legal position and a
      good chance of success. If Xalted Networks is not successful in that
      effort, it may appeal the lawsuit to the California Courts of Appeal and
      the California Supreme Court. Should those appeals fail, both Kranem and
      Xalted Networks would be subject to a court action and would have to pay
      the amount of $316,625.01 and it could have a material adverse effect on
      our business, as no liability has been accounted for on the books of
      either Kranem or Xalted Networks, Inc.                                                                                                                                                                                                                                                                                                    

Note 6 - Warrants

On February 19, 2012, the Company awarded an aggregate of
1,970,000 warrants to members of its management team, board of directors, and
certain advisors, immediately vested and exercisable. The warrants have an
exercise price of $0.10 and expire on February 19, 2017. These warrants were
valued at $0.40 each using the Black-Scholes option pricing model based on the
following assumptions: 5 years life expectancy; risk free interest rate of 5%;
no dividends; and expected volatility of 378%. The aggregate value was charged
to stock-based compensation expense in the amount of $788,000.

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

15

---

|                                 |  |           |  |   |                |  |  | Weighted -   | 
|-------------------------------- |  | --------- |  | - | -------------- |  |  | ------------ | 
|                                 |  | Number    |  |   | Weighted -     |  |  | Average      | 
|                                 |  | of        |  |   | Average        |  |  | Remaining    | 
|                                 |  | Warrants  |  |   | Exercise Price |  |  | Life (Years) | 
|                                 |  |           |  |   |                |  |  |              | 
|Outstanding at December 31, 2011 |  | 500,000   |  | $ | 0.40           |  |  | 4.23         | 
|Granted                          |  | 1,970,00  |  | $ | 0.10           |  |  | 4.65         | 
|Exercised                        |  | -         |  | $ | -              |  |  | -            | 
|Cancelled                        |  | -         |  | $ | -              |  |  | -            | 
|Outstanding at June 30, 2012     |  | 2,470,000 |  | $ | 0.16           |  |  | 4.59         | 
|Exercisable at June 30, 2012     |  | 2,470,000 |  | $ | 0.16           |  |  | 4.59         | 

Note 7 - Stock Options

The Companys Stock Option Plan (the Plan) provides for the
grant of up to 2,000,000 (net of options previously exercised) shares of its
common stock to key employees. Currently there are 299,000 stock options
available for grant. The Plan provides for both incentive stock options and
non-qualified stock options. Stock option grants generally vest over a four-year
period from either the employees hire date for new employees or the stock
option grant date. No options were granted during the prior fiscal years ended
December 31, 2010. During the fiscal years ended December 31, 2011 and December
31, 2010, no options were exercised and only in 2011 were options granted in the
amount of 1,701,000. The six month period ended June 30, 2012 reflected $49,000
of stock based compensation expense recognized for these options in the current
period.

On February 21, 2012, the Company granted 275,000 options that
will vest over a four year period to certain management of the Company with an
exercise price of $0.45. The total fair value of these options at the date of
grant was estimated to be $0.45 per share total value of $137,500 and was
determined using the Black-Scholes option pricing model with an expected life of
10 years, a risk free interest rate of 5.0%, a dividend yield of 0% and expected
volatility of 378% and was recorded as a stock based compensation expense in the
amount of 11,458 for the six month period ended June 30, 2012.

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

|                                 |  |            |  |   |                |  |  | Weighted-    | 
|-------------------------------- |  | ---------- |  | - | -------------- |  |  | ------------ | 
|                                 |  |            |  |   | Weighted -     |  |  | Average      | 
|                                 |  | Number     |  |   | Average        |  |  | Remaining    | 
|                                 |  | of Options |  |   | Exercise Price |  |  | Life (Years) | 
|                                 |  |            |  |   |                |  |  |              | 
|Outstanding at December 31, 2011 |  | 1,701,000  |  | $ | 0.20           |  |  | 9.17         | 
|Granted                          |  | 275,000    |  | $ | 0.45           |  |  | 9.67         | 
|Exercised                        |  | -          |  | $ | -              |  |  | -            | 
|Cancelled                        |  | -          |  | $ | -              |  |  | -            | 
|Outstanding at June 30, 2012     |  | 1,976,000  |  | $ | 0.23           |  |  | 9.41         | 
|Exercisable at June 30, 2012     |  | -          |  | $ | -              |  |  | -            | 

16

---

Note 8 - Stockholders Equity

Common Stock

The authorized common stock of the Company consists of
50,000,000 shares of common stock with no par value and 10,000,000 shares of
blank check preferred stock. As of June 30, 2012, the Company had 39,959,338
common shares and no preferred shares issued and outstanding.

On May 13, 2011, the Company consummated a Share Exchange
Agreement with Xalted Networks and its operating subsidiary, Xalted Information,
through the issuance of common shares in the Company which has been accounted
for as a reverse recapitalization. As part of the recapitalization, $2,500,000
of debt issued by Xalted Networks parent, Xalted Holding was forgiven. The
Company acquired the debt from three note holders in exchange for the issuance
to them of an aggregate of 14,958,280 shares of our common stock. The other part
of the recapitalization was the issuance to Xalted Holding of 11,634,220 shares
of our common stock; and the cancellation of an aggregate of 14,687,500
outstanding shares of our common stock held by three individuals. As a result
of, and immediately after the closing of the recapitalization, the former Xalted
Holding note holders held directly 45% of our issued and outstanding stock.
Xalted Holding held directly 35% of our issued and outstanding common stock. The
remaining 20% was held by the shareholders of Kranem Corporation of record
immediately before the closing of the transactions. For accounting purposes due
to the reverse merger the statement of equity reflects a recapitalization of
shares issue as 6,648,125 shares, which represents the shares holder base of
Kranem that remains outstanding

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

On November 1, 2011, the Company agreed to issue 200,000 shares
of restricted common stock valued at $1.10 per share or $220,000 for the
purchase of Alfa Sistemi. This stock was recognized as stock payable at June 30,
2012.

On November 1, 2011, the Company agreed to issue two tranches
of 500,000 shares of restricted common stock valued at $1.00 per share for a
total value of $1,000,000 for the purchase of Adora. This stock was recognized
as stock payable at June 30, 2012.

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

Common to Preferred Stock Exchange Agreement

On November 21, 2011, we entered into a Common to Preferred
Stock Exchange Agreement, or the Exchange Agreement, with certain of our
investors to convert their common stock into the Series A convertible preferred
stock at a ratio of one share of Series A Convertible Stock for each 100 shares
of common stock. The Exchange Agreement allows the investors to convert their
Series A convertible preferred stock back into common stock at their option,
subject to the then availability of sufficient authorized shares of common
stock, at the original ratio set forth under the Agreement. The foregoing
description of the terms of the Exchange Agreement is qualified in its entirety
by reference to the Current Report on Form 8-K filed on November 22, 2011. As of
June 30, 2012, no shares have been converted.

Note 9 - Subsequent Events

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

17

---

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

Special Note Regarding Forward Looking Statements

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

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

Use of Terms

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

- the Company, we, us, and our are to the combined business of
  Kranem Corporation, a Colorado corporation, and its consolidated subsidiaries,
  Xalted Networks, Xalted Information, Alfa Sistemi and Adora;
- Xalted Holding are to Xalted Holding Corporation, a Delaware
  corporation, formerly known as Xalted Networks, Inc., which changed its name
  to Xalted Holding Corporation on March 14, 2011;
- Xalted is to the combination of Xalted Networks and Xalted Information;
- Xalted Networks are to Xalted Networks, Inc., a Delaware corporation,
  incorporated on March 14, 2011;
- Xalted Information are to Xalted Information Systems (Pvt.) Ltd., an
  Indian company;
- India are to the Republic of India;
- Italy are to the Republic of Italy;
- Adora are to Adora ICT Srl, or Adora, an Italian company;
- Alfa Sistemi are to Alfa Sistemi Telemedia Srl, an Italian company;
- SEC are to the Securities and Exchange Commission;
- Securities Act are to the Securities Act of 1933, as amended;
- Exchange Act are to the Securities Exchange Act of 1934, as amended;;
- Rupees and Rs. are to the legal currency of India;;
- Euros and € are to the legal currency of the European Union;
- U.S. dollars, dollars and $ are to the legal currency of the United
  States.

Overview of Our Business

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

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Our software products are developed internally. In some cases
we incorporate software licensed from Oracle Corporation, BMC Corporation or
other third-party suppliers specified by our customers. Our software is licensed
to our customers and is sometimes delivered with hardware products at the time
of sale.

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

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

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

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

Our corporate headquarters are located in San Jose, California.
We also have two operational centers in India. The telecom security operations
group is located in Bangaluru, India. The homeland security operations are
located in Mumbai, India. The Companys sales offices are located in Delhi,
India. We also have two operating subsidiaries in Rome, Italy.

Principal Factors Affecting Our Financial Performance

Our operating results are primarily affected by the following
factors:

- Information technology spending. We are heavily dependent on
  our customers decisions with regard to spending on information technology. As
  a general proposition, spending in this area is considered important by our
  customers, including our government customers, but can be affected adversely
  by changes in national, regional and global economic conditions.

19

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

Results of Operations (unaudited)

Three and Six Months Ended June 30, 2012 and 2011

We recorded net loss of $1,295,461 and net loss of $3,065,490
for the three and six months ended June 30, 2012, respectively, compared to net
loss of $58,125 for the three months ended June 30, 2011 and net income of
$367,227 for the six months ended June 30, 2011. On a basic and diluted per
share basis, net loss was $0.03 and net loss of $0.08 for the three and six
months ended June 30, 2012, respectively, compared to net loss of $0.00 and net
income of $0.01 for the three and six months ended June 30, 2011, respectively.
We may incur net losses in future periods due to future spending and
fluctuations in our business, and we may not achieve or maintain sustained
profitability in the future.

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

|                                  |  | For the Three Months
      Ended |   |  | For the Six Months
      Ended |  
|--------------------------------- |  | -------------------------------- | - |  | ------------------------------ | -
|                                  |  | June 30,                         |   |  | June 30,                       |  
|                                  |  | 2012                             |   |  | 2011                           |  
|                                  |  |                                  |   |  |                                |  
|Revenue                           |  | 1,331,945                        |   |  | 1,013,041                      |  
|Cost of Revenue                   |  | 1,436,441                        |   |  | 384,463                        |  
|Gross Profit                      |  | (104,496                         | ) |  | 628,578                        |  
|Operating Expenses                |  | 1,217,266                        |   |  | 662,715                        |  
|Operating Income/(Loss)           |  | (1,321,762                       | ) |  | (34,137                        | )
|Other Income/(Expense)            |  | (215,048                         | ) |  | 20,206                         |  
|Income (loss) before Income Taxes |  | (1,536,810                       | ) |  | (13,931                        | )

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

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

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

Selling and marketing expenses. Our selling and
marketing expenses consist primarily of compensation and benefits to our sales
and marketing staffs, business travels after-sale support, transportation costs
and other sales related costs. Our selling and marketing expenses were $282,113
and $1,343,781 for the three and six months ended June 30, 2012, respectively,
compared to $85,858 and $154,706 for the three and six months ended June 30,
2011, respectively. Our selling and marketing expenses increased by $196,255 for
the three months ended June 30, 2012, compared to the three months ended June
30, 2011. Our selling and marketing expenses increased by $1,189,075 for the six
months ended June 30, 2012, compared to the six months ended June 30, 2011. The
increase in the 6 month period was heavily attributed to the issuance warrants
and to a lesser extent to an increase in sales personnel and increased travel
costs.

General and administrative expenses. General and
administrative expenses consist primarily of compensation and benefits to our
general management, finance and administrative staff, professional advisor fees,
audit fees and other expenses incurred in connection with general operations.
Our general and administrative expenses were $801,995 and $1,534,371 for the
three and six months ended June 30, 2012, respectively, compared to $332,548 and
$448,799 for the three and six months ended June 30, 2011, respectively. Our
general and administrative expenses increased by $469,447 for the three months
ended June 30, 2012, compared to the three months ended June 30, 2011; and
increased by $1,085,572, for the six months ended June 30, 2012, compared to the
six months ended June 30, 2011. The increase in the general and administrative
expenses is associated with a combination of events: the recapitalization
completed in May 2011, the issuance of stock options and warrants to management
and employees, and the addition of two subsidiaries in Italy. The largest single
contributor to the increased costs was the issuance of the stock options and
warrants.

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

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

Liquidity and Capital Resources

As of June 30, 2012, we had cash and cash equivalents of
$524,287, compared to $420,012 as of December 31, 2011. To date, we have
financed our operations primarily through cash flows from operations, augmented
by equity contributions and short-term loans by our stockholders. As of June 30,
2012, $411,327 of cash and cash equivalents were held in Italy. We do not
anticipate the need to repatriate any material amounts of the cash, cash
equivalents and financial assets to the United States, but to the extent amounts
are repatriated, we would become subject to tax in the United States on such
amounts.

We anticipate that will require additional cash resources,
including loans, to meet our working capital needs for the next 12 months. In
addition, we may in the future require additional cash resources due to changed
business conditions, implementation of our strategy to ramp up our marketing
efforts and increase brand awareness, or acquisitions we may decide to pursue.
In order to acquire these resources, we may seek to sell additional equity or
debt securities or obtain additional credit facilities. The sale of additional
equity securities could result in dilution to our stockholders. Any issuance of
stock will require approval by a note holder prior to issuance. The incurrence
of indebtedness would result in increased debt service obligations and could
require us to agree to operating and financial covenants that would restrict our
operations. Financing may not be available in amounts or on terms acceptable to
us, if at all. Any failure by us to raise additional funds on terms favorable to
us, or at all, could limit our ability to expand our business operations and
could harm our overall business prospects.

Operating Activities

The Company has $2,773,093 of accounts receivable that have
been outstanding for more than a year as on June 30, 2012, of which $216,284 is
covered by an allowance for doubtful accounts. Our accounts receivable in India
are entirely from government agencies or government-owned entities. The age of
our receivables is not unusual in government-related commercial transactions in
India, although it would be unusual in purely private situations. We do not
anticipate the age of these receivables and this pattern in government
contracting in India to have an adverse impact on our growth because we have
taken these patterns into account in our forward planning.

Net cash provided by operating activities was ($218,481) in the
six months ended June 30, 2012, as compared to ($264,267) in the six months
ended June 30, 2011. The decrease in net cash provided by the operating
activities was mainly due to the Companys profitability associated with its
operations in India during the 1st half of 2011.

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Financing Activities

Net cash provided by financing activities was $312,618 in the
six months ended June 30, 2012, as compared to $47,905 in the six months ended
June 30, 2011. The increase in cash provided by financing activities is
attributed to an increase in short-term loans and advances from related parties.

Loan Commitments

As of June 30, 2012, the Company has loan commitments, which
include a one-year convertible promissory amount in the principal amount of
$400,000, held by Investco, a British Virgin Islands company, having a maturity
date of June 29, 2012, a short-term promissory note to Xalted Holding in the
remaining principal amount of $35,000, with a maturity date of October 16, 2012,
a short-term promissory note to Xalted Holding in the principle amount of
$90,000 with a maturity date of January 16, 2013, a short-term promissory note
to Xalted Holding in the principle amount of $35,000 with a maturity date of
April 16, 2013, a short-term convertible note to Asher Enterprises, Inc. in the
principle amount of $78,500 with a maturity date of November 1, 2012 and
promissory note to the shareholders of Alfa Sistemi Telemedia Srl. in the
principle amount of $800,000 due upon the completion of a capital increase.
Empire Capital Partners, L.P. has chosen to convert their loan into shares in
the Company. There will promissory due to the owners of Adora ICT Srl. in the
principle amount of approximately $500,000. The exact amount of the Adora
promissory note will not be known until full years audit of Adoras 2011
financial performance is completed.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

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

As required by Rule 13a-15 under the Exchange Act, our
management, including our Chief Executive Officer, Ajay Batheja, and Chief
Financial Officer, Edward Miller, evaluated the effectiveness of the design and
operation of our disclosure controls and procedures as of June 30, 2012. Based
upon this evaluation, Mr. Batheja and Mr. Miller determined that, as of June 30,
2012, our disclosure controls and procedures were not effective due to a
material weakness, as defined in Public Company Accounting Oversight Board
Standard No. 5, in our internal control over financial reporting. This
deficiency consisted primarily of inadequate staffing and supervision that could
lead to the untimely identification and resolution of accounting and disclosure
matters and failure to perform timely and effective reviews.

Changes in Internal Control Over Financial Reporting.

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

23

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PART IIOTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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

|(a) | In April 2010, a petition was filed against Xalted
      Information in the High Court of Karnataka at Bangalore by Arasor
      Corporation, or Arasor, a Delaware company. The High Court is the
      principal court of original jurisdiction in the Indian state of Karnataka,
      sitting in the city of Bangalore. The petition sought an order under
      Sections 433 and 434 of the Companies Act of 1956 for the winding up of
      Xalted Information, based on allegations that Xalted Information did not
      pay for communications equipment sold and shipped by Arasor. We maintain
      the Company never received the equipment which is alleged to have been
      shipped to us. This type of an aggregate amount of $4.5 million claim, and
      the type of relief sought, is not unusual in India.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
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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 two judges in a given court is referred to in
      India as a Division Bench. The Single- Bench Judge found sufficient
      evidence to hold a hearing on Arasors complaint to wind- up Xalted
      Information on November 10, 2010. On December 14, 2010, Xalted Information
      filed an appeal of that decision before a Division Bench of the same High
      Court. On January 19, 2011, the two-judge Division Bench stayed the
      November 10, 2010 order of the Single Bench Judge and all further
      proceedings in the action filed by Arasor, pending the appeal.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | After submission of written arguments, a hearing on the
      appeal was conducted in March 2011, a further hearing was set for June 9,
      2011, and the earlier stay was continued during the pendency of the
      appeal. In June 2011, Xalted Information filed an additional application
      with the two-judge Division Bench to request dismissal of the claims
      against it on the basis that Arasors corporate status was void in
      Delaware and forfeited in California, and that Arasor therefore was
      without corporate power and authority to maintain or prosecute the action.
      On October 15, 2011, the Division Bench heard the appeal filed by Xalted
      Information and set aside the order of admission of the petition. The
      Division Bench Court determined that the order passed by the Single Judge
      Court did not fully take into consideration the defenses presented by
      Xalted Information and remanded the matter back to the Single Bench Judge
      to hear the evidence of both parties again, as to whether there was
      sufficient evidence to admit the petition for trial. The Divisional Bench
      Court also ruled that Xalted Information is permitted to raise all
      defenses, including the defense of the non-existence of Arasor
      Corporation. Xalted Information has petitioned the Single Bench Judge to
      hear the case as soon as possible. Arasor Corporation has requested a
      delay in the hearing, which the Singe Bench Judge granted until June 2012.
      A hearing was held during the last week of June 2012 before the Single
      Bench Judge. The Single Bench Judge stated that he would render his
      written decision by the end of July 2012. The Single Bench Judge at the
      end of July 2012, then requested additional documentation in the matter
      and has stated that he will render his written decision by the end of
      August 2012.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The Company's India counsel has informed us they believe
      Xalted Information has a reasonably strong legal position and a good
      chance of success in of persuading the Single Bench Judge to refuse to
      admit the winding- up petition. If Xalted Information is not successful in
      that effort, it may appeal the admission of the petition to the Division
      Bench and, if necessary, to the Supreme Court. Should those appeals fail,
      the petition would be finally admitted and the matter would proceed to
      trial before the Single Bench Judge. Again, Xalted Information would have
      the opportunity to contest the claims made by Arasor. In the event of an
      adverse decision, Xalted Information would be entitled to appeal that
      decision to the Division Bench and, if necessary, to the Supreme Court. If
      all appeals were to fail, Xalted Information would be subject to judicial
      liquidation in India if it is unable to pay the amount of the judgment. If
      liquidation of the company were to be carried out, we would lose most of
      our operating assets, which would have a material adverse effect on our
      business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(b) | In November 2011, a civil lawsuit was filed against both
      Kranem Corporation and Xalted Networks, in the Superior Court of
      California, Santa Clara County, by Empirix, Inc., a Delaware company, in
      the amount of $316,625. The lawsuit alleges that Xalted Networks purchased
      monitoring surveillance and analysis technology and products from Mutina
      Technology S.R.L., an Italian company that is 100% owned by Empirix, Inc.
      We maintain that Xalted Networks, which was formed on March 14, 2011, and
      Kranem Corporation, which was part of a recapitalization in May 2011,
      could not have entered into a contractual relationship with Mutina
      Technology S.R.L. on August 17, 2009, as the Companies either did not
      exist or were dormant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | On January 5, 2012, both Kranem and Xalted Networks filed
      a Notice of Demurrer in the Superior Court of California, Santa Clara
      County, to have the civil action against both Kranem and Xalted Networks
      be dismissed based upon the fact that the Companies did not exist at the
      time that the contractual arrangement allegedly occurred. The hearing to
      determine the Notice of Demurrer occurred June 5, 2012 and the Judge later
      issued his decision on June 21, 2012. The Judge denied the Motion of
      Demurrer. Discovery has begun in the case.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The Companys California counsel has informed us that he
      believes both Kranem and Xalted Networks has a strong legal position and a
      good chance of success. If Xalted Networks is not successful in that
      effort, it may appeal the lawsuit to the California Courts of Appeal and
      the California Supreme Court. Should those appeals fail, both Kranem and
      Xalted Networks would be subject to a court action and would have to pay
      the amount of $316,625.01 and it could have a material adverse effect on
      our business, as no liability has been accounted for on the books of
      either Kranem or Xalted Networks, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

24

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

ITEM 1A. RISK FACTORS.

Not applicable.

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

There were no unregistered sales of equity securities during
the fiscal quarter ended June 30, 2012, which were not previously reported on a
Current Report on Form 8-K.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

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

ITEM 6. EXHIBITS.

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

|Exhibit No. | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1        | Certifications of Principal Executive
      Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|31.2        | Certifications of Principal Financial
      Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|32.1(1)     | Statement of Principal Executive
      Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|32.2(1)     | Statement of Principal Financial
      Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|101 (2)     | The following materials from Registrants Quarterly
      Report on Form 10-Q for the quarter ended June 30, 2012, formatted in
      Extensible Business Reporting Language (XBRL) includes: (i) Consolidated
      Balance Sheets as of June 30, 2012 (unaudited) and December 31, 2011, (ii)
      Consolidated Statements of Operations for the Three Months and Six Months
      Ended June 30, 2012 and 2011 (unaudited), (iii) Consolidated Statements of
      Cash Flows for the Six Months Ended June 30, 2012 and 2011 (unaudited) and
      (iv) Notes to the Consolidated Financial Statements

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

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

25

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SIGNATURES

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

|Date: August 23, 2012 | KRANEM CORPORATION                          
|--------------------- | --------------------------------------------
|                      |                                             
|                      | By: /s/ Ajay
      Batheja                  
|                      | Ajay
      Batheja, Chief Executive Officer 
|                      | (Principal Executive Officer)               
|                      |                                             
|                      | By: /s/ Edward
      Miller                 
|                      | Edward
      Miller, Chief Financial Officer
|                      | (Principal Financial and Accounting Officer)

26

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EXHIBIT INDEX

|Exhibit No. | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1        | Certifications of Principal Executive
      Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|31.2        | Certifications of Principal Financial
      Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|32.1(1)     | Statement of Principal Executive
      Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|32.2(1)     | Statement of Principal Financial
      Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|101 (2)     | The following materials from Registrants Quarterly
      Report on Form 10-Q for the quarter ended June 30, 2012, formatted in
      Extensible Business Reporting Language (XBRL) includes: (i) Consolidated
      Balance Sheets as of June 30, 2012 (unaudited) and December 31, 2011, (ii)
      Consolidated Statements of Operations for the Three Months and Six Months
      Ended June 30, 2012 and 2011 (unaudited), (iii) Consolidated Statements of
      Cash Flows for the Six Months Ended June 30, 2012 and 2011 (unaudited) and
      (iv) Notes to the Consolidated Financial Statements

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

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

27

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