Kranem Corp (GREY:KRANQ)

Blog Notes: (Originally published in Speculative Screen on 10/21/2011)

• Recent (Indian) RTO.
• Claims to be profitable and that it has prevented several terrorist events.
• Claims to have partnerships with some well known companies such as IBM and Siemens.
• Sounds impressive on paper, but we know now that RTO space can be a dangerous place to trade.
• Looks like trailing EPS is about $0.03, so the stock appears fairly valued (but company claims to have acquisitions lined up).
• Six month 2011 financial results are less than those reported 2010.
• Litigation issues exist.
• Attempting to raise $15 million
• We may consider performing some OTGDD.

Company Snapshot:

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

Industry Snapshot (From the company)

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

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

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

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

Post Merger Share Calculation: (adjusted for a four-for-one stock) TBD

GeoTeam® best effort calculation of total post reverse merger shares assuming full conversions:  30,000,000

Financial Snapshot: December Year End

2010 vs. 2009

• Revenues:$7.9 million vs $5.3 million
• Net Income: $2.0 million vs. $808 thousand

Six Months 2011 vs 2010

• Revenues: $2.3 million vs. $5.5 million
• Net Income: $486 thousand vs. $1.4 million 

Pro Forma Valuation: using  price of $1.10 and estimated new share count:

• Trailing EPS: $0.04
• Trailing P/E:  30

On October 18, 2011, Kranem Corporation (the “Company”) made a presentation at the Cyber Security Finance Forum 2011 held at the British Embassy in Washington, DC.

We anticipate that our cash on hand and cash flow from operations will meet our present ongoing cash needs. The Company may require additional cash resources, including loans, to meet its working capital needs for the next 12 months; should the Company decide to pursue a potential acquisition.

Per a recent investor presentation the company is attempting to raise $15 million.

Restatement:

The Company has corrected its accounting for the Share Exchange Agreement with Xalted Networks, Inc, from an acquisition method of accounting to reverse recapitalization basis of accounting, see Note 3 for additional discussions. The Financial Statements for the periods ended June 30, 2011 and 2010 have the following restatements;

Extract from the Financial Statements and Restatement

8

(a) The Company has an ongoing dispute with one of its Customers in Africa due to the SOW (Statement of Work) changing at regular intervals and new requirements being added regularly against what has been agreed as per Contract by the Customer. The Company had received a Notice from the Customer about the cancellation of the Contract nine (9) months back and has not heard from the Customer thereafter. In view of the uncertainty in realization of the amount of $ 216,284 due from this Customer, the Company as a prudent and conservative measure had made a Provision in the books for the entire amount of $ 216,284.

(b) Arasor Corporation. In April 2010, a petition was filed against Xalted Information in the High Court of Karnataka at Bangalore by Arasor Corporation, a Delaware company. The High Court is the principal civil court of original jurisdiction in the Indian state of Karnataka, sitting in the city of Bangalore. The petition sought an order under Sections 433 and 434 of the Companies Act of 1956 for the winding up of Xalted Information, based on allegations that Xalted Information did not pay for communications equipment sold and shipped to Arasor. We maintain the Company never received the equipment which is alleged to have been shipped to us. This type of claim, and the type of relief sought, is not unusual in India. The petition was heard by a single judge, sometimes also called a “single bench judge,” in the High Court in Karnataka. Any judicial panel comprised of fewer than all the judges in a given court is referred to in India as a “Division Bench.” The single-judge court found in favor of Arasor and against Xalted Information on November 10, 2010. On December 14, 2010, Xalted Information filed an appeal of that decision before a two- judge panel, or “Bench, of the same High Court. On January 19, 2011, the two-judge panel stayed the November 10, 2010 order of the single judge and all further proceedings in the action filed by Arasor, pending the appeal. After submission of written arguments, a hearing on the appeal was conducted in March 2011, a further hearing was set for June 9, 2011, and the earlier stay was continued during the pendency of the appeal. In June 2011, Xalted Information filed an additional application with the two-judge panel to request dismissal of the claims against it on the basis that Arasor’s corporate status was “void” in Delaware and “forfeited” in California, and that Arasor therefore was without corporate power and authority to maintain or prosecute the action. The matter is expected to be heard during August/September, 2011. The Company's lawyers have informed the Company that they believe the Company has a reasonably strong legal position and a good chance of success in the present proceedings before the appellate court. However, if we are unsuccessful in defending ourselves against the claim, Xalted Information could be subject to judicial liquidation in India