UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549





FORM
10-K





(Mark
One)





x
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
fiscal year ended December 31, 2009


or





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





For the
transition period from _______ to _______





Commission
file number 000-51720





InferX
Corporation


(Exact
Name of Registrant as Specified in Its Charter)





Delaware
            
            54-1614664(State
      or Other Jurisdiction of
              Incorporation
      or Organization)
            
            (I.R.S.
      Employer Identification No.)46950
      Jennings Farm Drive, Suite 290
              Sterling,
      Virginia
            
            20164(Address
      of Principal Executive Offices)
            
            (Zip
      Code)





Registrant’s
telephone number, including area code: (703) 444-6030


Securities
registered pursuant to Section 12(b) of the Act:





Title
      of each class
            
            Name
      of each exchange on which registeredNone





Securities
registered pursuant to Section 12(g) of the Act:





Common
stock, $.0001 par value


(Title of
Class)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes  ̈   No
x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.


Yes  ̈   No
x





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  ̈   No
x





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  ̈ (the
registrant is not yet required to submit Interactive Data)





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.   ̈





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 Act).    Yes  ̈   No
x





The
issuer’s revenues for the most recent fiscal year, ended December 31, 2009, were
$7,328,970.





The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold as of the last business day of the registrant’s most recently
completed second fiscal quarter, was approximately $36,468.





As of May
17, 2010 there were outstanding 13,452,913 shares of the registrant’s common
stock, $.0001 par value.





DOCUMENTS
INCORPORATED BY REFERENCE


None





Table of
Contents




PagePART I
                        
                        
                        
                        4Item
      1.
                        
                        Business
                        
                        4Item
      1A.
                        
                        Risk
      Factors
                        
                        13Item
      1B.
                        
                        Unresolved
      Staff Comments
                        
                        17Item
      2.
                        
                        Properties
                        
                        17Item
      3.
                        
                        Legal
      Proceedings
                        
                        17Item
      4.
                        
                        Submission
      of Matters to a Vote of Security Holders
                        
                        17PART II
                        
                        
                        
                        17Item
      5.
                        
                        Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                        
                        17Item
      6.
                        
                        Selected
      Financial Data
                        
                        18Item
      7.
                        
                        Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                        
                        18Item
      7A.
                        
                        Quantitative
      and Qualitative Disclosures About Market Risk
                        
                        26Item
      8.
                        
                        Financial
      Statements and Supplementary Data
                        
                        26Item
      9.
                        
                        Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
                        
                        26Item 9A(T)
                        
                        Controls
      and Procedures
                        
                        26Item
      9B.
                        
                        Other
      Information
                        
                        28PART III
                        
                        
                        
                        28Item
      10.
                        
                        Directors,
      Executive Officers and Corporate Governance
                        
                        28Item
      11.
                        
                        Executive
      Compensation
                        
                        31Item
      12.
                        
                        Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                        
                        34Item
      13.
                        
                        Certain
      Relationships and Related Transactions, and Director
      Independence
                        
                        36Item
      14.
                        
                        Principal
      Accounting Fees and Services
                        
                        36PART IV
                        
                        
                        
                        37Item
      15.
                        
                        Exhibits
      and Financial Statement Schedules
                        
                        37


2


SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS





Certain
statements in this Annual Report on Form 10-K, including statements under “Item
1. Business,” and “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, although the safe harbor under those statutes
do not apply to companies such as InferX that issue penny
stock.  Forward-looking statements include, among other things,
business strategy and expectations concerning industry conditions, market
position, future operations, margins, profitability, liquidity and capital
resources. Forward-looking statements generally can be identified by the use of
terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate”
or “believe” or similar expressions or the negatives thereof. These expectations
are based on management’s assumptions and current beliefs based on currently
available information. Although we believe that the expectations reflected in
such statements are reasonable, we can give no assurance that such expectations
will be correct. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this annual
report on Form 10-K. Our operations are subject to a number of uncertainties,
risks and other influences, many of which are outside our control, and any one
of which, or a combination of which, could cause our actual results of
operations to differ materially from the forward-looking
statements.


3


PART
I




Item
      1.
            Business.




We
believe that we are a market leader in next generation distributed predictive
analytics (“PA”) enterprise software solutions.  We have pioneered and
commercialized a powerful, patented suite of advanced analytical solutions that
direct decision making and improve corporate performance across the
enterprise.  We are targeting our solution towards select
sub-subsectors in the healthcare, financial services and public sectors to
address significant ROI opportunities.





PA
enterprise software solutions direct decision making by applying a combination
of advanced analytics and decision optimization to an organization’s enterprise
data, with the objective of improving business processes to meet specific
organization goals.  It accomplishes this through the application of
algorithms that process historical data, “learn” what has happened in the past
and create models that can be applied to make decisions about current or future
cases.





Traditional
business intelligence (“BI”) tools extract relevant data in a structured manner,
aggregate it and present it in formats such as dashboards and
reports.   BI tools are more exploratory than decision-oriented,
helping businesses understand performance and trends, but generally not
directing future actions or decisions based on what has been
observed.  Any attempts at using BI platforms to offer predictive
insights are based on “deductive” technology (i.e. regression analysis), where
“experts” create initial rules or hypotheses about of the patterns and
relationships that exist within the data based on their personal experience
(i.e., who is a credit risk, what parameters create a potential risk, what
medical indicators suggest a possible adverse drug reaction,
etc.).  Decisions based on a deductive technology approach however are
only as good as the initial rules, hypotheses or data variables that directed
the analysis.





By
contrast, PA solutions are based on “inductive” technology.  PA does
not presume initial rules or hypotheses about patterns and relationships that
could exist within the data.  Rather, PA lets data lead the way and
employs statistics, machine learning, neural computing, robotics, computational
mathematics, and artificial intelligence techniques to explore all the data,
instead of a narrow subset of it, to ferret out meaningful relationships and
patterns.  This approach allows PA to identify insights and
relationships amongst different variables, particularly ones that are outside
conventional thinking.





Our “next
generation” PA solutions differentiate themselves from traditional PA solutions
by operating in a distributed data environment.  Instead of having to
move data from different locations and servers into data warehouses to perform
analysis, our next generation distributive PA solution brings the analysis
directly to the data.  Our distributed solution is patented and
enhances analytical speed, data privacy and security while reducing
cost.





We believe that as (1) data
environments grow larger and more complex, (2) businesses attempt to incorporate
unstructured data, including email and other text, into robust decision making
algorithms and (3) businesses demand that PA firms simplify the way predictive
models are built and allow non-statisticians make sense and act upon the
resulting analyses, our technology solutions will be uniquely positioned to
capitalize on these trends in the industry.





Corporate
History




Our
company was incorporated in Delaware in May 2005 under the name Black Nickel
Acquisition Corp. I. From inception to October 2006, we were a “shell
company” with no business or operations and only nominal assets. In October
2006, we acquired and merged with InferX Corporation, a Virginia corporation
formed in 1992 (“InferX Virginia”),
and succeeded to its business as our sole line of business. In connection with
the merger, we changed our name to “InferX Corporation.”


4


InferX
Virginia was formed in August 2006 by the merger of the former InferX
Corporation, a Delaware corporation (“InferX Delaware”),
with and into Datamat Systems Research, Inc., a Virginia corporation and an
affiliate of InferX Delaware through common ownership (“Datamat”), pursuant to
which Datamat was the surviving corporation and changed its name to “InferX
Corporation.” Datamat was formed in 1992 as a professional services research and
development firm, specializing in technology for distributed analysis of sensory
data relating to airborne missile threats under contracts with the Missile
Defense Agency and other Department of Defense (“DoD”) contracts. InferX
Delaware was formed in 1999 to commercialize Datamat’s missile defense
technology to build applications of real time predictive analytics. The original
technology was developed in part with grants by the Missile Defense
Agency.




We
succeeded in 2004 by becoming the distributed PA solution for Lockheed Martin’s
Missile Fire Control group.  Lockheed Martin used our software while
investigating different sensor phenomenology (everything a sensor can see) and
how it affected that sensors ability to identify, target and destroy missiles
and other types of munitions.  Lockheed concluded that it was able to
better identify missile targets by running a laser radar data through our
software.  After the Lockheed success, we continued to enhance our
distributed PA capabilities on several similar R&D contract research
opportunities for various government agencies.





We were
part of a Northrop Grumman Corporation team led by its Integrated Systems Sector
that had won an Air Force contract - Predictive Failures & Advanced
Diagnostics for Legacy Aircraft (PFAD), to develop software that would better
diagnose problems and predict failures in systems aboard legacy aircraft. The
initial work was focused on the F-16 fighter, and specifically, on its radar
system.Working
with Northrop Grumman we applied our advanced data analysis and mining software
to the Reliability and Maintainability Information System (REMIS), a USAF
fleet-wide data warehouse storing all maintenance actions F-16 aircrafts for the
last 20 years. The software was used to discover diagnostic knowledge, to
extract new knowledge about a diagnostic system, and to predict diagnostic
processes. Among various benefits, the use of our software contributed to better
maintenance practices, and specifically to correct identification of costly
“Cannot Duplicate” mission systems failures.





In
2005-2006, our software was used in a pilot project with Care Guide (formerly
PatientInfo Systems) for cost prediction in medical claims. Medical claims data
was used to identify health plan enrolees who are at risk higher than normal
future medical costs. The key was to early identify the members that might
become high medical service utilizers. Such early identifications can result in
substantial future savings. The current models prediction accuracy was
approximately 40%. The effectiveness of our prediction resulted in approximately
70% accuracy mark, which was well above the industry standard.





On
October 27, 2009 we merged with The Irus Group, Inc., a company providing
consulting services in the business intelligence (“BI”) market. The Irus Group
specialized in the planning, implementation and development of complex BI and
corporate performance management solutions for government, financial services
and retail clients.  Since its founding in 1996, The Irus Group has
conducted engagements for over 200 clients, including MasterCard, JP Morgan
Chase, ConAgra, US Navy, US Army, US Air Force, and the Peace
Corps.  We initiated the merger both to obtain additional financial
support in advance of the full roll out of our enterprise software solutions and
to serve as a source of sales leads for our PA enterprise software
product.  We believe that ourPA product suite has been
enhanced with Irus’ BI expertise and is being offered through Irus’ consulting
relationships as a large scale enterprise solution for the three targeted
verticals – health care, financial services and the public sector.




Market
Opportunity




IDC
estimated the size of the advanced analytic software market at $1.5 billion in
2008, representing a compound annual growth rate (“CAGR”) of 11.5% since 2005,
the year IDC identified advanced analytics as the emerging third market product
cycle.  IDC further estimates that the advanced analytics market will
grow to $2.2 billion through 2012, representing a CAGR of 9.7% over that
period.





IDC
defines the Advanced Analytic marketplace as including both (1) advanced BI
applications with deductive technology and (2) inductive PA applications, but
does not break down their respective market sizes.  InferX is focused
exclusively on solutions in the latter, however does intend to sell its
applications to BI providers as an enhancement for their existing
platforms.





The
Advanced Analytic marketplace is currently dominated by two companies, SAS and
SPSS (recently acquired by IBM), which enjoyed market share in 2008 of 33% and
15%, respectively.  The remainder of the market is fragmented with no
one company controlling over 2% of the market.


5





We
believe that the latest industry trends towards distributive analytics will
drive our growth in the marketplace.  We further believe that we have
the unique advantage of having the sole proprietary patented solution to provide
sophisticated PA across distributed data organizations to analyze and create
decision based models using both structured and unstructured data.





Our
Product Offerings




We target
healthcare, financial services and public sector customers with (i) PA
enterprise software products and (ii) BI and corporate performance
implementation, training and maintenance consulting
services.  Although our revenues are primarily from our consulting
business, we believe that we will emerge as primarily a PA enterprise software
firm.




Predictive
Analytic Enterprise Software




Our PA
enterprise software offerings are a common platform capable of supporting
multiple discreet PA applications.  The common platform, as discussed
above, is our Distributed Data Analytics (“D2A”) tool enabling the real time
analysis of complex, disparate and widely distributed data.  Through
our D2A platform we offer three distinct PA solutions that can be used
individually or collaboratively to develop comprehensive decision based models
for the enterprise: (i) InferAgent, (ii) InferText and (iii)
InferCluster.




InferAgent





InferAgent
provides the customer with the power to access, analyze and perform PA on
structured data from distributed relational database management system
(“RDBMS”), all without the need to move the data to a centralized data
repository or worry about its format.  InferAgent’s PA process uses
Modelling Agents (“MA”), Collaboration Servers (“CS”) and Decision Agents (“DA”)
to direct decision centric model construction and predictive
insights.





Modeling
Agents (MA)- The MA
component is installed at the client site where it can access the individual
database. It acts as the main component for knowledge discovery from that
individual dataset by mining information and inferring decision rule
models.





Collaborative
Servers (CS)- The CS is
the “special sauce” that enables the truly distributive
capability.  CS is the mediator between the various MAs, resulting in
a set of global rules generated by the partial contribution of each
MA.





Decision Agents (DA)-The DA component is also installed
across individual datasets and uses the global model and rules developed through
the interaction of the MAs and CS to generate predictive insights that guide
decision actions at the individual location in response to newly acquired local
data.




InferText





InferText
provides the customer with the power to access, analyze and perform PA on
unstructured data, including emails, blogs, written forms, etc..., all without the
need to move the data to a centralized data repository or worry about its
format.  At the core of the InferText product is the Concept Extractor
subsystem that can extracts key concepts from unstructured data sources that are
of significance to the PA task at hand.  InferText uses the same MA,
CS and DA capabilities described above to direct decision centric model
construction and predictive insights.  InferText also works in tandem
with InferAgent to provide decision rules and predictive insights based on both
structured and unstructured data.




InferCluster





Unlike
the collaborative interaction between InferAgent and InferText, InferCluster is
a standalone component of our D2A platform designed to assign sets of
observations into subsets (called clusters) so that observations in the same
cluster are similar in some sense.  In this task, InferCluster works
with structured data from  databases, all without the need to move the
data to a centralized data repository or worry about its format.  The
process of identifying clusters is similar to the MA, CS, DA process described
above, with the exception that MAs are replaced with Cluster Agents (“CA”) which
mine information from the individual database, communicate with the CS and
create the clusters with a rule based representation.  InferCluster is
particularly well suited to fraud detection solutions, where identifying
patterns among data outliers is important for success.


6




Others





We are
able to market actionable PA solutions to potential customers based on our core
product above.  As we continue to execute on our business plan, we
intend to further customize our core offerings into targeted applications
designed to address specific sub-issues for healthcare, financial services and
public sector customers.




Business Intelligence and
Corporate Performance Consulting




Our BI
and corporate performance consulting services represent the legacy business of
The Irus Group.  We have been and are currently engaged in various
consulting engagements across the public sector as well as with private sector
and financial services clients.  We have particular domain expertise
in enterprise budgeting and planning, as well as assisting our clients to
understand:





·
            Receivables
      and payables analysis




·
            Customer
      profitability




·
            Product
      profitability




·
            Regulatory
      compliance




·
            Expense
      management




·
            Cash
      flow analysis




Value
Proposition




Our next
generation PA technology offers a host of tangible, ancillary benefits to
potential customers across targeted healthcare, financial services and public
sector verticals.  We believe that the real value proposition for all
customers, however, is based upon our patented and proprietary D2A platform
which differentiates us from traditional PA providers and second generation
database competitors.  We believe that our value proposition is
manifested in three positive outcomes:





Complete
Analysis





Our D2A
platform allows PA analysis to be performed on all sources of relevant data,
regardless of its location, format (structured or unstructured) or
privacy/security constraints.  This ability to bring to bear all
relevant data to the PA analysis provides for more complete decision rules and
models when compared to competing PA solutions which can point to “Known Knowns, Known Unknowns and
Unknown Unknowns”.




Faster
Analysis





Speed of
analysis depends in large part on the distance data must travel to be processed
by our PA application.  We believe that our D2A platform is unique in
that it brings the PA to the sources of data as opposed to traditional solutions
which send data to the PA platform.  This efficient distributive
analytic process allows for “real time” data feeds to influence and direct
dynamic “real time” decisions rules and models.  While not all
enterprises require real time capability, certain highly sensitive functions,
such as border enforcement and credit card fraud prevention, require speed of
decision analysis to be successful.


7


Reduced
Costs





Our next
generation distributed PA system reduces the need for a consolidated data
warehouse. A data warehouse typically accounts for 50% to 75% of traditional PA
implementation costs, adds 12 to 18 months to the  implementation
time  and creates the need for additional and comprehensive on-going
support. We believe that we can reduce this time to 6 to 9 months.




Strategy




We
believe that we are well-positioned to capitalize on industry trends to (i)
exploit our proprietary distributive core competency, (ii) target complex and
underserved sub-markets within the healthcare, financial services and public
sectors with sophisticated solutions yielding large return on investment (“ROI”)
and (iii) leverage Irus’ BI consulting relationships to secure software
sales.





Exploit
Proprietary Distributive Capability





While we
have several PA solutions for our customer base, the primary advantage each
solution shares is the ability to function in real time in a distributive data
environment.  We believe that industry leaders have begun to recognize
that for reasons of efficiency, cost and security, PA needs to be brought to the
data instead of the traditional method of moving data to PA.  While
first generation PA providers, namely SAS and SPSS have yet to address this
issue, select second generation competitors in the marketplace (Teradata,
Oracle, Netezza) are pursuing in-database analytics to address these
concerns.  In-database solutions in practice have significant
drawbacks, the most obvious being “Islands of PA” where an enterprise with
multiple databases performing in-database analytics are unable to communicate
with each other to provide a comprehensive, fully informed PA decision
model.  We have developed a truly distributed data platform where its
PA solutions can simultaneously analyze data in multiple remote locations with
disparate formats (structured and unstructured) without the need to move the
data to a central data warehouse.  We view this platform as the next
generation of PA and intend to exploit this proprietary and patented competitive
advantage in the marketplace.





Target
Select Opportunities in Public Sector, Healthcare and Finance





Our
distributive PA solutions have several core attributes versus traditional
offerings, including (i) completeness and accuracy, (ii) speed, (iii) lowered
costs, and (iv) privacy and security.  While most PA providers have
focused their energies and products on consumer oriented customer relationship
management (“CRM”) solutions, we target sophisticated solutions toward select
sub-subsectors in the healthcare, financial services and public sectors to
address significant ROI opportunities. Our software has already been
demonstrated or has applicability at the following:





Public
sector





·
            Federal
      Communication Commission (FCC) - Detection of fraud (collusions) in
      spectrum auctions




·
            Customs
      and Border Protection (CPB) - Identification of high risk
      containers




·
            Missile
      Defense Agency (MDA) - Discrimination of ballistic
  targets




·
            National
      Science Foundation (NSF) - Classification of awards
    abstracts




·
            Department
      of the Navy - Prediction of aircraft readiness based on maintenance
      data




·
            Veterans
      Administration - Prediction of diabetics conditions using retinal
      scans




·
            Securities
      Exchange Commission (SEC) - Identification of fraudulent financial
      statements


8


Healthcare




·
            Healthcare
      - Identification of trauma patients propensity for kidney
      failure




·
            Environmental -
      Identification  of “sick building syndrome” based on sensor
      data




Financial
Services





·
            Financial
      - Fraud detection in financial
transactions




Leverage
Irus Business Intelligence Client Base




We intend
to present our PA solutions to the BI client base of The Irus Group which we
view as a value added solution to the BI services provided by The Irus Group to
such financial services companies as MasterCard and JP Morgan Chase and
Government clients such as the US Navy, US Army and US Air Force, and the Peace
Corps, out of which 10-15% of the clients will be marketed for new PA
technology.  Our combined company intends to leverage The Irus client
base to accelerate the sales cycle for PA software solutions.


9





Patents
and Trademarks




We
developed our technology primarily under Small Business Innovative Research
contracts with the federal government. These government contracts allowed us to
retain ownership of the intellectual property.  Our technology is
protected by the following patents:




Patent
              
              Information
              
              Dates
              
              StatusInferView
              
              U.S.
      Serial:
                
                7,428,545
              
              Filed
      July 2003
              
              IssuedInferAgent
              
              US
      Patent No.:
                7,308,436
              
              Filed
      July 2003,
                Issued
      December
                2007
                
                Expires
      April 2024
              
              IssuedA
      hybrid Bayesian
                decision
      tree for
                classification
              
              Full
      application
                
                US
      Serial:
                11/090,364
              
              Filed
      March 2005
              
              AbandonedInferCluster
              
              Full
      application
                
                US
      Serial:
                11/904,982
              
              Filed
      September
                2007
              
              PendingInferText
              
              Full
      application
                
                US
      Serial:
                11/904,674
              
              Filed
      September
                2007
              
              PendingSupply
      Chain Risk
                Assessment
                Application
              
              Full
      application
                
                US
      Serial:
                12/069,948
              
              Filed
      February 2008
              
              Pending




Competition




The
market for our solutions is intensely competitive and is constantly changing.
Our competitors vary in the size and scope of the products and services they
offer. We encounter competition from a number of sources,
including:




•
            Predictive
      modeling companies;




•
            CRM
      solutions providers;




•
            Business
      intelligence solutions providers;
and




•
            Software
      companies supplying modeling, rules or analytic development
      tools.


10




Companies
such as SAS; SPSS, an IBM Company; Fair Isaac Corporation; Angoss Software
Corporation; Megaputer Intelligence, Inc.; and Insightful Corporation (recently
merged with TIBCO Software Inc.) offer stand-alone software systems that perform
predictive analysis on single desktops and servers.  InferAgent can
operate on multiple, geographically-dispersed computers.




Oracle
Corporation and Teradata provide “in-database analytics” analytical tools that
only operate with their respective proprietary database
products.  InferAgent can operate with multiple databases, regardless
of the underlying database format.




Companies
such as Infoglide Software Corporation,, Knowledge Computing Corporation, Exegy,
Inc. and Dulles Research, LLC, market software that can perform discovery over
networks and distributed data sources.  However, we believe that their
software has no predictive analytic capabilities and generally provides only for
discrete pattern matching, such as matching of names, phone numbers, IP
addresses, etc.




We
believe our products offer the following advantages compared to our
competition:




•
            able
      to access and mine remote data




•
            provide
      predictive analysis where many future risks and opportunities can be
      identified




•
            work
      with multiple databases in different
formats




•
            integrate
      both structured and unstructured
analysis




•
            preserve
      the privacy of data




•
            maintain
      the security and ownership of data




•
            eliminate
      the need for creating data
warehouses




•
            provide
      near real time analysis and
prediction




We
believe that access to additional data sources beyond those in a data warehouse
provides a better basis for more accurate analysis. Also, we believe that the
elimination of the need for a data warehouse will result in cost and time
savings and reduce on-going support and maintenance expenses. Accordingly, we
believe using our systems can result in a significant return on
investment.




Sales
and Marketing




Channels




Our
three-pronged sales channel strategy for our next generation PA solution
offerings consists of: (1) a direct sales force, (2) vendor relationships and
(3) select strategic partnerships across our targeted healthcare, financial
services and public sector verticals.




Direct
Sales





Our
direct sales strategy targets potential end users of our next generation PA
solutions, particularly those customers who are currently using an advanced BI
platform.  Our current sales efforts are led by our executive
management team and are focused on the Irus Group’s current and past BI
consulting clients.  We intend to add approximately seven sales
representatives by the end of 2010 assuming that we have the funds to engage
them.


11




Vendor
Relationships





Our
vendor relationship sales strategy targets select BI vendors who would benefit
from having a PA offering on their platform.  Similar to the direct
sales strategy discussed above, we are leveraging our Irus Group consulting
relationships to drive sales opportunities in this channel.  An
example of this sales approach is our partnership with the IBM Cognos BI and
performance management software platform to add PA functionality to an aircraft
readiness solution for the US Navy.  We may not be successful in
receiving a contract from the US Navy for aircraft readiness.




Select
Strategic Partnerships





We are in
discussion with the International Network for Cancer Treatment and Research
(INCTR) USA, which is part of INCTR based in Brussels.  INCTR is
not-for-profit, non-governmental organization founded to address worldwide
Cancer Research. We are proposing InferX Technology for analyzing clinicalorresearch data (dispersed structured and
unstructured data), while simultaneously providing tools to advance the
knowledge and practice of Cancer Research.  Although it is relevant to
many fields in medicine, our focus for this select strategic partnership is for
clinical and research oncology.  We may not be successful in
concluding any agreement with INCTR.




Unique Value of InferX Technology in
Clinical and Research Oncology




We
provide interpreting distributed data with hundreds of parameters which may be
disparate or disjoint.  The analyzed data itself may be either wholly
structured or unstructured, or any intermingling of the two.  We
believe that this wide latitude in selecting data makes it ideal for use on
clinical or research patient data.  We use agent technology to obtain
partial decisions from local information repositories.  Therefore,
only partial decisions are transferred between systems, not
data.  This allows scalability while preserving privacy and protecting
sensitive information.  Our technology can provide solutions by using
clustering and classification models.  These may easily be utilized to
solve those decision problems which arise frequently in clinical and research
medicine.  Traditional approaches in clinical or research medicine do
not provide these overall capabilities; hence, we believe that our technology is
of unique value.




Research
and Development




We have
developed a companywide research and development plan which focuses on continued
development and enhancement of the features and performance of our current
products. We also have a detailed plan for the development of new product
offerings. Three of our thirty eight employees devote at least a portion of
their time to research and development activities. During the last two fiscal
years, our employees devoted approximately 25% of their time to research and
development activities.  Historically, our research and development
has been performed pursuant to government contracts under which we retained the
intellectual property rights to the technology.




Employees




We have
38 employees: 38 full-time employees, 4 of whom devote at least a portion of
their time to sales and marketing, 4 executive employees, and 1 administrative
employee. Six of our employees are members of management.  To the best
of our knowledge, we are in compliance with local prevailing wage, contractor
licensing and insurance regulations. None of our employees is represented by any
collective bargaining agreement, and our relationship with our employees is
good.


12




Item
      1A.
            Risk
      Factors.




Investing
in our securities involves a high degree of risk.  Before investing in
our securities, you should carefully consider the risks and uncertainties
described below and the other information in this filing before deciding to
purchase our common stock.  If any of these risks or uncertainties
actually occurs, our business, financial condition or future operating results
could be materially harmed. In that case, the price of our common stock could
decline and you could lose part or all of your investment.




Risks
Related to Our Operating Results and Business




The
likelihood of successfully implementing our business plan cannot be predicted
from our limited operating history.




Although
our predecessor entity commenced operations in January 1992, we entered our
current business based on software product sales in April 2000 and achieved our
first sale in 2003-2004.  Since then, our software product sales have
totaled less than $1,000,000.  Therefore, there is limited historical
basis on which to determine whether we will be successful in implementing our
business plan.




The
market for our products and services is new and evolving and a viable market may
never develop or may take longer to develop than we anticipate.




Our
software and services represent what we believe is a novel entry in an emerging
market, and we do not know the extent to which our targeted customers will want
to purchase them.  The development of a viable market for our products
may be impacted by many factors which are out of our control, including customer
reluctance to try new products and services and the existence and emergence of
products and services marketed by better-known competitors.




If a
viable market fails to develop or develops more slowly than we anticipate, we
may be unable to recover the losses we will have incurred to develop our
products and services and may be unable to achieve profitability.




We
operate in a competitive market which could constrain our future growth and
profitability.




We
operate in a competitive environment, competing for customers with software
companies, consulting firms and others.  Many of our competitors offer
complimentary products and/or services that we do not
offer.  Moreover, some of our competitors are much larger than we are,
have proven products and services and may have the marketing and sales
capabilities to commercialize competing products and services more effectively
than we can.




The
industry in which we operate is characterized by rapid technological changes,
and our continued success will depend upon our ability to react to such
changes.




The
markets for our products and services are characterized by rapidly changing
technology.  The introduction of products or services embodying new
technology can render our existing products and services obsolete and
unmarketable and can exert price pressures on existing products and
services.  It is critical to our success for us to be able to
anticipate changes in technology and to successfully develop and introduce new,
enhanced and competitive products and services on a timely basis.  We
cannot assure you that we will successfully develop new products or services or
introduce new applications for existing products and services, that new products
and applications will achieve market acceptance or that the introduction of new
products, services or technological developments by others will not render our
products and services obsolete.  Our inability to develop products and
services that are competitive in technology and price and meet customer needs
could have a material adverse effect on our business, financial condition or
results of operations.


13




Our
management controls a substantial percentage of our stock and therefore has the
ability to exercise substantial control over our affairs.




As of the
date of this filing, our directors and executive officers beneficially owned
9,806,152 shares, or approximately 73%, of our outstanding common stock in the
aggregate, including preferred stock that has the voting power equivalent to
100:1 shares of our common stock.  Because of the large percentage of
stock held by our directors and executive officers, these persons could
influence the outcome of any matter submitted to a vote of our
stockholders.





The
loss of our executive officers and certain other key personnel could hurt our
business.




Our
success wholly depends upon the personal efforts and abilities of our Chairman
of the Board, CEO, officers and other key personnel—Vijay Suri, B.K. Gogia,
Jerzy Bala and Ray Piluso.  The loss of or unavailability of the
services of any one of these individuals would have a material adverse effect on
our business prospects and/or potential earning capacity.




We
may not be able to hire and retain qualified technical personnel.




Competition
for qualified personnel in the computer software industry is intense, and we may
not be successful in attracting and retaining such personnel.  Failure
to attract qualified personnel could harm the proposed growth of our
business.  In addition, companies in our industry whose employees
accept positions with competitors frequently claim that the competitors have
engaged in unfair hiring practices.  We may receive such notices in
the future as we seek to hire qualified personnel and such notices may result in
material litigation and related disruption to our operations.




We
may not be able to protect important intellectual property, and we could incur
substantial costs defending against claims that our products infringe on the
proprietary rights of others.




We
currently have two patent applications pending and we have filed four
provisional patents recently.  While we believe that we have a
proprietary position in component technologies for our products, our ability to
compete effectively will depend, in part, on our ability to protect our
proprietary technologies, processes and designs, to secure patents for the
applications we have pending and to protect those patents that we may
secure.  We do not know whether any of our pending patent applications
will be issued or, if issued, that the claims allowed are or will be
sufficiently broad to protect our technology or processes.  Even if
all of our patent applications are issued and are sufficiently broad, our
patents may be challenged or invalidated.




We could
incur substantial costs in prosecuting or defending patent infringement suits or
otherwise protecting our intellectual property rights.  While we have
attempted to safeguard and maintain our proprietary rights, we do not know
whether we have been or will be completely successful in doing so.




We
may face liability claims from future customers if our software malfunctions or
contains undetected defects.




Our
products have in the past contained, and may in the future contain, undetected
or unresolved errors when first introduced, as new versions are released, or
otherwise.  Despite extensive testing, errors, defects or failures may
be found in our current or future products or enhancements after they have been
installed by customers.  If this happens, we may experience delay in
or loss of market acceptance and sales, diversion of development resources,
injury to our reputation or increased service costs, any of which could have a
material adverse effect on our business, financial condition and results of
operations.  Moreover, because our products are designed to provide
critical data analysis services, we may receive significant liability claims.
Although we intend to obtain product liability insurance covering certain
damages arising from implementation and use of our products, our insurance may
not cover all claims sought against us.  Liability claims could
require us to spend significant time and money in litigation or to pay
significant damages.  As a result, any such claims, whether or not
successful, could seriously damage our reputation and business.


14




We
must ensure the protection and privacy of customer data.




We rely
on complex encryption algorithms and technology to secure customer
data.  We believe our products protect the security and privacy of
customer data by transmitting encrypted pointers to customer data, rather than
the data itself, across the Internet and existing dedicated transmission
lines.  However, if customer data is misappropriated or
unintentionally disclosed as a result of an actual or perceived failure of our
software, our reputation, and ultimately our business, would be seriously
harmed, and we could face liability claims.




We
currently are dependent on contracts with the federal government for all of our
revenues.




Revenues
derived from federal government contracts accounted for 91% of our revenues
since fiscal 2008.  We expect that government contracts will continue
to be a significant source of our revenues for the foreseeable
future.  Our business generated from government contracts may be
adversely affected if:




•
            levels
      of government expenditures and authorizations for national and homeland
      security related programs decrease, remain constant or shift to programs
      in areas where we do not provide products and
  services;




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




•
            we
      are not granted security clearances that are required to sell our products
      or services or such security clearances are revoked;
  or




•
            our
      reputation or relationship with government agencies is
      impaired.




Most of
our contracts with the government contain standard provisions that provide for
termination at the convenience of the government pursuant to which we are
entitled to recover costs incurred, settlement expenses, and profit on work
completed prior to termination.




If
we fail to comply with complex procurement laws and regulations, we may be
subject to civil and criminal penalties and administrative
sanctions.




We must
comply with laws and regulations relating to the formation, administration and
performance of government contracts. These laws and regulations affect how we do
business with government agencies and may impose added costs on our business.
For example, we are subject to the Federal Acquisition Regulations, which
comprehensively regulate the formation, administration and performance of
federal government contracts, and to the Truth in Negotiations Act, which
requires certification and disclosure of cost and pricing data in connection
with contract negotiations.




If a
government review or investigation uncovers improper or illegal activities, we
may be subject to civil and criminal penalties and administrative sanctions,
including termination of contracts, forfeiture of profits, suspension of
payments, fines and suspension or debarment from doing business with government
agencies, which could materially and adversely affect our business, financial
condition and results of operations. In addition, a government may reform its
procurement practices or adopt new contracting rules and regulations that could
be costly to satisfy or that could impair our ability to obtain new
contracts.


15


Risks
Related to Our Common Stock




Currently,
there is a limited trading market for our common stock, which may adversely
impact your ability to sell your shares and the price you receive.




There is
currently a limited trading market for our common stock and a more active
trading market for our common stock may never develop or be sustained. The
market price of our common stock may be significantly affected by factors such
as actual or anticipated fluctuations in our operating results, general market
conditions and other factors.  In addition, the stock market has from
time to time experienced significant price and volume fluctuations that have
particularly affected the market prices for the shares of developmental stage
companies, which may materially adversely affect the market price of our common
stock without regard to our operating performance. These fluctuations may also
cause short sellers to enter the market from time to time in the belief that we
will have poor results in the future.  We cannot predict the actions
of market participants and, therefore, can offer no assurances that the market
for our common stock will be stable or appreciate over
time.  Furthermore, for companies such as us whose securities are
quoted on the OTC Pink Sheets, it is more difficult (1) to obtain accurate
quotations, (2) to obtain coverage for significant news events because major
wire services generally do not publish press releases about such companies, and
(3) to obtain needed capital.  These factors may negatively impact
your ability to sell shares of our common stock and the price you
receive.




Our
common stock is deemed to be a “penny stock,” which may make it more difficult
for you to sell your shares.




Our
common stock is subject to the “penny stock” rules adopted under Section 15(g)
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The
penny stock rules apply to companies whose common stock is not listed on the
NASDAQ Stock Market or another national securities exchange and trades at less
than $5.00 per share or that have tangible net worth of less than $5,000,000
($2,000,000 if the company has been operating for three or more
years).  These rules require, among other things, that brokers who
trade penny stock to persons other than “established customers” complete certain
documentation, make suitability inquiries of investors and provide investors
with certain information concerning trading in the security, including a risk
disclosure document and quote information under certain
circumstances.  Many brokers have decided not to trade penny stocks
because of the requirements of the penny stock rules and, as a result, the
number of broker-dealers willing to act as market makers in such securities is
limited.  Remaining subject to the penny stock rules should be
expected to have an adverse effect on the market for our common stock by
reducing the number of potential investors.  This may make it more
difficult for investors in our common stock to sell shares to third parties or
to otherwise dispose of them.  This could cause our stock price to
decline.




We
need to raise additional capital, but that capital may not be
available.




Our
existing capital is insufficient to fund our operations beyond the second
quarter of 2008.  We believe the anticipated revenues from potential
customer contracts along with the sale of a limited amount of equity will enable
us to meet our financial obligations as they become due.  However, we
are not generating sufficient revenues to increase our working capital or to
carry out our proposed business objectives and continue to operate as a going
concern beyond the near term, and we need to obtain additional financing or
reduce our expenses by curtailing our operations.




We cannot
assure you that we will be successful or that our operations will generate
sufficient revenues to meet the expenses of our operations.  Although
we are seeking additional financing, such financing may not be available or, if
available, may not be available on satisfactory terms.  Additionally,
the nature of our business activities may require the availability of additional
funds in the future due to more rapid growth than is forecast, and thus, we may
need additional capital or credit lines to continue that rate of business
growth.  We may encounter difficulty in obtaining these funds and/or
credit lines. Moreover, even if additional financing or credit lines were to
become available, it is possible that the cost of such funds or credit would be
high and possibly prohibitive.




If we
were to decide to obtain such additional funds by equity financing in one or
more private or public offerings, current stockholders would experience a
corresponding decrease in their percentage ownership.




Our
independent registered public accounting firm has expressed substantial doubt
regarding our ability to continue as a going concern.




Our
audited financial statements for the years ended December 31, 2009 and 2008 have
been prepared under the assumption that we will continue as a going
concern.  Our independent registered public accounting firms have
issued their reports dated May 20, 2010 and March 23, 2009 in connection with
the audit of our financial statements for the years ended December 31, 2009 and
2008, respectively, that included an explanatory paragraph describing the
existence of conditions that raise substantial doubt about our ability to
continue as a going concern due to our having sustained operating losses and
capital deficits from operations.  The fact that we have received this
“going concern opinion” from our independent registered public accounting firm
will likely make it more difficult for us to raise capital on favorable terms
and could hinder, to some extent, our operations.  Additionally, if we
are not able to continue as a going concern, it is likely that stockholders will
lose all of their investment.  Our financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.


16


Item
      1B.
            Unresolved
      Staff Comments.




Not
applicable.




Item
      2.
            Description
      of Property.




We lease
approximately 3,200 square feet of office space at 46950 Jennings Farm Drive,
Suite 290, Sterling, Virginia pursuant to a lease which expires in July
2010.  Our lease provides for an annual rental of approximately
$78,000, which is subject to annual escalations of 3.5%.  The space
can house approximately 20 to 23 staff.  We believe that our
facilities are adequate for our needs and that additional space is readily
available should we need it.




Item
      3.
            Legal
      Proceedings.




Arnold
Worldwide, Inc., the landlord of InferX at its former premises at 1600
International Drive, Suite 110, McLean, Virginia 22102, commenced an unlawful
detainer action against InferX in the General District Court of Fairfax County,
seeking (i) damages, including rent due under the sublease between InferX and
Arnold Worldwide, late fees due under the sublease, and attorney’s fees due
under the sublease for approximately $94,555; and (ii) an order for possession
of the Premises.  The case was dismissed without prejudice in May 2008
subject to a series of payments promised by InferX.  InferX has paid
approximately $30,000 leaving a deficiency of approximately
$65,000.  We agreed to the entry of a Consent Order of Possession that
allowed Arnold Worldwide to take possession of the premises since we wanted to
reduce our expenses as much as possible and find less expensive office
space.  The lease for the premises at 1600 International Drive
terminated November 30, 2008.





Item
      4.
            Submission
      of Matters to a Vote of Security
Holders.




None.




PART
II




Item
      5.
            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchase of Equity Securities.




Market
Information




Transactions
in our common stock are presently quoted the OTC Pink Sheets under the symbol
“NFRX:PK”. Quotation of transaction in our common stock commenced on December 5,
2007.




The
closing bid prices for our common stock for the period from December 31, 2007
through December 31, 2009, as reported by PinkSheets LLC.  The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.


17





High
                          
                          
                          LowFiscal
      Year Ended December 31, 2007:Fourth
      Quarter (October 1, 2007 – December 31, 2007)
                          
                          
                          .53
                          
                          
                          
                          .42Fiscal
      Year Ended December 31, 2008:First
      Quarter (January 1, 2008 – March 31, 2008)
                          
                          $
                          .35
                          
                          
                          $
                          .35Second
      Quarter (April 1, 2008 – June 30, 2008)
                          
                          
                          .08
                          
                          
                          
                          .08Third
      Quarter (July 1, 2008 – September 30, 2008)
                          
                          
                          .015
                          
                          
                          
                          .012Fourth
      Quarter (October 1, 2008 – December 31, 2008)
                          
                          
                          .011
                          
                          
                          
                          .009Fiscal
      Year Ended December 31, 2009:First
      Quarter (January 1, 2009 – March 31, 2009)
                          
                          $
                          .019
                          
                          
                          $
                          .015Second
      Quarter (April 1, 2009 – June 30, 2009)
                          
                          
                          .01
                          
                          
                          
                          .01Third
      Quarter (July 1, 2009 – September 30, 2009)
                          
                          
                          .17
                          
                          
                          
                          .17Fourth
      Quarter (October 1, 2009 – December 31, 2009)
                          
                          
                          .19
                          
                          
                          
                          .15





Holders




As of May
21, 2010, there were 76 record stockholders of 13,452,913 issued and outstanding
shares of our common stock.




Dividends




We do not
intend to pay cash dividends on our common stock for the foreseeable future, but
currently intend to retain any future earnings to fund the development and
growth of our business.  The payment of dividends if any, on the
common stock will rest solely within the discretion of the Board of Directors
and will depend, among other things, upon our earnings, capital requirements,
financial condition, and other relevant factors.  We have not paid or
declared any dividends upon our common stock since inception.




Item 6.
            Selected
      Financial Data.




Not
applicable.




Item
      7.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.




The
information set forth and discussed in this Management’s Discussion and Analysis
or Plan of Operation is derived from our financial statements and the related
notes, which are included.  The following information and discussion
should be read in conjunction with those financial statements and notes, as well
as the information provided in our Annual Report on Form 10-K for our fiscal
year ended December 31, 2009.





Overview





We
believe that we are a market leader in next generation distributed predictive
analytics (“PA”) enterprise software products and solutions.  We have
pioneered and commercialized a powerful, patented suite of advanced analytical
solutions that direct decision making and improve corporate performance across
the enterprise.  We are targeting our solution towards select
sub-subsectors in the healthcare, financial services and public sectors to
address significant ROI opportunities.




Our
company was formed in May 2005 to pursue a business combination.  On
October 24, 2006, we acquired InferX Corporation, a Virginia corporation
(“InferX Virginia”), and on October 27, 2006 we merged InferX Virginia into our
company and changed our name to “InferX Corporation.”  After the
acquisition of InferX Virginia, we succeeded to its business as our sole line of
business.  InferX Virginia was formed in August 2006 by the merger of
the former InferX Corporation, a Delaware corporation (“InferX Delaware”), with
and into Datamat Systems Research, Inc., a Virginia corporation and an affiliate
of InferX Delaware (“Datamat”), pursuant to which Datamat was the surviving
corporation and changed its name to “InferX Corporation.”


18


Datamat
was formed in 1992 as a professional services research and development firm,
specializing in technology for distributed analysis of sensory data relating to
airborne missile threats under contracts with the Missile Defense Agency and
other Department of Defense contracts.  InferX Delaware was formed in
1999 to commercialize Datamat’s missile defense technology to build applications
of real time predictive analytics.  The original technology was
developed in part with grants by the Missile Defense Agency.





On March
16, 2009, InferX entered into an agreement and plan of reorganization (the
“Merger Agreement”) with the Irus Group, Inc. to effect a reverse triangular
merger between The Irus Group, Inc. and the Company’s wholly-owned subsidiary,
Irus Acquisition Corp. (formed for the purpose of completing this
transaction).  The Merger Agreement was then amended on June 15, 2009
(the “First Amended and Restated Agreement”) to reflect the change in the amount
of the issued shares to Irus in the transaction.  Under the terms of
the First Amended and Restated Agreement, the issued and outstanding shares of
The Irus Group common stock was automatically converted into the right to
receive 56% of the issued and outstanding shares of the Company’s common
stock.  On October 28, 2009 the merger was completed




The Irus
Group, Inc., founded in 1996, has emerged as a star consulting firm specializing
in bridging corporate performance management and business intelligence systems
to help clients answer tough business questions.  Irus’ specific
domain expertise revolves around the planning, implementation and developing of
complex business intelligence systems.  The breadth of knowledge of
budgeting and planning systems allowed Irus to tie business intelligence into
corporate performance management for clients.




Irus
assists clients capture business functional requirements, technical design and
specifications, systems development and implementation, strategic planning for
future growth and expansion, and selection of software & hardware as well as
testing, documentation, training and on-going maintenance.  Many of
Irus’s clients have been used as reference sites for innovative enhancements and
customizations incorporating challenging end users business
requirements.  Irus has successfully implemented projects across a
broad cross-section of clients in the United States and Canada which include
government, financial services, retail, manufacturing, and
telecommunications.




Irus’
strategic approach, business understanding, and proven process, tied to our
technical proficiency in the major business intelligence, corporate performance
management, and budgeting and planning applications, will help improve their
business performance.





Historically,
we have derived nearly all of our sales revenues under federal government
contracts.  Under these contracts, we performed research and
development and professional services consulting that enabled us to retain
ownership of the intellectual property, which led to the creation of our current
products.  Due to the relatively small and uncertain margins
associated with fixed price government contracts and the inherent limit of the
market size, in fiscal 2002 we began to develop our software as a commercial
product, concentrating on building specific applications that we believed would
meet the needs of potential new customers.  In fiscal 2003, we sold
two commercial licenses.  However, since fiscal 2004, all of our
revenues have derived from government contracts.





Critical
Accounting Policies





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period.  We rely on historical experience and on other
assumptions we believe to be reasonable under the circumstances in making our
judgments and estimates. Actual results could differ from those
estimates.  We consider our critical accounting policies to be those
that are complex and those that require significant judgments and estimates,
including the following: recognition of revenue, capitalization of software
development costs and income taxes.





Principles
of Consolidation





The
consolidated financial statements include those of InferX and our wholly-owned
subsidiary.  All intercompany accounts and transactions have been
eliminated in consolidation.


19





Use
of Estimates





The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.





Cash
and Cash Equivalents





We
consider all highly liquid debt instruments and other short-term investments
with a maturity of six months or less, when purchased, to be cash
equivalents.





We
maintain cash and cash equivalent balances at one financial institution that is
insured by the Federal Deposit Insurance Corporation up to
$250,000.





Allowance
for Doubtful Accounts





The
Company provides an allowance for doubtful accounts, which is based upon a
review of outstanding receivables as well as historical collection
information.  Credit is granted to substantially all customers on an
unsecured basis.  In determining the amount of the allowance,
management is required to make certain estimates and
assumptions.  Management has determined that as of December 31, 2009,
no allowance for doubtful accounts is required.





Fixed
Assets





Fixed
assets are stated at cost, less accumulated
depreciation.  Depreciation is provided using the straight-line method
over the estimated useful lives of the related assets (primarily three to five
years).  Costs of maintenance and repairs are charged to expense as
incurred.





Computer
Software Development Costs





During
2009, the Company capitalized certain software development costs.  The
Company capitalizes the cost of software in accordance with ASC 985-20 once
technological feasibility has been demonstrated, as the Company has in the past
sold, leased or otherwise marketed their software, and plans on doing so in the
future.  The Company capitalizes costs incurred to develop and market
their privacy preserving software during the development process, including
payroll costs for employees who are directly associated with the development
process and services performed by consultants.  Amortization of such
costs is based on the greater of (1) the ratio of current gross revenues to the
sum of current and anticipated gross revenues, or (2) the straight-line method
over the remaining economic life of the software, typically five years. It is
possible that those anticipated gross revenues, the remaining economic life of
the products, or both, may be reduced as a result of future
events.  The Company has not developed any software for internal
use.





Recoverability
of Long-Lived Assets





We review
the recoverability of our long-lived assets on a periodic basis whenever events
and changes in circumstances have occurred which may indicate a possible
impairment. The assessment for potential impairment is based primarily on our
ability to recover the carrying value of long-lived assets from expected future
cash flows from operations on an undiscounted basis. If such assets are
determined to be impaired, the impairment recognized is the amount by which the
carrying value of the assets exceeds the fair value of the assets. Fixed assets
to be disposed of by sale are carried at the lower of the then current carrying
value or fair value less estimated costs to sell.


20





Revenue
Recognition





Revenue
is recognized when persuasive evidence of an arrangement exists, delivery has
occurred, the fee is fixed or determinable, and collectability is
probable.  We enter into certain arrangements where we are obligated
to deliver multiple products and/or services (multiple elements).  In
these transactions, we allocate the total revenue among the elements based on
the sales price of each element when sold separately (vendor-specific objective
evidence). The Company
generates revenue from application license sales, application maintenance and
support, professional services rendered to customers as well as from application
management support contracts with governmental units.  The Company’s
revenue is generated under time-and-material contracts and fixed-price
contracts.





Our
business is not seasonal in nature.  The timing of contract awards,
the availability of funding from the customer, the incurrence of contract costs
and unit deliveries are the primary drivers of our revenue
recognition.  These factors are influenced by the federal government’s
October-to-September fiscal year.  This process has historically
resulted in higher revenues in the latter half of the year.  Many of
our government customers schedule deliveries toward the end of the calendar
year, resulting in increasing revenues and earnings over the course of the
year.





The
Company does not derive revenue from projects involving multiple
revenue-generating activities.  If a contract would involve the
provision of multiple service elements, total estimated contract revenue would
be allocated to each element based on the fair value of each
element.  The amount of revenue allocated to each element would then
be limited to the amount that is not contingent upon the delivery of another
element in the future.  Revenue for each element would then be
recognized depending upon whether the contract is a time-and-materials contract
or a fixed-price, fixed-time contract.





Stock-Based
Compensation





In 2006,
we adopted the provisions of ASC 718-10 “Share-Based
Payments” (“ASC 718-10”) which requires recognition of stock-based
compensation expense for all share-based payments based on fair
value.  Share-based payment transactions within the scope of ASC
718-10 include stock options, restricted stock plans, performance-based awards,
stock appreciation rights, and employee share purchase plans.  This
adoption had no effect on the Company’s operations.  Prior to January
1, 2006, we measured compensation expense for all of our share-based
compensation using the intrinsic value method.





We have
elected to use the modified–prospective approach method.  Under that
transition method, the calculated expense in 2006 is equivalent to compensation
expense for all awards granted prior to, but not yet vested as of January 1,
2006, based on the grant-date fair values.  Stock-based compensation
expense for all awards granted after January 1, 2006 is based on the grant-date
fair values.  We recognize these compensation costs, net of an
estimated forfeiture rate, on a pro rata basis over the requisite service period
of each vesting tranche of each award.  We consider voluntary
termination behavior as well as trends of actual option forfeitures when
estimating the forfeiture rate.





We
measure compensation expense for non-employee stock-based compensation under ASC
505-50, “Accounting for
Equity Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services".The fair value
of the option issued is used to measure the transaction, as this is more
reliable than the fair value of the services received.  The fair value
is measured at the value of the Company’s common stock on the date that the
commitment for performance by the counterparty has been reached or the
counterparty’s performance is complete.  The fair value of the equity
instrument is charged directly to compensation expense and additional paid-in
capital.  For common stock issuances to non-employees that are fully
vested and are for future periods, we classify these issuances as prepaid
expenses and expense the prepaid expenses over the service period.  At
no time have we issued common stock for a period that exceeds one
year.





Concentrations





The
Company has derived 91% of its revenue for the year ended December 31, 2009 from
three customers.





Financial
instruments that potentially subject us to significant concentrations of credit
risk consist principally of accounts receivable and unbilled
receivables.  To date, accounts receivable and unbilled receivables
have been derived from contracts with agencies of the federal
government.  Accounts receivable are generally due within 30 days and
no collateral is required.


21





Segment
Reporting





We follow
the provisions of ASC 280-10, “Disclosures about Segments of an
Enterprise and Related Information.” This standard requires that
companies disclose operating segments based on the manner in which management
disaggregates the company in making internal operating decisions.  The
Company only operates in one reporting segment as of December 31, 2009 and for
the years ended December 31, 2009 and 2008.





Fair
Value of Financial Instruments (other than Derivative Financial
Instruments)





The
carrying amounts reported in the consolidated balance sheets for cash and cash
equivalents, and accounts payable approximate fair value because of the
immediate or short-term maturity of these financial instruments.  For
the notes payable, the carrying amount reported is based upon the incremental
borrowing rates otherwise available to us for similar borrowings.  For
the warrants that are classified as derivatives, fair values were calculated at
net present value using our weighted average borrowing rate for debt instruments
without conversion features applied to total future cash flows of the
instruments.





Convertible
Instruments





We review
the terms of convertible debt and equity securities for indications requiring
bifurcation, and separate accounting, for the embedded conversion
feature.  Generally, embedded conversion features, where the ability
to physical or net-share settle the conversion option is not within our control,
are bifurcated and accounted for as a derivative financial
instrument.  Bifurcation of the embedded derivative instrument
requires allocation of the proceeds first to the fair value of the embedded
derivative instrument with the residual allocated to the debt
instrument.  The resulting discount to the face value of the debt
instrument is amortized through periodic charges to interest expense using the
Effective Interest Method.





Income
Taxes





Under ASC
740 the liability method is used in accounting for income
taxes.  Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities, and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to
reverse.





Uncertainty
in Income Taxes





Under ASC
740-10-25 recognition and measurement of uncertain income tax positions is
required using a “more-likely-than-not” approach.
We evaluate our tax positions on an annual basis, and have determined that as of
December 31, 2009 no additional accrual for income taxes is
necessary.





(Loss)
Per Share of Common Stock





Basic net
(loss) per common share (“EPS”) is computed using the weighted average number of
common shares outstanding for the period.  Diluted earnings per share
include additional dilution from common stock equivalents, such as stock
issuable pursuant to the exercise of stock options and
warrants.  Common stock equivalents are not included in the
computation of diluted earnings per share when the Company reports a loss
because to do so would be anti-dilutive for the periods presented.





The
following is a reconciliation of the computation for basic and diluted
EPS:





Years EndedDecember 31,
                    
                    
                    December 31,2009
                    
                    
                    2008Net
      (loss)
                    
                    $
                    (561,715)
                    
                    
                    $
                    (204,146)WWeighted-average
      common shares outstanding :Basic
                    
                    
                    1,011,308
                    
                    
                    
                    635,170Options
                    
                    
                    3,250,000
                    
                    
                    
                    -Diluted
                    
                    
                    4,261,308
                    
                    
                    
                    635,170Basic
      net (loss) per share
                    
                    $
                    (0.56)
                    
                    
                    $
                    (0.32)Diluted
      net (loss) per share
                    
                    $
                    (0.56)
                    
                    
                    $
                    (0.32)


22





Research
and Development





Research
and development expenses include payroll, employee benefits, equity
compensation, and other headcount-related costs associated with product
development.  The Company has determined that technological
feasibility for the software products is reached shortly before the products are
released to manufacturing. Costs incurred after technological feasibility is
established are not material, and accordingly, the Company expenses all research
and development costs when incurred.  In addition, research and
development costs have been included in the consolidated statements of
operations for the years ended December 31, 2009 and 2008,
respectively.





Recent
Issued Accounting Standards





In
September 2006, ASC 820, “Fair
Value Measurements”(ASC 820)was issued. ASC 820
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosure about fair
value measurements.  This statement is effective for financial
statements issued for fiscal years beginning after November 15,
2007.  Early adoption is encouraged.  The adoption of ASC
820 is not expected to have a material impact on the consolidated financial
statements.





In
February 2007, ASC 825-10,
“The Fair Value Option for Financial Assets and Financial Liabilities”(“ASC 825-10”), was issued. This included an amendment of ASC 320-10,
which permits entities to choose to measure many financial instruments and
certain other items at fair value at specified election dates.  A
business entity is required to report unrealized gains and losses on items for
which the fair value option has been elected in earnings at each subsequent
reporting date.  This statement is expected to expand the use of fair
value measurement.  ASC 825-10 is effective for financial statements
issued for fiscal years beginning after November 15, 2008, and interim periods
within those fiscal years.





In
December 2007, ASC 810-10-65, “Noncontrolling Interests in
Consolidated Financial Statements,” (“ASC 810-10-65”), was issued. ASC
810-10-65 establishes accounting and reporting standards for ownership interests
in subsidiaries held by parties other than the parent, changes in a parent’s
ownership of a noncontrolling interest, calculation and disclosure of the
consolidated net income attributable to the parent and the noncontrolling
interest, changes in a parent’s ownership interest while the parent retains its
controlling financial interest and fair value measurement of any retained
noncontrolling equity investment.





ASC
810-10-65 is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years.  Early adoption is prohibited. Management is determining the
impact that the adoption of ASC 810-10-651 will have on our consolidated
financial position, results of operations or cash flows.





In
December 2007, the Company adopted ASC 805, “Business Combinations” (“ASC
805”).  ASC 805 has the fundamental requirements that the acquisition
method of accounting be used for all business combinations and for an acquirer
to be identified for each business combination.  ASC 805 defines the
acquirer as the entity that obtains control of one or more businesses in the
business combination and establishes the acquisition date as the date that the
acquirer achieves control.  ASC 805 will require an entity to record
separately from the business combination the direct costs, where previously
these costs were included in the total allocated cost of the
acquisition.  ASC 805 will require an entity to recognize the assets
acquired, liabilities assumed, and any non-controlling interest in the acquired
at the acquisition date, at their fair values as of that date.


23





ASC 805
will require an entity to recognize as an asset or liability at fair value for
certain contingencies, either contractual or non-contractual, if certain
criteria are met.  Finally, ASC 805 will require an entity to
recognize contingent consideration at the date of acquisition, based on the fair
value at that date.  This will be effective for business combinations
completed on or after the first annual reporting period beginning on or after
December 15, 2008.  Early adoption of this standard is not permitted
and the standards are to be applied prospectively only.  Upon adoption
of this standard, there would be no impact to our results of operations and
financial condition for acquisitions previously completed.  The
adoption of ASC 815 is not expected to have a material effect on our
consolidated financial position, results of operations or cash
flows.





In March
2008, ASC 815, Disclosures
about Derivative Instruments and Hedging Activities” (“ASC 815”), was
issued. ASC 815 requires enhanced disclosures about an entity’s derivative and
hedging activities.  These enhanced disclosures will discuss: how and
why an entity uses derivative instruments; how derivative instruments and
related hedged items are accounted for and its related interpretations; and how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows.  ASC 815 is effective
for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008.  The Company does not believe that ASC 815
will have an impact on their results of operations or financial
position.





In April
2008, ASC 350, “Determination
of the Useful Life of Intangible Assets”, (“ASC 350”), was issued. ASC
350 amends the factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a recognized
intangible asset.  The guidance is used for determining the useful
life of a recognized intangible asset shall be applied prospectively to
intangible assets acquired after adoption, and the disclosure requirements shall
be applied prospectively to all intangible assets recognized as of, and
subsequent to, adoption. The Company does not believe ASC 350 will materially
impact our financial position, results of operations or cash flows.





In May
2008, ASC 470-20, “Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement)” (“ASC 470-20”), was issued. ASC 470-20 requires the
issuer of certain convertible debt instruments that may be settled in cash (or
other assets) on conversion to separately account for the liability (debt) and
equity (conversion option) components of the instrument in a manner that
reflects the issuer’s non-convertible debt borrowing rate.  ASC 470-20
is effective for fiscal years beginning after December 15, 2008 on a retroactive
basis.  The Company does not believe that the adoption of ASC 470-20
will have a material effect on its financial position, results of operations or
cash flows.





In June
2008, ASC 815-40, “Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“ASC
815-40”), was issued.  ASC 815-40 provides guidance for determining
whether an equity-linked financial instrument (or embedded feature) is indexed
to an entity’s own stock and it applies to any freestanding financial instrument
or embedded feature that has all the characteristics of a
derivative.  ASC 815-40 also applies to any freestanding financial
instrument that is potentially settled in an entity’s own stock.  The
Company is determining what impact, if any, ASC 815-40 will have on its
financial position, results of operations and cash flows.





In June
2008, ASC 470-20-65, “Transition Guidance for Conforming
Changes to, Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios”, (“ASC
470-20-65”), was issued. ASC 470-20-65 is effective for years ending after
December 15, 2008.  The overall objective of ASC 470-20-65 is to
provide for consistency in application of the standard.  The Company
has computed and recorded a beneficial conversion feature in connection with
certain of their prior financing arrangements and does not believe that ASC
470-20-65 will have a material effect on that accounting.





In May
2009, ASC 855, “Subsequent Events”, (“SFAS
165”), was published. ASC 855 requires the Company to disclose the date through
which subsequent events have been evaluated and whether that date is the date
the financial statements were issued or the date the financial statements were
available to be issued. ASC 855 is effective for financial periods ending after
June 15, 2009.


24







Effective
July 1, 2009, the Company adopted FASB ASU No. 2009-05, “Fair Value Measurement and
Disclosures (Topic 820)” (“ASU 2009-05”). ASU 2009-05 provided
amendments to ASC 820-10, “Fair Value Measurements and
Disclosures – Overall”, for the fair value measurement of liabilities.
ASU 2009-05 provides clarification that in circumstances in which a quoted
market price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using certain
techniques.  ASU 2009-05 also clarifies that when estimating the fair
value of a liability, a reporting entity is not required to include a separate
input or adjustment to other inputs relating to the existence of a restriction
that prevents the transfer of a liability.  ASU 2009-05 also clarifies
that both a quoted price in an active market for the identical liability at the
measurement date and the quoted price for the identical liability when traded as
an asset in an active market when no adjustments to the quoted price of the
asset are required for Level 1 fair value measurements.  Adoption of
ASU 2009-05 did not have a material impact on the Company’s results of
operations or financial condition.





In
January 2010, the Company adopted FASB ASU No. 2010-06, Fair Value Measurement and
Disclosures (Topic 820)- Improving Disclosures about Fair Value Measurements(“ASU 2010-06”). These standards require new disclosures on the amount
and reason for transfers in and out of Level 1 and 2 fair value measurements.
The standards also require new disclosures of activities, including purchases,
sales, issuances, and settlements within the Level 3 fair value measurements.
The standard also clarifies existing disclosure requirements on levels of
disaggregation and disclosures about inputs and valuation techniques. These new
disclosures are effective beginning with the first interim filing in
2010.





The
disclosures about the roll forward of information in Level 3 are required for
the Company with its first interim filing in 2011.  The Company does
not believe this standard will impact their financial statements.





Other
ASU’s that have been issued or proposed by the FASB ASC that do not require
adoption until a future date and are not expected to have a material impact on
the financial statements upon adoption.





Years
Ended December 31, 2009 and 2008





Revenue
for the year ended December 31, 2009 was $7,328,970, a 56% increase from
$4,707,925 for the same period in 2008.  This was a result of new
contracts awarded and the result of merger during the year ended December 31,
2009.





Costs of
revenues for the year ended December 31, 2009 were $5,594,395 compared to
$3,943,238 for the same period in 2008.  The increase primarily was
the result of the increase of direct and subcontractor costs associated with new
contracts acquired during the year ended December 31, 2009.





Operating
expenses for the year ended December 31, 2009, which include indirect labor,
professional fees, travel, rent, general and administrative, stock issued for
services, stock based compensation, and depreciation, increased $1,250,546 to
$2,172,861 for the year ended December 31, 2009 from $922,315 for the same
period in 2008.  This represents an increase of 136% and is primarily
a result of a increase in indirect and overhead labor and fringes of $158,203
resulting from on-going operations and merger in 2009, an increase in
professional fees of $101,278 resulting from business activity, and $877,060
increase in stock based compensation resulting from the granting of stock
options under certain executive employment agreements.





Other
expenses increased $76,911 from $46,518 to $123,429, with a majority of the
increase the result of the loss on fair value of the derivative liability
incurred with the convertible debenture issued December 23, 2009.





The
Company’s net loss increased from $204,146 in 2008 to $561,715 in 2009. The
increase was the result of additional operating expenses incurred in connection
with the reverse merger.





Liquidity
and Capital Resources





We had
cash of $49,989 at December 31, 2009 and a working capital deficit of $2,553,677
as of December 31, 2009.  The Company’s cash flows decreased $21,461
in 2009, primarily from repayments of $491,913 of the line of credit, however
the Company did have cash provided by operating activities of $320,452, the
result of increased gross profits due to the profitable contracts during
2009.





We will
need to generate significant additional revenue to support our projected
increases in staffing and other operating expenses in light of the merger with
The Irus Group.  We are currently expending approximately $500,000 per
month to support our operations, and under our current business plan we
anticipate expenditures of approximately 740,000 per month through the 3rdquarter
of 2010.   We expect to raise additional financing through the
sale of our common stock during the second or third  quarter of 2010
to supplement the cash generated from software license sales and the
processional services that are provided through existing contracts that we
believe will be sufficient to fund our operations until additional financing is
procured  If we are unable to generate sufficient cash through the
sale of our stock it will be necessary for us to significantly reduce expenses
to manage our business.  Although we believe the additional capital
required will be provided through one of these sources, we cannot assure you
that we will be successful in these financing efforts or accepting financing at
acceptable prices.  Our failure to generate such revenue, reduce
expenses or obtain necessary financing could impair our ability to continue
business operations and raises substantial doubt about our ability to remain as
a going concern.





25





Item
      7A.
            Quantitative
      and Qualitative Disclosures About Market
Risk.




Not
applicable.




Item
      8.
            Financial
      Statements and Supplementary Data.




The
information required by this item appears following Item 15 of this report and
is incorporated herein by reference.




Item
      9.
            Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure




None.




Item
      9A(T).
            Controls
      and Procedures.




Evaluation
of disclosure controls and procedures.




Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of our disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of
December 31, 2009.  Based on this evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures are not effective due to the existence of material weaknesses in our
internal control over financial reporting, discussed below.




Management’s
Report on Internal Control Over Financial Reporting.




Internal
control over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act), is a process designed by, or under the
supervision of, our Chief Executive Officer and Chief Financial Officer, or
persons performing similar functions, and effected by our board of directors,
management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles.  Our management, with the participation of our Chief
Executive Officer and Chief Financial Officer, or persons performing similar
functions, and in consultation with our board of directors, has established and
maintained policies and procedures designed to maintain the adequacy of our
internal control over financial reporting that it believes are appropriate in
light of our limited activities, personnel and resources as a development stage
company, and includes those policies and procedures that:




(1)  Pertain
to the maintenance of records that in reasonable detail accurately and fairly
reflect transactions and dispositions of our assets;




(2)  Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and




(3)  Provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect
on the financial statements.





26





Our
management has evaluated the effectiveness of our internal control over
financial reporting as of December 31, 2009 based on the criteria established in
a report entitled Internal Control—Integrated Framework, issued by the Committee
of Sponsoring Organizations of the Treadway Commission (“COSO”).




Based on
our assessment, management has concluded that our internal controls over
financial reporting were not effective as of December 31, 2009 due to the
existence of several material weaknesses in our internal control over financial
reporting, discussed below. Our Board of Directors has reviewed the results of
management’s assessment. In addition, on a quarterly basis we will evaluate any
changes to our internal control over financial reporting to determine if
material changes occurred.




Material
Weaknesses in Internal Controls




During
the conduct of our assessment of internal control over financial reporting, we
identified two material weaknesses and have advised the Board of Directors that
the following material weaknesses existed at December 31, 2009. As defined by
the Public Company Accounting Oversight Board Auditing Standard No. 5, a
“material weakness” is a control deficiency or a combination of control
deficiencies such that there is a reasonable possibility that a material
misstatement of the annual or interim financial statements will not be prevented
or detected on a timely basis.




The
material weaknesses exist in (i) the lack of independent oversight by an audit
committee of independent members of the Board of Directors and (ii) the lack of
segregation of duties in the financial reporting and compliance functions. Due
to the lack of resources, we have not taken any substantial steps towards
resolving the material weaknesses described above.




While
these material weaknesses did not have an effect on our reported results or
result in the restatement of any previously issued financial statements or any
other related disclosure, they nevertheless constituted deficiencies in our
controls. In light of these material weaknesses and the requirements enacted by
the Sarbanes-Oxley Act of 2002, and the related rules and regulations adopted by
the SEC, our Chief Executive Officer and Chief Financial Officer concluded that,
as of December 31, 2009, our controls and procedures needed improvement and were
not effective at a reasonable assurance level. Despite those deficiencies in our
internal controls, management believes that there were no material inaccuracies
or omissions of material fact in this annual report.




The
elimination of the material weaknesses identified above will be among our
highest priorities once we have sufficient resources to devote.




We cannot
provide any assurance that neither we nor our independent auditors will in the
future identify further material weaknesses or significant deficiencies in our
internal control over financial reporting that we have not discovered to
date.




Inherent
Limitations on Effectiveness of Controls




Our
management, including the CEO and CFO, does not expect that our disclosure
controls and procedures or our internal control over financial reporting will
prevent or detect all error and all fraud.  A control system, no
matter how well designed and operated, can provide only reasonable, not
absolute, assurance that the control system’s objectives will be
met.  The design of a control system must reflect the fact that there
are resource constraints, and the benefits of controls must be considered
relative to their costs. Further, because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all control issues
and instances of fraud, if any, within the company have been
detected.  These inherent limitations include the realities that
judgments in decision-making can be faulty and that breakdowns can occur because
of simple error or mistake. Controls can also be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the controls.  The design of any system of controls is
based in part on certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions. Projections of any evaluation of
controls effectiveness to future periods are subject to risks.  Over
time, controls may become inadequate because of changes in conditions of
deterioration in the degree of compliance with policies or
procedures.





27





This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this annual
report.




Changes
in internal control over financial reporting.




During
the last fiscal quarter, there was no change in our internal control over
financial reporting that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.




Item
      9B.
            Other
      Information




None.




PART
III




Item
      10.
            Directors,
      Executive Officers and Corporate
Governance.




The
following table sets forth the name, age, position and term of directorship, as
applicable, of each of our directors and executive
officers.  Directors are elected annually. Officers are selected by
the Board of Directors and serve at the pleasure of the Board.




Name
      and Position
                  
                  Age
                  
                  SinceB.K.
      Gogia
                    Chairman
      of the Board of Directors and Managing Director, Technology Solutions
      Group
                  
                  59
                  
                  2006Vijay
      Suri
                    President
      and Chief Executive Officer and a Director
                  
                  49
                  
                  2009Dr.
      Jerzy W. Bala
                    Chief
      Technical Officer and a Director
                  
                  51
                  
                  2006(1)Ray
      Piluso
                    Chief
      Operating Officer and VP of Business Development
                  
                  55
                  
                  2009


(1) Mr. Bala resigned as a director after
the merger of InferX and The Irus Group in October 2009.




Management
Biographies




Vijay Suri
– Mr. Suri, became President and CEO of InferX upon completion of the merger
with between The Irus Group and InferX in October 2009.  As President
of The Irus Group, a company he founded in 1995, Mr. Suri brings over 20 years
of experience designing and implementing large and complex predictive analytics,
business intelligence and corporate performance management solutions. In
addition to his role as CEO, Mr. Suri leads sales efforts in the targeted
financial services vertical.  Prior to starting The Irus Group, Inc.,
he served in various management positions at Fannie Mae, Information Resources
Incorporated (IRI Software) and Oracle Corporation. Mr. Suri developed the
"Iterative Prototyping Development Approach" (IPDA) Methodology for implementing
OLAP and Data Warehousing Projects. Under his guidance, The Irus Group has
emerged as a market leader in the Business Intelligence and Analytics community,
as well as a global firm offering large-scale, turn-key solutions. Mr. Suri
holds an MBA from Alabama A&M University, Huntsville, AL, a graduate of the
Leadership Development Program from the University of Maryland, College Park,
MD, and a graduate from the Harvard Business School Owner/President Management
Program (HBS-OPM 37), a comprehensive multi-year program helping global business
leaders understand the strategic and tactical challenges and opportunities
associated with owning, running, and sustaining a profitable
enterprise.





28





B.K.
Gogia– Mr. Gogia
was the Chief Executive Officer of InferX, a company he founded in 1992, until
its merger with The Irus Group in November 2009. He now serves as Managing
Director of Technology Solutions Group developing the long term strategy for
Company’s product roadmap while serving as Executive Chairman. An accomplished
business leader and entrepreneur with recognized expertise and notable
credentials in the technology industry, Mr. Gogia brings InferX proven skill in
developing and executing strategic plans for advanced analytical solutions for
healthcare in emerging markets. In this role, Mr. Gogia leads the marketing of
product development into solutions offering in targeted sectors, with particular
emphasis on the healthcare vertical. He works closely with the CEO in new
business development activities to identify and develop new business direction
for the Company. Prior to the formation of InferX, Mr. Gogia was Technical
Director/Software Manager with Science Applications International Corporation
(SAIC), and held senior technical positions with a firm now absorbed in L3
Corporation through acquisition and Lockheed Martin Corporation. Mr. Gogia began
his career as software developer with Data General Corporation in the field of
compilers and operating systems. Mr. Gogia holds a Bachelors degree from the
University of Delhi, India; a Masters degree with a major in Computer Science
from New York Institute of Technology; and a postgraduate management degree with
a major in Marketing from the Institute of Marketing & Management. In 2004,
Mr. Gogia was selected to participate in a Mindshare program for CEOs of the
most promising technology companies in the Greater Washington area.




Jerzy W. Bala,
Ph.D. – Dr. Bala is the co-founder of InferX and was appointed Chief
Technical Officer of InferX in May 2006 and a director in September 2006. Dr.
Bala defines short and long term technology directions for the Company’s
products, business cases for new target markets, oversees research and
development of future products and existing products, and manages intellectual
property for InferX. Dr. Bala has also consulted with Mitre Corporation, a
federally funded research and development corporation (FFRDC) in its Data
Exploitation and Information Management Group in development of data mining
techniques for network intrusion detection sponsored by the National Security
Agency; and subsequent development of data exploitation techniques for command
and control in simulations in operations other than war for the U.S. Marine
Corps. Dr. Bala has also served as Visiting Research Professor with the School
of Information Technology, George Mason University, and was the recipient of a
Fellowship in Computational Science and Engineering - National Science
Foundation New Technologies Program in the Division of Advanced Scientific
Computing. Dr. Bala holds a Ph.D. in Computer Science from George Mason
University, an MSc in Computer Engineering and a BSc in Electrical Engineering
from AGH University of Science and Technology in Poland. Dr. Bala’s Doctoral
Dissertation Thesis was in “Learning to Recognize Visual Concepts,” with his
Advisor, Professor Ryszard Michalski, a cofounder of Machine Learning as a
discipline. Dr. Bala has over 80 peer reviewed publications in conference
proceedings and journals and other numerous technical papers to his
credit.




Ray
Piluso–Mr. Piluso is our Chief Operating Officer and Senior Vice President of
Business Development of The Irus Group since 2006.  Mr. Piluso is a
senior operations and sales executive with more than 19 years of information
technology solutions experience that span from small to large enterprise
environments.   In his role as COO and Senior Vice President
Business Development, Mr. Piluso serves as the Company’s lead operations
executive leading and implementing growth initiatives, delivery operations
plans, business development, sales and marketing strategies.  Mr.
Piluso leads and executes business growth through organic business capture and
supports strategic teaming initiatives.  He began his career in the
U.S. Army and transferred to private industry to lead technology implementation
for a large-scale DoD program.  Holding various leadership positions,
Mr. Piluso has a proven record of building teams that have earned reputations
for quality excellence, solution delivery and customer
satisfaction.  Companies he has worked at, before joining the firm,
include Advanced Technology, Inc., PRC, Inc., Cameron Run Group, Inc., Compaq
Computer, and Hewlett-Packard, Inc.  In addition to 19 years
experience in the private sector, Mr. Piluso currently serves in the U.S. Army
Reserve. With over 29 years of total military service, Mr. Piluso brings
operational, managerial, and technical experience, including assignments around
the globe.  Mr. Piluso holds a B.S. degree from University of Southern
Colorado, along with multiple certifications from various technology
companies.





29





There are
no family relationships among the officers and directors.




Other
Significant Employees




Eldred A.
Ribeiro, Ph.D. –Dr. Ribeiro is our Director of
Healthcare Solutions.  Dr. Ribeiro is a software development manager
with extensive experience in the design, development, and implementation of
biomedical systems for use in healthcare.  At InferX Corporation, he
has developed programs for exploiting the use of predictive analytics technology
in prospectively tracking healthcare core measures, evidence-based and
personalized medicine, disease management, and translational
research.  Some of the well-known systems Dr. Ribeiro has been
involved in developing, include IT systems used nationally by the American Red
Cross at its blood collection and processing centers, and the Rescentris Ltd.
award-wining, semantically-based Collaborative Electronic Research Framework
(CERF) and Electronic Laboratory Notebook (ELN) used in biomedical translational
Research.  For the last five years Dr. Ribeiro worked at the American Red
Cross as IT Program Manager, Director of Configuration Management and as
its Senior Manager of Software Enginerring.  His experience with
bioinformatics, biotechnology instrumentation and medical IT systems stem from
his early engagement with the Human Genome Project at Brookhaven National
laboratory, New York.  During nearly a decade of research and
development at Bio-Rad Laboratories, California, he was instrumental in the
design and development of numerous applications and instruments for use of
genomics and proteomics.  Dr. Ribeiro, a National Science Talent
Scholar of India, completed his postdoctoral research at Brookhaven National
Laboratory.  He holds a Doctorate in Physics from Clemson University
and a Master of Science in Physics from the Indian Institute of
Technology.  He haspublished in numerous
journals, and served as a reviewer on several occasions.  His academic
background includes serving as a Guest Scientist at Brookhaven National
Laboratory and as an adjunct Assistant Professor at the Department of Medical
Informatics, The Ohio State University.





Rahul
Argade - Mr. Argade is our Director and Senior Systems Architect, a
position he has held since July 2009.  He has over 18 years of
experience in information technology arena. He has formulated numerous
integrated business, marketing and technology strategies for startups and
Fortune 2000 clients specifically to realize value from emerging
technologies.  For the last five years, Mr. Argade has worked at
Microsoft Corporation as a solution architect.  Mr. Argade started his
career at MCNC National Supercomputing Center in Research Triangle Park using
research grants from public and private consortia. He worked on computational
fluid dynamics mathematical models including non-steady state heat conduction,
and plastic/elastic deformation modeling.  Mr. Argade and two partners
founded Kinetics, Inc., an ISP and web consulting firm which developed credit
card processing systems for the web for clients such as Wachovia, Universal
Studios, and MCI (now Verizon Business). He sold Kinetics to SmartOnline, and
stayed on as the CTO.  At SmartOnline he formulated and implemented the
software as a service (SaaS) strategy for the company.  This company went
public in 2002.





Mr.
Argade has worked at MCI Systemhouse (AT Kearney/EDS) where he led the Internet
Strategic Consulting practice, specializing in Digital Supply Chain. 
Customers included Nike.com, GM, Arrow, Proctor and Gamble, Arrow Electronics,
MCI/Verizon, Boise Cascade, Toyota Motor Corporation, Volvo and Egon Zehnder
International (EZI). He also worked with Vint Cerf’s  IP engineering team,
which worked to rebuild the North American and European internet backbone. After
his work at EDS, he moved to Fujitsu Consulting as a Managing Director in Global
Operations. In 2004, Mr Argade joined Microsoft Corporation where he supported
sales efforts for Microsoft's largest clients and most complex engagements
involving web technologies. He implement web 2.0 strategies for customers
resulting in 25% revenue growth and improved customer satisfaction and won two
worldwide service awards (CPE) for excellence in customer satisfaction.  He
was also the lead architect for the NextWeb strategies. Mr Argade experience
spans many market segments, including Financial Services, Consumer Products,
Catalog and Distribution, Telecommunications, and Manufacturing.





Mr.
Argade attended the University of North Carolina at Chapel Hill, BS/MS Applied
Sciences and Mathematics. He has authored over 20 whitepaper and conference
presentations, on product strategies and emerging drivers for technology-enabled
change within enterprise companies





30





Board
of Advisors




Dr. Farzad Najam,
M.D., FACS, – Dr. Najam advises InerX’s healthcare practice. Dr. Najam is
a renowned surgeon.  Dr. Najam is currently the Associate Director of
Cardiac Surgery at the George Washington University (GWU) Hospital in
Washington, DC, USA.  Dr. Najam also holds an appointment as the
Associate Clinical Professor of Surgery at the GWU Medical Center, Washington,
DC.  Dr. Najam is a fellow of the American College of
Surgeons.  He is an active member of the Society of Thoracic Surgeons
(STS) and International Society of Minimally Invasive Cardiothoracic Surgery
(ISMICS).  He received the GWU Hospital Baldridge Physician of the
month award in 2008 and has published numerous articles in peer reviewed medical
journals.  He is also the co-editor of Robotic
Surgery:  Theory and Operative Technique, a ground-breaking textbook
on robotic surgery, published by McGraw Hill Inc, New York, NY.  The
book won the first prize at the 2009 British Medical Association Medical Books
Awards.





Mark
Lowers Mr. Lowers is a founder and principal in Lowers & Associates,
an international firm specializing in risk management and
mitigation.  In this capacity, he provides senior leadership and
direction for the rapidly-growing organization, based in Virginia, with offices
in London & Miami.  As an internationally-recognized authority on
risk management, Mr.  Lowers has more than 25 years of experience in
the field.  He is regularly cited as a source by journalists, and has
also written on the subject of risk management in trade
publications.  Prior to launching L&A, Mr. Lowers served as
president and CEO of AMSEC International, a global security organization based
in Winchester, Virginia.  In his more than two decades as leader of
the organization, he oversaw its expansion from a physical security systems
installer to a multinational player in risk management.  During his
tenure, Mr. Lowers directed the development of internal processes for client
service and quality control.  He also oversaw the creation of
sophisticated loss control programs and industry standards for the exclusive use
of a major international insurer serving a variety of industries, including
warehousing, retail, law firms, leasing companies and others.  Mr.
Lowers has an extensive educational background focused on criminal justice; he
is a Certified Fraud Examiner, a member of the National Armored Car Association,
(NACA) and an appointee on NACA's Security Steering Committee.  He is
also a member of the Independent Armored Car Operators Association, the American
Society for Industrial Security, and the Risk & Insurance Management
Society.  In addition, Mr. Lowers has served as Chairman of the Board
of Directors for Inova Loudoun Hospital since 1998 and is a current board member
of Inova Health System.




Compliance
with Section 16(a) of the Securities Exchange Act




Based
solely upon a review of Forms 3 and 4 furnished under Rule 16a-3(e) of the
Securities Exchange Act during its most recent fiscal year, Forms 5 furnished
with respect to our most recent fiscal year and any written representations
received from persons required to file such forms, the following persons -
either officers, directors or beneficial owners of more than ten percent of any
class of equity we have registered pursuant to Section 12 of the Securities
Exchange Act - failed to file on a timely basis reports required by Section
16(a) of the Securities Exchange Act during the most recent fiscal year or prior
fiscal years: Scott Parliament failed to file one Form 4 with respect to one
transaction.




Code
of Ethics




We have
not adopted a Code of Ethics, but we intend to do so in 2010.




Audit,
Nominating and Compensation Committees




Our Board
of Directors does not have standing audit, nominating or compensation
committees, and our Board of Directors performs the functions that would
otherwise be delegated to such committees.  We have not obtained
directors and officers insurance required by the quality of independent
directors who we seek to have join our Board of Directors.  We are in
the process of pricing directors and officers insurance.  Accordingly,
we anticipate that our Board of Directors will be able to attract qualified
independent directors to serve on the Board and ultimately form standing audit,
nominating and compensation committees.




Item
      11.
            Executive
      Compensation




Compensation
paid to Vijay Suri, as President and Chief Executive Officer, during the fiscal
year ended December 31, 2009, and each other executive officer whose
compensation exceeded $100,000 in the fiscal year ended December 31, 2009 are
set forth in the Summary Compensation Table below.





31





SUMMARY
COMPENSATION TABLE




Name
      and Principal
                                        Position
                                      
                                      Year
                                      
                                      Salary ($)
                                      
                                      
                                      Bonus ($)
                                      
                                      
                                      Nonequity
                                        Incentive
      Plan
                                        Compensation
      $
                                      
                                      
                                      Nonqualified
                                        Deferred
                                        Compensation
      $
                                      
                                      
                                      All
      Other
                                        Compensation
      $
                                      
                                      
                                      Total
      $Vijay
      Suri
                                        President and
      Chief
                                        Executive
      Officer
                                      
                                      2009
                                      
                                      $
                                      205,329
                                      (1)
                                      
                                      
                                      –
                                      
                                      
                                      
                                      –
                                      
                                      
                                      
                                      –
                                      
                                      
                                      $
                                      1,700
                                      (2)
                                      
                                      $
                                      207,029B.K.
      Gogia
                                        Chairman of the
      Board
                                      
                                      2009
                                      
                                      $
                                      183,333
                                      (3)
                                      
                                      
                                      –
                                      
                                      
                                      
                                      –
                                      
                                      
                                      
                                      –
                                      
                                      
                                      
                                      –
                                      
                                      
                                      $
                                      193,033Jerzy
      W. Bala
                                        Chief Technical
      Officer, VP
                                      
                                      2009
                                      
                                      $
                                      142,667
                                      (4)
                                      
                                      
                                      –
                                      
                                      
                                      
                                      –
                                      
                                      
                                      
                                      –
                                      
                                      
                                      
                                      –
                                      
                                      
                                      $
                                      143,367Ray
      Piluso
                                        Chief Operating
      Officer
                                      
                                      2009
                                      
                                      $
                                      154,537
                                      (5)
                                      
                                      
                                      –
                                      
                                      
                                      
                                      –
                                      
                                      
                                      
                                      –
                                      
                                      
                                      $
                                      4,000
                                      
                                      
                                      $
                                      158,537


(1)
              Includes
      accrued salary of $13,662.(2)
              Consists
      of an accrued automobile allowance in the amount of  $1,700 for
      a period of two months.(3)
              Includes
      accrued salary of $125,333.(4)
              Includes
      accrued salary of $91,667.(5)
              Includes
      accrued salary of
$10,691.




Mr. Suri
executed an employment agreement dated October 27, 2009 with
InferX.  Under the terms of his employment agreement, Mr. Suri is
employed for a five year term as President and CEO of InferX.  Mr.
Suri will receive an annual base salary of $230,000, the right to receive
additional compensation in the form of a bonus that can be paid in cash or
stock, such bonus to be at the discretion of the Board and subject to such
conditions as the Board and Mr. Suri mutually agree and customary benefits for
senior executives of InferX.  Mr. Suri also received
1,000,000 shares of the Company’s preferred stocks
with each share having voting rights along with holder’s of the
Company’s
shares of common stock equal to 100 votes per share.The
employment agreement is terminable by Mr. Suri for “good reason”, including a
material breach of the employment agreement not cured within 15
days.  Upon termination for “good reason” by Mr. Suri or by the
Company without cause, Mr. Suri will receive a severance payment equal to the
greater of two years or the remaining term of his employment
agreement.




On
October 27, 2009, we entered into an Executive Employment Agreement with B.K.
Gogia.  Under the terms of his executive employment agreement, Mr.
Gogia is employed for a term of five years.  Mr. Gogia will receive a
base salary of $200,000 per annum, payable semi-monthly, which base salary shall
increase to $230,000 per annum when the Company first achieves EBITDA equal to
at least $1,000,000 as reported in the Company’s quarterly reports or in the
annual report filed with the SEC or, if not a reporting company under the
Securities Exchange Act of 1934, as amended, the financial statements reviewed
by the Company’s independent accounting firm.  Mr. Gogia is eligible
for a bonus to be paid in cash, stock or both on terms that shall be mutually
acceptable to the Board and Mr. Gogia.  In the event that InferX sells
or licenses its software product for at least $1,000,000 or generates EBITDA of
$1,000,000 it shall pay Mr. Gogia $122,000 which is equal to his unpaid salary
for 2009 under his May 1, 2006 Executive Employment Agreement.  Mr.
Gogia also received 1,000,000 shares of the Company’s preferred stock with each
share having voting rights along with holders of the Company’s shares of common
stock equal to 100 votes per share and shall be granted an option under the
Company’s 2006 Stock Incentive Plan to acquire 1,750,000 shares of the Company’s
common stock at the market price on the date of grant on the effective date of
the merger between InferX and The Irus Group, Inc. under Delaware
law.  750,000 options vested upon execution of this Agreement and
1,000,000 options vested on December 31, 2009.  The Company also will
issue Mr. Gogia 300,000 restricted shares of the Company’s common
stock.  Mr. Gogia’s employment agreement is terminable by the Company
during the term with or without cause.  The employment agreement is
terminable by Mr. Gogia for “good reason”, including a material breach of the
employment agreement not cured within 15 days.  Upon termination for
“good reason” by Mr. Gogia or by the Company without cause, Mr. Gogia will
receive over a six month period a severance payment equal to the greater
of  greater of (i) 24 months of his then-current base salary or (ii)
the remainder of the term of this Agreement.  All options will be
subject to accelerated vesting if Mr. Gogia’s employment is terminated by him
for Good Reason, as that term is defined in his employment
agreement.





32





On
November 1, 2009 we entered into an Executive Employment Agreement with Dr.
Bala.  Under his employment agreement Dr. Bala will receive an annual
salary of $156,000 per annum, payable semi-monthly and a one-time bonus upon the
closing of the merger between InferX and The Irus Group of $85,619 which is
equal to 50% of his unpaid salary for 2009 under his prior May 1, 2006
employment agreement.  Dr. Bala also is eligible for a bonus upon
achieving objectives determined by management for him for achieving certain
performance targets.  Dr. Bala’s employment agreement has a term of
three years and is terminable by the Company during the term with or without
cause.  The employment agreement is terminable by Dr. Bala for “good
reason”, including a material breach of the employment agreement not cured
within 15 days.  Upon termination for “good reason” by Dr. Bala or by
the Company without cause.  Dr. Bala will receive over a six month
period a severance equal to the greater of 12 months or the remaining term of
his employment agreement.




On
December 15, 2009 we entered into an Executive Employment Agreement with
Raimondo G. Piluso.  Under his employment agreement Mr. Piluso will
receive an annual salary of $175,000 per annum, payable
semi-monthly.  Mr. Piluso will be eligible for a bonus to be paid in
cash, stock or both on terms that shall be mutually acceptable to the Board and
Mr. Piluso.  Upon execution of Mr. Piluso’s Executive Agreement he
received an option to acquire 500,000 shares of the Company’s common stock under
the Company’s 2006 Stock Incentive Plan, of which 200,000 shares vested upon
execution of this Agreement and 150,000 shares shall vest upon the first and
second anniversaries of the date of his Employment Agreement.  Mr.
Piluso’s employment agreement has a term of three years and is terminable by the
Company during the term with or without cause.  The employment
agreement is terminable by Mr. Piluso for “good reason”, including a material
breach of the employment agreement not cured within 15 days.  Upon
termination for “good reason” by Mr. Piluso or by the Company without
cause.  Mr. Piluso will receive over a six month period a severance
equal to the greater of 12 months or the remaining term of his employment
agreement.




We have a
401(k) plan for which we provide matching funds.  In October 2007, we
adopted a qualified stock option plan that will include up to 2,200,000 shares
of our common stock.  No other retirement, pension, or profit sharing
exist.




OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END




Option
      Awards
                              
                              Stock
      AwardsNumber
      of
                                Securities
                                Underlying
                                Unexercised
                                Options
      ($)
                              
                              
                              Number
      of
                                Securities
                                Underlying
                                Unexercised
                                Options
      ($)
                              
                              
                              Equity
                                Incentive
      Plan
                                Awards:
                                Securities
                                Underlying
                                Unexercised
                                Unearned
                                Options
      ($)
                              
                              
                              Option
      Exercise
                                Price
      ($)
                              
                              Option
                                Expiration
      Date
                              
                              Number
      of
                                Shares
      or
                                Units
      of
                                Stock
      That
                                Have
      Not
                                Vested
      ($)
                              
                              
                              Market
      value
                                of
      Shares or
                                Units
      of
                                Stock
      That
                                Have
      Not
                                Vested
      ($)
                              
                              
                              Equity
                                Incentive
                                Plan
                                Awards:
                                Number
      of
                                Unearned
                                Shares,
                                Units
      or
                                Other
      That
                                Have
      Not
                                Vested
      ($)
                              
                              
                              Equity
                                Incentive
                                Plan
                                Awards:
                                Market
      or
                                Payout
                                Value
      of
                                Unearned
                                191,667
      or
                                Other
                                Rights
      That
                                Have
      Not
                                VestedName
                              
                              Exercisable
                              
                              
                              UnexercisableB.K.
      Gogia
                              
                              
                              1,750,000
                              
                              
                              
                              –
                              
                              
                              
                              –
                              
                              
                              $
                              0.45
                              
                              10/28/2014
                              
                              
                              –
                              
                              
                              
                              –
                              
                              
                              
                              –
                              
                              
                              
                              –Jerzy
      W. Bala
                              
                              
                              –
                              
                              
                              
                              1,000,000
                              
                              
                              
                              1,000,000
                              
                              
                              $
                              0.45
                              
                              11/1/2014
                              
                              
                              –
                              
                              
                              
                              –
                              
                              
                              
                              –
                              
                              
                              
                              –Ray
      Piluso
                              
                              
                              200,000
                              
                              
                              
                              300,000
                              
                              
                              
                              300,000
                              
                              
                              $
                              0.45
                              
                              12/15/2014
                              
                              
                              –
                              
                              
                              
                              –
                              
                              
                              
                              –
                              
                              
                              
                              –





33





The table
entitled “DIRECTOR COMPENSATION” and the discussion related to that table has
been omitted because no compensation required to be reported in that table was
awarded to, earned by or paid to any of the directors in any of the covered
fiscal years.




Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.




The
following table sets forth, as of April 26, 2010, certain information concerning
the beneficial ownership of common stock by (i) each person known by the company
to be the owner of more than 5% of the outstanding common stock, (ii) each
director, (iii) each Named Executive Officer, and (iv) all directors and
executive officers as a group. In general, “beneficial ownership” includes those
shares a director or executive officer has the power to vote or the power to
transfer, and stock options and other rights to acquire common stock that are
exercisable currently or become exercisable within 60 days. Except as indicated
otherwise, the persons named in the table below have sole voting and investment
power with respect to all shares shown as beneficially owned by them. The
calculation of the percentage owned is based on 13,452,913commonshares
outstanding (plus, with respect only to each holder of securities that are
exercisable for or convertible into common stock within 60 days, shares
underlying such securities). The address of each of the directors and executive
officers listed below is c/o InferX Corporation, 46950 Jennings Farm Drive,
Suite 290, Sterling, Virginia 20164 unless otherwise indicated.





34




Name
      and Address
                                  
                                  Amount
      and Nature of
                                    Beneficial
      Ownership
                                  
                                  
                                  Percentage
      of
                                    Outstanding
      Shares
                                    OwnedVijay
      Suri
                                  
                                  
                                  9,139,768
                                  (1)
      (2)
                                  
                                  
                                  67.94
                                  %B.K.
      Gogia
                                  
                                  
                                  562,481
                                  (1)
      (3)
                                  
                                  
                                  4.18
                                  %Jerzy
      W. Bala*
                                  
                                  
                                  53,903
                                  
                                  
                                  
                                  0.4
                                  %Ray
      Piluso*
                                  
                                  
                                  50,000
                                  
                                  
                                  
                                  0.37
                                  %All
      directors and executive officers as a
                                    group
      (4 persons)
                                  
                                  
                                  9,806,152
                                  (1) (2)
      (3)
                                  
                                  
                                  72.89
                                  %Robert
      B. Prag
                                    2455
      El Amigo Road
                                    Del
      Mar, CA 92014
                                  
                                  
                                  140,523
                                  
                                  
                                  
                                  1.04
                                  %John
      Lemak*
                                    Sandor
      Capital Master Fund, L.P.
                                    2828
      Routh Street, Suite 500
                                    Dallas,
      TX 75201
                                  
                                  
                                  160,507
                                  
                                  
                                  
                                  1.19
                                  %Lacuna
      Venture Fund LLLP
                                    c/o
      Lacuna Ventures
                                    1100
      Spruce Street, Suite 202
                                    Boulder,
      CO 80302
                                  
                                  
                                  352,621
                                  
                                  
                                  
                                  2.62
                                  %Tangiers
      Capital LLC
                                  
                                  
                                  300,000
                                  
                                  
                                  
                                  2.23
                                  %








* Less
than 1%


(1)Does
not include 1,000,000 shares of preferred stock that have the voting power of
100 million shares of the Company’s common stock.





(2)Includes 50,000 shares owned directly by Mr. Suri’s spouse.





(3)Includes
8,867 shares owned directly by Mr. Gogia’s daughter, 8,867 shares owned directly
by Mr. Gogia’s son, and 52,023 shares owned directly by Mr. Gogia’s
spouse.





(4)Based
upon information provided to or otherwise known by the company
and  contained in the amended Schedule 13G filed by Mr. Prag on
November 3, 2006, all of his warrants were exercised in full during the
merger.   Mr. Prag owns 140,523 shares of common stock, which
would represent beneficial ownership of approximately 1.05% of the company’s
issued and outstanding common stock.





(5)Based
upon information provided to or otherwise known by the company
and  contained in the Schedule 13G filed by Sandor Capital Advisors,
LLC, a Texas limited liability company (“Sandor Advisors”), and Mr. Lemak, the
principal of Sandor Advisors, on November 1, 2006, all of the warrants were
exercised in full during the merger.  Sandor Advisors and Mr. Lemak
jointly beneficially own 160,507 shares of common stock, which represents
beneficial ownership of approximately 1.19% of the company’s issued and
outstanding common stock. Mr. Lemak makes investment decisions on behalf of
Sandor Advisors.





(6)Based
upon information provided to or otherwise known by the company
and  contained in the Schedule 13G filed by Lacuna Venture Fund LLLP
(“Lacuna Venture Fund”), Lacuna Ventures GP LLLP (“Lacuna GP”) and Lacuna, LLC
(“Lacuna LLC,” and, together with Lacuna Venture Fund and Lacuna GP, the “Lacuna
Entities”) on November 3, 2006, all of the warrants were exercised in
full.  The Lacuna Entities beneficially own 352,621 shares of common
stock, which represents beneficial ownership of approximately 2.63% of the
company’s issued and outstanding common stock.  Rawleigh Ralls makes
investment decisions on behalf of each of the Lacuna Entities.





(7)     Based
upon information provided to or otherwise known by the company
and  contained in the Schedule 13G filed by Tangiers Capital LLC on
November 3, 2006, we calculate that Tangiers Capital LLC owns 300,000 shares of
common stock, which represents beneficial ownership of approximately 2.23% of
the company’s issued and outstanding common stock.





35







Item
      13.
            Certain
      Relationships and Related Transactions, and Director
      Independence.




Director
Independence




The Board
of Directors has determined that none of its directors is an “independent
director.”




Item
      14.
            Principal
      Accounting Fees and Services.




Audit
Fees




The
aggregate fees billed for each of the fiscal years ended December 31, 2009 and
2008 for professional services rendered by the principal accountant for the
audit of our annual financial statements and reviews of the quarterly financial
statements was $40,000 and $38,000, respectively.




Audit
Related Fees




None.




Tax
Fees




None.




All
Other Fees




None.





36




PART
IV




Item
      15.
            Exhibits
      and Financial Statement Schedules




Our
consolidated financial statements for the fiscal years ended December 31, 2009
and 2008 are filed with this report.




Exhibit
Index




3(i)
                  
                  Certificate
      of Incorporation, as amended on October 27, 2006 (incorporated by
      reference to Exhibit 3(i) to the registrant’s Current Report on Form 8-K,
      filed on October 30, 2006)3(ii)
                  
                  By-laws
      (incorporated by reference to Exhibit 3(ii) to the registrant’s
      Registration Statement on Form 10-SB, filed on January 12,
      2006)4.1
                  
                  Form
      of common stock certificate (incorporated by reference to Exhibit 4.1 to
      the registrant’s Current Report on Form 8-K, filed on October 30,
      2006)10.1
                  
                  Lease
      of the registrant’s principal executive offices10.2
                  
                  Employment
      Agreement dated October 27, 2009 between InferX Corporation and B.K.
      Gogia10.3
                  
                  Employment
      Agreement dated November 1, 2009 between InferX Corporation and 
      Jerzy Bala10.4
                  
                  Employment
      Agreement dated  October 27, 2009 between InferX Corporation
      and  Vijay Suri10.5
                  
                  Employment
      Agreement dated December 15, 2009 between InferX Corporation and 
      Raimondo G. Piluso10.6
                  
                  Agreement
      and Plan of Merger by and among Black Nickel Acquisition Corp. I, InferX
      Acquisition Corp. and InferX Corporation, dated October 24, 2006
      (incorporated by reference to Exhibit 10.8 to the registrant’s Current
      Report on Form 8-K, filed on October 30, 2006)10.7
                  
                  InferX
      Corporation 2007 Stock Incentive Plan10.8
                  
                  Form
      of Convertible Note (incorporated by reference to Exhibit 99.1 to the
      registrant’s Current Report on Form 8-K, filed on March 12,
      2008)10.9
                  
                  Debenture
      and Warrant Purchase Agreement (incorporated by reference to Exhibit 10.1
      to the registrant’s Current Report on Form 8-K, filed on December 31,
      2009).10.10
                  
                  Form
      of Debenture for $300,000 Bridge Financing (incorporated by reference to
      Exhibit 10.1 to the registrant’s Current Report on Form 8-K, filed on
      December 31, 2009).10.11
                  
                  Security
      Agreement (incorporated by reference to Exhibit 10.1 to the registrant’s
      Current Report on Form 8-K, filed on December 31,
2009).10.12
                  
                  Form
      of Warrant (incorporated by reference to Exhibit 10.1 to the registrant’s
      Current Report on Form 8-K, filed on December 31,
2009).31.1
                  
                  Certification
      of the Chief Executive Officer required by Rule 13a-14(a) or Rule
      15d-14(a)31.2
                  
                  Certification
      of the Chief Financial Officer required by Rule 13a-14(a) or Rule
      15d-14(a)32
                  
                  Certification
      of the Chief Executive Officer and the Chief Financial Officer required by
      Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C.
  1350





37





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  Board of
Directors and Stockholders
 InferX
Corporation
 Sterling,
VA
 
 We have
audited the accompanying consolidated balance sheets of InferX Corporation (the
“Company”) as of December 31, 2009 and 2008 and the related consolidated
statements of operations, changes in stockholders’ equity (deficit), and cash
flows for the years ended December 31, 2009 and 2008. These consolidated
financial statements are the responsibility of the Company’s
management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
 
 We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement.  The Company is not required to have, nor were we
engaged to perform an audit of the Company’s internal control over financial
reporting.  Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting.  Accordingly, we express no such opinion.  An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of InferX Corporation as of
December 31, 2009 and 2008, and the results of its consolidated statements of
operations, changes in stockholders’ equity (deficit), and cash flows for the
years ended December 31, 2009 and 2008 in conformity with U.S. generally
accepted accounting principles.
 
 The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern.   As discussed in
Note 1 to the consolidated financial statements, the Company has sustained
significant operating losses and is currently in default of its debt instrument
and needs to obtain additional financing or restructure its current obligations.
These conditions raise substantial doubt about the Company’s ability to continue
as a going concern.  Management’s plans in regard to these matters are
also described in Note 1.  The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
 
 /s/
KBL, LLP
 New York,
NY
 May 21,
2010
  F-1


INFERX
CORPORATION
 CONSOLIDATED
BALANCE SHEETS
 DECEMBER
31, 2009 AND 2008
 
 DECEMBER 31,
                            
                            
                            DECEMBER 31,2009
                            
                            
                            2008ASSETSCURRENT
      ASSETSCash
                            
                            $
                            49,989
                            
                            
                            $
                            71,450Accounts
      receivable
                            
                            
                            916,641
                            
                            
                            
                            383,952Prepaid
      expenses
                            
                            
                            -
                            
                            
                            
                            9,989Total
      current assets
                            
                            
                            966,630
                            
                            
                            
                            465,391Fixed
      assets, net of depreciation
                            
                            
                            49,722
                            
                            
                            
                            55,062Other
      AssetsOther
      assets
                            
                            
                            6,000
                            
                            
                            
                            6,000Computer
      software development costs, net of amortization
                            
                            
                            64,888
                            
                            
                            
                            0Total
      other asset
                            
                            
                            70,888
                            
                            
                            
                            6,000TOTAL
      ASSETS
                            
                            $
                            1,087,240
                            
                            
                            $
                            526,453LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)CURRENT
      LIABILITIESAccounts
      payable and accrued expenses
                            
                            $
                            2,102,644
                            
                            
                            $
                            546,070Line
      of credit
                            
                            
                            358,087
                            
                            
                            
                            850,000Related
      party payable
                            
                            
                            725,000
                            
                            
                            
                            -Convertible
      debenture, net of debt discount of $98,130 and $0
                            
                            
                            51,870
                            
                            
                            
                            -Derivative
      liability
                            
                            
                            220,052
                            
                            
                            
                            -Liability
      for stock to be issued - preferred stock
                            
                            
                            200
                            
                            
                            
                            -Liability
      for stock to be issued - common stock
                            
                            
                            61,909
                            
                            
                            
                            -Current
      portion of notes payable, net of debt discount of $0 and
      $9,658
                            
                            
                            545
                            
                            
                            
                            -Total
      current liabilities
                            
                            
                            3,520,307
                            
                            
                            
                            1,396,070Long-term
      LiabilitiesNotes
      payable, net of current portion, net of debt discount of $0 and
      $1,059
                            
                            
                            354,391
                            
                            
                            
                            -TOTAL
      LIABILITIES
                            
                            
                            3,874,698
                            
                            
                            
                            1,396,070STOCKHOLDERS'
      EQUITY (DEFICIT)Preferred
      stock, par value $0.0001 per share, 10,000,000 shares authorized and no
      shares issued and outstanding
                            
                            
                            -
                            
                            
                            
                            -Common
      stock, par value $0.0001 per share, 400,000,000 shares authorized and
      3,920,645 shares issued and outstanding, respectively
                            
                            
                            392
                            
                            
                            
                            15Additional
      paid-in capital
                            
                            
                            -
                            
                            
                            
                            80,085Retained
      earnings (defict)
                            
                            
                            (2,787,850
                            )
                            
                            
                            (949,717
                            )Total
      stockholders' equity (deficit)
                            
                            
                            (2,787,458
                            )
                            
                            
                            (869,617
                            )TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                            
                            $
                            1,087,240
                            
                            
                            $
                            526,453
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-2
  INFERX
CORPORATION
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 2009
                  
                  
                  2008REVENUE
                  
                  $
                  7,328,970
                  
                  
                  $
                  4,707,925COST
      OF REVENUESDirect
      labor and other finges
                  
                  
                  1,041,160
                  
                  
                  
                  852,397Subcontractor
                  
                  
                  4,408,927
                  
                  
                  
                  2,981,596Other
      direct costs
                  
                  
                  138,028
                  
                  
                  
                  109,245Amortization
      of computer software development costs
                  
                  
                  6,280
                  
                  
                  
                  -Total
      costs of revenues
                  
                  
                  5,594,395
                  
                  
                  
                  3,943,238GROSS
      (LOSS)
                  
                  
                  1,734,575
                  
                  
                  
                  764,687OPERATING
      EXPENSESIndirect
      and overhead labor and fringes
                  
                  
                  679,751
                  
                  
                  
                  521,548Professional
      fees
                  
                  
                  160,599
                  
                  
                  
                  59,321Business
      development costs
                  
                  
                  50,594
                  
                  
                  
                  109,848Rent
                  
                  
                  90,669
                  
                  
                  
                  80,821Advertising
      and promotion
                  
                  
                  25,726
                  
                  
                  
                  10,866General
      and administrative
                  
                  
                  258,015
                  
                  
                  
                  82,636Stock
      based compensation
                  
                  
                  877,060
                  
                  
                  
                  -Depreciation
                  
                  
                  30,447
                  
                  
                  
                  57,275Total
      operating expenses
                  
                  
                  2,172,861
                  
                  
                  
                  922,315NET
      LOSS FROM OPERATIONS BEFORE OTHER EXPENSE AND PROVISION FOR INCOME
      TAXES
                  
                  
                  (438,286
                  )
                  
                  
                  (157,628
                  )OTHER
      INCOME (EXPENSE)Gain
      on sale of fixed assets
                  
                  
                  18,255
                  
                  
                  
                  -Fair
      value adjustment on derivative liability
                  
                  
                  (121,922
                  )
                  
                  
                  -Interest
      expense, net of interest income
                  
                  
                  (19,762
                  )
                  
                  
                  (46,518
                  )Total
      other income (expense)
                  
                  
                  (123,429
                  )
                  
                  
                  (46,518
                  )NET
      LOSS FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES
                  
                  
                  (561,715
                  )
                  
                  
                  (204,146
                  )Provision
      for income taxes
                  
                  
                  -
                  
                  
                  
                  -NET
      (LOSS) APPLICABLE TO SHARES
                  
                  $
                  (561,715
                  )
                  
                  $
                  (204,146
                  )NET
      (LOSS) PER BASIC AND DILUTED SHARES
                  
                  $
                  (0.56
                  )
                  
                  $
                  (0.32
                  )WEIGHTED
      AVERAGE NUMBER OF SHARES OUTSTANDING
                  
                  
                  1,011,308
                  
                  
                  
                  635,170
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-3
  INFERX
CORPORATION
 CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  Additional
                    
                    
                    RetainedPreferred Stock
                    
                    
                    Common Stock
                    
                    
                    Paid-In
                    
                    
                    EarningsShares
                    
                    
                    Amount
                    
                    
                    Shares
                    
                    
                    Amount
                    
                    
                    Capital
                    
                    
                    (Deficit)
                    
                    
                    TotalBalance
      - December 31, 2004
                    
                    
                    -
                    
                    
                    $
                    -
                    
                    
                    
                    2,538
                    
                    
                    $
                    2,538
                    
                    
                    $
                    102,957
                    
                    
                    $
                    (77,877
                    )
                    
                    $
                    27,618Issuance
      of shares to founders for services rendered
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    114
                    
                    
                    
                    114
                    
                    
                    
                    191
                    
                    
                    
                    -
                    
                    
                    
                    305Issuance
      of shares for cash
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    19
                    
                    
                    
                    19
                    
                    
                    
                    74,981
                    
                    
                    
                    -
                    
                    
                    
                    75,000Issuance
      of shares for conversion of notes payable
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    72
                    
                    
                    
                    72
                    
                    
                    
                    249,928
                    
                    
                    
                    -
                    
                    
                    
                    250,000Contribution
      of capital by shareholder
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    56,851
                    
                    
                    
                    -
                    
                    
                    
                    56,851Net
      loss for the year, as previously reported
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (526,320
                    )
                    
                    
                    (526,320
                    )Prior
      period adjustment
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    38,462
                    
                    
                    
                    (38,462
                    )
                    
                    
                    -Net
      loss for the year, as restated
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    38,462
                    
                    
                    
                    (564,782
                    )
                    
                    
                    (526,320
                    )Balance
      - December 31, 2006
                    
                    
                    -
                    
                    
                    $
                    -
                    
                    
                    
                    9,129,392
                    
                    
                    $
                    913
                    
                    
                    $
                    1,846,575
                    
                    
                    $
                    (2,853,817
                    )
                    
                    $
                    (1,006,329
                    )Exercising
      of warrants to common stock
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    2,074,392
                    
                    
                    
                    207
                    
                    
                    
                    628,611
                    
                    
                    
                    -
                    
                    
                    
                    628,818Issuance
      of shares for penalty under registration rights agreement
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    268,404
                    
                    
                    
                    27
                    
                    
                    
                    134,175
                    
                    
                    
                    -
                    
                    
                    
                    134,202Change
      in classification of derivatives based on EITF 00-19-2
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    547,086
                    
                    
                    
                    484,617
                    
                    
                    
                    1,031,703Warrants
      issued to consultant
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    94,457
                    
                    
                    
                    -
                    
                    
                    
                    94,457Vested
      stock options issued
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    27,613
                    
                    
                    
                    -
                    
                    
                    
                    27,613Net
      loss for the year
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (1,704,737
                    )
                    
                    
                    (1,704,737
                    )Balance
      - December 31, 2007
                    
                    
                    -
                    
                    
                    $
                    -
                    
                    
                    
                    573,639
                    
                    
                    $
                    57
                    
                    
                    $
                    3,279,607
                    
                    
                    $
                    (4,073,937
                    )
                    
                    $
                    (794,273
                    )Issuance
      of common stock in conversion of notes payable
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    270,566
                    
                    
                    
                    27
                    
                    
                    
                    169,473
                    
                    
                    
                    -
                    
                    
                    
                    169,500Issuance
      of common stock for services rendered
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    17,500
                    
                    
                    
                    2
                    
                    
                    
                    52,498
                    
                    
                    
                    -
                    
                    
                    
                    52,500Issuance
      of common stock for liability for stock to be issued
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,500
                    
                    
                    
                    1
                    
                    
                    
                    14,999
                    
                    
                    
                    -
                    
                    
                    
                    15,000Issuance
      of common stock for incentive to enter into note payable
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    23,750
                    
                    
                    
                    2
                    
                    
                    
                    64,123
                    
                    
                    
                    -
                    
                    
                    
                    64,125Vested
      stock options issued
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    48,345
                    
                    
                    
                    -
                    
                    
                    
                    48,345Recognition
      of beneficial conversion feature on notes payable
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,091,253
                    
                    
                    
                    -
                    
                    
                    
                    1,091,253Warrants
      issued
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    230,079
                    
                    
                    
                    -
                    
                    
                    
                    230,079Net
      loss for the year
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (2,727,698
                    )
                    
                    
                    (2,727,698
                    )Balance
      - December 31, 2008
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    886,955
                    
                    
                    
                    89
                    
                    
                    
                    4,950,377
                    
                    
                    
                    (6,801,635
                    )
                    
                    
                    (1,851,169
                    )Issuance
      of common stock in conversion of convertible notes payable, interest and
      warrants issued in connection with the convertible notes
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,895,000
                    
                    
                    
                    190
                    
                    
                    
                    393,310
                    
                    
                    
                    -
                    
                    
                    
                    393,500Issuance
      of common stock for cash
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    617,500
                    
                    
                    
                    62
                    
                    
                    
                    134,938
                    
                    
                    
                    
                    
                    
                    
                    135,000Issuance
      of common stock for services
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    187,500
                    
                    
                    
                    18
                    
                    
                    
                    52,982
                    
                    
                    
                    
                    
                    
                    
                    53,000Issuance
      of common stock in conversion of warrants
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    232,940
                    
                    
                    
                    23
                    
                    
                    
                    2,236,201
                    
                    
                    
                    -
                    
                    
                    
                    2,236,224Issuance
      of common stock in exercies of options
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    100,750
                    
                    
                    
                    10
                    
                    
                    
                    (10
                    )
                    
                    
                    -
                    
                    
                    
                    -Conversion
      of accrued interest to additional paid-in capital
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    45,913
                    
                    
                    
                    -
                    
                    
                    
                    45,913Conversion
      of accrued expenses (related party) to additional paid-in
      capital
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    524,226
                    
                    
                    
                    -
                    
                    
                    
                    524,226Net
      loss - InferX prior to reverse merger
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (3,332,872
                    )
                    
                    
                    (3,332,872
                    )Recapitalization
      due to reverse merger with Irus Group (shares have not yet been issued and
      are reflected in the liability section of the consolidated balance sheet
      as of December 31, 2009)
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (9,766,416
                    )
                    
                    
                    8,459,791
                    
                    
                    
                    (1,306,625
                    )Reclassification
      of negative additional paid in capital to retained
earnings
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    551,419
                    
                    
                    
                    (551,419
                    )
                    
                    
                    -Stock
      based compensation due to granting of stock options vesting in
      2009
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    877,060
                    
                    
                    
                    -
                    
                    
                    
                    877,060Net
      loss for the year
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (561,715
                    )
                    
                    
                    (561,715
                    )Balance
      - December 31, 2009
                    
                    
                    -
                    
                    
                    $
                    -
                    
                    
                    
                    3,920,645
                    
                    
                    $
                    392
                    
                    
                    $
                    -
                    
                    
                    $
                    (2,787,850
                    )
                    
                    $
                    (2,787,458
                    )
 
 The
accompanying notes are an integral part of these
consolidated  financial statements.
  F-4
  INFERX
CORPORATION
 CONSOLIDATED
STATEMENTS OF CASH FLOW
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 2009
                        
                        
                        2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      (loss)
                        
                        $
                        (561,715
                        )
                        
                        $
                        (204,146
                        )Adjustments
      to reconcile net (loss) to net cash provided by operating
      activities:Stock
      issued for services and liability for stock to be issued - common
      stock
                        
                        
                        61,909
                        
                        
                        
                        -Stock
      issued for services and liability for stock to be issued - preferred
      stock
                        
                        
                        200
                        
                        
                        
                        -Stock
      based compensation
                        
                        
                        877,060
                        
                        
                        
                        -Fair
      value adjustment for derivative liability
                        
                        
                        121,922
                        
                        
                        
                        -Amortization
      of computer software development costs
                        
                        
                        6,280
                        
                        
                        
                        -Depreciation
                        
                        
                        30,447
                        
                        
                        
                        57,275Cash
      flow effect on reverse merger with Irus Group
                        
                        
                        (56,936
                        )
                        
                        
                        -Change
      in assets and liabilities(Increase)
      decrease in accounts receivable
                        
                        
                        (532,689
                        )
                        
                        
                        100,939(Increase)
      decrease in other current assets
                        
                        
                        9,989
                        
                        
                        
                        (1,445
                        )Increase
      in accounts payable and accrued expenses
                        
                        
                        363,985
                        
                        
                        
                        97,823Total
      adjustments
                        
                        
                        882,167
                        
                        
                        
                        254,592Net
      cash provided by operating activities
                        
                        
                        320,452
                        
                        
                        
                        50,446CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      received for shares of common stock
                        
                        
                        -
                        
                        
                        
                        -(Decrease)
      in cash overdraft
                        
                        
                        -
                        
                        
                        
                        -Proceeds
      received from convertible debenture
                        
                        
                        150,000
                        
                        
                        
                        -(Repayment)
      of line of credit, net
                        
                        
                        (491,913
                        )
                        
                        
                        -Net
      cash provided by financing activities
                        
                        
                        (341,913
                        )
                        
                        
                        -NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                        
                        
                        (21,461
                        )
                        
                        
                        50,446CASH
      AND CASH EQUIVALENTS - BEGINNING OF PERIOD
                        
                        
                        71,450
                        
                        
                        
                        21,004CASH
      AND CASH EQUIVALENTS - END OF PERIOD
                        
                        $
                        49,989
                        
                        
                        $
                        71,450SUPPLEMENTAL
      INFORMATION OF CASH FLOW ACTIVITYCash
      paid during the year for interest
                        
                        $
                        19,175
                        
                        
                        $
                        48,541Cash
      paid during the year for income taxes
                        
                        $
                        -
                        
                        
                        $
                        -SUPPLEMENTAL
      INFORMATION OF NONCASH ACTIVITYEffect
      of reverse merger with The Irus Group, Inc.Fixed
      assets
                        
                        $
                        (25,107
                        )
                        
                        $
                        -Computer
      software costs
                        
                        
                        (71,168
                        )
                        
                        
                        -Accounts
      payable and accrued expenses
                        
                        
                        1,192,589
                        
                        
                        
                        -Notes
      payable
                        
                        
                        354,936
                        
                        
                        
                        -Change
      in common stock/additional paid in capital
                        
                        
                        (956,768
                        )
                        
                        
                        -Effect
      on retained earnings
                        
                        
                        (551,418
                        )
                        
                        
                        -Cash
      flow effect from reverse merger
                        
                        $
                        (56,936
                        )
                        
                        $
                        -
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-5


INFERX
CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
1-            ORGANIZATION
AND BASIS OF PRESENTATION
 
 Black
Nickel Acquisition Corporation I was incorporated in Delaware on May 26, 2005,
and was formed as a vehicle to pursue a business combination.  From
inception through October 24, 2006, Black Nickel Acquisition Corporation I, was
engaged in organizational efforts and obtaining initial financing.
 
 On May
17, 2006, Black Nickel Acquisition Corporation I entered into a letter of intent
with InferX Corporation, a privately-held Virginia corporation (“InferX
Virginia”), with respect to entering into a merger transaction relating to
bridge financing for InferX Virginia and the acquisition of and merger with
InferX Virginia.  The transaction closed on October 24, 2006.
 Following the merger, Black Nickel Acquisition Corporation I effected a
short-form merger of InferX Virginia with and into Black Nickel Acquisition
Corp. I, pursuant to which the separate existence of InferX Virginia terminated
and Black Nickel Acquisition Corp. I changed its name to InferX Corporation
(“InferX” or the “Company”).
 
 The
transaction was recorded as a recapitalization under the purchase method of
accounting, as InferX became the accounting acquirer.  The reported amounts
and disclosures contained in the consolidated financial statements are those of
InferX Corporation, the operating company.
 
 InferX
was incorporated under the laws of Delaware in 1999.  On December 31, 2005,
InferX and Datamat Systems Research, Inc. (“Datamat”), a company incorporated in
1992 under the corporate laws of the Commonwealth of Virginia executed an
Agreement and Plan of Merger (the “Merger”). InferX and Datamat had common
majority directors.  The financial statements herein reflect the combined
entity, and all intercompany transactions and accounts have been
eliminated.  As a result of the Merger, InferX merged with and into
Datamat, the surviving entity. Upon completion, Datamat changed its name to
InferX Corporation.
 
 InferX
was formed to develop and commercially market computer applications software
systems that were initially developed by Datamat with grants from the Missile
Defense Agency.  Datamat was formed as a professional services research and
development firm, specializing in the Department of Defense.  The Company
currently provides services and software to the United States government, and is
in process of formalizing business plans that will enable them to provide
software and services to commercial entities as well.
 
 On March
16, 2009, the Company entered into an agreement and plan of reorganization (the
“Merger Agreement”) with the Irus Group, Inc. (“Irus”) under which it intends to
effect a reverse triangular merger between Irus and the Company’s wholly-owned
subsidiary, Irus Acquisition Corp. (formed for the purse of completing this
transaction).  The Merger Agreement was then amended on June 15, 2009
(the “First Amended and Restated Agreement”) to reflect the change in the amount
of the issued shares to Irus in the transaction.
 
 Under the
terms of the First Amended and Restated Agreement, the issued and outstanding
shares of Irus common stock will be automatically converted into the right to
receive 56% of the issued and outstanding shares of the Company’s common
stock.
 
 The
Merger Agreement also provides that, at the effective time of the Merger, the
Company’s Board of Directors agrees to appoint Vijay Suri, President and CEO of
the Company and have Vijay Suri fill a vacancy on its Board of Directors.
 In addition, effectiveness of the Merger Agreement is conditional upon (i)
the Company restructuring existing debt by converting the existing debt and
warrants to common stock with the intention of having no more than 57-60 million
shares of its common stock outstanding prior to a reverse split of not less than
1:10; (ii) the Company using its best efforts to reduce its accounts payable by
70%, (iii) Vijay Suri, President and CEO of The Irus executing an employment
agreement with the Company, and (iv) additional customary closing conditions
relating to delivery of financial statements, closing certificates as to
representations and warranties, and the delivery of any required consents or
government approvals.
  F-6
  INFERX
CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
1-            ORGANIZATION
AND BASIS OF PRESENTATION(CONTINUED)
 
 In
accordance with the merger, the Company on July 27, 2009 filed a Schedule 14C
with the Securities and Exchange Commission.  The Schedule 14C, contained 2
proposals; to increase the authorized common shares from 75,000,000 to
400,000,000 and to reverse split the common stock on a 1:20 basis.  All
share and per share amounts have been presented on a post-split
basis.
 
 On
October 27, 2009, the Company and Irus completed the Merger. As consideration
for the Merger, the Company is to issue 9,089,768 shares of common stock and
1,000,000 shares of preferred stock to Vijay Suri, the sole stockholder of
Irus.
 
 Irus is a
consulting firm advising on the planning, implementation and development of
complex business intelligence and corporate performance management systems. Irus
has successfully implemented projects across a broad cross-section of clients in
the government, financial services, retail, manufacturing, and
telecommunications markets. Irus has provided business solutions for many large
clients, including MasterCard, JP Morgan Chase, ConAgra, and the US Navy, and
collaborates with a wide range of technology partners including Oracle,
IBM/Cognos and Microsoft.
 
 The
Merger with Irus was accounted for as a recapitalization under the purchase
method of accounting, as Irus became the accounting acquirer.  The reported
amounts and disclosures contained in the consolidated financial statements are
those of Irus, the operating company. In the transaction, Irus did assume the
technology of the  Company as well as
the liabilities.
 
 Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted
Accounting Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB
Accounting Standards Codification (the “Codification”) as the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with U.S. GAAP.  Rules and interpretive releases of the SEC
under authority of federal securities laws are also sources of authoritative
U.S. GAAP for SEC registrants.  All guidance contained in the Codification
carries an equal level of authority.  The Codification superseded all
existing non-SEC accounting and reporting standards.  All other
non-grandfathered, non-SEC accounting literature not included in the
Codification is non-authoritative.  The FASB will not issue new standards
in the form of Statements, FASB Positions or Emerging Issue Task Force
Abstracts. Instead, it will issue Accounting Standards Updates
(“ASUs”).
 
 The FASB
will not consider ASUs as authoritative in their own right. ASUs will serve only
to update the Codification, provide background information about the guidance
and provide the bases for conclusions on the change(s) in the Codification.
 References made to FASB guidance throughout this document have been
updated for the Codification.
 
 Going
Concern
 
 As shown
in the accompanying consolidated financial statements the Company has incurred a
loss of $561,715 and $204,146 for the years ended December 31, 2009 and 2008,
respectively, and has a working capital deficiency of $2,553,677 as of December
31, 2009.  The principal reasons for the recurring losses and working
capital deficiency relates to the Company’s continued focus on refining its
products and search for profitable government contracts.  The Company
expects the negative cash flow from operations to continue its trend through the
next twelve months, however continues to expand their pipeline of
contracts.  These factors raise significant doubt about the ability of the
Company to continue as a going concern.
  F-7
  INFERX
CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
1-            ORGANIZATION
AND BASIS OF PRESENTATION(COINTINUED)
 
 Going
Concern (Continued)
 
 Management’s
plans to address these conditions include continued efforts to obtain government
contracts as well as commercial contracts through expanding sources and new
technology, and the raising of additional capital through the sale of the
Company’s stock.  The Company has received some capital in the form of
a convertible debenture with Street Capital in the amount of $150,000. The
Company will need to raise additional capital over the next twelve months to
assit them in carrying out their business plan.
 
 The
Company’s long-term success is dependent upon the obtaining of sufficient
capital to fund its operations; development of its products; and launching its
products to the worldwide market.  These factors will contribute to the
Company’s obtaining sufficient sales volume to be profitable.  To achieve
these objectives, the Company will need to raise additional capital through
public or private financings or other arrangements.
 
 It cannot
be assured that such financings will be available on terms attractive to the
Company, if at all. Such financings may be dilutive to existing stockholders and
may contain restrictive covenants.
 
 The
Company is subject to certain risks common to technology-based companies in
similar stages of development.  Principal risks to the Company include
uncertainty of growth in market acceptance for its products; history of losses
in recent years; ability to remain competitive in response to new technologies;
costs to defend, as well as risks of losing patent and intellectual property
rights; reliance on limited number of suppliers; reliance on outsourced
manufacture of its products for quality control and product availability;
uncertainty of demand for its products in certain markets; ability to manage
growth effectively; dependence on key members of its management; and its ability
to obtain adequate capital to fund future operations.
 
 The
consolidated financial statements do not include any adjustments relating to the
carrying amounts of recorded assets or the carrying amounts and classification
of recorded liabilities that may be required should the Company be unable to
continue as a going concern.
 
 NOTE
2-            SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
 
 Principles of
Consolidation
 
 The
consolidated financial statements include those of the Company and its
wholly-owned subsidiary. All intercompany accounts and transactions have been
eliminated in consolidation.
 
 Use of
Estimates
 
 The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period.  Actual results could differ from
those estimates.
 
 Cash and Cash
Equivalents
 
 The
Company considers all highly liquid debt instruments and other short-term
investments with a maturity of three months or less, when purchased, to be cash
equivalents.
 
 The
Company maintains cash and cash equivalent balances at one financial institution
that is insured by the Federal Deposit Insurance Corporation.
  F-8
  INFERX
CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
2-            SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Allowance for Doubtful
Accounts
 
 The
Company provides an allowance for doubtful accounts, which is based upon a
review of outstanding receivables as well as historical collection information.
 Credit is granted to substantially all customers on an unsecured
basis.  In determining the amount of the allowance, management is required
to make certain estimates and assumptions. Management has determined that as of
December 31, 2009, no allowance for doubtful accounts is required.
 
 Fixed
Assets
 
 Fixed
assets are stated at cost, less accumulated depreciation.  Depreciation is
provided using the straight-line method over the estimated useful lives of the
related assets (primarily three to five years).  Costs of maintenance and
repairs are charged to expense as incurred.
 
 Computer Software
Development Costs
 
 During
2008, the Company capitalized certain software development costs.  The
Company capitalizes the cost of software in accordance with ASC 985-20 once
technological feasibility has been demonstrated, as the Company has in the past
sold, leased or otherwise marketed their software, and plans on doing so in the
future.  The Company capitalizes costs incurred to develop and market their
privacy preserving software during the development process, including payroll
costs for employees who are directly associated with the development process and
services performed by consultants.  Amortization of such costs is based on
the greater of (1) the ratio of current gross revenues to the sum of current and
anticipated gross revenues, or (2) the straight-line method over the remaining
economic life of the software, typically five years. It is possible that those
anticipated gross revenues, the remaining economic life of the products, or
both, may be reduced as a result of future events.  The Company has not
developed any software for internal use.
 
 Recoverability of Long-Lived
Assets
 
 The
Company reviews the recoverability of its long-lived assets on a periodic basis
whenever events and changes in circumstances have occurred which may indicate a
possible impairment.  The assessment for potential impairment is based
primarily on the Company’s ability to recover the carrying value of its
long-lived assets from expected future cash flows from its operations on an
undiscounted basis.  If such assets are determined to be impaired, the
impairment recognized is the amount by which the carrying value of the assets
exceeds the fair value of the assets.  Fixed assets to be disposed of by
sale are carried at the lower of the then current carrying value or fair value
less estimated costs to sell.
 
 Revenue
Recognition
 
 Revenue
is recognized when persuasive evidence of an arrangement exists, delivery has
occurred, the fee is fixed or determinable, and collectability is
probable.  We enter into certain arrangements where we are obligated
to deliver multiple products and/or services (multiple elements).  In
these transactions, we allocate the total revenue among the elements based on
the sales price of each element when sold separately (vendor-specific objective
evidence). The Company
generates revenue from application license sales, application maintenance and
support, professional services rendered to customers as well as from application
management support contracts with governmental units.  The Company’s
revenue is generated under time-and-material contracts and fixed-price
contracts.
 
 Our
business is not seasonal in nature.  The timing of contract awards,
the availability of funding from the customer, the incurrence of contract costs
and unit deliveries are the primary drivers of our revenue
recognition.  These factors are influenced by the federal government’s
October-to-September fiscal year.  This process has historically
resulted in higher revenues in the latter half of the year.  Many of
our government customers schedule deliveries toward the end of the calendar
year, resulting in increasing revenues and earnings over the course of the
year.
  F-9
  INFERX
CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
2-            SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Revenue Recognition
(Continued)
 
 The
Company does not derive revenue from projects involving multiple
revenue-generating activities.  If a contract would involve the provision
of multiple service elements, total estimated contract revenue would be
allocated to each element based on the fair value of each element.  The
amount of revenue allocated to each element would then be limited to the amount
that is not contingent upon the delivery of another element in the future.
 Revenue for each element would then be recognized depending upon whether
the contract is a time-and-materials contract or a fixed-price, fixed-time
contract.
 
 Stock-Based
Compensation
 
 In 2006,
the Company adopted the provisions of ASC 718-10 “Share Based Payments”. The
adoption of this principle had no effect on the Company’s
operations.
 
 ASC
718-10 requires recognition of stock-based compensation expense for all
share-based payments based on fair value.  Prior to January 1, 2006, the
Company measured compensation expense for all of its share-based compensation
using the intrinsic value method.
 
 The
Company has elected to use the modified-prospective approach method.  Under
that transition method, the calculated expense in 2006 is equivalent to
compensation expense for all awards granted prior to, but not yet vested as of
January 1, 2006, based on the grant-date fair values.  Stock-based
compensation expense for all awards granted after January 1, 2006 is based on
the grant-date fair values.  The Company recognizes these compensation
costs, net of an estimated forfeiture rate, on a pro rata basis over the
requisite service period of each vesting tranche of each award.  The
Company considers voluntary termination behavior as well as trends of actual
option forfeitures when estimating the forfeiture rate.
 
 The
Company measures compensation expense for its non-employee stock-based
compensation under ASC 505-50, “Accounting for Equity Instruments
that are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services".The fair value of the
option issued is used to measure the transaction, as this is more reliable than
the fair value of the services received.  The fair value is measured at the
value of the Company’s common stock on the date that the commitment for
performance by the counterparty has been reached or the counterparty’s
performance is complete.  The fair value of the equity instrument is
charged directly to compensation expense and additional paid-in
capital.
  Concentrations
 
 The
Company has derived 93% of its revenue for the year ended December 31, 2009 from
three customers.
 
 Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of accounts receivable.  To date,
accounts receivable have been derived from contracts with agencies of the
federal government.  Accounts receivable are generally due within 30 days
and no collateral is required.
 
 Segment
Reporting
 
 The
Company follows the provisions of ASC 280-10, "Disclosures about Segments of an
Enterprise and Related Information”.This standard requires
that companies disclose operating segments based on the manner in which
management disaggregates the Company in making internal operating
decisions.  The Company only operates in one reporting segment as of
December 31, 2009 and for the years ended December 31, 2009 and
2008.
  F-10
  INFERX
CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
2-            SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Fair Value of Financial
Instruments (other than Derivative Financial Instruments)
 
 The
carrying amounts reported in the consolidated balance sheet for cash and cash
equivalents, and accounts payable approximate fair value because of the
immediate or short-term maturity of these financial instruments.  For the
notes payable, the carrying amount reported is based upon the incremental
borrowing rates otherwise available to the Company for similar
borrowings.
 
 Convertible
Instruments
 
 The
Company reviews the terms of convertible debt and equity securities for
indications requiring bifurcation, and separate accounting, for the embedded
conversion feature.  Generally, embedded conversion features, where the
ability to physical or net-share settle the conversion option is not within the
control of the Company, are bifurcated and accounted for as a derivative
financial instrument.  Bifurcation of the embedded derivative instrument
requires allocation of the proceeds first to the fair value of the embedded
derivative instrument with the residual allocated to the debt instrument.
 The resulting discount to the face value of the debt instrument is
amortized through periodic charges to interest expense using the Effective
Interest Method.
 
 Income
Taxes
 
 Under ASC
740 the liability method is used in accounting for income taxes.  Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities,
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
 
 Uncertainty in Income
Taxes
 
 Under ASC
740-10-25 recognition and measurement of uncertain income tax positions is
required using a “more-likely-than-not” approach.  Management evaluates
their tax positions on an annual basis and has determined that as of December
31, 2009 no additional accrual for income taxes is necessary.
 
 (Loss) Per Share of Common
Stock
 
 Basic net
(loss) per common share (“EPS”) is computed using the weighted average number of
common shares outstanding for the period.  Diluted earnings per share
include additional dilution from common stock equivalents, such as stock
issuable pursuant to the exercise of stock options and warrants.  Common
stock equivalents are not included in the computation of diluted earnings per
share when the Company reports a loss because to do so would be anti-dilutive
for the periods presented.
  F-11
  INFERX
CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
2-            SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 (Loss) Per Share of Common
Stock (Continued)
 
 The
following is a reconciliation of the computation for basic and diluted
EPS:
 
 Years EndedDecember 31,
                        
                        
                        December 31,2009
                        
                        
                        2008Net
      (loss)
                        
                        $
                        (561,715)
                        
                        
                        $
                        (204,146)WWeighted-average
      common shares outstanding :Basic
                        
                        
                        1,011,308
                        
                        
                        
                        635,170Options
                        
                        
                        3,250,000
                        
                        
                        
                        -Diluted
                        
                        
                        4,261,308
                        
                        
                        
                        635,170Basic
      net (loss) per share
                        
                        $
                        (0.56)
                        
                        
                        $
                        (0.32)Diluted
      net (loss) per share
                        
                        $
                        (0.56)
                        
                        
                        $
                        (0.32)
 
 Research and
Development
 
 Research
and development expenses include payroll, employee benefits, equity
compensation, and other headcount-related costs associated with product
development. The Company has determined that technological feasibility for the
software products is reached shortly before the products are released to
manufacturing. Costs incurred after technological feasibility is established are
not material, and accordingly, the Company expenses all research and development
costs when incurred.  In addition, research and development costs have
been included in the consolidated statements of operations for the years ended
December 31, 2009 and 2008, respectively.
 
 Recent Issued Accounting
Standards
 
 In
September 2006, ASC issued 820, Fair Value Measurements. ASC
820 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosure about fair
value measurements.  This statement is effective for financial statements
issued for fiscal years beginning after November 15, 2007.  Early adoption
is encouraged.  The adoption of ASC 820 is not expected to have a material
impact on the financial statements.
 
 In
February 2007, ASC issued 825-10, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of ASC 320-10,
(“ASC 825-10”) which permits entities to choose to measure many financial
instruments and certain other items at fair value at specified election dates.
 A business entity is required to report unrealized gains and losses on
items for which the fair value option has been elected in earnings at each
subsequent reporting date.  This statement is expected to expand the use of
fair value measurement.  ASC 825-10 is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years.
  F-12
  INFERX
CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
2-            SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Recent Issued Accounting
Standards (Continued)
 
 In
December 2007, the ASC issued ASC 810-10-65, Noncontrolling Interests in
Consolidated Financial Statements. ASC 810-10-65 establishes accounting
and reporting standards for ownership interests in subsidiaries held by parties
other than the parent, changes in a parent’s ownership of a noncontrolling
interest, calculation and disclosure of the consolidated net income attributable
to the parent and the noncontrolling interest, changes in a parent’s ownership
interest while the parent retains its controlling financial interest and fair
value measurement of any retained noncontrolling equity investment.
 
 ASC
810-10-65 is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years.  Early adoption is prohibited. Management is determining the impact
that the adoption of ASC 810-10-65 will have on the Company’s financial
position, results of operations or cash flows.
 
 In
December 2007, the Company adopted ASC 805,Business
Combinations (“ASC 805”). ASC 805 retains the fundamental
requirements that the acquisition method of accounting be used for all business
combinations and for an acquirer to be identified for each business combination.
 ASC 805 defines the acquirer as the entity that obtains control of one or
more businesses in the business combination and establishes the acquisition date
as the date that the acquirer achieves control.  ASC 805 will require an
entity to record separately from the business combination the direct costs,
where previously these costs were included in the total allocated cost of the
acquisition.  ASC 805 will require an entity to recognize the assets
acquired, liabilities assumed, and any non-controlling interest in the acquired
at the acquisition date, at their fair values as of that date.
 
 ASC 805
will require an entity to recognize as an asset or liability at fair value for
certain contingencies, either contractual or non-contractual, if certain
criteria are met.  Finally, ASC 805 will require an entity to recognize
contingent consideration at the date of acquisition, based on the fair value at
that date.  This will be effective for business combinations completed on
or after the first annual reporting period beginning on or after December 15,
2008.  Early adoption is not permitted and the ASC is to be applied
prospectively only.  Upon adoption of this ASC, there would be no impact to
the Company’s results of operations and financial condition for acquisitions
previously completed.  The adoption of ASC 805 is not expected to have a
material effect on the Company’s financial position, results of operations or
cash flows.
 
 In March
2008, ASC issued ASC 815, Disclosures about Derivative
Instruments and Hedging Activities”, (“ASC 815”).  ASC 815 requires
enhanced disclosures about an entity’s derivative and hedging activities.
 These enhanced disclosures will discuss: how and why an entity uses
derivative instruments; how derivative instruments and related hedged items are
accounted for and its related interpretations; and how derivative instruments
and related hedged items affect an entity’s financial position, financial
performance, and cash flows. ASC 815 is effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008.
 The Company does not believe that ASC 815 will have an impact on their
results of operations or financial position.
 
 In April
2008, ASC issued ASC 350, “Determination of the Useful Life of Intangible
Assets”.  This amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under ASC 350.  The guidance is used for
determining the useful life of a recognized intangible asset shall be applied
prospectively to intangible assets acquired after adoption, and the disclosure
requirements shall be applied prospectively to all intangible assets recognized
as of, and subsequent to, adoption.  The Company does not believe ASC 350
will materially impact their financial position, results of operations or cash
flows.
  F-13
  INFERX
CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
2-            SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Recent Issued Accounting
Standards (Continued)
 
 ASC
470-20, “Accounting for Convertible Debt Instruments That May Be Settled in Cash
upon Conversion (Including Partial Cash Settlement)” (“ASC 470-20”) requires the
issuer of certain convertible debt instruments that may be settled in cash (or
other assets) on conversion to separately account for the liability (debt) and
equity (conversion option) components of the instrument in a manner that
reflects the issuer’s non-convertible debt borrowing rate. ASC 470-20 is
effective for fiscal years beginning after December 15, 2008 on a retroactive
basis. The Company does not believe that the adoption of ASC 470-20 will have a
material effect on its financial position, results of operations or cash
flows.
 
 ASC
815-40, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to
an Entity’s Own Stock” (“ASC 815-40”), provides guidance for determining whether
an equity-linked financial instrument (or embedded feature) is indexed to an
entity’s own stock and it applies to any freestanding financial instrument or
embedded feature that has all the characteristics of a derivative., ASC 815-40
also applies to any freestanding financial instrument that is potentially
settled in an entity’s own stock. The Company is determining what impact, if
any, ASC 815-40 will have on its financial position, results of operations and
cash flows.
 
 ASC
470-20-65, “Transition Guidance for Conforming Changes to, Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios” (“ASC 470-20-65”). ASC 470-20-65 is effective for
years ending after December 15, 2008. The overall objective of ASC 470-20-65 is
to provide for consistency in application of the standard. The Company has
computed and recorded a beneficial conversion feature in connection with certain
of their prior financing arrangements and does not believe that ASC 470-20-65
will have a material effect on that accounting.
 
 In
accordance with ASC 855 “Subsequent Events”, the Company is required to disclose
the date through which subsequent events have been evaluated and whether that
date is the date the financial statements were issued or the date the financial
statements were available to be issued.  ASC 855 is effective for financial
periods ending after June 15, 2009.  Management has evaluated subsequent
events through May 21, 2010, the date the consolidated financial statements were
issued.
 
 Effective
July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurement and
Disclosures (Topic 820) (“ASU 2009-05”).  ASU 2009-05 provided
amendments to ASC 820-10, Fair Value Measurements and
Disclosures – Overall, for the fair value measurement of liabilities.
 ASU 2009-05 provides clarification that in circumstances in which a quoted
market price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using certain techniques.
 ASU 2009-05 also clarifies that when estimating the fair value of a
liability, a reporting entity is not required to include a separate input or
adjustment to other inputs relating to the existence of a restriction that
prevents the transfer of a liability. ASU 2009-05 also clarifies that both a
quoted price in an active market for the identical liability at the measurement
date and the quoted price for the identical liability when traded as an asset in
an active market when no adjustments to the quoted price of the asset are
required for Level 1 fair value measurements.  Adoption of ASU 2009-05 did
not have a material impact on the Company’s results of operations or financial
condition.
 
 In
January 2010, the Company adopted FASB ASU No. 2010-06, Fair Value Measurement and
Disclosures (Topic 820)- Improving Disclosures about Fair Value Measurements(“ASU 2010-06”). These standards require new disclosures on the amount
and reason for transfers in and out of Level 1 and 2 fair value measurements.
The standards also require new disclosures of activities, including purchases,
sales, issuances, and settlements within the Level 3 fair value measurements.
The standard also clarifies existing disclosure requirements on levels of
disaggregation and disclosures about inputs and valuation techniques. These new
disclosures are effective beginning with the first interim filing in
2010.
   F-14
  INFERX
CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
2-            SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Recent Issued Accounting
Standards (Continued)
  The
disclosures about the rollforward of information in Level 3 are required for the
Company with its first interim filing in 2011. The Company does not believe this
standard will impact their financial statements.
  Other
ASU’s that have been issued or proposed by the FASB ASC that do not require
adoption until a future date and are not expected to have a material impact on
the financial statements upon adoption.
 
 NOTE
3-            FIXED
ASSETS
 
 Fixed
assets consist of the following as of December 31, 2009 and 2008,
respectively:
 
 Estimated Useful
                          
                          December 31,
                          
                          
                          December 31,Lives (Years)
                          
                          2009
                          
                          
                          2008Computer
      equipment
                          5
                          
                          $
                          299,915
                          
                          
                          $
                          192,850Office
      machinery and equipment
                          5
                          
                          
                          15,638
                          
                          
                          
                          -Furniture 
      and fixtures
                          5
                          
                          
                          86,934
                          
                          
                          
                          86,396Computer
      software
                          3
                          
                          
                          14,895
                          
                          
                          
                          11,220Automobile
                          5
                          
                          
                          50,914
                          
                          
                          
                          50,914468,296
                          
                          
                          
                          341,380Less:
      Accumulated depreciation
                          
                          
                          
                          (418,574)
                          
                          
                          
                          (286,318
                          )Total,
      net
                          
                          
                          $
                          49,722
                          
                          
                          $
                          55,062
 
 Depreciation
expense was $30,447 and $57,275 for the years ended December 31, 2009 and 2008,
respectively.
 
 NOTE
4-            COMPUTER
SOFTWARE DEVELOPMENT COSTS
 
 Computer
software development costs consist of the following as of December 31, 2009 and
2008, respectively:
 
 Estimated Useful
                        
                        December 31,
                        
                        
                        December 31,Lives (Years)
                        
                        2009
                        
                        
                        2008Computer
      software development costs
                        5
                        
                        $
                        986,724
                        
                        
                        $
                        -Less:
      Accumulated amortization
                        
                        
                        
                        (921,836
                        )
                        
                        
                        (-
                        )Total,
      net
                        
                        
                        $
                        64,888
                        
                        
                        $
                        -
 
 Amortization
expense was $6,280 and $0 for the years ended December 31, 2009 and 2008,
respectively.
 
 The
Company anticipates to fully amortize the computer software development costs in
the year ending December 31, 2010.
  F-15
  INFERX
CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
5-            NOTES
PAYABLE
 
 SBA
Loan
 
 On July
22, 2003, InferX and the U.S. Small Business Administration (“SBA”) entered into
a Note (the “Note”) under the SBA’s Secured Disaster Loan program in the amount
of $377,100.
 
 Under the
Note, InferX agreed to pay principal and interest at an annual rate of 4% per
annum, of $1,868 every month commencing twenty-five (25) months from the date of
the Note (commencing August 2005).  The Note matures July
2034.
 
 InferX
must comply with the default provisions contained in the Note.  InferX
is in default under the Note if it does not make a payment under the Note, or if
it: a) fails to comply with any provision of the Note, the Loan Authorization
and Agreement, or other Loan documents; b) defaults on any other SBA loan; c)
sells or otherwise transfers, or does not preserve or account to SBA’s
satisfaction for, any of the collateral (as defined therein) or its proceeds; d)
does not disclose, or anyone acting on their behalf does not disclose, any
material fact to the SBA; e) makes, or anyone acting on their behalf makes, a
materially false or misleading representation to the SBA; f) defaults on any
loan or agreement with another creditor, if the SBA believes the default may
materially affect the Company’s ability to pay this Note; g) fails to pay any
taxes when due; h) becomes the subject of a proceeding under any bankruptcy or
insolvency law; i) has a receiver or liquidator appointed for any part of their
business or property; j) makes an assignment for the benefit of creditors; k)
has any adverse change in financial condition or business operation that the SBA
believes may materially affect the Company’s ability to pay this Note; l) dies;
m) reorganizes, merges, consolidates, or otherwise changes ownership or business
structure without the SBA’s prior written consent; or n) becomes the subject of
a civil or criminal action that the SBA believes may materially affect InferX’s
ability to pay this Note.
 
 As of
December 31, 2009, the Company has an outstanding principal balance of $354,936,
of which only $545 is due within the next twelve months. Accrued interest on
this note as of December 31, 2009 is $10,146.
 
 As of
December 31, 2009, the repayment schedule of the Notes Payable for the next two
years and in the aggregate is:
 
 2010
                        
                        $
                        5452011
                        
                        
                        9,1762012
                        
                        
                        9,5112013
                        
                        
                        9,9372014
                        
                        
                        10,342Thereafter
                        
                        
                        315,425354,936Less:
      current portion
                        
                        
                        (545)Long-term
      portion
                        
                        $
                        354,391
 
 Convertible
Notes
 
 InferX
had entered into several convertible notes during 2008 and 2009 with detachable
warrants. Prior to the reverse merger with Irus, InferX had converted all of the
convertible notes and the warrants into shares of common stock. As a result,
$393,500 in convertible notes were converted into 1,895,000 shares of common
stock.
  F-16
  INFERX
CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
6-            LINE OF
CREDIT
 
 The
Company has a line of credit with a bank in the amount of $850,000 as of
December 31, 2009. The Company was outstanding $358,087 as of December 31,
2009.
  The line
of credit accrues interest at annual interest rates of prime plus 1⁄4 % and renews
each year for a one-year period. Interest expense for the years ended December
31, 2009 and 2008, is $19,175 and $46,953, respectively. The line of credit is
secured by the Company’s accounts receivables.
  NOTE
7-            CONVERTIBLE
DEBENTURE
 
 On
December 23, 2009, the Company entered into a Debenture and Warrant Purchase
Agreement pursuant to which Street Capital, LLC, the placement agent, agreed to
use its best efforts to provide bridge financing through unnamed prospective
purchasers in return for an 8% secured convertible debenture (“Debenture”) in
the principal amount of $300, 000 at a conversion price of $0.20 per share of
the Company’s common stock and quity participation in the form of a class A
common stock purchase warrant to purchase an aggregate of up to 450,000 shares
of the Company’s common stock with an exercise price of $0.20, and a class B
common stock purchase warrant to purchase an aggregate of up to 120,000 shares
of the Company’s common stock, with an exercise price per share equal to $0.50.
The Company received only $150,000 of the $300,000 total principal on December
23, 2009, and has not received any further proceeds. The Company also entered
into a Security Agreement pursuant to which ti granted to the Debenture holders
a first lien against all of its assets, including its software, as security for
repayment of the Debenture. As a result of the Company only raising $150,000 of
the $300,000 in proceeds, they issued half of the class A and class B warrants.
Interest expense for the year ended and aaccrued as of December 31, 2009 is
$263.
  In
accordance with ASC 470-20, the Company separately accounted for the conversion
feature and recognized each component of the transaction separately. As a
result, the Company recognized a discount on the convertible debenture in the
amount of $98,130 that will be amortized over the life of the convertible
debenture which is six-months as it matures June 23, 2010. The Company will
amortize the discount in the first six months of 2010.
  The
Company recognized the discount as a derivative liability, and in accordance
with the ASC, values the derivative liability each reporting period to market.
The Company has recognized a loss of $121,922 due to the beneficial conversion
of the class A warrants.
  NOTE
8-            STOCKHOLDERS’
EQUITY (DEFICIT)
 
 Preferred
Stock
 
 The
Company was incorporated on May 26, 2005, and the Board of Directors authorized
10,000,000 shares of preferred stock with a par value of $0.0001. The Company as
of December 31, 2009 has authorized the issuance of 2,000,000 shares of
preferred stock. 1,000,000 of the shares were authorized to be issued to Vijay
Suri in connection with the Merger Agreement, and 1,000,000 shares of preferred
stock were authorized to be issued to B.K. Gogia the former CEO upon his
resignation as CEO. None of these shares has been issued as of December 31,
2009, however, lthe Company has recorded the value of these shares $200 (par
value) as a liability for stock to be issued on the consolidated balance sheet
as of December 31, 2009.
  F-17
  INFERX
CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
8-            STOCKHOLDERS’
EQUITY (DEFICIT)(CONTINUED)
 
 Common
Stock
 
 The
Company was incorporated on May 26, 2005, and since then the Board of Directors
authorized 75,000,000 shares of common stock with a par value of $0.0001. 
On March 13, 2009, the Company’s Board of Directors approved the increase of the
authorized shares of common stock to 400,000,000.
 
 The
Company as of December 31, 2009 has 3,920,645 shares of common stock issued and
outstanding.
 
 From
January 1, 2009 through October 27, 2009, the period prior to the reverse merger
with Irus, the following transactions occurred:
 
 ·
                  The
      Company effectuated a reverse 1:20 stock split. All shares of common stock
      have been reflected with the 1:20 reverse split, retroactively in
      accordance with SAB Topic
14C;
 ·
                  1,875,000
      shares of common stock were issued in conversion of $393,500 in
      convertible notes, interest and warrants that were issued with the
      convertible notes;
 ·
                  617,500
      shares of common stock were issued for cash in the amount of
      $135,000;
 ·
                  187.500
      shares of common stock were issued for services rendered valued at
      $53,000;
 ·
                  232,940
      shares of common stock were issued in connection with the exercise of
      warrants issued in the prior financing that InferX completed in 2007. The
      Company valued these warrants at $2,236,224, which is what the exercise
      price would have been had the warrants been exercised for cash. The
      Company provided the warrant holders a cashless exercise as a result of
      the Merger; and
 ·
                  100,750
      shares of common stock were issued in the exercise of stock options for
      $0, as a result of the Merger, no cash was
  required.
 
 The
transactions resulted in the Company going from 886,955 shares issued and
outstanding to 3,920,645 shares.
 
 Additional
items impacting equity prior to the reverse merger were:
 
 ·
                  Conversion
      of accrued interest to additional paid in capital in the amount of
      $45,913; and
 ·
                  Conversion
      of accrued compensation to related parties to additional paid in capital,
      as a result of their forgiveness of the accrued compensation in the amount
      of $524,226.
 
 The
Merger Agreement called for the Company to issue 9,089,768 shares of common
stock in exchange for 100% of the shares of Irus. These shares have been
authorized to be issued, yet the certificates have not been issued. The Company
has recognized a liability for shares to be issued for this, and for other
services that were rendered and certificates not issued for them.
 
 Post-merger,
the Company recognized $877,060 in stock based compensation relating to vested
stock options issued to the officers of the Company.
  F-18
  INFERX
CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
8-            STOCKHOLDERS’
EQUITY (DEFICIT)(CONTINUED)
 
 Warrants
 
 The
Company prior to the reverse merger with Irus, converted all of their previous
issued and outstandining warrants form the private placement completed in 2007
as well as the warrants issued with the convertible notes.
 
 The
Company issued 225,000 class A warrants and 60,000 class B warrants in
connection with the convertible debenture on December 23, 2009. The class A
warrants have an exercise price of $0.20 per share and the class B warrants have
an exercise price of $0.50 per share. All warrants have a term of 5 years. The
value of the warrants at inception was $98,130 which represented the debt
discount. The following is a breakdown of the warrants:
 
 Exercise
                                  
                                  DateWarrants
                                  
                                  Price
                                  
                                  Issued
                                  
                                  Term225,000
                                  
                                  $
                                  0.20
                                  
                                  12/23/2009
                                  
                                  5
      years60,000
                                  
                                  $
                                  0.50
                                  
                                  12/23/2009
                                  
                                  5
      years1,020,439
 
 The
warrants have a weighted average price of $0.27.
 
 The class
A warrants and class B warrants were valued utilizing the Black – Scholes method
as follows:
 
 Class
      A
                              
                              
                              Class
      BStock
      Price
                              
                              $
                              .15
                              
                              
                              $
                              .15Strike
      Price
                              
                              $
                              .20
                              
                              
                              $
                              .50Expected
      Life of Warrant
                              
                              5 yrs.
                              
                              
                              5 yrs.Annualized
      Volatility
                              
                              
                              261.6
                              %
                              
                              
                              261.6
                              %Discount
      Rate
                              
                              
                              1.25
                              %
                              
                              
                              1.25
                              %Annual
      Rate of Quarterly Dividends
                              
                              None
                              
                              
                              None
 
 Options
 
 Since
October 2007, the Company’s Board of Directors and Shareholders approved the
adoption of an option plan for a total of 5,000,000.  The Company
prior to the reverse merger with Irus exercised all of the options that were
outstanding at the time. Subsequent to the reverse merger, the Company issued
stock options in connection with certain employment agreements. The Company
granted 3,250,000 options, none of which have been exercised as of December
31, 2009. Of the stock options granted, 1,950,000 are vested.
 
 These
options all have strike prices that are equal to the market value at the time of
grant. The options were valued based on the black-scholes model with the
following criteria:
 
 Stock
      Price
                              
                              $
                              0.15
      – 0.50Strike
      Price
                              
                              $
                              0.15
      – 0.50Expected
      Life of Option
                              
                              5
      yr.Annualized
      Volatility
                              
                              
                              261.60
                              %Discount
      Rate
                              
                              
                              1.25
                              %Annual
      Rate of Quarterly Dividends
                              
                              None
  F-19
  INFERX
CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
8-            STOCKHOLDERS’
EQUITY (DEFICIT)(CONTINUED)
 
 Options
(continued)
 
 The value
attributable to these options that vested for the year ended December 31, 2009
is $877,060 and is reflected in the consolidated statements of operations as
stock based compensation.
 
 NOTE
9-            COMMITMENTS
 
 Rental
 
 The
Company leases office space under an operating lease that expires in July
2010.  The lease is with a related party through common ownership with
the Company’s CEO. The rental is at fair value for the area in which they lease
the office space. The Company pays approximately $6,000 per month of
rent.
 
 Rent
expense for the years ended December 31, 2009 and 2008 was $90,669 and $80,821,
respectively.
 
 Consulting
Agreements
 
 During
the years ended December 31, 2009 and 2008, the Company entered into various
consulting agreements with subcontractors.  The consulting agreements
are generally for periods not exceeding one year. All fees have been included on
the consolidated statements of operations for the years ended December 31, 2009
and 2008.
 
 EmploymentAgreements
 
 During
the year ended December 31, 2009, the Company entered into four separate
employment agreements with their key executives.  The employment
agreements range in years from 3 to 5, and require the Company to compensate the
key executives for a base salary, as well as provide for incentive compensation.
In addition, the executives were granted in total 3,250,000 stock options that
vest through December 2011.
 
 NOTE
10-            PROVISION
FOR INCOME TAXES
 
 Deferred
income taxes will be determined using the liability method for the temporary
differences between the financial reporting basis and income tax basis of the
Company’s assets and liabilities.  Deferred income taxes are measured based
on the tax rates expected to be in effect when the temporary differences are
included in the Company’s tax return.  Deferred tax assets and liabilities
are recognized based on anticipated future tax consequences attributable to
differences between financial statement carrying amounts of assets and
liabilities and their respective tax bases.
 
 At
December 31, 2009, deferred tax assets consist of the following:
 
 Net
      operating losses
                        
                        $
                        666,122Valuation
      allowance
                        
                        
                        (666,122
                        )$
                        -
  F-20
  INFERX
CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
10-            PROVISION
FOR INCOME TAXES(CONTINUED)
 
 At
December 31, 2009, the Company had net operating loss carry forward in the
approximate amount of $1,959,183, available to offset future taxable income
through 2029.  The Company established valuation allowances equal to the
full amount of the deferred tax assets due to the uncertainty of the utilization
of the operating losses in future periods.
 
 A
reconciliation of the Company’s effective tax rate as a percentage of income
before taxes and federal statutory rate for the twelve months ended December 31,
2009 and 2008 is summarized below.
 
 2009
                        
                        
                        2008Federal
      statutory rate
                        
                        
                        (34.0
                        )%
                        
                        
                        (34.0
                        )%State
      income taxes, net of federal benefits
                        
                        
                        6.0
                        
                        
                        
                        6.0Valuation
      allowance
                        
                        
                        28.0
                        
                        
                        
                        28.00
                        %
                        
                        
                        0
                        %
  NOTE
11-            RELATED
PARTY TRANSACTIONS
 
 The
Company has expensed subcontractor fees in the amount of $124,000 and $287,200
for the years ended December 31, 2009 and 2008, respectively to a company owned
by a relative of an officer of the Company.  In addition, the Company
has outstanding fees due the President of $725,000 as of December 31, 2009
relating to past due distributions prior to the reverse merger.
 
 NOTE
12-            FAIR VALUE
MEASUREMENTS
 
 The
Company adopted certain provisions of ASC Topic 820.  ASC 820 defines fair
value, provides a consistent framework for measuring fair value under generally
accepted accounting principles and expands fair value financial statement
disclosure requirements.  ASC 820’s valuation techniques are based on
observable and unobservable inputs.  Observable inputs reflect readily
obtainable data from independent sources, while unobservable inputs reflect our
market assumptions.  ASC 820 classifies these inputs into the following
hierarchy:
 
 Level 1
inputs: Quoted prices for identical instruments in active markets.
 
 Level 2
inputs: Quoted prices for similar instruments in active markets; quoted prices
for identical or similar instruments in markets that are not active; and
model-derived valuations whose inputs are observable or whose significant value
drivers are observable.
 
 Level 3
inputs: Instruments with primarily unobservable value drivers.
  F-21
  INFERX
CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
12-            FAIR VALUE
MEASUREMENTS(CONTINUED)
 
 The
following table represents the fair value hierarchy for those financial assets
and liabilities measured at fair value on a recurring basis as of December 31,
2009:
 
 Level 1
                      
                      
                      Level 2
                      
                      
                      Level 3
                      
                      
                      TotalCash
                      
                      
                      49,989
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      49,989Total
      assets
                      
                      
                      49,989
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      49,989Convertible
      debentures, net of discount
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      51,870
                      
                      
                      
                      51,870Embedded
      conversion feature and derivative
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      220,052
                      
                      
                      
                      220,052Total
      liabilities
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      51,870
                      
                      
                      
                      51,870
  F-22


SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.




InferX
      CorporationDate:  May
      24, 2010
              By:
              /s/ Vijay SuriVijay
      SuriPresident
      and Chief Executive Officer





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





Date:  May
      24, 2010
              By:
              /s/ Vijay SuriVijay
      SuriPresident
      and Chief Executive Officer(Principal
      Executive Officer)





Date:  May
      24, 2010
              By:
              /s/ B.K. GogiaB.K.
      GogiaDirector





Date:  May
      24, 2010
              By:
              /s/ Vijay SuriVijay
      SuriChief
      Financial Officer(Principal
      Financial and Accounting
Officer)