**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-K**





(Mark
      One)





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





For
      the
      fiscal year ended December 31, 2007


or





o
            TRANSITION
                REPORT UNDER 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.)1600 International Drive, Suite 110
              McLean, Virginia
            
            22102(Address of Principal Executive Offices)
            
            (Zip Code)





Registrant’s
      telephone number, including area code: (703) 917-0880





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 o
      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 o
      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 x No
o





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. o





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 12b2 of the Exchange Act.





Large accelerated filer   o
            Accelerated filer   oNon-accelerated filer   o
            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 o No
x





The
      issuer’s revenues for the most recent fiscal year, ended December 31, 2007, were
      $371,093.





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 $1,460,423.





As
      of
      April 14, 2008, there were outstanding 13,530,892 shares of the registrant’s
      common stock, $.0001 par value.





DOCUMENTS
      INCORPORATED BY REFERENCE


None





Table
      of Contents





PagePART IItem 1.
            Business
            1Item 1A.
            Risk
                Factors
            7Item 1B.
            Unresolved
                Staff Comments
            11Item 2.
            Properties
            11Item 3.
            Legal
                Proceedings
            12Item 4.
            Submission
                of Matters to a Vote of Security Holders
            12PART IIItem 5.
            Market
                for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity Securities
            12Item 6.
            Selected
                Financial Data
            12Item 7.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            12Item 7A.
            Quantitative
                and Qualitative Disclosures About Market Risk
            19Item 8.
            Financial
                Statements and Supplementary Data
            19Item 9.
            Changes
                in and Disagreements With Accountants on Accounting and Financial
                Disclosure
            19Item 9A(T) Controls and Procedures
            20Item 9B.
            Other
                Information
            21PART IIIItem 10.
            Directors,
                Executive Officers and Corporate Governance
            22Item 11.
            Executive
                Compensation
            24Item 12.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            27Item 13.
            Certain
                Relationships and Related Transactions, and Director
                Independence
            28Item 14.
            Principal
                Accounting Fees and Services
            29PART IVItem 15.
            Exhibits
                and Financial Statement Schedules
            29




–
i
          –


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.


–
ii
          –


**PART
      I**




**Item
                1.**
            **Business**




We
      develop and market enterprise software that performs privacy preserving
      predictive analysis on computer databases. Predictive analytics is the analysis
      of historical and current information to identify trends and patterns to predict
      likely future outcomes. Our products simultaneously analyze data in multiple
      remote locations with disparate formats without the need to move the data to
      a
      central data warehouse, thereby preserving the privacy and security of the
      data.
      Our technology can be used to identify and predict risks and opportunities
      in
      near real time for many applications, including homeland security, fraud and
      intrusion detection, and customer relationship management, or CRM. For example,
      our technology could help identify high risk cargo containers, identify
      fraudulent insurance claims or identify opportunities for cross selling and
      customer retention.




Historically,
      we have derived nearly all of our sales revenues under federal government
      contracts. Under these contracts, we performed research and development 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 software licenses. However, since fiscal 2004, all of our
      revenues have derived from government contracts. Currently, we have one contract
      with the Department of Veterans Affairs.




**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.”




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.




**Market
      Opportunity**




We
      believe that the demand for predictive analytics technology, in general, has
      increased in the last several years. Moreover, the need for advanced predictive
      analytics to analyze data in multiple remote locations has significantly
      increased due to the heightened security concerns after the events of September
      11, 2001 and the proliferation of databases across the intelligence community
      and federal agencies. Our key executives have been working with the federal
      government for several years and have gained insight into the need for advanced
      predictive analytics software and the required capabilities of that software,
      particularly within the Department of Homeland Security (“ ***DHS*** ”).
      Prior
      to joining InferX, one of our key executives was tasked by the Office of the
      Inspector General to assess all of the analytics systems within DHS. His
      findings, some of which have been publicly released, show that there is a
      significant need for advanced predictive analytics technology that is privacy
      preserving and that analyzes data in multiple remote locations and predicts
      risks and opportunities in near real time. For example, DHS needs the ability
      to
      identify prospective terrorist threats by analyzing sensitive information
      contained in disparate databases maintained by different organizations, such
      as
      consumer and demographic information maintained by companies like Acxiom
      Corporation, consumer credit information maintained by companies like Experian
      and financial transaction information maintained by the United States Department
      of the Treasury Financial Crimes Enforcement Network (“ ***FinCEN*** ”),
      all
      without jeopardizing the secrecy of the underlying information.


–
1
          –


In
      addition, our management has evaluated a number of activities where national
      and
      homeland security related concerns will require predictive analysis software.
      We
      believe that cargo security, particularly involving shipments through ports,
      as
      part of the international supply chain presents a need for predictive analytics
      software, with both government and private industry as potential purchasers
      of
      such software. Accordingly, we have developed a cargo security solution based
      on
      our technology that can simultaneously analyze data from manufacturers,
      distributors, shippers, port operators, customs authorities and others in the
      supply chain to identify shipments that pose a higher security risk and merit
      greater scrutiny or additional screening. We have completed and are currently
      marketing our cargo security solution.




As
      a
      result of the United States’ efforts, particularly through Customs and Border
      Protection under DHS, to secure the international supply chain and the need
      for
      the international community to adopt cargo security standards to ship cargo
      through U.S. ports, we believe that there will be a significant international
      market for our solution.




We
      believe our products have a broad application in many other verticals in the
      areas of fraud detection, risk analysis and customer retention. Specific
      examples of potential uses of our products are as follows:




•
            Financial
                Services: Increase customer retention; optimization of cross selling;
                detection of money laundering; and fraud
                detection.




•
            Insurance:
                Increase customer profitability; fraud detection; optimization of
                cross
                selling; and customer compliance.




•
            Healthcare:
                Optimal treatment analysis; clinical drug trial analysis; analysis
                of
                medical images; and healthcare fraud and abuse detection.




•
            Retail:
                Promotion effectiveness analysis; product placement analysis; optimization
                of cross selling; and sales force
                optimization.




**Our
      Product O** **fferings**




*InferAgent* *®*




Our
      flagship product is InferAgent. InferAgent was originally developed to analyze
      distributed sensor data from different locations for the Missile Defense Agency,
      an agency within the DoD. Lockheed Martin has successfully used InferAgent
      to
      analyze sensor data for a classified military project for target discrimination
      and acquisition.




InferAgent
      can analyze data in multiple geographic locations, in near real time without
      ever moving the data. InferAgent uses the Internet and private Intranets to
      analyze information from multiple locations. We use encrypted pointers to the
      data, which cannot be used to expose the data they represent, to move
      information across the network, thereby preserving the security and privacy
      of
      the databases.




As
      a
      result of the analysis, InferAgent can detect and predict risks and
      opportunities for both commercial and government customers. InferAgent is a
      generic solution that analyzes data in any structured data format. Based upon
      the trends and interrelations among the data, it can identify any kind of risk
      or opportunity that is relevant to the application.




For
      example, in national and homeland security applications, InferAgent could
      identify terrorism risks in the international supply chain – this is our
      cargo security application. InferAgent can analyze order data maintained by
      importers, customer order history and other data maintained by manufacturers,
      shipping manifests maintained by shipping companies, customer information
      maintained by freight forwarders. By analyzing these disparate databases using
      our technology, InferAgent can detect anomalies and other predictors of
      increased risk that would help port operators identify incoming shipments that
      should be subjected to increased scrutiny.




–
2
          –


In
      the
      financial services sector, InferAgent could identify opportunities for cross
      selling or transactions that are likely tied to money laundering, fraud or
      other
      illegal activity. InferAgent can analyze large databases of consumer credit
      history and demographic information maintained by companies like Acxiom and
      Experian together with a company’s internal customer history database to help
      the company identify products or services it does not currently offer but that
      its customers would likely be interested in buying. Analyzing consumer credit
      history and demographic information together with financial transaction
      information maintained by FinCEN could detect suspicious transactions or
      individuals who are engaging in suspicious financial transactions.




We
      believe that InferAgent has placed us at the forefront of a new category of
      technology called “privacy preserving analytics.” Members of our management have
      attended two academic conferences focused on privacy preserving analytics and
      conducted research of competing solutions on the market in development. To
      our
      knowledge, none of our competitors has a product that can simultaneously analyze
      data in multiple locations while maintaining the security and privacy of the
      underlying information. With InferAgent, privacy is preserved because the data
      is not moved.




*InferText* *TM*




Based
      on
      InferAgent’s distributed architecture, InferText is designed to analyze
      unstructured content, such as documents, email and other types of text. Unlike
      traditional, keyword search based approaches to unstructured content, InferText
      transforms unstructured content into a format that facilitates the discovery
      of
      meaningful relationships among documents. We launched the commercial release
      of
      InferText in December 2007.




*InferCluster* *TM*




Clustering
      refers to the partitioning of data into groups such that data within the same
      group are more similar to each other than data in different groups. Clustering
      makes it easier to recognize outliers and other anomalies in the data. We
      believe that this has become an increasingly essential data analysis task.
      InferCluster automatically identifies similarities and performs this clustering
      without the need for user intervention. For example, in the financial services
      industry, clustering could group wire transfers according to various
      characteristics – amount, country of origin, date – and by revealing
      anomalous transactions, lead to the identification of money laundering
      activity.




InferCluster
      is designed to automatically perform clustering on distributed data, which
      we
      believe no other clustering solution currently does. InferCluster uses the
      same
      distributed architecture as InferAgent. We launched the commercial release
      of
      InferCluster in December 2007.


–
3
          –


**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**
            
            **Status**InferView
            
            Full
                application
              
              US
                Serial:
              10/617,054
            
            Filed
                July 2003
            
            PublishedInferAgent
            
            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
            
            PublishedInferCluster
            
            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




Our
      InferView patent protects the product’s unique graphical user interface that
      helps visualize decision making models.




The
      InferAgent patent covers the architecture, algorithms and framework underlying
      InferAgent’s distributed data mining processes.




The
      hybrid Bayesian decision tree for classification patent describes our method
      for
      increasing the speed of decision making.




Our
      InferCluster Patent protects our unique method of automatically identifying
      similarities and performing clustering without the need for user
      intervention.




The
      InferText patent covers the method for transforming unstructured content into
      a
      format that facilitates the discovery of meaningful relationships among
      documents and other data.


–
4
          –


The
      Supply Chain Risk Assessment Application patent covers our methods of applying
      our technology to cargo risk assessment.




**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.




Companies
      such as SAS Institute Inc., SPSS Inc., Fair Isaac Corporation, Angoss Software
      Corp., Megaputer Intelligence, Inc. and Insightful Corporation 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 (a division of NCR Corporation) provide 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, International Business Machines
      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:




•
            access
                and mine remote data




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




•
            work
                with multiple databases in different
                formats




•
            integration
                of 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 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.


–
5
          –


**Sales
      and Marketing**




We
      have
      used outside consultants to assist us in developing our marketing and collateral
      material, branding and Web design and content creation. We also use outside
      consultants to help develop market and media awareness campaigns along with
      public relations strategies. We are not substantially dependent on our
      relationship with these outside consultants to accomplish our marketing
      plans.




We
      have
      hired Jesus Mena as our Chief Strategy Officer to assist with our overall
      product and market strategy, particularly on efforts within DHS. Mr. Mena has
      over 25 years of experience in data mining and has written four books on data
      mining and homeland security, including his latest, “Homeland Security
      Techniques and Technologies.” Mr. Mena recently completed a DHS-wide audit of
      all DHS analytical and data mining systems and has detailed knowledge and
      insight into the efforts and needs of the DHS components. We believe there
      are
      considerable barriers to entry when pursuing sales within DHS. They include
      having access to the proper contracting vehicle, having facilities and people
      with the proper security clearances and having personnel with appropriate core
      knowledge in both product offerings and DHS sales procedures. However, we
      believe that the addition of Mr. Mena and our continuing work with the Missile
      Defense Agency enables us to overcome DHS barriers and affords us significant
      sales advantages.




In
      addition, we engaged Michael D. Brown in marketing our products and services
      to
      senior government officials and members of Congress. Mr. Brown was formerly
      the
      Department of Homeland Security Under Secretary of Federal Emergency Management
      and Director of the Federal Emergency Management Agency. From September 2005
      through March 17, 2008, Mr. Brown worked with us in the development, marketing
      and presentation of our products to potential government and commercial
      customers, and on March 17, 2008, Mr. Brown became our President and
      CEO.




We
      have
      positioned InferX as a leading provider of Privacy Preserving Real-Time
      Analytics solutions. With the assistance of our public relations firm, we have
      positioned key members of InferX management as industry experts where we provide
      expert analysis to the technical and media communities.




Although
      we currently have no contractual relationship, we have also recently worked
      with
      Northrop Grumman and Lockheed Martin, both of which we believe have substantial
      credibility within DHS. Both companies use our software, and we believe our
      previous work with them will allow us to explore potential business
      opportunities with them on possible future DHS contracts at a minimal cost.
      We
      also have developed a network of business development and marketing
      professionals who work directly with large systems integrators, such as
      Raytheon, General Dynamics, SAIC and others.




Our
      sales
      strategy is to identify potential customers by targeting entities where there
      is
      a need for advanced analyses and data privacy is a significant concern. Our
      early focus is on the following:




1.
            components
                of DHS that are analyzing intelligence, detecting terrorist activities
                and
                detecting criminal activities or
                patterns;




2.
            other
                U.S. federal government departments where focus is
                on:




·
            detecting
                fraud, waste and abuse;




·
            detecting
                criminal activities; or




·
            improving
                service or performance;




3.
            international
                supply chain participants, such as importers, sea carriers, sea ports
                and
                terminal operators;




4.
            the
                financial community in need of advanced CRM solutions;
                and




–
6
          –


5.
            commercial
                enterprises that we expect would be early adopters of advanced analytics
                technologies, such as financial services and insurance
                firms.




In
      2007,
      we began building our sales team and have hired two full-time professionals
      who
      are both salary and commission based. We are also focusing on building
      relationships with channel partners that are leading systems integrators,
      application developers and platform partners, to generate sales to high-volume
      data content owners both domestically and abroad. The channel partners will
      be
      compensated by substantial product discounts that are consistent in the
      industry.




Through
      2008, we plan to expand our sales and marketing force to seven
      employees.




**Customers**




Government
      contracts are currently our sole source of revenue. For the past two years,
      payments under contracts with the Missile Defense Agency have accounted for
      substantially all of our revenues from operations. We expect that government
      contracts will continue to be a significant source of our revenues for the
      foreseeable future.




**Research
      and Development**




We
      have
      developed a company wide 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 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
      eight employees: six full-time employees, five of whom devote at least a portion
      of their time to sales and marketing, one part time executive employee, and
      one
      part-time 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.




**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. 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.


–
7
          –


**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.




**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
      5,121,239 shares, or approximately 37.5%, of our outstanding common stock in
      the
      aggregate. 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, officers and other key personnel, B.K. Gogia, Michael Brown,
      Scott
      Parliament, C. Vincent Tubbs, Jerzy Bala and Jesus Mena. 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.


–
8
          –


**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 three patent applications pending and we have filed two
      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.




**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 all of our revenues
      since fiscal 2004. 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;




–
9
          –


•
            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, including our current contract with
      the Department of Veterans Affairs 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.




**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 effect 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 Bulletin Board, 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.


–
10
          –


**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, if any, 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, 2007 and 2006
      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
      April 10, 2008 and February 16, 2007 in connection with the audit of our
      financial statements for the years ended December 31, 2007 and 2006 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.




**Item
                1B.**
            **Unresolved
                Staff Comments**




Not
      applicable.




**Item
                2.**
            **Description
                of Property**




We
      lease
      approximately 4,700 square feet of office space at 1600 International Drive,
      Suite 110, McLean, Virginia pursuant to a lease which expires in November 2008.
      Our lease provides for an annual rental of approximately $101,000 which is
      subject to annual escalations of 4%. The space can house approximately 15 to
      20
      staff. We believe that our facilities are adequate for our needs and that
      additional space is readily available should we need it.


–
11
          –


**Item
                3.**
            **Legal
                Proceedings**




We
      are
      not aware of any pending legal proceedings against us.




**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 Bulletin Board under the symbol
      “IFRX”. 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 5, 2007
      through December 31, 2007, as reported by PinkSheets LLC, were $0.52 and $0.25,
      respectively. The quotations reflect inter-dealer prices, without retail
      mark-up, mark-down or commission and may not represent actual
      transactions.




**Holders**




As
      of
      April 14, 2008, there were 36 record holders of 13,530,892 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
      following discussion should be read in conjunction with the Financial Statements
      and the notes thereto that appear in Item 8 of this annual report on Form
      10-K.*




**Overview**




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.”


–
12
          –


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 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.




Historically,
      we have derived nearly all of our sales revenues under federal government
      contracts. Under these contracts, we performed research and development 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. Currently, we have one contract with
      the
      Department of Veterans Affairs.




**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.




*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 three 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
      $100,000.




*Allowance
      for Doubtful Accounts*




We
      provide 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, 2007, an
      allowance of $2,364 is required.


–
13
          –


*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
      2007 and 2006, we capitalized certain software development costs. We capitalize
      the cost of software in accordance with SFAS 86 once technological feasibility
      has been demonstrated, as we have in the past sold, leased or otherwise marketed
      our software, and plans on doing so in the future. We capitalize costs incurred
      to develop and market our 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.
      We
      have not developed any software for internal use. For the years ended December
      31, 2007 and 2006, we recognized $177,003 and $177,003 of amortization expense
      on our capitalized software costs, respectively. Commencing January 1, 2008,
      we
      placed an additional $226,084 of software development into service, which will
      be amortized over a three year period.




*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.




*Revenue
      Recognition*




We
      generate revenue from professional services rendered to customers as well as
      from application management support contracts with governmental units. Our
      revenue is generated under time-and-material contracts and fixed-price
      contracts.




*Time-and-Material
      Contracts*




Time-and-material
      contracts revenue is generated whereby costs are generally incurred in
      proportion with contracted billing schedules and revenue is recognized as
      services are performed, with the corresponding cost of providing those services
      reflected as direct costs. The customers are billed in accordance with the
      contracts entered into. Such method is expected to result in reasonably
      consistent profit margins over the contract term.




*Fixed-Price
      Contracts*




Revenue
      from firm-fixed-price contracts is recognized upon achievement of the milestones
      contained in the contracts in accordance with the provisions of Staff Accounting
      Bulletin 104. Revenue is not recognized until collectability is assured, which
      does not take place until completion of the particular milestone. Costs are
      recognized as services are performed.




We
      do 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.


–
14
          –


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*




On
      December 16, 2004, the Financial Accounting Standards Board (“FASB”) published
      Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based
      Payment” (“SFAS 123R”). SFAS 123R requires that compensation cost related to
      share-based payment transactions be recognized in the financial statements.
      Share-based payment transactions within the scope of SFAS 123R include stock
      options, restricted stock plans, performance-based awards, stock appreciation
      rights, and employee share purchase plans. The provisions of SFAS 123R, as
      amended, are effective for small business issuers beginning as of the next
      interim period after December 15, 2005. We adopted these provisions as of
      January 1, 2006, and this adoption did not have a material effect on our
      operations.




On
      January 1, 2006, we adopted the provisions of FAS No. 123R “Share-Based Payment”
(“FAS 123R”) which requires recognition of stock-based compensation expense for
      all share-based payments based on fair value. Prior to January 1, 2006, we
      measured compensation expense for all share-based compensation using the
      intrinsic value method prescribed by Accounting Principles Board (“APB”) Opinion
      No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related
      interpretations. In the notes to our consolidated financial statements, we
      have
      provided pro forma disclosure amounts in accordance with FAS No. 148,
“Accounting for Stock-Based Compensation – Transition and Disclosure –
an amendment of FASB Statement No. 123” (“FAS 148”), as if the fair value method
      defined by FAS No. 123, “Accounting for Stock Based Compensation” (“FAS 123”)
      had been applied to our stock-based compensation.




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 estimated in accordance with the original provisions
      of FAS 123. Stock-based compensation expense for all awards granted after
      January 1, 2006 is based on the grant-date fair values estimated in accordance
      with the provisions of FAS 123R. 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.




Our
      warrants issued in the private placement in October 2006, were not stock based
      compensation. Our options issued in October 2007 were considered stock based
      compensation (see Note 7 to our consolidated financial statements).




*Concentrations*




We
      have
      derived all of our revenue from two customers with 95% and 100% for the years
      ended December 31, 2007 and 2006, respectively, of the revenue from one of
      these
      customers.




Financial
      instruments that potentially subject us 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*




We
      follow
      the provisions of SFAS 131, “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. We believe that there is only one operating
      segment.


–
15
          –


*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
      Financial Accounting Standards Board Statement No. 109, “Accounting for Income
      Taxes,” 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*




In
      July
      2006, the FASB issued Interpretation No. 48 (FIN No. 48), “Accounting for
      Uncertainty in Income Taxes.” This interpretation requires recognition and
      measurement of uncertain income tax positions using a “more-likely-than-not”
approach. FIN No. 48 is effective for fiscal years beginning after December
      15,
      2006. Management has adopted FIN 48 for 2007, and they evaluate their tax
      positions on an annual basis, and has determined that as of December 31, 2007,
      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 includes
      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 we report
      a loss because to do so would be anti-dilutive for the periods
      presented.




The
      Class
      A and Class B warrants were issued in October 2006 in the private placement
      however were not included as they would be considered anti-dilutive as we had
      a
      loss for this period.




*Research
      and Development*




Research
      and development costs are expensed as incurred. In addition, research and
      development costs of $32,127 and $49,366 have been included in indirect labor
      and $183,548 and $104,782 have been included in direct labor and subcontractor
      costs for the years ended December 31, 2007 and 2006,
      respectively.


–
16
          –


**Recent
      Issued Accounting Standards**




In
      September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” This
      standard 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 SFAS 157 is not expected to have a material impact
      on our consolidated financial statements.




In
      February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial
      Assets and Financial Liabilities – Including an amendment of FASB Statement
      No. 115”, (“FAS 159”) 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. FAS 159 is effective for financial statements issued for fiscal
      years beginning after November 15, 2007, and interim periods within those fiscal
      years.




In
      December 2006, the FASB Staff issued FSP EITF 00-19-2, “Accounting for
      Registration Payment Arrangements” (“EITF 00-19-2”). EITF 00-19-2 addresses an
      issuer’s accounting for registration payment arrangements. EITF 00-19-2
      specifies that the contingent obligation to make future payments or otherwise
      transfer consideration under a registration payment arrangement, whether issued
      as a separate agreement or included as a provision of a financial instrument
      or
      other agreement, should be separately recognized and measured in accordance
      with
      SFAS No. 5, Accounting for Contingencies. EITF 00-19-2 is effective for
      financial statements issued for fiscal years beginning after December 15, 2006,
      and interim periods within those fiscal years. Application of EITF 00-19-02
      resulted in an adjustment in January 2007 reclassifying the derivative liability
      to additional paid-in capital and retained earnings. The adjustment reduced
      the
      derivative liability by $1,031,703 and increased additional paid-in capital
      by
      $547,086 and increased retained earnings by $484,617 which was the
      cumulative-effect adjustment resulting from the adoption of this standard.




In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements, an amendment of Accounting Research Bulletin
      No 51” (SFAS 160). SFAS 160 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.




SFAS
      160
      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 SFAS
      No. 160 will have on our consolidated financial position, results of operations
      or cash flows.




In
      December 2007, the FASB issued SFAS 141R, Business Combinations (“SFAS 141R”),
      which replaces FASB SFAS 141, Business Combinations. This Statement retains
      the
      fundamental requirements in SFAS 141 that the acquisition method of accounting
      be used for all business combinations and for an acquirer to be identified
      for
      each business combination. SFAS 141R 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.
      SFAS 141R 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. SFAS 141R 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. This compares to the cost allocation method previously required
      by
      SFAS No. 141.




SFAS
      141R
      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, SFAS 141R will require an entity to recognize
      contingent consideration at the date of acquisition, based on the fair value
      at
      that date. This Statement 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 SFAS No. 141R is not expected to have
      a
      material effect on our consolidated financial position, results of operations
      or
      cash flows.


–
17
          –


In
      December 2007, the Securities and Exchange Commission issued Staff Accounting
      Bulletin No. 110, “*Use
      of a
      Simplified Method in Developing Expected Term of Share Options”* (“SAB
      110*”*). SAB 110 expresses the current view of the staff that it will
      accept a company's election to use the simplified method discussed in Staff
      Accouting Bulletin No. 107, “*Share Based Payment*", (“SAB107*”*),
      for estimating the expected term of “plain vanilla*”* share options
      regardless of whether the company has sufficient information to make more
      refined estimates.  SAB 110 became effective for us on January 1, 2008. The
      adoption of SAB 110 is not expected to have a material impact on our final
      position.




Other
      accounting standards that have been issued or proposed by the FASB or other
      standards-setting bodies that do not require adoption until a future date and
      are not expected to have a material impact on the consolidated financial
      statements upon adoption.




**Results
      of Operations and Financial Condition**




**Fiscal
      Years Ended December 31, 2007 and 2006**




Revenue
      for the year ended December 31, 2007 was approximately $371,000, an increase
      of
      approximately $171,000, or 86% from approximately $200,000 for the same period
      in 2006. This was a result of increased federal contracts related to the
      Company’s core competencies.




Direct
      costs for the year ended December 31, 2007 were approximately $373,000 compared
      to approximately $282,000 for the same period in 2006, an increase of
      approximately $91,000 or 32%. Direct costs before capitalization of labor costs
      were approximately $452,000 in 2007 and $317,000 in 2006, representing
      capitalized labor of approximately $98,000 and $35,000 in 2007 and 2006,
      respectively. The increase in direct costs in 2007 resulted primarily from
      increases related to additional contract requirements. Specifically, an increase
      in subcontract labor of approximately $54,000, increases in other costs of
      approximately $12,000 and a gross increase in direct labor of $24,000 over
      2006.
      Because of our increased revenues our gross margin increased in the year ended
      December 31, 2007 to (0%) from (41%) for the same period in 2006.




Operating
      expenses, which include indirect labor, professional fees, advertising,
      consulting and general and administrative, increased approximately $601,000
      from
      approximately $1,090,000 for the year ended December 31, 2006 to approximately
      $1,691,000 for the same period in 2007. This represents an increase of 55%.
      The
      increase is the result of the following: an increase in indirect and overhead
      labor and fringes of approximately $256,000 resulting from costs related to
      an
      increase in staffing in 2007; an increase in professional services of
      approximately $114,000, consisting primarily of increased legal and filing
      costs
      related to public filings; an increase in share based compensation of
      approximately $28,000 as a result of options issued under the Company’s option
      plan; an increase in travel of approximately $21,000 due to increased sales
      and
      development activity; and increase in General and Administrative costs of
      approximately $31,000; an increase in Registration Penalty expenses of
      approximately $134,000 due to a penalty required in 2007 due to the timing
      of
      the effectiveness of the Company’s registration statement and an increase in
      depreciation and impairment of approximately $14,000 due primarily to the 2007
      impairment charge on the Company’s InferView product.




**Fiscal
      Years Ended December 31, 2006 and 2005**




Revenue
      for the year ended December 31, 2006 was approximately $200,000, a decrease
      of
      approximately $25,000, or 11% from approximately $225,000 for the same period
      in
      2005. This was a result of a decision by management to reduce reliance on
      general Federal Government professional services contracts and to concentrate
      on
      Federal Government contracts within our core competency and further development
      and sales of our software for use in the commercial sector.




Direct
      costs for the year ended December 31, 2006 were approximately $282,000 compared
      to approximately $209,000 for the same period in 2005, an increase of
      approximately $73,000 or 35%. Direct costs before capitalization of labor costs
      were approximately $317,000 in 2006 and $233,000 in 2005, representing
      capitalized labor of approximately $35,000 and $24,000 in 2006 and 2005,
      respectively. This increase in direct costs in 2006 compared to 2005 of
      approximately $84,000 or 36% resulted primarily from an increase in subcontract
      labor of approximately $50,000 in 2006 and reductions in salary accepted by
      key
      direct employees in 2005 of approximately $35,000 when compared to 2006.
      Accordingly, our gross margin declined in the year ended December 31, 2006
      to
      (41%) from 7% for the same period in 2005.


–
18
          –


Operating
      expenses, which include indirect labor, professional fees, advertising,
      consulting and general and administrative, increased approximately $563,000
      from
      approximately $527,000 for the year ended December 31, 2005 to approximately
      $1,090,000 for the same period in 2006. This represents an increase of 107%.
      The
      increase is the result of the following: an increase in indirect and overhead
      labor and fringes of approximately $352,000, resulting from costs related to
      an
      increase in staffing in 2006 of approximately $125,000 and reductions in
      salaries and fringes accepted by key employees in 2005 of approximately
      $240,000; an increase in professional services of approximately $263,000,
      consisting of non-cash charges of approximately $199,000 for stock issued to
      consultants for services and an increase in accounting costs of approximately
      $64,000 related to our becoming a public company; and a reduction in advertising
      and marketing of approximately $69,000, which reflects reduced reliance on
      outside consults for branding and advertising.




**Liquidity
      and Capital Resources**




We
      had
      cash of approximately $2,000 at December 31, 2007 and a working capital deficit
      of approximately ($796,000). During the year ended December 31, 2007, we used
      approximately $502,000 from our operations. Operations were funded primarily
      from the exercise of warrants of approximately $629,000.




In
      October 2006, we completed a private placement in which the investors paid
      $.50
      per share of common stock, and also received one five-year warrant with an
      exercise price of $.50 and one five-year warrant with an exercise price of
      $.62.
      We sold 2,329,392 units in the private placement (including $362,196 in
      cancellation of indebtedness and accrued interest under outstanding bridge
      loans), resulting in gross cash proceeds of approximately $802,500. In April
      2007, we and holders of our Class A warrants agreed to reduce the exercise
      price
      of 80% of the Class A warrants to $.25 per share for a period of two weeks.
      We
      received approximately $407,000 from the exercise of 1,629,513 warrants. In
      November 2007, the holders of our Class A warrants exercised an additional
      444,879 warrants resulting in gross cash proceeds of approximately
      $222,000.




We
      have
      entered in to employment contracts that range in length from three to five
      years
      with five employees. The contracts call for total annual compensation in the
      amount of $848,000.




We
      will
      need to generate significant additional revenue to support our projected
      increases in staffing and other operating expenses, which we cannot give any
      assurance we will be able to accomplish. We are currently expending
      approximately $125,000 per month to support our operations, and under our
      projected growth plan, we would be expending approximately $250,000 per month
      by
      the end of fiscal 2008. Along with revenues from our existing contracts, we
      believe our existing capital is sufficient to fund our operations only through
      the second quarter of 2008. If we are unable to generate increased revenue,
      it
      will be necessary for us to significantly reduce expenses or raise additional
      capital to stay in business. We estimate that we will require approximately
      $1,000,000 in additional capital to sustain our operations at their current
      level through fiscal 2008 and that we will require as much as $3,000,000 in
      additional revenues or $1,500,000 in additional funding to achieve our projected
      growth plan.




Although
      we believe the additional capital we will require will be provided either
      through the exercise of warrants, debt and/or increased revenue, we cannot
      assure you that the warrants will be exercised, we can obtain debt at acceptable
      terms or that we can generate sufficient revenue to maintain projected operating
      levels. Accordingly, we may need to try to secure additional equity or debt
      financing which we cannot assure you would be available to us at prices that
      would be acceptable. Our failure to generate such revenue, reduce expenses
      or
      obtain necessary financing could impair our ability to stay in business and
      raises substantial doubt about our ability to remain as a going
      concern.




**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.


–
19
          –


**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, 2007. 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, 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.




Our
      management has evaluated the effectiveness of our internal control over
      financial reporting as of December 31, 2007 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, 2007 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, 2007. 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.


–
20
          –


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, 2007, 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.




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.


–
21
          –


**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**
            
            **Director Since**B.K.
                Gogia
              Chairman
                of the Board of Directors
            
            56
            
            2006Michael
                D. Brown
              President
                and Chief Executive Officer
            
            53
            
            –Dr.
                Jerzy W. Bala
              Chief
                Technical Officer and
              a
                Director
            
            48
            
            2006Scott
                B. Parliament
              Chief
                Financial Officer and
              a
                Director
            
            50
            
            2006Jesus
                Mena
              Chief
                Strategy Officer
            
            61
            
            –




**Management
      Biographies**




***B.K.
      Gogia*** –
      Mr. Gogia has been a director of InferX since our acquisition of InferX Virginia
      in October 2006 and was our President and Chief Executive Officer from October
      2006 through March 17, 2008. Mr. Gogia was the founder of and had been
      President, CEO and Director of InferX Virginia since its inception in 1992.
      Prior to the formation of InferX Virginia, Mr. Gogia was Technical
      Director/Software Manager with Science Applications International Corporation
      (SAIC), and held senior technical positions with L3 Corporation and Lockheed
      Martin Corporation. Mr. Gogia began his career as a systems engineer and
      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 chosen to participate in a
      Mindshare program for CEOs of the most promising technology companies in the
      Greater Washington area.




***Michael
      D. Brown*** –
      Mr. Brown has been our President and Chief Executive Officer since March 17,
      2008. Commencing in 2001 Mr. Brown served as General Counsel of the Federal
      Emergency Management Agency (“FEMA”), and from April 2003 to September 2005
      served as Undersecretary of Emergency Preparedness and Response, a division
      of
      the Department of Homeland Security, also referred to as Director of FEMA.
      Since
      September 2005, Mr. Brown has served as a consultant and assisted InferX in
      the
      development, marketing and presentation of its products to potential government
      and commercial customers.




***Jerzy
      W. Bala, Ph.D.*** –
      Dr. Jerzy Bala has been Chief Technical Officer and a director of InferX since
      our acquisition of InferX Virginia in October 2006. Dr. Bala had been employed
      by InferX Virginia since 1994 as Chief Scientist and was appointed Chief
      Technical Officer of InferX Virginia in May 2006 and a director in September
      2006. Dr. Bala defines short and long term technology directions for the
      products, business cases for new markets, oversees research and development
      of
      future products and existing products, and manages intellectual property for
      InferX.


–
22
          –


From
      May
      2002 to October 2002, Dr. Bala 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.




From
      September 1998 to May 2000, Dr. Bala 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 70 peer reviewed publications in conference proceedings and journals
      and other numerous technical papers to its credit.




***Scott
      B. Parliament*** –
      Mr. Parliament has been Chief Financial Officer and a director of InferX since
      our acquisition of InferX Virginia in October 2006. Mr. Parliament had been
      Chief Financial Officer of InferX Virginia since April 2005 and a director
      since
      September 2006. From April 2003 to December 2004, he was Chief Financial Officer
      of Securit-e-doc, Inc., a security and communications software company. From
      2000 to April 2003, he was a Principal of KAM Strategic Advisors, a financial
      and management consulting firm. Mr. Parliament was also Chief Financial Officer
      for BioShield Technologies, Inc. (NASDAQ: BSTI) in 2000. Mr. Parliament’s
      experience in business development and marketing includes serving as head of
      marketing at Securit-e-doc, Inc. and Head of Retail Partnerships (business
      development) for Consumer Financial Network, a wholly owned subsidiary of IXL
      (NASDAQ: IIXL), from 1999 to 2000, and Chief Operating Officer, Director and
      Chief Financial Executive for Innovo Group, Inc. (NASDAQ: INNO) from 1996 to
      1998. He is a CPA and spent ten years from 1980 to 1989 with BDO Seidman, one
      of
      the major international accounting firms where he specialized in business
      development and marketing focused on small market business expansion. Mr.
      Parliament has a BS in Accountancy from Ferris State University.




***Jesus
      Mena*** –
      Mr. Mena has been the Chief Strategy Officer of InferX since our acquisition
      of
      InferX Virginia in October 2006 and had been the Chief Strategy Office of InferX
      Virginia since August 2006. From November 2005 to August 2006 he was a data
      mining consultant to the Department of Homeland Security, Office of Inspector
      General, where he was the technical lead consultant on the first department
      wide
      audit of all data mining and advanced analytical systems. He held the same
      positions with the Sandia National Laboratories from April 2003 to November
      2004, the National Counterterrorist Center from May to July 2004, and the
      General Accountability Office in April to June 2004. Mr. Mena is a world
      renowned expert in analytics and data mining, and has published several books,
      including Homeland Security Techniques and Technologies (2005), Investigative
      Data Mining for Security and Criminal Detection (2003), Web Mining for Profit
      (2002), and Data Mining Your Website (2001). From April 2000 to February 2002,
      Mr. Mena was the CEO of WebMiner, Inc., a company in the business of Internet
      marketing. Prior to this Mr. Mena spent approximately twenty years with the
      Internal Revenue Service where he was the lead data miner and artificial
      intelligence specialist. Mr. Mena has a BA in Communications from the University
      of Texas, El Paso.




*Other
      Significant Employees*




***C.
      Vincent Tubbs*** –
      Mr. Tubbs has been our Vice President of Sales since October 2007. Previously,
      Mr. Tubbs served from September 2006 to September 2007 as General Manager of
      Federal Sales and Operations for Narus Inc., a privately-held company that
      provides real-time traffic intelligence for the protection and management of
      large IP networks. Prior to Narus Inc., from September 2003 to August
      2006, Mr. Tubbs served as Senior Manager Government Business
      Development for Lucent Technologies/Bell Labs, which subsequently combined
      operations with Alcatel. From September 2002 to September 2003, Mr. Tubbs
      was Assistant Director Government Solutions for Wiltel Communications Group
      LLC,
      a privately-held provider of voice, data, video and IP services that was
      subsequently sold to Level 3 Communications, Inc.


–
23
          –


There
      are
      no family relationships among the officers and directors.




**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 2008.




**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 B.K. Gogia, as President and Chief Executive Officer during the fiscal
      year ended December 31, 2007, and each other executive officer whose
      compensation exceeded $100,000 in the fiscal year ended December 31, 2007 are
      set forth in the Summary Compensation Table below.


–
24
          –


**SUMMARY
      COMPENSATION TABLE**




**Name and Principal Position**
            
            **Year**
            
            **Salary ($)**
            
            **Bonus ($)**
            
            **Stock**
              **Awards**
              **($)**
            
            **Option**
              **Awards**
              **($)**
            
            **Nonequity**
              **Incentive Plan**
              **Compensation**
              **($)**
            
            **Nonqualified**
              **Deferred**
              **Compensation**
              **Earnings**
              **($)**
            
            **All Other**
              **Compensation**
              **($)**
            
            **Total**
              **($)**B.K.
                Gogia
            
            
            2007
            
            $
            180,000
            
            
            –
            
            
            –
            
            $
            1,961
            
            
            –
            
            
            –
            
            $
            25,649
            (1)
            $
            207,610President
                and Chief Executive
            
            
            2006
            
            
            82,500
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            23,100
            (1)
            
            105,600Officer
                (PEO)
            
            
            2005
            
            
            24,311
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            23,254
            (1)
            
            47,565Jerzy
                W. Bala
            
            
            2007
            
            $
            140,000
            
            
            –
            
            
            –
            
            $
            981
            
            
            –
            
            
            –
            
            
            –
            
            $
            140,981Chief
                Technical Officer, VP
            
            
            2006
            
            
            64,167
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            64,1672005
            
            
            37,687
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            37,687Scott
                B. Parliament
            
            
            2007
            
            $
            150,000
            
            
            –
            
            
            –
            
            $
            981
            
            
            –
            
            
            –
            
            
            –
            
            $
            150,981Chief
                Financial Officer, VP
            
            
            2006
            
            
            68,750
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            68,7502005
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            –Jesus
                  Mena
            
            
            2007
            
            $
            100,000
            
            
            –
            
            
            –
            
            $
            4,249
            
            
            –
            
            
            –
            
            
            –
            
            $
            104,249Chief
                  Strategy Officer
            
            
            2006
            
            
            37,138
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            37,1382005
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            –




(1)
            Consists
                of an automobile allowance in the amounts of $9,942, $9,073 and $8,998,
                and life insurance premiums for which we are not the beneficiary
                in the
                amounts of $15,707, $14,027 and $14,256, for the years ended December
                31,
                2007, 2006 and 2005, respectively.




In
      May
      2006, we entered into employment agreements with four executive officers: B.K.
      Gogia, Dr. Jerzy W. Bala, Scott B. Parliament and Jesus Mena. The employment
      agreements with Dr. Bala, Mr. Parliament and Mr. Mena each have a term of three
      years, and Mr. Gogia’s agreement has a term of five years. Each of these
      employment agreements are terminable by the company during the term with or
      without cause. The employment agreements are terminable by the executives for
      “good reason”, including a material breach of the employment agreement not cured
      within 15 days. Upon termination for “good reason” by the executive or by the
      company without cause, Mr. Parliament and Mr. Mena would receive a six month
      severance payment, Dr. Bala’s severance payment would be for nine months and Mr.
      Gogia’s severance payment would be the greater of two years or the remaining
      term of his employment agreement. Under their employment agreements each of
      the
      employees is eligible for a bonus upon achieving objectives determined by
      management for each executive for achieving certain performance targets. For
      the
      fiscal year ended December 31, 2007 and 2006, each executive agreed that no
      performance targets would be set and no bonuses would be paid.




On
      March
      17, 2008, we entered into an Executive Employment Agreement with Michael D.
      Brown. Under the terms of his executive employment agreement, Mr. Brown will
      receive a base salary of $48,000 that will increase to $120,000 per annum,
      payable semi-monthly, in the month following a quarterly reporting period in
      which the Company reports EBITDA of $250,000 or more. Mr. Brown is eligible
      for
      a bonus at the discretion of the Board of Directors. Under his executive
      employment agreement, Mr. Brown will receive an option to acquire 150,000 shares
      of InferX’s common stock as follows: 50,000 options upon InferX executing
      contracts that will generate $500,000 in gross revenues over the term of the
      contracts; 50,000 options upon InferX executing contracts that will generate
      $1,000,000 in gross revenues over the term of the contracts; and 50,000 upon
      InferX executing contracts that will generate $1,500,000 in gross revenues
      over
      the term of the contracts. All options will be subject to accelerated vesting
      if
      Mr. Brown’s employment is terminated by him for Good Reason, as that term is
      defined in his agreement. Mr. Brown had a consulting agreement with InferX
      dated
      December 5, 2006 under which he assisted InferX in the development, marketing
      and presentation of its products to potential government and commercial
      customers. The consulting agreement had a term of 12 months, and we agreed
      to
      pay Mr. Brown $8,000 per month during the term of the consulting agreement
      plus
      an 8% commission on any product sales and a 3% commission on consulting services
      that he generated. Mr. Brown also was granted an option to purchase up to 75,000
      shares of our common stock at a price of $.50 per share, vesting in four equal
      installments on February 28, May 31, August 31 and November 30, 2007, subject
      to
      certain conditions.


–
25
          –


We
      have a
      401(k) plan for which we provide no 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 Awards****Number of**
                **Securities**
                **Underlying**
                **Unexercised**
                **Options**
                **(#)**
              
              **Number of**
                **Securities**
                **Underlying**
                **Unexercised**
                **Options**
                **(#)**
              
              **Equity**
                **Incentive**
                **Plan Awards:**
                **Number of**
                **Securities**
                **Underlying**
                **Unexercised**
                **Unearned**
                **Options**
              
              **Option**
                **Exercise**
                **Price**
              
              **Option**
                **Expiration**
              
              **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**
                **Rights That**
                **Have Not**
                **Vested**
              
              **Equity**
                **Incentive**
                **Plan Awards:**
                **Market or**
                **Payout Value**
                **of Unearned**
                **Shares, Units**
                **or Other**
                **Rights That**
                **Have Not**
                **Vested****Name**
              
              **Exercisable**
              
              **Unexercisable**
              
              **(#)**
              
              **($)**
              
              **Date**
              
              **(#)**
              
              **($)**
              
              **(#)**
              
              **($)**B.K.
                  Gogia
              
              
              10,000
              (1)
              
              –
              
              
              –
              
              $
              0.50
              
              
              10/23/17
              
              
              –
              
              
              –
              
              
              –
              
              
              –Jerzy
                  W. Bala
              
              
              5,000
              
              
              –
              
              
              –
              
              $
              0.50
              
              
              10/23/17
              
              
              –
              
              
              –
              
              
              –
              
              
              –Scott
                  B. Parliament
              
              
              5,000
              
              
              –
              
              
              –
              
              $
              0.50
              
              
              10/23/17
              
              
              –
              
              
              –
              
              
              –
              
              
              –Jesus
                  Mena
              
              
              21,667
              
              
              33,333
              (2)
              
              –
              
              $
              0.50
              
              
              10/23/17
              
              
              –
              
              
              –
              
              
              –
              
              
              –


(1)
            Includes
                5,000 shares underlying options granted to Mr. Gogia’s
                spouse.




(2)
            Vests
                as to 16,667 on August 1, 2008 and as to the remaining 16,666 on
                August 1,
                2009.




The
      table
      entitled “DIRECTOR COMPENSATION” and the discussion related to that tables have
      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.




–
26
          –


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




The
      following table sets forth, as of April 14, 2008, 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 13,530,892 shares 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, 1600 International Drive, Suite 110, McLean,
      Virginia 22102 unless otherwise indicated.




**Name
                  and Address**
              
              **Amount and Nature**
                **of Beneficial Ownership**
              
              **Percentage of**
                **Outstanding**
                **Shares Owned**B.K.
                  Gogia
              
              
              4,263,079
              (1)
              
              31.5
              %Michael
                  D. Brown
              
              
              75,000
              (2)
              
              *Jerzy
                  W. Bala
              
              
              580,384
              (3)
              
              4.3
              %Scott
                  B. Parliament
              
              
              181,109
              (4)
              
              1.3
              %Jesus
                  Mena
              
              
              21,667
              (5)
              
              *Robert
                  B. Prag
                2455
                  El Amigo Road
                Del
                  Mar, CA 92014
              
              
              668,150
              (6)
              
              4.9
              %John
                  Lemak
                Sandor
                  Capital Master Fund, L.P.
                2828
                  Routh Street, Suite 500
                Dallas,
                  TX 75201
              
              
              1,357,580
              (7)
              
              9.9
              %Lacuna
                  Venture Fund LLLP
                c/o
                  Lacuna Ventures
                1100
                  Spruce Street, Suite 202
                Boulder,
                  CO 80302
              
              
              2,896,428
              (8)
              
              19.9
              %All
                  directors and executive
                officers
                  as a group (5 persons)
              
              
              5,121,239
              (1)(2)
                  (3)(4)(5)
              
              37.5
              %







*
      Less
      than 1%





(1)
            Includes
                177,330 shares owned directly by Mr. Gogia’s daughter, 177,330 shares
                owned directly by Mr. Gogia’s son, and 35,466 shares owned directly by Mr.
                Gogia’s spouse. Also includes 5,000 shares underlying currently
                exercisable options owned directly by Mr. Gogia and 5,000 shares
                underlying currently exercisable options owned directly by Mr. Gogia’s
                spouse. Mr. Gogia disclaims beneficial ownership of all shares owned
                directly by others.




(2)
            Represents
                shares underlying currently exercisable options owned directly by
                Mr.
                Brown.




(3)
            Includes
                5,000 shares underlying currently exercisable options owned directly
                by
                Dr. Bala.




–
27
          –




(4)
            Includes
                10,000 shares owned directly by one of Mr. Parliament’s sons, and 10,000
                shares owned directly by another of Mr. Parliament’s sons. Also includes
                5,000 shares underlying currently exercisable options owned directly
                by
                Mr. Parliament. Mr. Parliament disclaims beneficial ownership of
                all
                shares owned directly by others.




(5)
            Represents
                shares underlying currently exercisable options owned directly by
                Mr.
                Mena.




(6)
            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. By their terms, the warrants held by Mr. Prag are not exercisable
                to
                the extent that exercise would result in Mr. Prag’s beneficial ownership
                of greater than 4.99% of the company’s issued and outstanding common
                stock. If all of his warrants were exercisable in full, Mr. Prag
                would
                beneficially own 875,118 shares of common stock, which would represent
                beneficial ownership of approximately 6.37% of the company’s issued and
                outstanding common stock.




(7)
            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. Includes 357,173
                shares
                directly owned by Mr. Lemak. Also includes 182,033 of the 1,020,908
                shares
                issuable upon the exercise of warrants owned by Sandor Advisors and
                held
                by Sandor Capital Master Fund, L.P. (“Sandor Capital”) (713,940 shares)
                and Mr. Lemak (306,968 shares), in the aggregate, that are exercisable
                within 60 days. By their terms, the warrants held by Sandor Capital
                and
                Mr. Lemak are not exercisable to the extent that exercise by either
                of
                them would result in the joint beneficial ownership by Sandor Advisors
                and
                Mr. Lemak of greater than 9.99% of the company’s issued and outstanding
                common stock. If all of the warrants were exercisable in full, Sandor
                Advisors and Mr. Lemak would jointly beneficially own 2,196,455 shares
                of
                common stock, which would represent beneficial ownership of approximately
                15.09% of the company’s issued and outstanding common stock. Mr. Lemak
                makes investment decisions on behalf of Sandor
                Advisors.




(8)
            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. Also includes1,024,021of
                the 1,800,000 shares issuable upon the exercise of warrants owned
                by the
                Lacuna Entities that are exercisable within 60 days. By their terms,
                the
                warrants held by Lacuna Venture Fund are not exercisable to the extent
                that exercise would result in the Lacuna Entities’ beneficial ownership of
                greater than 19.99% of the company’s issued and outstanding common stock.
                If all of the warrants were exercisable in full, the Lacuna Entities
                would
                beneficially own 3,672,407 shares of common stock, which would represent
                beneficial ownership of approximately 23.95% of the company’s issued and
                outstanding common stock. Rawleigh Ralls makes investment decisions
                on
                behalf of each of the Lacuna
                Entities.




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




**Bridge
      Loan**




In
      May
      2006, certain investors provided a bridge loan to InferX Virginia in the
      aggregate principal amount of $350,000 (the “ ***Bridge
      Loan*** ”).
      Robert B. Prag, John Lemak and Sandor Capital Master Fund, L.P. (“Sandor
      Capital”), who beneficially owns greater than 5% of our issued and outstanding
      shares of common stock, provided $50,000, $50,000 and $100,000, respectively,
      of
      the Bridge Loan. In consideration for the Bridge Loan, the investors received
      shares of InferX Virginia common stock convertible into an aggregate of 250,000
      shares of common stock upon the consummation of our acquisition of InferX
      Virginia. Mr. Prag was issued 35,714 of these shares, Mr. Lemak was issued
      35,714 of these shares and Sandor Capital was issued 71,429 of these shares.
      Upon the consummation of the acquisition, the entire principal amount of the
      Bridge Loan, plus interest accrued at the rate of 8% per annum, was repaid
      by
      the company, including the payment of $50,000 plus interest to Mr. Prag, $50,000
      plus interest to Mr. Lemak and $100,000 plus interest to Sandor Capital. In
      lieu
      of payment in cash upon the consummation of the acquisition, Mr. Prag purchased
      103,484 units, Mr. Lemak purchased 103,484 units and Sandor purchased 206,970
      units in the October 2006 private placement in consideration of his cancellation
      of the entire principal amount of his Bridge Loan plus accrued interest,
      totaling $51,742, $51,742 and $103,485, respectively.




**Registration
      Rights**




In
      connection with our acquisition of InferX Virginia, the October 2006 private
      placement, and certain other agreements, we have agreed to file registration
      statements under the Securities Act to register the resale of our common stock
      beneficially owned by our former directors, officers and stockholders, Paul
      T.
      Mannion Jr., Andrew Reckles and Robert B. Prag, as well as the individuals
      who
      became directors, officers and significant stockholders following the
      acquisition: B.K. Gogia, Jerzy W. Bala and Scott B. Parliament. In addition,
      if
      we fail to meet certain deadlines in filing or having the registration
      statements declared effective, some of these individuals will be entitled to
      receive additional shares of common stock as a penalty. As a penalty 268,404,
      shares of stock were issued in 2007 to satisfy the obligation.




–
28
          –




**Transactions
      between Black Nickel and the Founding Stockholders**




Immediately
      prior to the consummation of our acquisition of InferX Virginia, we acquired
      an
      aggregate of 300,000 shares of our common stock from Messrs. Mannion, Reckles
      and Prag for an aggregate purchase price of $300.00.




**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, 2007
      and
      2006 for professional services rendered by the principal accountant for the
      audit of our annual financial statements and reviews of the quarterly financial
      statements was $38,000 and $30,000, respectively.




**Audit
      Related Fees**




None.




**Tax
      Fees**




None.




**All
      Other Fees**




None.




**PART
      IV**




**Item
                15.**
            **Exhibits
                and Financial Statement
                Schedules**




Our
      consolidated financial statements for the fiscal years ended December 31, 2007
      and 2006 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)


4.2
              Form
                  of Class A warrant to purchase common stock (incorporated by reference
                  to
                  Exhibit 4.2 to the registrant’s Current Report on Form 8-K, filed on
                  October 30, 2006)


–
29
          –




4.3
            Form
                of Class B warrant to purchase common stock (incorporated by reference
                to
                Exhibit 4.3 to the registrant’s Current Report on Form 8-K, filed on
                October 30, 2006)4.4
            Registration
                Rights Agreement (incorporated by reference to Exhibit 4.4 to the
                registrant’s Current Report on Form 8-K, filed on October 30,
                2006)10.1
            Lease
                of the registrant’s principal executive offices, as amended (incorporated
                by reference to Exhibit 10.1 to the registrant’s Current Report on Form
                8-K, filed on October 30, 2006)10.2
            Employment
                Agreement with B.K. Gogia (incorporated by reference to Exhibit 10.2
                to
                the registrant’s Current Report on Form 8-K, filed on October 30,
                2006)10.3
            Employment
                Agreement with J. Bala (incorporated by reference to Exhibit 10.1
                to
                Amendment No 1 to the registrant’s Current Report on Form 8-K, filed on
                November 1, 2006)10.4
            Employment
                Agreement with S. Parliament (incorporated by reference to Exhibit
                10.1 to
                the registrant’s Current Report on Form 8-K, filed on November 16,
                2006)10.5
            Employment
                Agreement with J. Mena (incorporated by reference to Exhibit 10.5
                to the
                registrant’s Current Report on Form 8-K, filed on October 30,
                2006)10.6
            Subscription
                Agreement (incorporated by reference to Exhibit 10.7 to the registrant’s
                Current Report on Form 8-K, filed on October 30, 2006)10.7
            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)10.8
            Consulting
                Agreement with Michael D. Brown (incorporated by reference to Exhibit
                99.1
                to the registrant’s Current Report on Form 8-K, filed on December 18,
                2006)10.9
            Executive
                Employment Agreement with Michael D. Brown (incorporated by reference
                to
                Exhibit 10.1 to the registrant’s Current Report on Form 8-K, filed on
                March 19, 2008)10.10
            InferX
                Corporation 2007 Stock Incentive Plan10.11
            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)10.12
            Form
                of Security Agreement (incorporated by reference to Exhibit 99.2
                to the
                registrant’s Current Report on Form 8-K, filed on March 12,
                2008)10.13
            Task/Delivery
                Order for Supplies or Services issued by the U.S. Department of Veterans
                Affairs on October 24, 200731.1
            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




–
30
          –




**INFERX
      CORPORATION**


**(FORMERLY
        BLACK NICKEL ACQUISITION CORP. I)**
 **INDEX
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  **Page**Report
                  of Independent Registered Public Accounting Firm
              F–1Report
                  of Independent Registered Public Accounting Firm
              F–2Consolidated
                  Balance Sheets as of December 31, 2007 and 2006
              F–3Consolidated
                  Statements of Operations for the Years Ended December 31, 2007
                  and
                  2006
              F–4Consolidated
                    Statement of Changes in Stockholders’ Equity (Deficit) for the Years Ended
                    December 31, 2007 and 2006
              F–5Consolidated
                  Statements of Cash Flows for the Years Ended December 31, 2007
                  and
                  2006
              F–6Notes
                  to Consolidated Financial Statements
              F–7
 –
31
              –
 **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
  Board
        of
        Directors
 InferX
        Corporation
 McLean,
        Virginia
 
 We
        have
        audited the accompanying consolidated balance sheet of InferX Corporation
        (the
“Company”) as of December 31, 2007 and the related consolidated statements of
        operations, changes in stockholders’ equity (deficit), and cash flows for the
        year ended December 31, 2007. 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
        audit.
 
 We
        conducted our audit in accordance with standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the
        consolidated financial statements are free of material misstatement. We were
        not
        engaged to perform an audit of the Company’s internal control over financial
        reporting. Our audit 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 audit
        provides 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, 2007, and the results of its consolidated statements of operations,
        changes in stockholders’ equity (deficit), and cash flows for the year ended
        December 31, 2007 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 operating losses
        and capital deficits that raise substantial doubt about its 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
 April
        10,
        2008
  F–1
 
 **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
  To
        the
        Board of Directors
 InferX
        Corporation
 
 I
        have
        audited the accompanying consolidated balance sheet of InferX Corporation
        (formerly Black Nickel Acquisition Corp. I) (the "Company") as of December
        31,
        2006, and the related consolidated statements of operations, changes in
        stockholders' equity (deficit) and cash flows for the years ended December
        31,
        2006 and 2005. These consolidated financial statements are the responsibility
        of
        the Company's management. My responsibility is to express an opinion on these
        consolidated financial statements based on my audits.
 
 I
        conducted the audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        I plan
        and perform the audit to obtain reasonable assurance about whether the
        consolidated financial statements are free of material misstatement. 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 financial statement presentation. I believe that
        my
        audits provide a reasonable basis for my opinion.
 
 In
        my
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of the Company as of December
        31, 2006, and their results of operations and cash flows for the years ended
        December 31, 2006 and 2005, in conformity with accounting principles generally
        accepted in the United States of America.
 
 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
        financial statements, the Company has sustained operating losses and capital
        deficits that raise substantial doubt about its 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.
 
 As
        noted
        in Note 13 to the financial statements, the Company has restated its financial
        statements for the year ended December 31, 2006 to reverse the expensing
        of
        common stock issued as a guarantee of debt in the amount of $66,250, and
        restated the financial statements for the year ended December 31, 2005 to
        reflect a loss on debt conversion of $38,462, for the year ended December
        31,
        2005, previously unrecorded. In addition, the Company removed the unearned
        revenue and unbilled receivables of equal value. These adjustments reflect
        corrections of errors.
  /s/Michael
        Pollack CPA
 
 Cherry
        Hill, New Jersey
 February
        16, 2007, except for Note 13, which is dated May 24, 2007
  F–2
  **INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **CONSOLIDATED
          BALANCE SHEETS**
 **DECEMBER
          31, 2007 AND 2006**
  **2007**
                
                **2006****ASSETS****CURRENT
                    ASSETS**Cash
                
                $
                1,670
                
                $
                79,554Accounts
                    receivable, net
                
                
                -
                
                
                50,000Prepaid
                    expenses and other current assets
                
                
                7,505
                
                
                7,505**Total
                    current assets**
                
                
                9,175
                
                
                137,059Fixed
                    assets, net of depreciation
                
                
                31,047
                
                
                29,198**Other
                    Asset**Computer
                    software development costs, net of amortization
                
                
                350,246
                
                
                371,439**Total
                    other asset**
                
                
                350,246
                
                
                371,439**TOTAL
                    ASSETS**
                
                $
                390,468
                
                $
                537,696**LIABILITIES
                    AND STOCKHOLDERS' EQUITY (DEFICIT)****CURRENT
                    LIABILITIES**Accounts
                    payable and accrued expenses
                
                $
                803,731
                
                $
                129,394Derivative
                    liability
                
                
                -
                
                
                1,031,703Liability
                    for stock to be issued
                
                
                15,000
                
                
                -Current
                    portion of notes payable
                
                
                15,703
                
                
                16,900**Total
                    current liabilities**
                
                
                834,434
                
                
                1,177,997**Long-term
                    Liabilities**Notes
                    payable, net of current portion
                
                
                350,307
                
                
                366,028**TOTAL
                    LIABILITIES**
                
                
                1,184,741
                
                
                1,544,025**STOCKHOLDERS'
                    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, 75,000,000 shares authorized
                    and
                    11,472,188 and 9,129,392 shares issued and outstanding
                
                
                1,147
                
                
                913Additional
                    paid-in capital
                
                
                3,278,517
                
                
                1,846,575Retained
                    earnings (defict)
                
                
                (4,073,937
                )
                
                (2,853,817
                )**Total
                    stockholders' equity (deficit)**
                
                
                (794,273
                )
                
                (1,006,329
                )**TOTAL
                    LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)**
                
                $
                390,468
                
                $
                537,696
 
 The
          accompanying notes are an integral part of these consolidated financial
          statements.
  F-3
  **INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **CONSOLIDATED
          STATEMENTS OF OPERATIONS**
 **FOR
          THE YEARS ENDED DECEMBER 31, 2007 AND 2006**
 
 **2007**
                
                **2006****REVENUE**
                
                $
                371,093
                
                $
                199,991**COST
                    OF REVENUES**Direct
                    labor and other finges
                
                
                79,354
                
                
                55,000Subcontractor
                
                
                104,191
                
                
                49,782Other
                    direct costs
                
                
                12,132
                
                
                -Amortization
                    of computer software development costs
                
                
                177,003
                
                
                177,003**Total
                    costs of revenues**
                
                
                372,680
                
                
                281,785**GROSS
                    (LOSS)**
                
                
                (1,587
                )
                
                (81,794
                )**OPERATING
                    EXPENSES**Indirect
                    and overhead labor and fringes
                
                
                716,416
                
                
                460,261Professional
                    fees
                
                
                537,665
                
                
                424,117Share
                    based compensation
                
                
                27,613
                
                
                -Travel
                    related costs
                
                
                44,288
                
                
                23,282Rent
                
                
                106,789
                
                
                104,181General
                    and administrative
                
                
                94,070
                
                
                62,860Registration
                    penalty
                
                
                134,202
                
                
                -Depreciation
                    and impairment
                
                
                29,707
                
                
                15,290**Total
                    operating expenses**
                
                
                1,690,750
                
                
                1,089,991**NET
                      LOSS FROM OPERATIONS BEFORE OTHER EXPENSE AND PROVISION FOR
                      INCOME
                      TAXES**
                
                
                (1,692,337
                )
                
                (1,171,785
                )**OTHER
                    EXPENSE**Loss
                    on fair value of derivative liability
                
                
                -
                
                
                484,616Interest
                    expense, net of interest income (including $0 and $529,423 in
                    shares
                    issued for debt)
                
                
                12,400
                
                
                554,757**NET
                    LOSS FROM OPERATIONS BEFORE PROVISION FOR INCOME
                    TAXES**
                
                
                (1,704,737
                )
                
                (2,211,158
                )Provision
                    for income taxes
                
                
                -
                
                
                -**NET
                    (LOSS) APPLICABLE TO SHARES**
                
                $
                (1,704,737
                )
                $
                (2,211,158
                )**NET
                    (LOSS) PER BASIC AND DILUTED SHARES**
                
                $
                (0.17
                )
                $
                (0.75
                )**WEIGHTED
                    AVERAGE NUMBER OF SHARES OUTSTANDING**
                
                
                10,324,653
                
                
                2,942,269
  The
          accompanying notes are an integral part of these consolidated financial
          statements.
  F-4
 
 **INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **CONSOLIDATED
          STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)**
 **FOR
          THE YEARS ENDED DECEMBER 31, 2007 AND 2006**
 
 **Preferred Stock**
                
                **Common
                    Stock**
                
                **Additional**
                  **Paid-In**
                
                **Retained**
                  **Earnings****Shares**
                
                **Amount**
                
                **Shares**
                
                **Amount**
                
                **Capital**
                
                **(Deficit)**
                
                **Total**Balance
                    - December 31, 2005, as restated
                
                
                -
                
                $
                -
                
                
                2,743
                
                $
                2,743
                
                $
                523,370
                
                $
                (642,659
                )
                $
                (116,546
                )Issuance
                    of shares for cash
                
                
                -
                
                
                -
                
                
                5
                
                
                5
                
                
                19,995
                
                
                -
                
                
                20,000Issuance
                    of shares for conversion of accounts payable
                
                
                -
                
                
                -
                
                
                10
                
                
                10
                
                
                40,238
                
                
                -
                
                
                40,248Issuance
                    of shares for consulting fees
                
                
                -
                
                
                -
                
                
                63
                
                
                63
                
                
                251,937
                
                
                -
                
                
                252,000Issuance
                    of shares for guarantee of promissory notes
                
                
                -
                
                
                -
                
                
                132
                
                
                132
                
                
                529,291
                
                
                -
                
                
                529,423Contribution
                    of capital by shareholder
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                6,029
                
                
                -
                
                
                6,029To
                    reflect share issuance in reverse merger, net of the 2,953 shares
                    cancelled)
                
                
                -
                
                
                -
                
                
                6,797,047
                
                
                (2,273
                )
                
                5,832
                
                
                -
                
                
                3,559Issuance
                        of shares in the private placement, net of  $147,493 of closing
                        costs, and $547,087 applied to derivative liability for the proceeds
                        of the warrants
                
                
                -
                
                
                -
                
                
                2,329,392
                
                
                233
                
                
                469,883
                
                
                -
                
                
                470,116Net
                    loss for the year, as previously reported
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (2,277,408
                )
                
                (2,277,408
                )Prior
                    period adjustment
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                66,250
                
                
                66,250Net
                    loss for the year, as restated
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (2,211,158
                )
                
                (2,211,158
                )Balance
                    - December 31, 2006, as restated
                
                
                -
                
                
                -
                
                
                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
                
                
                -
                
                $
                -
                
                
                11,472,188
                
                $
                1,147
                
                $
                3,278,517
                
                $
                (4,073,937
                )
                $
                (794,273
                )
 
 The
          accompanying notes are an integral part of these consolidated financial
          statements.
  F-5
 
 **INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **CONSOLIDATED
          STATEMENTS OF CASH FLOW**
 **FOR
          THE YEARS ENDED DECEMBER 31, 2007 AND 2006**
 
 **2007**
                
                **2006****CASH
                    FLOWS FROM OPERATING ACTIVITIES:**Net
                    (loss)
                
                $
                (1,704,737
                )
                $
                (2,211,158
                )**Adjustments
                    to reconcile net (loss) **to net cash used in operating
                    activities:****Stock
                    issued for services - pre-merger
                
                
                -
                
                
                252,000Stock
                    issued for guarantee of debt - pre-merger
                
                
                -
                
                
                529,423Cash
                    received in merger with Black Nickel
                
                
                -
                
                
                3,559Loss
                    on fair value of derivative liability
                
                
                -
                
                
                484,616Services
                    rendered for liability for stock to be issued
                
                
                15,000
                
                
                -Stock
                    issued for penalty under registration rights agreement
                
                
                134,202
                
                
                -Warrants
                    issued to consultant
                
                
                94,457
                
                
                -Share
                    based compensation
                
                
                27,613
                
                
                -Amortization
                    of computer software development costs
                
                
                177,003
                
                
                177,003Depreciation
                    and amortization
                
                
                29,707
                
                
                15,290**Change
                    in assets and liabilities**(Increase)
                    decrease in accounts receivable
                
                
                50,000
                
                
                (25,002
                )Decrease
                    in prepaid expenses and other current assets
                
                
                -
                
                
                8,442Increase
                    (decrease) in accounts payable and accrued expenses
                
                
                674,337
                
                
                (22,049
                )**Total
                    adjustments**
                
                
                1,202,319
                
                
                1,423,282**Net
                    cash (used in) operating activities**
                
                
                (502,418
                )
                
                (787,876
                )**CASH
                    FLOWS FROM INVESTING ACTIVITIES:**Capital
                    expenditures
                
                
                (21,083
                )
                
                (8,423
                )Computer
                    software development costs
                
                
                (166,283
                )
                
                (34,896
                )**Net
                    cash (used in) investing activities**
                
                
                (187,366
                )
                
                (43,319
                )**CASH
                    FLOWS FROM FINANCING ACTIVITIES:**Increase
                    (decrease) in cash overdraft
                
                
                -
                
                
                (12,071
                )Issuance
                    of stock for cash pre-merger
                
                
                -
                
                
                20,000Contributions
                    of capital pre-merger
                
                
                -
                
                
                6,029Issuance
                    of stock and warrants in private placement, net of closing costs
                    of
                    $147,493
                
                
                -
                
                
                1,017,203Exercise
                    of warrants
                
                
                628,818
                
                
                -Borrowings
                    of promissory notes
                
                
                -
                
                
                350,000(Repayment)
                    of promissory notes
                
                
                -
                
                
                (350,000
                )(Repayment)
                    of notes payable
                
                
                (16,918
                )
                
                (75,412
                )Borrowings
                    (repayment) of note payable - related partry
                
                
                -
                
                
                (45,000
                )**Net
                    cash provided by financing activities**
                
                
                611,900
                
                
                910,749**NET
                    INCREASE IN CASH AND CASH EQUIVALENTS**
                
                
                (77,884
                )
                
                79,554**CASH
                    AND CASH EQUIVALENTS - BEGINNING OF PERIOD**
                
                
                79,554
                
                
                -**CASH
                    AND CASH EQUIVALENTS - END OF PERIOD**
                
                $
                1,670
                
                $
                79,554**SUPPLEMENTAL
                    INFORMATION OF CASH FLOW ACTIVITY**Cash
                    paid during the year for interest
                
                $
                12,628
                
                $
                27,596**SUPPLEMENTAL
                    INFORMATION ON NONCASH ACTIVITY**Conversion
                    of notes payable to accounts payable
                
                $
                -
                
                $
                57,537Conversion
                    of accounts payable to stock - pre-merger
                
                $
                -
                
                $
                40,248Stock
                    issued for services - pre-merger
                
                $
                -
                
                $
                252,000Stock
                    issued for guaranty of debt - post-merger
                
                $
                -
                
                $
                529,423Stock
                    issued for penalty shares under registration rights
                    agreement
                
                $
                134,202
                
                $
                -Warrants
                    issued to consultant
                
                $
                94,457
                
                $
                -Share
                    based compensation
                
                $
                27,613
                
                $
                -Services
                    rendered for liability for stock to be issued
                
                $
                15,000
                
                $
                -
 
 The
          accompanying notes are an integral part of these consolidated financial
          statements.
  F-6
  **INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
          31, 2007 AND 2006**
 **NOTE
                  1-**
              **ORGANIZATION
                  AND BASIS OF
                  PRESENTATION**
  Black
        Nickel Acquisition Corp. 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 Corp. I, was engaged in
        organizational efforts and obtaining initial financing.
  On
        May
        17, 2006, Black Nickel Acquisition Corp. 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 Corp. 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 ownership and 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.
  F–7
 **INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
          31, 2007 AND 2006**
 **NOTE
                1-**
              **ORGANIZATION
                  AND BASIS OF PRESENTATION****(CONTINUED)**
  **Going
        Concern**
 
 As
        shown
        in the accompanying consolidated financial statements the Company has incurred
        a
        loss of $1,704,737 and $2,211,158 for the years ended December 31, 2007 and
        2006, respectively, and has a working capital deficiency of $825,259 as of
        December 31, 2007. The principal reasons for the recurring losses is due
        to the
        Company’s changed focus on developing its products for the commercial markets as
        it transitions away from the less profitable government services market.
        The
        Company expects the negative cash flow from operations to continue its trend
        through the next six months until proposals that are in process become executed
        agreements and revenue is recognized from these agreements. These factors
        raise
        significant doubt about the ability of the Company to continue as a going
        concern.
  Management’s
        plans to address these conditions include continued efforts to obtain government
        contracts as well as commercial contracts through expanding sources and new
        sales personnel, along with new technology, and the raising of additional
        capital through the sale of the Company’s stock.
  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 may be required 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.
  F–8
  **INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
          31, 2007 AND 2006**
  **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 up to $100,000.
  F–9
 **INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
          31, 2007 AND 2006**
 **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,
        2007, an allowance of $2,364 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
        2007 and 2006, the Company capitalized certain software development costs.
        The
        Company capitalizes the cost of software in accordance with SFAS 86 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. For the years ended December 31, 2007 and
        2006,
        the Company recognized $177,003 and $177,003 of amortization expense on its
        capitalized software costs, respectively. The
        Company commencing January 1, 2008, placed an additional $226,084 of software
        development into service, which will be amortized over a three year
        period.
  F–10
 **INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
          31, 2007 AND 2006**
 **NOTE
                  2-**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES****(CONTINUED)**
  **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**
  The
        Company generates revenue from 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.
  ***Time-and-Material
        Contracts***
  Time-and-material
        contracts revenue is generated whereby costs are generally incurred in
        proportion with contracted billing schedules and revenue is recognized as
        services are performed, with the corresponding cost of providing those services
        reflected as direct costs. The customers are billed in accordance with the
        contracts entered into. Such method is expected to result in reasonably
        consistent profit margins over the contract term.
  ***Fixed-Price
        Contracts***
  Revenue
        from firm-fixed-price contracts is recognized upon achievement of the milestones
        contained in the contracts in accordance with the provisions of Staff Accounting
        Bulletin 104. Revenue is not recognized until collectibility is assured,
        which
        does not take place until completion of the particular milestone. Costs are
        recognized as services are performed.
  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.
  F–11
 **INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
          31, 2007 AND 2006**
 **NOTE
                  2-**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES****(CONTINUED)**
  **Stock-Based
        Compensation**
  On
        December 16, 2004, the Financial Accounting Standards Board (“FASB”) published
        Statement of Financial Accounting Standards No. 123 (Revised 2004),
“ *Share-Based
        Payment* ”
(“SFAS
        123R”). SFAS 123R requires that compensation cost related to share-based payment
        transactions be recognized in the financial statements. Share-based payment
        transactions within the scope of SFAS 123R include stock options, restricted
        stock plans, performance-based awards, stock appreciation rights, and employee
        share purchase plans. The provisions of SFAS 123R, as amended, are effective
        for
        small business issuers beginning as of the next interim period after December
        15, 2005. The Company has adopted these provisions as of January 1, 2006
        and
        this adoption did not have a material effect on the Company’s
        operations.
 
 On
        January 1, 2006, the Company adopted the provisions of FAS No. 123R “Share-Based
        Payment” (“FAS 123R”) which 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 prescribed by Accounting
        Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to
        Employees” (“APB 25”) and related interpretations. The Company has provided pro
        forma disclosure amounts in accordance with FAS No. 148, “Accounting for
        Stock-Based Compensation – Transition
        and
        Disclosure – an amendment of FASB Statement No. 123” (“FAS 148”), as if the fair
        value method defined by FAS No. 123, “Accounting for Stock Based Compensation”
(“FAS 123”) had been applied to its stock-based compensation.
 
 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 estimated in accordance with the
        original provisions of FAS 123. Stock-based compensation expense for all
        awards
        granted after January 1, 2006 is based on the grant-date fair values estimated
        in accordance with the provisions of FAS 123R. 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’s warrants issued in the private placement in October 2006, were not
        stock based compensation. The Company’s options issued in October 2007 were
        considered stock based compensation (see Note 7).
  F–12
 **INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
          31, 2007 AND 2006**
 **NOTE
                  2-**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES****(CONTINUED)**
  **Concentrations**
  The
        Company has derived all of its revenue from two customers with 95% and 100%
        for
        the years ended December 31, 2007 and 2006, respectively, of the revenue
        from
        one of these 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 SFAS 131, “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
        believes that there is only one operating segment.
  **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 the Company for similar borrowings. For the
        warrants that are classified as derivatives, fair values were calculated
        at net
        present value using the Company’s weighted average borrowing rate for debt
        instruments without conversion features applied to total future cash flows
        of
        the instruments.
 
 **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.
  F–13
 **INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
          31, 2007 AND 2006**
 **NOTE
                  2-**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES****(CONTINUED)**
  **Income
        Taxes**
  Under
        Financial Accounting Standards Board Statement No. 109, “Accounting for Income
        Taxes,” 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**
  In
        July
        2006, the FASB issued Interpretation No. 48 (FIN No. 48), “Accounting for
        Uncertainty in Income Taxes.” This interpretation requires recognition and
        measurement of uncertain income tax positions using a “more-likely-than-not”
approach. FIN No. 48 is effective for fiscal years beginning after December
        15,
        2006. Management has adopted FIN 48 for 2007, and they evaluate their tax
        positions on an annual basis, and has determined that as of December 31,
        2007,
        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 includes
        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
        Class
        A and Class B warrants were issued in October 2006 in the private placement
        however were not included as they would be considered anti-dilutive as the
        Company had a loss for this period.
  F–14
 **INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
          31, 2007 AND 2006**
  **NOTE
                2-**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES****(CONTINUED)**
  The
        following is a reconciliation of the computation for basic and diluted EPS:
  **Years
                  Ended****December 31,**
              
              **December 31,****2007**
              
              **2006**Net
                  (loss)
              
              $
              (1,704,737
              )
              $
              (2,211,158
              )Weighted-average
                  common shares outstanding :Basic
              
              
              10,324,653
              
              
              2,942,269Warrants
              
              
              4,908,784
              
              
              4,658,784Options
              
              
              140,834
              
              
              -Diluted
              
              
              15,374,271
              
              
              7,601,053Basic
                  net (loss) per share
              
              $
              (0.17
              )
              $
              (0.75
              )Diluted
                  net (loss) per share
              
              $
              (0.17
              )
              $
              (0.75
              )
  **Research
        and Development**
  Research
        and development costs are expensed as incurred. In addition, research and
        development costs of $32,127 and $49,366 have been included in indirect labor
        and $183,548 and $104,782 have been included in direct labor and subcontractor
        costs for the years ended December 31, 2007 and 2006, respectively.
  **Recent
        Issued Accounting Standards**
  In
        September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” This
        standard 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 SFAS 157 is not expected to have a material impact
        on the consolidated financial statements.
  In
        February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial
        Assets and Financial Liabilities – Including
        an
        amendment of FASB Statement No. 115”, (“FAS 159”) 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. FAS 159 is effective
        for
        financial statements issued for fiscal years beginning after November 15,
        2007,
        and interim periods within those fiscal years.
  F–15
 **INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
          31, 2007 AND 2006**
 **NOTE2-**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES****(CONTINUED)**
  **Recent
        Issued Accounting Standards** **(Continued)**
  In
        December 2006, the FASB Staff issued FSP EITF – 00-19-2,
        “Accounting for Registration Payment Arrangements” (“EITF 00-19-2”). EITF
        00-19-2 addresses an issuer’s accounting for registration payment arrangements.
        EITF 00-19-2 specifies that the contingent obligation to make future payments
        or
        otherwise transfer consideration under a registration payment arrangement,
        whether issued as a separate agreement or included as a provision of a financial
        instrument or other agreement, should be separately recognized and measured
        in
        accordance with SFAS No. 5, Accounting for Contingencies. EITF 00-19-2 is
        effective for financial statements issued for fiscal years beginning after
        December 15, 2006, and interim periods within those fiscal years. Application
        of
        EITF 00-19-02 resulted in an adjustment in January 2007 reclassifying the
        derivative liability to additional paid-in capital and retained earnings.
        The
        adjustment reduced the derivative liability by $1,031,703 and increased
        additional paid-in capital by $547,086 and increased retained earnings by
        $484,617 which was the cumulative-effect adjustment resulting from the adoption
        of this standard.
  In
        December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
        Consolidated Financial Statements, an amendment of Accounting Research Bulletin
        No 51” (SFAS 160). SFAS 160 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.
 
 SFAS
        160
        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 t he
        adoption of SFAS No. 160 will have on the Company’s consolidated financial
        position, results of operations or cash flows.
 
 In
        December 2007, the FASB issued SFAS 141R, *Business Combinations* (“SFAS
        141R”), which replaces FASB SFAS 141, *Business Combinations.* This
        Statement retains the fundamental requirements in SFAS 141 that the acquisition
        method of accounting be used for all business combinations and for an acquirer
        to be identified for each business combination. SFAS 141R 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.  SFAS 141R 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.  SFAS 141R 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.  This
        compares to the cost allocation method previously required by SFAS No.
        141.
 
  F–16
 **INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
          31, 2007 AND 2006**
 **NOTE
                2-**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES****(CONTINUED)**
  **Recent
        Issued Accounting Standards** **(Continued)**
  SFAS
        141R
        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, SFAS 141R will require an entity to
        recognize contingent consideration at the date of acquisition, based on the
        fair
        value at that date.  This Statement 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 the
        Company’s results of operations and financial condition for acquisitions
        previously completed. The
        adoption of SFAS No. 141R is not expected to have a material effect on the
        Company’s consolidated financial position, results of operations or cash
        flows.
  In
          December 2007, the Securities and Exchange Commission issued Staff Accounting
          Bulletin No. 110, “*Use
          of a
          Simplified Method in Developing Expected Term of Share Options”*
          (“SAB
          110*”*). SAB 110 expresses the current view of the staff that it will
          accept a company's election to use the simplified method discussed in Staff
          Accouting Bulletin No. 107, “*Share Based Payment*", (“SAB107*”*),
          for estimating the expected term of “plain vanilla*”* share options
          regardless of whether the company has sufficient information to make more
          refined estimates.  SAB 110 became effective for the Company on January 1,
          2008. The adoption of SAB 110 is not expected to have a material impact
          on the
          Company's final position.
  Other
          accounting standards that have been issued or proposed by the FASB or other
          standards-setting bodies that do not require adoption until a future date
          and
          are not expected to have a material impact on the consolidated financial
          statements upon adoption.
  **NOTE
                3-**
              **FIXED
                  ASSETS**
  Fixed
        assets consist of the following as of December 31, 2007 and 2006:
  **Estimated Useful****Lives (Years)**
              
              **2007**
              
              **2006**Computer
                  equipment
              
              
              5
              
              $
              92,087
              
              $
              71,004Office
                  machinery and equipment
              
              
              3
              
              
              15,638
              
              
              15,638Furniture
                  and fixtures
              
              
              5
              
              
              538
              
              
              538Automobile
              
              
              5
              
              
              58,476
              
              
              58,476166,739
              
              
              145,656Less:
                  Accumulated depreciation
              
              
              
              
              
              (135,692
              )
              
              (116,458
              )Total,
                  net
              
              
              
              
              $
              31,047
              
              $
              29,198
  Depreciation
        expense was $19,234 and $15,290 for the years ended December 31, 2007 and
        2006,
        respectively.
  F–17
 **INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
          31, 2007 AND 2006**
 **NOTE4-**
              **COMPUTER
                  SOFTWARE DEVELOPMENT
                  COSTS**
  Computer
        software development costs consist of the following as of December 31, 2007
        and
        2006:
  **Estimated Useful****Lives (Years)**
              
              **2007**
              
              **2006**Computer
                  software development costs
              
              
              5
              
              $
              986,724
              
              $
              944,816Less:
                  Accumulated amortization
              
              
              
              
              
              (636,478
              )
              
              (573,377
              )Total,
                  net
              
              
              
              
              $
              350,246
              
              $
              371,439
  Amortization
        expense was $177,003 and $177,003 for the years ended December 31, 2007 and
        2006, respectively. At March 31, 2007, the Company wrote off net software
        development costs of $10,473 relating to their Inferview product. The Company
        commencing January 1, 2008, placed an additional $226,084 of software
        development into service, which will be amortized over a three year
        period.
  Amortization
        expense anticipated through December 31, 2010 is as follows:
  Year
                  ended December 31:2008
              
              $
              199,5242009
              
              
              75,3612010
              
              
              75,361$
              350,246
  **NOTE
                5-**
              **NOTES
                  PAYABLE**
  ***SBA
        Loan***
  On
        July
        22, 2003, the Company 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, the Company 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 2033.
  F–18
  **INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
          31, 2007 AND 2006**
 **NOTE
                  5-**
              **NOTES
                  PAYABLE****(CONTINUED)**
  ***SBA
        Loan (Continued)***
  The
        Company must comply with the default provisions contained in the Note. The
        Company 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 the Company’s ability to pay this Note.
  As
        of
        December 31, 2007 and 2006, the Company has an outstanding principal balance
        of
        $358,511 and $366,431, respectively. Interest expense on the SBA loan for
        the
        years ended December 31, 2007 and 2006 were $12,628 and $13,202,
        respectively.
  ***Automobile
        Loan***
  The
        Company has a note payable with an automotive finance company in the original
        amount of $44,990 (the “Auto Note”). The Auto Note commenced in November 2003,
        and requires payments of $750 per month for a period of 60 months. The Auto
        Note
        is secured by the automobile.
  As
        of
        December 31, 2007 and 2006, the outstanding principal balance of the Auto
        Note
        was $7,499 and $16,497.
  F–19
 **INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
          31, 2007 AND 2006**
 **NOTE
                  5-**
              **NOTE
                  PAYABLE****(CONTINUED)**
  As
        of
        December 31, 2007, the repayment schedule of the Notes Payable for the next
        five
        years and in the aggregate are:
  2008
              
              $
              15,7032009
              
              
              8,5592010
              
              
              8,9092011
              
              
              9,2712012
              
              
              9,648Thereafter
              
              
              313,920366,010Less:
                  current portion
              
              
              (15,703
              )Long-term
                  portion
              
              $
              350,307
  **NOTE
                6-**
              **NOTE
                  PAYABLE –
                  RELATED
                  PARTIES**
  The
        President of the Company would lend money from time to time to the Company
        to
        fund operations. These amounts bore no interest and were unsecured. As of
        December 31, 2005, the amount outstanding to the President of the Company
        was
        $45,000. These balances were repaid in the three months ended March 31,
        2006.
  **NOTE
                7-**
              **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
        has not issued any shares of preferred stock since inception.
  ***Common
        Stock***
  The
        Company was incorporated on May 26, 2005, and the Board of Directors authorized
        75,000,000 shares of common stock with a par value of $0.0001.
  On
        May
        26, 2005, the Company issued 1,500,000 to the founders of the Company for
        $50,000.
  On
        October 24, 2006, Black Nickel Acquisition Corp. I merged with the Company.
        At
        the closing of the merger and related private placement, the following
        occurred:
  F–20
 **INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
          31, 2007 AND 2006**
 **NOTE
                  7-**
              **STOCKHOLDERS’
                  EQUITY (DEFICIT)****(CONTINUED)**
  ***Common
        Stock (Continued)***
  a)
              The
                  Company issued 250,000 shares of common stock for the providing
                  of the
                  bridge promissory notes to InferX in May 2006. The value of these
                  shares
                  was $529,423 based on the fair value of the Company’s stock when issued.
                  The 250,000 shares represent the conversion of the 132 shares issued
                  pre-merger between the companies;
 
 b)
              The
                  Company issued 5,350,000 shares of common stock in exchange for
                  100% of
                  the issued and outstanding shares of InferX;
 
 c)
              The
                  Company issued 2,329,392 shares of common stock for gross proceeds
                  of
                  $1,164,696 in the private placement that closed when the merger
                  was
                  completed. From the $1,164,696, the Company repaid the bridge promissory
                  notes plus accrued interest in the amount of $362,196, and paid
                  $147,493
                  in closing costs. The Company issued 2,392,392 Class A warrants
                  and
                  2,329,392 Class B warrants (see d and e below and the Warrants
                  section of
                  Note 7). The price for all components were derived utilizing the
                  relative
                  fair value approach stipulated in APB
                  14;
 
 d)
              The
                  Class A Warrants are exercisable at any time for shares of stock
                  at an
                  exercise price of $0.50 per share with a term of five (5) years,
                  subject
                  to anti dilution protection, so that any part of the 2,329,392
                  of the
                  warrants shall be callable if the underlying warrant shares are
                  registered
                  and the stock trades in the open market for thirty (30) consecutive
                  days
                  at a closing price above $1.50 per share. Half of the warrants
                  shall be
                  callable if the Company is awarded a contract with a guaranteed
                  minimum
                  revenue of at least $1,000,000 with a department of the United
                  Sates
                  Government (not including the Missile Defense Agency) to deploy
                  its
                  existing technology for threat detection or other application.
                  1,629,513
                  of these warrants were exercised at a price of $.25 in April 2007,
                  and
                  444,879 of these warrants were exercised at a price of $.50 in
                  November
                  2007;
 
 e)
              The
                  Class B Warrants are exercisable at any time for shares of stock
                  at an
                  exercise price of $0.62 per share with a term of five (5) years,
                  subject
                  to anti dilution protection, so that any part of the 2,329,392
                  of the
                  warrants shall be callable by the Company if the underlying warrant
                  shares
                  are registered and the stock trades in the open market for thirty
                  (30)
                  consecutive days at a closing price above $1.86 per
                  share;
 
 f)
              The
                  Company cancelled 300,000 shares of common stock in the reverse
                  merger
                  leaving 1,200,000 of the 1,500,000 previously outstanding shares
                  from May
                  25, 2006 with the former owners of Black Nickel Acquisition Corp.
                  I;
                  and
 
 g)
              Shall
                  reserve for a period of two (2) years from the closing of the Reverse
                  Merger, no more than 2,200,000 shares of stock for a stock option
                  plan,
                  and any options granted under this plan will be subject to an exercise
                  price of not less than $0.50 per share. 290,000 Options were issued
                  under
                  this plan during the year ended December 31, 2007 at an exercise
                  price of
                  $.50.
  F–21
  **INFERX
        CORPORATION**
 **(FORMERLY
        BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
        31, 2007 AND 2006**
  **NOTE
                7-**
              **STOCKHOLDERS’
                  EQUITY (DEFICIT)****(CONTINUED)**
  ***Common
        Stock (Continued)***
  In
        April
        2007, the Company issued 1,629,513 shares of stock in the exercise of Class
        A
        warrants issued in connection with the private placement. The Company received
        $406,378 in cash for these shares. In November 2007, the Company issued 444,879
        shares of stock in the exercise of Class A warrants issued in connection
        with
        the private placement. The Company received $222,440 in cash for these
        shares.
  The
        Company issued 268,404 as penalty shares under the registration rights agreement
        (see Note 9) at a value of $.50 per share or $134,202.
  The
        Company has also recorded a $15,000 consulting fee in 2007 for the issuance
        of
        30,000 shares of stock. The fees were earned in 2007 however the stock has
        not
        been issued. This is reflected as a liability for stock to be
        issued.
  As
        of
        December 31, 2007, the Company has 11,472,188 shares issued and
        outstanding.
  ***Warrants***
  The
        Company in the private placement granted 2,329,392 Class A and 2,329,392
        Class B
        warrants. In April 2007, 1,629,513 of the Class A warrants were exercised
        into
        common shares. In November 2007, 444,879 of the Class A warrants were exercised
        into common shares. The Company granted brand new Class A warrants to the
        warrant holders that exercised during 2007. The total new Class A warrants
        of
        2,074,392 were issued in November 2007 and are reflected herein. The following
        is a breakdown of the warrants:
  **Exercise**
              
              **Date****Warrants**
              
              **Price**
              
              **Issued**
              
              **Term**255,000
              
              $
              0.50
              
              
              10/24/2006
              
              
              5
                  years2,329,392
              
              $
              0.625
              
              
              10/24/2006
              
              
              5
                  years250,000
              
              $
              0.50
              
              
              9/1/2007
              
              
              5
                  years2,074,392
              
              $
              0.50
              
              
              11/30/2007
              
              
              3.9
                  years4,908,784
 
 The
        Class
        A Warrants (old) and Class B Warrants in the private placement as well as
        the
        consultant warrants were valued utilizing the Black - Scholes method as
        follows:
 
 **Class
                  A**
              
              **Class
                  B**
              
              **Consultant**Stock
                  Price
              
              $
              .50
              
              $
              .50
              
              $
              .50Strike
                  Price
              
              $
              .50
              
              $
              .62
              
              $
              .50Expected
                  Life of Warrant
              
              
              5
                  yrs.
              
              
              5
                  yrs.
              
              
              5
                  yrs.Annualized
                  Volatility
              
              
              50
              %
              
              50
              %
              
              100
              %Discount
                  Rate
              
              
              3.50
              %
              
              3.50
              %
              
              3.00
              %Annual
                  Rate of Quarterly Dividends
              
              
              None
              
              
              None
              
              
              NoneCall
                  Option Value
              
              $
              .237
              
              $
              .206
              
              $
              .378
  F–22
 **INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
          31, 2007 AND 2006**
 **NOTE
                  7-**
              **STOCKHOLDERS’
                  EQUITY (DEFICIT)****(CONTINUED)**
  ***Options***
  Prior
        to
        October 2007, there were no options outstanding, or granted. In October 2007,
        the Company’s Board of Directors and Shareholders approved the adoption of an
        option plan for a total of 2,200,000 shares and issued 290,000 options in
        October and November that vest over a three-year period of time, with 140,834
        of
        these options vesting in 2007 at a strike price of $.50 per share. These
        options
        were valued as follows:
  Stock
                  Price
              
              $
              .50Strike
                  Price
              
              $
              .50Expected
                  Life of Option
              
              
              1
                  yr.Annualized
                  Volatility
              
              
              100
              %Discount
                  Rate
              
              
              3.00
              %Annual
                  Rate of Quarterly Dividends
              
              
              NoneCall
                  Option Value
              
              $
              .196
  The
        value
        attributable to these options for the year ended December 31, 2007 is $27,613
        and is reflected in the consolidated statements of operations.
  **NOTE
                8-**
              **RELATED
                  PARTY TRANSACTIONS******
  The
        Company was advanced amounts as equity contributions by the Company’s President
        prior to the merger with Black Nickel Acquisition Corp. I. As of December
        31,
        2007 and 2006, there are currently no outstanding amounts due the President
        of
        the Company. There were no other related party transactions during the years
        ended December 31, 2007 and 2006, respectively.
  F–23
  **INFERX
        CORPORATION**
 **(FORMERLY
        BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
        31, 2007 AND 2006**
  **NOTE
                9-**
              **COMMITMENTS**
  **Rental**
  The
        Company leases office space under an operating lease that has initial or
        remaining non-cancelable lease terms and expires in November 2008. The lease
        agreement provides for an annual 4% escalation of the base rent. As of December
        31, 2007, the following presents the approximate future minimum lease payments
        required under this lease:
  **For the Period Ended****December 31,**2008
              
              $
              96,578
  Rent
        expense for the years ended December 31, 2007 and 2006 was $106,789 and
        $104,181, respectively.
  **Consulting
        Agreements**
  During
        2007 and 2006, the Company entered into consulting agreements with marketing
        and
        strategic consulting groups with terms that do not exceed one year. These
        companies are to be paid fees for the services they perform. The Company
        has
        included these fees in their consolidated statements of operations for the
        years
        ended December 31, 2007 and 2006.
  **Registration
        Rights Agreement**
  The
        Registration Rights Agreement dated October 23, 2006 between the Company
        and
        certain investors provided that the Company would accrue a penalty of 1%
        of the
        total shares of the Company’s common stock registered on Form SB-2 (the “Total
        Shares”), per month for each month beyond April 23, 2007 that Company’s
        registration statement on Form SB-2 failed to be effective up to a maximum
        of
        10% of the Total Shares or 447,340 shares of common stock. The Company had
        incurred a penalty of 268,404 shares of its common stock through September
        10,
        2007, the effective date of the Company’s registration statement. This liability
        had been accrued at a value of $.50 per share or $134,202. The penalty shares
        noted above were issued in October 2007.
  F–24
 **INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
          31, 2007 AND 2006**
 **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, 2007, deferred tax assets consist of the following:
 
 Net
                  operating losses
              
              $
              1,367,546Valuation
                  allowance
              
              
              (1,367,546
              )$
              -
 
 At
        December 31, 2007, the Company had net operating loss carryforward in the
        amount
        of $4,022,194, available to offset future taxable income through 2027. 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 years ended December 31,
        2007
        and 2006 is summarized below.
  2007
              
              2006Federal
                  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-**
              **DEFINED
                  CONTRIBUTION PLAN**
  The
        Company has a retirement plan which satisfies the requirements of Section
        401(k)
        of the Internal Revenue Code. This defined contribution retirement plan covers
        substantially all employees. Participants can elect to have up to the maximum
        percentage allowable of their salaries reduced and contributed to the plan.
        The
        Company may make matching contributions equal to a discretionary percentage
        of
        the participants’ elective deferrals. The Company made no such contributions for
        the years ended December 31, 2007 and 2006, respectively.
  F–25
 **INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
          31, 2007 AND 2006**
 **NOTE
                  12-**
              **MAJOR
                  CUSTOMER******
  The
                  Company’s contracts with agencies of the federal government accounted for
                  100% of its revenue for the years ended December 31, 2007 (two
                  agencies)
                  and 2006 (one agency),
                  respectively.
 
 **NOTE
                13-**
              **SUBSEQUENT
                  EVENTS******
  ***Convertible
        Notes***
 
 The
        Company entered into three convertible notes:
 
 a)
              Convertible
                  note dated March 6, 2008 in the amount of $75,000, with a term
                  of 2 years,
                  with interest calculated at 9.99% per annum. The note is convertible
                  at
                  50% of the closing bid price of the common stock on the date of
                  conversion;
 
 b)
              Convertible
                  note dated March 7, 2008 in the amount of $62,500, with a term
                  of 2 years,
                  with interest calculated at 9.99% per annum. The note was convertible
                  at
                  50% of the closing bid price of the common stock on the date of
                  conversion, and was converted the same day the note was executed
                  for a
                  conversion price of $.135 or 462,963 shares; and
 
 c)
              Convertible
                  note dated March 10, 2008 in the amount of $100,000, with a term
                  of 2
                  years, with interest calculated at 9.99% per annum. The note was
                  convertible at 50% of the closing bid price of the common stock
                  on the
                  date of conversion, and was converted the same day the note was
                  executed
                  for a conversion price of $.135 or 740,741
                  shares.
 
 ***Computer
        Software Development Costs***
  The
                  Company commencing January 1, 2008, placed an additional $226,084
                  of
                  software development into service, which will be amortized over
                  a three
                  year period.




F-26




**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
              Corporation**Date:
                April 14, 2008
            
            By:
            /s/Michael
                D. BrownPresident
                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:
                April 14, 2008
            
            By:
            /s/Michael
                D. BrownPresident
                and Chief Executive Officer(Principal
                Executive Officer)




Date:
                April 14, 2008
            
            By:
            /s/B.K.
                GogiaDirector




Date:
                April 14, 2008
            
            By:
            /s/Scott
                B. ParliamentChief
                Financial Officer and Director(Principal
                Financial and Accounting Officer)





Date:
                April 14, 2008
            
            By:
            /s/Jerzy
                W. BalaDirector







**InferX
        Corporation**
  **Form
        10-K**
 **For
        the fiscal year ended December 31, 2007**
  **Exhibit
        Index**


3(i)
            Certificate
                of Incorporation, as amended on October 27, 2006 *3(ii)
            By-laws
                *4.1
            Form
                of common stock certificate *4.2
            Form
                of Class A warrant to purchase common stock *4.3
            Form
                of Class B warrant to purchase common stock *4.4
            Registration
                Rights Agreement *10.1
            Lease
                of the registrant’s principal executive offices, as amended
                *10.2
            Employment
                Agreement with B.K. Gogia *10.3
            Employment
                Agreement with J. Bala *10.4
            Employment
                Agreement with S. Parliament *10.5
            Employment
                Agreement with J. Mena *10.6
            Subscription
                Agreement *10.7
            Agreement
                and Plan of Merger by and among Black Nickel Acquisition Corp. I,
                InferX
                Acquisition Corp. and InferX Corporation, dated October 24, 2006
                *10.8
            Consulting
                Agreement with Michael D. Brown *10.9
            Executive
                Employment Agreement with Michael D. Brown *10.10
            InferX
                Corporation 2007 Stock Incentive Plan **10.11
            Form
                of Convertible Note *10.12
            Form
                of Security Agreement *10.13
            Task/Delivery
                Order for Supplies or Services issued by the U.S. Department of Veterans
                Affairs on October 24, 2007 **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
                **




*
      Previously filed


**
        Filed
        herewith