##### 



Exhibit 99.1
 INFERX CORPORATION
INDEX TO FINANCIAL STATEMENTS
 Page(s)Reviewed Financial Statements:Report of Independent Registered Public Accounting Firm
    
    1Balance Sheet as of September 30, 2006 (Unaudited)
    
    2Statements of Operations for the nine months ended
September 30, 2006 and 2005 (Unaudited)
    
    3Statements of Changes in Stockholders Equity (Deficit) for the years
ended December 31, 2005 and 2004 (Audited) and nine months ended
September 30, 2006 (Unaudited)
    
    4Statements of Cash Flows for the nine months ended September 30, 2006
and 2005 (Unaudited)
    
    5Notes to Financial Statements (Unaudited)
    
    6-23




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Report of Independent Registered Public Accounting Firm
 
      
 1




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##### 



INFERX CORPORATION
BALANCE SHEET
SEPTEMBER 30, 2006
(UNAUDITED)
 ASSETSCURRENT ASSETSCash
    
    $
    2,608Accounts receivable, net
    
    
    Unbilled services
    
    
    19,999Prepaid expenses and other current assets
    
    
    7,505Total current assets
    
    
    30,112Fixed assets, net of depreciation
    
    
    31,097Other AssetComputer software development costs, net of amortization
    
    
    380,794Total other asset
    
    
    380,794TOTAL ASSETS
    
    $
    442,003LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)CURRENT LIABILITIESAccounts payable
    
    $
    187,211Accrued expenses
    
    
    119,413Current portion of notes payable
    
    
    74,359Promissory notes
    
    
    350,000Unearned revenue
    
    
    19,999Total current liabilities
    
    
    750,982Long-term LiabilitiesNotes payable, net of current portion
    
    
    371,132TOTAL LIABILITIES
    
    
    1,122,114STOCKHOLDERS EQUITY (DEFICIT)Common stock, par value $1.00 per share, 5,000 shares authorized and
2,953 shares issued and outstanding
    
    
    2,953Additional paid-in capital
    
    
    649,975Retained earnings (defict)
    
    
    (1,333,039
    )Total stockholders equity (deficit)
    
    
    (680,111
    )TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
    
    $
    442,003
  2




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##### 



INFERX CORPORATION
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(UNAUDITED)
 2006
    
    
    2005REVENUE
    
    $
    124,992
    
    
    $
    175,279COST OF REVENUESDirect labor
and fringes
    
    
    117,578
    
    
    
    73,411Amortization of computer software development costs
    
    
    132,752
    
    
    
    132,752Total costs of revenues
    
    
    250,330
    
    
    
    206,163GROSS PROFIT (LOSS)
    
    
    (125,338
    )
    
    
    (30,884
    )OPERATING EXPENSESIndirect and overhead labor and fringes
    
    
    205,073
    
    
    
    149,829Professional fees
    
    
    109,956
    
    
    
    27,112Advertising and marketing
    
    
    47,911
    
    
    
    45,248Commissions and consulting fees
    
    
    74,604
    
    
    
    9,090Travel related costs
    
    
    15,511
    
    
    
    15,062Rent
    
    
    78,247
    
    
    
    71,132General and administrative
    
    
    40,856
    
    
    
    58,560Depreciation
    
    
    11,360
    
    
    
    11,077Total operating expenses
    
    
    583,518
    
    
    
    387,110NET LOSS FROM OPERATIONS BEFORE OTHER EXPENSE AND
PROVISION FOR INCOME TAXES
    
    
    (708,856
    )
    
    
    (417,994
    )OTHER EXPENSEInterest expense, net of interest income
    
    
    19,986
    
    
    
    6,659NET LOSS FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES
    
    
    (728,842
    )
    
    
    (424,653
    )Provision for income taxes
    
    
    
    
    
    
    NET (LOSS) APPLICABLE TO SHARES
    
    $
    (728,842
    )
    
    $
    (424,653
    )NET (LOSS) PER BASIC AND DILUTED SHARES
    
    $
    (257.00
    )
    
    $
    (164.53
    )WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
    
    
    2,836
    
    
    
    2,581
  3




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##### 



INFERX CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY\(DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004 AND NINE MONTHS ENDED SEPTEMBER 30, 2006
(UNAUDITED)
 Additional
    
    
    RetainedCommon Stock
    
    
    Paid-In
    
    
    EarningsShares
    
    
    Amount
    
    
    Capital
    
    
    (Deficit)
    
    
    TotalBalance  January 1, 2004
    
    
    2,538
    
    
    $
    2,538
    
    
    $
    102,957
    
    
    $
    23,363
    
    
    $
    128,858Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (101,240
    )
    
    
    (101,240
    )Balance  December 31, 2004
    
    
    2,538
    
    
    
    2,538
    
    
    
    102,957
    
    
    
    (77,877
    )
    
    
    27,618Issuance of shares to founders
for services rendered
    
    
    114
    
    
    
    114
    
    
    
    191
    
    
    
    
    
    
    
    305Issuance of shares for cash
    
    
    19
    
    
    
    19
    
    
    
    74,981
    
    
    
    
    
    
    
    75,000Issuance of shares for conversion of notes payable
    
    
    72
    
    
    
    72
    
    
    
    249,928
    
    
    
    
    
    
    
    250,000Contribution of capital by shareholder
    
    
    
    
    
    
    
    
    
    
    56,851
    
    
    
    
    
    
    
    56,851Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (526,320
    )
    
    
    (526,320
    )Balance  December 31, 2005
    
    
    2,743
    
    
    
    2,743
    
    
    
    484,908
    
    
    
    (604,197
    )
    
    
    (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 services
    
    
    63
    
    
    
    63
    
    
    
    98,937
    
    
    
    
    
    
    
    99,000Issuance of shares for guarantee of promissory notes
    
    
    132
    
    
    
    132
    
    
    
    (132
    )
    
    
    
    
    
    
    Contribution of capital by shareholder
    
    
    
    
    
    
    
    
    
    
    6,029
    
    
    
    
    
    
    
    6,029Net loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (728,842
    )
    
    
    (728,842
    )Balance  September 30, 2006
    
    
    2,953
    
    
    $
    2,953
    
    
    $
    649,975
    
    
    $
    (1,333,039
    )
    
    $
    (680,111
    )
  4




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##### 



INFERX CORPORATION
STATEMENTS OF CASH FLOW 
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(UNAUDITED)
 2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss)
    
    $
    (728,842
    )
    
    $
    (424,653
    )Adjustments to reconcile net (loss)
to net cash provided by (used in) operating activities:Stock issued for services
    
    
    99,000
    
    
    
    305Amortization of computer software development costs
    
    
    132,752
    
    
    
    132,752Depreciation
    
    
    11,360
    
    
    
    11,077Change in assets and liabilitiesDecrease in accounts receivable
    
    
    24,998
    
    
    
    73,303(Increase) in unbilled services
    
    
    (15,312
    )
    
    
    (Increase) decrease in prepaid expenses and other current assets
    
    
    8,442
    
    
    
    (17,347
    )Increase in accounts payable and accrued expenses
    
    
    155,181
    
    
    
    232,804Increase in unearned revenue
    
    
    15,312
    
    
    
    Total adjustments
    
    
    431,733
    
    
    
    432,894Net cash provided by (used in) operating activities
    
    
    (297,109
    )
    
    
    8,241CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (6,392
    )
    
    
    Computer software development costs
    
    
    
    
    
    
    (24,905
    )Net cash (used in) investing activities
    
    
    (6,392
    )
    
    
    (24,905
    )CASH FLOWS FROM FINANCING ACTIVITIES:Increase (decrease) in cash overdraft
    
    
    (12,071
    )
    
    
    (30,718
    )Issuance of stock for cash
    
    
    20,000
    
    
    
    75,000Contributions of capital
    
    
    6,029
    
    
    
    Borrowings of promissory notes
    
    
    350,000
    
    
    
    Borrowings (repayment) of notes payable
    
    
    (12,849
    )
    
    
    (7,200
    )Borrowings (repayment) of note payable  related partry
    
    
    (45,000
    )
    
    
    (14,000
    )Net cash provided by financing activities
    
    
    306,109
    
    
    
    23,082NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    2,608
    
    
    
    6,418CASH AND CASH EQUIVALENTS  BEGINNING OF PERIOD
    
    
    
    
    
    
    CASH AND CASH EQUIVALENTS  END OF PERIOD
    
    $
    2,608
    
    
    $
    6,418SUPPLEMENTAL INFORMATION OF CASHFLOW ACTIVITYCash paid during the period for interest
    
    $
    11,700
    
    
    $
    2,800SUPPLEMENTAL INFORMATION ON NONCASH ACTIVITYConversion of accounts payable to stock
    
    $
    40,248
    
    
    $
    Conversion of accounts payable to note payable
    
    $
    57,537
    
    
    $
    Stock issued for services
    
    $
    99,000
    
    
    $
    305
  5




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##### 



INFERX CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
 NOTE 1-
    
    ORGANIZATION AND BASIS OF PRESENTATIONInferX Corporation (InferX or the Company) was incorporated under the laws of
Delaware in 1999. On December 31, 2005, InferX and Datamat Systems Research, Inc.
(Datamat), a company incorporated in 1992 under the corporate laws of the
Commonwealth of Virginia executed an Agreement and Plan of Merger (the Merger).
InferX and Datamat had common majority directors. The financial statements herein
reflect the combined entity, and all intercompany transactions and accounts have
been eliminated. As a result of the Merger, InferX merged with and into Datamat,
the surviving entity. Upon completion, Datamat changed its name to InferX
Corporation.InferX was formed to develop and commercially market computer applications
software systems that were initially developed by Datamat with grants from the
Missle 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.In May 2006, the Company entered into a Letter of Intent for a Share Exchange with
Black Nickel Acquisition Corp. I (Black Nickel), as more fully described in Note
11, Proposed Business Combination. This Letter of Intent was revised in August
2006.On May 18, 2006, the Company entered into five separate promissory notes with one
fund, one trust and three individuals in the total amount of $350,000 as fully
described in Note 7, Promissory Notes.Going ConcernAs shown in the accompanying financial statements the Company has incurred a loss
of $728,842 and $424,653 for the nine months ended September 30, 2006 and 2005,
respectively, and has a working capital deficiency of $720,870 as of September 30,
2006. 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 2006.
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 surrounding existing technology, and the raising of
additional capital through both debt and equity.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.
 6




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##### 



INFERX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
 NOTE 1-
    
    ORGANIZATION AND BASIS OF PRESENTATION(CONTINUED)Going Concern(Continued)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 software
development 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 financial statements do not include any adjustments relating to the carrying
amounts of recorded assets or the carrying amounts and classification of recorded
liabilities that may be required should the Company be unable to continue as a
going concern.NOTE 2-
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESPrinciples of CombinationInferX and Datamat merged as of December 31, 2005. The combined financials
statements include the accounts of InferX and Datamat, and all intercompany
accounts and transactions have been eliminated in the combination. The capital
accounts of InferX have been retroactively reflected to account for this merger as
of January 1, 2003.Use of EstimatesThe 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. Actual results could differ from those estimates.Cash and Cash EquivalentsThe 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.
 7




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##### 



INFERX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
 NOTE 2-
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)Allowance for Doubtful AccountsThe 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 September 30,
2006, an allowance of $2,364 is required.Fixed AssetsFixed 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 CostsDuring 2005, the Company capitalized certain software development costs. The
Company capitalizes the cost of software used for internal operations once
technological feasibility of the software has been demonstrated. The Company
capitalizes costs incurred 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. For the nine months ended September
30, 2006 and 2005, the Company recognized $132,752 and $132,752 of amortization
expense on its capitalized software costs, respectively. Through the nine months
ended September 30, 2006, there were no additional capitalized costs.Recoverability of Long-Lived AssetsThe 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.
 8




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##### 



INFERX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
 NOTE 2-
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)Revenue RecognitionThe Company generates revenue from professional services rendered to customers.
The Companys revenue is generated under time-and-material contracts and
fixed-price contracts.Time-and-Material ContractsTime-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 majority of the customers are billed on an hourly
or daily basis whereby actual time is charged directly to the customer. Such
method is expected to result in reasonably consistent profit margins over the
contract term.Fixed-Price ContractsRevenue generated from fixed-price contracts, including most application
management and support contracts, is recognized ratably over the contract term.
Revenue generated from certain other fixed-price contracts is recognized using the
percentage of completion method as the ratio of labor hours incurred to estimated
total labor hours.This method is used because reasonably dependable estimates of the revenue and
costs applicable to various stages of a contract can be made, based on historical
experience and milestones set in the contract. The Companys project delivery and
business unit finance personnel continually review labor hours incurred and
estimated total labor hours, which may result in revisions to the estimated amount
of recognized revenue for the contract. Changes in estimates are accounted for in
the period of change.If the Company does not accurately estimate the resources required or the scope of
work to be performed for a contract or if the Company does not manage the project
properly within the planned time period, then a loss may be recognized on the
contract. Losses are recorded in the period when they become known.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.Unbilled services represent services provided which are billed subsequent to the
period end in accordance with the contract terms and services rendered for which
contracts with government agencies were executed subsequent to the period end. All
such amounts are anticipated to be realized in the following period.Any unearned revenue reflects items that are unbilled by the Company with the
revenue and billing associated with the project to be incurred in the following
period.
 9




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##### 



INFERX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
 NOTE 2-
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)Stock-Based CompensationEmployee stock awards under the Companys compensation plans are accounted for in
accordance with Accounting Principles Board Opinion No. 25 (APB 25), Accounting
for Stock Issued to Employees, and related interpretations. The Company provides
the disclosure requirements of Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation (SFAS 123), and
related interpretations. Stock-based awards to non-employees are accounted for
under the provisions of SFAS 123 and have adopted the enhanced disclosure
provisions of SFAS 148 Accounting for Stock-Based Compensation-Transition and
Disclosure, an amendment of SFAS No. 123.The Company measures compensation expense for its employee stock-based
compensation using the intrinsic-value method. Under the intrinsic-value method of
accounting for stock-based compensation, when the exercise price of options
granted to employees is less than the estimated fair value of the underlying stock
on the date of grant, deferred compensation is recognized and is amortized to
compensation expense over the applicable vesting period. For disclosure purposes,
pro forma net loss and loss per share impacts are provided as if the fair value
method under SFAS 123 had been applied:The Company issued one warrant to purchase 19 shares in May 2005, with an
expiration of 6-months. The warrant expired prior to any exercise into shares of
common stock. The Company did not issue any options or warrants in the nine months
ended September 30, 2006.
 Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005Net income (loss), as reported
    
    $
    (728,842
    )
    
    $
    (424,653
    )Add: Stock-based employee compensation expense
included in reported net income (loss), net of related
tax effects
    
    
    
    
    
    
    Less: Total stock-based employee
compensation expense determined
under fair value-based method for all
awards, net of related tax effects
    
    
    
    
    
    
    Pro forma net income (loss)
    
    $
    (728,842
    )
    
    $
    (424,653
    )Basic and diluted income (loss) per share:As reported
    
    $
    (257.00
    )
    
    $
    (164.53
    )Pro forma
    
    $
    (257.00
    )
    
    $
    (164.53
    )
 10




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##### 



INFERX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
 NOTE 2-
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)ConcentrationsThe Company has derived all of its revenue from one customer.Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of accounts receivable and
unbilled receivables. To date, accounts receivable and unbilled receivables have
been derived from contracts with agencies of the federal government. Accounts
receivable are generally due within 30 days and no collateral is required.Segment ReportingThe 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 InstrumentsThe carrying amount reported in the balance sheets for cash and cash equivalents,
accounts receivable, accounts payable, accrued expenses, and notes payable
approximate fair value because of the immediate or short-term maturity of these
financial instruments. The Company does not utilize derivative instruments.Income TaxesUnder 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.Earnings (Loss) Per Share of Common StockBasic net income (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.
 11




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##### 



INFERX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
 NOTE 2-
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)Earnings (Loss) Per Share of Common Stock(Continued)There were no options or warrants to purchase shares of common stock at September
30, 2006:The following is a reconciliation of the computation for basic and diluted EPS:
 Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2005Net income (loss)
    
    $
    (728,842
    )
    
    $
    (424,653
    )Weighted-average common shares
outstanding :Basic
    
    
    2,836
    
    
    
    2,581Effect of dilutive securities-warrants
    
    
    
    
    
    
    Diluted
    
    
    2,836
    
    
    
    2,581Basic net earnings (loss) per share
    
    $
    (257.00
    )
    
    $
    (164.53
    )Diluted net earnings (loss) per share
    
    $
    (257.00
    )
    
    $
    (164.53
    )
 Research and DevelopmentResearch and development costs are expensed as incurred.Recent Issued Accounting StandardsIn January 2003, the FASB issued Interpretation No. 46 (FIN 46), Consolidation
of Variable Interest Entities, an interpretation of Accounting Research Bulletin
No. 51, Consolidated Financial Statements. FIN 46 establishes accounting
guidance for consolidation of variable interest entities that function to support
the activities of the primary beneficiary. In December 2003, the FASB revised FIN
46 and issued FIN 46 (revised December 2003) (FIN 46R). In addition to
conforming to previously issued FASB Staff Positions, FIN No. 46R deferred the
implementation date for certain variable interest entities. This revised
interpretation is effective for all entities no later than the end of the first
reporting period that ends after March 15, 2004. The Company does not have any
investments in or contractual relationship or other business relationship with a
variable interest entity and therefore the adoption of this interpretation will
not have any impact on the Companys results of operations, financial position or
cash flows.
 12




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##### 



INFERX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
 NOTE 2-
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)Recent Issued Accounting Standards(Continued)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.On December 16, 2004, FASB issued SFAS No. 153, Exchanges of Non-monetary Assets,
an amendment of APB Opinion 29, Accounting for Non-monetary Transaction (SFAS
153). This statement amends APB Opinion 29 to eliminate the exception for
non-monetary exchanges of similar productive assets and replaces it with a general
exception for exchanges of non-monetary assets that do not have commercial
substance. Under SFAS 153, if a non-monetary exchange of similar productive
assets meets a commercial-substance criterion and fair value is determinable, the
transaction must be accounted for at fair value resulting in recognition of any
gain or loss. SFAS 153 is effective for non-monetary transactions in fiscal
periods that begin after June 15, 2005. The Company does not anticipate that the
implementation of this standard will have a material impact on its financial
position, results of operations or cash flows.In May 2005, the FASB issued FASB Statement No. 154, Accounting Changes and Error
Corrections (SFAS 154). SFAS 154 replaces Accounting Principles Board Opinion
No. 20, Accounting Changes and FASB Statement No. 3, Reporting Accounting
Changes in Interim Financial Statements, and requires the direct effects of
accounting principle changes to be retrospectively applied. The existing guidance
with respect to accounting estimate changes and corrections of errors is carried
forward in SFAS 154. SFAS 154 is effective for accounting changes and corrections
of errors made in fiscal years beginning after December 15, 2005. The Company
does not expect the adoption of SFAS 154 to have a material effect on its
financial statements.
 13




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##### 



INFERX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
 NOTE 3-
    
    FIXED ASSETSFixed assets consist of the following as of September 30, 2006:
 Estimated UsefulLives (Years)Computer equipment
    
    
    5
    
    
    $
    71,004Office machinery and equipment
    
    
    3
    
    
    
    13,607Furniture and fixtures
    
    
    5
    
    
    
    538Automobile
    
    
    5
    
    
    
    58,476143,625Less: Accumulated depreciation
    
    
    
    
    
    
    (112,528
    )Total, net
    
    
    
    
    
    $
    31,097
 Depreciation expense was $11,360 and $11,077 for the nine months ended
September 30, 2006 and 2005, respectively.NOTE 4-
    
    COMPUTER SOFTWARE DEVELOPMENT COSTSComputer software development costs consist of the following as of September 30,
2006:
 Estimated UsefulLives (Years)Computer software development costs
    
    
    5
    
    
    $
    909,920Less: Accumulated amortization
    
    
    
    
    
    
    (529,126
    )Total, net
    
    
    
    
    
    $
    380,794
 Amortization expense was $132,752 and $132,752 for the nine months ended
September 30, 2006 and 2005, respectively.
 
 14




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##### 



INFERX CORPORATION
NOTES TO FINANCIAL STATEMENTS  (CONTINUED)
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
 NOTE 4-
    
    COMPUTER SOFTWARE DEVELOPMENT COSTS(CONTINUED)Amortization expense anticipated through December 31, 2009 is as follows:Period ended December 31:
 2006
    
    $
    44,2512007
    
    
    163,1872008
    
    
    101,1672009
    
    
    72,189$
    380,794
 NOTE 5-
    
    NOTES PAYABLESBA LoanOn 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.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 September 30, 2006, the Company has an outstanding principal balance of
$368,450. Interest expense on the SBA loan for the nine months ended
September 30, 2006 and 2005 was approximately $11,700 and $12,100,
respectively.
 15




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##### 



INFERX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
 NOTE 5-
    
    NOTE PAYABLE(CONTINUED)Automobile LoanThe 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 September 30, 2006, the outstanding principal balance of the Auto Note was
$19,504.Gallatin GroupOn May 31, 2006, the Company entered into a promissory note with The Gallatin
Group in the amount of $57,537. The amount converted accounts payable to this note
payable. The amount is due within 5 days of the Companys private placement
funding as described in Note 11. The amount is reflected in the current portion of
notes payable on the balance sheet at September 30, 2006. This loan was repaid on
the date the merger occurred which was October 24, 2006.Other Notes PayableOn March 3, 2000, the Company entered into an installment note with Tec-Masters,
Inc. in the amount of $100,000. The amount was due May 1, 2000, however was
extended with no maturity date. The $100,000 remained outstanding until December
31, 2005 when the Company converted this note into 28.77 shares of Datamat common
stock (76,923 of InferX). There was no interest on this note, and was unsecured.On February 15, 2000, the Company entered into an installment note with an
individual, in the amount of $100,000. The amount had no maturity date. The
$100,000 remained outstanding until December 31, 2005 when the Company converted
this note into 28.77 shares of Datamat common stock (76,923 of InferX). There was
no interest on this note, and was unsecured.On February 9, 2000, the Company entered into an installment note with an
individual, in the total amount of $25,000. The amount had no maturity date. The
$25,000 remained outstanding until December 31, 2005 when the Company converted
this note into 7.19 shares of Datamat common stock (19,231 of InferX). There was
no interest on this note, and was unsecured.On February 9, 2000, the Company entered into an installment note with an
individual, in the amount of $25,000. The amount had no maturity date. The $25,000
remained outstanding until December 31, 2005 when the Company converted this note
into 7.19 shares of Datamat common stock (19,231 of InferX). There was no interest
on this note, and was unsecured.
 16




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##### 



INFERX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
 NOTE 5-
    
    NOTE PAYABLE(CONTINUED)As of September 30, 2006, the repayment schedule of the Notes Payable for the next
five years and in the aggregate are:
 2007
    
    
    $
    74,3592008
    
    
    
    16,2052009
    
    
    
    10,1152010
    
    
    
    7,6592011
    
    
    
    7,896Thereafter
    
    
    
    329,257445,491Less: current portion
    
    
    
    (74,359
    )Long-term portion
    
    
    $
    371,132
 NOTE 6-
    
    NOTE PAYABLE  RELATED PARTIESThe 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
September 30, 2006, there are no amounts outstanding to the President of the
Company.NOTE 7-
    
    PROMISSORY NOTESOn May 18, 2006, the Company entered into five separate promissory notes with one
fund, one trust and three individuals in the total amount of $350,000
(collectively, the Promissory Notes). The Promissory Notes mature, the earlier
of: a) at the closing of a reverse merger, share exchange or similar business
combination between the Company and Black Nickel Acquisition Corp. I or an
affiliate thereof (Black Nickel); b) November 18, 2006; or c) an event of
default as set forth and defined in the Promissory Notes (the Maturity Date).
The Promissory Notes accrue interest at an annual rate of 8% per annum, and
interest is due at the Maturity Date.In accordance with the Promissory Notes, the Company in May 2006 issued 132 shares
of stock to the lenders as a guarantee fee for lending the Company the $350,000
(which will convert to 250,000 post-merger shares of Black Nickel).The Promissory Notes are not convertible into shares of the Companys stock, and
are anticipated to be repaid with the proceeds the Company receives in its private
placement of a maximum amount of $1,500,000 (the Private Placement and Letter of
Intent for Share Exchange, see below). The Private Placement is anticipated to
take place simultaneous with the planned reverse merger with Black Nickel as
agreed upon in the Letter of Intent with Black Nickel.
 17




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##### 



INFERX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
 NOTE 7-
    
    PROMISSORY NOTES(CONTINUED)In accordance with the Promissory Notes, the Company and the lenders agreed that
upon the reverse merger with Black Nickel, the Company would file a registration
statement with the Securities and Exchange Commission on Form SB-2. The Company
agreed to deadlines in the actual filing of the Form SB-2 as well as the
effectiveness of the Form SB-2. Should the Company fail to meet the requirements
as set forth in the Registration Rights Agreement, they would be subject to a 1%
penalty per month for every month they fail to secure an effective registration up
to a maximum of 10% payable in stock of the Company. Should the penalty include an
open-ended cash settlement, the registration rights clause may be considered a
derivative as defined in Emerging Issues Task Force (EITF) 00-19, Accounting for
Derivative Financial Instruments to, and Potentially Settled in, a Companys Own
Stock.Accrued interest at September 30, 2006, and interest expense for the nine months
ended September 30, 2006 under the Promissory Notes were $10,433. The loans were
repaid at closing of the merger on October 24, 2006. The accrued interest at that
time was converted into additional shares.NOTE 8-
    
    STOCKHOLDERS EQUITY (DEFICIT)InferXCommon StockInferX was incorporated in Delaware in 1999 with 2,000,000 authorized shares of
$0.001 par value common stock. As of December 31, 2004, InferX had 1,439,359
shares issued and outstanding and in 2004 did not issue any shares of common
stock.During 2005, InferX issued: a) 305,000 shares of common stock to founders of
InferX at par value, a value of $305; b) 50,000 shares of common stock for $75,000
cash; and c) as noted in Note 5, issued 192,308 shares of common stock in the
conversion of $250,000 in notes payable. As of December 31, 2005, prior to the
merger of InferX with Datamat and share conversion, InferX had 1,986,667 shares
issued and outstanding.On December 31, 2005, InferX merged with Datamat and in the merger converted the
1,986,667 shares of common stock into 743 shares of Datamat common stock.
 18




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##### 



INFERX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
 NOTE 8-
    
    STOCKHOLDERS EQUITY (DEFICIT)(CONTINUED)DatamatCommon StockDatamat was incorporated in Virginia in 1992 with 5,000 authorized shares of $1.00
par value common stock. As of December 31, 2004, Datamat had 2,000 shares issued
and outstanding and in 2004 did not issue any shares of common stock.During 2005, Datamat did not issue any shares of common stock, and on December 31,
2005 in the merger with InferX issued 743 shares of common stock in conversion of
the 1,986,667 InferX common shares.During the nine months ended September 30, 2006, the Company issued: a) 132 shares
of stock as guarantee fees on the $350,000 in promissory notes; b) 5 shares of
stock for an investment of $20,000; c) 63 shares of stock for consulting services;
and d) 10 shares of stock in conversion of vendor accounts payable.As of September 30, 2006, Datamat has 2,953 shares of common stock issued and
outstanding.Additional Paid in CapitalDuring 2005, the Companys President in addition to advancing amounts under notes
payable (se Note 6) contributed capital in the form of equity for which no shares
were issued. During 2006 and 2005, the Company received $6,029 and $56,851,
respectively.WarrantsIn May 2005, InferX issued 19 shares of common stock for $75,000 cash. In addition
to the shares issued, the investor received warrants to purchase an additional
50,000 shares of common stock at the same price used to acquire the shares which
was $1.50 per share. The warrants expired six months after grant date, November
2005, without being exercised. Under a Black-Scholes Pricing Model, utilizing
$1.50 as the exercise price, $1.50 as the stock price, minimum volatility, and a
tax-exempt interest rate of 3.5%, the value of the warrants were $1,291.There are no additional warrants outstanding, or granted as of September 30, 2006
and for the nine months ended September 30, 2006 and 2005, respectively.OptionsThere are no options outstanding, or granted as of September 30, 2006 and for the
nine months ended September 30, 2006 and 2005, respectively.
 19




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##### 



INFERX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
 NOTE 9-
    
    RELATED PARTY TRANSACTIONSAs noted in Notes 6 and 8, the Company borrowed and was advanced amounts as equity
contributions by the Companys President. There were no other related party
activities during the nine months ended September 30, 2006 and 2005, respectively.NOTE 10-
    
    COMMITMENTSRentalThe 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 September
30, 2006, the following presents the approximate future minimum lease payments
required under this lease:
 For the Periods EndedSeptember 30,2007
    
    $
    103,3312008
    
    
    107,4642009
    
    
    18,500$
    229,295
 Rent expense for the nine months ended September 30, 2006 and 2005 was
$78,247 and $71,132, respectively.Consulting AgreementsDuring 2006 and 2005, 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 statements of operations for the nine months ended
September 30, 2006 and 2005, respectively.Unused Financing CommitmentIn 2005, the Company had available a factoring financing facility in the maximum
amount of $3,500,000. The facility provided for an advance rate of 90% on
government invoicing and 85% on commercial invoicing at a rate of prime plus 2.5%.
The facility was secured by a security interest in the accounts receivables and
the personal guarantee of the majority shareholder. There were no amounts
outstanding under the facility during 2005 through the termination of the
agreement in August 2005.
 20




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##### 



INFERX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
 NOTE 11-
    
    PROPOSED BUSINESS COMBINATIONIn August 2006, the Company and Black Nickel entered into a revised Letter of
Intent for Share Exchange (the Letter of Intent). Pursuant to the Letter of
Intent, the Company:
 a)
    
    issued the Promissory Notes (see Note 7) for bridge financing
in the amount of $350,000, and issued 132 shares of stock as a guarantee for
the bridge debt (which will convert to 250,000 post-merger shares of Black
Nickel);b)
    
    agreed to issue 100% of the outstanding shares of the Company
for 5,350,000 common shares of Black Nickel, which is 5,600,000 shares of
stock net of the 250,000 shares issued as a guarantee for the bridge debt
(see (a));c)
    
    will receive the Private Placement cash of a maximum of
$1,500,000 of which $350,000 will be used to repay the Promissory Notes and
the remaining funds will be available to the Company to use as working
capital, net of approximately $85,000 that will be needed to pay for closing
costs, and cannot use the funds to repay the SBA Loan (see Note 5). In
exchange for the $1,500,000 the investors of the Private Placement would
receive 3,000,000 units at a price of $0.50 per unit. Each unit consists of 1
share, 1 Class A Warrant and 1 Class B Warrant. All shares and Warrants shall
have anti dilution protection prior to the time of the effective registration
statement covering such shares. In the event that the Company obtains
additional financing prior to an effective registration statement, the shares
of stock shall be increased in the event that the financing is at a per share
price less than $0.50 per share, and the exercise prices for the Class A and
Class B Warrants shall be reduced to the price of the shares in such future
financing;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 3,000,000 of the
warrants shall be callable by Black Nickel 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. 60% of these
warrants shall be callable by Black Nickel if either Black Nickel or 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;.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 3,000,000 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;
 21




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##### 



INFERX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
 NOTE 11-
    
    PROPOSED BUSINESS COMBINATION(CONTINUED)
 f)
    
    shall keep 1,200,000 of the existing shares outstanding in
Black Nickel to their shareholders; andg)
    
    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.
 The Company closed this transaction on October 24, 2006 and raised a total of
$1,164,696 under the Private Placement. As a result of the Private Placement
2,329,392 common shares, 2,329,392 class A warrants and 2,329,392 class B warrants
were issued.NOTE 12-
    
    PROVISION FOR INCOME TAXESDeferred 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 September 30, 2006, deferred tax assets consist of the following:
 Net operating losses
    
    $
    453,233Valuation allowance
    
    
    (453,233
    )$
    
 At September 30, 2006, the Company had net operating loss carryforward in the
approximate amount of $1,333,039, available to offset future taxable income
through 2025. 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 nine months ended September 30,
2006 and 2005 is summarized below.
 2006
    
    2005Federal statutory rate
    
    
    (34.0
    )%
    
    
    (34.0
    )%State income taxes, net of federal benefits
    
    
    6.0
    
    
    
    6.0Valuation allowance
    
    
    28.0
    
    
    
    28.00
    %
    
    
    0
    %
 22




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##### 



INFERX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
 NOTE 13-
    
    DEFINED CONTRIBUTION PLANThe 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 nine months ended September 30, 2006 and 2005, respectively.NOTE 14-
    
    MAJOR CUSTOMERThe Companys contracts with agencies of the federal government accounted for 100%
of its revenue and accounts receivable as of and for the nine months ended
September 30, 2006 and 2005, respectively.
 23