**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-QSB/A**


**Amendment
      No. 2**





(Mark
      One)





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





For
      the
      quarterly period ended March 31, 2007





o TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT





For
      the
      transition period from ___________ to ___________





Commission
      file number 0-51720





**InferX
      Corporation**


(Exact
      name of small business issuer 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)





(703)
      917-0880


(Issuer’s
      telephone number)





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 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 xNo o





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





There
      were 10,758,905 shares of common stock outstanding as of May 11,
      2007.





Transitional
      Small Business Disclosure Format (check one): Yes oNo x








**InferX
      Corporation**


**Quarterly
      Report on Form 10-QSB**


**for
      the Quarterly Period Ended**


**March
      31, 2007**




**-
      INDEX -**




Page**PART
                I- FINANCIAL INFORMATION:**Item
                1. Financial Statements:Report
                of Independent Registered Public Accounting Firm
            
            1Condensed
                Consolidated Balance Sheet as of March 31, 2007
                (Unaudited)
            
            3Condensed
                Consolidated Statements of Operations for the three months endedMarch
                31, 2007 and 2006 (Unaudited)
            
            4Condensed
                Consolidated Statements of Cash Flows for the three months endedMarch
                31, 2007 and 2006 (Unaudited)
            
            5Notes
                to Condensed Consolidated Financial Statements (Unaudited)
            
            6Item
                2. Management’s Discussion and Analysis or Plan of
                Operation
            
            26Item
                3. Controls and Procedures
            
            31**PART
                II - OTHER INFORMATION:**Item
                1. Legal Proceedings
            
            32Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            
            32Item
                3. Defaults Upon Senior Securities
            
            32Item
                4. Submission of Matters to a Vote of Security Holders
            
            32Item
                5. Other Information
            
            32Item
                6. Exhibits
            
            32





i


**PART
      I — FINANCIAL INFORMATION**




**Item
      1. Financial Statements.**




**INDEX
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**





**Page(s)**Reviewed
                Financial Statements:Report
                of Independent Registered Public Accounting Firm
            
            
            1-2Condensed
                Consolidated Balance Sheet as of March 31, 2007
                (Unaudited)
            
            
            3Condensed
                Consolidated Statements of Operations for the three months
                endedMarch
                31, 2007 and 2006 (Unaudited)
            
            
            4Condensed
                Consolidated Statements of Cash Flows for the three months
                endedMarch
                31, 2007 (Unaudited)
            
            
            5Notes
                to Condensed Consolidated Financial Statements (Unaudited)
            
            
            6-26





2





**Report
      of Independent Registered Public Accounting Firm**





To
      the
      Board of Directors


InferX
      Corporation





I
      have
      reviewed the accompanying condensed consolidated balance sheet of InferX
      Corporation (the "Company") as of March 31, 2007, and the related condensed
      consolidated statements of operations and cash flows for the three months ended
      March 31, 2007 and 2006. These interim condensed consolidated financial
      statements are the responsibility of the Company's management.




I
      conducted the reviews in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). A review of interim financial
      information consists principally of applying analytical procedures and making
      inquiries of persons responsible for financial and accounting matters. It is
      substantially less in scope than an audit conducted in accordance with the
      standards of the Public Company Accounting Oversight Board (United States),
      the
      objective of which is the expression of an opinion regarding the condensed
      consolidated financial statements taken as a whole. Accordingly, I do not
      express such an opinion.





Based
      on
      my reviews, I am not aware of any material modifications that should be made
      to
      the accompanying interim condensed consolidated financial statements for them
      to
      be in conformity with U.S. generally accepted accounting principles.





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in Note 1 to the condensed
      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 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 expense for
      common stock issued for debt guarantee that was incorrectly recognized in the
      previously issued financial statements. These shares represented a conversion
      of
      previously recognized shares that were already valued by the Company. The
      reversal was in the amount of $66,250. The entry reduced additional paid in
      capital and reduced the expense.




In
      addition, the Company removed the unearned revenue and unbilled receivables
      of
      equal value due to the correction of an error in the accounting treatment for
      their government contracts.




1




The
      Company has also restated the financial statements to properly apply the
      guidance of EITF 00-19-02 as of March 31, 2007. The EITF requires
      reclassification of the derivative liability created from the Class A and Class
      B warrants from a current liability to equity. The resultant adjustment
      decreased the derivative liability and increased additional paid-in capital
      by
      $1,031,703. In conjunction with the above adjustment the Company has also
      accrued a registration rights liability in the amount of $89,468 that reflects
      the estimated liability the Company will incur as it relates to its registration
      rights agreement. This adjustment increased current liabilities and increased
      operating expenses.




The
      restatement increased the accumulated deficit from $2,844,022 to $2,867,240
      at
      March 31, 2007. The restatement reduced net loss from $310,119 to $399,587
      for
      the three months ended March 31, 2007 and had no effect on operations for the
      three months ended March 31, 2006.







/s/
      Michael Pollack CPA





Cherry
      Hill, New Jersey


May
      7,
      2007, except for Note 13, which is dated May 24, 2007





2


**INFERX
                  CORPORATION****(FORMERLY
                  BLACK NICKEL ACQUISITION CORP. I)****CONDENSED
                  CONSOLIDATED BALANCE SHEET (UNAUDITED)****MARCH
                  31, 2007**
  **RESTATED****ASSETS****CURRENT
                  ASSETS**Cash
              
              $
              2,065Prepaid
                  expenses and other current assets
              
              
              7,505**Total
                  current assets**
              
              
              9,570Fixed
                  assets, net of depreciation
              
              
              40,723**Other
                  Asset**Computer
                  software development costs, net of amortization
              
              
              362,211**Total
                  other asset**
              
              
              362,211**TOTAL
                  ASSETS**
              
              $
              412,504**LIABILITIES
                  AND STOCKHOLDERS' EQUITY (DEFICIT)****CURRENT
                  LIABILITIES**Accounts
                  payable and accrued expenses
              
              $
              318,507Accrued
                  registration penalty
              
              
              89,468Current
                  portion of notes payable
              
              
              16,980**Total
                  current liabilities**
              
              
              424,955**Long-term
                  Liabilities**Notes
                  payable, net of current portion
              
              
              361,752**TOTAL
                  LIABILITIES**
              
              
              786,707**STOCKHOLDERS'
                  EQUITY (DEFICIT)**Preferred
                  stock, par value $0.0001 per share, 10,000,000 shares authorized
                  andno
                  shares issued and outstanding
              
              
              -Common
                  stock, par value $0.0001 per share, 75,000,000 shares authorized
                  and9,129,392
                  issued and outstanding
              
              
              913Additional
                  paid-in capital
              
              
              2,492,124Retained
                  earnings (defict)
              
              
              (2,867,240
              )**Total
                  stockholders' equity (deficit)**
              
              
              (374,203
              )**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)**
              
              $
              412,504


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


3


**INFERX
                  CORPORATION****(FORMERLY
                  BLACK NICKEL ACQUISITION CORP. I)****CONDENSED
                  CONSOLIDATED STATEMENTS OF OPERATIONS
                  (UNAUDITED)****FOR
                  THE THREE MONTHS ENDED MARCH 31, 2007 AND
                  2006**
  **Restated****2007**
              
              **2006****REVENUE**
              
              $
              100,000
              
              $
              49,997**COST
                  OF REVENUES**Direct
                  labor and other finges
              
              
              24,329
              
              
              21,875Subcontractor
              
              
              35,111
              
              
              12,478Other
                  direct costs
              
              
              11,250
              
              
              20,831Amortization
                  of computer software development costs
              
              
              44,251
              
              
              44,251**Total
                  costs of revenues**
              
              
              114,941
              
              
              99,435**GROSS
                  PROFIT (LOSS)**
              
              
              (14,941
              )
              
              (49,438
              )**OPERATING
                  EXPENSES**Indirect
                  and overhead labor and fringes
              
              
              149,884
              
              
              37,485Professional
                  fees
              
              
              76,174
              
              
              99,000Travel
                  related costs
              
              
              7,208
              
              
              4,825Rent
              
              
              26,609
              
              
              25,326General
                  and administrative
              
              
              14,257
              
              
              17,105Registration
                  penalty
              
              
              89,468
              
              
              -Depreciation
                  and impairment
              
              
              15,361
              
              
              3,772**Total
                  operating expenses**
              
              
              378,961
              
              
              187,513**NET
                  LOSS FROM OPERATIONS BEFORE OTHER EXPENSE AND****PROVISION
                  FOR INCOME TAXES**
              
              
              (393,902
              )
              
              (236,951
              )**OTHER
                  EXPENSE**Loss
                  on debt conversion
              
              
              -Loss
                  on fair value of derivative liability
              
              
              
              
              
              -Impairment
                  loss
              
              
              -Interest
                  expense, net of interest income
              
              
              5,685
              
              
              5,785**NET
                  LOSS FROM OPERATIONS BEFORE PROVISION FOR INCOME
                  TAXES**
              
              
              (399,587
              )
              
              (242,736
              )Provision
                  for income taxes
              
              
              -
              
              
              -**NET
                  (LOSS) APPLICABLE TO SHARES**
              
              $
              (399,587
              )
              $
              (242,736
              )**NET
                  (LOSS) PER BASIC AND DILUTED SHARES**
              
              $
              (0.04
              )
              $
              (0.05
              )**WEIGHTED
                  AVERAGE NUMBER OF****SHARES
                  OUTSTANDING (DATAMAT)**
              
              
              9,129,392
              
              
              5,350,000
  The
                  accompanying notes are an integral part of these condensed consolidated
                  financial
                  statements.




4


**INFERX
                  CORPORATION****(FORMERLY
                  BLACK NICKEL ACQUISITION CORP. I)****CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOW
                  (UNAUDITED)****FOR
                  THE THREE MONTHS ENDED MARCH 31, 2007 AND
                  2006**
  **Restated****2007**
              
              **2006****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  (loss)
              
              $
              (399,587
              )
              $
              (242,736
              )**Adjustments
                  to reconcile net (loss)****to
                  net cash provided by (used in) operating
                  activities:**Stock
                  issued for services
              
              
              -
              
              
              22,500Stock
                  issued for services and guarantees of debt - pre-merger
              
              
              -
              
              
              -Cash
                  received in merger with Black Nickel
              
              
              -
              
              
              -Loss
                  on fair value of derivative liability
              
              
              -
              
              
              -Loss
                  on debt conversion
              
              
              -
              
              
              -Impairment
                  loss
              
              
              10,473
              
              
              -Amortization
                  of computer software development costs
              
              
              44,251
              
              
              44,251Depreciation
              
              
              4,888
              
              
              3,772**Change
                  in assets and liabilities**(Increase)
                  decrease in accounts receivable
              
              
              50,000
              
              
              (1
              )(Increase)
                  in prepaid expenses and other current assets
              
              
              -
              
              
              (67,245
              )Increase
                  in accounts payable and accrued expenses
              
              
              189,123
              
              
              306,357Increase
                  in accrued registration penalty
              
              
              89,468
              
              
              -**Total
                  adjustments**
              
              
              388,203
              
              
              309,634**Net
                  cash provided by (used in) operating activities**
              
              
              (11,384
              )
              
              66,898**CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Capital
                  expenditures
              
              
              (16,413
              )
              
              -Computer
                  software development costs
              
              
              (45,496
              )
              
              -**Net
                  cash (used in) investing activities**
              
              
              (61,909
              )
              
              -**CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Increase
                  (decrease) in cash overdraft
              
              
              -
              
              
              (12,071
              )Issuance
                  of stock for cash pre-merger
              
              
              -
              
              
              0Contributions
                  of capital pre-merger
              
              
              -
              
              
              3,571Issuance
                  of stock and warrants in private placement, net of closing costs
                  of
                  $147,493
              
              
              -
              
              
              -Borrowings
                  of promissory notes
              
              
              -
              
              
              -(Repayment)
                  of promissory notes
              
              
              -
              
              
              -(Repayment)
                  of notes payable
              
              
              (4,196
              )
              
              (3,808
              )Borrowings
                  (repayment) of note payable - related partry
              
              
              -
              
              
              (45,000
              )**Net
                  cash (used in) financing activities**
              
              
              (4,196
              )
              
              (57,308
              )**NET
                  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS**
              
              
              (77,489
              )
              
              9,590**CASH
                  AND CASH EQUIVALENTS - BEGINNING OF PERIOD**
              
              
              79,554
              
              
              -**CASH
                  AND CASH EQUIVALENTS - END OF PERIOD**
              
              $
              2,065
              
              $
              9,590**SUPPLEMENTAL
                  INFORMATION OF CASH FLOW ACTIVITY**Cash
                  paid during the year for interest
              
              $
              27,596
              
              $
              6,791**SUPPLEMENTAL
                  INFORMATION ON NONCASH ACTIVITY**Conversion
                  of notes payable to accounts payable
              
              $
              -
              
              $
              -Conversion
                  of accounts payable to stock - pre-merger
              
              $
              -
              
              $
              -Stock
                  issued for services - pre-merger
              
              $
              -
              
              $
              22,500Stock
                  issued for services - post-merger
              
              $
              -
              
              $
              -Derivative
                  liability converted to equtity
              
              $
              1,031,703
              
              $
              -
  The
                  accompanying notes are an integral part of these condensed consolidated
                  financial
                  statements.




5




**INFERX
      CORPORATION**


**(FORMERLY
      BLACK NICKL ACQUISITION CORP. I)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007 AND 2006 (UNAUDITED)**


**NOTE
                1**-
            ORGANIZATION
                AND BASIS OF PRESENTATION




The
      unaudited condensed financial statements included herein have been prepared,
      without audit, pursuant to the rules and regulations of the Securities and
      Exchange Commission (“SEC”). The condensed financial statements and notes are
      presented as permitted on Form 10-QSB and do not contain information included
      in
      the Company’s annual statements and notes. Certain information and footnote
      disclosures normally included in financial statements prepared in accordance
      with accounting principles generally accepted in the United States of America
      have been condensed or omitted pursuant to such rules and regulations, although
      the Company believes that the disclosures are adequate to make the information
      presented not misleading. It is suggested that these condensed consolidated
      financial statements be read in conjunction with the December 31, 2006 audited
      financial statements and the accompanying notes thereto. While management
      believes the procedures followed in preparing these condensed consolidated
      financial statements are reasonable, the accuracy of the amounts are in some
      respects dependent upon the facts that will exist, and procedures that will
      be
      accomplished by the Company later in the year.




These
      condensed unaudited condensed consolidated financial statements reflect all
      adjustments, including normal recurring adjustments which, in the opinion of
      management, are necessary to present fairly the consolidated operations and
      cash
      flows for the periods presented.




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.




6


**INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **MARCH
          31, 2007 AND 2006 (UNAUDITED)**


**NOTE
                1**-
            ORGANIZATION
                AND BASIS OF PRESENTATION(CONTINUED)




InferX
      was incorporated under the laws of Delaware in 1999. On December 31, 2005,
      InferX and Datamat Systems Research, Inc. (“Datamat”), a company incorporated in
      1992 under the corporate laws of the Commonwealth of Virginia executed an
      Agreement and Plan of Merger (the “Merger”). InferX and Datamat had common
      majority directors. The financial statements herein reflect the combined entity,
      and all intercompany transactions and accounts have been eliminated. As a result
      of the Merger, InferX merged with and into Datamat, the surviving entity. Upon
      completion, Datamat changed its name to InferX Corporation.




InferX
      was formed to develop and commercially market computer applications software
      systems that were initially developed by Datamat with grants from the Missile
      Defense Agency. Datamat was formed as a professional services research and
      development firm, specializing in the Department of Defense. The Company
      currently provides services and software to the United States government, and
      is
      in process of formalizing business plans that will enable them to provide
      software and services to commercial entities as well.




**Going
      Concern**





As
      shown
      in the accompanying condensed consolidated financial statements the Company
      has
      incurred a loss of $399,587 and $242,736 for the three months ended March 31,
      2007 and 2006, respectively, and has a working capital deficiency of $415,385
      as
      of March 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, as
      well
      as the fair value adjustment in the Company’s derivative liability. The Company
      expects the negative cash flow from operations to continue its trend through
      the
      next twelve months. 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
      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.




7


**INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **MARCH
          31, 2007 AND 2006 (UNAUDITED)**


**NOTE
                1-**
            ORGANIZATION
                AND BASIS OF PRESENTATION(CONTINUED)




**Going
      Concern (Continued)**




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
      condensed consolidated financial statements do not include any adjustments
      relating to the carrying amounts of recorded assets or the carrying amounts
      and
      classification of recorded liabilities that may be required should the Company
      be unable to continue as a going concern.




**NOTE
                2**-
            SUMMARY
                OF SIGNIFICANT ACCOUNTING
                POLICIES




**Principles
      of Consolidation**




The
      condensed 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 condensed 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.





8


**INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **MARCH
          31, 2007 AND 2006 (UNAUDITED)**
 **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 March 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 three months ended March 31, 2007 and
      2006, the Company recognized $44,251 and $44,251 of amortization expense on
      its
      capitalized software costs, respectively.




9


**INFERX
            CORPORATION**
 **(FORMERLY
            BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **MARCH
            31, 2007 AND 2006 (UNAUDITED)**
  **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.
      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.




10


**** **INFERX
            CORPORATION**
 **(FORMERLY
            BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **MARCH
            31, 2007 AND 2006 (UNAUDITED)**
  **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 and are reflected in the derivative liability.




11


**** **INFERX
              CORPORATION**
 **(FORMERLY
              BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **MARCH
              31, 2007 AND 2006 (UNAUDITED)**
  **NOTE
                      2**-
                  SUMMARY
                      OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)




**Concentrations**




The
      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. 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 condensed consolidated balance sheet for cash
      and cash equivalents, and accounts payable approximate fair value because of
      the
      immediate or short-term maturity of these financial instruments. For the notes
      payable, the carrying amount reported is based upon the incremental borrowing
      rates otherwise available to the Company for similar borrowings. 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. (See Derivative Financial Instruments below). 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.




12


**** **INFERX
                CORPORATION**
 **(FORMERLY
                BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
                TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **MARCH
                31, 2007 AND 2006 (UNAUDITED)**
  **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.




**(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.




There
      were no options or warrants to purchase shares of common stock at March 31,
      2006, and the Class A and Class B (2,329,392 each) 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..




13


**** **INFERX
                  CORPORATION**
 **(FORMERLY
                  BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
                  TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **MARCH
                  31, 2007 AND 2006 (UNAUDITED)**
  **NOTE
                          2**-
                      SUMMARY
                            OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)




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




**Three
                Months Ended****March
                31,**
            
            **March
                31,****2007**
            
            **2006**Net
                (loss)
            
            $
            (399,587)
                $
            
            
            (242,736
            )Weighted-average
                common sharesoutstanding
                :Basic
            
            
            9,129,392
            
            
            5,350,000Effect
                of dilutive securities-warrants
            
            
            -
            
            
            -Diluted
            
            
            9,129,392
            
            
            5,350,000Basic
                net (loss) per share
            
            $
            (0.04)
                $
            
            
            (0.05
            )Diluted
                net (loss) per share
            
            $
            (0.04)
                $
            
            
            (0.05
            )




**Research
      and Development**




Research
      and development costs are expensed as incurred. In addition, research and
      development costs of $2,121 and $0 have been included in indirect labor and
      $59,440 and $34,623 have been included in direct costs for the three months
      ended March 31, 2007 and 2006, respectively.




**Recent
      Issued Accounting Standards**




In
      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.




14


**** **INFERX
                    CORPORATION**
 **(FORMERLY
                    BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
                    TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **MARCH
                    31, 2007 AND 2006 (UNAUDITED)**
  **NOTE
                            2**-
                        SUMMARY
                              OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)




**Recent
      Issued Accounting Standards** **(Continued)**




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 Statement of Financial Accounting Standard No. 154, *“Accounting
      Changes and Error Corrections”* (“SFAS
      154”). SFAS 154 is a replacement of APB No. 20, *“Accounting
      Changes”* ,
      and
      SFAS No. 3, *“Reporting
      Accounting Changes in Interim Financial Statements”* .
      SFAS
      154 applies to all voluntary changes in accounting principle and changes the
      requirements for accounting and reporting of a change in accounting principle.
      This statement establishes that, unless impracticable, retrospective application
      is the required method for reporting of a change in accounting principle in
      the
      absence of explicit transition requirements specific to the newly adopted
      accounting principle. It also requires the reporting of an error correction
      which involves adjustments to previously issued financial statements similar
      to
      those generally applicable to reporting an accounting change retrospectively.
      SFAS 154 is effective for accounting changes and corrections of errors made
      in
      fiscal years beginning after December 15, 2005.




In
      February 2006, the FASB issued Statement of Financial Accounting Standard No.
      155, *“Accounting
      for Certain Hybrid Instruments”* (“SFAS
      155”). FASB 155 allows financial instruments that have embedded derivatives to
      be accounted for as a whole (eliminating the need to bifurcate the derivative
      from its host) if the holder elects to account for the whole instrument on
      a
      fair value basis. This statement is effective for all financial instruments
      acquired or issued after the beginning of an entity’s first fiscal year that
      begins after September 15, 2006. The Company will evaluate the impact of SFAS
      155 on its consolidated financial statements.




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.




15


**** **INFERX
                      CORPORATION**
 **(FORMERLY
                      BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
                      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **MARCH
                      31, 2007 AND 2006 (UNAUDITED)**
  **NOTE
                              2**-
                          SUMMARY
                                OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)




**Recent
      Issued Accounting Standards** **(Continued)**




In
      September 2006, the FASB issued SFAS 158, “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements
      87, 88, 106 and 132(R)” (“SFAS 158”). SFAS 158 requires an employer to recognize
      the over-funded or under-funded status of a defined benefit postretirement
      plan
      (other than a multiemployer plan) as an asset or liability in its statement
      of
      financial position and to recognize changes in that funded status in the year
      in
      which the changes occur through comprehensive income. SFAS 158 also
      requires the measurement of defined benefit plan assets and obligations as
      of
      the date of the employer’s fiscal year-end statement of financial position (with
      limited exceptions). Management does not expect adoption of SFAS 158 to have
      a
      material impact on the Company’s 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
      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 is still evaluating what effect this will have on the Company’s
      consolidated financial statements.




In
      September 2006, the United States Securities and Exchange Commission (“SEC”)
      issued SAB 108, “Considering the Effects of Prior Year Misstatements when
      Quantifying Misstatements in Current Year Financial Statements.”




This
      SAB
      provides guidance on the consideration of the effects of prior year
      misstatements in quantifying current year misstatements for the purpose of
      a
      materiality assessment. SAB 108 establishes an approach that requires
      quantification of financial statement errors based on the effects of each of
      the
      company’s financial statements and the related financial statement disclosures.
      SAB 108 permits existing public companies to record the cumulative effect of
      initially applying this approach in the first year ending after November 15,
      2006 by recording the necessary correcting adjustments to the carrying values
      of
      assets and liabilities as of the beginning of that year with the offsetting
      adjustment recorded to the opening balance of retained earnings. Additionally,
      the use of the cumulative effect transition method requires detailed disclosure
      of the nature and amount of each individual error being corrected through the
      cumulative adjustment and how and when it arose. The Company does not anticipate
      that SAB 108 will have a material impact on its consolidated financial
      statements.




16


**** **INFERX
                    CORPORATION**
 **(FORMERLY
                    BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
                    TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **MARCH
                    31, 2007 AND 2006 (UNAUDITED)**
  **NOTE
                            2**-
                        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
      as additional paid-in capital. The adjustment reduced the derivative liability
      by $1,031,703 and increased additional paid-in capital by the same amount.




**NOTE
                3**-
            FIXED
                ASSETS




Fixed
      assets consist of the following as of March 31, 2007:




**Estimated
                Useful****Lives
                (Years)**Computer
                equipment
            
            
            5
            
            $
            87,417Office
                machinery and equipment
            
            
            3
            
            
            15,638Furniture
                and fixtures
            
            
            5
            
            
            538Automobile
            
            
            5
            
            
            58,476162,069Less:
                Accumulated depreciation
            
            
            
            
            
            (121,346
            )Total,
                net
            
            
            
            
            $
            40,723




Depreciation
      expense was $4,888 and $3,772 for the three months ended March 31, 2007 and
      2006, respectively.




17




**INFERX
      CORPORATION**


**(FORMERLY
      BLACK NICKEL ACQUISITION CORP. I)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**MARCH
      31, 2007 AND 2006 (UNAUDITED)**


**NOTE
                4**-
            COMPUTER
                SOFTWARE DEVELOPMENT COSTS




Computer
      software development costs consist of the following as of March 31, 2007:




**Estimated
                Useful Lives (Years)**Computer
                software development costs
            
            
            5
            
            $
            865,937Less:
                Accumulated amortization
            
            
            
            
            
            (503,726
            )Total,
                net
            
            
            
            
            $
            362,211




Amortization
      expense was $44,251 and $44,251 for the three months ended March 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.




Amortization
      expense anticipated through December 31, 2009 is as follows:




Period
                ended March 31:2008
            
            $
            152,7142009
            
            
            145,4182010
            
            
            64,079$
            362,211







**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.




18


**INFERX
        CORPORATION**
 **(FORMERLY
        BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **MARCH
        31, 2007 AND 2006 (UNAUDITED)**


**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
      March 31, 2007, the Company has an outstanding principal balance of $364,485.
      Interest expense on the SBA loan for the three months ended March 31, 2007
      and
      2006 were $3,658 and $4,049, 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
      March 31, 2007, the outstanding principal balance of the Auto Note was
      $14,247.




19


**INFERX
        CORPORATION**
 **(FORMERLY
        BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **MARCH
        31, 2007 AND 2006 (UNAUDITED)**


**NOTE
                5**-
            NOTE
                PAYABLE(CONTINUED)




As
      of
      March 31, 2007, the repayment schedule of the Notes Payable for the next five
      years and in the aggregate are:




2008
            
            $
            16,9802009
            
            
            13,5562010
            
            
            8,6452011
            
            
            8,9982012
            
            
            9,364Thereafter
            
            
            321,189378,732Less:
                current portion
            
            
            (16,980
            )Long-term
                portion
            
            $
            361,752




**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:




20


**INFERX
        CORPORATION**
 **(FORMERLY
        BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **MARCH
        31, 2007 AND 2006 (UNAUDITED)**


**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. Of the total proceeds, $1,164,696, the Company
                allocated
                $547,087 of this amount to derivative liability, which represents
                the
                value of the Class A and Class B warrants issued with the common
                stock.
                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;




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. There have been no issuance
                of
                options under this plan as of December 31,
                2006.





21


**INFERX
        CORPORATION**
 **(FORMERLY
        BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **MARCH
        31, 2007 AND 2006 (UNAUDITED)**


**NOTE
                    7-**
                STOCKHOLDERS’
                    EQUITY (DEFICIT)(CONTINUED)




***Warrants***




The
      Company in the private placement granted 2,329,392 Class A and 2,329,392 Class
      B
      warrants. The following is a breakdown of the warrants:




**Exercise**
            
            **Date****Warrants**
            
            **Price**
            
            **Issued**
            
            **Term**2,329,392
            
            $
            0.50
            
            
            10/24/2006
            
            
            5
                years2,329,392
            
            $
            0.625
            
            
            10/24/2006
            
            
            5
                years4,658,784




As
      noted
      in d above, 1,629,513 of the Class A warrants were exercised in April
      2007.





The
      Class
      A Warrants and Class B Warrants were valued utilizing the Black - Scholes method
      as follows:




**Class
                A**
            
            **Class
                B**Stock
                Price
            
            $
            .50
            
            $
            .50Strike
                Price
            
            $
            .50
            
            $
            .62Expected
                Life of Warrant
            
            
            5
                yrs.
            
            
            5
                yrs.Annualized
                Volatility
            
            
            50
            %
            
            50
            %Discount
                Rate
            
            
            3.50
            %
            
            3.50
            %Annual
                Rate of Quarterly Dividends
            
            
            None
            
            
            NoneCall
                Option Value
            
            $
            .237
            
            $
            .206





***Options***




There
      are
      no options outstanding, or granted as of March 31, 2007.




**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 March 31,
      2007,
      there is currently no outstanding amounts due the President of the Company.
      There were no other related party transactions during the three months ended
      March 31, 2007 and 2006, respectively.




22


**INFERX
        CORPORATION**
 **(FORMERLY
        BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **MARCH
        31, 2007 AND 2006 (UNAUDITED)**




**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 March
      31,
      2007, the following presents the approximate future minimum lease payments
      required under this lease:




**For
                the Periods Ended****March
                31,**2008
            
            $
            105,2972009
            
            
            73,048$
            178,345




Rent
      expense for the three months ended March 31, 2007 and 2006 was $26,609 and
      $25,326, 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 condensed consolidated statements of operations
      for
      the three months ended March 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 has
      incurred a penalty of 178,936 shares of its common stock as of July 23, 2007.
      This liability has been accrued at a value of $.50 per share or $89,468 at
      March
      31, 2007.




23


**INFERX
        CORPORATION**
 **(FORMERLY
        BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **MARCH
        31, 2007 AND 2006 (UNAUDITED)**




**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
      March
      31, 2007, deferred tax assets consist of the following:




Net
                operating losses
            
            $
            932,280Valuation
                allowance
            
            
            (932,280
            )$
            -





At
      March
      31, 2007, the Company had net operating loss carryforward in the approximate
      amount of $2,742,000, 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 three months ended March 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 three months ended March 31, 2007 and 2006, respectively.




24


**INFERX
        CORPORATION**
 **(FORMERLY
        BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **MARCH
        31, 2007 AND 2006 (UNAUDITED)**


**NOTE
                  12**-
              MAJOR
                  CUSTOMER




The
      Company’s contracts with agencies of the federal government accounted for 100%
      of its revenue and accounts receivable as of and for the three months ended
      March 31, 2007 and 2006, respectively.


**NOTE
                    13**-
                RESTATEMENT
                    OF FINANCIAL STATEMENTS


The
      Company has restated its financial statements for the year ended December 31,
      2006 to reverse the expense for common stock issued for debt guarantee that
      was
      incorrectly recognized in the previously issued financial statements. These
      shares represented a conversion of previously recognized shares that were
      already valued by the Company. The reversal was in the amount of $66,250. The
      entry reduced additional paid in capital and reduced the expense.




In
      addition, the Company removed the unearned revenue and unbilled receivables
      of
      equal value due to the correction of an error in the accounting treatment for
      their government contracts.




The
      Company has also restated the financial statements to properly apply the
      guidance of EITF 00-19-02 as of March 31, 2007. The EITF requires
      reclassification of the derivative liability created from the Class A and Class
      B warrants from a current liability to equity. The resultant adjustment
      decreased the derivative liability and increased additional paid-in capital
      by
      $1,031,703. In conjunction with the above adjustment the Company has also
      accrued a registration rights liability in the amount of $89,468 that reflects
      the estimated liability the Company will incur as it relates to its registration
      rights agreement. This adjustment increased current liabilities and increased
      operating expenses.




The
      restatement increased the accumulated deficit from $2,844,022 to $2,867,240
      at
      March 31, 2007. The restatement reduced net loss from $310,119 to $399,587
      for
      the three months ended March 31, 2007 and had no effect on operations for the
      three months ended March 31, 2006.




**NOTE
                    14-**
                **SUBSEQUENT
                    EVENT**


In
      April
      2007, the Company and the holders of the Class A warrants agreed to amend the
      Class A Warrants to allow for the exercise of those warrants at a price of
      $.25
      for two weeks. On April 20, 2007, the Company issued 1,629,513 shares of common
      stock in exchange for an equal number of warrants for gross proceeds of
      approximately $407,000. The Company recognized the proceeds and related exercise
      of warrants in April 2007. The impact on the consolidated financial statements
      of this transaction was an increase to cash by approximately $407,000, and
      an
      increase to equity of approximately $407,000.





25


**Item
      2. Management’s Discussion and Analysis or Plan of
      Operation.**




*The
      information set forth and discussed in this Management’s Discussion and Analysis
      or Plan of Operation is derived from our financial statements and the related
      notes, which are included. The following information and discussion should
      be
      read in conjunction with those financial statements and notes, as well as the
      information provided in our Annual Report on Form 10-KSB for our fiscal year
      ended December 31, 2006.*





**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.”




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
      Missile Defense Agency to develop a prototype application of our
      software.




**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.




*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.




26




*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.




*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*




Beginning
      in 2000, we began capitalizing 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 plan 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.




*Revenue
      Recognition*




Historically
      we have generated revenue from professional services under both fixed-price
      and
      time-and-material contracts. Since 2004, all our revenue has been generated
      under fixed-price contracts.




*Time-and-Material
      Contracts*




Time-and-material
      contracts revenue is generated as 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. 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.




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.




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 timeand-materials contract or a fixed-price, fixed-time
      contract.




27




*Stock-Based
      Compensation*




We
      have
      not issued any stock options or other equity based incentives. However, we
      intend to adopt, subject to stockholder approval, a qualified stock option
      plan
      that will include up to 2,200,000 shares of our common stock.




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 have 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 of our 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. 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.




*Concentrations*




We
      have
      derived all of our revenue from agencies of the United States
      Government.




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.




*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.




*Research
      and Development*




Research
      and development costs are expensed as incurred.




28




**Recent
      Issued Accounting Standards**




In
      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. We do 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 our results of operations, financial position or cash
      flows.




On
      December 16, 2004, FASB issued SFAS No. 153, “Exchanges of Non-monetary Assets,
      an amendment of APB Opinion 29, Accounting for Non-monetary Transactions” (“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. We do not
      anticipate that the implementation of this standard will have a material impact
      on our financial position, results of operations or cash flows.




In
      May
      2005, 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.
      We
      do not expect the adoption of SFAS 154 to have a material effect on our
      financial statements.




In
      February 2006, the FASB issued Statement of Financial Accounting Standard No.
      155, *“Accounting
      for Certain Hybrid Instruments”* (“SFAS
      155”). FASB 155 allows financial instruments that have embedded derivatives to
      be accounted for as a whole (eliminating the need to bifurcate the derivative
      from its host) if the holder elects to account for the whole instrument on
      a
      fair value basis. This statement is effective for all financial instruments
      acquired or issued after the beginning of an entity’s first fiscal year that
      begins after September 15, 2006. We will evaluate the impact of SFAS 155 on
      our
      consolidated financial statements.




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
      September 2006, the FASB issued SFAS 158, “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements
      87, 88, 106 and 132(R)” (“SFAS 158”). SFAS 158 requires an employer to recognize
      the over-funded or under-funded status of a defined benefit postretirement
      plan
      (other than a multiemployer plan) as an asset or liability in its statement
      of
      financial position and to recognize changes in that funded status in the year
      in
      which the changes occur through comprehensive income. SFAS 158 also
      requires the measurement of defined benefit plan assets and obligations as
      of
      the date of the employer’s fiscal year-end statement of financial position (with
      limited exceptions). We do not expect adoption of SFAS 158 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.




29




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. We are still evaluating what effect this will have on our consolidated
      financial statements.




In
      September 2006, the United States Securities and Exchange Commission (“SEC”)
      issued SAB 108, “Considering the Effects of Prior Year Misstatements when
      Quantifying Misstatements in Current Year Financial Statements.”




This
      SAB
      provides guidance on the consideration of the effects of prior year
      misstatements in quantifying current year misstatements for the purpose of
      a
      materiality assessment. SAB 108 establishes an approach that requires
      quantification of financial statement errors based on the effects of each on
      our
      financial statements and the related financial statement disclosures. SAB 108
      permits existing public companies to record the cumulative effect of initially
      applying this approach in the first year ending after November 15, 2006 by
      recording the necessary correcting adjustments to the carrying values of assets
      and liabilities as of the beginning of that year with the offsetting adjustment
      recorded to the opening balance of retained earnings. Additionally, the use
      of
      the cumulative effect transition method requires detailed disclosure of the
      nature and amount of each individual error being corrected through the
      cumulative adjustment and how and when it arose. We do not anticipate that
      SAB
      108 will have a material impact on our consolidated financial
      statements.




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
      as additional paid-in capital. The adjustment reduced the derivative liability
      by $1,031,703 and increased additional paid-in capital by the same amount.




**Three
      Months Ended March 31, 2007 and 2006**




Revenue
      for the three months ended March 31, 2007 was approximately $100,000, an
      increase of approximately $50,000, or 100%, from approximately $50,000 for
      the
      same period in 2006. This was a result of an increase in government
      contracts.




Direct
      costs for the three months ended March 31, 2007 were approximately $115,000
      compared to approximately $99,000 for the same period in 2006, an increase
      of
      approximately $16,000, or 15.6%. This resulted primarily from approximately
      $2,000 in increased direct labor and fringes and $23,000 of increased
      subcontractor costs due to increased government contracts and a decrease of
      approximately $9,000 in other direct costs. Accordingly, our gross margin
      increased in the three months ended March 31, 2007 to (14.9)% from (98.9)%
      for
      the same period in 2006.




Operating
      expenses, which include indirect labor, professional fees, advertising,
      consulting and general and administrative, increased approximately $191,000
      from
      approximately $187,000 for the period ended March 31, 2006 to approximately
      $379,000 for the same period in 2007. This represents an increase of 102%.
      The
      increase is primarily a result of increased indirect labor and fringes of
      $112,000 due to increased staffing in 2007, a decrease in professional fees
      of
      approximately $23,000 due to decreased accounting costs related to our initial
      audits of 2004 and 2005 an impairment charge of approximately $10,000 in the
      three months ended March 31, 2007 due to a write down of capitalized software
      and an estimated registration penalty of approximately $89,000 recognized in
      the
      three months ended March 31, 2007 because the registration statement filed
      on
      Form SB-2 is not yet effective.




30




**Liquidity
      and Capital Resources**




We
      had
      cash of approximately $2,100 at March 31, 2007 and a working capital deficit
      of
      approximately $415,000. During the three months ended March 31, 2007, we used
      approximately $11,000 from our operations, approximately $62,000 in additional
      fixed assets and approximately $4,000 in debt repayments. Our cash needs were
      funded primarily by cash existing at December 31, 2006, a decrease in accounts
      receivable of $50,000 and an increase in accounts payable and accrued expenses
      of approximately $189,000. Our working capital and cash position at March 31,
      2007 do not reflect the exercise of 1,629,513 of our Class A Warrants at $.25
      per share that occurred in April 2007, resulting in net cash proceeds of
      approximately $407,000.




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 $670,000. In October 2006, we executed a new contract with the Missile
      Defense Agency for approximately $400,000 that under the terms of the contract
      is to be completed within one year, $250,000 of which remains unbilled and
      unearned at March 31, 2007.




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 2007. Our existing capital and contract is sufficient to
      fund
      our operations only through the third quarter of 2007. 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. In addition to the
      above warrant exercise, we estimate that we will require approximately $350,000
      in additional capital to sustain our operations at their current level through
      fiscal 2007 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 and/or increased revenue, we cannot assure
      you
      that the warrants will be exercised 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
      3. Controls and Procedures.**




Based
      on
      their evaluation as of the end of the period covered by this Quarterly Report
      on
      Form 10-QSB, our management, including our Chief Executive Officer and Chief
      Financial Officer, concluded that our disclosure controls and procedures, as
      defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
      of
      1934, as amended (the “Exchange Act”), were effective.




During
      the quarter under report, 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.




31


**PART
      II — OTHER INFORMATION**




**Item
      1. Legal Proceedings.**




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




**Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds.**




None,
      except as previously disclosed in our Current Report on Form 8-K, filed on
      April
      26, 2007.




**Item
      3. Defaults Upon Senior Securities.**




None.




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




None.




**Item
      5. Other Information.**




None.




**Item
      6. Exhibits.**




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).




32.1
            Certification
                of the Chief Executive Officer and Chief Financial Officer required
                by
                Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C.
                1350.




32


**SIGNATURES**





In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.


**INFERX
                CORPORATION**Dated:
              August 2,  2007
            By:
            /s/
              B.K.
              GogiaB.K.
                Gogia
              President
                and Chief Executive Officer








33


**InferX
      Corporation**


**Quarterly
      Report on Form 10-QSB**


**for
      the Quarterly Period Ended**


**March
      31, 2007**




**-
      EXHIBIT INDEX -**




Exhibit
                No.
            
            Description31.1
            
            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).32.1
            
            Certification
                of the Chief Executive Officer and Chief Financial Officer required
                by
                Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C.
                1350.






34