**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-QSB**





(Mark
      One)


x
              QUARTERLY
                  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                  OF
                  1934
  For
                  the quarterly period ended September 30,
                  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 11,027,309 shares of common stock outstanding as of November 15,
      2007.





Transitional
      Small Business Disclosure Format (check one): Yes o No x







**InferX
      Corporation**


**Quarterly
      Report on Form 10-QSB**


**for
      the Quarterly Period Ended**


**September
      30, 2007**




**-
      INDEX -**




**PART
                  I - FINANCIAL INFORMATION:**PageItem
                  1. Financial Statements:Report
                of Independent Registered Public Accounting Firm
              1Condensed
                Consolidated Balance Sheet as of September 30, 2007 (Unaudited)
              2Condensed
                Consolidated Statements of Operations for the nine and three months
                ended
                September
                30, 2007 and 2006 (Unaudited)
              3Condensed
                Consolidated Statements of Cash Flows for the nine months ended September
                30, 2007 and 2006 (Unaudited)
              4Notes
                to Condensed Consolidated Financial Statements (Unaudited)
              
              5Item
                  2. Management’s Discussion and Analysis or Plan of
                  Operation
              
              25Item
                  3. Controls and Procedures
              
              30**PART
                  II - OTHER INFORMATION:**Item
                  1. Legal Proceedings
              
              31Item
                  2. Unregistered Sales of Equity Securities and Use of
                  Proceeds
              
              31Item
                  3. Defaults Upon Senior Securities
              
              31Item
                  4. Submission of Matters to a Vote of Security Holders
              
              31Item
                  5. Other Information
              
              31Item
                  6. Exhibits
              
              31


i




**PART
        I — FINANCIAL INFORMATION**
  **Item
        1. Financial Statements.**
  **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 September 30, 2007, and the related condensed
        consolidated statements of operations and cash flows for the nine months
        ended
        September 30, 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.
 
 The
        Company has recognized a cumulative-effect adjustment on retained earnings
        in
        the amount of $484,617 due to the adoption of EITF 00-19-02 as of January
        1,
        2007. The adjustment upon the adoption decreased the derivative liability
        by
        $1,031,703 as well as increase additional paid-in capital by $547,086.




/s/ Michael
                Pollack CPACherry
                  Hill, New Jersey
                November
                  11, 2007




1


**INFERX
        CORPORATION**
 **(FORMERLY
        BLACK NICKEL ACQUISITION CORP. I)**
 **CONDENSED
        CONSOLIDATED BALANCE SHEET (UNAUDITED)**
 **SEPTEMBER
        30, 2007**


**ASSETS****CURRENT
                  ASSETS**Cash
              
              $
              1,771Prepaid
                  expenses and other current assets
              
              
              7,505**Total
                  current assets**
              
              
              9,276Fixed
                  assets, net of depreciation
              
              
              33,039**Other
                  Asset**Computer
                  software development costs, net of amortization
              
              
              376,930**Total
                  other asset**
              
              
              376,930**TOTAL
                  ASSETS**
              
              $
              419,245**LIABILITIES
                  AND STOCKHOLDERS' EQUITY (DEFICIT)****CURRENT
                  LIABILITIES**Accounts
                  payable and accrued expenses
              
              $
              594,285Accrued
                  regiistration penalty
              
              
              134,202Current
                  portion of notes payable
              
              
              17,059**Total
                  current liabilities**
              
              
              745,546**Long-term
                  Liabilities**Notes
                  payable, net of current portion
              
              
              353,204**TOTAL
                  LIABILITIES**
              
              
              1,098,750**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
                  and10,758,905
                  issued and outstanding
              
              
              1,076Additional
                  paid-in capital
              
              
              2,799,876Retained
                  earnings (defict)
              
              
              (3,480,457
              )**Total
                  stockholders' equity (deficit)**
              
              
              (679,505
              )**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)**
              
              $
              419,245




The
        accompanying notes are an integral part of these condensed
        consolidated




2




**INFERX
                  CORPORATION****(FORMERLY
                  BLACK NICKEL ACQUISITION CORP. I)****CONDENSED
                  CONSOLIDATED STATEMENTS OF OPERATIONS
                  (UNAUDITED)****FOR
                  THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2007 AND
                  2006**
  **NINE
                  MONTHS ENDED**
              
              **THREE
                  MONTHS ENDED****SEPTEMBER
                  30,**
              
              **SEPTEMBER
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006****REVENUE**
              
              $
              300,000
              
              $
              124,992
              
              $
              100,000
              
              $
              49,997**COST
                  OF REVENUES**Direct
                  labor and other finges
              
              
              54,087
              
              
              48,701
              
              
              10,657
              
              
              9,426Subcontractor
              
              
              88,811
              
              
              23,871
              
              
              30,775
              
              
              4,620Other
                  direct costs
              
              
              11,556
              
              
              45,005
              
              
              306
              
              
              8,255Amortization
                  of computer software development costs
              
              
              132,752
              
              
              132,753
              
              
              44,250
              
              
              44,251**Total
                  costs of revenues**
              
              
              287,206
              
              
              250,330
              
              
              85,988
              
              
              66,552**GROSS
                  PROFIT (LOSS)**
              
              
              12,794
              
              
              (125,338
              )
              
              14,012
              
              
              (16,555
              )**OPERATING
                  EXPENSES**Indirect
                  and overhead labor and fringes
              
              
              485,855
              
              
              205,073
              
              
              151,826
              
              
              131,128Professional
                  fees
              
              
              314,864
              
              
              184,560
              
              
              121,395
              
              
              55,989Travel
                  related costs
              
              
              22,090
              
              
              15,511
              
              
              5,651
              
              
              5,834Rent
              
              
              79,828
              
              
              78,247
              
              
              26,609
              
              
              25,656General
                  and administrative
              
              
              45,221
              
              
              88,767
              
              
              8,608
              
              
              8,248Registration
                  penalty
              
              
              134,202
              
              
              -
              
              
              44,734
              
              
              -Depreciation
                  and impairment
              
              
              24,955
              
              
              11,360
              
              
              4,611
              
              
              3,817**Total
                  operating expenses**
              
              
              1,107,015
              
              
              583,518
              
              
              363,434
              
              
              230,672**NET
                    LOSS FROM OPERATIONS BEFORE OTHER EXPENSE AND **PROVISION
                    FOR INCOME TAXES****
              
              
              (1,094,221
              )
              
              (708,856
              )
              
              (349,422
              )
              
              (247,227
              )**OTHER
                  EXPENSE**Interest
                  expense, net of interest income
              
              
              17,036
              
              
              19,986
              
              
              9,968
              
              
              9,151**NET
                  LOSS FROM OPERATIONS BEFORE**
                **PROVISION
                  FOR INCOME TAXES**
              
              
              (1,111,257
              )
              
              (728,842
              )
              
              (359,390
              )
              
              (256,378
              )Provision
                  for income taxes
              
              
              -
              
              
              -
              
              
              -
              
              
              -**NET
                  (LOSS) APPLICABLE TO SHARES**
              
              $
              (1,111,257
              )
              $
              (728,842
              )
              $
              (359,390
              )
              $
              (256,378
              )**NET
                  (LOSS) PER BASIC AND DILUTED SHARES**
              
              $
              (0.11
              )
              $
              (0.14
              )
              $
              (0.03
              )
              $
              (0.05
              )**WEIGHTED
                    AVERAGE NUMBER OF **SHARES****
                  ****OUTSTANDING****
              
              
              10,102,325
              
              
              5,350,000
              
              
              10,758,905
              
              
              5,350,000


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 CASH FLOW (UNAUDITED)**
 **FOR
          THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006**
  **2007**
                  
                  **2006****CASH
                      FLOWS FROM OPERATING ACTIVITIES:**Net
                      (loss)
                  
                  $
                  (1,111,257
                  )
                  $
                  (728,842
                  )**Adjustments
                      to reconcile net (loss)****to
                      net cash (used in) operating activities:**Stock
                      issued for services
                  
                  
                  -
                  
                  
                  99,000Impairment
                      loss
                  
                  
                  10,473
                  
                  
                  -Amortization
                      of computer software development costs
                  
                  
                  132,752
                  
                  
                  132,753Depreciation
                  
                  
                  14,482
                  
                  
                  11,360**Change
                      in assets and liabilities**Decrease
                      in accounts receivable
                  
                  
                  50,000
                  
                  
                  24,997Decrease
                      in prepaid expenses and other current assets
                  
                  
                  -
                  
                  
                  8,442Increase
                      in accounts payable and accrued expenses
                  
                  
                  599,093
                  
                  
                  155,181**Total
                      adjustments**
                  
                  
                  806,800
                  
                  
                  431,733**Net
                      cash (used in) operating activities**
                  
                  
                  (304,457
                  )
                  
                  (297,109
                  )**CASH
                      FLOWS FROM INVESTING ACTIVITIES:**Capital
                      expenditures
                  
                  
                  (18,323
                  )
                  
                  (6,392
                  )Computer
                      software development costs
                  
                  
                  (148,716
                  )
                  
                  -**Net
                      cash (used in) investing activities**
                  
                  
                  (167,039
                  )
                  
                  (6,392
                  )**CASH
                      FLOWS FROM FINANCING ACTIVITIES:**Increase
                      (decrease) in cash overdraft
                  
                  
                  -
                  
                  
                  (12,071
                  )Issuance
                      of stock for cash
                  
                  
                  406,378
                  
                  
                  20,000Contributions
                      of capital
                  
                  
                  -
                  
                  
                  6,029Borrowings
                      of promissory notes
                  
                  
                  -
                  
                  
                  350,000(Repayment)
                      of notes payable
                  
                  
                  (12,665
                  )
                  
                  (12,849
                  )Borrowings
                      (repayment) of note payable - related partry
                  
                  
                  -
                  
                  
                  (45,000
                  )**Net
                      cash provided by financing activities**
                  
                  
                  393,713
                  
                  
                  306,109**NET
                      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS**
                  
                  
                  (77,783
                  )
                  
                  2,608**CASH
                      AND CASH EQUIVALENTS - BEGINNING OF PERIOD**
                  
                  
                  79,554
                  
                  
                  -**CASH
                      AND CASH EQUIVALENTS - END OF PERIOD**
                  
                  $
                  1,771
                  
                  $
                  2,608**SUPPLEMENTAL
                      INFORMATION OF CASH FLOW ACTIVITY**Cash
                      paid during the year for interest
                  
                  $
                  9,028
                  
                  $
                  11,700**SUPPLEMENTAL
                      INFORMATION ON NONCASH ACTIVITY**Conversion
                      of accounts payable to stock
                  
                  $
                  -
                  
                  $
                  40,248Stock
                      issued for services
                  
                  $
                  -
                  
                  $
                  99,000Conversion
                      of accounts payable to note payable
                  
                  $
                  -
                  
                  $
                  57,537Conversion
                      of derivative liability to additional paid in capital and retained
                      earnings
                  
                  $
                  1,031,703
                  
                  $
                  -
   The
          accompanying notes are an integral part of
          these condensed consolidated financial statements.
  4
 **INFERX
            CORPORATION**
 **(FORMERLY
            BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
            30, 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.
  5


**INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 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 $1,111,257 and $728,842 for the nine months ended September
      30, 2007 and 2006, respectively, and has a working capital deficiency of
      $736,270 as of September 30, 2007. The principal reasons for the recurring
      losses is due to the Company’s changed focus on developing its products for the
      commercial markets as it transitions away from the less profitable government
      services market. The Company expects the negative cash flow from operations
      to
      continue its trend through the next 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.




6


**INFERX
        CORPORATION**
 **(FORMERLY
        BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 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.





7


**INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 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 September 30,
      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 nine months ended September 30, 2007
      and
      2006, the Company recognized $132,752 and $132,753 of amortization expense
      on
      its capitalized software costs, respectively.




8


**INFERX
        CORPORATION**
 **(FORMERLY
        BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 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
      as
      well as from application management support contracts with governmental units.
      The Company’s revenue is generated under time-and-material contracts and
      fixed-price contracts.




***Time-and-Material
      Contracts***




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




***Fixed-Price
      Contracts***




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




The
      Company does not derive revenue from projects involving multiple
      revenue-generating activities. If a contract would involve the provision of
      multiple service elements, total estimated contract revenue would be allocated
      to each element based on the fair value of each element.




The
      amount of revenue allocated to each element would then be limited to the amount
      that is not contingent upon the delivery of another element in the future.
      Revenue for each element would then be recognized depending upon whether the
      contract is a time-and-materials contract or a fixed-price, fixed-time
      contract.




9


**INFERX
        CORPORATION**
 **(FORMERLY
        BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 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.




10


**INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 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. 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.




11


**INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 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 September
      30,
      2006, and the Class A and Class B warrants were issued in October 2006 in the
      private placement however were not included as they would be considered
      anti-dilutive as the Company had a loss for this period.




12


**INFERX
        CORPORATION**
 **(FORMERLY
        BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 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:


**Nine
                  Months Ended****September
                  30,**
              
              **September
                  30,****2007**
              
              **2006**Net
                  (loss)
              
              $
              (1,111,257
              )
              $
              (728,842
              )Weighted-average
                  common sharesoutstanding
                  :Basic
              
              
              10,102,325
              
              
              5,350,000Effect
                  of dilutive securities-warrants
              
              
              -
              
              
              -Diluted
              
              
              9,768,593
              
              
              5,350,000Basic
                  net (loss) per share
              
              $
              (0.11
              )
              $
              (0.14
              )Diluted
                  net (loss) per share
              
              $
              (0.11
              )
              $
              (0.14
              )




**Research
      and Development**




Research
      and development costs are expensed as incurred. In addition, research and
      development costs of $32,033 and $ -0- have been included in indirect labor
      and
      $142,898 and $72,572 have been included in direct labor and subcontractor costs
      for the nine months ended September 30, 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 has not had any impact on the Company’s results of operations,
      financial position or cash flows.




13


**INFERX
        CORPORATION**
 **(FORMERLY
        BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **SEPTEMBER
        30, 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 adoption
      of
      SFAS 153 has not had a material impact on the Company’s condensed consolidated
      financial statements.




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 adoption of SFAS 155 has not had a material
      impact on the Company’s condensed 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.




14


**INFERX
        CORPORATION**
 **(FORMERLY
        BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **SEPTEMBER
        30, 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. FIN No. 48 has not had a material impact on the Company’s condensed
      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. SAB 108 has not had a material
      impact on the Company’s condensed consolidated financial
      statements.




15


**INFERX
        CORPORATION**
 **(FORMERLY
        BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **SEPTEMBER
        30, 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
      to additional paid-in capital and retained earnings. The adjustment reduced
      the
      derivative liability by $1,031,703 and increased additional paid-in capital
      by
      $547,086 and increased retained earnings by $484,617 which was the
      cumulative-effect adjustment resulting from the adoption of this standard.




**NOTE
      3-**  **FIXED
      ASSETS**




Fixed
      assets consist of the following as of September 30, 2007:


**Estimated
                  Useful****Lives
                  (Years)**Computer
                  equipment
              
              
              5
              
              $
              89,327Office
                  machinery and equipment
              
              
              3
              
              
              15,638Furniture
                  and fixtures
              
              
              5
              
              
              538Automobile
              
              
              5
              
              
              58,476163,979Less:
                  Accumulated depreciation
              
              
              
              
              
              (130,940
              )Total,
                  net
              
              
              
              
              $
              33,039




Depreciation
      expense was $14,482 and $11,360 for the nine months ended September 30, 2007
      and
      2006, respectively.




16


**INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **SEPTEMBER
          30, 2007 AND 2006 (UNAUDITED)**




**NOTE
      4-**  **COMPUTER
      SOFTWARE DEVELOPMENT COSTS**




Computer
      software development costs consist of the following as of September 30, 2007:




**Estimated
                  Useful****Lives
                  (Years)**Computer
                  software development costs
              
              
              5
              
              $
              969,157Less:
                  Accumulated amortization
              
              
              
              
              
              (592,227
              )Total,
                  net
              
              
              
              
              $
              376,930




Amortization
      expense was $132,752 and $132,753 for the nine months ended September 30, 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 September 30, 2010 is as follows:


Period
                  ended September 30:2008
              
              $
              152,7142009
              
              
              145,4182010
              
              
              78,798$
              376,930




**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.




17


**INFERX
        CORPORATION**
 **(FORMERLY
        BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **SEPTEMBER
        30, 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
      September 30, 2007, the Company has an outstanding principal balance of
      $360,515. Interest expense on the SBA loan for the nine months ended September
      30, 2007 and 2006 were $9,028 and $11,700, 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
      September 30, 2007, the outstanding principal balance of the Auto Note was
      $9,748.




18


**INFERX
        CORPORATION**
 **(FORMERLY
        BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **SEPTEMBER
        30, 2007 AND 2006 (UNAUDITED)**


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




As
      of
      September 30, 2007, the repayment schedule of the Notes Payable for the next
      five years and in the aggregate are:


2008
              
              
              
              $
              17,0592009
              
              
              
              
              9,1412010
              
              
              
              
              8,7322011
              
              
              
              
              9,0882012
              
              
              
              
              9,458Thereafter
              
              
              
              
              316,785370,263Less:
                  current portion
              
              
              
              
              (17,059
              )Long-term
                  portion
              
              
              
              $
              353,204




**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:




19


**INFERX
        CORPORATION**
 **(FORMERLY
        BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **SEPTEMBER
        30, 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 June 30,
                2007.





20


**INFERX
        CORPORATION**
 **(FORMERLY
        BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **SEPTEMBER
        30, 2007 AND 2006 (UNAUDITED)**


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




***Common
      Stock (Continued)***




In
      April
      2007, the Company issued 1,629,513 shares of stock in the exercise of Class
      A
      warrants issued in connection with the private placement. The Company received
      $406,378 in cash for these shares.




As
      of
      September 30, 2007, the Company has 10,758,905 shares issued and
      outstanding.




***Warrants***




The
      Company in the private placement granted 2,329,392 Class A and 2,329,392 Class
      B
      warrants. In April 2007, 1,629,513 of the Class A warrants were exercised into
      common shares. The following is a breakdown of the warrants:




**Exercise**
                
                **Date****Warrants**
                
                **Price**
                
                **Issued**
                
                **Term**699,879
                
                $
                0.50
                
                
                10/24/2006
                
                
                5
                    years2,329,392
                
                $
                0.625
                
                
                10/24/2006
                
                
                5
                    years3,029,271


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 September 30, 2007. In October 2007,
      the Company’s Board of Directors and Shareholders approved the adoption of an
      option plan for a total of 2,200,000 shares and issued 290,000 options that
      vest
      over a three-year period of time at a strike price of $.50 per share. (See
      Note-13)




21


**INFERX
          CORPORATION**
 **(FORMERLY
          BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **SEPTEMBER
          30, 2007 AND 2006 (UNAUDITED)**




**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 September
      30,
      2007, there is currently no outstanding amounts due the President of the
      Company. There were no other related party transactions during the nine months
      ended September 30, 2007 and 2006, respectively.




**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 September
      30, 2007, the following presents the approximate future minimum lease payments
      required under this lease:


**For
                  the Periods Ended****September
                  30,**2008
              
              $
              105,2972009
              
              
              17,550$
              122,847




Rent
      expense for the nine months ended September 30, 2007 and 2006 was $79,828 and
      $78,247, 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 nine months ended September 30, 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 268,404 shares of its common stock as of September 10,
      2007, the effective date of the Company’s registration statement. This liability
      has been accrued at a value of $.50 per share or $134,202 at September 30,
      2007.
      The penalty shares noted above were issued in October 2007.




22


**INFERX
        CORPORATION**
 **(FORMERLY
        BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **SEPTEMBER
        30, 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
      September 30, 2007, deferred tax assets consist of the
      following:





Net
                operating losses
            
            $
            1,183,200Valuation
                allowance
            
            
            (1,183,200
            )$
            -




At
      September 30, 2007, the Company had net operating loss carryforward in the
      approximate amount of $3,480,000, 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 nine months ended September
      30,
      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 nine months ended September 30, 2007 and 2006, respectively.




23


**INFERX
        CORPORATION**
 **(FORMERLY
        BLACK NICKEL ACQUISITION CORP. I)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **SEPTEMBER
        30, 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 nine months ended
      September 30, 2007 and 2006, respectively.





**NOTE
      13-**  **SUBSEQUENT
      EVENTS**





**Stock
      Option Plan**





In
      October 2007, the Company’s Board of Directors and Shareholders approved the
      adoption of the Inferx 2007 Stock Incentive Plan (the “Plan”) for a total of
      2,200,000 shares. In conjunction with the adoption of the Plan, the Company
      issued 290,000 options that generally vest over a three-year period at an
      exercise price of $.50.





**Class
      A Warrant Exercise**





On
      October 29, 2007 the Company made an offer to the holders of the remaining
      699,879 Class A Warrants. Whereby, for each holder that exercises their
      remaining Class A Warrant by November 9, 2007, the Company would issue them
      a
      new warrant of equal value and identical terms of their original Class A
      Warrant. If all the remaining Class A Warrant holders exercise it would result
      in proceeds to the Company of approximately $350,000.





24


**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 a contract with
      the
      Missile Defense Agency to develop a prototype application of our software and
      a
      contract with the Department of Veterans Affairs related to machine
      learning.




**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.




25




*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 time-and-materials contract or a fixed-price, fixed-time
      contract.




*Stock-Based
      Compensation*




We
      have
      adopted a qualified stock option plan that includes 2,200,000 shares of our
      common stock. As of September 30, 2007 no options were issued under our
      plan.




26




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.




**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
      has
      not had any impact on our results of operations, financial position or cash
      flows.




27




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. The adoption
      of
      SFAS 153 has not had a material impact on the Company’s condensed consolidated
      financial statements




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. The adoption of SFAS 155 has not had a material
      impact on the Company’s condensed 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.




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. FIN No. 48 has not had a material impact on the Company’s condensed
      consolidated financial statements.




28




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. SAB 108 has not had a material
      impact on the Company’s condensed 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
      to additional paid-in capital and retained earnings. The adjustment reduced
      derivative liability by $1,031,703 and increased additional paid-in capital
      by
      $547,086 and increased retained earnings by $484,617, which was the
      cumulative-effect adjustment resulting from the adoption of this
      standard.




**Nine
      Months Ended September 30, 2007 and 2006**




Revenue
      for the nine months ended September 30, 2007 was $300,000, and increase of
      approximately $175,000, or 140%, from approximately $125,000 for the same period
      in 2006. The increase is a result of an increase in government
      contracts.




Direct
      costs were approximately $287,000 and $250,000 for the nine months ended
      September 30, 2007 and 2006 respectively. This represents an increase of
      approximately $37,000 or 14.7%. The difference is a result of increased direct
      labor of approximately $5,000 and an increase in subcontractor costs of
      approximately $65,000 that were a result of increased government contracts
      and a
      decrease in other direct costs of approximately $33,000. Accordingly, our gross
      margin increased in the nine months ended September 30, 2007 to 4.3% from (100)%
      for the same period in 2006.




Operating
      expenses which
      include indirect labor, professional fees, advertising, consulting and general
      and administrative, increased from approximately $584,000 for the nine months
      ended September 30, 2006 to approximately $1,107,000 for the same period in
      2007. The increase of approximately $523,000 or 90% is primarily a result of
      an
      increase in indirect labor and fringes of approximately $281,000 due to
      increased staffing and salaries in 2007, an increase in professional fees of
      approximately $130,000 due to SEC filing expenses, an increase in outside sales
      and marketing consultants and increase of patent related costs in 2007, a
      reduction in general and administrative costs of approximately $44,000 due
      to
      decreases in printing and marketing costs in 2007, an increase in registration
      penalty of approximately $134,000 because the Company’s registration statement
      on form SB-2 was not effective in accordance with the terms of its registration
      rights agreement booked in 2007 and an impairment charge of approximately
      $10,000 due to a write down of capitalized software in 2007.




**Three** **Months Ended September 30, 2007 and 2006**




Revenue
      for the three months ended September 30, 2007 was $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.




29




Direct
      costs for the three months ended September 30, 2007 were approximately $86,000
      compared to approximately $67,000 for the same period in 2006, an increase
      of
      approximately $19,000, or 29.2%. This resulted primarily from approximately
      $26,000 of increased subcontractor costs due to increased government contracts
      and a decrease of approximately $8,000 in other direct costs. Accordingly,
      our
      gross margin increased in the three months ended September 30, 2007 to 14%
      from
      (33)% for the same period in 2006.




Operating
      expenses, which include indirect labor, professional fees, advertising,
      consulting and general and administrative, increased approximately $133,000
      from
      approximately $261,000 for the period ended September 30, 2006 to approximately
      $363,000 for the same period in 2007. This represents an increase of 58%. The
      increase is primarily a result of increased indirect labor and fringes of
      $21,000 due to increased salaries and staffing in 2007, an increase in
      professional fees of approximately $65,000 due to SEC filing expenses and an
      increase in outside sales and marketing consultants and an increase in patent
      related costs in 2007, and an increase in registration penalty of approximately
      $45,000 because the Company’s registration statement on form SB-2 was not
      effective in accordance with the terms of its registration rights agreement
      booked in 2007.




**Liquidity
      and Capital Resources**




We
      had
      cash of approximately $2,000 at September 30, 2007 and a working capital deficit
      of approximately $736,000. During the nine months ended September 30, 2007,
      we
      used approximately $304,000 from our operations, approximately $167,000 in
      additional fixed assets and approximately $13,000 in debt repayments. Our cash
      needs were funded primarily by an exercise of a portion of our Class A warrants
      for approximately $406,000, a decrease in accounts receivable of $50,000 and
      an
      increase in accounts payable and accrued expenses of approximately
      $599,000.




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, $50,000 of which remains unbilled and
      unearned at September 30, 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 $165,000 per month to support our operations, and under our
      projected growth plan, we would be expending approximately $250,000 per month
      by
      the middle of 2008. In November 2007 our Class A Warrant holders exercised
      444,879 warrants at $.50 per share. The exercise provided approximately $222,000
      in working capital. Along with the warrant exercise, our existing capital and
      contract is sufficient to fund our operations only through the remainder 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. We estimate that we will require approximately $750,000 in additional
      capital to sustain our operations at their current level through the second
      quarter of 2008 and that we will require as much as $5,000,000 in additional
      revenues or $3,000,000 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, equity financing 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.




30




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.




**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 reported.**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.




31




**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: November
              15, 2007
            By:
            /s/ B.K.
              GogiaB.K.
              GogiaPresident
              and
              Chief Executive Officer




32


**InferX
      Corporation**


**Quarterly
      Report on Form 10-QSB**


**for
      the Quarterly Period Ended**


**September
      30, 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.




33