UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2008

or

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

For the transition period from _______ to _______

Commission File Number: 000-51720

InferX Corporation

(Exact name of registrant as specified in its charter)

Delaware	54-1614664
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1600 International Drive, Suite 110 McLean, Virginia	22102
(Address of principal executive offices)	(Zip Code)

(703) 917-0880

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer oAccelerated filer o

Non-accelerated filer oSmaller reporting company x

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

As of May 16, 2008, there were outstanding 13,500,892 shares of the registrant’s common stock, $.0001 par value.

Table of Contents

		Page
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4(T)	Controls and Procedures	29
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Submission of Matters to a Vote of Security Holders	30
Item 5.	Other Information	30
Item 6.	Exhibits	30

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

INFERX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

MARCH 31, 2008 (UNAUDITED) AND DECEMBER 31, 2007 (AUDITED)

	MARCH 31,			DECEMBER 31,
	2008			2007
ASSETS
CURRENT ASSETS
Cash	$	39,943		$	1,670
Prepaid expenses and other current assets		7,505			7,505
Total current assets		47,448			9,175
Fixed assets, net of depreciation		40,527			31,047
Other Asset
Computer software development costs, net of amortization		287,155			350,246
Total other asset		287,155			350,246
TOTAL ASSETS	$	375,130		$	390,468
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	1,028,499		$	803,731
Liability for stock to be Issued		294,125			15,000
Current portion of notes payable		13,453			15,703
Total current liabilities		1,336,077			834,434
Long-term Liabilities
Notes payable, net of current portion		422,851			350,307
TOTAL LIABILITIES		1,758,928			1,184,741
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized and no shares issued and outstanding		-			-
Common stock, par value $0.0001 per share, 75,000,000 shares authorized and 11,472,188 issued and outstanding, respectively		1,147			1,147
Additional paid-in capital		3,311,749			3,278,517
Retained earnings (defict)		(4,696,694	)		(4,073,937	)
Total stockholders' equity (deficit)		(1,383,798	)		(794,273	)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	375,130		$	390,468

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

– 1 –

INFERX CORPORATION

(FORMERLY BLACK NICKEL ACQUISITION CORP. I)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

	2008			2007
REVENUE	$	53,261		$	100,000
COST OF REVENUES
Direct labor and other finges		35,307			24,329
Subcontractor		19,710			35,111
Other direct costs		416			11,250
Amortization of computer software development costs		63,091			44,251
Total costs of revenues		118,524			114,941
GROSS (LOSS)		(65,263	)		(14,941	)
OPERATING EXPENSES
Indirect and overhead labor and fringes		244,062			149,884
Professional fees		96,309			76,174
Travel related costs		7,744			7,208
Rent		27,663			26,609
General and administrative		22,680			14,257
Registration penalty		-			89,468
Stock issued for services		116,625			-
Stock based compensation		33,232			-
Depreciation and impairment		5,498			15,361
Total operating expenses		553,813			378,961
NET LOSS FROM OPERATIONS BEFORE OTHER EXPENSE ANDPROVISION FOR INCOME TAXES		(619,076	)		(393,902	)
OTHER EXPENSE
Interest expense, net of interest income		3,681			5,685
NET LOSS FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES		(622,757	)		(399,587	)
Provision for income taxes		-			-
NET (LOSS) APPLICABLE TO SHARES	$	(622,757	)	$	(399,587	)
NET (LOSS) PER BASIC AND DILUTED SHARES	$	(0.05	)	$	(0.04	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (DATAMAT)		11,472,188			9,129,392

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

– 2 –

INFERX CORPORATION

(FORMERLY BLACK NICKEL ACQUISITION CORP. I)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)	$	(622,757	)	$	(399,587	)
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
Stock issued for services		116,625			-
Stock based compensation		33,232			-
Impairment loss		-			10,473
Amortization of computer software development costs		63,091			44,251
Depreciation		5,498			4,888
Change in assets and liabilities
Decrease in accounts receivable		-			50,000
Increase in accounts payable and accrued expenses		224,768			189,123
Increase in accrued registration penalty		-			89,468
Total adjustments		443,214			388,203
Net cash (used in) operating activities		(179,543	)		(11,384	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(14,978	)		(16,413	)
Computer software development costs		-			(45,496	)
Net cash (used in) investing activities		(14,978	)		(61,909	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of promissory notes		237,500			-
(Repayment) of notes payable		(4,706	)		(4,196	)
Net cash (used in) financing activities		232,794			(4,196	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		38,273			(77,489	)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		1,670			79,554
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	39,943		$	2,065
SUPPLEMENTAL INFORMATION OF CASH FLOW ACTIVITY
Cash paid during the year for interest	$	3,148		$	27,596
Cash paid during the year for income taxes	$	-		$	-
SUPPLEMENTAL INFORMATION OF NONCASH ACTIVITY
Conversion of notes payable to liability for stock to be issued	$	162,500		$	-
Derivative liability converted to retained earnings and additional paid in capital	$	-		$	1,031,703

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

– 3 –

INFERX CORPORATION

(FORMERLY BLACK NICKEL ACQUISITION CORP. I)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 AND 2007 (UNAUDITED)

NOTE 1- ORGANIZATION AND BASIS OF PRESENTATION

The unaudited condensed consolidated financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The condensed consolidated financial statements and notes are presented as permitted on Form 10-Q 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, 2007 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 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.

– 4 –

INFERX CORPORATION

(FORMERLY BLACK NICKEL ACQUISITION CORP. I)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2008 AND 2007 (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 ownership and directors. The financial statements herein reflect the combined entity, and all intercompany transactions and accounts have been eliminated. As a result of the Merger, InferX merged with and into Datamat, the surviving entity. Upon completion, Datamat changed its name to InferX Corporation.

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

Going Concern

As shown in the accompanying consolidated financial statements the Company has incurred a loss of $622,757 and $399,587 for the three months ended March 31, 2008 and March 31, 2007, respectively, and has a working capital deficiency of $1,288,629 as of March 31, 2008. The principal reasons for the recurring losses is due to the Company’s changed focus on developing its products for the commercial markets as it transitions away from the less profitable government services market. The Company expects the negative cash flow from operations to continue its trend through the next six months until proposals that are in process become executed agreements and revenue is recognized from these agreements. These factors raise significant doubt about the ability of the Company to continue as a going concern.

Management’s plans to address these conditions include continued efforts to obtain government contracts as well as commercial contracts through expanding sources and new sales personnel, along with new technology, and the raising of additional capital through the sale of the Company’s stock.

The Company’s long-term success is dependent upon the obtaining of sufficient capital to fund its operations; development of its products; and launching its products to the worldwide market. These factors will contribute to the Company’s obtaining sufficient sales volume to be profitable. To achieve these objectives, the Company may be required to raise additional capital through public or private financings or other arrangements.

It cannot be assured that such financings will be available on terms attractive to the Company, if at all. Such financings may be dilutive to existing stockholders and may contain restrictive covenants.

– 5 –

INFERX CORPORATION

(FORMERLY BLACK NICKEL ACQUISITION CORP. I)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2008 AND 2007 (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.

– 6 –

INFERX CORPORATION

(FORMERLY BLACK NICKEL ACQUISITION CORP. I)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2008 AND 2007 (UNAUDITED)

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Allowance for Doubtful Accounts

The Company provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables as well as historical collection information. Credit is granted to substantially all customers on an unsecured basis. In determining the amount of the allowance, management is required to make certain estimates and assumptions. Management has determined that as of March 31, 2008, 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. The Company commencing January 1, 2008, placed an additional $226,084 of software development from prior years into service, which is being amortized over a three year period.

For the three months ended March 31, 2008 and 2007, the Company recognized $63,091 and $44,251 of amortization expense on its capitalized software costs, respectively.

– 7 –

INFERX CORPORATION

(FORMERLY BLACK NICKEL ACQUISITION CORP. I)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2008 AND 2007 (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 collectability 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.

– 8 –

INFERX CORPORATION

(FORMERLY BLACK NICKEL ACQUISITION CORP. I)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2008 AND 2007 (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 options issued in January 2008 were considered stock based compensation (see Note 7).

– 9 –

INFERX CORPORATION

(FORMERLY BLACK NICKEL ACQUISITION CORP. I)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2008 AND 2007 (UNAUDITED)

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Concentrations

The Company has derived all of its revenue for the three months ended March 31, 2008 and March 31, 2007 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 sheets for cash and cash equivalents, and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments. For the notes payable, the carrying amount reported is based upon the incremental borrowing rates otherwise available to the Company for similar borrowings. For the warrants that are classified as derivatives, fair values were calculated at net present value using the Company’s weighted average borrowing rate for debt instruments without conversion features applied to total future cash flows of the instruments.

Convertible Instruments

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

– 10 –

INFERX CORPORATION

(FORMERLY BLACK NICKEL ACQUISITION CORP. I)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2008 AND 2007 (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.

Uncertainty in Income Taxes

In July 2006, the FASB issued Interpretation No. 48 (FIN No. 48), “Accounting for Uncertainty in Income Taxes.” This interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. Management has adopted FIN 48 for 2007, and they evaluate their tax positions on an annual basis, and has determined that as of March 31, 2008, no additional accrual for income taxes is necessary.

(Loss) Per Share of Common Stock

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

– 11 –

INFERX CORPORATION

(FORMERLY BLACK NICKEL ACQUISITION CORP. I)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2008 AND 2007 (UNAUDITED)

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(Loss) Per Share of Common Stock (Continued)

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

	March 31,			March 31,
	2008			2007
Net (loss)	$	(622,757	)	$	(399,587	)
Weighted-average common shares outstanding :
Basic		11,472,188			9,129,392
Warrants		4,908,784			4,658,784
Options		370,000			-
Diluted		16,750,972			13,788,176
Basic net (loss) per share	$	(0.05	)	$	(0.04	)
Diluted net (loss) per share		(0.05	)	$	(0.04	)

Research and Development

Research and development costs are expensed as incurred. The Company incurred no research and development costs during the three months ended March 31, 2008. During the period ending March 31, 2007, $2,121 of research and development costs were included in indirect labor.

Recent Issued Accounting Standards

In September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” This standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. Early adoption is encouraged. The adoption of SFAS 157 is not expected to have a material impact on the condensed 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.

– 12 –

INFERX CORPORATION

(FORMERLY BLACK NICKEL ACQUISITION CORP. I)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2008 AND 2007 (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.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No 51” (SFAS 160). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, changes in a parent’s ownership of a noncontrolling interest, calculation and disclosure of the consolidated net income attributable to the parent and the noncontrolling interest, changes in a parent’s ownership interest while the parent retains its controlling financial interest and fair value measurement of any retained noncontrolling equity investment. SFAS 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. Management is determining the impact that the adoption of SFAS No. 160 will have on the Company’s condensed consolidated financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS 141R, Business Combinations (“SFAS 141R”), which replaces FASB SFAS 141, Business Combinations. This Statement retains the fundamental requirements in SFAS 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. SFAS 141R defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control.  SFAS 141R will require an entity to record separately from the business combination the direct costs, where previously these costs were included in the total allocated cost of the acquisition.  SFAS 141R will require an entity to recognize the assets acquired, liabilities assumed, and any non-controlling interest in the acquired at the acquisition date, at their fair values as of that date.  This compares to the cost allocation method previously required by SFAS No. 141.  

– 13 –

INFERX CORPORATION

(FORMERLY BLACK NICKEL ACQUISITION CORP. I)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2008 AND 2007 (UNAUDITED)

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Issued Accounting Standards (Continued)

SFAS 141R will require an entity to recognize as an asset or liability at fair value for certain contingencies, either contractual or non-contractual, if certain criteria are met.  Finally, SFAS 141R will require an entity to recognize contingent consideration at the date of acquisition, based on the fair value at that date.  This Statement will be effective for business combinations completed on or after the first annual reporting period beginning on or after December 15, 2008.  Early adoption of this standard is not permitted and the standards are to be applied prospectively only.  Upon adoption of this standard, there would be no impact to the Company’s results of operations and financial condition for acquisitions previously completed.  The adoption of SFAS No. 141R is not expected to have a material effect on the Company’s condensed consolidated financial position, results of operations or cash flows.

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

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

NOTE 3- FIXED ASSETS

Fixed assets consist of the following as of March 31, 2008 and December 31, 2007, respectively.

	Estimated Useful		March 31,			December 31,
	Lives (Years)		2008			2007
Computer equipment		5	$	107,065		$	92,087
Office machinery and equipment		3		15,638			15,638
Furniture and fixtures		5		538			538
Automobile		5		58,476			58,476
				181,717			166,739
Less: Accumulated depreciation				(141,190	)		(135,692	)
Total, net			$	40,527		$	31,047

Depreciation expense was $5,498 and $4,888 for the three months ended March 31, 2008 and 2007, respectively.

– 14 –

INFERX CORPORATION

(FORMERLY BLACK NICKEL ACQUISITION CORP. I)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2008 AND 2007 (UNAUDITED)

NOTE 4- COMPUTER SOFTWARE DEVELOPMENT COSTS

Computer software development costs consist of the following as of March 31, 2008 and December 31, 2007, respectively:

	Estimated Useful		March 31,			December 31,
	Lives (Years)		2008			2007
Computer software development costs		5	$	986,724		$	986,724
Less: Accumulated amortization Total, net				(699,569	)		(636,478	)
			$	287,155		$	350,246

The Company commencing January 1, 2008, placed an additional $226,084 of software development into service, which is being amortized over a three year period.

Amortization expense was $63,091 and $44,251 for the three months ended March 31, 2008.and 2007, respectively.

Amortization expense anticipated through March 31, 2011 is as follows:

Period ended March 31:
2009	$	155,273
2010		75,361
2011		56,521
	$	287,155

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.

– 15 –

INFERX CORPORATION

(FORMERLY BLACK NICKEL ACQUISITION CORP. I)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2008 AND 2007 (UNAUDITED)

NOTE 5- NOTES PAYABLE (CONTINUED)

SBA Loan (Continued)

The Company must comply with the default provisions contained in the Note. The Company is in default under the Note if it does not make a payment under the Note, or if it: a) fails to comply with any provision of the Note, the Loan Authorization and Agreement, or other Loan documents; b) defaults on any other SBA loan; c) sells or otherwise transfers, or does not preserve or account to SBA’s satisfaction for, any of the collateral (as defined therein) or its proceeds; d) does not disclose, or anyone acting on their behalf does not disclose, any material fact to the SBA; e) makes, or anyone acting on their behalf makes, a materially false or misleading representation to the SBA; f) defaults on any loan or agreement with another creditor, if the SBA believes the default may materially affect the Company’s ability to pay this Note; g) fails to pay any taxes when due; h) becomes the subject of a proceeding under any bankruptcy or insolvency law; i) has a receiver or liquidator appointed for any part of their business or property; j) makes an assignment for the benefit of creditors; k) has any adverse change in financial condition or business operation that the SBA believes may materially affect the Company’s ability to pay this Note; l) dies; m) reorganizes, merges, consolidates, or otherwise changes ownership or business structure without the SBA’s prior written consent; or n) becomes the subject of a civil or criminal action that the SBA believes may materially affect the Company’s ability to pay this Note.

As of March 31, 2008, the Company has an outstanding principal balance of $356,055. Interest expense on the SBA loan for the three months ended March 31, 2008 and 2007 were $3,148 and $3,658, respectively.

Automobile Loan

The Company has a note payable with an automotive finance company in the original amount of $44,990 (the “Auto Note”). The Auto Note commenced in November 2003, and requires payments of $750 per month for a period of 60 months. The Auto Note is secured by the automobile.

As of March 31, 2008, the outstanding principal balance of the Auto Note was $5,249.

– 16 –

INFERX CORPORATION

(FORMERLY BLACK NICKEL ACQUISITION CORP. I)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2008 AND 2007 (UNAUDITED)

NOTE 5- NOTE PAYABLE (CONTINUED)

Convertible Notes

The Company entered into three convertible notes:

a) Convertible note dated March 6, 2008 in the amount of $75,000, with a term of 2 years, with interest calculated at 9.99% per annum. The note is convertible at 50% of the closing bid price of the common stock on the date of conversion. The Company has accrued interest for the period ended March 31, 2008 in the amount of $532;

b) Convertible note dated March 7, 2008 in the amount of $62,500, with a term of 2 years, with interest calculated at 9.99% per annum. The note was convertible at 50% of the closing bid price of the common stock on the date of conversion, and was converted the same day the note was executed for a conversion price of $.135 or 462,963 shares. This note was converted immediately however, the shares were not issued until April 2008, thus the Company has reflected the balance in liability for stock to be issued;

c) Convertible note dated March 10, 2008 in the amount of $100,000, with a term of 2 years, with interest calculated at 9.99% per annum. The note was convertible at 50% of the closing bid price of the common stock on the date of conversion, and was converted the same day the note was executed for a conversion price of $.135 or 740,741 shares. This note was converted immediately however, the shares were not issued until April 2008, thus the Company has reflected the balance in liability for stock to be issued.

As of March 31, 2008, the annual repayment schedule of the Notes Payable for the next five years and in the aggregate are:

Period ending March 31,
2009	$	13,453
2010		83,559
2011		8,909
2012		9,271
2013		9,648
Thereafter		311,464
		436,304
Less : current portion		(13,453	)
Long-term portion	$	422,851

– 17 –

INFERX CORPORATION

(FORMERLY BLACK NICKEL ACQUISITION CORP. I)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2008 AND 2007 (UNAUDITED)

NOTE 6- 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.

The Company as of March 31, 2008 has 11,472,188 shares of common stock issued and outstanding. The Company has not issued any shares in the three months ended March 31, 2008. The Company has issued in April 2008, 1,203,704 shares of common stock in conversion of $162,500 in convertible notes (see Note 5), 475,000 shares of common stock to the convertible note holders valued at $64,125 for entering into the note agreements, and 350,000 shares of common stock for services rendered in the three months ended March 31, 2008 valued at $52,500. The $116,625 is reflected as stock issued for services in the condensed consolidated statements of operations for the three months ended March 31, 2008.

The Company has also recorded a $15,000 consulting fee in 2007 for the issuance of 30,000 shares of stock. The fees were earned in 2007 however the stock has not been issued until April 2008. This is also reflected as a liability for stock to be issued.

Warrants

The Company in the private placement granted 2,329,392 Class A and 2,329,392 Class B warrants. In April 2007, 1,629,513 of the Class A warrants were exercised into common shares. In November 2007, 444,879 of the Class A warrants were exercised into common shares. The Company granted brand new Class A warrants to the warrant holders that exercised during 2007. The total new Class A warrants of 2,074,392 were issued in November 2007 and are reflected herein. The following is a breakdown of the warrants:

	Exercise		Date
Warrants	Price		Issued		Term
255,000	$	0.50		10/24/2006		5 years
2,329,392	$	0.625		10/24/2006		5 years
250,000	$	0.50		9/1/2007		5 years
2,074,392	$	0.50		11/30/2007		3.9 years
4,908,784

– 18 –

INFERX CORPORATION

(FORMERLY BLACK NICKEL ACQUISITION CORP. I)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2008 AND 2007 (UNAUDITED)

NOTE 6- STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)

Warrants (Continued)

The Class A Warrants (old) and Class B Warrants in the private placement as well as the consultant warrants were valued utilizing the Black - Scholes method as follows:

	Class A			Class B			Consultant
Stock Price	$	.50		$	.50		$	.50
Strike Price	$	.50		$	.62		$	.50
Expected Life of Warrant		5 yrs.			5 yrs.			5 yrs.
Annualized Volatility		50	%		50	%		100	%
Discount Rate		3.50	%		3.50	%		3.00	%
Annual Rate of Quarterly Dividends		None			None			None
Call Option Value	$	.237		$	.206		$	.378

Options

Prior to October 2007, there were no options outstanding, or granted. In October 2007, the Company’s Board of Directors and Shareholders approved the adoption of an option plan for a total of 2,200,000 shares and issued 290,000 options in October and November that vest over a three-year period of time, with 140,834 of these options vesting in 2007 at a strike price of $.50 per share and an additional 155,000 shares that vested during the three months ended March 31, 2008. During this period, options for 70,000 shares were terminated under the terms of the option plan, of which 12,917 were already vested.

These options were valued as follows:

	December 2007			March 2008
Stock Price	$	.50		$	.39/$.53
Strike Price	$	.50		$	.50
Expected Life of Option		1 yr.			1 yr.
Annualized Volatility		100	%		100	%
Discount Rate		3.00	%		3.00	%
Annual Rate of Quarterly Dividends		None			None
Call Option Value	$	.196		$	.124/$.217

The value attributable to these options for the three months ended March 31, 2008 and 2007 is $33,232 and $0, respectively and is reflected in the consolidated statements of operations as stock based compensation.

– 19 –

INFERX CORPORATION

(FORMERLY BLACK NICKEL ACQUISITION CORP. I)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2008 AND 2007 (UNAUDITED)

NOTE 7- COMMITMENTS

Rental

The Company leases office space under an operating lease that has initial or remaining non-cancelable lease terms and expires in November 2008. The lease agreement provides for an annual 4% escalation of the base rent. As of March 31, 2008, the following presents the approximate future minimum lease payments required under this lease:

For the Period Ended March 31,
2009	$	54,780

Rent expense for the three months ended March 31, 2008 and 2007 was $27,663 and $$26,609, respectively.

Consulting Agreements

During the three months ended March 31, 2008, the Company did not enter into any consulting agreements. In 2007, the Company entered into consulting agreements with marketing and strategic consulting groups with terms that do not exceed one year. These companies are to be paid fees for the services they perform. The Company has included these fees in their condensed consolidated statements of operations for the three months ended March 31, 2008 and 2007.

Registration Rights Agreement

The Registration Rights Agreement dated October 23, 2006 between the Company and certain investors provided that the Company would accrue a penalty of 1% of the total shares of the Company’s common stock registered on Form SB-2 (the “Total Shares”), per month for each month beyond April 23, 2007 that Company’s registration statement on Form SB-2 failed to be effective up to a maximum of 10% of the Total Shares or 447,340 shares of common stock. The Company had incurred a penalty of 268,404 shares of its common stock through September 10, 2007, the effective date of the Company’s registration statement. This liability had been accrued at a value of $.50 per share or $89,468 as of March 31, 2007. The penalty shares noted above were issued in October 2007.

– 20 –

INFERX CORPORATION

(FORMERLY BLACK NICKEL ACQUISITION CORP. I)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2008 AND 2007 (UNAUDITED)

NOTE 8- PROVISION FOR INCOME TAXES

Deferred income taxes will be determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.

At March 31, 2008, deferred tax assets consist of the following:

Net operating losses	$	1,579,283
Valuation allowance		(1,579,283	)
	$	-

At March 31, 2008, the Company had a net operating loss carryforward in the amount of $4,644,951, available to offset future taxable income through 2028. The Company established valuation allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating losses in future periods.

A reconciliation of the Company’s effective tax rate as a percentage of income before taxes and federal statutory rate for the three months ended March 31, 2008 and 2007 is summarized below.

	2008			2007
Federal statutory rate		(34.0	)%		(34.0	)%
State income taxes, net of federal benefits		6.0			6.0
Valuation allowance		28.0			28.0
		0	%		0	%

NOTE 11- DEFINED CONTRIBUTION PLAN

The Company has a retirement plan which satisfies the requirements of Section 401(k) of the Internal Revenue Code. This defined contribution retirement plan covers substantially all employees. Participants can elect to have up to the maximum percentage allowable of their salaries reduced and contributed to the plan. The Company may make matching contributions equal to a discretionary percentage of the participants’ elective deferrals. The Company made no such contributions for the three months ended March 31, 2008 and 2007, respectively.

– 21 –

INFERX CORPORATION

(FORMERLY BLACK NICKEL ACQUISITION CORP. I)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2008 AND 2007 (UNAUDITED)

NOTE 12- MAJOR CUSTOMER

The Company’s contracts with agencies of the federal government accounted for 100% of its revenue for the three months ended March 31, 2008 and 2007, respectively.

– 22 –

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Financial Statements and the notes thereto that appear in Item 1 of this Quarterly Report on Form 10-Q, as well as the information provided in our Annual Report on Form 10-K for our fiscal year ended December 31, 2007.

Overview

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

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

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

Critical Accounting Policies

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

Principles of Consolidation

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

Use of Estimates

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

– 23 –

Cash and Cash Equivalents

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

We maintain cash and cash equivalent balances at one financial institution that is insured by the Federal Deposit Insurance Corporation up to $100,000.

Allowance for Doubtful Accounts

We provide an allowance for doubtful accounts, which is based upon a review of outstanding receivables as well as historical collection information. Credit is granted to substantially all customers on an unsecured basis. In determining the amount of the allowance, management is required to make certain estimates and assumptions. Management has determined that as of March 31, 2008, 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, we capitalized certain software development costs. We capitalize the cost of software in accordance with SFAS 86 once technological feasibility has been demonstrated, as we have in the past sold, leased or otherwise marketed our software, and plans on doing so in the future. We capitalize costs incurred to develop and market our privacy preserving software during the development process, including payroll costs for employees who are directly associated with the development process and services performed by consultants. Amortization of such costs is based on the greater of (1) the ratio of current gross revenues to the sum of current and anticipated gross revenues, or (2) the straight-line method over the remaining economic life of the software, typically five years. It is possible that those anticipated gross revenues, the remaining economic life of the products, or both, may be reduced as a result of future events. We have not developed any software for internal use. For the three months ended March 31, 2008 and 2007, we recognized $63,091 and $44,251 of amortization expense on our capitalized software costs, respectively. Commencing January 1, 2008, we placed an additional $226,084 of software development into service, which will be amortized over a three year period.

Recoverability of Long-Lived Assets

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

Revenue Recognition

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

– 24 –

Time-and-Material Contracts

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

Fixed-Price Contracts

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

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

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

Stock-Based Compensation

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

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

We have elected to use the modified-prospective approach method. Under that transition method, the calculated expense in 2006 is equivalent to compensation expense for all awards granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair values estimated in accordance with the original provisions of FAS 123. Stock-based compensation expense for all awards granted after January 1, 2006 is based on the grant-date fair values estimated in accordance with the provisions of FAS 123R. We recognize these compensation costs, net of an estimated forfeiture rate, on a pro rata basis over the requisite service period of each vesting tranche of each award. We consider voluntary termination behavior as well as trends of actual option forfeitures when estimating the forfeiture rate.

Our warrants issued in the private placement in October 2006, were not stock based compensation. Our options issued in October 2007 were considered stock based compensation (see Note 7 to our consolidated financial statements). Our options issued in January 2008 were considered stock based compensation.

– 25 –

Concentrations

We have derived all of our revenue for the three months ended March 31, 2008 and March 31, 2007 from one customer. .

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

Segment Reporting

We follow the provisions of SFAS 131, “Disclosures about Segments of an Enterprise and Related Information.” This standard requires that companies disclose operating segments based on the manner in which management disaggregates the company in making internal operating decisions. We believe that there is only one operating segment.

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

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

Convertible Instruments

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

Income Taxes

Under Financial Accounting Standards Board Statement No. 109, “Accounting for Income Taxes,” the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Uncertainty in Income Taxes

In July 2006, the FASB issued Interpretation No. 48 (FIN No. 48), “Accounting for Uncertainty in Income Taxes.” This interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. Management has adopted FIN 48 for 2007, and they evaluate their tax positions on an annual basis, and has determined that as of March 31, 2008, no additional accrual for income taxes is necessary.

(Loss) Per Share of Common Stock

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

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

Research and Development

Research and development costs are expensed as incurred. Ther Company incurred no research and development costs during the three months ended March 31, 2008. During the perod ending March 31, 2007, $2121 of research and development costs were included in direct labor. In addition, research and development costs of $32,127 and $49,366 have been included in indirect labor and $183,548 and $104,782 have been included in direct labor and subcontractor costs for the years ended March 31, 2008 and 2006, respectively.

Recent Issued Accounting Standards

In September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” This standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. Early adoption is encouraged. The adoption of SFAS 157 is not expected to have a material impact on our consolidated financial statements.

In February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115”, (“FAS 159”) which permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. A business entity is required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is expected to expand the use of fair value measurement. FAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.

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

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No 51” (SFAS 160). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, changes in a parent’s ownership of a noncontrolling interest, calculation and disclosure of the consolidated net income attributable to the parent and the noncontrolling interest, changes in a parent’s ownership interest while the parent retains its controlling financial interest and fair value measurement of any retained noncontrolling equity investment.

SFAS 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. Management is determining the impact that the adoption of SFAS No. 160 will have on our consolidated financial position, results of operations or cash flows.

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In December 2007, the FASB issued SFAS 141R, Business Combinations (“SFAS 141R”), which replaces FASB SFAS 141, Business Combinations. This Statement retains the fundamental requirements in SFAS 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. SFAS 141R defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. SFAS 141R will require an entity to record separately from the business combination the direct costs, where previously these costs were included in the total allocated cost of the acquisition. SFAS 141R will require an entity to recognize the assets acquired, liabilities assumed, and any non-controlling interest in the acquired at the acquisition date, at their fair values as of that date. This compares to the cost allocation method previously required by SFAS No. 141.

SFAS 141R will require an entity to recognize as an asset or liability at fair value for certain contingencies, either contractual or non-contractual, if certain criteria are met. Finally, SFAS 141R will require an entity to recognize contingent consideration at the date of acquisition, based on the fair value at that date. This Statement will be effective for business combinations completed on or after the first annual reporting period beginning on or after December 15, 2008. Early adoption of this standard is not permitted and the standards are to be applied prospectively only. Upon adoption of this standard, there would be no impact to our results of operations and financial condition for acquisitions previously completed. The adoption of SFAS No. 141R is not expected to have a material effect on our consolidated financial position, results of operations or cash flows.

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

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

Results of Operations and Financial Condition

Three Months Ended March 31, 2008 and 2007

Revenue for the three months ended March 31, 2008 was approximately $371,000, an increase of approximately $171,000, or 86% from approximately $200,000 for the same period in 2006. This was a result of increased federal contracts related to the Company’s core competencies.

Direct costs for the year ended March 31, 2008 were $53,261 compared to $100,000 for the same period in 2007, an decrease of approximately $46,739 or 47%. Direct costs before capitalization of labor costs for the three months ended March 31, 2008 were approximately $118,524 in 2008 and $114, 941 during the same period in 2007. The increase in direct costs resulted primarily from increases related to additional contract requirements and additional costs incurred for further development of the Company’s proprietary predictive analytics software products.

Operating expenses, which include indirect labor, professional fees, advertising, consulting and general and administrative, increased approximately $174,852 from approximately $378,961 for the three months ended March 31, 2007 to approximately $553,813 for the same period in 2008. This represents an increase of approximately 46%. The increase is the result of the following: an increase in indirect and overhead labor and fringes of approximately $94,178 resulting from costs related to an increase in staffing in 2008; an increase in professional services of approximately $20,135, consisting primarily of increased legal and filing costs related to public filings; an increase in share based compensation of approximately $149,852 as a result issued under the Company’s option plan and stock issued for services; and increase in General and Administrative costs of approximately $8,423; and a decrease in depreciation and impairment of approximately $9,863 due primarily to the 2007 impairment charge on the Company’s InferView product.

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Liquidity and Capital Resources

We had cash of approximately $40,000 at March 31, 2008 and a working capital deficit of approximately ($335,000). During the three months ended March 31, 2008, we used approximately $176,000 from our operations. Operations were funded primarily from the borrowings of promissory notes of $237,500.

In October 2006, we completed a private placement in which the investors paid $.50 per share of common stock, and also received one five-year warrant with an exercise price of $.50 and one five-year warrant with an exercise price of $.62. We sold 2,329,392 units in the private placement (including $362,196 in cancellation of indebtedness and accrued interest under outstanding bridge loans), resulting in gross cash proceeds of approximately $802,500. In April 2007, we and holders of our Class A warrants agreed to reduce the exercise price of 80% of the Class A warrants to $.25 per share for a period of two weeks. We received approximately $407,000 from the exercise of 1,629,513 warrants. In November 2007, the holders of our Class A warrants exercised an additional 444,879 warrants resulting in gross cash proceeds of approximately $222,000. In March 2008, we sold convertible notes in the aggregate principal amount of $237,500. These convertible notes accrue interest at the rate of 9.99% per annum and are convertible into our common stock at 50% of the closing bid price of the common stock on the date of conversion.

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 $200,000 per month to support our operations, and under our current business plan, we would be expending approximately $250,000 per month by the end of fiscal 2008. Along with revenues from our existing contracts, we believe our existing capital is sufficient to fund our operations only through the second quarter of 2008. If we are unable to generate increased revenue or raise additional capital, it will be necessary for us to significantly reduce expenses to stay in business. Although we believe the additional capital we will require will be provided either through the exercise of warrants, debt and/or increased revenue, we cannot assure you that the warrants will be exercised, we can obtain debt at acceptable terms or that we can generate sufficient revenue to maintain projected operating levels. Accordingly, we may need to 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. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4T. Controls and Procedures

Evaluation of disclosure controls and procedures.

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2008. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are not effective due to the existence of material weaknesses in our internal control over financial reporting discussed in our Annual Report on Form 10-K for the year ended December 31, 2007 and which remain unremediated.

Changes in internal control over financial reporting.

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

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

Not applicable.

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

During the three months ended March 31, 2008, we made unregistered sales of convertible notes in the aggregate principal amount of $237,500 to three investors from March 6, 2008 through March 10, 2008. These convertible notes accrue interest at the rate of 9.99% per annum and are convertible into our common stock at 50% of the closing bid price of the common stock on the date of conversion. All of the unregistered sales were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, on the basis that all purchasers were accredited investors.

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 principal executive officer required by Rule 13a-14(a) or Rule 15d-14(a)
31.2	Certification of the principal financial officer required by Rule 13a-14(a) or Rule 15d-14(a)
32	Certification of the principal executive officer and the principal financial officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350

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SIGNATURES

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

	InferX Corporation
Date: May 20, 2008	By:	/s/ B.K. Gogia
		B.K. Gogia
		Chairman of the Board
		(Principal Executive, Financial and
		Accounting Officer)

InferX Corporation

Form 10-Q

For the quarterly period ended March 31, 2008

Exhibit Index

31.1	Certification of the principal executive officer required by Rule 13a-14(a) or Rule 15d-14(a) **
31.2	Certification of the principal financial officer required by Rule 13a-14(a) or Rule 15d-14(a) **
32	Certification of the principal executive officer and the principal financial officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350 **

** Filed herewith