10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

Amendment No. 1

(Mark One)

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

For the quarterly period ended June 30, 2011

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE 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.)

46950 Jennings Farm Drive
Suite 290
Sterling, Virginia	20164-8679
(Address of principal executive offices)	(Zip Code)

(703) 444-6030

(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  oNo x

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 o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x
(Do not check if a smaller reporting company)

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

As of August 9, 2011 there were 19,032,236outstanding shares of the registrant’s common stock, $.0001 par value per share.

Explanatory Note

The purpose of this Amendment No. 1 to the registrant's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011, filed with the Securities and Exchange Commission on August 15, 2011 (the "Form 10-Q"), is solely to add Exhibit 10.1 that was inadvertently omitted from the Form 10-Q and to furnish Exhibit 101 to the Form 10-Q. Exhibit 101 provides the financial statements and related notes from the Form 10-Q formatted in XBRL (Extensible Business Reporting Language). No other changes have been made to the Form 10-Q. This Amendment No. 1 to the Form 10-Q continues to speak as of the original filing date of the Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the Form 10-Q. Pursuant to rule 406T of Regulation S-T, the Interactive Data Files in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Act of 1934, as amended, and otherwise are not subject to liability under those sections.

Item 6.  Exhibits.

10.1	Amendment to Debenture and Warrants dated July 7, 2010 (2)
31	Certification of the Principal Executive, Financial and Accounting Officer required by Rule 13a-14(a) or Rule 15d-14(a).(1)
32	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.(1)
101	Interactive Data File (2)

(1) Filed with the Form 10-Q on August 15, 2011

(2) Filed herewith

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.

Dated: September 15, 2011	InferX Corporation
	By:	/s/ Vijay Suri
		Vijay Suri, President, CEO and CFO
		(Principal Executive, Financial and
		Accounting Officer)

EX-10.1

AMENDMENT

TO

DEBENTURE AND WARRANTS

This Amendment (the “Amendment”), dated as of July 7, 2010, is made to the 8% Secured Convertible Debenture (the “Debenture”), and the Class B Common Stock purchase warrants (the “Warrants”) issued pursuant to the Securities Purchase Agreement dated as of December 29, 2009 (the “Purchase Agreement”), between InferX Corporation, Inc., a Delaware corporation (the “Company”) and the purchasers identified on the signatures pages thereto (the “Purchasers”).

WHEREAS, pursuant to Section 2(a) of the Debenture, the entire principal amount, together with all accrued and unpaid interest, is due and payable on June 30, 2010 (the “Maturity Date”);

WHEREAS, Section 16 of the Debenture provides that no provision of the Debenture may be amended, waived, modified or discharged without written consent of the holders of the Debenture;

WHEREAS, the Exercise Price for the Warrants is $0.50 per share;

WHEREAS, Section 18 of the Warrants provides that no provision of the Warrants may be amended unless by written consent of the warrant holders holding, in the aggregate, Warrants exercisable for shares of Warrant Stock greater than 67% of all shares of Warrant Stock available for exercise;

WHEREAS, the Company and the Holders signatory hereto (the “Signatory Holders”), which Signatory Holders (a) hold all of the outstanding Debentures wish to amend the Debenture to extend the Maturity Date until August 31, 2010 (the “Extension”) and (b) hold Warrants exercisable for shares of Warrant Stock greater than 67% of all shares of Warrant Stock available for exercise currently outstanding wish to amend the Warrants in order to reduce the respective Exercise Prices to $0.20;

WHEREAS, as partial consideration for the Extension, the Company wishes to issue to the Signatory Holders 200,000 shares of Common Stock pursuant to Section 4(2) of the Securities Act and Rule 506 promulgated thereunder.

NOW, THEREFORE, in consideration of the terms and conditions contained in this Amendment, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound hereby, agree as follows:

1.Definitions.  Terms used as defined terms herein and not otherwise defined shall have the meanings provided therefore in the Purchase Agreement, the Debenture and the Warrants.

(a)“Commission” means the United States Securities and Exchange Commission.

(b)“Legend Removal Date” shall have the meaning ascribed to such term in Section 6(c).

(c)“Liens” means a lien, charge pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

(d)“Public Information Failure” shall have the meaning ascribed to such term in Section 7.

(e)“Public Information Failure Payments” shall have the meaning ascribed to such term in Section 7.

(f)“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

(g)“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Signatory Holders of a majority in interest of the Shares then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

2.Amendment to Maturity Date of the Debenture.  The maturity date of the Debenture shall be extended until August 31, 2010.  As such, Section 2(a) of the Debenture shall be amended and restated in its entirety to read as follows:

“The entire principal amount of this Debenture, together with all accrued interest and unpaid interest, shall be due and payable on August 31, 2010 (the “Maturity Date”).”

3.Amendments to Warrant Exercise Prices.

(a)   Series B Warrant.  The Exercise Price of the Series B Warrant shall be reduced to $0.20 per share from $0.50 per share.  As such, Section 1.2 of the Series B Warrant shall be amended and restated in its entirety to read as follows:

““Exercise Price” means $0.20 per share, subject to adjustment as provided herein.”

(b)   References to the Exercise Prices in the Transaction Documents.  Any and all references to the Exercise Price of $0.50 for the Warrants in the Transaction Documents shall be disregarded.

4.Issuance of Shares.  On the date hereof, as partial consideration for the amendments hereunder, the Company shall issue to the Signatory Holders, in the aggregate, 200,000 shares of Common Stock (the “Shares”).

5.Representations and Warranties of the Company.  The Company hereby makes the representations and warranties set forth below to the Signatory Holders as of the date of this Amendment:

(a)Authorization; Enforcement.  The Company has the requisite corporate power and authority to enter into this Amendment and otherwise to carry out its obligations hereunder.  The execution and delivery of this Amendment by the Company and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company's stockholders in connection therewith.  This Amendment has been duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

(b)No Conflicts.  The execution, delivery and performance of this Amendment by the Company and the consummation by the Company of the transactions contemplated hereby do not and will not: (i) conflict with or violate any provision of the Company’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any lien upon any of the properties or assets of the Company, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any material agreement, credit facility, debt or other material instrument (evidencing Company debt or otherwise) or other material understanding to which the Company is a party or by which any property or asset of the Company is bound or affected, or (iii) conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company is bound or affected.

(c)Issuance of the Shares.  The Shares are duly authorized and, when issued and paid for in accordance with this Amendment, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents.  The Company has reserved from its duly authorized capital stock the maximum number of shares of Common Stock issuable pursuant to this Amendment.

(d)Bring Down.  The Company expressly reaffirms that each of the representations and warranties set forth in the Purchase Agreement (as supplemented or qualified by the disclosures in any disclosure schedule to Purchase Agreement), continues to be true, accurate and complete in all material respects as of the date hereof, and except for any representation and warranty made as of a certain date, in which case such representation and warranty shall be true, accurate and complete as of such date, and the Company hereby remakes and incorporates herein by reference each such representation and warranty as though made on the date of this Amendment.

6.Transfer Restrictions.

(a)The Shares may only be disposed of in compliance with state and federal securities laws.  In connection with any transfer of Shares other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Signatory Holder or in connection with a pledge as contemplated in Section 6(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act.  As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Amendment and shall have the rights and obligations of a Signatory Holder under this Amendment.

(b)The Signatory Holders agree to the imprinting, so long as is required by this Section 6, of a legend on any of the Securities in the following form:

THIS SECURITY HAS NOT BEEN  REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

The Company acknowledges and agrees that a Signatory Holder may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Shares to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Amendment and, if required under the terms of such arrangement, such Signatory Holder may transfer pledged or secured Shares to the pledgees or secured parties.  Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith.  Further, no notice shall be required of such pledge.  At the appropriate Signatory Holder’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Shares may reasonably request in connection with a pledge or transfer of the Shares.

(c)Certificates evidencing the Shares shall not contain any legend (including the legend set forth in this Section 6), (i) while a registration statement covering the resale of such security is effective under the Securities Act, (ii) following any sale of such Shares pursuant to Rule 144, (iii) if such Shares are eligible for sale under Rule 144 or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission).  The Company shall cause its counsel to issue a legal opinion to the Transfer Agent promptly after any event in (i)-(iv) herein if required by the Transfer Agent to effect the removal of the legend hereunder. The Company agrees that following such time as such legend is no longer required under this Section 6(c), it will, no later than three Trading Days following the delivery by a Signatory Holder to the Company or the Transfer Agent of a certificate representing Shares, as the case may be, issued with a restrictive legend (such third Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Signatory Holder a certificate representing such shares that is free from all restrictive and other legends.  The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 6.  Certificates for Shares subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Signatory Holder by crediting the account of the Signatory Holder’s prime broker with the Depository Trust Company System as directed by such Signatory Holder.

(d)In addition to such Signatory Holder’s other available remedies, the Company shall pay to a Signatory Holder, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of Shares (based on the VWAP of the Common Stock on the date such Shares are submitted to the Transfer Agent) delivered for removal of the restrictive legend and subject to Section 6(c), $10 per Trading Day (increasing to $20 per Trading Day five (5) Trading Days after such damages have begun to accrue) for each Trading Day after the Legend Removal Date until such certificate is delivered without a legend. Nothing herein shall limit such Signatory Holder’s right to pursue actual damages for the Company’s failure to deliver certificates representing any Shares as required by this Amendment, and such Signatory Holder shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

(e)Each Signatory Holder, severally and not jointly with the other Signatory Holders, agrees with the Company that such Signatory Holder will sell any Shares pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Shares are sold pursuant to a registration statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificates representing Shares as set forth in this Section 6 is predicated upon the Company’s reliance upon this understanding.

7.Public Information.  At any time during the period commencing from the six (6) month anniversary of the date hereof and ending at such time that all of the Shares may be sold without the requirement for the Company to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, if the Company shall fail for any reason to satisfy the current public information requirement under Rule 144(c) (a “Public Information Failure”) then, in addition to such Signatory Holder’s other available remedies, the Company shall pay to a Signatory Holder, in cash, as partial liquidated damages and not as a penalty, by reason of any such delay in or reduction of its ability to sell the Shares, an amount in cash equal to $20 per $1,000 of Shares (based on the VWAP of the Common Stock on the Trading Day immediately prior to the date hereof) on the day of a Public Information Failure and on every thirtieth (30th) day (pro rated for periods totaling less than thirty days) thereafter until the earlier of (a) the date such Public Information Failure is cured and (b) such time that such public information is no longer required  for the Signatory Holders to transfer the Shares pursuant to Rule 144.  The payments to which a Signatory Holder shall be entitled pursuant to this Section 7(b) are referred to herein as “Public Information Failure Payments.”  Public Information FailurePayments shall be paid on the earlier of (i) the last day of the calendar month during which such Public Information FailurePayments are incurred and (ii) the third (3rd) Business Day after the event or failure giving rise to the Public Information FailurePayments is cured.  In the event the Company fails to make Public Information FailurePayments in a timely manner, such Public Information FailurePayments shall bear interest at the rate of 1.5% per month (prorated for partial months) until paid in full. Nothing herein shall limit such Signatory Holder’s right to pursue actual damages for the Public Information Failure, and such Signatory Holder shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

8.Public Disclosure.  On or before 9:30 am (New York City time) on the first Trading Day immediately following the date hereof, the Company shall file a Current Report on Form 8-K, reasonably acceptable to the Signatory Holders disclosing the material terms of the transactions contemplated hereby and attaching this Amendment as an exhibit thereto.

9.Reference to the Debentures and Warrants.  On and after the date hereof, each reference to “this Debenture,” “Warrant,” “hereunder,” “hereof,” “herein,” or words of like import shall mean and be a reference to the Debenture and Warrants as amended hereby.  No reference to this Amendment need be made in any instrument or document at any time referring to the Debenture or Warrants, a reference to the Debenture or Warrants in any such instrument or document to be deemed to be a reference to the Debenture or Warrants as amended hereby.

10.Effect on Transaction Documents.Except as expressly set forth above, all of the terms and conditions of the Debenture, Warrants and the Transaction Documents shall continue in full force and effect after the execution of this Amendment and shall not be in any way changed, modified or superseded by the terms set forth herein.  Notwithstanding the foregoing, this Amendment shall be deemed for all purposes as an amendment to the Debenture and Warrants as required to serve the purposes hereof, and in the event of any conflict between the terms and provisions of the Debenture and Warrants, on the one hand, and the terms and provisions of this Amendment, on the other hand, the terms and provisions of this Amendment shall prevail.

11.Amendments and Waivers. The provisions of this Amendment can be amended or waived in the manner permitted under the Debenture and Warrants.

12.Execution. This Amendment may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

13.Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of this Amendment shall be determined pursuant to the Governing Law provision of the Purchase Agreement.

14.Entire Agreement.  This Amendment contains the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into this Amendment.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized signatories as of the date first indicated above.

INFERX CORPORATION, INC.

By:/s/ B.K. Gogia___________________

     Name: B.K. Gogia

     Title: Secretary and Chairman

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

[SIGNATURE PAGE OF HOLDERS TO NRFX AMENDMENT]

Name of Holder: __________________________

Signature of Authorized Signatory of Holder: __________________________

Name of Authorized Signatory: _________________________

Title of Authorized Signatory: __________________________

[SIGNATURE PAGES CONTINUE]

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CONDENSED CONSOLIDATED BALANCE SHEETS [PARENTHETICAL] (USD $)	Jun. 30, 2011	Dec. 31, 2010
Discount on convertible debt (in dollars)	$ 0	$ 0
Preferred stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock,shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized	400,000,000	400,000,000
Common stock, shares issued	18,328,335	17,292,996
Common stock, shares outstanding	18,328,335	17,292,996
Convertible Redeemable Preferred Stock Series B
Preferred stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	1,100,000	1,100,000
Preferred stock, shares issued	550,000	0
Preferred stock,shares outstanding	0	0

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
REVENUE	$ 851,021	$ 1,316,607	$ 1,882,357	$ 2,708,665
COST OF REVENUES
Direct labor and other finges	132,471	322,719	280,180	619,283
Subcontractor	425,563	808,699	936,097	1,803,301
Other direct costs	8,481	24,031	25,165	46,008
Amortization of computer software development costs	0	16,222	0	32,444
Total costs of revenues	566,515	1,171,671	1,241,442	2,501,036
GROSS PROFIT	284,507	144,936	640,916	207,629
OPERATING EXPENSES
Indirect and overhead labor and fringes	368,414	267,794	735,725	642,321
Professional fees	116,620	13,598	190,574	122,388
Business development costs	3,483	(1,751)	4,892	9,606
Rent	21,591	21,258	44,037	46,608
Advertising and promotion	11,374	1,875	18,150	27,040
General and administrative	16,463	38,057	44,702	75,400
Stock based compensation	60,552	119,051	160,193	119,051
Depreciation	4,461	6,354	9,975	14,769
Total operating expenses	602,959	466,236	1,208,249	1,057,183
NET INCOME (LOSS) FROM OPERATIONS BEFORE OTHER EXPENSE AND PROVISION FOR INCOME TAXES	(318,452)	(321,300)	(567,333)	(849,554)
OTHER INCOME (EXPENSE)
Amortization of debt discount	0	(63,819)	0	(105,316)
Fair value adjustment on derivative liability	(900,930)	132,368	(606,930)	19,868
Interest expense, net of interest income	(15,680)	(21,315)	(31,279)	(30,804)
Total other income (expense)	(916,610)	47,234	(638,209)	(116,252)
NET INCOME (LOSS) FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES	(1,235,063)	(274,066)	(1,205,543)	(965,806)
Provision for income taxes	0	0	0	0
NET INCOME (LOSS) APPLICABLE TO SHARES	$ (1,235,063)	$ (274,066)	$ (1,205,543)	$ (965,806)
NET INCOME (LOSS) PER BASIC SHARES	$ (0.07)	$ (0.05)	$ (0.07)	$ (0.16)
NET INCOME (LOSS) PER DILUTED SHARES	$ (0.07)	$ (0.05)	$ (0.07)	$ (0.16)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC (in shares)	17,741,713	6,079,888	17,741,713	6,079,888
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED (in shares)	31,745,170	15,583,888	31,158,547	15,583,888

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DOCUMENT AND ENTITY INFORMATION	6 Months Ended
	Jun. 30, 2011	Aug. 09, 2011
Entity Registrant Name	INFERX CORP
Entity Central Index Key	0001329548
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Trading Symbol	nfrx
Entity Common Stock, Shares Outstanding		19,032,236
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2011
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2011

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LINE OF CREDIT

6 Months Ended

Jun. 30, 2011

Line Of Credit Disclosure [Abstract]

Line Of Credit Disclosure [Text Block]

NOTE 7- LINE OF CREDIT

The Company has a line of credit with a bank in the amount of $850,000 as of June 30, 2011. The Company has an outstanding balance of $341,587as of June 30, 2011.

The loan accrues interest at annual interest rates of prime plus ¼ %. Interest expense for the six months ended June 30, 2011 and 2010 respectively was $5,612 and $5,762. The line of credit is secured by the Company’s accounts receivables and personally guaranteed by the Company’s President.

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PROVISION FOR INCOME TAXES

6 Months Ended

Jun. 30, 2011

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

NOTE 12- 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 June 30, 2011, deferred tax assets consist of the following:

Net operating losses	$	1,249,439
Valuation allowance	$	(1,249,439	)
	$	-

At June 30, 2011, the Company had net operating loss carry forward in the approximate amount of $3,674,822, available to offset future taxable income through 2031.  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 sixmonths ended June 30, 2011 and 2010 is summarized below.

	2011			2010
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	%

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FIXED ASSETS

6 Months Ended

Jun. 30, 2011

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment Disclosure [Text Block]

NOTE 3- FIXED ASSETS

Fixed assets consist of the following as of June 30, 2011 (unaudited) and December 31, 2010, respectively:

	Estimated Useful	June 30,			December 31
	Lives (Years)	2011			2010
Computer equipment	5	$	299,915		$	299,915
Office machinery and equipment	5		15,099			15,099
Furniture and fixtures	5		86,934			86,934
Computer software	3		14,895			14,895
Automobile	5		50,914			50,914
			467,757			467,757
Less: Accumulated depreciation			(455,126	)		(445,151	)
Total, net		$	12,631		$	22,606

Depreciation expense was $9,975and $14,769for the six months ended June 30, 2011 and 2010, respectively.

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CONVERTIBLE PREFERRED STOCK AND WARRANTS - SERIES B

6 Months Ended

Jun. 30, 2011

Convertible Preferred Stock and Warrants - Series B [Abstract]

Convertible Preferred Stock and Warrants - Series B [Text Block]

NOTE 9- CONVERTIBLE PREFERRED STOCK AND WARRANTS – SERIES B

In June 2011, the Board of Directors authorized the issuance of up to 1,100,000 shares of Series B 10% convertible voting preferred stock (“Series B Shares”) having a stated value of $.50 per share. The Series B shares are valid for 24 months from the date of issuance and are convertible at any time, at the option of the holder, into common shares at a rate of 1:1.  Interest will be paid annually, either in cash or in common stock at the Company’s discretion based on the 30 day bid-price moving average.  At the end of the 24 month term the Company will convert all outstanding Series B Shares and pay all outstanding interest in cash or in common stock based on the 30 day bid-price moving average.

In addition to the convertible preferred shares, each purchaser of the Series B Preferred Stock was issued an equal number of warrants (“Series B Warrants”) to purchase common stock at a price of $.75 per share that expire 2 years from the issued date.

Upon any liquidation or dissolution of the Company, the Series B shareholders shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to 100% of the stated value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages owing thereon, for each Series B share before any distribution or payment shall be made to the holders of any other securities, and if the assets of the Company shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Series B shareholders shall be ratably distributed among the Series B shareholders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.

In June 2011, the Company issued 450,000 Series B shares at $.50 per share to accredited investors in private placement for a total of $225,000.

As a result of the mandatorily redeemable nature of the Series B shares after 24 months and the fact that redemption of the Series B shares is completely outside of the Company’s control, aside from its liquidation or termination, the Company has classified the Series B shares outside of shareholders’ equity and in mezzanine (temporary) equity in accordance with ASC 480-25-4 regarding distinguishing liabilities from equity for mandatorily redeemable financial instruments.

The Company accounted for the Series B Warrants as embedded derivatives that are required to be bifurcated from the carrying value of the equity instrument (Series B Shares).  The relative fair value of the Series B Warrants of $105,930 is shown as a discount to the Series B Shares and will be amortized evenly over the 24-month life of the shares.  In event that the holder converts any portion of their shares prior to the deadline, the appropriate remaining discount will be expensed immediately.

The Company accounted for the beneficial conversion feature (“BCF”) of the Series B Shares at fair value and is shown as part of the derivative liability.  The value of the BCF is $150,930 and will be adjusted quarterly.  The initial step of the calculation was the determination of the Black-Scholes value assuming no dividends, a risk-free interest rate of 1.25%, annualized volatility of 315.69%, and expected warrant life of two years.  The next step was apportioning the percent of the fair value of the Series B Shares to the fair value of the Series B Shares and Warrants (52.9%) to the proceeds received ($225,000).  This then provided enough information to determine the effective BCF of the Series B Shares.  The relative fair value of the proceeds received isas follows: Series B Preferred: $119,070; Series B Warrants: $105,930.

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MAJOR CUSTOMERS

6 Months Ended

Jun. 30, 2011

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

NOTE 14- MAJOR CUSTOMERS

For the six months ended June 30, 2011 the Company has derived 91% of its revenue from one customer. This customer is responsible for three separate contracts that the Company is engaged under, and the Company does not believe that there is any customer concentration risk associated with this customer.A major customer is a customer that represents 10% of total revenues.

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STOCKHOLDERS' EQUITY (DEFICIT)

6 Months Ended

Jun. 30, 2011

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

NOTE 10- 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 as of December 31, 2009 has authorized the issuance of 2,000,000 shares of preferred stock. 1,000,000 of the shares were authorized to be issued to Vijay Suri in connection with the Merger Agreement, and 1,000,000 shares of preferred stock were authorized to be issued to B.K. Gogia the former CEO upon his resignation as CEO.  The Company and Vijay Suri and B.K. Gogia on June 2, 2010, agreed to rescind the issuance of the preferred stock.  As a result of the recession, the Company and its officers agreed to issue them each 1,000,000 shares of common stock for their personal guarantees of certain debt of the Company.

Common Stock

The Company was incorporated on May 26, 2005, and since then the Board of Directors authorized 75,000,000 shares of common stock with a par value of $0.0001.  On March 13, 2009, the Company’s Board of Directors approved the increase of the authorized shares of common stock to 400,000,000.

The Company as of June 30, 2011had 18,328,335 shares of common stock issued and outstanding.

During the six months ended June 30, 2011 the Company has issued 1,035,339 shares of common stock. Shares of common stock issued and outstanding are as follows: 302,219 shares of stock issued for $68,000; 75,000 shares of the Company’s common stock as payment for of Tangiers Investors LP’s forbearance; 23,750 shares of the Company's common stock to two vendors for the conversion ofoutstanding debt; 10,000 shares to a consultant in exchange for services; 331,370 shares of stock in conversion of $50,000 of convertible debentures and $16,274 in accrued interest on the convertible debentures; and 293,000 shares of common stock in stock-based compensation.  The Company has an outstanding liability for stock to be issued of $86,582 at June 30, 2011.

During the year ended December 31, 2010 the Company has issued 13,372,351 shares of common stock as follows: 9,089,768 shares that were issued for the 100% exchange in the Irus transaction; 300,000 shares for services rendered that were also previously recorded as a liability for stock to be issued; 142,500 shares under a pledge agreement with Tangiers L.P.; and 5,000 shares for services rendered that were previously recorded as a liability for stock to be issued; and the Company cancelled a net of 5,000 shares (issued 45,000 shares and cancelled 50,000 shares); 90,083 shares to pay an existing accounts payable, 2,300,000 shares recorded as a liability for stock to be issued; 350,000 shares for late fees associated with missed payments; 1,000,000 shares for cash in the amount of $2,000; and 100,000 shares for late fees associated with missed payments.  The Company has an outstanding liability for stock to be issued, net of issuances of shares that reduced the liability of $44,750 at December 31, 2010. The Company recorded an additional $289,835 in stock based compensation, which includes $25,491 related to the Class C warrants that were reclassified as loss on extinguishment of debt.

From January 1, 2009 through October 27, 2009, the period prior to the reverse merger with Irus Group, the following transactions occurred:

· The Company effectuated a reverse 1:20 stock split. All shares of common stock have been reflected with the 1:20 reverse split, retroactively in accordance with SAB Topic 14C;

· 1,875,000 shares of common stock were issued in conversion of $393,500 in convertible notes, interest and warrants that were issued with the convertible notes;

· 617,500 shares of common stock were issued for cash in the amount of $135,000;

· 187.500 shares of common stock were issued for services rendered valued at $53,000;

· 232,940 shares of common stock were issued in connection with the exercise of warrants issued in the prior financing that InferX completed in 2007.  The Company valued these warrants at $2,236,224, which is what the exercise price would have been had the warrants been exercised for cash.  The Company provided the warrant holders a cashless exercise as a result of the Merger; and

· 100,750 shares of common stock were issued in the exercise of stock options for $0, as a result of the Merger, no cash was required.

The transactions resulted in the Company going from 886,955 shares issued and outstanding to 3,920,645 shares.

Additional items impacting equity prior to the reverse merger were:

· Conversion of accrued interest to additional paid in capital in the amount of $45,913; and

· Conversion of accrued compensation to related parties to additional paid in capital, as a result of their forgiveness of the accrued compensation in the amount of $524,226.

The Merger Agreement called for the Company to issue 9,089,768 shares of common stock in exchange for 100% of the shares of Irus Group.

For the six months ending June 30, 2011, the Company recorded $160,193 in stock based compensation.

Warrants

The Company prior to the reverse merger with Irus Group converted all of their previous issued and outstanding warrants from the private placement completed in 2007 as well as the warrants issued with the convertible notes.

The Company issued 225,000 Class A warrants and 60,000 Class B warrants in connection with the convertible debenture on December 23, 2009.  The Class A warrants have an exercise price of $0.20 per share and the Class B warrants have an exercise price of $0.50 per share.  All warrants have a term of 5 years.  The value of the warrants at inception was $98,130 which represented the debt discount.  The Class B warrants exercise price was amended on July 9, 2010 to a price of $0.20 due to the Company’s failure to convert or repay the instrument by June 23, 2010.

The Company issued 15,000 Class A warrants and 4,000 Class B warrants to an individual investor in connection with the convertible debenture first entered into on April 1, 2010.  The Class A warrants have an exercise price of $0.20 per share and the Class B warrants have an exercise price of $0.50 per share.  All warrants have a term of 5 years.  The value of the warrants at inception was $8,855 which represented the debt discount.

The Company issued 150,000 Class A warrants and 40,000 Class B warrants to an individual investor in connection with the convertible debenture first entered into on April 19, 2010.  The Class A warrants have an exercise price of

$0.20 per share and the Class B warrants have an exercise price of $0.50 per share.  All warrants have a term of 5 years.  The value of the warrants at inception was $63,140 which represented the debt discount.

The Company issued 150,000 warrants to an investment banker as part of their overall compensation package to raise funds for the Company.  The warrants have an exercise price of $0.20 per share and expire in 5 years.  These warrants have vested as of December 31, 2010, and have recorded $28,402 as of December 31, 2010 in stock-based compensation.

The Company issued 900,000 warrants to an investment consultant as part of their overall compensation package to raise funds for the Company.  These warrants have an exercise price of $0.20 per share and expire in 5 years.  These warrants vest with 400,000 over one year beginning in July 2010, and the balance of 500,000 warrants vest based upon achievement of performance objectives mutually agreed between the Company and the Consultant.  The Company incurred $26,933 in stock-based compensation expense to record the first two scheduled vestings of 100,000 warrants in July 2010 and October 2010.The third scheduled vesting occurred in January 2011 and the $18,997 was recorded as stock based compensation in the six months ended June 30, 2011. The contract was terminated on February 25, 2011 and 300,000 warrants are vested and the remaining 600,000 warrants are forfeited.

The Company issued 4,500,000 warrants to B.K. Gogia as part of his overall compensation package.  These warrants have an exercise price of $0.20 per share and expire in 5 years.  These warrants vest based upon achievement of performance objectives mutually agreed between the Company and the Employee and the stock price being not less than $0.50 per share.  None of these warrants have vested as of June 30, 2011.

The Company issued 300,000 warrants to an individual in exchange for services previously rendered and recorded.  These warrants have an exercise price of $0.20 per share, expire in five years and became fully vested in April 2010. The values of these warrants were $104,736.

As a result of the Company’s failure to comply with the repayment terms of the three convertible debentures, the Company issued Class C Warrants to the three debenture holders.  The Company issued a total of 260,000 Class C Warrants with an exercise price of $0.40 and a 5 year term.  The value of these warrants has been expensed and classified as a loss on extinguishment of debt due to the fact that it was considered a material modification of the debt instrument.  This value is $25,491 on the Class C Warrants.

The Company issued 450,000 warrants as part of the transaction associated with the sale of the Convertible Preferred Series B shares at a price of $.75 per share that expire 2 years from the issued date (see Note 9)

The following is a breakdown of the warrants:

		Exercise		Date
Warrants		Price		Issued	Term
	225,000	$	0.20	12/23/2009	5 years
	60,000	$	0.50	12/23/2009	5 years
	150,000	$	0.20	1/26/2010	5 years
	15,000	$	0.20	4/1/2010	5 years
	4,000	$	0.50	4/1/2010	5 years
	300,000	$	0.20	4/6/2010	5 years
	4,500,000	$	0.20	4/6/2010	5 years
	300,000	$	0.20	4/6/2010	5 years
	150,000	$	0.20	4/19/2010	5 years
	40,000	$	0.50	4/19/2010	5 years
	150,000	$	0.40	11/30/2010	5 years
	110,000	$	0.40	12/29/2010	5 years
	450,000	$	0.75	6/15/2011	2 years
	6,454,000

The warrants have a weighted average price of $0.27.

The warrants were valued utilizing the same Black–Scholes criteria as the options below:

Options

Since October 2007, the Company’s Board of Directors and Shareholders approved the adoption of an option plan for a total of 5,000,000.  The Company prior to the reverse merger with Irus exercised all of the options that were outstanding at the time.  Subsequent to the reverse merger, the Company issued stock options in connection with certain employment agreements.  The Company granted 3,250,000 options, 2,950,000 are vested, and none of which have been exercised as of December 31, 2009.  As of December 31, 2010, an additional 150,000 became vested, and still none were exercised.  Of the 3,250,000 that were granted only 150,000 remain unvested, and these vest on December 15, 2011.

The total options granted as of December 31, 2010 were 5,134,500, of which 4,439,500 are vested and none have been exercised.

During the six months ended June 30, 2011, the Company granted an additional 545,000 options to purchase shares of common stock.  Of this amount, 195,000 vested as of June 30, 2011. None of these options have been exercised as of June 30, 2011.

The total options granted as of June 30, 2011 were 5,679,500, of which 4,689,500 are vested and none have been exercised.

These options have exercise prices that range from $0.06 to $0.50 and were valued based on the Black-Scholes model with the following criteria:

Strike Price	$ 0.06 – 0.50
Expected Life of Option	3 - 5 yr.
Annualized Volatility	261.60 -340.19%
Discount Rate	1.25 %
Annual Rate of Quarterly Dividends	None

The value attributable to these options that vested for the six months ended June 30, 2011 is $98,136 and is reflected in the condensed consolidated statements of operations as stock based compensation.

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CONVERTIBLE DEBENTURES

6 Months Ended

Jun. 30, 2011

Convertible Debentures Disclosure [Abstract]

Convertible Debentures Disclosure [Text Block]

NOTE 8- CONVERTIBLE DEBENTURES

On December 23, 2009, the Company entered into a Debenture and Warrant Purchase Agreement pursuant to which Street Capital, LLC, the placement agent, agreed to use its best efforts to provide bridge financing through unnamed prospective purchasers in return for an 8% secured convertible debenture (“Debenture”) in the principal amount of $300,000 at a conversion price of $0.20 per share of the Company’s common stock and equity participation in the form of a class A common stock purchase warrant to purchase an aggregate of up to 450,000 shares of the Company’s common stock with an exercise price of $0.20, and a class B common stock purchase warrant to purchase an aggregate of up to 120,000 shares of the Company’s common stock, with an exercise price per share equal to $0.50. On July 9, 2010, the exercise price was changed to $0.20 as the Company failed to convert or repay the instrument by the due date of June 23, 2010.  The Company received $150,000 of the $300,000 total principal on December 23, 2009 and entered into two additional debentures for $100,000 and $10,000 for a total of $110,000 in April 2010.

The Company also entered into a Security Agreement pursuant to which it granted to the Debenture holders a first lien against all of its assets, including its software, as security for repayment of the Debenture.  As a result of the Company raising $260,000 of the $300,000 in proceeds, they issued a total of 390,000 class A and 104,000 class B warrants to the respective parties.  In accordance with ASC 470-20, the Company separately accounted for the conversion feature and recognized each component of the transaction separately.  As a result, the Company recognized a discount on the convertible debenture in the amount of $170,125 that was amortized over the life of the convertible debentures which was six-months on each debenture.

The Company recognized the discount as a derivative liability, and in accordance with the ASC, values the derivative liability each reporting period to market as a result of the debentures reaching maturity with no repayment or conversion.  The Company had recognized a loss of $121,953 and $121,922 in the years ended December 31, 2010 and 2009 due to the beneficial conversion of the various instruments and a loss of $606,930 in the six months ended June 30,2011.  The convertible debentures were to mature from June 2010 to October 2010.  The Company entered into an Amendment to Debenture and Warrants which extended the due date of the original $150,000 debenture from June 2010 to August 31, 2010 and amended the exercise price of the Class B warrants from $0.50 to $0.20 on July 9, 2010.

The Company is in continuing discussions with a debenture holder to extend the amended due date of  their$150,000 debenture from April 30, 2011 to a future date to be acceptable to all parties.  The Company entered into a Second Amendment on September 1, 2010, that further extended the repayment date of the $150,000 Convertible Debenture to October 31, 2010 and issued 150,000 shares of common stock and 150,000 Class C Warrants as a penalty. The Company failed to comply with the new maturity date of October 31, 2010 and as a result agreed to issue 25,000 shares of common stock for each month that the debenture remains unpaid.  The debenture holder converted $20,000 of principal for shares of common stock on January 19, 2011 and $30,000 on May 19, 2011.  All outstanding interest on the associated conversion dateswere converted into shares of common stock.

The Company is in continuing discussions with the one of the two remaining debenture holders to amend the due date of their $100,000 convertible debenture from April, 1 2011.  Currently, the convertible debenture is in default.  The Company has extended this debenture from its original date of October 31, 2010 to April 1, 2011 by issuing the holder 100,000 Class C warrants and issuing100,000penalty shares.The Company was forced to issue the Class C warrants in addition to the shares of common stock, due to the non-compliance of the agreements.  The modifications made to the debt instruments, constituted a material modification and as a result, the original debt instrument was extinguished and the new debtinstrument was recorded, with the resulting value of the penalty shares and warrants reflected as a loss on extinguishment.

The third and final debenture has been amended from its original maturity date to September 30, 2011.  The Company extended the debenture from its original date of October 31, 2010 to April 1, 2011 by issuing the holder 10,000 Class C warrants and issuing 10,000 penalty shares.  The Company was forced to issue the Class C warrants in addition to the shares of common stock, due to the non-compliance of the agreements.  The modifications made to the debt instruments, constituted a material modification and as a result, the original debt instrument was extinguished and the new debtinstrument was recorded, with the resulting value of the penalty shares and warrants reflected as a loss on extinguishment.In exchange for the debenture holder extending the debenture from April 1, 2011 to September 30, 2011 the Company issued 10,000 shares of common stock.

The outstanding principal balance on all convertible debentures is $210,000 as of June 30, 2011.

Interest expense for the six months ended June 30, 2011 and 2010 was$9,328 and $7,717, respectively.  As of June 30, 2011, accrued interest on the convertible debentures was $11,520.

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ORGANIZATION AND BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 2011

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

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, 2010 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 Corporation 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 Corporation I, was engaged in organizational efforts and obtaining initial financing.

On May 17, 2006, Black Nickel Acquisition Corporation 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 Corporation I effected a short-form merger of InferX Virginia with and into Black Nickel Acquisition Corporation I, pursuant to which the separate existence of InferX Virginia terminated and Black Nickel Acquisition Corporation I changed its name to InferX Corporation (“InferX” or the “Company”).

The transaction was recorded as a recapitalization under the purchase method of accounting, as InferX became the accounting acquirer. The reported amounts and disclosures contained in the consolidated financial statements are those of InferX Corporation, the operating company.

InferX was incorporated under the laws of Delaware in 1999. On December 31, 2005, InferX and Datamat Systems Research, Inc. (“Datamat”), a company incorporated in 1992 under the corporate laws of the Commonwealth of Virginia executed an Agreement and Plan of Merger (the “Merger”). InferX and Datamat had common majority 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 provided services and software to the United States government and to commercial entities as well.

On March 16, 2009, the Company entered into an agreement and plan of reorganization (the “Merger Agreement”) with the Irus Group, Inc. (“Irus”) under which it effected a reverse triangular merger between Irus and the Company’s wholly-owned subsidiary, Irus Acquisition Corp. (formed for the purpose of completing this transaction).  The Merger Agreement was then amended on June 15, 2009 (the “First Amended and Restated Agreement”) to reflect the change in the amount of the shares issued to Irus in the transaction.

Under the terms of the First Amended and Restated Agreement, the issued and outstanding shares of Irus common stock was automatically converted into the right to receive 56% of the issued and outstanding shares of the Company’s common stock.

The Merger Agreement also provides that, at the effective time of the Merger, the Company’s Board of Directors agreed to appoint Vijay Suri, President and CEO of the Company and have Vijay Suri fill a vacancy on its Board of Directors. In addition, effectiveness of the Merger Agreement is conditional upon (i) the Company restructuring existing debt by converting the existing debt and warrants to common stock with the intention of having no more than 57-60 million shares of its common stock outstanding prior to a reverse split of not less than 1:10; (ii) the Company using its best efforts to reduce its accounts payable by 70%, (iii) Vijay Suri, President and CEO of The Irus Group executing an employment agreement with the Company, and (iv) additional customary closing conditions relating to delivery of financial statements, closing certificates as to representations and warranties, and the delivery of any required consents or government approvals.

In accordance with the merger, the Company on July 27, 2009 filed a Schedule 14C with the Securities and Exchange Commission. The Schedule 14C, contained two proposals; to increase the authorized common shares from 75,000,000 to 400,000,000 and to reverse split the common stock on a 1:20 basis. All share and per share amounts have been presented on a post-split basis.

On October 27, 2009, the Company and Irus completed the Merger. As consideration for the Merger, the Company issued 9,089,768 shares of common stock to Vijay Suri, the sole stockholder of Irus. As part of their employement agreementssigned on 27 October 2009, both Vijay Suri and B.K. Gogia, each were issued 1,000,000 shares of preferred stock.  On June 2, 2010, the Board rescinded the 1,000,000 shares of preferred stock and issued Vijay Suri and B.K. Gogia 1,000,000 shares of common stock in recognition of their personal guarantee of certain corporate debt of the Company.

Irus was a consulting firm advising on the planning, implementation and development of complex business intelligence and corporate performance management systems.Irus has successfully implemented projects across a broad cross-section of clients in the government, financial services, retail, manufacturing, and telecommunications markets. Irus has provided business solutions for many large clients, including MasterCard, JP Morgan Chase, ConAgra, and the US Navy, and collaborated with a wide range of technology partners including Oracle, IBM/Cognos and Microsoft.

The Merger with Irus was accounted for as a recapitalization under the purchase method of accounting, as Irus became the accounting acquirer. The reported amounts and disclosures contained in the consolidated financial statements are those of Irus, the operating company. In the transaction, Irus assumed the technology of the Company as well as the liabilities.

Effective July 1, 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted Accounting Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification superseded all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification is non-authoritative. The FASB will not issue new standards in the form of Statements, FASB Positions or Emerging Issue Task Force Abstracts. Instead, it will issue Accounting Standards Updates (“ASUs”).

The FASB will not consider ASUs as authoritative in their own right. ASUs will serve only to update the Codification, provide background information about the guidance and provide the bases for conclusions on the change(s) in the Codification. References made to FASB guidance throughout this document have been updated for the Codification.

Going Concern

As shown in the accompanying condensed consolidated financial statements the Company has incurred a net loss of $1,205,543 and $965,806 for the six months ended June 30, 2011 and 2010, and has a working capital deficiency of $4,535,024 as of June 30, 2011.  Although the Company incurred a larger net loss during the six months ended June 30, 2011 than the same period last year, the Company enjoyed an increase to both its gross and operating profits of $433,287and $282,221, respectively.  From this perspective the Company is substantially more profitable than the same period in 2010 and a large portion of the overall net loss increase can be attributable to a rise in the uncontrollable fair value adjustment ofthe derivative liability.  The revenues for the six months ended 2011 compared to the same period in 2010 declined, however the Company was able to decrease its direct labor costs as a percentageof revenue by 36% which is the key factor in the increased gross profit.

In addition to the adjustment on the derivative liability expense other factors affecting our overall recurring losses and working capital deficiencies include the move by the federal government to convert contract support spaces to employees.  This is negatively impacting our labor rates, hours billed, and ability to expand current contracts.  Further, the federal government’s inability to negotiate and implement a comprehensive federal budget has directly impacted our success in acquiring new profitable government contracts.  Combined with the continued uncertainty in the commercial market due to the sustained national down-turn in business and associated flat recovery has increased sales cycles and reduced sales opportunities.  Additionally, the Company continues to be constrained by its availability of investment capital to the firm.  The Company expects the negative cash flow from operations to continue its trend through the next six months, however the Company continues to expand current contract revenue backlog and build its pipeline of contracts.  These factors continue to raise doubt about the ability of the Company to continue as a going concern.

Management’s plans to address these conditions include continued aggressive efforts to expand the firm’s current business backlog, byobtainingnew government and commercial contracts, as well as expanding integrator partnerships and new technology.  Commensurate with Management’s aggressive sales development plan; the Company has instituted a comprehensive communications and marketing plan; the hiring of another sales representative and the engagement of an external business development organization.  Management believes that these combined efforts will significantly improve the success rate of sales closure within the Company’s robust opportunity pipeline.  The Company continues to seek additional capital through the sale of the Company’s stock. Additionally, the executive management team has put into place an aggressive cost and expense savings spending plan to identify and eliminate costs which are directly impacting profitability.

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

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

The Company is subject to certain risks common to technology-based companies in similar stages of development. Principal risks to the Company include uncertainty of growth in market acceptance for its products; history of losses in recent years; ability to remain competitive in response to new technologies; costs to defend, as well as risks of losing patent and intellectual property rights; reliance on limited number of suppliers; reliance on outsourced manufacture of its products for quality control and product availability; uncertainty of demand for its products in certain markets; ability to manage growth effectively; dependence on key members of its management; and its ability to obtain adequate capital to fund future operations.

The 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.

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COMPUTER SOFTWARE DEVELOPMENT COSTS

6 Months Ended

Jun. 30, 2011

Research and Development [Abstract]

Research, Development, and Computer Software Disclosure [Text Block]

NOTE 4- COMPUTER SOFTWARE DEVELOPMENT COSTS

Computer software development costs consist of the following as of June 30, 2011 (unaudited) and December 31, 2010, respectively:

	Estimated Useful	June 30,			December 31,
	Lives (Years)	2011			2010
Computer software development costs	5	$	1,009,243		$	986,724
Less: Accumulated amortization			(986,724	)		(986,724	)
Total, net		$	22,519		$	0

Amortization expense was $0 and $32,444for the six months ended June 30, 2011 and 2010, respectively.

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NOTES PAYABLE

6 Months Ended

Jun. 30, 2011

Notes Payable Disclosure [Abstract]

Notes Payable Disclosure [Text Block]

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 2034.

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.  The Company is not in default and current on its obligation.  The Company has accrued interest at a rate of $38.90 per day.

As of June 30, 2011, the Company has an outstanding principal balance of $347,739.  Interest expense on the SBA loan for the six months ended June 30, 2011 and 2010 respectively was $ 6,898 and $ 7,040.

Tangiers Investors, LP

On February 26, 2010, the Company entered into a Promissory Note with Tangiers Investors, LP in the amount of $40,000. The $40,000 was the value of services performed for the Company and not for cash paid. The Company has agreed to repay the note in two tranches of $20,000. The initial payment was due April 30, 2010 and the final payment was due June 30, 2010. Interest is calculated at 5% per annum.

In August 2010, upon failure of the Company to pay either of the agreed upon payments, the Company and Tangiers Investors, LP entered into a Forbearance Agreement, which gave the company the option to either repay the entire $40,000 plus interest by October 15, 2010 and issue 50,000 common shares, repay $15,000 plus interest by October 15, 2010 and issue 50,000 common shares with the remaining $25,000 plus interest due by December 31, 2010 or repay the entire $40,000 plus interest by December 31, 2010 and issue 100,000 common shares.  As a result of the Company’s failure to comply with the terms of the original forbearance agreement, they entered into a second forbearance agreement, which further extended the time for the Company to pay the $40,000 note.  The Company again failed to repay the note by the extended date, and was forced to issue additional shares in December 2010, in accordance with the agreements.  Additionally, the Company accrued shares for an additional penalty.  Tangiers issued a default notice to the Company on January 20, 2011.  During negotiations for settlement the Company agreed to pay the outstanding debt in full plus outstanding interest.  As a result of the additional shares the Company was forced to issue to Tangiers due to the non-compliance of the forbearance agreements, the modifications made to the debt instrument, constituted a material modification and as a result, the original debt instrument was extinguished and the new debt instrument was recorded, with the resulting value of the penalty shares reflected as a loss on extinguishment.

Interest expense for the six months ended June 30, 2011 and 2010 respectively was $148 and $679.There is no accrued interest as of June 30, 2011.  The Company has issued all of the shares required and repaid the debt in February 2011.

Other

The Company has four notes payable, three($50,000) are convertible into shares of common stock at $0.06 per share at 8% interest, and one note is for $15,000 at 5% interest.All notes mature during 2011.  Interest expense for the sixmonths ended June 30, 2011 and 2010 respectively was $ 2,325and $ 0. The interest accrued as of June 30,.2011on these notes is $4,346.

The following represent the maturities of the notes payable for the next five years – 2011 - $74,250; 2012- $8,450; 2013 - $8,795; 2014 - $9,100; 2015 - $9,465; and thereafter - $302,679.

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RELATED PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2011

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

NOTE 13- RELATED PARTY TRANSACTIONS

The Company has a rent expense in the amount for the six months ended June 30, 2011 and 2010 of $39,000 and $46,608, respectively to a company owned by a relative of an officer of the Company.  In addition, the Company has outstanding fees due the President & CEO of $725,000 as of June 30, 2011 relating to past due distributions prior to the reverse merger.  Further, the Company entered into two separate promissory notes with Vijay Suri during April 2010, in which Mr. Suri loaned the Company a total of $26,000 on April 16, 2010 and $24,600 on April 30, 2010.  The notes were due on December 1, 2010, however, have been extended through September 30, 2011.

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NOTE PAYABLE - RELATED PARTY

6 Months Ended

Jun. 30, 2011

Note Payable Related Party [Abstract]

Note Payable Related Party [Text Block]

NOTE 6- NOTE PAYABLE – RELATED PARTY

In April 2010, the Company entered into two separate promissory notes with the Company’s President who loaned the Company a total of $26,000 on April 16, 2010 and $24,600 on April 30, 2010.  Payments of $1,000 per month commence July 1, 2010 for five months and the balance due on December 1, 2010. Interest is calculated at 1.5% per month; escalating to 2.5% per month should the monthly $1,000 payments not be made timely.  The Company has not made the required $1,000 payments, thus the interest, effective July 1, 2010 on these notes has been accrued at 2.5% per month in accordance with the note agreements.  These notes originally due on December 1, 2010 have been extended through September 30, 2011; and the Company agreed to increase the interest rate to 5%. Interest expense for the six months ended June 30,2011 related to these notesare$1,255 and $238 respectively. As of June 30, 2011, accrued interest on these notes is $2,130.

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SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2011

Subsequent Events [Abstract]

Subsequent Events [Text Block]

NOTE 16- SUBSEQUENT EVENTS

The Board discussed and authorized the issuance of 10,000 shares of its common stock as a payment to a note holder in connection with an extension of a convertible debenture through October 31, 2011.  The Company prepared an amendment to the $10,000 convertible debenture that was held by a note holder and issued an additional 10,000 shares of its common stock to extend the maturity date of the convertible debenture to October 31, 2011.  Subsequently, the note holder converted the orginial principal and interest into shares of Company’s common stock which then extinguished this debt.

The Board discussed and authorized the consulting agreement with a business development consulting firm to provide comprehensive business development and strategy support.  The consulting contract was executed for a one year period, andthe Board authorized a consulting fee of $7,500 per month and the issuanceof 35,000 shares of the company’s common stock to be paid in two equal installatments of 17,500 shares each at the six and twelve month anniversary date of contract start.

The Board discussed and authorized payment of $60,000 to a consultant for legal and business management assistance; and authorizedthe issuance of 300,000 shares of its common stock in lieuof cash payment for servicesrendered since January 2011.

The Board discussed and approved the request by a former employee for the conversion of the salary owed to him amounting to 57,342 shares of the Company's common stock in exchange for the approximately $15,482 in unpaid salary and receipt by the Company of a written release agreement from the former employee of the past due amount owed him by the Company.

The Company issued an additional 75,000 units of convertible preferred stock and warrants, for total proceeds of $37,500.The Company has sold a total of 525,000 units of convertible preferred stock and warrants, for total proceeds of $262,500.

The Company has converted two notes payable, that were convertible into shares of common stock at $0.06 per share at 8% interest.  The Company issued 346,557 shares of common stock for the conversion of $20,793 including accrued interest.

The Board continues to successfully negotiate an extension of the notes issued by the Company to two Debenture Holders with a total principal amount of $200,000, for the extension of the due date of their notes from April 30, 2011 to December 31, 2011.  In consideration of their forbearance and extension of the due date, the Company may be required to pay a penalty and forced to issue shares of the Company's common stock; and further agree to issue shares of the Company's common stockfor unpaid interest on the outstanding principal due each Debenture Holder.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (USD $)	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)	$ (1,205,543)	$ (965,806)
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
Stock based compensation	160,193	62,051
Amortization of debt discount	0	(105,316)
Services rendered for promissory note	0	40,000
Fair value adjustment for derivative liability	606,930	(19,868)
Amortization of computer software development costs	0	32,444
Depreciation	9,975	14,769
Change in assets and liabilities
(Increase) decrease in accounts receivable	(29,807)	134,243
(Increase) in advances	(3,000)	0
(Increase) decrease in other current assets	0	(12,350)
Increase in accounts payable and accrued expenses	365,616	407,777
Increase in liability for stock to be issued	0	66,500
Total adjustments	1,109,907	830,882
Net cash (used in) operating activities	(95,636)	(134,924)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Comp SW Dev	(22,519)	0
Net cash (used in) investing activities	(22,519)	0
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayment) of line of credit, net	0	(16,500)
Proceeds received for shares of common stock and stock liability	68,000	0
(Repayment) of note payable, net	(21,868)	0
Proceeds from notes payable - related parties	0	50,600
Proceeds received from convertible debentures	0	110,000
Proceeds received from convertible preferred	225,000	0
Net cash provided by (used in) financing activities	271,132	144,100
NET INCREASE IN CASH AND CASH EQUIVALENTS	152,977	9,176
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD	32,828	49,989
CASH AND CASH EQUIVALENTS - END OF PERIOD	185,805	59,165
SUPPLEMENTAL INFORMATION OF CASH FLOW ACTIVITY
Cash paid during the year for interest	14,952	0
Cash paid during the year for income taxes	179	0
SUPPLEMENTAL INFORMATION OF NONCASH ACTIVITY
Conversion of accounts payable and accrued expenses for common stock and additional paid in capital or stock liability	89,182	0
Conversion of convertible debentures and accrued interest for common stock and additional paid in capital or stock liability	66,274	0
Stock issued for liability to issue common shares	0	43,692
Warrants issued for settlement of accounts payable	$ 0	$ 104,736

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2011

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The condensed consolidated financial statements include those of the Companyand 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 Companymaintains cash and cash equivalent balances at one financial institution that is insured by the Federal Deposit Insurance Corporation up to $250,000.

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 June 30, 2011, no allowance for doubtful accounts 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 2009 and 2011, the Company capitalized certain software development costs.  The Company capitalizes the cost of software in accordance with ASC 985-20 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, services performed by consultants, and attributable overhead costs.  Amortization of such costs is based on the greater of (i) the ratio of current gross revenues to the sum of current and anticipated gross revenues, or (ii) the straight-line method over the five year economic life of the software, as specified in the technological feasibility study preformed by an independent valuation consultant. in 2006. 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.

During the three months ended June 30, 2011 the Company’s CTO has been administeringsome major modifications to the Company’s core products (i.e. InferAgent, InferText).  At the same time he is also developing an industry specific interface to make the product more end user friendly and more marketable to the general public.  These modifications are in response to specific potential customer needs and we anticipate capitalizing roughly $60,000 - $90,000 more in computer software development costs over the next four to seven months.

For the six months ended June 30, 2011 and 2010, the Company recognized $0 and $32,444of amortization expense on its capitalized software costs, respectively.  Since the Company has yet to complete the software development and major product modifications, no amortization of these costs have occurred in the six months ended June 30, 2011.  Upon completion of the major modifications, amortization will begin accordingly.

Recoverability of Long-Lived Assets

The Company reviews 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

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable.  We enter into certain arrangements where we are obligated to deliver multiple products and/or services (multiple elements).  In these transactions, we allocate the total revenue among the elements based on the sales price of each element when sold separately (vendor-specific objective evidence).  The Company generates revenue from application license sales, application maintenance and support, professional services rendered to customers as well as from application management support contracts with commercial and governmental units.  The Company’s revenue is generated under time-and-material contracts and fixed-price contracts.

The Company’s business is not seasonal in nature.  The timing of contract awards, the availability of funding from the customer, the incurrence of contract costs and unit deliveries are the primary drivers of our revenue recognition.  These factors are influenced by the federal government’s October-to-September fiscal year.  This process has historically resulted in higher revenues in the latter half of the government fiscal year.  Many of our government customers schedule deliveries toward the end of the calendar year, resulting in increasing revenues and earnings over the course of the year.

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.

Stock-Based Compensation

In 2006, the Company adopted the provisions of ASC 718-10 “Share-Based Payments” (“ASC 718-10”) which requires recognition of stock-based compensation expense for all share-based payments based on fair value.  Share-based payment transactions within the scope of ASC 718-10 include stock options, restricted stock plans, performance-based awards, stock appreciation rights, and employee share purchase plans.  This adoption had no effect on the Company’s operations.  Prior to January 1, 2006, the Company measured compensation expense for all of the share-based compensation using the intrinsic value method.

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.  Stock-based compensation expense for all awards granted after January 1, 2006 is based on the grant-date fair values.  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 measures compensation expense for non-employee stock-based compensation under ASC 505-50, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services".  The fair value of the option issued is used to measure the transaction, as this is more reliable than the fair value of the services received.  The fair value is measured at the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete.  The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital.

Concentrations

For the six months endedJune 30, 2011the Company hasderived 91% ofits revenue from one customer. This customer is responsible for three separate contracts that the Company is engaged under, and the Company does not believe that there is any customer concentration risk associated with this 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 ASC 280-10, "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 only operates in one reporting segment as of June 30, 2011 and for the sixmonths ended June 30, 2011 and 2010.

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

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.  The Company values derivative liability only when convertible debt is in default or has matured.

Income Taxes

Under ASC 740 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

Under ASC 740-10-25 recognition and measurement of uncertain income tax positions is required using a “more-likely-than-not” approach. The Company evaluatestheir tax positions on an annual and quarterly basis, and has determined that as of June 30, 2011 no additional accrual for income taxes is necessary.

Earnings (Loss) Per Share of Common Stock

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

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

	Six Months Ended
	June 30,			June 30,
	2011			2010
Net income (loss)	$	(1,205,543	)	$	(965,806	)
Weighted-average common shares outstanding:
Basic		17,741,713			6,079,888
Convertible Notes		833,334			-
Convertible Debenture		1,050,000			1,300,000
Convertible Preferred		450,000			-
Warrants		6,454,000			5,634,000 -
Options		5,679,500			3,870,000
Diluted		32,308,547			16,883,888
Basic net income (loss) per share	$	(0.07	)	$	(0.16	)
Diluted net income (loss) per share	$	(0.07	)	$	(0.16	)

Research and Development

Research and development expenses include payroll, employee benefits, equity compensation, 3rd party payments, and other headcount-related costs associated with product development.  The Company has determined that technological feasibility was established for the software products in 2002 by a study done in 2006 by the independent valuation consultant.Costs incurred after technological feasibility was established are not material, and accordingly, the Company capitalizes all research and development costs when incurred and amortizes those costs over a 5 year period starting on the date the product is available to the market.  All  research and development costs have been included in the condensed consolidated statements of operations for the six months ended June 30, 2011 and 2010, respectively.

Recent Issued Accounting Standards

In September 2006, ASC issued 820, Fair Value Measurements. ASC 820 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 ASC 820 is not expected to have a material impact on the financial statements.

In February 2007, ASC issued 825-10, The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of ASC 320-10 , (“ASC 825-10”) 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. ASC 825-10 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.

In December 2007, ASC 810-10-65, “Noncontrolling Interests in Consolidated Financial Statements,” (ASC 810-10-65), was issued. ASC 810-10-65 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.

ASC 810-10-65 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 ASC 810-10-65 will have on the Company’s financial position, results of operations or cash flows.

In December 2007, the Company adopted ASC 805, Business Combinations (ASC 805). ASC 805 retains the fundamental requirements that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. ASC 805 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.  ASC 805 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.  ASC 805 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.

ASC 805 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, ASC 805 will require an entity to recognize contingent consideration at the date of acquisition, based on the fair value at that date.  This will be effective for business combinations completed on or after the first annual reporting period beginning on or after December 15, 2008.  Early adoption is not permitted and the ASC is to be applied prospectively only. Upon adoption of this ASC, there would be no impact to the Company’s results of operations and financial condition for acquisitions previously completed. The adoption of ASC 805 is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

In March 2008, ASC issued ASC 815, Disclosures about Derivative Instruments and Hedging Activities, (ASC 815). ASC 815 requires enhanced disclosures about an entity’s derivative and hedging activities. These enhanced disclosures will discuss: how and why an entity uses derivative instruments; how derivative instruments and related hedged items are accounted for and its related interpretations; and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. ASC 815 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company does not believe that ASC 815 will have an impact on their results of operations or financial position.

In April 2008, ASC issued ASC 350, “Determination of the Useful Life of Intangible Assets”. This amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under ASC 350. The guidance is used for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after adoption, and the disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent to, adoption. The Company does not believe ASC 350 will materially impact their financial position, results of operations or cash flows.

In May 2008, ASC 470-20, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (ASC 470-20), was issued. ASC 470-20 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate.  ASC 470-20 is effective for fiscal years beginning after December 15, 2008 on a retroactive basis.  The Company does not believe that the adoption of ASC 470-20 will have a material effect on its financial position, results of operations or cash flows.

In June 2008, ASC 815-40, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (ASC 815-40), was issued.  ASC 815-40 provides guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock and it applies to any freestanding financial instrument or embedded feature that has all the characteristics of a derivative.  ASC 815-40 also applies to any freestanding financial instrument that is potentially settled in an entity’s own stock.  The Company is determining what impact, if any, ASC 815-40 will have on its financial position, results of operations and cash flows.

In June 2008, ASC 470-20-65, “Transition Guidance for Conforming Changes to, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”, (“ASC 470-20-65”), was issued. ASC 470-20-65 is effective for years ending after December 15, 2008.  The overall objective of ASC 470-20-65 is to provide for consistency in application of the standard.  The Company has computed and recorded a beneficial conversion feature in connection with certain of their prior financing arrangements and does not believe that ASC 470-20-65 will have a material effect on that accounting.

In May 2009, ASC 855, “Subsequent Events”, (SFAS 165), was published. ASC 855 requires the Company to disclose the date through which subsequent events have been evaluated and whether that date is the date the financial statements were issued or the date the financial statements were available to be issued. ASC 855 is effective for financial periods ending after June 15, 2009.

Effective July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurement and Disclosures (Topic 820) (ASU 2009-05). ASU 2009-05 provided amendments to ASC 820-10, Fair Value Measurements and Disclosures – Overall, for the fair value measurement of liabilities. ASU 2009-05 provides clarification that in circumstances in which a quoted market price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using certain techniques. ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of a liability.

ASU 2009-05 also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required for Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material impact on the Company’s results of operations or financial condition.

In January 2010, the Company adopted FASB ASU No. 2010-06, Fair Value Measurement and Disclosures (Topic 820) - Improving Disclosures about Fair Value Measurements (ASU 2010-06). These standards require new disclosures on the amount and reason for transfers in and out of Level 1 and 2 fair value measurements. The standards also require new disclosures of activities, including purchases, sales, issuances, and settlements within the Level 3 fair value measurements. The standard also clarifies existing disclosure requirements on levels of disaggregation and disclosures about inputs and valuation techniques. These new disclosures are effective beginning with the first interim filing in 2010.

The disclosures about the roll forward of information in Level 3 are required for the Company with its first interim filing in 211.  The Company does not believe this standard will impact their financial statements.

In February 2010, the FASB issued ASU 2010-09, “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements”. This update addresses both the interaction of the requirements of Topic 855, “Subsequent Events”, with the SEC’s reporting requirements and the intended breadth of the reissuance disclosures provision related to subsequent events (paragraph 855-10-50-4). The amendments in this update have the potential to change reporting by both private and public entities, however, the nature of the change may vary depending on facts and circumstances. Adoption of ASU 2010-09 did not have a material impact on the Company’s results of operations or financial condition.

Other ASU’s that have been issued or proposed by the FASB ASC that do not require adoption until a future date and are not expected to have a material impact on the financial statements upon adoption.

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COMMITMENTS

6 Months Ended

Jun. 30, 2011

Commitments and Contingencies Disclosure [Abstract]

Commitments Disclosure [Text Block]

NOTE 11- COMMITMENTS

Office Lease

The Company leases office space in Sterling, Virginia pursuant to a lease with a related party through common ownership which expires in 2013.  The lease provides for an annual rental of approximately $78,000.

Rent expense for the six months ended June 30, 2011 and 2010 was $39,000and $46,608, respectively.

Board of Advisors Agreements

The Company’s board of directors on May 1, 2010, approved the addition of two members to its Board of Advisors. Each of these members provides assistance to the Company with respect to their healthcare solution and predictive technology to prospective banking, insurance and healthcare customers.  As consideration for the placement on the Board of Advisors, the Company has, in addition to quarterly cash payments, granted those options under their 2007 Stock Incentive Plan that vest over a two-year period of time commencing in May 2010.  The Company has included these fees in their condensed consolidated statements of operations for the six months ended June 30, 2011 and 2010.

Consulting Agreements

The Company has entered into consulting agreements with marketing and strategic consulting groups with terms that do not exceed one year.These companies are to be paid fees for the services they perform. The Company has included these fees in their consolidated statements of operations for the six monthsended June 30, 2011 and 2010.

On January 26, 2010, the Company entered into an agreement with Coady Diemar Partners, LLC, an investment banker in connection with investment banking services. Pursuant to the agreement, Coady Diemar Partners, LLC received a retainer of $30,000 payable in two tranches of $15,000 and receive 150,000 warrants as well as receive an 8% fee on amounts raised. The term of the agreement is one-year. The warrants did not vest until June 2010.

In June 2010, the Company entered into a consulting agreement with a company to provide financial services and locate potential investment opportunities. The term of the agreement is for one-year, and the consultant will receive monthly payments of $7,500 as well as be issued 300,000 shares of restricted common stock, and 900,000 warrants that vest over the one-year period and upon certain financing criteria being met.300,000 of the warrants have vested and the Company has included these fees in their condensed consolidated statements of operations for the six months ended June 30, 2011. The agreement terminated in February 2011, and the remaining 600,000 unvested warrants have been cancelled.

In December 2010, the Company entered into an agreement with Strategic Global Advisors, LLC, a firm that provides investment and public relations consulting firm services.  Pursuant to the agreement, Strategic Global Advisors, LLC will receive a retainer of $30,000 payable in four monthly payments of $7,500 and receive 500,000 options to purchase the Company's common stock that vest on the date of grant.  The options were valued at $34,994.  The Company has included these fees in their consolidated statements of operations for the six months ended June 30, 2011.

On March 2, 2011, The Board of Directorsentered into an agreement with Assured Value Advisors, Inc., a merchant and investment banking services consultant in connection with investment banking services. Pursuant to the agreement, Assured Value Advisors, Inc. will receive 500,000 options to purchase shares of the Company's common stock; of which 150,000 ($59,773 in stock based compensation) of these options are to vest immediately, with the remainder to be vested based on performance milestones.

On March 28, 2011, The Board of Directorsgranted two employees45,000 options to purchase shares of the Company's common stock; all of which vested upon grant.  Employees’ grant of options was based on achievement of performance milestones.  The vested options were valued at $13,370.  The Company has included these fees in their condensed consolidated statements of operations for the six months ended June 30, 2011.

On May 2, 2011, The Board discussed and authorized the consulting agreement with a consultant to provide comprehensive technical strategy assessment.  The consulting contract was executed for a two-month period and the the Board authorized a consulting fee of $8,000 and that the Company should issue the consultant 8,000 shares under the consulting agreement.

Employment Agreements

During the year ended December 31, 2009, the Company entered into four separate employment agreements with their key executives.  The employment agreements range in years from 3 to 5, and require the Company to compensate the key executives for a base salary, as well as provide for incentive compensation.  In addition, the executives were granted in total 3,250,000 stock options that vest through December 2011.  The Company also entered into another employment agreement in January 2010 which granted an additional 20,000 options to an employee.  This agreement was for a period of two years.

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FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2011

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

NOTE 15- FAIR VALUE MEASUREMENTS

The Company adopted certain provisions of ASC Topic 820. ASC 820 defines fair value, provides a consistent framework for measuring fair value under generally accepted accounting principles and expands fair value financial statement disclosure requirements. ASC 820’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy:

Level 1 inputs: Quoted prices for identical instruments in active markets.

Level 2 inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 inputs: Instruments with primarily unobservable value drivers.

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)	Jun. 30, 2011	Dec. 31, 2010
ASSETS
Cash	$ 185,805	$ 32,828
Accounts receivable	564,527	534,720
Advance	3,000
Total current assets	753,332	567,548
Fixed assets, net of depreciation	12,631	22,606
Other Assets
Other assets	6,000	6,000
Computer software development costs, net of amortization	22,519	0
Total other asset	28,519	6,000
TOTAL ASSETS	794,483	596,154
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable and accrued expenses	2,788,657	2,528,497
Line of credit	341,587	341,587
Related party payable	725,000	725,000
Current portion of notes payable, related party	50,600	50,600
Current portion of convertible notes payable	50,000	30,000
Convertible debenture, net of discount of 0 and 0 respectively	210,000	260,000
Derivative liability	1,020,930	414,000
Liability for stock to be issued - common stock	86,582	44,750
Current portion of notes payable	15,000	63,250
Total current liabilities	5,288,356	4,457,684
Long-term Liabilities
Notes payable, net of current portion	347,739	341,357
Total Long-term liabilities	347,739	341,357
TOTAL LIABILITIES	5,636,095	4,799,041
MEZZANINE (TEMPORARY) EQUITY
Total Mezzanine (Temporary) Equity	119,070	0
TOTAL MEZZANINE (TEMPORARY) EQUITY	119,070	0
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock	0	0
Common stock, par value $0.0001 per share, 400,000,000 shares authorized and 18,328,335 and 17,292,996 shares issued and outstanding, respectively	1,833	1,729
Additional paid-in capital	981,831	534,188
Retained earnings (defict)	(5,944,346)	(4,738,804)
Total stockholders' equity (deficit)	(4,960,682)	(4,202,887)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	794,483	596,154
Convertible Redeemable Preferred Stock Series B
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock	225,000	0
Discount on preferred stock, series B
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock	$ (105,930)	$ 0