UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~September~~March 3031, ~~2011~~2012

¨	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
1934 Old Gallows Road
Suite 290
Tysons Corner, VA		22182
Sterling, Virginia		20164-8679
(Address of principal executive offices)		(Zip Code)

(703) 444-6030

(Registrant’s telephone number, including area code)

46950 Jennings Farm Drive, Suite 290, Sterling, VA 20164-8679

(Former Name, Former Address and Former Fiscal Year, if Changes Since Last Report).

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 ¨ No 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 ¨	Accelerated filer ¨

Non-accelerated filer ¨	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 ¨ No x

As of ~~November~~May 1015, ~~2011~~2012, there were 1920,~~648~~669,~~203~~453 outstanding shares of the registrant’s common stock, $.0001 par value ~~per share~~.

~~INFERX~~TABLE ~~CORPORATION~~OF CONTENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

Item	Description	Page

PART I - FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS.	3
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATION.	34
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	40
ITEM 4.	CONTROLS AND PROCEDURES.	40

PART II - OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS.	41
ITEM 1A.	RISK FACTORS	41
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	46
ITEM 3.	DEFAULT UPON SENIOR SECURITIES.	46
ITEM 4.	MINE SAFETY DISCLOSURES.	46
ITEM 5.	OTHER INFORMATION.	46
ITEM 6.	EXHIBITS.	46

~~SEPTEMBER 30, 2011 (UNAUDITED) AND DECEMBER 31, 2010~~2

	SEPTEMBER 30,			DECEMBER 31,
	2011			2010
	(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash	$	121,632		$	32,828
Accounts receivable		573,611			534,720
Advance		2,837			-
Prepaid Expenses		4,668			-
Total current assets		702,748			567,548
Fixed assets, net of depreciation		12,278			22,606
Other Assets
Other assets		6,000			6,000
Computer software development costs, net of amortization		62,037			-
Total other asset		68,037			6,000
TOTAL ASSETS	$	783,063		$	596,154
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	2,911,753		$	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		30,000			30,000
Convertible debenture, net of discount of 0 and 0 respectively		200,000			260,000
Derivative liability		181,026			414,000
Liability for stock to be issued - common stock		143,100			44,750
Current portion of notes payable		15,000			63,250
Total current liabilities		4,598,066			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		4,945,805			4,799,041
MEZZANINE (TEMPORARY) EQUITY
Convertible redeemable preferred stock, series B, par value $.0001 per share; 1,500,000 shares authorized; 906,250 and 0 shares issued, respectively		362,500			-
Discount on preferred stock, series B		(152,696	)		-
Total Mezzanine (Temporary) Equity		209,804			-
TOTAL MEZZANINE (TEMPORARY) EQUITY		209,804			-
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized and no shares issued and outstanding		-			-
Common stock, par value $0.0001 per share, 400,000,000 shares authorized and 19,348,203 and 17,292,996 shares issued and outstanding, respectively		1,935			1,729
Additional paid-in capital		1,230,317			534,188
Retained earnings (defict)		(5,604,798	)		(4,738,804	)
Total stockholders' equity (deficit)		(4,372,546	)		(4,202,887	)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	783,063		$	596,154

PART I - FINANCIAL INFORMATION

~~The~~Item ~~accompanying~~1. ~~notes~~Financial ~~are an integral part of these condensed consolidated financial statements.~~Statements

INFERX CORPORATION

CONDENSED CONSOLIDATED ~~STATEMENTS~~BALANCE ~~OF OPERATIONS~~SHEETS

~~FOR~~MARCH ~~THE~~31, ~~NINE~~2012 ~~MONTHS~~(UNAUDITED) ~~ENDED~~AND ~~SEPTEMBER 30~~DECEMBER 31, 2011 ~~AND 2010 (UNAUDITED)~~

	Nine Months Ended
	March 31,			December 31,
	September 30,
	2012			2011
	2011			2010
	(UNAUDITED)
	(unaudited)
ASSETS
REVENUE	$	2,789,456		$	3,813,288
CURRENT ASSETS
COST OF REVENUES
Cash	$	12,043		$	152,874
Direct labor and other fringes		405,594			911,148
Accounts receivable		326,050			231,822
Subcontractor		1,425,545			2,404,875
Advance		-			-
Other direct costs		33,596			78,421
Prepaid expenses		17,639			2,639
Amortization of computer software development costs		-			48,666
Total current assets		355,732			387,335
Total costs of revenues		1,864,735			3,443,110
Fixed assets, net of depreciation		5,986			7,884
GROSS PROFIT		924,721			370,178
Other Assets
OPERATING EXPENSES
Other assets		6,000			6,000
Indirect and overhead labor and fringes		1,141,067			915,740
Computer software development costs, net of amortization		175,282			129,674
Professional fees		275,345			140,190
Total other asset		181,282			135,674
Business development costs		8,584			11,144
TOTAL ASSETS	$	543,000		$	530,893
Rent		64,821			68,238
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Advertising and promotion		21,560			27,855
CURRENT LIABILITIES
General and administrative		65,331			105,313
Accounts payable and accrued expenses	$	3,231,359		$	3,093,299
Stock based compensation		232,458			198,486
Term loan		341,587			341,587
Depreciation		14,266			20,993
Related party payable		725,000			725,000
Total operating expenses		1,823,432			1,487,959
Notes payable, related party		59,350			50,600
NET INCOME (LOSS) FROM OPERATIONS BEFORE OTHER EXPENSE AND PROVISION FOR INCOME TAXES		(898,711	)		(1,117,781	)
Convertible debenture		199,500			199,500
OTHER INCOME (EXPENSE)
Derivative liability		29,950,837			40,042,463
Amortization of debt discount		(19,266	)		(150,494	)
Liability for stock to be issued - common stock		224,900			18,620
Loss on extinguishment of debt		(127,723	)
Current portion of notes payable		93,657			65,687
Fair value adjustment on derivative liability		232,975			121,922
Total current liabilities		34,826,190			44,536,756
Interest expense, net of interest income		(53,269	)		(43,205	)
Long-term Liabilities
Total other income (expense)		32,717			(71,777	)
Notes payable, net of current portion		339,082			347,052
NET INCOME (LOSS) FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES		(865,994	)		(1,189,558	)
Total Long-term liabilities		339,082			347,052
Provision for income taxes		-			-
TOTAL LIABILITIES		35,165,272			44,883,808
NET INCOME (LOSS) APPLICABLE TO SHARES	$	(865,994	)	$	(1,189,558	)
MEZZANINE (TEMPORARY) EQUITY
NET INCOME (LOSS) PER BASIC SHARES	$	(0.05	)	$	(0.13	)
Convertible redeemable preferred stock, series B, par value $.0001 per share; 1,500,000 shares authorized; 1,156,250 and 906,250 shares issued, respectively		462,500			362,500
NET INCOME (LOSS) PER DILUTED SHARES	$	(0.05	)	$	(0.13	)
Discount on preferred stock, series B		(147,142	)		(131,192	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC		18,158,829			9,112,317
Total Mezzanine (Temporary) Equity		315,358			231,308
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED		33,987,952			9,112,317
TOTAL MEZZANINE (TEMPORARY) EQUITY		315,358			231,308
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized and no shares issued and outstanding		-			-
Common stock, par value $0.0001 per share, 400,000,000 shares authorized and 20,006,203 and 19,998, 203 shares issued and outstanding, respectively		2,000			1,999
Additional paid-in capital		1,839,816			1,658,198
Retained earnings (defict)		(36,779,446	)		(46,244,420	)
Total stockholders' equity (deficit)		(34,937,630	)		(44,584,223	)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	543,000		$	530,893

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

~~INFERX CORPORATION~~3

~~CONDENSED~~INFERX ~~CONSOLIDATED STATEMENTS OF OPERATIONS~~CORPORATION

~~FOR~~CONDENSED ~~THE~~CONSOLIDATED ~~THREE~~STATEMENTS ~~MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 (UNAUDITED)~~OF OPERATIONS

	Three Months Ended
	September 30,
	2011			2010
	(unaudited)
REVENUE		907,099		$	1,104,623
COST OF REVENUES
Direct labor and other fringes		125,414			291,865
Subcontractor		489,448			601,574
Other direct costs		8,431			32,413
Amortization of computer software development costs		-			16,222
Total costs of revenues		623,293			942,074
GROSS PROFIT		283,806			162,549
OPERATING EXPENSES
Indirect and overhead labor and fringes		405,342			273,421
Professional fees		84,771			17,802
Business development costs		3,692			1,538
Rent		20,784			21,630
Advertising and promotion		3,410			815
General and administrative		20,629			29,913
Stock based compensation		72,265			79,435
Depreciation		4,291			6,224
Total operating expenses		615,184			430,778
NET INCOME (LOSS) FROM OPERATIONS BEFORE OTHER EXPENSE AND PROVISION FOR INCOME TAXES		(331,378	)		(268,229	)
OTHER INCOME (EXPENSE)
Amortization of debt discount		(19,266	)		(45,178	)
Loss on extinguishment of debt		(127,723	)
Fair value adjustment on derivative liability		839,905			102,054
Interest expense, net of interest income		(21,990	)		(12,401	)
Total other income (expense)		670,926			44,475
NET INCOME (LOSS) FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES		339,548			(223,754	)
Provision for income taxes		-			-
NET INCOME (LOSS) APPLICABLE TO SHARES	$	339,548		$	(223,754	)
NET INCOME (LOSS) PER BASIC SHARES	$	0.02		$	(0.02	)
NET INCOME (LOSS) PER DILUTED SHARES	$	0.01		$	(0.02	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC		18,158,829			15,078,291
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED		33,987,952			15,078,291

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011 (UNAUDITED)

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

	Three Months Ended
	March 31,
	2012			2011

REVENUE	$	509,729		$	1,031,336

COST OF REVENUES
Direct labor and other fringes		51,232			147,709
Subcontractor		317,913			510,534
Other direct costs		4,315			16,684
Total costs of revenues		373,460			674,927

GROSS PROFIT		136,269			356,409

OPERATING EXPENSES
Indirect and overhead labor and fringes		312,252			367,311
Professional fees		219,219			73,954
Business development costs		385			1,409
Rent		19,500			22,446
Advertising and promotion		1,484			6,776
General and administrative		23,103			28,239
Stock based compensation		140,550			99,641
Depreciation		1,899			5,514
Total operating expenses		718,392			605,290

NET INCOME (LOSS) FROM OPERATIONS BEFORE OTHER EXPENSE AND PROVISION FOR INCOME TAXES		(582,123	)		(248,881	)

OTHER INCOME (EXPENSE)
Amortization of debt discount		(22,800	)		-
Loss on extinguishment of debt		-
Fair value adjustment on derivative liability		10,091,626			294,000
Interest expense, net of interest income		(21,729	)		(15,599	)

Total other income (expense)		10,047,097			278,401

NET INCOME (LOSS) FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES		9,464,974			29,520

Provision for income taxes		-			-

NET INCOME (LOSS) APPLICABLE TO SHARES	$	9,464,974		$	29,520

NET INCOME (LOSS) PER BASIC SHARES	$	0.47		$	0.00
NET INCOME (LOSS) PER DILUTED SHARES	$	0.07		$	0.00

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC		20,001,191			17,496,831

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED		135,622,191			31,263,664

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

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW~~4

~~FOR~~INFERX ~~THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 (UNAUDITED)~~CORPORATION

	Nine Months Ended
	September 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)	$	(865,994	)	$	(1,189,558	)
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
Stock based compensation		232,457			198,486
Amortization of debt discount		19,266			150,494
Services rendered for promissory note		-			40,000
Fair value adjustment for derivative liability		(232,974	)		(121,922	)
Amortization of computer software development costs		-			48,666
Depreciation		14,266			20,993
Change in assets and liabilities
(Increase) decrease in accounts receivable		(38,891	)		-
(Increase) decrease in advances		(2,837	)		281,871
(Increase) decrease in other current assets		-			(17,617	)
Increase in accounts payable and accrued expenses		620,854			458,977
Increase in liability for stock to be issued		-			9,500
Total adjustments		612,141			1,069,448
Net cash (used in) operating activities		(253,853	)		(120,110	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Comp SW Dev		(62,037	)		-
Purchase of Fixed Assets		(3,938	)		-
Net cash (used in) financing activities		(65,975	)		-
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayment) of line of credit, net		-			(16,500	)
Proceeds received for shares of common stock and stock liability		68,000			-
(Repayment) of note payable, net		(21,868	)		-
Proceeds from notes payable - related parties		-			50,600
Proceeds received from convertible debentures		-			110,000
Proceeds received from convertible preferred		362,500			-
Net cash provided by financing activities		408,632			144,100
NET INCREASE IN CASH AND CASH EQUIVALENTS		88,804			23,990
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		32,828			49,989
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	121,632		$	73,979
SUPPLEMENTAL INFORMATION OF CASH FLOW ACTIVITY
Cash paid during the period for interest	$	22,438		$	-
Cash paid during the period for income taxes	$	12,063		$	-
SUPPLEMENTAL INFORMATION OF NONCASH ACTIVITY
Conversion of accounts payable and accrued expenses for common stock and additional-paid-in-capital or stock liability	$	216,905		$	-
Conversion of convertible debentures, notes and accrued interest for common stock and additional-paid-in-capital or stock liability	$	100,691		$	-
Stock issued for outstanding liability for stock to be issued at period beginning	$	44,750		$	43,692
Warrants issued for settlement of accounts payable	$	-		$	104,736

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

~~The~~FOR ~~accompanying~~THE ~~notes~~THREE ~~are~~MONTHS anENDED ~~integral~~MARCH ~~part~~31, 2012 ofAND ~~these~~2011 ~~condensed consolidated financial statements.~~(UNAUDITED)

INFERX CORPORATION

	Three Months Ended
	March 31,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	9,464,974		$	29,520

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Stock based compensation		140,550			99,641
Amortization of debt discount		22,800			-
Services rendered for liability for stock to be issued		208,600			-
Fair value adjustment for derivative liability		(10,091,626	)		(294,000	)
Amortization of computer software development costs		-			-
Depreciation		1,899			5,514
Change in assets and liabilities		-			-
(Increase) decrease in accounts receivable		(94,228	)		(70,724	)
(Increase) decrease in advances		-			-
(Increase) decrease in other current assets		(15,000	)		-
Increase in accounts payable and accrued expenses		138,058			212,237
Total adjustments		(9,688,947	)		(47,332	)
Net cash provided by (used in) operating activities		(223,973	)		(17,812	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in computer software costs		(45,608	)		-
Purchase of Fixed Assets		-			-
Net cash (used in) financing activities		(45,608	)		-

CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayment) of term loan, net		-			-
Proceeds received for shares of common stock		-			68,000
Proceeds from (repayment of) note payable, net		20,000			(21,868	)
Proceeds from notes payable - related parties		8,750			-
Proceeds received from convertible debentures		-			-
Proceeds received from convertible preferred		100,000			-
Net cash provided by (used in) financing activities		128,750			46,132

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(140,831	)		28,320

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		152,874			32,828

CASH AND CASH EQUIVALENTS - END OF PERIOD	$	12,043		$	61,148

SUPPLEMENTAL INFORMATION OF CASH FLOW ACTIVITY
Cash paid during the period for interest	$	6,337		$	6,167
Cash paid during the period for income taxes	$	1,050		$	-

SUPPLEMENTAL INFORMATION OF NONCASH ACTIVITY
Conversion of accounts payable and accrued expenses for common stock and additional-paid-in-capital or stock liability	$	2,320		$	5,600
Conversion of convertible debentures, notes and accrued interest for common stock and additional-paid-in-capital or stock liability	$	-		$	32,855

~~NOTES~~The TOaccompanying ~~CONDENSED~~notes ~~CONSOLIDATED~~are ~~FINANCIAL~~an ~~STATEMENTS~~integral part of these condensed consolidated financial statements.

~~SEPTEMBER 30, 2011 AND 2010~~5

~~NOTE~~INFERX ~~1- ORGANIZATION AND BASIS OF PRESENTATION~~CORPORATION

~~The~~NOTES ~~unaudited~~TO ~~condensed~~CONDENSED ~~consolidated~~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.FINANCIAL STATEMENTS

~~These~~MARCH ~~unaudited condensed consolidated financial statements reflect all adjustments~~31, ~~including~~2012 ~~normal~~AND ~~recurring adjustments which, in the opinion of management, are necessary to present fairly the consolidated operations and cash flows for the periods presented.~~2011

~~Black~~NOTE ~~Nickel~~1- ~~Acquisition~~ORGANIZATION ~~Corporation~~AND IBASIS ~~was~~OF 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.PRESENTATION

OnThe ~~May~~unaudited ~~17,~~condensed ~~2006,~~consolidated ~~Black~~financial statements ~~Nickel~~included ~~Acquisition~~herein ~~Corporation~~have Ibeen ~~entered~~prepared, ~~into~~without aaudit, ~~letter~~pursuant ofto ~~intent~~the ~~with~~rules ~~InferX~~and ~~Corporation,~~regulations aof ~~privately-held~~the ~~Virginia~~Securities ~~corporation~~and Exchange Commission (“~~InferX Virginia~~SEC”),. ~~with~~The ~~respect~~condensed toconsolidated ~~entering~~financial ~~into~~statements aand ~~merger~~notes ~~transaction~~are ~~relating~~presented toas ~~bridge~~permitted ~~financing~~on ~~for~~Form ~~InferX~~10-Q and ~~Virginia~~do ~~and~~not contain information included in the ~~acquisition~~Company’s ofannual statements and ~~merger~~notes. Certain information and footnote disclosures normally included in financial statements prepared in accordance with ~~InferX~~accounting ~~Virginia. The~~principles ~~transaction~~generally ~~closed~~accepted onin ~~October~~the 24United States of America have been condensed or omitted pursuant to such rules and regulations, ~~2006. Following~~although the ~~merger,~~Company ~~Black~~believes ~~Nickel~~that ~~Acquisition~~the ~~Corporation~~disclosures are Iadequate ~~effected~~to amake ~~short-form~~the ~~merger~~information ofpresented ~~InferX~~not ~~Virginia~~misleading. ~~with~~It ~~and~~is ~~into~~suggested ~~Black~~that ~~Nickel~~these ~~Acquisition~~condensed ~~Corporation~~consolidated Ifinancial statements be read in conjunction with the December 31, ~~pursuant~~2011 toaudited ~~which~~financial statements and the ~~separate~~accompanying ~~existence~~notes thereto. While management believes the procedures followed in preparing these condensed consolidated financial statements are reasonable, the accuracy of the ~~InferX~~amounts ~~Virginia~~are ~~terminated~~in ~~and~~some ~~Black~~respects ~~Nickel~~dependent ~~Acquisition~~upon ~~Corporation~~the Ifacts ~~changed~~that ~~its~~will ~~name~~exist, toand ~~InferX~~procedures ~~Corporation~~that ~~(“InferX”~~will orbe accomplished by the “Company”) later in the year.

~~The~~These ~~transaction~~unaudited ~~was~~condensed ~~recorded~~consolidated financial asstatements areflect ~~recapitalization~~all ~~under~~adjustments, ~~the~~including ~~purchase~~normal ~~method~~recurring ofadjustments ~~accounting~~which, asin ~~InferX became~~ the ~~accounting~~opinion ~~acquirer. The~~of ~~reported~~management, ~~amounts~~are ~~and~~necessary to ~~disclosures~~present ~~contained~~fairly in the consolidated ~~financial~~operations ~~statements~~and ~~are~~cash ~~those~~flows offor ~~InferX Corporation,~~ the ~~operating~~periods ~~company~~presented.

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.

~~INFERX~~On ~~CORPORATION~~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 purse 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.

~~NOTES~~Under TOthe ~~CONDENSED~~terms ~~CONSOLIDATED~~of ~~FINANCIAL~~the ~~STATEMENTS~~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.

~~SEPTEMBER~~The 30Merger Agreement also provides that, at ~~2011~~the ~~AND~~effective ~~2010~~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.

~~NOTE 1- ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)~~6

OnINFERX 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.CORPORATION

~~Under~~NOTES ~~the~~TO ~~terms~~CONDENSED ofCONSOLIDATED 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.FINANCIAL STATEMENTS

~~The~~MARCH ~~Merger Agreement also provides that~~31, at2012 ~~the~~AND 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 was 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.2011

InNOTE 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~~ORGANIZATION ~~share~~AND ~~and~~BASIS ~~per~~OF ~~share~~PRESENTATION ~~amounts have been presented on a post-split basis.~~(CONTINUED)

OnIn ~~October~~accordance ~~27,~~with ~~2009,~~ the ~~Company and Irus completed the Merger. As consideration for the Merger~~merger, the Company on ~~issued~~July 927,~~089,768~~ ~~shares~~2009 offiled ~~common~~a ~~stock~~Schedule to14C ~~Vijay~~with ~~Suri,~~ the ~~sole~~Securities ~~stockholder~~and ofExchange ~~Irus~~Commission. As ~~part~~The ofSchedule ~~their employment agreements signed on 27 October 2009~~14C, ~~both~~contained ~~Vijay~~2 ~~Suri~~proposals; ~~and~~to increase ~~B.K.~~the ~~Gogia~~authorized ~~were~~common ~~issued~~shares 1from 75,000,000 ~~shares~~to ~~of preferred stock. On June 2~~400, ~~2010, the Board rescinded the 1,~~000,000 ~~shares~~and ofto ~~preferred~~reverse ~~stock~~split ~~and~~the ~~issued~~common ~~Vijay~~stock ~~Suri~~on ~~and~~a ~~B.K. Gogia~~ 1~~,000,000~~:20 ~~shares~~basis. ofAll share ~~common~~and ~~stock~~per inshare ~~recognition~~amounts ofhave ~~their~~been ~~personal~~presented ~~guarantee~~on ofa ~~certain~~post-split ~~corporate debt of the Company~~basis.

~~Irus~~On ~~was~~October a27, ~~consulting~~2009, ~~firm~~the ~~advising~~Company onand Irus completed the ~~planning~~Merger. As consideration for the Merger, ~~implementation~~the ~~and~~Company ~~development~~issued 9,089,768 shares of ~~complex~~common ~~business~~stock ~~intelligence~~to ~~and~~Vijay ~~corporate~~Suri, ~~performance~~the ~~management~~sole stockholder ~~systems.~~ of Irus. ~~has~~As ~~successfully~~part ~~implemented~~of ~~projects~~their ~~across~~employment aagreements ~~broad~~signed ~~cross-section~~on of27 ~~clients~~October in2009, ~~the~~both ~~government,~~Vijay ~~financial~~Suri ~~services,~~and ~~retail~~B.K. Gogia, ~~manufacturing~~each were issued 1,000,000 ~~and~~shares ~~telecommunications~~of ~~markets~~preferred stock. ~~Irus~~ ~~has~~On ~~provided~~June ~~business~~2, ~~solutions~~2010, ~~for~~the ~~many~~Board ~~large~~rescinded ~~clients~~the 1,000,000 ~~including~~shares ~~MasterCard,~~of JPpreferred ~~Morgan~~stock ~~Chase,~~and ~~ConAgra,~~issued Vijay Suri and ~~the~~B.K. USGogia ~~Navy~~1,000,000 ~~and~~shares ~~collaborated~~of ~~with~~common astock ~~wide~~in ~~range~~recognition of ~~technology~~their ~~partners~~personal ~~including~~guarantee ~~Oracle,~~of ~~IBM/Cognos~~certain ~~and~~corporate ~~Microsoft~~debt of the Company.

~~The Merger with~~ Irus was ~~accounted~~a ~~for~~consulting asfirm aadvising ~~recapitalization~~on the ~~under~~planning, ~~the~~implementation ~~purchase~~and ~~method~~development of ~~accounting,~~complex asbusiness ~~Irus~~intelligence ~~became~~and ~~the~~corporate ~~accounting~~performance ~~acquirer~~management systems. ~~The~~ ~~reported~~Irus has ~~amounts~~successfully ~~and~~implemented ~~disclosures~~projects ~~contained~~across a broad cross-section of clients in the ~~consolidated~~government, financial ~~statements~~services, ~~are~~retail, ~~those~~manufacturing, and oftelecommunications markets. Irus has provided business solutions for many large clients, ~~the~~including ~~operating~~MasterCard, ~~company. In~~JP Morgan Chase, ConAgra, and the ~~transaction~~US Navy, ~~Irus~~and ~~assumed~~collaborated ~~the~~with ~~technology~~a wide range of ~~the~~technology ~~Company~~partners asincluding ~~well~~Oracle, asIBM/Cognos ~~its~~and ~~liabilities~~Microsoft.

~~Effective~~The ~~July~~Merger 1,with ~~2009,~~Irus ~~the~~was ~~Company~~accounted ~~adopted~~for as ~~the~~a ~~Financial~~recapitalization ~~Accounting~~under ~~Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted Accounting Principles – Overall (“ASC 105-10”). ASC 105-10 establishes~~ the ~~FASB~~purchase ~~Accounting~~method ~~Standards Codification (the “Codification”) as the source~~ of ~~authoritative~~ accounting, ~~principles~~as ~~recognized~~Irus bybecame the ~~FASB~~accounting toacquirer. beThe ~~applied~~reported byamounts ~~nongovernmental~~and disclosures ~~entities~~contained in the ~~preparation~~consolidated of financial statements ~~in conformity with U.S. GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws~~ are ~~also~~those ~~sources~~ of ~~authoritative~~Irus, ~~U.S.~~the ~~GAAP~~operating ~~for SEC registrants~~company. ~~All~~In ~~guidance contained in~~ the ~~Codification~~transaction, ~~carries~~Irus did anassume ~~equal~~the ~~level~~technology 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~~Company isas ~~non-authoritative.~~well ~~The~~as ~~FASB will not issue new standards in~~ the ~~form of Statements, FASB Positions or Emerging Issue Task Force Abstracts~~liabilities. ~~Instead, it will issue Accounting Standards Updates (“ASUs”).~~

~~INFERX~~Effective ~~CORPORATION~~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”).

~~NOTES~~The TOFASB ~~CONDENSED~~will ~~CONSOLIDATED~~not ~~FINANCIAL~~consider ~~STATEMENTS~~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.

~~SEPTEMBER~~Going ~~30, 2011 AND 2010~~Concern

~~NOTE~~As 1-shown ~~ORGANIZATION~~in ~~AND~~the ~~BASIS~~accompanying OFcondensed consolidated ~~PRESENTATION~~financial ~~(CONTINUED)~~statements the Company has incurred a net loss from operations of $582,123 and $248,881 for the three months ended March 31, 2012 and 2011, respectively, and net income of $9,464,974 and $29,520, respecitively due in large part to the fair value adjustment on the derivative liability of $10,091,626 and $294,000, respectively. The Company has an accumulated deficit of $36,779,446 as of March 31, 2012.

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.7

~~Going~~INFERX ~~Concern~~CORPORATION

AsNOTES ~~shown~~TO inCONDENSED ~~the~~CONSOLIDATED accompanying condensed consolidated financial statements the Company has incurred a net loss of $865,994 and $1,189,558 for the nine months ended September 30, 2011 and 2010, and has a working capital deficiency of $3,895,319 as of September 30, 2011. The Company incurred a smaller net loss during the nine months ended September 30, 2011 than the same period last year. The Company increased both its gross profit and its operating profit before other income (expense) to $554,543 and $219,070, 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 on the derivative liability. The revenues for the nine months ended 2011 compared to the same period in 2010 declined, however the Company was able to decrease its direct labor and subcontractor costs as a percent of revenue by 9% and 12%, respectively, which are the main contributing factors for the increased gross profit.FINANCIAL STATEMENTS

InMARCH 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 rates31, ~~hours~~2012 ~~billed,~~AND 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 substantial doubt about the ability of the Company to continue as a going concern.2011

~~Management’s~~NOTE ~~plans~~1- toORGANIZATION ~~address~~AND ~~these~~BASIS ~~conditions~~OF ~~include~~PRESENTATION continued aggressive efforts to expand the firm’s current business backlog by obtaining new 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, the hiring of a Practice Manager for Cyber Security, 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.(CONTINUED)

~~The~~Additonally, ~~Company’s~~our ~~long-term~~overall ~~success~~recurring losses and working capital deficiencies include the move by the federal government to convert contract support spaces to employees. This is ~~dependent~~negatively ~~upon~~impacting ~~obtaining~~our ~~sufficient~~labor ~~capital~~rates, hours billed, and ability to ~~fund~~expand ~~its~~current ~~operations~~contracts. Further, ~~development~~the offederal ~~its~~government’s inability ~~products;~~to negotiate and ~~launching~~implement ~~its~~a ~~products~~comprehensive tofederal ~~the~~budget ~~worldwide~~has ~~market~~directly impacted our success in acquiring new profitable government contracts. ~~These~~ ~~factors~~Combined ~~will~~with ~~contribute~~the continued uncertainty in the commercial market due to the ~~Company’s~~sustained ~~obtaining~~national ~~sufficient~~down-turn in business and associated flat recovery has increased sales ~~volume~~cycles and reduced sales opportunities. Additionally, the Company continues to be ~~profitable~~constrained by its availability of investment capital to the firm. To ~~achieve~~The ~~these~~Company ~~objectives~~expects the negative cash flow from operations to continue its trend through the next six months, however the Company ~~may~~continues beto ~~required~~expand current contract revenue backlog and build its pipeline of contracts. These factors continue to raise ~~additional~~significant ~~capital~~doubt ~~through~~about ~~public~~the orability ~~private~~of ~~financings~~the orCompany to ~~other~~continue ~~arrangements.~~as a going concern.

~~INFERX~~Management’s ~~CORPORATION~~plans to address these conditions include continued aggressive efforts to expand the firm’s current business backlog, by obtaining new 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, the hire of a Practice Manager for Cyber Security, 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.

~~NOTES~~The TOCompany’s ~~CONDENSED~~long-term ~~CONSOLIDATED~~success ~~FINANCIAL~~is dependent ~~STATEMENTS~~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.

~~SEPTEMBER~~The 30Company 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, ~~2011~~as ~~AND~~well ~~2010~~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.

~~NOTE~~The 1-condensed ~~ORGANIZATION~~consolidated ~~AND~~financial ~~BASIS~~statements do OFnot ~~PRESENTATION~~include ~~(CONTINUED)~~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.

~~Going Concern (continued)~~8

ItINFERX 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.CORPORATION

~~The~~NOTES ~~Company~~TO isCONDENSED ~~subject~~CONSOLIDATED 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.FINANCIAL STATEMENTS

~~The~~MARCH ~~condensed~~31, ~~consolidated~~2012 ~~financial~~AND 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.2011

NOTE 2-

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The condensed consolidated financial statements include those of the Company and its wholly-owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

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

Cash and Cash Equivalents

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

The Company maintains cash and cash equivalent balances at one financial institution that is insured by the Federal Deposit Insurance Corporation up to $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 ~~September~~March 3031, ~~2011~~2012, no allowance for doubtful accounts is required.

~~INFERX~~Fixed ~~CORPORATION~~Assets

~~NOTES~~Fixed TOassets ~~CONDENSED~~are ~~CONSOLIDATED~~stated ~~FINANCIAL~~at ~~STATEMENTS~~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.

~~SEPTEMBER~~Computer ~~30,~~Software ~~2011~~Development ~~AND 2010~~Costs

~~NOTE~~During 22012 and 2011, the Company capitalized certain software development costs. The Company capitalizes the cost of software in accordance with ASC 985-20 ~~SUMMARY~~once OFtechnological feasibility ~~SIGNIFICANT~~has ~~ACCOUNTING~~been ~~POLICIES~~demonstrated, as the Company has in the past sold, leased or otherwise marketed their software, and plans on doing so in the future. The Company capitalizes costs incurred to develop and market their privacy preserving software during the development process, including payroll costs for employees who are directly associated with the development process and services performed by consultants. Amortization of such costs is based on the greater of (~~CONTINUED~~i) the ratio of current gross revenues to the sum of current and anticipated gross revenues, or (ii) the straight-line method over the remaining economic life of the software, typically five years. It is possible that those anticipated gross revenues, the remaining economic life of the products, or both, may be reduced as a result of future events. The Company has not developed any software for internal use.

~~Fixed~~The ~~Assets~~Company’s CTO administered major modifications to the Company’s core products (i.e. InferAgent, InferText). At the same time he developed an industry specific interface to make the product more end user friendly and more marketable to the general public. These modifications were in response to specific potential customer needs.

~~Fixed~~For ~~assets are stated at cost, less accumulated depreciation. Depreciation is provided using~~ the ~~straight-line~~three ~~method~~months ~~over~~ended ~~the~~March ~~estimated~~31, ~~useful lives of~~ 2012, the ~~related~~Company ~~assets~~capitalized ~~(primarily~~$45,608 ~~three~~in tocomputer ~~five~~software ~~years)~~costs. ~~Costs of maintenance and repairs are charged to expense as incurred.~~

~~Computer~~Recoverability ~~Software~~of ~~Development~~Long-Lived ~~Costs~~Assets

~~During 2009 and 2011, the Company capitalized certain software development costs.~~ The Company ~~capitalizes~~reviews the ~~cost~~ recoverability of ~~software~~our ~~in accordance with ASC 985~~long-20lived ~~once~~assets ~~technological~~on ~~feasibility~~a ~~has~~periodic ~~been~~basis ~~demonstrated,~~whenever asevents ~~the~~and ~~Company~~changes ~~has~~ in ~~the~~circumstances ~~past~~have ~~sold,~~occurred ~~leased~~which ormay ~~otherwise~~indicate ~~marketed~~a ~~their~~possible impairment. ~~software,~~The ~~and~~assessment ~~plans~~for onpotential ~~doing~~impairment sois inbased ~~the~~primarily ~~future. The~~on ~~Company~~our ~~capitalizes~~ability ~~costs incurred~~ to ~~develop~~recover ~~and market their privacy preserving software during~~ the ~~development~~carrying ~~process,~~value ~~including~~of ~~payroll~~long-lived assets ~~costs~~from ~~for~~expected ~~employees~~future ~~who~~cash ~~are~~flows ~~directly~~from ~~associated~~operations ~~with~~on ~~the~~an ~~development~~undiscounted ~~process, services performed by consultants, and attributable overhead costs~~basis. ~~Amortization~~ ofIf such assets ~~costs~~are isdetermined ~~based~~to onbe impaired, the ~~greater~~impairment ofrecognized ~~(i)~~is the ~~ratio~~amount ofby ~~current~~which ~~gross revenues to~~ the ~~sum~~carrying value of ~~current and anticipated gross revenues, or (ii)~~ the ~~straight-line~~assets ~~method~~exceeds ~~over~~ the ~~five~~fair ~~year~~value ~~economic life~~ of the ~~software,~~assets. asFixed assets ~~specified~~to inbe ~~the~~disposed ~~technological~~of ~~feasibility study performed~~ by ansale ~~independent~~are ~~valuation~~carried ~~consultant~~at ~~in 2006. It is possible that those anticipated gross revenues,~~ the ~~remaining~~lower ~~economic life~~ of the ~~products,~~then orcurrent ~~both,~~carrying ~~may~~value beor ~~reduced~~fair asvalue aless ~~result~~estimated ofcosts to ~~future events~~sell. ~~The Company has not developed any software for internal use.~~

During the three months ended September 30, 2011 the Company’s CTO has been administering some 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 three to six months. 9

~~For~~INFERX the nine months ended September 30, 2011 and 2010, the Company recognized $0 and $48,666 of 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 nine months ended September 30, 2011. Upon completion of the major modifications, amortization will begin accordingly.CORPORATION

~~Recoverability~~NOTES ofTO ~~Long-Lived~~CONDENSED ~~Assets~~CONSOLIDATED FINANCIAL STATEMENTS

~~The~~MARCH 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 impaired31, ~~the~~2012 ~~impairment~~AND 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.2011

~~Revenue~~NOTE ~~Recognition~~2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue isRecognition 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.

~~INFERX~~Revenue ~~CORPORATION~~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).

~~NOTES~~The TOCompany ~~CONDENSED~~generates ~~CONSOLIDATED~~revenue ~~FINANCIAL~~from ~~STATEMENTS~~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.

~~SEPTEMBER~~The 30Company’s business is not seasonal in nature. The timing of contract awards, ~~2011~~the ~~AND~~availability ~~2010~~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.

~~NOTE~~The 2Company does not derive revenue from projects involving multiple revenue-generating ~~SUMMARY~~activities. OFIf ~~SIGNIFICANT~~a ~~ACCOUNTING~~contract ~~POLICIES~~would ~~(CONTINUED)~~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.

~~Revenue~~Stock-Based ~~Recognition~~Compensation ~~(continued)~~

~~The~~In 2006, the Company’s ~~business~~adopted isthe ~~not~~provisions of ~~seasonal~~ASC in718-10 ~~nature. The~~“Share-Based ~~timing~~Payments” of(“ASC ~~contract~~718-10”) ~~awards,~~which ~~the~~requires ~~availability~~recognition of ~~funding~~stock-based ~~from~~compensation expense ~~the~~for ~~customer,~~all ~~the~~share-based ~~incurrence~~payments ofbased ~~contract~~on ~~costs~~fair ~~and~~value. ~~unit~~Share-based ~~deliveries~~payment ~~are~~transactions within the ~~primary~~scope ~~drivers~~ of ~~our~~ASC ~~revenue~~718-10 ~~recognition. These~~include stock ~~factors~~options, ~~are~~restricted ~~influenced~~stock byplans, ~~the federal government’s October~~performance-~~to-September~~based ~~fiscal~~awards, ~~year. This~~stock ~~process~~appreciation ~~has~~rights, ~~historically~~and ~~resulted~~employee inshare ~~higher~~purchase ~~revenues~~plans. This inadoption ~~the~~had ~~latter~~no ~~half~~effect ofon the ~~government~~Company’s ~~fiscal year~~operations. ~~Many~~ ofPrior ~~our~~to ~~government~~January ~~customers~~1, ~~schedule~~2006, ~~deliveries toward~~ the ~~end~~Company ofmeasured ~~the~~compensation ~~calendar~~expense for ~~year,~~all ~~resulting~~of inthe ~~increasing~~share-based ~~revenues~~compensation ~~and~~using ~~earnings over~~ the ~~course~~intrinsic ofvalue ~~the year~~method.

The Company ~~does~~has ~~not~~elected ~~derive~~to ~~revenue~~use ~~from~~the ~~projects~~modified–prospective approach ~~involving multiple revenue-generating activities~~method. If aUnder ~~contract~~that ~~would~~transition ~~involve~~method, the ~~provision~~calculated ofexpense ~~multiple~~in ~~service~~2006 ~~elements,~~is ~~total~~equivalent ~~estimated~~to ~~contract~~compensation ~~revenue~~expense ~~would~~for beall ~~allocated~~awards granted prior to, ~~each~~but ~~element~~not yet vested as of January 1, 2006, based on the grant-date fair ~~value of each element~~values. ~~The~~ ~~amount~~Stock-based ofcompensation ~~revenue~~expense for ~~allocated~~all toawards ~~each~~granted ~~element~~after ~~would~~January ~~then~~1, be2006 ~~limited~~is tobased on the ~~amount~~grant-date ~~that~~fair isvalues. ~~not~~The ~~contingent~~Company ~~upon~~recognizes ~~the~~these ~~delivery~~compensation costs, net of ~~another~~an ~~element~~estimated inforfeiture rate, on a pro rata basis over the ~~future. Revenue~~requisite ~~for~~service period of each ~~element~~vesting ~~would~~tranche ~~then~~of beeach award. ~~recognized~~The ~~depending~~Company ~~upon~~considers ~~whether~~voluntary ~~the~~termination ~~contract~~behavior isas awell ~~time-and-materials~~as ~~contract~~trends orof aactual ~~fixed-price,~~option ~~fixed-time~~forfeitures ~~contract~~when estimating the forfeiture rate.

~~Stock~~The Company measures compensation expense for non-~~Based~~employee ~~Compensation~~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.

~~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~~INFERX 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.CORPORATION

~~The~~NOTES ~~Company~~TO ~~measures~~CONDENSED ~~compensation~~CONSOLIDATED 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.FINANCIAL STATEMENTS

~~Concentrations~~MARCH 31, 2012 AND 2011

~~For~~NOTE ~~the~~2- ~~nine~~SUMMARY ~~months~~OF ~~ended~~SIGNIFICANT ~~September~~ACCOUNTING ~~30,~~POLICIES 2011 the Company has derived 90% 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.(CONTINUED)

~~Financial~~Concentrations 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.

~~INFERX~~For ~~CORPORATION~~the three months ended March 31, 2012 and 2011, the Company derived 100% and 82% of its revenue from five and two customers, respectively. These customers are considered major customers as they represent 10% or more of total revenue. The Company does not believe that there is any customer concentration risk associated with these customers.

~~NOTES~~Financial TOinstruments ~~CONDENSED~~that ~~CONSOLIDATED~~potentially subject ~~FINANCIAL~~the ~~STATEMENTS~~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.

~~SEPTEMBER~~Fair ~~30,~~Value ~~2011~~of ~~AND~~Financial ~~2010~~Instruments (other than Derivative Financial Instruments)

~~NOTE~~The 2carrying amounts reported in the condensed consolidated balance sheets for cash and cash equivalents, and accounts payable approximate fair value because of the immediate or short-term ~~SUMMARY~~maturity OFof ~~SIGNIFICANT~~these ~~ACCOUNTING~~financial ~~POLICIES~~instruments. ~~(CONTINUED)~~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.

~~Segment~~Convertible ~~Reporting~~Instruments

The Company ~~follows~~reviews the ~~provisions~~terms of ~~ASC~~convertible debt ~~280-10,~~and ~~"Disclosures~~equity ~~about~~securities ~~Segments~~for ofindications anrequiring ~~Enterprise~~bifurcation, and ~~Related~~separate ~~Information”~~accounting, for the embedded conversion feature. ~~This~~ Generally, ~~standard~~embedded ~~requires~~conversion ~~that~~features, ~~companies~~where ~~disclose~~the ~~operating~~ability ~~segments~~to ~~based~~physical onor net-share settle the ~~manner~~conversion inoption ~~which~~is ~~management~~not ~~disaggregates~~within the control of the Company, inare ~~making~~bifurcated ~~internal~~and ~~operating~~accounted ~~decisions~~for as a derivative financial instrument. ~~The~~ ~~Company~~Bifurcation ~~only~~of ~~operates~~the inembedded derivative ~~one~~instrument ~~reporting~~requires ~~segment~~allocation asof the proceeds first to the fair value of ~~September~~the ~~30,~~embedded ~~2011~~derivative ~~and~~instrument ~~for~~with the residual ~~nine~~allocated ~~months~~to ~~ended~~the ~~September~~debt ~~30,~~instrument. ~~2011~~The ~~and~~resulting ~~2010~~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.

~~Fair~~Income ~~Value~~Taxes ~~of Financial Instruments (other than Derivative Financial Instruments)~~

~~The~~Under ~~carrying~~ASC ~~amounts~~740 ~~reported~~the inliability ~~the~~method ~~consolidated~~is ~~balance~~used in ~~sheets~~accounting for ~~cash~~income ~~and~~taxes. ~~cash~~Under ~~equivalents~~this method, ~~and~~deferred ~~accounts~~tax ~~payable~~assets ~~approximate~~and ~~fair~~liabilities ~~value~~are ~~because~~determined ofbased ~~the~~on ~~immediate~~differences orbetween financial ~~short-term~~reporting ~~maturity~~and oftax ~~these~~bases ~~financial~~of ~~instruments. For~~assets ~~the~~and ~~notes payable~~liabilities, ~~the~~and ~~carrying~~are ~~amount~~measured ~~reported~~using ~~is based upon~~ the ~~incremental~~enacted ~~borrowing~~tax rates ~~otherwise~~and ~~available~~laws tothat uswill ~~for~~be in ~~similar~~effect ~~borrowings. For~~when the ~~warrants~~differences ~~that~~ are ~~classified~~expected ~~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~~reverse.

~~Convertible~~Uncertainty ~~Instruments~~in Income Taxes

The Company ~~reviews~~follows ~~the~~ASC ~~terms~~740-10, ofAccounting for ~~convertible~~Uncertainty ~~debt~~in ~~and~~Income ~~equity~~Taxes. ~~securities~~This ~~for~~interpretation ~~indications~~requires ~~requiring~~recognition ~~bifurcation,~~ and ~~separate~~measurement ~~accounting,~~of ~~for~~uncertain ~~the~~income ~~embedded~~tax ~~conversion~~positions using ~~feature.~~a ~~Generally,~~“more-likely-than-not” ~~embedded~~approach. ~~conversion~~ASC ~~features,~~740-10 ~~where~~is ~~the~~effective ~~ability~~for tofiscal ~~physical~~years orbeginning ~~net-share~~after ~~settle~~December ~~the~~15, ~~conversion~~2006. Management ~~option~~has isadopted ~~not~~ASC ~~within~~740-10 ~~the~~for ~~control of the Company~~2008, ~~are~~and ~~bifurcated~~they ~~and~~evaluate ~~accounted~~their ~~for~~tax aspositions aon ~~derivative~~an ~~financial~~annual ~~instrument~~basis. ~~Bifurcation~~ ofThe ~~the~~Company’s ~~embedded~~policy is ~~derivative~~to ~~instrument~~recognize ~~requires~~both ~~allocation~~interest ofand ~~the~~penalties ~~proceeds~~related ~~first~~ to ~~the~~unrecognized ~~fair~~tax ~~value~~benefits ofexpected ~~the embedded derivative instrument with the residual allocated~~ to ~~the~~result ~~debt~~in ~~instrument. The~~payment ~~resulting~~of ~~discount~~cash towithin ~~the~~one year ~~face~~are ~~value~~classified ofas ~~the~~accrued ~~debt~~liabilities, ~~instrument~~while isthose ~~amortized~~expected ~~through~~beyond ~~periodic~~one ~~charges~~year toare ~~interest~~classified ~~expense~~as ~~using~~other ~~the Effective Interest Method~~liabilities. The Company has ~~values~~not ~~derivative~~recorded ~~liability~~any ~~only~~interest ~~when~~or ~~convertible~~penalties ~~debt~~since isits ~~in default or has matured~~inception.

~~Income~~The ~~Taxes~~Company files income tax returns in the U.S. federal tax jurisdiction and various state tax jurisdictions. Certain tax years remain open for examination by federal and/or state tax jurisdictions. The Company is currently not under examination by any other tax jurisdictions for any tax year.

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.11

~~Uncertainty~~INFERX ~~in Income Taxes~~CORPORATION

~~Under~~NOTES ~~ASC~~TO ~~740-10-25~~CONDENSED ~~recognition~~CONSOLIDATED and measurement of uncertain income tax positions is required using a “more-likely-than-not” approach. The Company evaluates their tax positions on an annual and quarterly basis, and has determined that as of September 30, 2011 no additional accrual for income taxes is necessary.FINANCIAL STATEMENTS

~~Earnings~~MARCH ~~(Loss)~~31, ~~Per~~2012 ~~Share~~AND ~~of Common Stock~~2011

~~Basic~~NOTE ~~net~~2- ~~earnings~~SUMMARY ~~(loss)~~OF ~~per~~SIGNIFICANT ~~common~~ACCOUNTING ~~share~~POLICIES (~~“EPS”~~CONTINUED) 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.

~~INFERX~~Earnings ~~CORPORATION~~(Loss) Per Share of Common Stock

~~NOTES~~Basic TOnet ~~CONDENSED~~earnings ~~CONSOLIDATED~~(loss) ~~FINANCIAL~~per ~~STATEMENTS~~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.

~~SEPTEMBER~~The ~~30,~~following ~~2011~~is ~~AND~~a ~~2010~~reconciliation of the computation for basic and diluted EPS:

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

	Three Months Ended
	March 31,		March 31,
	2012		2011

Net income (loss)	$	9,464,974	$	29,520

Weighted-average common shares outstanding:
Basic		20,001,191		17,496,831
Convertible debentures/notes		100,250,000		2,083,333
Warrants		8,275,250		6,004,000
Options		5,939,500		5,679,500
Diluted		135,622,191		31,263,664

Basic net income (loss) per share	$	0.47	$	0.00

Diluted net income (loss) per share	$	0.07	$	0.00

~~Earnings~~Research ~~(Loss)~~and ~~Per Share of Common Stock (continued)~~Development

Research and development expenses, included in the financial statements, consist of payroll, employee benefits, equity compensation, third party payments, and other headcount-related costs associated with product development. The ~~following~~Company ishas determined that technological feasibility was established for the software products in 2002 by a ~~reconciliation~~study ofdone in 2006 by the ~~computation~~independent ~~for~~valuation ~~basic~~consultant. Costs incurred after technological feasibility was established are not material, and ~~diluted~~accordingly, ~~EPS:~~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.

	Nine Months Ended
	September 30,			September 30,
	2011			2010
Net income (loss)	$	(865,994	)	$	(1,189,558	)
Weighted-average common shares outstanding:
Basic		18,158,829			9,112,317
Convertible Notes		500,000			-
Convertible Debenture		1,000,000			1,300,000
Convertible Preferred		906,250			-
Warrants		6,475,250			6,344,000 -
Options		5,939,500			3,870,000
Diluted		32,979,829			20,626,317
Basic net income (loss) per share	$	(0.05	)	$	(0.13	)
Diluted net income (loss) per share	$	(0.05	)	$	(0.13	)

~~Research~~INFERX ~~and Development~~CORPORATION

~~Research~~NOTES ~~and~~TO ~~development~~CONDENSED ~~expenses~~CONSOLIDATED 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 nine months ended September 30, 2011 and 2010, respectively.FINANCIAL STATEMENTS

~~Recent~~MARCH ~~Issued~~31, ~~Accounting~~2012 ~~Standards~~AND 2011

InNOTE ~~September~~2- ~~2006,~~SUMMARY ~~ASC~~OF ~~issued~~SIGNIFICANT ~~820,~~ACCOUNTING ~~Fair~~POLICIES 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 did not have a material impact on the financial statements.(CONTINUED)

~~INFERX~~Recent ~~CORPORATION~~Issued Accounting Standards

~~NOTES~~In TOMay ~~CONDENSED~~2011, ~~CONSOLIDATED~~FASB ~~FINANCIAL~~issued ~~STATEMENTS~~Accounting Standards Update (ASU) No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. FASB ASU 2011-04 amends and clarifies the measurement and disclosure requirements of FASB ASC 820 resulting in common requirements for measuring fair value and for disclosing information about fair value measurements, clarification of how to apply existing fair value measurement and disclosure requirements, and changes to certain principles and requirements for measuring fair value and disclosing information about fair value measurements. The new requirements are effective for fiscal years beginning after December 15, 2011. The Company has adopted this amended guidance on October 1, 2012. It does not anticipate that it will have a material impact on the Company’s results of operations, cash flows or financial position.

~~SEPTEMBER~~In 30June 2011, FASB issued ASU No. 2011-05, Presentation ~~AND~~of ~~2010~~Comprehensive Income, which amends the disclosure and presentation requirements of Comprehensive Income. Specifically, FASB ASU No. 2011-05 requires that all nonowner changes in stockholders’ equity be presented either in 1) a single continuous statement of comprehensive income or 2) two separate but consecutive statements, in which the first statement presents total net income and its components, and the second statement presents total other comprehensive income and its components. These new presentation requirements, as currently set forth, are effective for the Company beginning October 1, 2012, with early adoption permitted. The Company has adopted this amended guidance on October 1, 2012. It does not anticipate that it will have a material impact on the Company’s results of operations, cash flows or financial position.

~~NOTE~~In 2September 2011, FASB issued ASU 2011-08, Testing ~~SUMMARY~~Goodwill OFfor ~~SIGNIFICANT~~Impairment, ~~ACCOUNTING~~which ~~POLICIES~~amended ~~(CONTINUED)~~goodwill impairment guidance to provide an option for entities to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. After assessing the totality of events and circumstances, if an entity determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, performance of the two-step impairment test is no longer required. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. Adoption of this guidance is not expected to have any impact on the Company’s results of operations, cash flows or financial position.

~~Recent~~In ~~Issued~~July ~~Accounting~~2012, ~~Standards~~the FASB issued ASU 2012-02, Intangibles – Goodwill and Other (~~continued~~Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment, on testing for indefinite-lived intangible assets for impairment. The new guidance provides an entity to simplify the testing for a drop in value of intangible assets such as trademarks, patents, and distribution rights. The amended standard reduces the cost of accounting for indefinite-lived intangible assets, especially in cases where the likelihood of impairment is low. The changes permit businesses and other organizations to first use subjective criteria to determine if an intangible asset has lost value. The amendments to U.S. GAAP will be effective for fiscal years starting after September 15, 2012. The Company’s adoption of this accounting guidance does not have a material impact on the consolidated financial statements and related disclosures.

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.13

InINFERX 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.CORPORATION

~~ASC~~NOTES ~~810-10-65~~TO isCONDENSED ~~effective~~CONSOLIDATED for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The adoption of ASC 810-10-65 did not have a material impact on the Company’s financial position, results of operations or cash flows.FINANCIAL STATEMENTS

InMARCH ~~December 2007~~31, ~~the~~2012 ~~Company~~AND 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.2011

~~ASC~~NOTE ~~805 will require an entity to recognize as an asset or liability at fair value for certain contingencies, either contractual or non~~2-~~contractual,~~ ifSUMMARY ~~certain~~OF ~~criteria~~SIGNIFICANT ~~are~~ACCOUNTING ~~met. Finally,~~POLICIES 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 did not have a material effect on the Company’s financial position, results of operations or cash flows.(CONTINUED)

InRecent ~~March~~Issued ~~2008,~~Accounting ~~ASC issued ASC 815, Disclosures about Derivative Instruments and Hedging Activities,~~ Standards (~~ASC 815~~continued). 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 adoption of ASC 815 did not have a material impact on the Company’s results of operations or financial position.

~~INFERX~~Other ~~CORPORATION~~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.

~~NOTES~~NOTE TO3- ~~CONDENSED~~FIXED ~~CONSOLIDATED FINANCIAL STATEMENTS~~ASSETS

~~SEPTEMBER~~Fixed 30assets consist of the following as of March 31, ~~2011~~2012 ~~AND~~(unaudited) ~~2010~~and December 31, 2011, respectively:

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

	Estimated Useful	March 31,			December 31
	Lives (Years)	2012			2011
		(unaudited)
Computer equipment	5	$	303,853		$	303,853
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
			471,695			471,695
Less: Accumulated depreciation			(465,709	)		(463,812

Total, net		$	5,986		$	7,884

~~Recent~~Depreciation ~~Issued~~expense ~~Accounting~~was ~~Standards~~$1,899 ~~(continued)~~and $5,514 for the three months ended March 31, 2012 and 2011, respectively.

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. ASC 350 did not materially impact the Company’s financial position, results of operations or cash flows.14

InINFERX 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 adoption of ASC 470-20 did not have a material effect on the Company’s financial position, results of operations or cash flows.CORPORATION

InNOTES ~~June~~TO ~~2008,~~CONDENSED ~~ASC~~CONSOLIDATED 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. ASC 815-40 did not have a material impact on the Company’s financial position, results of operations and cash flows.FINANCIAL STATEMENTS

InMARCH ~~June 2008~~31, ~~ASC~~2012 ~~470-20-65,~~AND “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 ASC 470-20-65 did not have a material effect on that accounting.2011

InNOTE ~~May~~4- ~~2009,~~COMPUTER ~~ASC~~SOFTWARE ~~855,~~DEVELOPMENT “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.COSTS

~~Effective~~Computer ~~July~~software 1,development ~~2009,~~costs ~~the~~consist ~~Company~~of ~~adopted~~the ~~FASB~~following as ~~ASU~~of ~~No.~~March ~~2009-05~~31, ~~Fair~~2012 ~~Value Measurement~~ and ~~Disclosures~~December ~~(Topic 820) (ASU 2009-05). ASU 2009-05 provided amendments to ASC 820-10~~31, ~~Fair Value Measurements and Disclosures – Overall~~2011, 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.respectively:

INFERX CORPORATION

	Estimated Useful	March 31,			December 31,
	Lives (Years)	2012			2011

Computer software development costs	5	$	1,162,006		$	1,116,398

Less: Accumulated amortization			(986,724	)		(986,724

Total, net		$	175,282		$	129,674

~~NOTES~~Amortization TOexpense ~~CONDENSED~~was ~~CONSOLIDATED~~$0 ~~FINANCIAL~~for ~~STATEMENTS~~the three months ended March 31, 2012 and 2011, respectively.

~~SEPTEMBER~~NOTE ~~30,~~5- ~~2011~~NOTES ~~AND 2010~~PAYABLE

~~NOTE~~SBA 2-Loan ~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)~~

~~Recent~~On ~~Issued~~July ~~Accounting~~22, ~~Standards~~2003, the Company and the U.S. Small Business Administration (~~continued~~“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.

~~ASU~~The ~~2009-05~~Company ~~also~~must ~~clarifies~~comply ~~that~~with ~~both~~the adefault provisions ~~quoted~~contained ~~price~~in the Note. The Company is in andefault ~~active~~under ~~market~~the ~~for~~Note if it does not make a payment under the ~~identical~~Note, ~~liability~~or atif it: a) fails to comply with any provision of the ~~measurement~~Note, ~~date~~the Loan Authorization and ~~the~~Agreement, ~~quoted~~or ~~price~~other ~~for~~Loan ~~the~~documents; ~~identical~~b) ~~liability~~defaults on ~~when~~any ~~traded~~other asSBA anloan; ~~asset~~c) insells anor ~~active~~otherwise ~~market~~transfers, ~~when~~or nodoes ~~adjustments~~not preserve or account to ~~the~~SBA’s ~~quoted~~satisfaction ~~price~~for, ofany of the ~~asset~~collateral ~~are~~(as ~~required~~defined ~~for~~therein) ~~Level~~or 1its ~~fair~~proceeds; ~~value~~d) ~~measurements.~~does ~~Adoption~~not ofdisclose, ~~ASU~~or ~~2009-05~~anyone ~~did~~acting on their behalf does not ~~have~~disclose, any material fact to the SBA; e) makes, or anyone acting on their behalf makes, a ~~material~~materially ~~impact~~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 ~~results~~ability to pay this Note; g) fails to pay any taxes when due; h) becomes the subject of ~~operations~~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.

InAs 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~~March ~~1 and 2 fair value measurements. The standards also require new disclosures of activities~~31, ~~including purchases~~2012, ~~sales, issuances, and settlements within~~ the ~~Level~~Company 3has ~~fair~~an outstanding ~~value~~principal ~~measurements.~~balance ~~The standard also clarifies existing disclosure requirements on levels~~ of ~~disaggregation and disclosures about inputs and valuation techniques~~$347,739. ~~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 adoption of ASU 2010-06 did not have a material impact on the Company’s financial statements.15

InINFERX 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.CORPORATION

~~Other~~NOTES ~~ASU’s~~TO ~~that~~CONDENSED ~~have~~CONSOLIDATED ~~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.~~FINANCIAL STATEMENTS

~~NOTE~~MARCH 3-31, ~~FIXED~~2012 ~~ASSETS~~AND 2011

~~Fixed~~NOTE ~~assets~~5- ~~consist~~NOTES ofPAYABLE ~~the following as of September 30, 2011~~ (~~unaudited~~CONTINUED) ~~and December 31, 2010, respectively:~~

	Estimated Useful	September 30,			December 31
	Lives (Years)	2011			2010
Computer equipment	5	$	303,853		$	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
			471,695			467,757
Less: Accumulated depreciation			(459,417	)		(445,151	)
Total, net		$	12,278		$	22,606

Other

~~Depreciation~~The ~~expense~~Company ~~was~~had four notes payables totaling $1465,~~266~~000 at June 30, 2011. Of those four notes payable, three were convertible into shares of common stock at $0.06 per share and accrue interest at the rate of 8% per year and one note payable is not convertible and accrues interest at the rate of 5% per year. In July 2011 two convertible notes, totaling $20,~~993~~000, ~~for~~and all their accrued interest were converted into shares. the ~~nine~~total ~~months~~outstanding note ~~ended~~payable ~~September~~balance as of March 31, 2012 of $45,000 ($30,000 ~~2011~~of which is convertible and ~~2010~~$15,000 ~~respectively~~non-convertible).

~~INFERX~~Due ~~CORPORATION~~to the Company’s need for additional financing, the Board of Directors on February 24, 2012, approved the receipt of investment funds from two new investors in the amount of $20,000 each. The investments are in the form of 8% promissory notes due in six months, on June 22 and July 22, 2012, respectfully. Additionally, the note holders received upon issuance of the Note, 20,000 shares of the Company’s common stock, par value $0.0001 per share. The Company also agreed that should the Company fail to pay interest and principal due at the maturity date, the Note Holder shall receive an additional 40,000 shares of Common Stock. The Company received on December 22, 2011, $20,000 under a promissory note from an individual; then the Company received another $20,000 on January 22, 2012, under a promissory note similar to the one received on December 22, 2011.

~~NOTES~~The TOtotal ~~CONDENSED~~outstanding ~~CONSOLIDATED~~note ~~FINANCIAL~~payable ~~STATEMENTS~~balance as of March 31, 2012 is $85,000 ($30,000 of which is convertible and $55,000 non-convertible).

~~SEPTEMBER~~The 30following represent the maturities of the notes payable for the next five years: $93,657 ~~2011~~in ~~AND~~2013, ~~2010~~$9,010 in 2014, $9,377 in 2015, $9,759 in 2016, $10,157 in 2017 and $300,778 thereafter.

~~NOTE 4- COMPUTER SOFTWARE DEVELOPMENT COSTS~~16

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

	Estimated Useful	September 30,			December 31,
	Lives (Years)	2011			2010
Computer software development costs	5	$	1,048,761		$	986,724
Less: Accumulated amortization			(986,724	)		(986,724	)
Total, net		$	62,037		$	0

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Amortization~~MARCH ~~expense was $0 and $48~~31,~~666~~ ~~for~~2012 ~~the~~AND ~~nine months ended September 30,~~ 2011 ~~and 2010, respectively.~~

NOTE 5- NOTES PAYABLE (CONTINUED)

~~SBA~~In ~~Loan~~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 commenced 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 were extended; and the Company agreed to increase the interest rate to 5% per annum. The company has negotiated an extension with the note holder to extend the note at the same 5% interest rate until September 30, 2012.

On ~~July~~February 2224, ~~2003~~2012, the ~~Company~~Board ~~and~~of Directors approved the ~~U.S.~~loan ~~Small~~of ~~Business~~a ~~Administration~~related ~~(“SBA”)~~party, ~~entered~~Vijay ~~into~~Suri, aPresident ~~Note~~& (CEO, in the ~~“Note”)~~amount ~~under~~of $8,750 for the ~~SBA’s~~specific ~~Secured~~purposes ~~Disaster~~of ~~Loan~~financing critical ~~program~~payroll inand other payment obligations. The Board authorized the Company to issue a third Promissory note with a principal amount of $~~377~~8,~~100~~750 with interest to accrue at 5% per annum; and payable in six months. Further, since the Company has been unable to repay any amounts toward principal related to Mr. Suri’s promissory notes, the Company was forced to reset the interest rate to the penalty rate of 5%.

~~Under~~The ~~the~~total ~~Note,~~outstanding ~~the~~note ~~Company~~payable ~~agreed~~– related toparty ~~pay~~balance ~~principal~~as ~~and interest at an annual rate~~ of 4%March ~~per annum~~31, of2012 is $159,~~868 every month commencing twenty-five (25) months from the date of the Note (commencing August 2005)~~350. ~~The Note matures July 2034.~~

~~The~~NOTE ~~Company~~7- ~~must~~TERM 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 theLOAN

~~SBA’s~~The ~~prior~~Company ~~written~~had ~~consent;~~a orline ~~n) becomes the subject~~ of acredit ~~civil~~in ~~or criminal action that~~ the amount ~~SBA~~of ~~believes~~$850,000 ~~may~~as ~~materially~~of ~~affect~~December ~~the~~31, ~~Company’s~~2011 ~~ability~~with toCitibank, ~~pay this Note~~N. ~~The Company is not in default and current on its obligation~~A. ~~The~~ ~~Company~~with ~~has~~an ~~accrued~~outstanding ~~interest~~balance ~~at a rate~~ of $38341,587.~~90 per day.~~

AsEffective ofMarch ~~September 30~~9, ~~2011~~2012, the ~~Company~~Line-of-Credit with ~~has~~Citibank, anN.A. ~~outstanding~~was ~~principal~~sold ~~balance~~to ofEntrepreneur ~~$347~~Growth Capital,~~739~~ LLC. ~~Interest~~ ~~expense~~Through onthis action, the ~~SBA~~line ~~loan~~of ~~for~~credit was ~~the~~terminated ~~nine~~and ~~months~~is ~~ended~~now ~~September~~a 30term loan secured by the Company’s assets, ~~2011~~accounts receivables, and ~~2010~~the ~~respectively~~personal ~~was~~guarantee ~~$10~~by the Company’s President & CEO,~~404~~ per the terms of the original agreement and ~~$10~~stipulated by Entrepreneur Growth Capital,~~613~~ LLC through the acquisition of the note from Citibank.

~~INFERX~~Further, ~~CORPORATION~~the Company was notified by EGC that it is in material default of the loan for failure to remit the required payments to EGC in a timely fashion and, as such, the loan is immediately due and payable to EGC. Accordingly, the Company has reflected the entire balance as a current liability as of March 31, 2012.

~~NOTES~~The TOloan ~~CONDENSED~~accrues ~~CONSOLIDATED~~interest ~~FINANCIAL~~at ~~STATEMENTS~~annual interest rates of prime plus ¼ %.

~~SEPTEMBER 30, 2011 AND 2010~~17

~~NOTE~~INFERX ~~5- NOTES PAYABLE (CONTINUED)~~CORPORATION

~~Tangiers~~NOTES ~~Investors,~~TO LPCONDENSED CONSOLIDATED FINANCIAL STATEMENTS

OnMARCH ~~February 26~~31, ~~2010,~~2012 ~~the~~AND 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 September 30, 2010. Interest was calculated at 5% per annum.2011

InNOTE 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 non8-~~compliance~~ ofCONVERTIBLE 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.DEBENTURES

~~Interest~~On ~~expense~~December ~~for~~23, 2009, the ~~nine~~Company ~~months~~entered into ~~ended~~a ~~September~~Debenture 30and Warrant Purchase Agreement pursuant to which Street Capital, ~~2011~~LLC, ~~and~~the ~~2010~~placement ~~respectively~~agent, ~~was~~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 $~~148~~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 $10.20,~~184~~ 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. ~~There~~50. isOn noJuly ~~accrued~~9, ~~interest~~2010, the exercise price was changed to $0.20 as the Company failed to convert or repay the instrument by the due date of ~~September~~June 3023, ~~2011~~2010. The Company ~~has~~received ~~issued~~$150,000 ~~all~~ of the ~~shares~~$300,000 ~~required~~total principal on December 23, 2009 and ~~repaid~~entered ~~the~~into two ~~debt~~additional debentures for $100,000 and $10,000 for a total of $110,000 in ~~February~~April ~~2011~~2010 with two private investors.

~~Other~~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 ~~had~~recognized ~~four~~the ~~notes~~discount ~~payables~~as a ~~totaling~~derivative ~~$65~~liability,~~000~~ atand ~~June~~in ~~30,~~accordance ~~2011. Of~~with ~~those~~the ~~four notes payable~~ASC, ~~three~~values ~~were~~the ~~convertible~~derivative ~~into~~liability ~~shares~~each ofreporting ~~common~~period ~~stock~~to ~~at $0~~market.06 ~~per~~The ~~share~~Company has ~~and~~recognized ~~accrue~~a ~~interest~~gain ~~at the rate~~ of 8%$10,091,626 ~~per~~and ~~year~~$294,000 ~~and~~for ~~one~~the ~~note~~three ~~payable~~months isended ~~not~~March ~~convertible~~31, 2012 and ~~accrues~~2011 ~~interest~~due atto the ~~rate~~beneficial conversion of 5%the ~~per~~various ~~year~~instruments. In ~~July~~The ~~2011 two~~ convertible ~~notes,~~debentures ~~totaling~~were ~~$20,000,~~to ~~and~~mature ~~all~~from ~~their~~June ~~accrued~~2010 ~~interest~~to ~~were~~October ~~converted~~2010. ~~into~~The ~~shares~~Company ~~leaving~~entered ~~the~~into an ~~total~~Amendment ~~outstanding~~to ~~note~~Debenture ~~payable~~and ~~balance~~Warrants aswhich ofextended ~~September~~the ~~30,~~due ~~2011~~date toof bethe ~~$45,000~~original ($30150,000 ofdebenture ~~which~~from isJune ~~convertible~~2010 ~~and~~to ~~$15~~August 31,~~000~~ ~~non-convertible). Interest~~2010, ~~expense~~and ~~for~~then amended the ~~nine~~exercise ~~months~~price ~~ended~~of ~~September~~the ~~30,~~Class ~~2011~~B ~~and~~warrants ~~2010~~from ~~respectively was~~ $~~3,149~~0.50 ~~and~~to $0. ~~The~~20 ~~interest~~on ~~accrued~~July ~~as of September 30~~9, ~~2011 is $4,377~~2010.

~~The~~There ~~following~~were ~~represent~~a ~~the~~total ~~maturities~~ of ~~the~~three ~~notes~~entities ~~payable~~that invested ~~for~~money in the ~~next~~Company ~~five years – 2012 - $45,000; 2013- $6,667; 2014 - $8,966; 2015 - $9,332; 2016 - $9,680;~~ and ~~thereafter~~received -convertible ~~$313,094~~debentures.

~~NOTE~~The 6-original ~~NOTE~~debenture ~~PAYABLE~~holder –investment was ~~RELATED~~in ~~PARTY~~the amount of $150,000, which subsequently was forced to be amended a total of four times from its original expiration date due to the company’s inability to repay the entire principal. The first amendment extended the debenture to August 31, 2010 and in exchange the company gave to the holder 200,000 shares of common stock and reduced the Series B warrant exercise price from $.50 cents to $.20 cents/share. The second amendment extended the debenture to October 31, 2010 and in return the Company gave to the holder a total of 150,000 shares of common stock and 150,000 series C warrants that had an exercise price of $.40 cents/share. The Company entered into a Third Amendment on November 1, 2010, that further extended the repayment date of the $150,000 Convertible Debenture to April 30, 2011 and issued 150,000 shares of common stock as a penalty. The Company failed to comply with the new maturity date of April 30, 2011 and as a result agreed to issue 300,000 shares of common stock and reduce the Class C warrants exercise price from $0.40 to $0.20; further the Debenture holder agreed that the penalty payment would include all accrued and unpaid interest through the new due date of April 30, 2012. The fourth and latest amendment extends the debenture until April 30, 2012 and in return the Company has given to the holder 300,000 shares of common stock and lowered the exercise price of the Class A and C warrants to $.20/share as well has provided to the holder a provision that allowed for cashless exercise of those warrants. The payment of the 300,000 shares also includes all interest that will be expensed from May 19, 2011 until April 30, 2012. The anticipated amount of interest that will be expense to the holder until April 30, 2012 is shown on the balance sheet as ‘Prepaid expenses’. As of today this particular note holder who originally invested $150,000 has received a total of 800,000 shares of common stock (excluding all accrued interest paid in common stock) and 150,000 warrants as payments for extending the debenture agreement from its original expiration date until April 30, 2012. The debenture holder has currently converted all A, B, & C warrants and $100,000 in principal leaving a total of $50,000 that the Company still owes to the holder.

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%. As of the filing date the company has negotiated an extension with the note holder to extend the note at the same 5% interest rate until September 30, 2012. Interest expense for the nine months ended September 30, 2011 related to these notes are $1,892 and $557 respectively. As of September 30, 2011, accrued interest on these notes is $2,768.18

INFERX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~MARCH 3031, ~~2011~~2012 AND ~~2010~~2011

NOTE 78- ~~LINE~~CONVERTIBLE OFDEBENTURES ~~CREDIT~~(CONTINUED)

The ~~Company~~second debenture has abeen ~~line~~amended offrom its ~~credit~~original ~~with~~maturity adate ~~bank~~to inSeptember 30, 2011. The Company extended the ~~amount~~debenture from its original date of ~~$850~~October 31, 2010 to April 1, 2011 by issuing the holder 10,000 asClass ofC ~~September~~warrants 30and issuing 10,000 ~~2011~~penalty shares. The Company ~~has~~was anforced ~~outstanding~~to ~~balance~~issue the Class C warrants in addition to the shares of ~~$341~~common stock,~~587~~ 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 debt instrument 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. In July 2011, this debenture holder converted all $10,000 worth of principal into shares of common stock.

The ~~loan~~third ~~accrues~~and ~~interest~~final atdebenture ~~annual~~holder ~~interest~~invested $100,000 ~~rates~~and ofreceived ~~prime~~150,000 ~~plus~~Series ¼A %warrants and 40,000 Series B warrants. ~~Interest~~ ~~expense~~The ~~for~~entire debenture agreement originally expired on October 31, 2010, but due to the ~~nine~~Company’s ~~months~~inability ~~ended~~to ~~September~~repay 30the entire principal by that date, the Company had to amend the expiration of the agreement a total of two times. The first amendment extended the debenture to April 1, 2011 and ~~2010~~in ~~respectively~~return the ~~was~~Company $8paid to the holder 100,~~450~~000 shares of common stock and $8100,~~597~~000 Class C warrants that have an exercise price of $. 40 cents/share. The ~~line~~Company ofhas ~~credit~~entered into its second amendment, which is ~~secured~~reflected byin the financial statements, which extends the debenture to April 2, 2012 and in return the Company’s ~~accounts~~paid ~~receivables~~to the holder 100,000 shares of common stock. As of this filing date the holder has not converted any principal or warrants and ~~personally~~has ~~guaranteed~~not bybeen paid any interest. This debenture holder notified the Company’s on ~~President~~April 2, 2012, that he would not extend his note and thus made notice to the company for the full payment of principal and accrued and unpaid interest. The Company was unable to repay the principal. On April 13, 2012 the Company filed an 8K to announce that Rahul Argade, the debenture holder, notified InferX that it was in default under the terms of the Debenture for failure to repay the principal amount of $100,000 plus interest due.

~~NOTE~~Street 8-Capital ~~CONVERTIBLE~~LLC, ~~DEBENTURES~~notified the Company on April 30, 2011 that it had assigned all rights of the Debenture to Fourth Street Fund LP. Subsequently, on May 19, 2011 Fourth Street Fund LP exercised its right under the terms of the Debenture to convert $30,000 of principal for 150,000 shares of common stock and receive payment for accrued and unpaid interest in the amount of $3,466 in exchange for 17,333 shares of common stock. Fourth Street Fund LP, notified the Company on December 5, 2011 that it was exercising its right under the terms of the Debenture to convert $50,000 of principal for 250,000 shares of common stock. Street Capital LLC, one of the original Debenture Holders, notified the Company on January 1, 2012 that it was exercising its right under the terms of the Debenture to convert $20,000 of principal for 100,000 shares of common stock and receive payment for accrued and unpaid interest in the amount of $12,855 in exchange for 64,274 shares of common stock. The remaining principal associated with Debenture Holder Fourth Street Fund LP is $50,000, and interest is prepaid through the maturity date of April 30, 2012.

OnAs ~~December~~a ~~23,~~result ~~2009,~~of ~~the Company entered into~~ a ~~Debenture~~dilutive ~~and~~issuance ~~Warrant~~of ~~Purchase~~shares on ~~Agreement~~December ~~pursuant to which Street Capital~~1, ~~LLC,~~2010 ~~the~~that ~~placement~~was ~~agent,~~not ~~agreed~~disclosed to ~~use~~the ~~its~~holders ~~best~~of ~~efforts~~debentures toissued ~~provide~~by ~~bridge~~the ~~financing~~Company, ~~through~~the ~~unnamed~~sale ~~prospective~~of ~~purchasers~~1,000,000 inshares ~~return~~of common ~~for~~stock ~~an 8% secured convertible debenture (“Debenture”)~~ in ~~the~~December ~~principal~~2010 ~~amount~~to ofan ~~$300,000~~investor atfor ~~a conversion price of~~ $0.20002 per share oftriggered ~~the~~rights ~~Company’s~~under ~~common stock and equity participation in~~ the ~~form~~debentures ofto aconvert ~~class~~debt Ainto common stock ~~purchase~~at ~~warrant~~the tosame ~~purchase~~price. anThe ~~aggregate~~Debentures ofwere upconvertible tointo ~~450,000~~ shares of ~~the Company’s~~ common stock ~~with~~at ana ~~exercise~~conversion price ofequal to $0.20, ~~and~~per ashare (the ~~class~~"Initial BConversion ~~common~~Price"). ~~stock~~The ~~purchase~~Debentures ~~warrant~~also toprovided ~~purchase~~that, anin ~~aggregate~~the ofevent upthe toCompany ~~120,000~~sold ~~shares~~any ofcommon ~~the~~stock ~~Company’s~~or other ~~common~~equity ~~stock,~~securities ~~with~~at an ~~exercise~~effective price per share ~~equal~~that towas ~~$0.50.~~lower Onthan ~~July 9, 2010,~~ the ~~exercise~~Initial ~~price~~Conversion ~~was~~Price ~~changed~~(a to"Dilutive ~~$0.20 as~~ Issuance"), the ~~Company~~Initial ~~failed~~Conversion toPrice ~~convert~~for ~~or repay~~ the ~~instrument~~Debenture byholders ~~the~~would ~~due~~be ~~date~~reduced ofto ~~June 23, 2010. The Company received $150,000 of~~ the ~~$300,000~~lower ~~total~~price ~~principal~~per onshare ~~December~~charged ~~23,~~in ~~2009~~connection ~~and~~with the ~~entered~~Dilutive ~~into two additional debentures for $100,000 and $10,000 for a total of $110,000 in April 2010~~Issuance.

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.19

~~The~~INFERX 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 $127,723 in the nine months ended September 30, 2011. CORPORATION

~~INFERX~~NOTES ~~CORPORATION~~TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~NOTES~~MARCH TO31, ~~CONDENSED~~2012 ~~CONSOLIDATED~~AND ~~FINANCIAL STATEMENTS~~2011

~~SEPTEMBER~~NOTE ~~30,~~8- ~~2011~~CONVERTIBLE ~~AND~~DEBENTURES ~~2010~~(CONTINUED)

~~NOTE~~Without 8-knowledge ~~CONVERTIBLE~~of ~~DEBENTURES~~the Dilutive Issuance, one of the debenture holders (~~CONTINUED~~Street Capital) sent notices of conversion on January 19, 2011, May 19, 2011 and December 5, 2011. On each occasion, the Company honored the holder’s conversion request but utilized the Initial Conversion Price of $0.20 instead of the Base Conversion price of $0.002 per share. As a result of the Company's failure to apply the Base Conversion Price listed in the debenture, conversions on January 19, 2011, May 19, 2011 and December 5, 2011, the Company failed to issue 57,737,870 shares of common stock due to Street Capital. Fourth Street Fund whom was assigned this debenture from Street Capital, waived any claim to any shares of the Company's common stock over the number of shares that were actually delivered, and agrees that the amount of debt due under the debenture was converted as a consequence of those conversions was as stated on the conversion notices. With respect to the December 2011 conversion, the amount actually converted was $500 rather than the original $50,000 as stipulated on the conversion notice as a result of the conversion price being adjusted from $0.20 to $0.002 per share. The balance due as of March 31, 2012 to Fourth Street Fund is $99,500.

~~There were a total of three entities that invested money in the Company and received convertible debentures. The original $150~~Additionally,~~000~~ ~~debenture~~with ~~was forced to be amended a total of four times from its original expiration date due to~~ the ~~company’s~~change ~~inability to repay the entire principal. The first amendment extended the debenture to August 31, 2010 and~~ in ~~exchange the company gave to the holder 200,000 shares of common stock and reduced the Series B warrant exercise~~ conversion price ~~from $.50 cents~~ to $0.20002, ~~cents/share. The~~and ~~second amendment extended~~ the ~~debenture~~fact tothat ~~October~~at December 31, ~~2010~~2011, ~~and in return~~ the Company ~~gave~~has ~~to the holder~~ a ~~total~~closing ~~of 150,000 shares of common~~ stock ~~and 150,000 series C warrants that had an exercise~~ price of $0.40 ~~cents/share. The third amendment extended the debenture until April 30~~, ~~2011~~this ~~and~~resulted in ~~exchange~~a ~~the~~significant beneficial ~~Company~~conversion ~~gave~~feature toin ~~the~~these ~~holder~~instruments ~~another~~that ~~150,000~~has ~~shares. The~~been ~~fourth~~recorded ~~and~~as ~~latest~~a ~~amendment~~derivative ~~extends~~liability ~~the~~by ~~debenture until April 30, 2012 and in return~~ the Company ~~has~~in ~~given to~~ the ~~holder~~amount of ~~300~~$38,703,000 ~~shares~~ of ~~common stock (included on~~ the ~~balance~~total ~~sheet as ‘liability for stock to be issued’) on the and lowered the exercise price of the Class A and C warrants to~~ $~~.20/share~~39,628,463 aschange ~~well~~in ~~has provided to~~ the ~~holder~~fair avalue ~~provision that allowed for cashless exercise~~ of ~~those warrants. The payment of~~ the ~~300,000~~derivative ~~shares~~liability ~~also~~during ~~includes all interest that will be expensed from May 19,~~ 2011. ~~until~~In ~~April 30~~2012, ~~2012. The~~as ~~anticipated amount of interest that will be expense to~~ the ~~holder~~common stock ~~until~~price ~~April~~has 30dropped considerably, ~~2012 is shown on~~ the ~~balance~~fair ~~sheet~~value asadjustment ~~‘Prepaid expenses’. As~~ of ~~today this particular note holder who original invested~~ $~~150~~10,~~000~~091,626 has ~~received~~been arecorded ~~total~~as ofother ~~800,000~~income ~~shares of common stock (excluding all accrued interest paid in common stock)~~and ~~150,000 warrants as payments for extending~~ the ~~debenture~~derivative liability ~~agreement from its original expiration date until April 30, 2012. The debenture holder~~ has ~~currently~~decreased ~~converted~~to ~~all A, B, & C warrants and~~ $5029,~~000 in principal leaving a total of $100~~950,~~000 that the Company still owes to the holder~~837.

The second 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~~all ~~debt~~three debt instruments, 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 and warrants are 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. In July 2011, this debenture holder converted all $10,000 worth of principal into shares of common stock.

~~The~~As ~~third~~of ~~and~~March ~~final debenture holder invested $100,000 and received 150,000 Series A warrants and 40,000 Series B warrants. The entire debenture agreement originally expired on October~~ 31, ~~2010~~2012, ~~but due to~~ the Company’s inability to repay the entire principal by that date, the Company had to amend the expiration of the agreement a total of two times. The first amendment extended the debenture to April 1, 2011 and in return the Company paid to the holder 100,000 shares of common stock and 100,000 Class C warrants that have an exercise price of $.40 cents/share. The Company has ~~entered into its second amendment~~$199,500 outstanding ~~which is not reflected~~ in ~~the~~convertible ~~financial~~debentures ~~statements~~with ~~because~~two ~~it was not signed until after September 30, 2011, which extends the~~ debenture ~~to April 2, 2012 and in return the Company paid to the holder 100,000 shares of common stock~~holders. ~~As of this filing date the holder has not converted any principal or warrants and has not been paid any interest.~~

~~The~~NOTE ~~modifications~~9- ~~made~~CONVERTIBLE toPREFERRED ~~all~~STOCK ~~three~~AND ~~debt~~WARRANTS ~~instruments,~~– ~~constituted~~SERIES 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 and warrants reflected as a loss on extinguishment.B

~~The~~In ~~outstanding~~June ~~principal~~2011, ~~balance~~the onBoard ~~all~~of Directors authorized the issuance of up to 1,100,000 shares of Series B 10% convertible ~~debentures~~voting ispreferred stock (“Series B Shares”) having a stated value of $~~200~~.50 per share. The Series B shares are valid for 24 months from the date of issuance and are convertible at any time,~~000~~ asat the option of ~~September~~the 30holder, ~~2011~~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.

~~Interest~~In ~~expense~~addition ~~for~~to the ~~nine~~convertible ~~months~~preferred shares, ~~ended~~each ~~September~~purchaser ~~30,~~of ~~2011~~the ~~and~~Series ~~2010~~B Preferred Stock was ~~$13,048~~issued ~~and~~an ~~$12,960,~~equal ~~respectively. As~~number of ~~September~~warrants ~~30,~~(“Series ~~2011,~~B ~~accrued~~Warrants”) to ~~interest~~purchase oncommon ~~the~~stock ~~convertible~~at ~~debentures~~a ~~was~~price of $~~11,616~~.75 per share that expire 2 years from the issued date.

~~NOTE~~On 9-September ~~CONVERTIBLE~~27, ~~PREFERRED~~2011 ~~STOCK~~the ~~AND~~Board ~~WARRANTS~~of –Directors reduced ~~SERIES~~the purchase price per share of convertible preferred stock from $.50 to $.40 cents per share, thereby increasing the authorized number of Series B Shares from 1,100,000 to 1,500,000. All Series B investors as of September 27, 2011 were issued both convertible preferred shares and associated warrants equal to the difference between the number of shares they received at the purchase price of $.50 per share and the new $.40 per share price.

InUpon ~~June~~any ~~2011,~~liquidation ~~the~~or ~~Board~~dissolution of the ~~Directors~~Company, ~~authorized~~ the ~~issuance~~Series ofB upshareholders shall be entitled to ~~1,100,000~~receive ~~shares~~out of ~~Series~~the Bassets, ~~10%~~whether ~~convertible~~capital ~~voting~~or ~~preferred~~surplus, ~~stock~~of ~~(“Series~~the BCompany an ~~Shares”)~~amount ~~having~~equal ato ~~stated~~100% ~~value~~ of ~~$.50~~the ~~per~~stated ~~share. The~~value, ~~Series~~plus Bany ~~shares~~accrued ~~are~~and ~~valid~~unpaid ~~for~~dividends 24thereon ~~months~~and ~~from~~any ~~the~~other ~~date~~fees ofor ~~issuance~~liquidated ~~and~~damages owing ~~are~~thereon, ~~convertible~~for ateach ~~any~~Series ~~time,~~B atshare ~~the~~before ~~option~~any ofdistribution ~~the~~or ~~holder,~~payment ~~into~~shall ~~common~~be ~~shares~~made atto athe ~~rate~~holders of ~~1:1. Interest~~any ~~will~~other ~~be paid annually~~securities, and ~~either~~if inthe ~~cash~~assets orof inthe ~~common~~Company ~~stock~~shall atbe ~~the~~insufficient ~~Company’s~~to ~~discretion~~pay ~~based~~in onfull ~~the~~such 30amounts, ~~day~~then ~~bid-price~~the ~~moving~~entire ~~average. At~~assets ~~the~~to ~~end~~be ofdistributed to the 24Series ~~month~~B ~~term~~shareholders ~~the~~shall ~~Company~~be ~~will~~ratably ~~convert~~distributed ~~all~~among ~~outstanding~~the Series B ~~Shares~~shareholders ~~and~~in ~~pay~~accordance ~~all~~with ~~outstanding~~the ~~interest~~respective inamounts that ~~cash~~would orbe inpayable ~~common~~on ~~stock~~such ~~based~~shares onif ~~the~~all 30amounts ~~day~~payable ~~bid-price~~thereon ~~moving~~were ~~average~~paid in full.

~~INFERX CORPORATION~~20

~~NOTES~~INFERX ~~TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~CORPORATION

~~SEPTEMBER~~NOTES ~~30,~~TO ~~2011~~CONDENSED ~~AND~~CONSOLIDATED ~~2010~~FINANCIAL STATEMENTS

~~NOTE~~MARCH 9-31, ~~CONVERTIBLE~~2012 ~~PREFERRED STOCK~~ AND ~~WARRANTS – SERIES B (CONTINUED)~~2011

InNOTE ~~addition~~9- toCONVERTIBLE ~~the~~PREFERRED ~~convertible~~STOCK ~~preferred~~AND ~~shares,~~WARRANTS ~~each~~– ~~purchaser~~SERIES ~~of the Series~~ B ~~Preferred Stock was issued an equal number of warrants~~ (~~“Series B Warrants”~~CONTINUED) ~~to purchase common stock at a price of $.75 per share that expire 2 years from the issued date.~~

OnAs ~~September~~a ~~27,~~result ~~2011~~of the ~~Board~~mandatorily redeemable nature of ~~Directors~~the ~~reduced~~Series B shares after 24 months and the ~~purchase~~fact ~~price~~that ~~per~~redemption ~~share~~of the Series B shares is completely outside of ~~convertible~~the Company’s ~~preferred~~control, ~~stock~~aside from ~~$.50~~its toliquidation ~~$.40~~or ~~cents~~termination, ~~per~~the ~~share,~~Company ~~thereby~~has ~~increasing~~classified the ~~authorized~~Series ~~number~~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 ~~Shares~~Warrants ~~from~~as ~~1,100,000~~embedded derivatives that are required to ~~1,500,000~~be bifurcated from the carrying value of the equity instrument (Series B Shares). ~~All~~ The relative fair value of all the Series B ~~investors~~Warrants asat their relative issue dates totaled $210,713 (of ~~September~~which 27$38,750 ~~2011~~was ~~were~~from ~~issued~~the ~~both~~March ~~convertible~~6, ~~preferred~~2012 ~~shares~~invetment) ~~and~~is ~~associated~~shown as ~~warrants~~a ~~equal~~discount to the ~~difference~~Series ~~between~~B Shares and will be amortized evenly over the ~~number~~24-month life of the shares. ~~they~~In ~~received~~event atthat the ~~purchase~~holder converts ~~price~~any portion of ~~$.50~~their ~~per~~shares ~~share~~prior ~~and~~to the ~~new~~deadline, ~~$.40~~the ~~per~~appropriate ~~share~~remaining ~~price~~discount will be expensed immediately.

~~Upon~~The ~~any~~Company ~~liquidation~~accounted orfor ~~dissolution~~the ofbeneficial conversion ~~the~~feature ~~Company,~~(“BCF”) of the Series B ~~shareholders~~Shares ~~shall~~at befair ~~entitled~~value toand ~~receive~~is ~~out~~shown as part of the ~~assets,~~derivative ~~whether~~liability. ~~capital~~The value orof ~~surplus,~~the ofBCF now that the ~~Company~~per anshare ~~amount~~purchase ~~equal~~price was reduced from $.50 to ~~100%~~$.40 cents is $289,963 and will be adjusted quarterly. The initial step of the ~~stated~~calculation ~~value,~~was ~~plus~~the ~~any~~determination ~~accrued~~of ~~and~~the ~~unpaid~~Black-Scholes value assuming no dividends, ~~thereon~~a ~~and~~risk-free ~~any~~interest rate ~~other~~of ~~fees~~1.25%, orannualized ~~liquidated~~volatility ~~damages~~between ~~owing~~260% ~~thereon~~and 316%, ~~for~~and ~~each~~expected ~~Series~~warrant Blife ~~share~~of ~~before~~two ~~any~~years. ~~distribution~~The ornext ~~payment~~step ~~shall~~was beapportioning the ~~made~~percent toof the ~~holders~~fair value of ~~any~~the ~~other~~Series ~~securities,~~B ~~and~~Shares ifto the ~~assets~~fair value of the ~~Company~~Series ~~shall~~B beShares ~~insufficient~~and Warrants (52.9%) to ~~pay~~the inproceeds received ~~full~~($462,500 ~~such~~of ~~amounts~~which $100,000 ~~then~~was from the ~~entire~~March ~~assets~~6, to2012 beinvetment). ~~distributed~~This tothen ~~the~~provided ~~Series~~enough Binformation ~~shareholders~~to ~~shall~~determine the beeffective ~~ratably~~BCF ~~distributed~~of ~~among~~ the Series B ~~shareholders~~Shares. inThe ~~accordance~~relative ~~with~~fair ~~the~~value ~~respective~~of ~~amounts~~all ~~that~~the ~~would~~proceeds bereceived ~~payable~~at ontheir ~~such~~specific ~~shares~~inception ifdates is ~~all~~as ~~amounts~~follows: ~~payable~~Series ~~thereon~~B ~~were~~Preferred: ~~paid~~$251,787; inSeries ~~full~~B Warrants: $210,713.

InNOTE ~~the~~10- ~~nine~~STOCKHOLDERS’ ~~months~~EQUITY ~~ended September 30, 2011, the Company issued a total of 906,250 Series B shares at $.40 per share to accredited investors in private placement for a total of $362,500.~~(DEFICIT)

AsPreferred aStock 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~~was ~~for~~incorporated ~~the~~on ~~Series~~May B26, 2005, ~~Warrants~~and asthe ~~embedded~~Board ~~derivatives~~of ~~that~~Directors ~~are~~authorized ~~required~~10,000,000 toshares beof ~~bifurcated~~preferred ~~from~~stock ~~the~~with ~~carrying~~a par value of ~~the~~$0.0001. ~~equity~~The ~~instrument~~Company ~~(Series~~as Bof December ~~Shares). The~~31, ~~relative~~2009 ~~fair~~has ~~value~~authorized the issuance of ~~all~~2,000,000 shares of preferred stock. 1,000,000 of the ~~Series~~shares Bwere ~~Warrants~~authorized atto be ~~their~~issued ~~relative~~to ~~issue~~Vijay ~~dates~~Suri ~~totaled~~in ~~$171~~connection with the Merger Agreement,~~963~~ isand ~~shown~~1,000,000 asshares aof ~~discount~~preferred stock were authorized to ~~the~~be issued ~~Series~~to B.K. ~~Shares~~Gogia the former CEO upon his resignation as CEO. The Company and ~~will~~Vijay beSuri ~~amortized~~and ~~evenly~~B.K. ~~over~~Gogia ~~the~~on ~~24-month~~June ~~life~~2, 2010, agreed to rescind the issuance of the ~~shares~~preferred stock. In ~~event~~As ~~that~~a ~~the~~result ~~holder~~of ~~converts~~the ~~any~~recession, ~~portion~~the ofCompany ~~their~~and ~~shares~~its ~~prior~~officers agreed to ~~the~~issue ~~deadline~~them each 1,000,000 ~~the~~shares ~~appropriate~~of ~~remaining~~common ~~discount~~stock ~~will~~for betheir ~~expensed~~personal ~~immediately~~guarantees of certain debt of the Company.

~~The~~Common ~~Company~~Stock 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 now that the per share purchase price was reduced from $.50 to $.40 cents is $289,963 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 between 260% and 316%, 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 ($362,500). This then provided enough information to determine the effective BCF of the Series B Shares. The relative fair value of all the proceeds received at their specific inception dates is as follows: Series B Preferred: $190,538; Series B Warrants: $171,963.

~~NOTE~~The ~~10-~~Company ~~STOCKHOLDERS~~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 ~~EQUITY~~Board ~~(DEFICIT)~~of Directors approved the increase of the authorized shares of common stock to 400,000,000.

~~Preferred~~As ~~Stock~~of March 31, 2012, the Company had 20,006,203 shares of common stock issued and outstanding. During the three months ended March 31, 2012, the Company has issued 8,000 shares of common stock for services rendered which had been accrued for during 2011 for $2,320.. The Company also recognized $140,550 for the fair value of warrants and options vested during the three months ended March 31, 2012.The Company has an outstanding liability for stock to be issued of $224,900 at March 31, 2012.

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.21

INFERX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~MARCH 3031, ~~2011~~2012 AND ~~2010~~2011

NOTE 10- STOCKHOLDERS’' EQUITY (DEFICIT) (CONTINUED)

~~Common~~During ~~Stock~~the year ended December 31, 2011 the Company issued 2,705,207 shares of common stock as follows: 245,000 as a conversion of outstanding liability for stock to be issued in the amount of $44,750; 302,220 in exchange for $68,000 dollars; 81,092 shares were issued for the conversion of two accounts payable balances totaling $21,082; 300,000 shares were issued for legal services and 8,000 were issued to the Company’s Chief Technology Advisor for a total value of $62,560; 510,000 shares were issued to extend the maturity dates of the convertible debentures valued at $206,000; 983,002 shares were issued when the principal of convertible debentures and convertible note payables were converted to shares along with their outstanding interest valued at $98,581; 250,893 shares were issued when 435,000 warrants were converted to common stock valued at $8,998; and 25,000 shares were issued to two employees valued at $7,500. The Company also recognized $606,809 for the fair value of warrants and options vested in 2011.

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.Warrants

The Company asprior ofto ~~September~~the ~~30,~~reverse ~~2011~~merger with ~~had~~Irus ~~19,348,203~~Group ~~shares~~converted all of ~~common~~their ~~stock~~previous issued and outstanding warrants from the private placement completed in 2007 as well as the warrants issued with the convertible notes.

~~During~~The ~~the nine months ended September 30, 2011 the~~ Company issued 2225,~~055,207~~000 ~~shares~~Class ofA ~~common stock. Shares of common stock issued~~ warrants and ~~outstanding are as follows: 302~~60,~~219~~000 ~~shares~~Class ofB ~~stock~~warrants ~~issued~~in ~~for~~connection ~~$68,000;~~with ~~75,000 shares of~~ the ~~Company’s~~convertible ~~common~~debenture ~~stock~~on asDecember ~~payment~~23, ~~for~~2009. ofThe ~~Tangiers~~Class ~~Investors~~A ~~LP’s~~warrants ~~forbearance;~~have ~~81,092~~an ~~shares~~exercise price of ~~the~~$0.20 ~~Company's~~per ~~common~~share ~~stock~~and ~~to three vendors for~~ the ~~conversion~~Class ofB ~~outstanding~~warrants ~~debt;~~have ~~10,000~~an ~~shares~~exercise toprice aof ~~consultant~~$0.50 inper ~~exchange~~share. ~~for~~All ~~services;~~warrants ~~647,337~~have ~~shares~~a term of ~~stock~~5 inyears. The ~~conversion~~value of ~~$60,000~~the ofwarrants ~~convertible~~at ~~debentures~~inception ~~and~~was $1798,~~289~~130 inwhich ~~accrued~~represented ~~interest on~~ the ~~convertible~~debt ~~debentures~~discount. ~~and~~The ~~for~~Class ~~the~~B ~~issuance of the cashless~~ warrants inexercise ~~connection~~price ~~with~~was amended ~~the~~on ~~convertible~~July ~~debentures; 346~~9,~~559~~ ~~shares~~2010 ofto ~~common~~a ~~stock~~price toof ~~convert~~ $0.20~~,000~~ indue ~~notes~~to ~~payable~~the ~~and $793 in accrued interest and 603,000 shares of common stock in stock-based compensation. The~~ Company’s ~~has~~failure anto ~~outstanding~~convert ~~liability~~or ~~for~~repay ~~stock~~the toinstrument beby ~~issued~~June ~~of $143~~23,~~100~~ ~~at September 30, 2011~~2010.

~~During~~The ~~the year ended December 31, 2010 the~~ Company ~~has~~ issued 1315,~~372,351~~000 ~~shares~~Class ofA ~~common~~warrants and ~~stock as follows: 9~~4,~~089,768~~000 ~~shares~~Class ~~that~~B ~~were~~warrants ~~issued~~to ~~for~~an ~~the~~individual ~~100%~~investor ~~exchange~~ in ~~the~~connection ~~Irus~~with ~~transaction;~~the ~~300,000~~convertible ~~shares~~debenture ~~for~~first ~~services~~entered ~~rendered~~into ~~that~~on ~~were~~April ~~also previously recorded as a liability for stock to be issued; 142~~1,~~500 shares under a pledge agreement with Tangiers L~~ 2010.~~P.;~~ ~~and~~The ~~5,000~~Class ~~shares~~A ~~for~~warrants ~~services~~have ~~rendered~~an ~~that~~exercise ~~were~~price ~~previously~~of ~~recorded~~$0.20 asper ashare ~~liability for stock to be issued;~~ and the ~~Company~~Class ~~cancelled~~B awarrants ~~net~~have ofan ~~5,000~~exercise ~~shares~~price ~~(issued~~of ~~45,000 shares and cancelled~~ $0.50~~,000~~ ~~shares);~~per share. ~~90,083~~All ~~shares~~warrants tohave ~~pay an existing accounts payable, 2,300,000 shares recorded as~~ a ~~liability~~term ~~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;~~5 ~~and 100,000 shares for late fees associated with missed payments~~years. The ~~Company~~value ~~has an outstanding liability for stock to be issued, net~~ of ~~issuances of shares that reduced~~ the ~~liability~~warrants ~~of $44,750~~ at ~~December~~inception ~~31,~~was ~~2010. The Company recorded an additional~~ $~~289~~8,~~835~~855 ~~in stock based compensation,~~ which ~~includes~~represented ~~$25,491 related to~~ the ~~Class C warrants that were reclassified as loss on extinguishment of~~ debt discount.

~~From~~The ~~January~~Company 1issued 150,000 ~~2009~~Class ~~through~~A ~~October~~warrants and 2740,000 ~~2009~~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 ~~period~~Class ~~prior~~B towarrants have an exercise price of $0.50 per share. All warrants have a term of 5 years. The value of the ~~reverse~~warrants ~~merger~~at ~~with~~inception ~~Irus~~was ~~Group~~$63,140 ~~the~~which ~~following~~represented ~~transactions~~the ~~occurred:~~debt discount.

· The Company ~~effectuated~~issued a150,000 ~~reverse~~warrants ~~1:20~~to an ~~stock~~investment ~~split.~~banker ~~All~~as ~~shares~~part of ~~common~~their ~~stock~~overall ~~have~~compensation ~~been~~package ~~reflected~~to ~~with~~raise funds for the 1:Company. The warrants have an exercise price of $0.20 ~~reverse~~per ~~split,~~share ~~retroactively~~and expire in ~~accordance~~5 ~~with~~years. ~~SAB~~These ~~Topic~~warrants ~~14C;~~have vested as of December 31, 2010, and have recorded $28,402 as of December 31, 2010 in stock-based compensation.

·The 1Company issued 900,~~875~~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 five years. These warrants vest with 400,000 ~~shares~~over one year beginning in July 2010, and the balance of ~~common~~500,000 ~~stock~~warrants ~~were~~vest ~~issued~~based upon achievement of performance objectives mutually agreed between the Company and the Consultant. The Company incurred $26,933 in ~~conversion~~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 $~~393~~18,~~500~~997 was recorded as stock based compensation in ~~convertible~~the ~~notes~~nine months ended September 30, ~~interest~~2011. The contract was terminated on February 25, 2011 and 300,000 warrants are ~~that~~vested ~~were~~and ~~issued~~the ~~with~~remaining ~~the~~600,000 ~~convertible~~warrants ~~notes;~~are forfeited.

·The ~~617~~Company issued 4,500,000 ~~shares~~warrants to B.K. Gogia as part of ~~common~~his ~~stock~~overall ~~were~~compensation ~~issued~~package. ~~for~~These ~~cash~~warrants inhave ~~the~~an ~~amount~~exercise price of $~~135,000;~~0.20 per share and expire in five years. These warrants vest based upon

~~· 187.500 shares of common stock were issued for services rendered valued at $53,000;~~22

·INFERX 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; andCORPORATION

~~INFERX~~NOTES ~~CORPORATION~~TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~NOTES~~MARCH TO31, ~~CONDENSED~~2012 ~~CONSOLIDATED~~AND ~~FINANCIAL STATEMENTS~~2011

~~SEPTEMBER~~NOTE ~~30,~~10- ~~2011~~STOCKHOLDERS’ ~~AND~~EQUITY ~~2010~~(DEFICIT) (CONTINUED)

~~NOTE~~Warrants ~~10- STOCKHOLDERS’ EQUITY~~ (~~DEFICIT~~continued) ~~(CONTINUED)~~

~~Common~~The ~~Stock~~Company issued a total of 906,250 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 two years from the issued date (~~continued~~see Note 9).

·In ~~100,750~~September ~~shares~~2011 ofone ~~common~~convertible ~~stock~~debenture holder ~~were~~exercised ~~issued~~all intheir ~~the~~A, ~~exercise~~B, of& ~~stock~~C ~~options~~warrants ~~for~~via $0cashless exercision, asthus adecreasing ~~result of~~ the ~~Merger,~~total nowarrants ~~cash~~outstanding ~~was~~amount by ~~required~~435,000.

~~The~~On ~~transactions~~May ~~resulted~~6, in2011, the ~~Company~~Board ~~going~~of ~~from~~Directors authorized ~~886~~that the Company issue 33,~~955~~750 shares ~~issued~~of ~~and~~the ~~outstanding~~Company's common stock to 3a vendor,~~920~~ Anshul Mohaan who is willing to convert $6,~~645~~750 of accounts payable owed to him. The stock was authorized but not issued by March 31, 2012. The shares are reflected as a component of “Liability for stock to be issued - common stock.”

~~Additional~~On ~~items~~December ~~impacting~~15, ~~equity~~2011, ~~prior~~the Company entered into a “Sales Outsourcing Agreement” with Stanley Altschuler to provide direct sales support and closure to pre-determined list of clients. Pursuant to the ~~reverse~~agreement, ~~merger~~Stanley ~~were:~~Altschuler, would receive compensation that includes a Common Stock Purchase Warrant to purchase 500,000 shares of Common Stock exercisable for five years at $0.45 per share and vest immediately. Additionally, the Agreement provides for “Success Fee” paid to Agent calculated as 10% of gross license revenue and 3.5% of gross services / professional services revenue on sales contracts resulting directly from actions of the Agent. Stanley Altschuler is also a member of Strategic Universal Advisors, LLC, a firm which has a contract with the company to provide investment and public relations consulting services to the Company. The term of the Sales Outsourcing Agreement is one-year. The Company recorded a prepaid expense in the amount of $170,000 during the year ended December 31, 2011 in connection with this agreement. No amount of the success fee was paid.

·The ~~Conversion~~Board of ~~accrued~~Directors, ~~interest~~on March 13, 2012 authorized the Company grant to ~~additional~~Dr. ~~paid~~Jerzy inBala, ~~capital~~the inChief Technology Officer, a Common Stock Purchase Warrant to purchase 1,000,000 shares of the ~~amount~~Company's common stock, such shares of the warrant to vest immediately upon grant at an exercise price of $45.30 per share that are exercisable for a period of five years from the date of grant. The Board of Directors also authorized that the Company grant a Common Stock Purchase Warrant to purchase 50,~~913;~~000 shares of its common stock to another Company employee in recognition of his contributions to the Company. Such shares of the warrant are to vest 50,000 shares on March 13, 2012, and 50,000 shares on the first and second anniversary dates of issue, at an exercise price of $.30 per share that are exercisable for a period of five years from the date of grant. The Company recorded $63,000 as stock based compensation during the three month period ended March 31, 2012 in connection with these issuances.

~~· 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.~~23

~~The~~INFERX ~~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.~~CORPORATION

~~For~~NOTES ~~the~~TO ~~nine~~CONDENSED ~~months~~CONSOLIDATED ~~ending September 30, 2011, the Company recorded $232,458 in stock based compensation.~~FINANCIAL STATEMENTS

~~Warrants~~MARCH 31, 2012 AND 2011

~~The~~NOTE ~~Company~~10- ~~prior~~STOCKHOLDERS’ toEQUITY ~~the~~(DEFICIT) ~~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.~~(CONTINUED)

The ~~Company~~following ~~issued~~is 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~~breakdown of ~~five years. The value of~~ the warrants at ~~inception~~March ~~was $98~~31,~~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, 2010.2012:

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 five years. The value of the warrants at inception was $8,855 which represented the debt discount.

		Exercise		Date
Warrants		Price		Issued		Term
	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
	110,000	$	0.40		12/29/2010		5 years
	450,000	$	0.75		6/15/2011		2 years
	50,000	$	0.75		7/5/2011		2 years
	25,000	$	0.75		7/28/2011		2 years
	200,000	$	0.75		8/10/2011		2 years
	112,500	$	0.75		10/28/2011		1.63 years
	12,500	$	0.75		10/28/2011		1.95 years
	6,250	$	0.75		10/28/2011		1.88 years
	50,000	$	0.75		10/28/2011		1.84 years
	500,000	$	0.45		12/15/2011		5 years
	250,000	$	0.75		3/6/2012		2 years
	1,050,000	$	0.30		3/13/2012		5 years
	8,275,250

The ~~Company issued 150,000 Class A~~ warrants ~~and~~were ~~40,000~~valued ~~Class~~utilizing ~~B warrants to an individual investor in connection with~~ the same ~~convertible~~Black ~~debenture~~– ~~first~~Scholes ~~entered~~criteria ~~into~~as ~~on April 19, 2010. The Class A warrants have an exercise price of $0.20 per share and~~ the ~~Class~~options Bdescribed ~~warrants have an exercise price of $0~~below.~~50 per share. All warrants have a term of five 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 five years. These warrants have vested as of December 31, 2010, and have recorded $28,402 as of December 31, 2010 in stock-based compensation.Options

~~The~~Since ~~Company~~October ~~issued 900~~2007,~~000~~ ~~warrants~~the toCompany’s Board ~~an investment consultant as part~~ of ~~their~~Directors ~~overall~~and ~~compensation~~Shareholders ~~package~~approved ~~to raise funds for~~ the ~~Company. These~~adoption ~~warrants~~of ~~have~~ an ~~exercise~~option ~~price~~plan offor ~~$0.20~~a ~~per~~total ~~share~~of ~~and expire in five years. These warrants vest with 400~~5,000,000. ~~over~~The ~~one~~Company ~~year~~prior ~~beginning~~to ~~in July 2010, and~~ the reverse ~~balance~~merger ofwith ~~500,000~~Irus ~~warrants~~exercised ~~vest~~all ~~based upon achievement~~ of ~~performance~~the ~~objectives~~options ~~mutually~~that ~~agreed~~were ~~between~~outstanding ~~the~~at ~~Company and~~ the ~~Consultant~~time. ~~The~~ ~~Company~~Subsequent ~~incurred $26,933 in stock-based compensation expense~~ to ~~record~~ the ~~first~~reverse ~~two scheduled vestings of 100~~merger,~~000~~ ~~warrants in July 2010 and October 2010. The third scheduled vesting occurred in January 2011 and~~ the Company ~~$18,997~~issued ~~was recorded as~~ stock ~~based~~options ~~compensation~~ in ~~the~~connection ~~nine~~with ~~months~~certain ~~ended~~employment ~~September 30, 2011~~agreements. The ~~contract~~Company ~~was~~granted ~~terminated on February 25~~5,939,500 ~~2011 and 300~~options,~~000~~ ~~warrants~~ 5,399,500 are vested, and ~~the~~none ~~remaining~~of ~~600,000~~which ~~warrants~~have ~~are~~been ~~forfeited.~~exercised ~~The Company issued 4,500,000 warrants to B.K. Gogia~~ as ~~part~~ of ~~his~~March ~~overall~~31, ~~compensation package~~2012. ~~These~~ ~~warrants~~Of ~~have~~the an5,939,500 ~~exercise~~that ~~price~~were ofgranted ~~$0.20~~only ~~per~~540,000 ~~share~~remain unvested, and ~~expire~~these ~~in five years. These warrants~~ vest ~~based~~on ~~upon~~a ~~achievement~~varying ofschedule ~~performance~~with ~~objectives mutually agreed between~~ the ~~Company~~last ~~and~~date ~~the Employee and the stock price~~ being ~~not~~June ~~less than $0.50 per share. None of these warrants have vested as of September~~ 30, ~~2011~~2013.

~~INFERX CORPORATION~~24

~~NOTES~~INFERX ~~TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~CORPORATION

~~SEPTEMBER~~NOTES ~~30,~~TO ~~2011~~CONDENSED ~~AND~~CONSOLIDATED ~~2010~~FINANCIAL STATEMENTS

~~NOTE~~MARCH ~~10-~~31, ~~STOCKHOLDERS’~~2012 ~~EQUITY~~AND ~~(DEFICIT) (CONTINUED)~~2011

~~Warrants~~NOTE 10- STOCKHOLDERS’ EQUITY (~~continued~~DEFICIT) (CONTINUED)

~~The Company issued 300,000 warrants to an individual in exchange for services previously rendered and recorded.~~ These ~~warrants~~options have an exercise ~~price~~prices ofthat range from $0.2006 ~~per~~to ~~share,~~$0.50 ~~expire in five years~~ and ~~became~~were ~~fully~~valued ~~vested~~based inon ~~April~~the ~~2010.~~black-scholes ~~The~~model ~~values~~with ofthe ~~these~~following ~~warrants were $104,736.~~criteria:

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 five 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.


Strike Price	$	0.06-0.50
Expected Life of Option		3-5 yr.
Annualized Volatility		154.93-340.19
Discount Rate		1.25%

Annual Rate of Quarterly Dividends		None

~~The~~NOTE ~~Company~~11- issued a total of 906,250 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 two years from the issued date (see Note 9).COMMITMENTS

InOffice ~~September 2011 one convertible debenture holder exercised all their A, B, & C warrants via cashless exercision, thus decreasing the total warrants outstanding amount by 435,000.~~Lease

The ~~following~~Company isleases office space in Sterling, Virginia pursuant to a ~~breakdown~~lease ofwith a related party through common ownership related to the ~~warrants:~~President & CEO, which is currently month to month. The lease provides for an annual rental of approximately $78,000.

		Exercise		Date
Warrants		Price		Issued	Term
	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
	110,000	$	0.40	12/29/2010	5 years
	837,500	$	0.75	6/15/2011	2 years
	12,500	$	0.75	7/5/2011	2 years
	6,250	$	0.75	7/28/2011	2 years
	50,000		0.75	8/10/2011	2 years
	6,475,250

Rent expense for the three months ended March 31, 2012 and 2011 was $19,500 and $22,446, respectively.

~~The~~Board ~~warrants~~of ~~have~~Advisors aAgreements ~~weighted average price of $0.28.~~

The ~~warrants~~Company’s ~~were~~board of ~~valued~~directors ~~utilizing~~approved the ~~same~~addition ~~Black~~of –two ~~Scholes~~members ~~criteria~~to asits Board of Advisors. Each of these members will provide 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 Advisors options ~~below:~~under their 2007 Stock Incentive Plan that vest over a two-year period of time commencing in May 2010. Per agreement with one of the Board of Advisors members, the Company has not made the quarterly cash payments owing to that Advisor due to cash flow and liquidity issues. The Company has included these fees in their condensed consolidated statements of operations for the three months ended March 31, 2012 and 2011.

~~INFERX~~Consulting ~~CORPORATION~~Agreements

~~NOTES~~The TOCompany ~~CONDENSED~~has ~~CONSOLIDATED~~entered into ~~FINANCIAL~~consulting ~~STATEMENTS~~agreements with marketing and strategic consulting groups with terms that do not exceed one year. These companies are to be paid fees for the services they perform. The Company has included these fees in their condensed consolidated statements of operations for the three months ended March 31, 2012 and 2011.

~~SEPTEMBER~~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 ~~2011~~payable ~~AND~~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 was for one-year. The warrants did not vest until June 2010.

~~NOTE~~In 10June 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 was for one-year, ~~STOCKHOLDERS’~~and ~~EQUITY~~the ~~(DEFICIT)~~consultant ~~(CONTINUED)~~was to 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 operation. The agreement terminated in February 2011, and the remaining 600,000 unvested warrants have been cancelled.

~~Options~~25

~~Since~~INFERX 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.CORPORATION

~~The~~NOTES ~~total~~TO ~~options~~CONDENSED ~~granted~~CONSOLIDATED ~~as of December 31, 2010 were 5,134,500, of which 4,439,500 are vested and none have been exercised.~~FINANCIAL STATEMENTS

~~During~~MARCH ~~the nine months ended September 30~~31, ~~2011,~~2012 ~~the~~AND ~~Company granted an additional 805,000 options to purchase shares of common stock. Of this amount, 385,000 vested as of September 30,~~ 2011~~. None of these options have been exercised as of September 30, 2011.~~

~~The~~NOTE ~~total~~11 ~~options~~COMMITMEMENTS ~~granted as of September 30, 2011 were 5,939,500, of which 4,879,500 are vested and none have been exercised.~~(CONTINUED)

~~These~~In ~~options~~December ~~have~~2010, ~~exercise~~the ~~prices~~Company entered into an agreement with Strategic Global Advisors, LLC, a firm that ~~range~~provides ~~from~~investment $0and public relations consulting firm services.06 Pursuant to the agreement, Strategic Global Advisors, LLC will receive a retainer of $~~0.50~~30,000 payable in four monthly payments of $7,500 and ~~were~~receive ~~valued~~500,000 ~~based~~options onto purchase the ~~black-scholes~~Company's ~~model~~common ~~with~~stock that vest on the ~~following~~date ~~criteria:~~of grant. The options were valued at $34,994. The Company has included these fees in their condensed consolidated statements of operations.

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

On March 2, 2011, The Board of Directors entered 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 300,000 have vested ($122,082 in 2011 stock based compensation), and the remaining 200,000 have vested ($66,000 in 2012 stock based compensation) in the three months ended March 31, 2012.

On March 28, 2011, The Board ~~value~~of ~~attributable~~Directors togranted ~~these~~two employees 45,000 options ~~that~~to ~~vested~~purchase ~~for~~shares of the ~~nine~~Company's ~~months~~common stock; ~~ended~~all ~~September~~of ~~30,~~which ~~2011~~vested isupon grant. Employees’ grant of options was based on achievement of performance milestones. The vested options were valued at $~~170~~13,~~400~~370. ~~and~~The isCompany ~~reflected~~has included these fees in ~~the~~their condensed consolidated statements of operations ~~as stock based compensation~~.

~~NOTE~~On 11May 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 ~~COMMITMENTS~~period and the Board authorized a consulting fee of $8,000 and that the Company should issue the consultant 8,000 shares under the consulting agreement.

~~Office~~On ~~Lease~~January 5, 2012, the Company entered in an agreement with Dave Stocking to convert $2,400 of interest owed on a convertible note issued by the Company to 40,000 shares of the Company's common stock and to extend the maturity date of of the convertible note to December 16, 2012.

~~The~~On February 24, 2012, the Company ~~leases~~entered ~~office~~into ~~space~~a consulting agreement with Manish Nandy to provide marketing assistance, primarily in ~~Sterling~~the healthcare area, ~~Virginia~~and ~~pursuant~~proposal development services to asupport ~~lease~~several ~~with~~Company customer initiatives. The term of the agreement is for three months, and the consultant will receive a ~~related~~payment ~~party~~of ~~through~~$6,500. ~~common~~As ~~ownership~~of ~~which~~March is31, in2012, the Company recorded 37,500 shares as a ~~month~~“Liability for stock to ~~month~~be ~~arrangement. The~~issued ~~lease~~- ~~provides~~common ~~for~~stock” anowed ~~annual~~to ~~rental~~the Consultant as part of ~~approximately~~the agreement and recorded a $7815,000 charge to prepaid expense.

~~Rent~~On ~~expense~~February ~~for~~24, 2012, the ~~nine~~Company ~~months~~entered into ~~ended~~Advisory ~~September~~Board 30agreement with Michael P. Harden under which Michael P. Harden received a total of 100,000 ~~2011~~shares ~~and~~of ~~2010~~the ~~was~~Company's common ~~$58~~stock to vest as follows: 20,~~500~~000 ~~and~~shares ~~$68~~following the execution of the Advisory Board agreement,~~238~~ 20,000 ~~respectively~~shares of the Company's common stock 365 days after the date of the Agreement and 20,000 shares every 180 days thereafter in equal amounts.

~~Board~~On February 24, 2012, the Company entered into Forbearance Agreement with Prem K. Dadlani and extended the date of ~~Advisors~~repayment ~~Agreements~~of the unpaid principal and accrued interest of the Dadlani Note to June 30, 2012 and to issue 100,000 shares of its common stock to him as forbearance consideration.

~~The~~On ~~Company’s~~February ~~board of directors on May 1~~24, ~~2010~~2012, ~~approved~~ the ~~addition~~Company ofentered into ~~two~~a ~~members~~promissory tonote ~~its~~agreement ~~Board~~with ofSanjeev ~~Advisors. Each~~Kohli ofand ~~these~~Pyush ~~members~~Kumar ~~provides~~in ~~assistance to~~ the ~~Company~~principal ~~with~~amount ~~respect~~of to$20,000 ~~their~~each ~~healthcare~~pursuant ~~solution and predictive technology~~ to ~~prospective~~which ~~banking, insurance and healthcare customers~~Mr. As Kohli ~~consideration~~shall ~~for~~receive ~~the~~20,000 ~~placement~~shares ~~on the Board~~ of ~~Advisors,~~ the Company's ~~has,~~common instock ~~addition~~and toan ~~quarterly~~additional ~~cash payments~~40,000 ~~granted~~shares ~~those options under their 2007 Stock Incentive Plan that vest over a two-year period~~ of ~~time~~the ~~commencing in May 2010. The~~ Company's ~~has~~common ~~included~~stock ~~these fees~~ in the ~~their~~event ~~condensed~~that ~~consolidated statements of operations for~~ the ~~nine~~unpaid ~~months~~principal ~~ended September 30, 2011~~ and ~~2010.~~accrued ~~The~~interest ~~Company~~is ~~has entered into consulting agreements with marketing and strategic consulting groups with terms that do~~ not ~~exceed~~paid ~~one~~within ~~year. These~~six ~~companies~~months ~~are~~of ~~to be paid fees for~~ the ~~services~~date ~~they perform. The Company has included these fees in their consolidated statements~~ of ~~operations for~~ the ~~nine~~promissory ~~months ended September 30, 2011 and 2010~~note.

~~INFERX~~On ~~CORPORATION~~February 24, 2012, the Company entered into a promissory note agreement with a consultant for various services, including assistance with financings, with a grant of 150,000 shares of the Company's common stock.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~26

~~SEPTEMBER~~INFERX ~~30, 2011 AND 2010~~CORPORATION

~~NOTE~~NOTES ~~11-~~TO ~~COMMITMENTS~~CONDENSED ~~(CONTINUED)~~CONSOLIDATED FINANCIAL STATEMENTS

~~Consulting~~MARCH ~~Agreements~~31, 2012 AND 2011

OnNOTE ~~January~~11 ~~26,~~COMMITMEMENTS 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.(CONTINUED)

InOn ~~June~~March ~~2010~~13, 2012, the Company entered into a ~~consulting~~Consulting ~~agreement~~Agreement with aAmrit ~~company~~Chase to provide ~~financial~~assistance ~~services~~with ~~and~~the ~~locate~~timely ~~potential~~filing ~~investment opportunities. The term~~ of the ~~agreement~~Company's isForm ~~for one~~10-~~year,~~K ~~and~~for the ~~consultant~~year ended ~~will~~December ~~receive monthly payments of $7~~31,~~500~~ as2011. ~~well~~Under asthe beterms ~~issued 300,000 shares~~ of ~~restricted common stock, and 900,000 warrants that vest over~~ the ~~one-year~~Consulting ~~period~~Agreement ~~and~~Amrit ~~upon~~Chase ~~certain~~is ~~financing~~to ~~criteria~~receive ~~being met. 300~~150,000 shares of the ~~warrants~~Company's common ~~have~~stock ~~vested~~ and ~~the~~a ~~Company~~payment ~~has included these fees in their condensed consolidated statements~~ of ~~operations for the nine months ended September 30~~$10, ~~2011. The agreement terminated in February 2011, and the remaining 600,~~000 ~~unvested warrants have been cancelled~~.

InOn ~~December~~March ~~2010~~13, 2012, the Company entered into anConsulting ~~agreement~~Agreement with ~~Strategic~~Ray ~~Global~~Piluso ~~Advisors,~~to ~~LLC,~~provide aassistance ~~firm~~with ~~that~~the ~~provides~~timely ~~investment~~filing ~~and~~of ~~public~~the ~~relations~~Company's ~~consulting~~Form ~~firm~~10-K ~~services. Pursuant~~for to the ~~agreement,~~year ended ~~Strategic~~December ~~Global Advisors~~31, ~~LLC~~2011. ~~will~~Under ~~receive~~the aterms ~~retainer~~ of ~~$30,000~~the ~~payable~~Consulting inAgreement ~~four~~Ray ~~monthly~~Piluso ~~payments~~received ~~of $7~~100,~~500 and receive 500,~~000 ~~options~~shares toof ~~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 nine months ended September 30, 2011.~~

OnEmployment March 2, 2011, The Board of Directors entered into an agreement with Assured Value Advisors, Inc. for merchant and 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 300,000 have vested ($122,082 in 2011 stock based compensation), and the remaining 200,000 will vest in Q1 2012.Agreements

OnDuring the ~~March~~year 28ended December 31, ~~2011~~2009, the Company entered into four separate employment agreements with their key executives. The employment ~~Board~~agreements ofrange ~~Directors~~in years from three to five, 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 ~~two~~in ~~employees~~total 453,250,000 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 ~~purchase~~an ~~shares~~employee. This agreement was for a period of two years. In August and September 2011 the Company's ~~common~~hired ~~stock;~~two employees ~~all~~who ofwere ~~which~~to ~~vested~~receive ~~upon~~200,000 ~~grant~~options that vest equally over the next eight quarters and 60,000 options that vest equally over the next four quarters, respectively. ~~Employees’~~ ~~grant~~As of ~~options~~March ~~was~~31, ~~based~~2012 ona ~~achievement~~total of ~~performance~~120,000 ~~milestones. The~~options from these two employment agreements have vested ~~options~~and were valued at a total of $1337,~~370~~238. The Company has included these fees in their condensed consolidated statements of operations ~~for the nine months ended September 30, 2011~~.

OnNOTE ~~May~~12 2,– ~~2011,~~PROVISION ~~The~~OF ~~Board~~INCOME 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 Board authorized a consulting fee of $8,000 and that the Company should issue the consultant 8,000 shares under the consulting agreement.TAXES

~~INFERX~~Deferred ~~CORPORATION~~income taxes will be determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. At March 31, 2012, deferred tax assets consist of the following:

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Net operating losses	$	1,632,475

Valuation allowance	$	(1,632,4750	)

	$	-

~~SEPTEMBER~~At 30March 31, ~~2011~~2012, ~~AND~~the ~~2010~~Company had net operating loss carry forward in the approximate amount of $4,801,396 available to offset future taxable income through 2032. 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.

~~NOTE 11- COMMITMENTS (CONTINUED)~~27

~~Employment~~INFERX ~~Agreements~~CORPORATION

~~During~~NOTES ~~the~~TO ~~year~~CONDENSED ~~ended~~CONSOLIDATED 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. In August and September 2011 the company hired two employees who are to receive 200,000 options that vest equally over the next eight quarters and 60,000 options that vest equally over the next four quarters, respectively. As of September 30, 2011 a total of 35,000 options from these two employment agreements have vested and were valued at a total of $9,956. The Company has included these fees in their condensed consolidated statements of operations for the nine months ended September 30, 2011.FINANCIAL STATEMENTS

~~NOTE~~MARCH ~~12-~~31, ~~PROVISION~~2012 ~~FOR~~AND ~~INCOME TAXES~~2011

~~Deferred~~NOTE ~~income~~12 ~~taxes~~– ~~will~~PROVISION beOF ~~determined~~INCOME ~~using~~TAXES the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. At September 30, 2011, deferred tax assets consist of the following:(CONINUED)

Net operating losses	$	1,138,571
Valuation allowance	$	(1,138,571	)
	$	-

A reconciliation of the Company’s effective tax rate as a percentage of income before taxes and federal statutory rate for the nine months ended March 31, 2012 and 2011 is summarized below.

At September 30, 2011, the Company had net operating loss carry forward in the approximate amount of $3,348,739, 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.

	2012			2011
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	%

ANOTE ~~reconciliation~~13- ofRELATED ~~the~~PARTY ~~Company’s effective tax rate as a percentage of income before taxes and federal statutory rate for the nine months ended September 30, 2011 and 2010 is summarized below.~~TRANSACTIONS

	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	%

The Company has a rent expense in the amount for the three months ended March 31, 2012 and 2011 of $19,500 and $22,446, respectively to a company owned by a relative of an officer of the Company. . In addition, the Company has outstanding fees due the former President & CEO of $725,000 as of March 31, 2012 relating to past due distributions prior to the reverse merger.

~~INFERX~~NOTE ~~CORPORATION~~14- MAJOR CUSTOMERS

~~NOTES~~For TOthe ~~CONDENSED~~three ~~CONSOLIDATED~~months ~~FINANCIAL~~ended ~~STATEMENTS~~March 31, 2012 and 2011, the Company derived 100% and 82% of its revenue from five and two customers, respectively. These customers are considered major customers as they represent 10% or more of total revenue. The Company does not believe that there is any customer concentration risk associated with these customers.

~~SEPTEMBER~~NOTE ~~30,~~15- ~~2011~~FAIR ~~AND~~VALUE ~~2010~~MEASUREMENTS

~~NOTE~~The ~~13-~~Company ~~RELATED~~adopted ~~PARTY~~certain ~~TRANSACTIONS~~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:

~~The~~Level ~~Company~~1 ~~has~~inputs: aQuoted ~~rent~~prices ~~expense in the amount~~ for ~~the~~identical instruments nine months ended September 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 September 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~~active Mrmarkets. Suri loaned the Company a total of $26,000 on April 16, 2010 and $24,600 on April 30, 2010. The notes were originally due on December 1, 2010, subsequently to September 30, 2011. Currently the Company is negotiating a favorable extension to September 30, 2012 at the same interest rate of 5%.

~~NOTE~~Level 142 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 ~~MAJOR~~whose ~~CUSTOMERS~~inputs are observable or whose significant value drivers are observable.

~~For~~Level ~~the~~3 ~~nine~~inputs: ~~months~~Instruments ended September 30, 2011 the Company has derived 90% 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~~primarily unobservable ~~customer. A~~value ~~major customer is a customer that represents 10% of total revenues~~drivers.

~~NOTE 15- FAIR VALUE MEASUREMENTS~~28

~~The~~INFERX 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:CORPORATION

~~Level~~NOTES 1TO ~~inputs:~~CONDENSED ~~Quoted~~CONSOLIDATED ~~prices for identical instruments in active markets.~~FINANCIAL STATEMENTS

~~Level~~MARCH 231, ~~inputs:~~2012 ~~Quoted~~AND 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.2011

~~Level~~NOTE 315 ~~inputs:~~FAIR ~~Instruments~~VALUE ~~with~~INSTRUMENTS ~~primarily unobservable value drivers.~~(CONTINUED)

~~Item~~The 2.following ~~Management’s~~table ~~Discussion~~represents the fair value hierarchy for those financial assets and ~~Analysis~~liabilities ormeasured ~~Plan~~at fair value on a recurring basis as of ~~Operation.~~March 31, 2012:

The information set forth and discussed in this Management’s Discussion and Analysis or Plan of Operation is derived from our financial statements and the related notes, which are included. The following information and discussion should be read in conjunction with those financial statements and notes, as well as the information provided in our Annual Report on Form 10-K for our fiscal year ended December 31, 2010.

	Level 1		Level 2		Level 3		Total

Cash	$	12,043	$	-	$	-	$	12,043

Total assets	$	12,043	$	-	$	-	$	12,043

Convertible debentures, net of discount	$	-	$	-	$	199,500	$	199,500

Embedded conversion feature and derivative	$	-	$	-	$	29,950,837	$	29,950,837

Total liabilities	$	-	$	-	$	30,150,337	$	30,150,337

~~Overview~~29

~~InferX~~INFERX is a leading provider of next generation Predictive Analytics and Business Intelligence solutions for financial services, healthcare, and government enterprises. Our solutions include a wide variety of innovative technologies that provide critical results for challenges such as healthcare fraud mitigation, healthcare research, financial services risk management and complex intelligence analysis, to name a few. We have pioneered and commercialized a suite of powerful patented technologies for advanced analytical solutions that direct decision making and improve corporate performance across the entire enterprise. Our solutions are targeted towards select sub-subsectors within the healthcare, financial services and public sector markets to address significant ROI opportunities for our clients. Through broad, diversified market adoption of our predictive data analytical solutions, InferX plays a critical role in promoting the safety and security of our nation's assets and its citizens, while also empowering commercial enterprises with the knowledge and material insight necessary to make better business decisions and maximize profits.CORPORATION

~~Predictive~~NOTES ~~analytics~~TO ~~helps~~CONDENSED ~~organizations~~CONSOLIDATED make better decisions by providing empirical, objective and consistent methods of evaluating transactions, customers, or shippers in this context; and doing it at high volumes using disparate and geographically dispersed enterprise databases. These models are often "behavioral" because they may be used to predict future behavior of account or customer actions in regard to; e.g. likelihood of fraudulent behavior. By enabling organizations to instantly differentiate between desirable and undesirable business, predictive models allow them to control the level of risk they are willing to assume and actions to increase profitability. Our patented and patent-pending products simultaneously analyze data in multiple remote locations with disparate formats without the need to move the data to a central data warehouse, thereby preserving the privacy and security of the data.FINANCIAL STATEMENTS

~~Since~~MARCH ~~inception~~31, ~~InferX~~2012 ~~has~~AND evolved from a leading technical, database research and development firm to its current position as a developer of the next generation predictive analytics technology. InferX and its predecessor Datamat Systems Research, Inc. have been in business since 1992, originally as a professional services research and development firm, specializing in technology for distributed analysis of sensory data relating to airborne missile threats under contracts with the Missile Defense Agency and other Department of Defense (DoD) contracts. InferX Delaware was formed in 1999 to commercialize Datamat's missile defense technology to build applications of real time predictive analytics. InferX and Datamat were merged together in August 2006. In October 2006 InferX became public by completing a "reverse merger" with Black Nickel Acquisition Corp. which was a fully reporting "shell company".2011

OnNOTE ~~March~~ 16, 2009, InferX entered into an agreement and plan of reorganization (the “Merger Agreement”) with the Irus Group, Inc. to effect a reverse triangular merger between The Irus Group, Inc. and the Company’s wholly-~~owned~~ ~~subsidiary,~~SUBSEQUENT 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 issued shares to Irus in the transaction. Under the terms of the First Amended and Restated Agreement, the issued and outstanding shares of The Irus Group common stock was automatically converted into the right to receive 56% of the issued and outstanding shares of the Company’s common stock. On October 28, 2009 the merger was completed.EVENTS

~~The~~In November ~~Irus Group~~2008, ~~Inc~~the Company entered into a convertible note with Mr. ~~(“Irus”)~~Prem Dadlani, ~~founded~~ in ~~1996,~~the ~~has~~amount ~~emerged~~of as$15,000, with a ~~star~~term ~~consulting~~of ~~firm~~six months. ~~specializing~~The inCompany ~~bridging~~was ~~corporate~~unable ~~performance~~to ~~management~~repay the note due to cash flow and ~~business~~liquidity ~~intelligence~~issues. ~~systems~~Efforts to ~~help~~obtain ~~clients~~a ~~answer~~forbearance ~~tough~~agreement have ~~business~~not ~~questions~~been successful. ~~Irus’~~ ~~specific~~In ~~domain~~November ~~expertise~~2011, ~~revolved~~Mr. ~~around~~Dadlani ~~the~~through ~~planning,~~legal ~~consulting,~~counsel ~~implementation~~has sought resolution and ~~development~~payment. In an effort of good ~~complex~~faith ~~business~~negotiations ~~intelligence~~with ~~solutions~~Mr. ~~Irus~~ ~~developed~~Dadlani, aThe ~~deep~~Board ~~understanding~~of ~~and~~Directors ~~breadth~~authorized, on February 24, 2012, that the Company issue 100,000 shares of ~~knowledge~~the Company's common stock in ~~enterprise~~exchange ~~budgeting~~for a forbearance agreement in which the unpaid principal and ~~planning~~accrued ~~systems~~interest be extended until June 30, ~~allowing~~2012. ~~Irus~~Subsequently, tosince ~~provide~~the ~~their~~shares ~~customers~~authorized ~~marry~~on ~~critical~~February ~~systems~~24, ~~and~~2012 ~~processes~~were not issued, the Board of Directors authorized, on October 10, 2012, that the Company issue 400,000 shares of the Company’s common stock as consideration for ~~business~~a ~~intelligence~~forbearance ~~into~~agreement ~~corporate~~and ~~performance~~to ~~management~~extend ~~solutions~~the maturity date of his note to April 30, 2013.

~~Irus’~~On ~~strategic~~April ~~approach~~3, ~~coupled~~2012, ~~with~~the ~~broad~~company ~~business~~was ~~understanding,~~notified of ~~and~~a ~~proven~~Warrant ~~processes,~~In ~~tied~~Debt tohad ~~technical~~been ~~proficiency~~filed in ~~major~~the ~~business~~General ~~intelligence,~~District ~~corporate~~Court ~~performance~~of ~~management~~Fairfax County, ~~and~~Virginia, ~~budgeting~~by ~~and~~PCT ~~planning~~Law ~~applications~~Group, ~~help~~PLLC, ~~improve~~to ~~client~~appear in ~~business~~General ~~performance. Notably~~District Court of Fairfax County, ~~Irus~~Virginia ~~provided~~on ~~clients~~April ~~comprehensive~~30, ~~support~~2012 ~~for~~in ~~their~~the ~~financial~~matter ~~and~~to ~~operational~~resolve ~~management~~unpaid ~~processes,~~debt ~~which~~in ~~included:~~the ~~capture~~amount of ~~critical~~$12,156 plus ~~business~~attorney’s ~~functional~~fees ~~requirements;~~and ~~strategic~~court ~~planning~~costs. ~~for~~The ~~future~~Company ~~growth~~received ~~and~~a ~~expansion;~~Garnishment ~~systems~~Summons ~~development~~dated ~~and~~November ~~implementation;~~14, ~~and~~2012 ~~training. Irus~~from ~~successfully~~the ~~implemented~~Court ~~projects~~of Fairfax ~~across~~County, aVirginia ~~broad~~for ~~cross-section~~the ofunpaid ~~clients~~amount inplus ~~the~~interest, ~~United~~judgment ~~States~~costs, and ~~Canada,~~attorney ~~which~~fees ~~have~~for ~~included~~a ~~government,~~total ~~financial~~of ~~services~~$16,883.69. ~~retail~~Although the Company disputes the amount outstanding, ~~manufacturing~~the Company is in negotiations with PCT Law Group, ~~and~~PLLC ~~telecommunications~~for settlement.

~~Historically,~~On weApril ~~have derived nearly all of our sales revenues under federal government contracts. Under these contracts~~13, we2012 ~~performed~~the ~~several~~Company ~~critical~~filed ~~tasks,~~a ~~including~~Form 8-K ~~research~~with ~~and~~the ~~development~~Securities and ~~professional~~Exchange ~~services~~Commission ~~consulting. Through~~notifying ~~terms~~shareholders ofthat ~~the~~on ~~contracts~~April ~~with~~6, ~~our customers~~2012, weas ~~were~~a ~~able~~result toof ~~retain~~a ~~ownership~~deadlocked Board of Directors the ~~intellectual~~following ~~property~~employees ~~associated~~submitted ~~with~~their ~~R&D~~letter ~~efforts;~~of ~~which~~resignation ~~ultimately~~as ~~led~~employees toof the ~~creation~~Company: ~~of our current products~~B. InK. ~~fiscal~~Gogia, ~~2002~~President, Technology ~~faced~~Solutions ~~with~~Group, ~~the~~Raimondo ~~prospect~~Piluso, ofCOO ~~continuing to receive relatively small~~ and ~~uncertain~~Vice ~~margins~~President ~~associated~~of ~~with~~Business ~~fixed~~Development, ~~price~~Jerzy ~~government~~Bala, ~~contracts~~CTO, and ~~the~~Rahul ~~inherent limit of the market size~~Argade, Senior weDirector. ~~began~~B.K. toGogia ~~further~~maintained ~~develop~~his ~~our~~position ~~software~~ as aChairman ~~commercial~~of ~~product, concentrating on building specific applications that we believed would meet~~ the ~~growing~~Board ~~needs~~ of ~~our~~Directors. ~~potential~~Subsequently, ~~new~~Jerzy ~~customers. In~~Bala, ~~fiscal~~CTO ~~2003~~and Rahul Argade, weSenior ~~sold~~Director ~~our~~rescinded ~~first~~their ~~commercial~~resignations ~~licenses~~based ~~and,~~on ~~since~~the ~~fiscal~~strategy ~~2004,~~and ~~all~~direction ofpresented ~~our~~by ~~revenues~~the ~~have~~former ~~derived~~CEO, ~~from~~Vijay ~~government contracts~~Suri.

WeAdditionally, ~~continue~~in tothe ~~enjoy~~April a13, ~~solid~~2012 ~~performance~~Form 8-K ~~record~~filing ~~for~~the ~~quality~~Company ~~and~~informed ~~on-time~~shareholders ~~performance~~that ~~with~~on ~~our~~April US12, ~~Government~~2012 ~~clients. Our~~Rahul ~~services~~Argade, ~~business~~the ~~consists~~holder of ~~professional~~an IT8% ~~consulting~~secured ~~focused~~convertible ~~on business intelligence~~debenture, issued ~~corporate~~pursuant ~~performance~~to ~~management and predictive analytics support. As~~ a ~~result~~Debenture ofand ~~our~~Warrant ~~merger~~Purchase ~~with~~Agreement ~~the~~dated ~~Irus~~December ~~Group~~23, we2009, ~~expanded~~notified ~~and~~the ~~enhanced~~Company ~~our~~that ~~customer~~it ~~base~~was ~~and~~in ~~services~~default under ~~offerings,~~the ~~which~~terms weof ~~believe~~the ~~will~~Debenture ~~increase~~for ~~our~~failure ~~revenues~~to ~~and~~repay ~~expenses~~the inprincipal ~~comparison~~amount toof ~~recent~~$100,000 ~~periods. Our~~plus ~~services~~interest ~~business~~due, ~~which~~and ~~represented~~that ~~over~~he ~~99%~~would ofbe exercising ~~our~~his ~~total~~default ~~revenues~~remedies inunder ~~fiscal~~the ~~2010~~Debenture, ~~has~~including ~~significantly~~the ~~lower~~default ~~margins~~interest ~~than~~rate ~~our software business. The proportion~~ of ~~our~~22% ~~services~~on ~~revenues~~the ~~relative~~unpaid toprincipal ~~our~~balance effective ~~total~~as ~~revenues~~of inApril ~~nine~~7, ~~months~~2012. ~~ending~~The ~~September~~Debenture ~~30,~~is ~~2011~~secured ~~was affected~~ by ~~our~~all ~~continued~~assets ~~focus on the PA software side~~ of the ~~business~~Company, ~~and~~including ~~the~~its ~~continued~~intellectual ~~uncertainty of the US Government budget~~property.

~~Consulting: Our~~On ~~consulting~~July ~~line~~23, of2012, ~~business~~the isCompany ~~comprised~~filed ofa ~~two~~Form 8-K ~~operating~~with ~~segments:~~the ~~(i)~~Securities ~~providing~~and ~~services~~Exchange toCommission ~~our~~notifying ~~customers~~shareholders inthat ~~support~~Mr. ofVijay ~~their~~Suri, ~~corporate~~President ~~enterprise predictive~~ and ~~advanced~~CEO ~~analytics~~of ~~requirements;~~InferX and ~~(ii)~~a ~~provides~~member of ~~services~~its toBoard BIof ~~customers~~Directors, inresigned ~~enterprise~~as ~~architecture~~President ~~design~~ and ~~implementation;~~CEO ~~business~~and /from ITthe ~~strategy~~Board ~~alignment;~~of ~~business~~the ~~process~~Company. ~~simplification;~~Mr. ~~solution~~B.K. ~~integration;~~Gogia, ~~and~~the ~~product~~founder ~~implementation,~~of ~~enhancements~~InferX, remained ~~and~~as ~~upgrades. Our~~Chairman ~~consulting~~of ~~revenues~~the ~~are~~Board ~~dependent~~and ~~upon~~assumed ~~general~~the ~~economic~~positions ~~conditions~~of ~~and~~Acting ~~the~~President ~~level~~and CEO of ~~product~~InferX ~~revenues,~~while ~~including~~he ~~the~~started ~~new~~to ~~software~~form ~~license~~a ~~sales~~new management ofteam ~~our~~for ~~application~~the ~~products~~Company. To ~~the~~Jerzy ~~extent~~Bala, weCTO, ~~are~~tendered ~~able~~his resignation toon ~~grow~~June ~~our~~15, ~~software~~2012, ~~products~~and ~~revenues;~~Rahul weArgade, ~~would~~Senior Director, also ~~generally~~tendered ~~expect~~his ~~to be able to grow our consulting revenues~~resignation.

~~Software Business: Our software business, which represented less than 1%, of our total revenues in nine months ending September~~ 30, 2011, is comprised of two operating segments: (i) new software licenses and (ii) software license updates and product support. The company made significant investment in developing new healthcare and financial services solutions working with partners as addressed in business section. We expect that our software business’ total revenues in 2011 will increase due to the continued demand for our PA software products and software license updates and product support offerings. We will continue to make further investments in research and development to meet customer demand and changing market conditions. Future software revenues will significantly increase, as we bring to market our software-as-a-service (SaaS) and platform-as-a-service (PaaS) delivery models.

~~During~~INFERX this fiscal quarter, the Company continued to place great emphasis on the enhancement and development of our core technology products and the adaptation into market-sector specific solutions. This concentration of effort resulted in higher overhead, on a year over year basis, consisting primarily of personnel related expenditures; as noted by the recent management hire for our Cyber Security solution. Key to our future, we intend to continue to invest significantly in our product research and development and market-driven technology solutions because they are essential to maintaining our competitive position.CORPORATION

~~Critical~~NOTES ~~Accounting~~TO ~~Policies~~CONSOLIDATED FINANCIAL STATEMENTS

~~The~~DECEMBER preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We rely on historical experience and on other assumptions we believe to be reasonable under the circumstances in making our judgments and estimates. Actual results could differ from those estimates. We consider our critical accounting policies to be those that are complex and those that require significant judgments and estimates31, ~~including~~2011 ~~the~~AND ~~following: recognition of revenue, capitalization of software development costs and income taxes.~~2010

~~Principles~~NOTE of16- ~~Consolidation~~SUBSEQUENT EVENTS (CONTINUED)

~~The~~As ~~consolidated~~part ~~financial~~of ~~statements~~the ~~include~~July ~~those~~23, 2012 filing of Form ~~InferX~~8-K ~~Corporation~~with the Securities and ~~its~~Exchange ~~wholly-owned~~Commission, ~~subsidiary~~the Company notified shareholders that as a result of a dilutive issuance of shares on December 1, 2010 that was not disclosed to the two holders of debentures issued by the Company that it had sold 1,000,000 shares of common stock in December 2010 to an investor for $0.002 ~~All~~per ~~intercompany~~share. ~~accounts~~This ~~and~~sale ~~transactions~~triggered ~~have~~rights ~~been~~under ~~eliminated~~the debentures to convert debt into common stock at the same price. The Debentures were convertible into shares of common stock at a conversion price equal to $0.20 per share (the "Initial Conversion Price"). The Debentures also provided that, in ~~consolidation~~the event InferX sold any common stock or other equity securities at an effective price per share that was lower than the Initial Conversion Price (a "Dilutive Issuance"), the Initial Conversion Price for the Debenture holders would be reduced to the lower price per share charged in connection with the Dilutive Issuance.

~~Use~~Without knowledge of ~~Estimates~~the Dilutive Issuance, one of the debenture holders sent notices of conversion on January 19, 2011, May 19, 2011 and December 5, 2011. On each occasion, InferX honored the holder’s conversion request but utilized the Initial Conversion Price of $0.20 instead of the Base Conversion price of $0.002 per share. As a result of InferX's failure to apply the Base Conversion Price listed in the debenture, conversions on January 19, 2011, May 19, 2011 and December 5, 2011, InferX failed to issue 57,737,870 shares of common stock due to the debenture holder. On June 17, 2012, the other debenture holder notified InferX and Vijay Suri that he was converting $20,000 of principal and $21,397 in interest due into InferX common stock. Applying the Base Conversion Price that resulted from the Dilutive Issuance, the Company should have issued the second debenture holder 20,698,615 shares.

~~The~~As ~~preparation~~a result of ~~consolidated~~the ~~financial~~Dilutive ~~statements~~Issuance, inthe debenture ~~conformity~~holders ~~with~~were ~~accounting~~eligible ~~principles~~to ~~generally~~be ~~accepted~~issued in78,436,485 shares of common stock. Instead, the ~~United~~debenture ~~States~~holders elected to receive only 23,698,615 of ~~America~~the ~~requires~~shares ~~management~~due tothe ~~make~~debenture ~~estimates~~holders and ~~assumptions~~to ~~that~~release ~~affect~~ the ~~reported~~Company ~~amounts~~from ofany ~~assets~~financial ~~and~~damages ~~liabilities~~incurred. ~~and~~The ~~disclosures~~debenture holders have offered to place 57.48% or 44,737,870 of ~~contingent~~the ~~assets~~shares ~~and~~due ~~liabilities~~the atdebenture holders into escrow for the ~~date~~Company ofto use to secure the ~~financial~~necessary ~~statements~~financing, incentivize additional management talent and make acquisitions and forego being issued 10,000,000 shares. A percentage of the ~~reported~~escrowed ~~amounts~~shares, to be mutually agreed to, will be cancelled upon the settlement of ~~revenue~~outstanding debt and ~~expenses~~past ~~during~~due ~~the~~salaries, ~~reporting~~certain ~~period.~~intellectual ~~Actual~~property ~~results~~and ~~could~~patent ~~differ~~enhancement ~~from~~of ~~those~~its ~~estimates~~current software products, and future financings.

~~Cash~~Immediately prior to the issuance of the shares of InferX common stock under the Debentures, there are 20,669,453 shares issued and ~~Cash~~outstanding ~~Equivalents~~of which Vijay Suri owned 9,779,768 shares or 48.9% of the issued and outstanding shares of InferX. Following the conversion of the Debentures there would be 44,368,068 shares of InferX common stock issued and outstanding. The debenture holders owned 23,698,615 shares directly, excluding the 44,737,870 escrowed shares discussed above.

WeAs ~~consider~~a ~~all~~result ~~highly~~of ~~liquid~~the ~~debt~~resignation ~~instruments~~of Vijay Suri, President and ~~other~~CEO ~~short-term~~of ~~investments~~InferX ~~with~~and a ~~maturity~~member of ~~six~~its ~~months~~Board orof ~~less~~Directors; B.K. Gogia became the sole member of the Board of Directors of the Company. The Board on October 10, ~~when~~2012 ~~purchased~~issued a warrant to a consultant to purchase up to 2,000,000 shares of the Company’s common stock at an exercise price of $0.04 per share for five years; all of which shares vested immediately. In light of dilutive issuance in December 2010, the Board reduced the Series B Preferred stock conversion price from $0.40 to be$0.07 ~~cash~~per ~~equivalents~~share and repriced the warrants from $0.75 to $0.20 to the eight purchasers of the 1,156,250 Series B Preferred Shares.

~~We maintain cash and cash equivalent balances at one financial institution that is insured by the Federal Deposit Insurance Corporation up to $250,000.~~31

~~Allowance~~INFERX ~~for Doubtful Accounts~~CORPORATION

WeNOTES ~~provide~~TO anCONDENSED ~~allowance~~CONSOLIDATED 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.FINANCIAL STATEMENTS

~~Fixed~~MARCH ~~Assets~~31, 2012 AND 2011

~~Fixed~~NOTE ~~assets are stated at cost, less accumulated depreciation. Depreciation is provided using the straight~~16-~~line~~ ~~method~~SUBSEQUENT ~~over~~EVENTS ~~the estimated useful lives of the related assets~~ (~~primarily three to five years~~CONTINUED)~~. Costs of maintenance and repairs are charged to expense as incurred.~~

~~Computer~~The ~~Software~~Board ~~Development~~of ~~Costs~~Directors on October 10, 2012 authorized the voluntary release and conversion of past due salary of four employees in the amount of $1,240,303 into 20,730,390 shares of the Company’s common stock at a conversion price of $0.10. The Board of Directors also issued to a consultant 1,000,000 shares of common stock at a conversion price of $0.04, for advice and counsel with two separate complex investment financing initiatives the Company was undertaking.

~~During~~On ~~2009~~October ~~and~~15, ~~2011~~2012, the Company ~~capitalized~~was ~~certain~~notified of ~~software~~a ~~development~~Summons ~~costs. The~~to ~~Company~~appear ~~capitalizes the cost of software~~ in ~~accordance with ASC 985-20 once technological feasibility has been demonstrated, as~~ the ~~Company~~Superior ~~has~~Court inof ~~the past sold~~Washington, ~~leased or otherwise marketed their software~~DC, ~~and plans~~ on ~~doing~~October so13, ~~in the future. The Company capitalizes costs incurred to develop and market their privacy preserving software during the development process~~2012, ~~including~~in ~~payroll~~a ~~costs~~matter ~~for~~which ~~employees~~Fairchild ~~who are directly associated with the development process~~Consultants, ~~services performed by consultants~~LLC, d/b/a ~~and~~Global ~~attributable~~Services ~~overhead~~a ~~costs. Amortization~~marketing ofsupport ~~such~~consulting ~~costs~~services firm is ~~based~~seeking onunpaid ~~the~~general ~~greater~~consulting ofservices ~~(i)~~fees ~~the~~in ~~ratio of current gross revenues to~~ the ~~sum~~ amount of ~~current and anticipated gross revenues~~$9,900. orAlthough ~~(ii)~~ the ~~straight-line~~Company ~~method~~disputes ~~over~~ the ~~remaining~~amount ~~economic life of the software~~outstanding, ~~of five years, as specified in~~ the ~~technological~~Company ~~feasibility~~is ~~study performed by an independent valuation consultant~~ in ~~2006. It~~negotiations iswith ~~possible~~Fairchild ~~that those anticipated gross revenues~~Consultants, ~~the~~LLC to ~~remaining~~settle ~~economic~~this ~~life of the products, or both, may be reduced as a result of future events~~matter. ~~The Company has not developed any software for internal use.~~

~~Recoverability~~On October 25, 2012, the Company filed a Certificate of ~~Long-Lived~~Designation ~~Assets~~pursuant to Section 151 of the General Corporation Law of the State of Delaware to designate the rights and preferences of the 1,500,000 Series B Redeemable Convertible Preferred Stock that bear intterest at the rate of 10% per annum, such interest to be paid annually in cash or in kind based upon the 30 day bid price moving average, at the Company’s discretion.

WeThe ~~review~~Board ~~the~~of ~~recoverability~~Directors, ofon ~~its~~November ~~long-lived~~13, 2012, ~~assets~~entered oninto a ~~periodic~~forbearance ~~basis~~agreement ~~whenever~~with ~~events~~Fourth ~~and~~Street ~~changes~~Fund into ~~circumstances~~extentd ~~have~~the ~~occurred~~maturity ~~which~~date ~~may~~of ~~indicate~~the aDebenture ~~possible~~to ~~impairment~~July 24, 2013. The ~~assessment~~Company ~~for~~also ~~potential~~agreed ~~impairment~~with isFourth ~~based~~Street ~~primarily~~Fund onto correct the ~~Company’s~~amount ~~ability~~due under the Debenture, to ~~recover~~convert ~~the~~certain ~~carrying~~interest ~~value~~due under ofthe ~~its~~Debenture, ~~long-lived~~and ~~assets~~to ~~from~~issue ~~expected~~additional ~~future~~shares ~~cash~~of ~~flows~~the ~~from~~Company’s ~~its~~common ~~operations~~stock onunder anthe ~~undiscounted~~Class ~~basis. If~~A, ~~such~~B, ~~assets~~and ~~are~~C ~~determined~~warrant toconversions as bea ~~impaired,~~result of the ~~impairment~~dilutive ~~recognized~~issuance isby the ~~amount~~Company byin ~~which~~December 2010 that reduced the ~~carrying~~share ~~value~~price of the ~~assets~~Company’s ~~exceeds~~common stock ~~the~~to ~~fair~~$0.002 ~~value~~per ofshare. Additionally, the ~~assets. Fixed~~Company ~~assets~~agreed to beallow ~~disposed~~Fourth ofStreet byCapital ~~sale~~to ~~are~~gift ~~carried~~certain atprincipal amounts of the ~~lower~~debenture to a number of persons, and to limit the ~~then~~amount ~~current~~of ~~carrying~~further ~~value~~reductions for or$50,000 ~~fair~~of ~~value~~unpaid ~~less~~principal ~~estimated~~under ~~costs~~the Debenture to ~~sell~~$0.20 per share in the event that the Company met a new investment financing deadline of December 31, 2012.

~~Revenue~~In ~~Recognition~~an effort to obtain required equity or debt financing for technology development, market penetration and revenue growth, the Board of Directors sought additional financing on October 2, 2012, the Board of Directors authorized the sale of an aggregate 16,666,667 shares of the Company’s common stock for a maximum purchase price of $500,000 based upon a per share price of $0.03, or a pre-money valuation of approximately $3,000,000, and established an aggregate minimum purchase of $200,000, representing 6,666,666 shares of the Company’s common stock. These shares were to be issued to equity investores as a unit of the Company’s common stock and a warrant exercisable for five years to purchase 50% of the number of shares of common stock purchased by each investor, at an exercise price of $0.05 per share.

~~Revenue~~Under isthe ~~recognized~~terms ~~when persuasive evidence~~ of anthe ~~arrangement~~above ~~exists~~financing, ~~delivery has occurred,~~ the ~~fee~~Company isreceived ~~fixed~~on orDecember ~~determinable~~4, ~~and~~2012 ~~collectability~~from isone ~~probable. We~~investor ~~enter into certain arrangements where we are obligated to deliver multiple products and/or services (multiple elements). In these transactions~~$6,000, werepresenting ~~allocate~~ the ~~total~~sale ~~revenue~~of ~~among~~200,000 ~~the~~shares ~~elements~~of ~~based on~~ the ~~sales~~Company’s common ~~price~~stock ofand ~~each~~issued ~~element~~a ~~when~~warrant ~~sold~~exercisable ~~separately~~for ~~(vendor-specific~~five ~~objective~~years to ~~evidence). The~~purchase ~~Company generates revenue from application license sales~~100,000 ~~application~~shares ~~maintenance~~of ~~and~~common ~~support,~~stock ~~professional~~at ~~services~~an ~~rendered~~exercise toprice ~~customers~~of ~~as well as from application management support contracts~~$0. ~~The~~05 ~~Company’s~~per ~~revenue is generated under time-and-material contracts and fixed-price contracts~~share.

~~Our~~To ~~business~~meet iscritical ~~not~~short-term ~~seasonal~~financial inrequirements the ~~nature. The~~Company ~~timing~~entered ofinto ~~contract~~a ~~awards,~~5% ~~the~~Convertible ~~availability~~Promissory ~~of funding from the customer~~Note, ~~the~~with ~~incurrence~~an ofinvestor ~~contract~~in ~~costs and unit deliveries are~~ the ~~primary~~amount ~~drivers~~ of ~~our revenue recognition~~$6,500. ~~These~~ ~~factors~~Under ~~are influenced by~~ the ~~federal~~terms ~~government’s October-to-September fiscal year. This process has historically resulted in higher revenues in the latter half~~ of the ~~year. Many of our government customers schedule deliveries toward~~ Note, the ~~end~~entire ofprincipal ~~the calendar year~~amount, ~~resulting~~together inwith ~~increasing~~all ~~revenues~~accrued ~~and~~interest ~~earnings~~is ~~over~~due ~~the~~on ~~course~~January of2, ~~the year~~2013.

AtThe ~~this~~Board ~~time~~of weDirectors doon ~~not~~BDecember ~~derive~~14, 2012 ~~revenue~~approved ~~from~~the ~~projects~~issuance ~~involving~~of ~~multiple~~two ~~revenue-generating~~warrants, ~~activities. If~~one afor ~~contract~~2,000,000 ~~would~~shares ~~involve~~of the ~~provision~~Company’s ofcommon ~~multiple~~stock ~~service~~to ~~elements,~~a ~~total~~consultant ~~estimated~~in ~~contract~~connection with ~~revenue~~finding ~~would~~a benew ~~allocated~~management toteam ~~each~~and ~~element~~additional ~~based~~financing onfor the ~~fair~~Company, ~~value~~and ofa ~~each~~second ~~element. The~~warrant ~~amount~~for 3,000,000 shares of ~~revenue~~the ~~allocated~~Company’s common stock to ~~each~~B.K. ~~element~~Gogia ~~would~~for ~~then~~his beexecutive ~~limited~~leadership toand ~~the~~crisis ~~amount~~management role that ishas ~~not~~allowed ~~contingent~~the ~~upon~~Company to continue to operate, raise additional equity financing and complete the ~~delivery~~filing of ~~another~~the ~~element~~Company's inForm 10-K. All warrants vest upon the ~~future~~closing of an initial equity investment of $200,000. ~~Revenue~~ ~~for~~In ~~each~~addition, ~~element~~Mr. ~~would~~Gogia ~~then~~was begranted ~~recognized~~1,500,000 ~~depending~~shares ~~upon~~of ~~whether~~the Company's common stock in recognition of the ~~contract~~assistance ishe ahas ~~time-~~assumed role of Acting President and~~-materials~~ ~~contract~~CEO orwithout aany ~~fixed-price,~~salary ~~fixed-time~~and ~~contract~~for recruiting a new management team.

~~Stock-Based Compensation~~32

InINFERX 2006, we 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, we measured compensation expense for all of our share-based compensation using the intrinsic value method.CORPORATION

WeNOTES ~~have~~TO ~~elected~~CONDENSED toCONSOLIDATED 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. We recognize these compensation costs, net of an estimated forfeiture rate, on a pro rata basis over the requisite service period of each vesting tranche of each award. We consider voluntary termination behavior as well as trends of actual option forfeitures when estimating the forfeiture rate.FINANCIAL STATEMENTS

WeMARCH ~~measure compensation expense for non-employee stock-based compensation under ASC 505-50~~31, ~~“Accounting~~2012 ~~for~~AND 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. For common stock issuances to non-employees that are fully vested and are for future periods, we classify these issuances as prepaid expenses and expense the prepaid expenses over the service period. At no time have we issued common stock for a period that exceeds one year.2011

~~Concentrations~~NOTE 16 SUBSEQUENT EVENTS (CONTINUED)

~~Financial~~The ~~instruments~~Board ~~that~~of ~~potentially~~Directors ~~subject~~on December 17, 2012, re-priced (i) from $0.30 to $0.05 per share the ~~Company~~warrant issued to ~~significant~~Jerzy ~~concentrations~~Bala to purchase 1,000,000 shares of ~~credit~~Common ~~risk~~Stock and ~~consist~~(ii) ~~principally~~from $.20 to $.03 the option to purchase 1,750,000 shares of ~~accounts~~common ~~receivable~~stock issued to B. ToK. ~~date~~Gogia, ~~accounts~~in ~~receivable~~light ~~have~~of ~~been~~the ~~derived~~assistance that ~~from~~each ~~contracts~~provided ~~with~~to ~~agencies~~the Company following the resignation of Vijay Suri and the ~~federal~~inability ~~government~~of the Company to pay any cash compensation to them. ~~Accounts~~ ~~receivable~~The ~~are~~Company ~~generally~~also ~~due~~issued ~~within~~500,000 30of ~~days~~shares ~~and~~of noits ~~collateral~~common isstock ~~required~~to Chris Manthorne one of the Company’s former employees for settlement of his past due salary.

~~Segment~~The ~~Reporting~~Board of Directors on December 20, 2012 appointed Paul B. Silverman as the new President and CEO and as a Director. The Company agreed to issue to Paul B. Silverman a total of 15.0 million warrants linked to Company’s growth, performance, and future financing under terms as defined below. The Company issued to Paul B. Silverman warrants to purchase shares of its common stock for a period of five years with an exercise price of $.03 per share or fair market value, whichever is lower, and a cashless exercise provision. Warrants are vested subject to revenue and market capitalization milestones.

WeThe ~~follow~~Board ~~the~~of ~~provisions~~Directors ofon ~~ASC~~December ~~280-10~~20, 2012 ~~“Disclosures~~appointed ~~about~~Carlyle ~~Segments~~D. Eckstein as a new member of anthe ~~Enterprise~~Board of Directors and ~~Related~~issued ~~Information~~a warrant to purchase 400,000 shares at $.”03 ~~This~~per ~~standard~~share. ~~requires~~The ~~that~~Board ~~companies~~of ~~disclose~~Directors ~~operating~~also ~~segments~~appointed ~~based~~Mr. onEckstein as Senior Advisor for the ~~manner~~Company inand ~~which~~issued ~~management~~a ~~disaggregates~~warrant ~~the~~to ~~company~~purchase 600,000 inshares ~~making~~of ~~internal~~the ~~operating~~Company’s ~~decisions~~common stock at $.03 Weper ~~believe~~share ~~that~~which ~~there~~will isvest ~~only~~at ~~one~~150,000 ~~operating~~shares ~~segment~~per quarter.

~~Fair~~The ~~Value~~Company could not meet the minimum new investment financing by December 31, 2012. As of ~~Financial~~January ~~Instruments~~3, ~~(other~~2013, ~~than~~total ~~Derivative~~principal ~~Financial~~and ~~Instruments)~~interest due to Fourth Street Fund, LP was $82,214.52. Fourth Street Fund, LP gifted the following amounts: $10,500 on January 3, 2013, $26,000 on January 24, 2013 and $8,379.15 on February 12, 2013, reducing the total principal amount to $37,802.29 as of February 12, 2013.

The ~~carrying~~Company ~~amounts~~added ~~reported~~two inadvisors ~~the~~to ~~consolidated~~its ~~balance~~Board of ~~sheet~~Advisors ~~for~~on ~~cash~~December ~~and~~17, ~~cash equivalents~~2012, ~~and~~Robert ~~accounts~~King ~~payable~~and ~~approximate~~Manish ~~fair~~Nandy, ~~value~~and ~~because~~two ofadditional ~~the~~advisors ~~immediate~~on orMarch ~~short-term~~6, ~~maturity~~2013, ~~of these financial instruments~~Dr. ~~For~~ ~~the~~Oliver ~~notes~~Alabaster and ~~payable,~~Lawerence ~~the carrying amount reported is based upon the incremental borrowing rates otherwise available to the Company for similar borrowings~~Hoffman.

~~Convertible Instruments~~33

WeItem ~~review~~2. ~~the~~Management’s ~~terms~~Discussion ~~of convertible debt~~ and ~~equity~~Analysis ~~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~~Plan ~~settle the conversion option is not within our control, are bifurcated and accounted for as a derivative financial instrument. Bifurcation~~ of ~~the embedded derivative instrument requires allocation of the proceeds first to the fair value of the embedded derivative instrument with the residual allocated to the debt instrument~~Operation. ~~The resulting discount to the face value of the debt instrument is amortized through periodic charges to interest expense using the Effective Interest Method.~~

~~Income~~The ~~Taxes~~information set forth and discussed in this Management’s Discussion and Analysis or Plan of Operation is derived from our financial statements and the related notes, which are included. The following information and discussion should be read in conjunction with those financial statements and notes, as well as the information provided in our Annual Report on Form 10-K for our fiscal year ended December 31, 2010.

~~Uncertainty~~InferX is a leading provider of next generation Predictive Analytics and Business Intelligence solutions for financial services, healthcare, and government enterprises. Our solutions include a wide variety of innovative technologies that provide critical results for challenges such as healthcare fraud mitigation, healthcare research, financial services risk management and complex intelligence analysis, to name a few. We have pioneered and commercialized a suite of powerful patented technologies for advanced analytical solutions that direct decision making and improve corporate performance across the entire enterprise. Our solutions are targeted towards select sub-subsectors within the healthcare, financial services and public sector markets to address significant ROI opportunities for our clients. Through broad, diversified market adoption of our predictive data analytical solutions, InferX plays a critical role in ~~Income~~promoting ~~Taxes~~the safety and security of our nation's assets and its citizens, while also empowering commercial enterprises with the knowledge and material insight necessary to make better business decisions and maximize profits.

~~Under~~Predictive ~~ASC~~analytics helps ~~740-10-25~~organizations ~~recognition~~make better decisions by providing empirical, objective and ~~measurement~~consistent methods of ~~uncertain~~evaluating ~~income~~transactions, customers, ~~tax~~or ~~positions~~shippers isin ~~required~~this context; and doing it at high volumes using adisparate ~~“more-likely-than-not”~~and ~~approach~~geographically dispersed enterprise databases. We These ~~evaluate~~models ~~our~~are ~~tax~~often ~~positions~~"behavioral" onbecause anthey ~~annual~~may ~~basis~~be used to predict future behavior of account or customer actions in regard to; e.g. likelihood of fraudulent behavior. By enabling organizations to instantly differentiate between desirable and undesirable business, predictive models allow them to control the level of risk they are willing to assume and ~~have~~actions ~~determined~~to ~~that~~increase profitability. noOur ~~additional~~patented ~~accrual~~and ~~for~~patent-pending ~~income~~products ~~taxes~~simultaneously isanalyze ~~necessary~~data in multiple remote locations with disparate formats without the need to move the data to a central data warehouse, thereby preserving the privacy and security of the data.

Since inception, InferX has evolved from a leading technical, database research and development firm to its current position as a developer of the next generation predictive analytics technology. InferX and its predecessor Datamat Systems Research, Inc. have been in business since 1992, originally as a professional services research and development firm, specializing in technology for distributed analysis of sensory data relating to airborne missile threats under contracts with the Missile Defense Agency and other Department of Defense (~~Loss~~DoD) ~~Per~~contracts. ~~Share~~InferX Delaware was formed in 1999 to commercialize Datamat's missile defense technology to build applications of ~~Common~~real ~~Stock~~time predictive analytics. InferX and Datamat were merged together in August 2006. In October 2006 InferX became public by completing a "reverse merger" with Black Nickel Acquisition Corp. which was a fully reporting "shell company".

~~Basic~~On ~~net~~March ~~(loss)~~16, ~~per~~2009, InferX ~~common~~entered ~~share~~into an agreement and plan of reorganization (the “~~EPS~~Merger Agreement”) iswith ~~computed~~the ~~using~~Irus ~~the~~Group, ~~weighted~~Inc. ~~average~~to ~~number~~effect a ofreverse ~~common~~triangular ~~shares~~merger ~~outstanding~~between ~~for~~The Irus Group, Inc. and the ~~period~~Company’s wholly-owned subsidiary, Irus Acquisition Corp. ~~Diluted~~ (formed ~~earnings~~for ~~per~~the ~~share~~purpose ~~include~~of ~~additional~~completing ~~dilution~~this ~~from~~transaction). ~~common~~The ~~stock~~Merger ~~equivalents~~Agreement was then amended on June 15, ~~such~~2009 as(the ~~stock~~“First Amended ~~issuable~~and ~~pursuant~~Restated Agreement”) to reflect the ~~exercise~~change in the amount of ~~stock~~the ~~options~~issued ~~and~~shares ~~warrants~~to Irus in the transaction. ~~Common~~ ~~stock~~Under the ~~equivalents~~terms ~~are~~of ~~not~~the ~~included~~First inAmended and Restated Agreement, the ~~computation~~issued and outstanding shares of ~~diluted~~The ~~earnings~~Irus ~~per~~Group ~~share~~common ~~when~~stock was automatically converted into the ~~Company~~right ~~reports~~to areceive ~~loss~~56% ~~because~~of tothe doissued soand ~~would~~outstanding beshares ~~anti-dilutive~~of ~~for~~the Company’s common stock. On October 28, 2009 the ~~periods~~merger ~~presented~~was completed.

~~Research~~The Irus Group, Inc. (“Irus”), founded in 1996, specialized in bridging corporate performance management and ~~Development~~business intelligence systems to help clients answer tough business questions. Irus’ specific domain expertise revolved around the planning, consulting, implementation and development of complex business intelligence solutions. Irus developed a deep understanding and breadth of knowledge in enterprise budgeting and planning systems, allowing Irus to provide their customers marry critical systems and processes for business intelligence into corporate performance management solutions.

Research and development expenses include payroll, employee benefits, equity compensation, and other headcount-related costs associated with product development. The Company has determined that technological feasibility for the software products is reached shortly before the products are released to manufacturing. Costs incurred after technological feasibility is established are not material, and accordingly, the Company expenses all research and development costs when incurred.34

~~Recent~~Irus’ ~~Issued~~strategic approach, ~~Accounting~~coupled ~~Standards~~with broad business understanding, and proven processes, tied to technical proficiency in major business intelligence, corporate performance management, and budgeting and planning applications, help improve client business performance. Notably, Irus provided clients comprehensive support for their financial and operational management processes, which included: capture of critical business functional requirements; strategic planning for future growth and expansion; systems development and implementation; and training. Irus successfully implemented projects across a broad cross-section of clients in the United States and Canada, which have included government, financial services, retail, manufacturing, and telecommunications.

InHistorically, ~~September~~we ~~2006~~have derived nearly all of our sales revenues under federal government contracts. Under these contracts, ~~ASC~~we ~~820~~performed several critical tasks, ~~“Fair~~including ~~Value~~research ~~Measurements”~~and ~~(ASC~~development ~~820)~~and ~~was~~professional ~~issued~~services consulting. ~~ASC~~Through ~~820~~terms ~~defines~~of ~~fair~~the ~~value~~contracts with our customers, we ~~establishes~~were aable ~~framework~~to ~~for~~retain ~~measuring~~ownership ~~fair~~of ~~value~~the inintellectual ~~generally~~property ~~accepted~~associated ~~accounting~~with ~~principles,~~R&D ~~and~~efforts; ~~expands~~which ~~disclosure~~ultimately ~~about~~led ~~fair~~to ~~value~~the ~~measurements~~creation of our current products. ~~This~~ ~~statement~~In isfiscal ~~effective~~2002, ~~for~~faced ~~financial~~with ~~statements~~the ~~issued~~prospect ~~for~~of ~~fiscal~~continuing ~~years~~to ~~beginning~~receive ~~after~~relatively ~~November~~small ~~15,~~and ~~2007. Early~~uncertain ~~adoption~~margins associated iswith ~~encouraged. The~~fixed ~~adoption~~price government contracts, and the inherent limit of ~~ASC~~the ~~820~~market ~~did~~size, ~~not~~we ~~have~~began to further develop our software as a ~~material~~commercial ~~impact~~product, concentrating on building specific applications that we believed would meet the ~~consolidated~~growing ~~financial~~needs ~~statements~~of our potential new customers. In fiscal 2003, we sold our first commercial licenses and, since fiscal 2004, all of our revenues have derived from government contracts.

InInferX’s ~~February~~services business ~~2007,~~consisted ~~ASC~~of ~~825-10,~~professional ~~“The~~IT ~~Fair~~consulting ~~Value~~focused ~~Option~~on ~~for~~business ~~Financial~~intelligence, ~~Assets~~corporate ~~and~~performance ~~Financial~~management ~~Liabilities”~~and ~~(ASC~~predictive analytics ~~825-10), was issued~~support. ~~This~~As ~~included~~a anresult ~~amendment~~ of ~~ASC~~our ~~320-10,~~merger ~~which~~with ~~permits~~the ~~entities~~Irus toGroup, ~~choose~~we toexpanded ~~measure~~and ~~many~~enhanced ~~financial~~our ~~instruments~~customer base and ~~certain~~services ~~other~~offerings, which ~~items~~we atbelieve ~~fair~~will ~~value~~increase atour ~~specified~~revenues ~~election~~and ~~dates. A~~expenses ~~business~~in ~~entity~~comparison isto ~~required~~recent toperiods. ~~report~~Our ~~unrealized~~services ~~gains~~business, ~~and~~which ~~losses~~represented over on99% ~~items~~of ~~for~~our ~~which~~total ~~the~~revenues ~~fair~~in ~~value~~fiscal ~~option~~2010, has ~~been~~significantly ~~elected~~lower inmargins ~~earnings~~than atour ~~each~~software ~~subsequent~~business. ~~reporting~~The ~~date. This~~proportion ~~statement~~of isour services ~~expected~~revenues relative to ~~expand~~our ~~the~~total ~~use~~revenues ofin ~~fair~~nine ~~value~~months ~~measurement. ASC~~ending ~~825-10~~September is30, ~~effective~~2011 ~~for~~was ~~financial~~affected ~~statements~~by ~~issued~~our ~~for~~continued ~~fiscal~~focus ~~years~~on the ~~beginning~~PA ~~after~~software ~~November~~side ~~15,~~of ~~2008,~~the business and ~~interim~~the ~~periods~~continued ~~within~~uncertainty ~~those~~of ~~fiscal~~the ~~years~~US Government budget.

InConsulting: ~~December~~Our consulting ~~2007,~~line ~~ASC~~of ~~810-10-65,~~business ~~“Noncontrolling~~is ~~Interests~~comprised inof ~~Consolidated~~two ~~Financial~~operating ~~Statements,”~~segments: (~~ASC 810-10-65~~i), ~~was~~providing ~~issued.~~services ~~ASC~~to ~~810-10-65~~our ~~establishes~~customers ~~accounting~~in ~~and~~support ~~reporting~~of ~~standards~~their corporate ~~for~~enterprise ~~ownership~~predictive ~~interests~~and inadvanced ~~subsidiaries~~analytics ~~held~~requirements; byand ~~parties~~(ii) ~~other~~providing ~~than~~services ~~the~~to ~~parent,~~BI ~~changes~~customers in aenterprise architecture ~~parent’s~~design ~~ownership~~and ofimplementation; abusiness ~~noncontrolling~~/ ~~interest,~~IT ~~calculation~~strategy alignment; business process simplification; solution integration; and ~~disclosure~~product ofimplementation, ~~the~~enhancements, ~~consolidated~~and ~~net~~upgrades. ~~income~~Our ~~attributable~~consulting torevenues ~~the~~are ~~parent~~dependent upon general economic conditions and the ~~noncontrolling~~level ~~interest~~of product revenues, ~~changes~~including inthe anew ~~parent’s~~software ~~ownership~~license ~~interest~~sales ~~while~~of our application products. To the ~~parent~~extent ~~retains~~we ~~its~~are ~~controlling~~able to ~~financial~~grow ~~interest~~our ~~and~~software ~~fair~~products ~~value~~revenues; ~~measurement~~we ofwould ~~any~~also ~~retained~~generally ~~noncontrolling~~expect ~~equity~~to ~~investment~~be able to grow our consulting revenues.

~~ASC~~Software ~~810-10-65~~Business: Our software business is ~~effective~~comprised ~~for~~of ~~financial~~two ~~statements~~operating ~~issued~~segments: ~~for~~(i) ~~fiscal~~new ~~years~~software ~~beginning~~licenses ~~after~~and ~~December~~(ii) ~~15,~~software ~~2008,~~license updates and ~~interim~~product support. ~~periods~~The ~~within~~company ~~those~~made ~~fiscal~~significant ~~years. Early~~investment ~~adoption~~in isdeveloping ~~prohibited~~new healthcare and financial services solutions working with partners as addressed in business section. ~~The~~We ~~adoption~~expect ofthat ~~ASC~~our ~~810-10-651~~software ~~did~~business’ ~~not~~total ~~have~~revenues ain ~~material~~2012 ~~impact~~will onincrease due to the continued demand for our ~~consolidated~~PA ~~financial~~software ~~position~~products and software license updates and product support offerings. InferX will continue to make further investments in research and development to meet customer demand and changing market conditions. Future software revenues will significantly increase, ~~results~~as ofwe ~~operations~~bring orto ~~cash~~market ~~flows~~our software-as-a-service (SaaS) and platform-as-a-service (PaaS) delivery models.

InDuring ~~December~~this ~~2007~~fiscal quarter, the Company ~~adopted~~continued ~~ASC~~to ~~805,~~place ~~“Business~~great ~~Combinations”~~emphasis ~~(ASC~~on ~~805). ASC 805 has~~ the ~~fundamental~~enhancement ~~requirements~~and ~~that~~development ~~the acquisition method~~ of ~~accounting~~our becore ~~used~~technology ~~for~~products ~~all business combinations~~ and ~~for~~the adaptation aninto ~~acquirer~~market-sector tospecific besolutions. ~~identified~~This ~~for~~concentration ~~each~~of ~~business~~effort ~~combination. ASC~~resulted ~~805~~in ~~defines~~higher ~~the~~overhead, ~~acquirer~~on asa ~~the~~year ~~entity~~over ~~that~~year basis, ~~obtains~~consisting ~~control~~primarily of ~~one~~personnel orrelated ~~more~~expenditures; ~~businesses~~as innoted ~~the~~by ~~business combination and establishes~~ the ~~acquisition~~recent ~~date~~management ashire ~~the~~for ~~date~~our ~~that~~Cyber ~~the~~Security ~~acquirer achieves control~~solution. ~~ASC~~ Key ~~805 will require an entity~~ to ~~record~~our ~~separately from the business combination the direct costs~~future, ~~where~~we ~~previously~~intend ~~these~~to ~~costs~~continue ~~were included in the total allocated cost of the acquisition. ASC 805 will require an entity~~ to ~~recognize~~invest ~~the~~significantly ~~assets~~in ~~acquired,~~our ~~liabilities~~product ~~assumed,~~research and ~~any~~development ~~non~~and market-~~controlling~~driven ~~interest~~technology solutions inbecause ~~the~~they ~~acquired~~are atessential ~~the~~to ~~acquisition~~maintaining ~~date,~~our atcompetitive ~~their fair values as of that date~~position.

~~ASC~~Critical ~~805~~Accounting Policies 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 of this standard is not permitted and the standards are to be applied prospectively only. Upon adoption of this standard, there would be no impact to our results of operations and financial condition for acquisitions previously completed. The adoption of ASC 815 did not have a material effect on our consolidated financial position, results of operations or cash flows.

InThe ~~March~~preparation ~~2008,~~of financial ~~ASC~~statements ~~815,~~in ~~Disclosures~~conformity ~~about~~with ~~Derivative~~accounting ~~Instruments~~principles ~~and~~generally ~~Hedging~~accepted ~~Activities”~~in ~~(ASC~~the ~~815),~~United ~~was~~States ~~issued.~~of ~~ASC~~America ~~815~~ requires ~~enhanced~~management to ~~disclosures~~make ~~about~~estimates anand ~~entity’s~~assumptions ~~derivative~~that ~~and~~affect ~~hedging~~the ~~activities. These~~reported ~~enhanced~~amounts ~~disclosures~~of ~~will~~assets ~~discuss:~~and ~~how~~liabilities and ~~why~~disclosures anof ~~entity~~contingent ~~uses~~assets and ~~derivative~~liabilities ~~instruments;~~at ~~how~~the ~~derivative~~date ~~instruments~~of ~~and~~the ~~related~~financial ~~hedged~~statements ~~items~~and ~~are~~the ~~accounted~~reported ~~for~~amounts of revenue and ~~its~~expenses ~~related~~during ~~interpretations;~~the ~~and~~reporting ~~how~~period. We ~~derivative~~rely ~~instruments~~on historical experience and ~~related~~on ~~hedged~~other ~~items~~assumptions ~~affect~~we anbelieve ~~entity’s~~to ~~financial~~be ~~position,~~reasonable ~~financial~~under ~~performance,~~the ~~and~~circumstances ~~cash~~in ~~flows~~making our judgments and estimates. ~~ASC~~ ~~815~~Actual isresults ~~effective~~could ~~for~~differ ~~financial~~from ~~statements~~those ~~issued~~estimates. ~~for~~We ~~fiscal~~consider ~~years~~our ~~and~~critical ~~interim~~accounting ~~periods~~policies ~~beginning~~to ~~after~~be ~~November~~those ~~15,~~that are ~~2008. ASC~~complex ~~815~~and ~~did~~those ~~not~~that ~~have~~require asignificant ~~material~~judgments ~~impact~~and onestimates, ~~our~~including ~~results~~the following: recognition of ~~operations~~revenue, orcapitalization of ~~financial~~software ~~position~~development costs and income taxes.

In April 2008, ASC 350, “Determination of the Useful Life of Intangible Assets”, (ASC 350), was issued. ASC 350 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. 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. ASC 350 did not materially impact our financial position, results of operations or cash flows.35

InUse 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~~Estimates 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 adoption of ASC 470-20 did not have a material effect on our financial position, results of operations or cash flows.

InThe ~~June~~preparation ~~2008,~~of consolidated ~~ASC~~financial ~~815-40,~~statements ~~“Determining~~in ~~Whether~~conformity anwith ~~Instrument~~accounting ~~(or~~principles ~~Embedded~~generally ~~Feature)~~accepted Isin ~~Indexed~~the toUnited anStates ~~Entity’s~~of ~~Own~~America ~~Stock”~~requires management ~~(ASC~~to ~~815-40),~~make ~~was~~estimates ~~issued. ASC~~and ~~815-40~~assumptions ~~provides~~that ~~guidance~~affect ~~for~~the ~~determining~~reported ~~whether~~amounts anof ~~equity-linked~~assets ~~financial~~and ~~instrument~~liabilities ~~(or~~and ~~embedded~~disclosures ~~feature)~~of iscontingent assets ~~indexed to an entity’s own stock~~ and itliabilities ~~applies~~at ~~to any freestanding financial instrument or embedded feature that has all~~ the ~~characteristics~~date of athe ~~derivative. ASC~~financial ~~815-40~~statements ~~also~~and ~~applies~~the toreported ~~any~~amounts ~~freestanding~~of ~~financial~~revenue ~~instrument~~and ~~that~~expenses isduring ~~potentially~~the ~~settled in an entity’s own stock~~reporting period. ~~ASC~~ ~~815-40~~Actual ~~did not have a material impact on our financial position,~~ results ofcould ~~operations~~differ ~~and~~from ~~cash~~those ~~flows~~estimates.

InAllowance ~~June 2008, ASC 470-20-65, “Transition Guidance~~ for ~~Conforming~~Doubtful ~~Changes~~Accounts 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 ASC 470-20-65 did not have a material effect on that accounting.

InWe ~~May~~provide ~~2009,~~an ~~ASC~~allowance for ~~855,~~doubtful ~~“Subsequent Events”~~accounts, ~~(SFAS~~which ~~165),~~is ~~was~~based ~~published.~~upon ~~ASC~~a ~~855~~review ~~requires~~of ~~the~~outstanding ~~Company~~receivables toas ~~disclose~~well ~~the~~as ~~date~~historical ~~through~~collection ~~which~~information. ~~subsequent~~Credit is ~~events~~granted ~~have~~to ~~been~~substantially ~~evaluated~~all ~~and~~customers ~~whether~~on ~~that~~an ~~date~~unsecured isbasis. ~~the~~In ~~date~~determining the ~~financial~~amount ~~statements~~of ~~were issued or~~ the ~~date~~allowance, ~~the~~management ~~financial~~is ~~statements were available~~ required to bemake ~~issued.~~certain ~~ASC~~estimates ~~855~~and ~~is effective for financial periods ending after June 15, 2009~~assumptions.

~~Effective~~Fixed ~~July~~Assets 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.

InFixed ~~January~~assets ~~2010,~~are ~~the~~stated at ~~Company~~cost, ~~adopted~~less ~~FASB~~accumulated ~~ASU No~~depreciation. ~~2010-06,~~Depreciation ~~Fair~~is ~~Value~~provided ~~Measurement~~using ~~and~~the ~~Disclosures (Topic 820)~~straight-line ~~Improving~~method ~~Disclosures~~over ~~about Fair Value Measurements (ASU 2010-06). These standards require new disclosures on~~ the ~~amount~~estimated ~~and~~useful ~~reason for transfers in and out~~ lives of ~~Level~~the 1related ~~and~~assets 2(primarily ~~fair~~three ~~value~~to ~~measurements.~~five ~~The standards also require new disclosures of activities, including purchases, sales, issuances, and settlements within the Level 3 fair value measurements~~years). ~~The~~Costs ~~standard also clarifies existing disclosure requirements on levels~~ of ~~disaggregation~~maintenance and ~~disclosures~~repairs ~~about inputs and valuation techniques. These new disclosures~~ are ~~effective~~charged ~~beginning~~to ~~with~~expense ~~the~~as ~~first interim filing in 2010~~incurred.

~~The~~Computer ~~disclosures~~Software ~~about~~Development ~~the~~Costs ~~roll forward of information in Level 3 are required for the Company with its first interim filing in 2011. ASU 2010-06 did not have a material impact on our financial statements.~~

InThe ~~February~~Company ~~2010,~~capitalized certain software development costs. The Company capitalizes the ~~FASB~~cost ~~issued~~of ~~ASU~~software ~~2010~~in accordance with ASC 985-0920 once technological feasibility has been demonstrated, ~~“Subsequent~~as ~~Events~~the ~~(Topic~~Company ~~855):~~has ~~Amendments~~in tothe ~~Certain~~past ~~Recognition~~sold, leased or otherwise marketed their software, and ~~Disclosure~~plans on ~~Requirements”~~doing so in the future. ~~This~~The ~~update~~Company ~~addresses~~capitalizes ~~both~~costs ~~the~~incurred ~~interaction~~to ofdevelop ~~the~~and ~~requirements~~market oftheir ~~Topic~~privacy ~~855,~~preserving ~~“Subsequent~~software ~~Events”~~during the development process, including payroll costs for employees who are directly associated with the ~~SEC’s~~development ~~reporting~~process, ~~requirements~~services performed by consultants, and ~~the~~attributable ~~intended~~overhead ~~breadth~~costs. Amortization of ~~the~~such ~~reissuance~~costs ~~disclosures~~is ~~provision~~based ~~related~~on tothe ~~subsequent~~greater ~~events~~of (~~paragraph 855-10-50-4~~i). ~~The~~the ~~amendments~~ratio of incurrent ~~this~~gross ~~update~~revenues ~~have~~to the ~~potential~~sum toof ~~change~~current ~~reporting~~and byanticipated ~~both~~gross ~~private~~revenues, ~~and~~or ~~public~~(ii) ~~entities,~~the ~~however,~~straight-line method over the ~~nature~~remaining economic life of the ~~change~~software, ~~may~~of ~~vary~~five ~~depending~~years, onas ~~facts~~specified ~~and~~in ~~circumstances~~the technological feasibility study performed by an independent valuation consultant in 2006. ~~Adoption~~It is possible that those anticipated gross revenues, the remaining economic life of ~~ASU~~the ~~2010-09~~products, ~~did~~or ~~not~~both, may ~~have~~be reduced as a ~~material~~result ~~impact~~of onfuture ~~the~~events. The Company’s ~~results~~has ofnot ~~operations~~developed orany ~~financial~~software ~~condition~~for internal use.

~~Other~~Recoverability ~~ASU’s~~of ~~that~~Long-Lived ~~have~~Assets ~~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.~~

~~Three~~We ~~Months~~review ~~Ended~~the ~~September~~recoverability of ~~2011~~its long-lived assets on a periodic basis whenever events and ~~2010~~changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment is based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets. Fixed assets to be disposed of by sale are carried at the lower of the then current carrying value or fair value less estimated costs to sell.

Revenue Recognition

Revenue ~~for~~is ~~the~~recognized when ~~three~~persuasive ~~months~~evidence ~~ended~~of ~~September~~an ~~30,~~arrangement ~~2011 was $907~~exists,~~099,~~ adelivery ~~decrease~~has ~~from $1~~occurred,~~104,623~~ ~~for~~ the ~~same~~fee ~~period~~is infixed ~~2010;~~or ~~an 18% decrease~~determinable, ~~our~~and ~~revenues~~collectability is ~~were~~probable. ~~directly~~We ~~impacted~~enter byinto ~~the~~certain ~~termination~~arrangements ofwhere awe ~~couple~~are ofobligated USto ~~Government~~deliver ~~contracts,~~multiple ~~which~~products ~~directly impacted our revenue delivered government contracts~~ and/or USservices ~~Government’s~~(multiple ~~authority~~elements). In tothese ~~finalize~~transactions, ~~new~~we ~~contract~~allocate ~~starts~~the tototal ~~coincide~~revenue ~~with~~among the ~~previous~~elements ~~contract~~based ~~termination. This~~on ~~situation also reflects~~ the ~~continuing~~sales ~~uncertain~~price ~~economic environment across all~~ of ~~our~~each ~~focus~~element ~~market~~when ~~areas~~sold ~~and~~separately (vendor-specific ~~the~~objective ~~slowness of the national economic recovery~~evidence). ~~From~~ aThe ~~customer~~Company ~~market~~generates ~~perspective,~~revenue wefrom ~~did~~application ~~not~~license ~~see a significant improvement in the business environment for capital expenditures across our enterprise~~sales, ~~commercial,~~application ~~and~~maintenance ~~government markets~~and support, ~~during~~professional ~~the~~services ~~three~~rendered ~~months~~to ~~ending~~customers ~~September~~as ~~30,~~well ~~2011. In~~as ~~the~~from ~~third~~application ~~quarter~~management ofsupport ~~fiscal~~contracts. ~~2011~~The ~~and 2010, we had no~~ Company’s revenue ~~from~~is ~~core~~generated PAunder ~~technology~~time-and-material ~~products;~~contracts ~~however~~and wefixed-price ~~have significant PA Technology opportunities in our sales pipeline~~contracts.

~~Cost of Revenues~~36

~~Costs~~Our business is not seasonal in nature. The timing of ~~revenues~~contract ~~for~~awards, the ~~three~~availability ~~months~~of ~~ended~~funding ~~September~~from 30the customer, ~~2011~~the ~~were~~incurrence ~~$623,293,~~of acontract ~~34%~~costs and ~~decrease~~unit ~~from~~deliveries ~~$942,074~~are ~~for~~the primary drivers of our revenue recognition. These factors are influenced by the ~~same~~federal ~~period~~government’s October-to-September infiscal ~~2010~~year. ~~The~~ ~~decrease~~This process has historically resulted ~~primarily~~in ~~from~~higher ~~lower~~revenues ~~revenue~~in ~~and~~the latter half of the ~~associated~~year. ~~lower~~Many of ~~attributable~~our ~~subcontractor~~government ~~costs~~customers asschedule ~~well~~deliveries astoward ~~benefits~~the ~~from~~end ~~our~~of ~~ongoing~~the ~~program~~calendar toyear, ~~optimize~~resulting ~~efficiency~~in increasing revenues and ~~reduce~~earnings over ~~delivery~~the ~~costs~~course of the year.

~~Gross~~At ~~Margin~~this time we do not derive revenue from projects involving multiple revenue-generating activities. If a contract would involve the provision of multiple service elements, total estimated contract revenue would be allocated to each element based on the fair value of each element. The amount of revenue allocated to each element would then be limited to the amount that is not contingent upon the delivery of another element in the future. Revenue for each element would then be recognized depending upon whether the contract is a time-and-materials contract or a fixed-price, fixed-time contract.

InStock-Based ~~the~~Compensation three months ended September 30, 2011, our gross margin percentage increased by approximately 113% from the corresponding period of fiscal 2010. This increase in gross margin percentage for the three months ended September 30, 2011 was the result of a substantial reduction in cost of goods sold which was greater than the decrease in revenue attributable to lower subcontractor costs.

~~Operating~~In ~~Expenses~~2006, we 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, we measured compensation expense for all of our share-based compensation using the intrinsic value method.

~~For~~We ~~the~~have ~~three~~elected ~~months~~to use ~~ended~~the ~~September~~modified–prospective ~~30,~~approach ~~2011~~method. ~~operating~~Under ~~expenses~~that ~~increased~~transition bymethod, ~~approximately~~the ~~43%~~calculated ~~from~~expense ~~the~~in ~~corresponding~~2006 ~~period~~is ofequivalent to ~~fiscal~~compensation ~~2010. The~~expense ~~increase~~for ~~was~~all ~~attributable~~awards togranted ~~higher~~prior ~~overhead~~to, ~~labor~~but ~~and~~not ~~professional~~yet ~~fees~~vested ~~associated~~as ~~with~~of ~~product~~January ~~and~~1, ~~services~~2006, ~~sales~~based ~~and~~on ~~investor~~the ~~relations~~grant-date fair values. ~~Operating~~ ~~expenses~~Stock-based compensation expense for ~~the~~all ~~three~~awards ~~months~~granted ~~ended~~after ~~September~~January 301, ~~2011,~~2006 ~~which~~is ~~include~~based ~~indirect~~on ~~labor,~~the ~~professional~~grant-date ~~fees,~~fair ~~travel,~~values. ~~rent,~~We recognize ~~general~~these ~~and~~compensation ~~administrative~~ costs, ~~stock~~net ~~issued~~of ~~for~~an ~~services~~estimated forfeiture rate, ~~stock~~on ~~based~~a ~~compensation,~~pro ~~and~~rata ~~depreciation,~~basis ~~increased~~over ~~$184,406~~the torequisite ~~$615,184~~service ~~from~~period of ~~$430,778~~each ~~for~~vesting ~~the~~tranche ~~same~~of ~~period~~each inaward. ~~2010~~We consider voluntary termination behavior as well as trends of actual option forfeitures when estimating the forfeiture rate.

We measure compensation expense for non-employee stock-based compensation under ASC 505-50, “Accounting for Equity Instruments that are Issued to Other ~~Income~~Than ~~(Expense)~~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. For common stock issuances to non-employees that are fully vested and are for future periods, we classify these issuances as prepaid expenses and expense the prepaid expenses over the service period. At no time have we issued common stock for a period that exceeds one year.

~~Other~~Concentrations expenses increased by $626,451 in the three months ended September 30, 2011 compared to the corresponding period in fiscal 2010. The decrease is mainly attributable to the fair value decrease in the derivative liability of $839,905 which gets applied as ‘other income’. In addition the company incurred an increase in interest expense of $9,589, and an increase to the loss on extinguishment of debt of $127,723; however the company enjoyed a decrease in the amortization of debt discount of $25,912.

~~Nine~~Financial ~~Months~~instruments that ~~Ended~~potentially ~~September~~subject ~~2011~~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 ~~2010~~no collateral is required.

~~Revenue~~Segment Reporting

~~Revenue~~We ~~for~~follow the ~~nine~~provisions of ~~months~~ASC ~~ended September 30~~280-10, ~~2011~~“Disclosures ~~was~~about $Segments ~~2,789,456, a decrease from $3,813,288 for the same period in 2010; a 27% decrease, our revenues were directly impacted by the inability~~ of ~~the~~an USEnterprise ~~Government to enact a federal budget, which directly impacts our revenue delivered from existing government contracts~~ and ~~our~~Related ~~ability to finalize new contracts~~Information. ” This ~~situation~~standard ~~also~~requires that ~~reflects~~companies ~~the~~disclose ~~continuing~~operating ~~uncertain~~segments ~~economic~~based ~~environment~~on ~~across all of our focus market areas and~~ the ~~slowness~~manner ~~of the national economic recovery. From a customer market perspective, we did not see a significant improvement~~ in ~~the~~which ~~business~~management ~~environment~~disaggregates ~~for capital expenditures across our enterprise, commercial, and government markets, during~~ the ~~last~~company ~~nine~~in ~~months In~~making ~~the~~internal operating ~~first~~decisions. ~~three~~We ~~quarters~~believe ofthat ~~2011~~there weis ~~had~~only noone ~~revenue~~operating ~~from core PA technology products; however we have significant PA Technology opportunities in our sales pipeline~~segment.

~~Cost of Revenues~~37

~~Costs~~Fair Value of ~~revenues~~Financial ~~for~~Instruments ~~the~~(other than ~~nine~~Derivative ~~months~~Financial ~~ended~~Instruments) September 30, 2011 were $1,864,735, a 46% decrease from $3,443,110 for the same period in 2010. The decrease resulted primarily from lower revenue and the associated lower attributable subcontractor costs as well as benefits from our ongoing program to optimize efficiency and reduce delivery costs.

~~Gross~~The ~~Margin~~carrying amounts reported in the consolidated balance sheet for cash and cash equivalents, and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments. For the notes payable, the carrying amount reported is based upon the incremental borrowing rates otherwise available to the Company for similar borrowings.

InConvertible ~~the~~Instruments first nine months of fiscal 2011, our gross margin percentage increased by approximately 241% compared with the corresponding period of fiscal 2010. This increase in gross margin percentage for the first nine months of fiscal 2011 was the result of a substantial reduction in cost of goods sold which was greater than the decrease in revenue attributable to lower subcontractor costs.

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

~~For~~Income ~~the~~Taxes first nine months of fiscal 2011 operating expenses increased by approximately 23% compared with the corresponding period of fiscal 2010. The increase was attributable to higher stock based compensation-related expenses, however, other aspects of our operating expenses enjoyed a decrease during this period. Operating expenses for the nine months ended September 30, 2011, which include indirect labor, professional fees, travel, rent, general and administrative costs, stock issued for services, stock based compensation, and depreciation, increased $335,473 to $1,823,432 from $1,487,959 for the same period in 2010.

~~Other~~Under ~~Income~~ASC ~~(Expense)~~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.

~~Other~~(Loss) ~~expenses~~Per ~~decreased~~Share ~~by $104,493 in the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010. The decrease is attributable to the fair value decrease in the derivative liability~~ of ~~$232,975~~Common ~~which~~Stock gets applied as ‘other income’, an increase in interest expense of $10,064, and an increase to the loss on extinguishment of debt of $127,723, which is offset by the decrease in the amortization of debt discount of $131,228.

~~Contract~~Basic ~~Backlog~~net (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.

AtResearch ~~September 30, 2011~~ and ~~December~~Development 31, 2010, our estimated backlog was $10,372,700 million and $5,790,000 million, respectively, of which $5,433,200 million and $4,752,000 million, respectively, was funded. We define backlog as our estimate of the remaining future revenue from existing signed contracts over the remaining base contract performance period and from the option periods of those contracts, assuming the exercise of all related options. We define funded backlog as the portion of backlog for which funding currently is appropriated and obligated to us under a contract or other authorization for payment signed by an authorized purchasing agency, less the amount of revenue we have previously recognized. Our backlog does not include any estimate of future potential delivery orders that might be awarded under our Government Wide Acquisition Contracts (GWAC) or other multiple-award contract vehicles, or sales and services of our PA technology.

~~Factors~~Research ~~That~~and ~~May~~development expenses ~~Impact~~include ~~Net~~payroll, ~~Sales~~employee benefits, equity compensation, and ~~Gross~~other ~~Margin~~headcount-related costs associated with product development. The Company has determined that technological feasibility for the software products is reached shortly before the products are released to manufacturing. Costs incurred after technological feasibility is established are not material, and accordingly, the Company expenses all research and development costs when incurred.

~~Product~~Three ~~sales~~Months ~~may~~Ended ~~continue~~March ~~to be affected by multiple factors~~31, ~~including~~2012 ~~the continuing national economic downturn~~ and related market uncertainty, which have resulted in reduced or cautious spending in our enterprise, commercial and government markets; changes in the national economic conditions; competition, including price-focused competitors; new product introductions; sales cycles and product implementation cycles; changes in the mix of our customers between government and commercial markets; changes in the mix of direct sales and indirect sales; variations in sales channels; and final acceptance criteria of the product, system, or solution as specified by the customer. For additional factors that may impact net product sales, see “Part II, Item 1A Risk Factors.” Product gross margin may be adversely affected in the future by changes in the mix of products sold, including further periods of increased growth of some of our lower margin products; introduction of new products, changes in distribution channels; price competition, the timing of revenue recognition; sales discounts; increases in material or labor costs; warranty costs; and the extent to which we successfully execute on our strategy and operating plans. Service gross margin may be impacted by various factors such as the change in mix between technical support services and advanced services, the timing of technical support service contract initiations and renewals, and the timing of our strategic investments in headcount and resources to support this business.2011

~~Liquidity~~Revenue ~~and Capital Resources~~

WeRevenue for ~~had~~the ~~cash~~three ofmonths ~~$121~~ended March 31,~~632~~ ~~and~~2012 awas ~~working~~$509,729, ~~capital~~a ~~deficit~~decrease offrom $31,~~895~~031,~~319~~336 asfor the same period in 2011; an approximate 51% decrease, our revenues were directly impacted by the termination of ~~September~~a 30couple of US Government contracts, ~~2011~~which directly impacted our revenue delivered government contracts and U SGovernments authoritiy to finalize new contract starts to coincide with the previous contract termination. ~~During~~ This situation also reflects the ~~nine~~continuing ~~months~~uncertain ~~ended~~economic environment ~~September~~across ~~30,~~all ~~2011,~~of weour ~~used~~focus ~~approximately~~market ~~$253~~areas and the slowness of the national economic recovery. From a customer market perspective,~~853~~ we ~~more~~did ~~than~~not ~~cash~~see ~~received~~a ~~from~~significant improvement in the business environment for capital expenditures across our ~~operations. Operations~~enterprise, ~~were~~commercial, and ~~funded~~government ~~primarily~~markets, ~~from~~during the ~~consulting~~three ~~revenue~~months ~~generated~~ending inMarch 31, 2012. In the ~~nine~~firstquarter ~~month~~of ~~period~~fiscal 2012, we had no revenue from core PA technology products; however we have significant PA Technology opportunities in our sales pipeline.

We will need to generate significant additional revenue to support our projected increases in staffing and other operating expenses in light of the requirements created by our business plan and enhancement of our core technology products and the adaptation of that technology into market-sector specific solutions. We are currently expending approximately $320,000 per month to support our operations, and anticipate little deviation from that number on monthly basis through the next six months. We expect to raise additional financing through the sale of convertible preferred stock through the end of 2011 and common stock thereafter through 2012 to supplement the cash generated from software license sales and the professional services from existing contracts. We believe this will be sufficient to fund our operations until additional financing is procured. If we are unable to generate sufficient cash through the sale of our convertible preferred, preferred and common stock it will be necessary for us to further reduce expenses to manage our business. Although we believe the additional capital required will be provided through one of these sources, we cannot assure you that we will be successful in these financing efforts or accepting financing at acceptable prices. Our failure to generate such revenue, reduce expenses or obtain necessary financing could impair our ability to continue business operations and raises substantial doubt about our ability to remain as a going concern.38

~~Item~~Cost ~~3. Quantitative~~of ~~and Qualitative Disclosures About Market Risk.~~Revenues

~~Not~~Costs ~~applicable~~of revenues for the three months ended March 31, 2012 were $373,460, an approximate 25 % decrease from $674,927 for the same period in 2011. The decrease resulted primarily from lower revenue and the associated lower attributable subcontractor costs as well as benefits from our ongoing program to optimize efficiency and reduce delivery costs.

~~Item~~Gross ~~4T. Controls~~Margin ~~and Procedures.~~

~~Evaluation~~In the three months ended March 31, 2012, our gross margin percentage decreased to 26% compared to approximately 35% from the corresponding period of ~~disclosure~~fiscal ~~controls~~2011. ~~and~~This ~~procedures~~decrease in gross margin percentage for the three months ended March 31, 2012 was the result of a substantial reduction in cost of goods sold which was greater than the decrease in revenue attributable to lower subcontractor costs.

~~Our~~Operating ~~management,~~Expenses with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2011. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are not effective due to the existence of material weaknesses in our internal control over financial reporting, discussed below.

~~Changes~~For the three months ended March 31, 2012 operating expenses increased by approximately 5% from the corresponding period of fiscal 2011. The increasee was attributable primarly to a 15% decrease in ~~Internal~~indirect ~~Control~~and ~~Over~~overhead ~~Financial~~labor, ~~Reporting~~a 113% increase in professional fees associated with product and services sales and investor relations, and an approximate 20% increase in stock based compensation.

~~There~~Other ~~were~~Income ~~no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph~~ (dExpense) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~Inherent~~Other ~~Limitations~~income onincreased primarily ~~Effectiveness~~as a result in increase in the fair value of ~~Controls~~the derivative liability of $9,797,626. In addition the company incurred an increase in interest expense of $6,130 and an increase to the amortization of debt discount of $22,800.

~~Our~~Contract management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.Backlog

~~PART~~At IIMarch —31, ~~OTHER~~2012 ~~INFORMATION~~and December 31, 2011, our estimated backlog was $10,372,700 million and $5,790,000 million, respectively, of which $5,433,200 million and $4,752,000 million, respectively, was funded. We define backlog as our estimate of the remaining future revenue from existing signed contracts over the remaining base contract performance period and from the option periods of those contracts, assuming the exercise of all related options. We define funded backlog as the portion of backlog for which funding currently is appropriated and obligated to us under a contract or other authorization for payment signed by an authorized purchasing agency, less the amount of revenue we have previously recognized. Our backlog does not include any estimate of future potential delivery orders that might be awarded under our Government Wide Acquisition Contracts (GWAC) or other multiple-award contract vehicles, or sales and services of our PA technology.

~~Item~~Factors 1.That ~~Legal~~May ~~Proceedings.~~Impact Net Sales and Gross Margin

~~Arnold~~Product ~~Worldwide,~~sales ~~Inc.~~may continue to be affected by multiple factors, including the ~~landlord~~continuing ofnational ~~InferX~~economic atdownturn ~~its~~and ~~former~~related ~~premises~~market atuncertainty, ~~1600~~which ~~International~~have resulted ~~Drive,~~in ~~Suite~~reduced ~~110,~~or ~~McLean,~~cautious ~~Virginia~~spending ~~22102~~in our enterprise, ~~commenced~~commercial anand ~~action~~government ~~against~~markets; ~~InferX~~changes in the ~~General~~national ~~District~~economic conditions; ~~Court~~competition, ofincluding ~~Fairfax~~price-focused ~~County,~~competitors; onnew ~~August~~product ~~25,~~introductions; ~~2008,~~sales ~~seeking~~cycles ~~(i)~~and ~~damages,~~product ~~including~~implementation cycles; ~~rent~~changes ~~due~~in ~~under~~ the ~~sublease~~mix of our customers between ~~InferX~~government and ~~Arnold~~commercial ~~Worldwide,~~markets; ~~late~~changes ~~fees~~in ~~due~~the ~~under~~mix of direct sales and indirect sales; variations in sales channels; and final acceptance criteria of the ~~sublease~~product, ~~attorney’s~~system, ~~fees~~or ~~due~~solution ~~under~~as specified by the ~~sublease,~~customer. For ~~and~~additional ~~interest,~~factors ~~for~~that amay ~~total~~impact ~~amount~~net ~~claimed~~product ofsales, ~~$180~~see “Part II,~~066~~ Item 1A Risk Factors.~~53;~~” ~~and~~Product ~~(ii)~~gross anmargin may ~~order~~be ~~for~~adversely ~~possession~~affected ofin the ~~Premises. Though~~future ~~the~~by ~~Company~~changes ~~disputes~~in the ~~amount~~mix ~~outstanding,~~of itproducts ~~has~~sold, ~~made~~including afurther ~~good~~periods ~~faith~~of ~~gesture~~increased togrowth ~~resolve~~of some ~~this~~of ~~matter~~our bylower ~~making~~margin aproducts; ~~payment~~introduction of ~~$30~~new products,~~000~~ onchanges ~~September~~in ~~12,~~distribution ~~2008~~channels; price competition, ~~and~~the ~~entered~~timing of ~~into~~revenue ~~good-faith~~recognition; ~~discussions~~sales todiscounts; ~~resolve~~increases ~~the~~in ~~issue~~material ~~with~~or ~~Arnold~~labor ~~Worldwide. The~~costs; ~~Company~~warranty ~~agreed~~costs; toand the ~~entry~~extent ofto awhich ~~Consent~~we ~~Order~~successfully execute ofon ~~Possession~~our ~~that~~strategy ~~allowed~~and ~~Arnold~~operating ~~Worldwide~~plans. toService ~~take~~gross ~~possession~~margin ofmay be impacted by various factors such as the ~~premises. The~~change ~~lease~~in ~~for~~mix between technical support services and advanced services, the ~~premises~~timing atof ~~1600~~technical ~~International~~support ~~Drive~~service ~~terminated~~contract ~~November~~initiations 30and renewals, and ~~2008~~the timing of our strategic investments in headcount and resources to support this business.

~~Item 1A. Risk Factors.~~39

WeLiquidity ~~face~~and ~~intense~~Capital ~~competition.~~Resources

~~Our~~We ~~business~~had iscash ~~rapidly~~of ~~evolving and intensely competitive~~$12, ~~and is subject to changing technology, shifting user needs, and frequent introductions~~ 043 of ~~new~~March ~~products and services. We have many competitors from different industries~~31, ~~including providers of online products and services~~2012. ~~Our~~ ~~current~~During ~~and~~the ~~potential~~three ~~competitors~~months ~~range~~ended ~~from~~March ~~large and established companies to emerging start-ups. Established companies have longer operating histories and more established relationships with customers and end users~~31, ~~and they can use their experience and resources against us in a variety of competitive ways~~2012, ~~including~~we byused ~~making~~approximately ~~acquisitions~~$223,973 ~~investing~~from ~~aggressively~~our inoperating ~~research and development, and competing aggressively for customers and market share~~activities. ~~Emerging~~ Operations ~~start-ups~~were ~~may~~funded beprimarily ~~able~~from toconsulting ~~innovate~~revenue ~~and~~generated ~~provide products and services faster than we can. If our competitors are more successful than we are~~ in ~~developing~~the ~~compelling~~three ~~products~~month ~~or in attracting and retaining clients, our revenues and growth rates could decline~~period.

~~The~~We ~~market~~will ~~for~~need to generate significant additional revenue to support our ~~products~~projected increases in staffing and ~~services~~other isoperating ~~new~~expenses in light of the requirements created by our business plan and ~~evolving~~enhancement of our core technology products and athe ~~viable~~adaptation of that technology into market-sector specific ~~may~~solutions. ~~never~~We ~~develop~~are orcurrently ~~may~~expending ~~take~~approximately ~~longer~~$292,000 per month to ~~develop~~support ~~than~~our operations, and under our current business plan we anticipate expenditures of approximately $262,000 per month through the 4th quarter of 2012. We expect to raise additional financing through the sale of our common stock during the second or third quarter of 2012 to supplement the cash generated from software license sales and the professional services that are provided through existing contracts that we believe will be sufficient to fund our operations until additional financing is procured If we are unable to generate sufficient cash through the sale of our stock it will be necessary for us to significantly reduce expenses to manage our business. Although we believe the additional capital required will be provided through one of these sources, we cannot assure you that we will be successful in these financing efforts or accepting financing at acceptable prices. Our failure to generate such revenue, reduce expenses or obtain necessary financing could impair our ability to continue business operations and raises substantial doubt about our ability to remain as a going concern.

~~Our~~Item ~~software and services represent what we believe is a novel entry in an emerging market, and we do not know the extent to which our targeted customers will want to purchase them~~3. ~~The~~ ~~development~~Quantitative ~~of a viable market for our products may be impacted by many factors which are out of our control, including customer reluctance to try new products~~ and ~~services~~Qualitative ~~and~~Disclosures ~~the~~About ~~existence~~Market ~~and emergence of products and services marketed by better-known competitors~~Risk.

IfNot aapplicable viable market fails to develop or develops more slowly than we anticipate, we may be unable to recover the losses we will have incurred to develop our products and services and may be unable to achieve profitability.

IfItem we4. doControls ~~not continue to innovate~~ and ~~provide products and services that are useful to users, we may not remain competitive, and our revenues and operating results could suffer~~Procedures.

~~Our~~Evaluation success depends on providing products and services that make using our technology a more useful and business impactful experience for our customers. Our competitors are constantly developing innovations in technology embedded in their products and services. As a result, we must continue to invest significant resources in research and development in order to enhance our predictive analytics technology and our existing products and services and introduce new products and services solutions that people can easily and effectively use. If we are unable to provide quality products and services, then our users may become dissatisfied and move to a competitor’s products and services. In addition, these new products and services may present new and difficult technology challenges, and our operating results would also suffer if our innovations are not responsive to the needs of ~~our~~disclosure ~~users~~controls and ~~or are not effectively brought to market~~procedures. ~~This may force us to compete in different ways and expend significant resources in order to remain competitive.~~

~~The~~Our ~~industry~~management, inwith the ~~which~~participation weof ~~operate~~our isChief ~~characterized~~Executive byOfficer ~~rapid~~and ~~technological~~Chief ~~changes~~Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2012. Based on this evaluation, our ~~continued~~Chief ~~success~~Executive ~~will~~Officer ~~depend~~and ~~upon~~Chief Financial Officer concluded that our ~~ability~~disclosure tocontrols ~~react~~and procedures are not effective due to ~~such~~the ~~changes~~existence of material weaknesses in our internal control over financial reporting, discussed below.

~~The~~Management’s ~~markets~~Report for our products and services are characterized by rapidly changing technology. The introduction of products or services embodying new technology can render our existing products and services obsolete and unmarketable and can exert price pressures on ~~existing~~Internal ~~products~~Control ~~and~~Over Financial ~~services~~Reporting. It is critical to our success for us to be able to anticipate changes in technology and to successfully develop and introduce new, enhanced and competitive products and services on a timely basis. We cannot assure you that we will successfully develop new products or services or introduce new applications for existing products and services, that new products and applications will achieve market acceptance or that the introduction of new products, services or technological developments by others will not render our products and services obsolete. Our inability to develop products and services that are competitive in technology and price and meet customer needs could have a material adverse effect on our business, financial condition or results of operations.

~~Our~~Internal ~~management~~control ~~controls~~over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), is a ~~substantial~~process ~~percentage~~designed by, or under the supervision of, our ~~stock~~Chief Executive Officer and ~~therefore~~Chief ~~has~~Financial Officer, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the ~~ability~~reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, and in consultation with our board of directors, has established and maintained policies and procedures designed to ~~exercise~~maintain ~~substantial~~the adequacy of our internal control over financial reporting that it believes are appropriate in light of our ~~affairs.~~limited activities, personnel and resources as a development stage company, and includes those policies and procedures that:

As(1) ofPertain to the maintenance ~~date~~ of ~~this~~records ~~filing,~~that ~~our directors and executive officers beneficially owned 11,806,152 shares, or approximately 64.4%, of our outstanding common stock~~ in ~~the~~reasonable ~~aggregate. Because~~detail ofaccurately ~~the~~and ~~large~~fairly ~~percentage~~reflect oftransactions ~~stock held by our directors~~ and ~~executive~~dispositions ~~officers, these persons could influence the outcome~~ of ~~any matter submitted to a vote of~~ our ~~stockholders.~~assets;

If(2) weProvide ~~were~~reasonable assurance tothat ~~lose~~transactions ~~the~~are ~~services~~recorded ofas ~~Dr.~~necessary ~~Jerzy~~to ~~Bala,~~permit ~~Ray~~preparation ~~Piluso,~~of ~~Vijay~~financial ~~Suri~~statements ,in oraccordance ~~B.K.~~with ~~Gogia,~~generally accepted oraccounting ~~other~~principles, ~~members~~and ofthat ~~our~~receipts ~~senior~~and ~~management~~expenditures ~~team,~~are webeing ~~may~~made ~~not~~only bein ~~able~~accordance towith ~~execute~~authorizations of our management ~~business~~and ~~strategy.~~directors; and

~~Our~~(3) ~~future~~Provide ~~success~~reasonable assurance ~~depends~~regarding inprevention aor ~~large~~timely ~~part~~detection ~~upon the continued service~~ of ~~key~~unauthorized ~~members of our senior management team. In particular~~acquisition, ~~our~~use ~~CEO,~~or ~~Vijay~~disposition ~~Suri; B.K. Gogia our Chairman; Dr. Jerzy Bala, our Chief Technology Officer; and Raimondo Piluso, Chief Operating Officer, are critical to the overall management~~ of ~~InferX Corporation as well as the development of~~ our ~~technology,~~assets ~~our~~that ~~culture,~~could ~~and our strategic direction. The loss of or unavailability of the services of any one of these individuals would~~ have a material ~~adverse~~ effect on ~~our~~the ~~business~~financial ~~prospects and/or potential earning capacity~~statements.

~~We rely on highly skilled personnel and, if we are unable to retain or motivate key personnel, hire qualified personnel, or maintain our corporate culture, we may not be able to grow effectively.~~40

Our ~~performance~~management ~~largely~~has evaluated ~~depends on~~ the ~~talents~~effectiveness ~~and efforts~~ of ~~highly skilled individuals. Our future success depends on~~ our ~~continuing~~internal ~~ability~~control toover ~~identify,~~financial ~~hire,~~reporting ~~develop,~~as ~~motivate, and retain highly skilled personnel for all areas~~ of ~~our~~March ~~organization. Competition in our industry for qualified employees is intense~~31, ~~and~~2012 ~~some~~based ofon ~~our~~the ~~competitors~~criteria ~~have~~established in ~~directly~~a ~~targeted~~report ~~our~~entitled ~~employees. In~~Internal ~~addition,~~Control—Integrated ~~our compensation arrangements~~Framework, ~~such~~issued asby ~~our~~the ~~equity~~Committee ~~award~~of ~~programs,~~Sponsoring ~~may~~Organizations ~~not~~of ~~always~~the beTreadway Commission ~~successful in attracting new employees and retaining and motivating our existing employees~~(COSO). ~~Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existing employees.~~

InBased ~~addition~~on our assessment, management wehas ~~believe~~concluded that our ~~corporate~~internal ~~culture~~controls ~~fosters~~over ~~innovation,~~financial ~~creativity~~reporting were not effective as of March 31, ~~and~~2012 ~~teamwork. As~~due to the existence of several material weaknesses in our ~~organization~~internal ~~grows,~~control ~~and~~over wefinancial ~~are~~reporting. ~~required~~Our toBoard ~~implement~~of ~~more~~Directors ~~complex~~has ~~organizational~~reviewed the results of management’s ~~structures,~~assessment. weIn ~~may~~addition, ~~find~~on ita ~~increasingly~~quarterly ~~difficult~~basis towe ~~maintain~~will ~~the~~evaluate ~~beneficial~~any ~~aspects~~changes ofto our ~~corporate~~internal ~~culture. This~~control over ~~could~~financial ~~negatively~~reporting ~~impact~~to ~~our~~determine ~~future~~if ~~success~~material changes occurred.

WePART ~~may~~II ~~not~~— beOTHER ~~able~~INFORMATION ~~to protect important intellectual property, and we could incur substantial costs defending against claims that our products infringe on the proprietary rights of others.~~

WeItem ~~currently have received two patents and have filed four provisional patents, awaiting determination~~1. ~~While~~ weLegal believe that we have a proprietary position in component technologies for our products, our ability to compete effectively will depend, in part, on our ability to protect our proprietary technologies, processes and designs, to secure patents for the applications we have pending and to protect those patents that we may secureProceedings. We do not know whether any of our pending patent applications will be issued or, if issued, that the claims allowed are or will be sufficiently broad to protect our technology or processes. Even if all of our patent applications are issued and are sufficiently broad, our patents may be challenged or invalidated.

WeArnold ~~could~~Worldwide, ~~incur~~Inc., the ~~substantial~~landlord ~~costs~~of InferX at its former premises at 1600 International Drive, Suite 110, McLean, Virginia 22102, commenced an action against InferX in ~~prosecuting~~the orGeneral ~~defending~~District ~~patent~~Court ~~infringement~~of ~~suits~~Fairfax orCounty, ~~otherwise~~on ~~protecting~~August ~~our~~25, ~~intellectual~~2008, ~~property~~seeking ~~rights~~(i) damages, including rent due under the sublease between InferX and Arnold Worldwide, late fees due under the sublease, attorney’s fees due under the sublease, and interest, for a total amount claimed of $180,066. ~~While~~53; weand ~~have~~(ii) ~~attempted~~an order for possession of the Premises. Though the Company disputes the amount outstanding, it has made a good faith gesture to ~~safeguard~~resolve ~~and~~this ~~maintain~~matter ~~our~~by ~~proprietary~~making ~~rights~~a payment of $30,000 weon doSeptember ~~not~~12, 2008, ~~know~~and ~~whether~~entered weinto ~~have~~good-faith ~~been~~discussions orto ~~will~~resolve bethe ~~completely~~issue ~~successful~~with inArnold ~~doing~~Worldwide. soThe Company agreed to the entry of a Consent Order of Possession that allowed Arnold Worldwide to take possession of the premises. The lease for the premises at 1600 International Drive terminated November 30, 2008.

We ~~may~~are ~~face~~involved ~~liability~~in two ~~claims~~current lawsuits. PCT Law Group, PLLC, a legal law firm that represented InferX Corporation in certain matters concerning intellectual property and patent application matters, commenced an action against us in the General District Court, Fairfax County, Virginia on March 26, 2012, seeking unpaid legal fees of $10,419.59. We received a Garnishment Summons dated November 14, 2012 from ~~future~~the Court ~~customers~~of ifFairfax ~~our~~County, ~~software~~Virginia ~~malfunctions~~for orthe ~~contains~~unpaid ~~undetected~~amount ~~defects~~plus interest, judgment costs, and attorney fees for a total of $16,883.69. Although we dispute the amount outstanding, we are in negotiations with PCT Law Group to settle this litigation.

~~Our~~Fairchild ~~products have in the past contained~~Consultants, ~~and may in the future contain~~ LLC, ~~undetected~~d/b/a orGlobal ~~unresolved~~Services ~~errors~~a ~~when~~marketing ~~first~~support ~~introduced,~~consulting asservices ~~new~~firm ~~versions~~which ~~are~~represented ~~released,~~InferX orCorporation ~~otherwise. Despite extensive testing, errors, defects or failures may be found~~ in ~~our~~matters ~~current~~for orgovernment regulatory ~~future~~contract ~~products~~filing ~~or enhancements after they have been installed by customers. If this happens~~matters, wecommenced ~~may~~an ~~experience~~action ~~delay~~against us in orthe ~~loss~~Superior ofCourt ~~market acceptance and sales, diversion~~ of ~~development resources~~Washington, ~~injury to our reputation or increased service costs~~DC, ~~any of which could have a material adverse effect~~ on ~~our~~October ~~business~~13, ~~financial condition and results of operations. Moreover~~2012, seeking ~~because~~unpaid ~~our~~general ~~products~~consulting ~~are designed to provide critical data analysis~~ services, wefees ~~may~~in ~~receive~~the ~~significant~~amount ~~liability~~of ~~claims~~$9,900. Although we ~~intend~~dispute tothe ~~obtain~~amount ~~product~~outstanding, ~~liability~~we ~~insurance~~are ~~covering~~in negotiations ~~certain~~with ~~damages~~Fairchild ~~arising from implementation and use of our products~~Consultants, ~~our~~LLC ~~insurance may not cover all claims sought against us. Liability claims could require us~~ to ~~spend~~settle ~~significant~~this ~~time and money in~~ litigation ~~or to pay significant damages~~. ~~As a result, any such claims, whether or not successful, could seriously damage our reputation and business.~~

WeItem ~~must~~1A. ~~ensure~~Risk ~~the protection and privacy of customer data~~Factors.

We rely on complex encryption algorithms and technology to secure customer data. We believe our products protect the security and privacy of customer data by transmitting encrypted pointers to customer data, rather than the data itself, across the Internet and existing dedicated transmission lines. However, if customer data is misappropriated or unintentionally disclosed as a result of an actual or perceived failure of our software, our reputation, and ultimately our business, would be seriously harmed, and we could face ~~liability~~intense ~~claims~~competition.

Our business is rapidly evolving and intensely competitive, and is subject to changing technology, shifting user needs, and frequent introductions of new products and services. We ~~currently~~have ~~are~~many ~~dependent~~competitors onfrom ~~contracts~~different industries, including providers of online products and services. Our current and potential competitors range from large and established companies to emerging start-ups. Established companies have longer operating histories and more established relationships with ~~the~~customers ~~federal~~and ~~government~~end ~~for~~users, ~~all~~and they can use their experience and resources against us in a variety of competitive ways, including by making acquisitions, investing aggressively in research and development, and competing aggressively for customers and market share. Emerging start-ups may be able to innovate and provide products and services faster than we can. If our competitors are more successful than we are in developing compelling products or in attracting and retaining clients, our revenues and growth rates could decline.

Revenues derived from federal government contracts accounted for 97.6% of our revenues in the first nine months of 2011. We expect that government contracts will continue to be a significant source of our revenues for the foreseeable future. Our business generated from government contracts may be adversely affected if:41

·The ~~ability~~market offor ~~the~~our ~~government~~products toand ~~prepare,~~services ~~approve~~is new and ~~execute~~evolving and a ~~final~~viable ~~federal~~market ~~fiscal~~may ~~budget;~~never develop or may take longer to develop than we anticipate.

·Our ~~levels~~software ofand ~~government~~services represent ~~expenditures~~what we believe is a novel entry in an emerging market, and ~~authorizations~~we do not know the extent to which our targeted customers will want to purchase them. The development of a viable market for ~~national~~our ~~and~~products ~~homeland~~may ~~security~~be ~~related~~impacted ~~programs~~by ~~decrease,~~many ~~remain~~factors ~~constant~~which orare ~~shift~~out of our control, including customer reluctance to ~~programs~~try innew ~~areas~~products ~~where~~and weservices doand ~~not~~the ~~provide~~existence and emergence of products and services; marketed by better-known competitors.

·If a viable market fails to develop or develops more slowly than we ~~are~~anticipate, ~~prevented~~we ~~from~~may ~~entering~~be ~~into~~unable ~~new~~to ~~government~~recover ~~contracts~~the orlosses ~~extending~~we ~~existing~~will ~~government~~have ~~contracts~~incurred ~~based~~to ondevelop our ~~violations~~products orand ~~suspected~~services ~~violations~~and ofmay ~~procurement~~be ~~laws~~unable orto ~~regulations;~~achieve profitability.

·If we ~~are~~do not ~~granted~~continue ~~security~~to ~~clearances~~innovate and provide products and services that are ~~required~~useful to ~~sell~~users, ~~our~~we ~~products~~may ornot ~~services~~remain orcompetitive, ~~such~~and ~~security~~our ~~clearances~~revenues ~~are~~and ~~revoked;~~operating orresults could suffer.

·Our success depends on providing products and services that make using our ~~reputation~~technology a more useful and business impactful experience for our customers. Our competitors are constantly developing innovations in technology embedded in their products and services. As a result, we must continue to invest significant resources in research and development in order to enhance our predictive analytics technology and our existing products and services and introduce new products and services solutions that people can easily and effectively use. If we are unable to provide quality products and services, then our users may become dissatisfied and move to a competitor’s products and services. In addition, these new products and services may present new and difficult technology challenges, and our operating results would also suffer if our innovations are not responsive to the needs of our users and or ~~relationship~~are ~~with~~not ~~government~~effectively ~~agencies~~brought isto ~~impaired~~market. This may force us to compete in different ways and expend significant resources in order to remain competitive.

~~Most~~The ofindustry ~~our~~in ~~contracts~~which ~~with~~we ~~the~~operate ~~government~~is ~~contain~~characterized by ~~standard~~rapid ~~provisions~~technological ~~that~~changes, ~~provide~~and ~~for~~our ~~termination~~continued atsuccess ~~the~~will ~~convenience~~depend ofupon ~~the~~our ~~government~~ability ~~pursuant~~ to ~~which~~react ~~we are entitled~~ to ~~recover~~such ~~costs incurred, settlement expenses, and profit on work completed prior to termination~~changes.

IfThe wemarkets ~~fail~~for our products and services are characterized by rapidly changing technology. The introduction of products or services embodying new technology can render our existing products and services obsolete and unmarketable and can exert price pressures on existing products and services. It is critical to ~~comply~~our ~~with~~success ~~complex~~for ~~procurement~~us ~~laws~~to be able to anticipate changes in technology and ~~regulations~~to successfully develop and introduce new, enhanced and competitive products and services on a timely basis. We cannot assure you that we ~~may~~will besuccessfully develop ~~subject~~new products or services or introduce new applications for existing products and services, that new products and applications will achieve market acceptance or that the introduction of new products, services or technological developments by others will not render our products and services obsolete. Our inability to ~~civil~~develop products and ~~criminal~~services ~~penalties~~that are competitive in technology and ~~administrative~~price ~~sanctions~~and meet customer needs could have a material adverse effect on our business, financial condition or results of operations.

WeOur ~~must~~management ~~comply~~controls ~~with~~a ~~laws~~substantial ~~and regulations relating to the formation, administration and performance~~ percentage of ~~government~~our ~~contracts. These~~stock ~~laws~~ and ~~regulations~~therefore ~~affect~~has ~~how we do business with government agencies and may impose added costs on our business. For example, we are subject to~~ the ~~Federal~~ability ~~Acquisition Regulations, which comprehensively regulate the formation, administration and performance of federal government contracts, and~~ to ~~the~~exercise ~~Truth~~substantial incontrol ~~Negotiations~~over ~~Act,~~our ~~which requires certification and disclosure of cost and pricing data in connection with contract negotiations~~affairs.

IfAs aof ~~government~~the ~~review~~May or15, ~~investigation uncovers improper or illegal activities~~2012, our wedirectors ~~may be subject to civil~~ and ~~criminal~~executive ~~penalties~~officers ~~and~~beneficially ~~administrative~~owned ~~sanctions~~11,806,152 ~~including termination of contracts~~shares, ~~forfeiture~~or ofapproximately ~~profits~~64.4%, ~~suspension~~ of ~~payments,~~our ~~fines~~outstanding ~~and~~common ~~suspension~~stock in orthe ~~debarment~~aggregate. ~~from~~Because ~~doing~~of ~~business~~the ~~with~~large ~~government~~percentage ~~agencies,~~of ~~which~~stock ~~could~~held ~~materially~~by ~~and adversely affect~~ our ~~business,~~directors ~~financial condition~~ and ~~results~~executive ~~of operations. In addition~~officers, athese ~~government~~persons ~~may~~could ~~reform~~influence the ~~its~~outcome ~~procurement~~of ~~practices~~any ormatter ~~adopt~~submitted ~~new contracting rules and regulations that could be costly~~ to ~~satisfy~~a orvote ~~that~~of ~~could impair~~ our ~~ability to obtain new contracts~~stockholders.

~~Risks~~If ~~Related~~we were to ~~Our~~lose ~~Common~~the ~~Stock~~services of Dr. Jerzy Bala, Ray Piluso, Vijay Suri , or B.K. Gogia, or other members of our senior management team, we may not be able to execute our business strategy.

~~Currently,~~Our ~~there~~future issuccess depends in a ~~limited~~large ~~trading~~part ~~market~~upon ~~for~~the continued service of key members of our ~~common~~senior ~~stock~~management team. In particular, ~~which~~our ~~may~~CEO, ~~adversely~~Vijay Suri; ~~impact~~B.K. ~~your~~Gogia ~~ability~~our Chairman; Dr. Jerzy Bala, our Chief Technology Officer; and Raimondo Piluso, Chief Operating Officer, are critical to ~~sell~~the ~~your~~overall ~~shares~~management of InferX Corporation as well as the development of our technology, our culture, and our strategic direction. The loss of or unavailability of the ~~price~~services ~~you~~of ~~receive~~any one of these individuals would have a material adverse effect on our business prospects and/or potential earning capacity.

There is currently a limited trading market for our common stock and a more active trading market for our common stock may never develop or be sustained. The market price of our common stock may be significantly affected by factors such as actual or anticipated fluctuations in our operating results, general market conditions and other factors. In addition, the stock market has from time to time experienced significant price and volume fluctuations that have particularly affected the market prices for the shares of developmental stage companies, which may materially adversely affect the market price of our common stock without regard to our operating performance. These fluctuations may also cause short sellers to enter the market from time to time in the belief that we will have poor results in the future. We cannot predict the actions of market participants and, therefore, can offer no assurances that the market for our common stock will be stable or appreciate over time. Furthermore, for companies such as us whose securities are quoted on the OTC Bulletin Board, it is more difficult (i) to obtain accurate quotations, (ii) to obtain coverage for significant news events because major wire services generally do not publish press releases about such companies, and (iii) to obtain needed capital. These factors may negatively impact your ability to sell shares of our common stock and the price you receive.42

~~Our~~We ~~common~~rely ~~stock~~on ishighly ~~deemed~~skilled personnel and, if we are unable to beretain aor ~~“penny~~motivate ~~stock~~key personnel,” ~~which~~hire ~~may~~qualified ~~make~~personnel, itor ~~more~~maintain ~~difficult~~our ~~for~~corporate ~~you~~culture, towe ~~sell~~may ~~your~~not ~~shares~~be able to grow effectively.

Our performance ~~common~~largely ~~stock~~depends ison ~~subject to~~ the ~~“penny~~talents ~~stock”~~and ~~rules~~efforts ~~adopted under Section 15(g)~~ of ~~the~~highly ~~Securities~~skilled ~~Exchange Act of 1934, as amended (the “Exchange Act”)~~individuals. ~~The~~ Our future ~~penny~~success ~~stock~~depends ~~rules apply to companies whose common stock is not listed~~ on ~~the~~our ~~NASDAQ~~continuing ~~Stock~~ability ~~Market~~to ~~or another national securities exchange and trades at less than $5.00 per share or that have tangible net worth of less than $5~~identify,~~000,000~~ ~~($2~~hire,~~000,000~~ ~~if the company has been operating for three or more years). These rules require~~develop, ~~among other things~~motivate, ~~that~~and ~~brokers~~retain ~~who~~highly ~~trade~~skilled ~~penny~~personnel ~~stock~~for all toareas ~~persons other than “established customers” complete certain documentation, make suitability inquiries~~ of ~~investors~~our ~~and~~organization. ~~provide~~Competition ~~investors~~in ~~with~~our ~~certain~~industry ~~information~~for ~~concerning~~qualified ~~trading~~employees inis ~~the security~~intense, ~~including a risk disclosure document~~ and ~~quote~~some ~~information~~of ~~under~~our ~~certain~~competitors ~~circumstances. Many brokers~~ have directly ~~decided~~targeted ~~not~~our toemployees. ~~trade~~In ~~penny stocks because of the requirements of the penny stock rules and~~addition, asour acompensation ~~result~~arrangements, ~~the~~such ~~number of broker-dealers willing to act~~ as ~~market~~our ~~makers~~equity inaward ~~such~~programs, ~~securities~~may isnot ~~limited. Remaining subject to the penny stock rules should~~ always be ~~expected~~successful toin ~~have~~attracting annew ~~adverse~~employees ~~effect~~and onretaining ~~the~~and ~~market~~motivating ~~for~~ our ~~common~~existing ~~stock by reducing the number of potential investors~~employees. ~~This~~ ~~may~~Our ~~make~~continued itability ~~more~~to ~~difficult~~compete effectively ~~for~~depends ~~investors~~on in our ~~common~~ability ~~stock~~ to ~~sell~~attract ~~shares~~new toemployees ~~third~~and ~~parties or~~ to ~~otherwise~~retain ~~dispose~~and ofmotivate ~~them. This could cause~~ our ~~stock~~existing ~~price to decline~~employees.

WeIn addition, ~~need~~we tobelieve ~~raise~~that ~~additional~~our ~~capital~~corporate culture fosters innovation, ~~but~~creativity, ~~that~~and ~~capital~~teamwork. As our organization grows, and we are required to implement more complex organizational management structures, we may ~~not~~find beit ~~available~~increasingly difficult to maintain the beneficial aspects of our corporate culture. This could negatively impact our future success.

~~Our existing capital is insufficient to fund our operations beyond the fourth quarter of 2011.~~ We ~~believe~~may ~~the~~not ~~anticipated~~be ~~revenues~~able ~~from potential customer contracts along with the sale of a limited amount of equity will enable us~~ to ~~meet~~protect ~~our~~important ~~financial obligations as they become due. However~~intellectual property, and we ~~are~~could ~~not~~incur ~~generating~~substantial ~~sufficient~~costs ~~revenues~~defending toagainst ~~increase~~claims ~~our~~that ~~working capital or to carry out~~ our ~~proposed~~products ~~business~~infringe ~~objectives~~on ~~and continue to operate as a going concern beyond~~ the ~~near~~proprietary ~~term,~~rights ~~and we need to obtain additional financing or reduce our expenses by curtailing our operations~~of others.

We ~~cannot~~currently ~~assure~~have ~~you~~received two ~~that~~patents weand ~~will~~have befiled ~~successful~~four orprovisional ~~that~~patents, ~~our~~awaiting ~~operations~~determination. ~~will~~While ~~generate~~we ~~sufficient~~believe ~~revenues,~~that ifwe ~~any,~~have toa ~~meet~~proprietary ~~the~~position in ~~expenses~~component oftechnologies for our ~~operations. Although we are seeking additional financing~~products, ~~such~~our ~~financing~~ability ~~may~~to ~~not~~compete beeffectively ~~available~~will ordepend, ifin ~~available~~part, ~~may~~on ~~not~~our beability ~~available~~to onprotect our ~~satisfactory~~proprietary ~~terms. Additionally~~technologies, ~~the~~processes ~~nature~~and ofdesigns, ~~our~~to ~~business~~secure ~~activities~~patents ~~may~~for ~~require~~ the ~~availability~~applications ofwe ~~additional~~have ~~funds~~pending inand ~~the future due~~ to ~~more~~protect ~~rapid~~those patents ~~growth~~that ~~than is forecast, and thus,~~ we may ~~need~~secure. ~~additional~~We ~~capital~~do ornot ~~credit~~know ~~lines~~whether toany ~~continue that rate~~ of ~~business~~our ~~growth. We~~pending ~~may~~patent ~~encounter~~applications ~~difficulty~~will inbe ~~obtaining~~issued ~~these funds and/~~or, ~~credit~~if ~~lines. Moreover~~issued, ~~even~~that ifthe claims ~~additional~~allowed ~~financing~~are or ~~credit~~will ~~lines~~be ~~were~~sufficiently broad to ~~become~~protect ~~available,~~our ittechnology isor ~~possible~~processes. ~~that~~Even ~~the~~if ~~cost~~all of ~~such~~our ~~funds~~patent orapplications are ~~credit~~issued ~~would~~and beare ~~high~~sufficiently ~~and~~broad, ~~possibly~~our ~~prohibitive~~patents may be challenged or invalidated.

IfWe wecould ~~were~~incur tosubstantial costs ~~decide~~in toprosecuting ~~obtain~~or ~~such~~defending ~~additional~~patent ~~funds~~infringement bysuits ~~equity~~or ~~financing~~otherwise inprotecting ~~one~~our orintellectual ~~more~~property ~~private~~rights. orWhile ~~public~~we have ~~offerings~~attempted to safeguard and maintain our proprietary rights, ~~current~~we ~~stockholders~~do ~~would~~not ~~experience~~know awhether ~~corresponding~~we ~~decrease~~have inbeen ~~their~~or ~~percentage~~will ~~ownership~~be completely successful in doing so.

~~Our~~We ~~independent~~may ~~registered~~face ~~public~~liability ~~accounting~~claims ~~firm~~from ~~has~~future ~~expressed~~customers if ~~doubt regarding~~ our ~~ability~~software tomalfunctions ~~continue~~or ascontains aundetected ~~going concern~~defects.

Our ~~audited~~products ~~financial~~have ~~statements for~~ in the ~~years~~past ~~ended December 31~~contained, ~~2010~~ and ~~2009~~may ~~have~~in ~~been~~the ~~prepared~~future ~~under~~contain, ~~the~~undetected ~~assumption~~or ~~that~~unresolved weerrors ~~will~~when ~~continue~~first introduced, as anew ~~going~~versions ~~concern~~are released, or otherwise. ~~Our~~ ~~independent~~Despite ~~registered~~extensive ~~public~~testing, ~~accounting~~errors, ~~firms~~defects ~~have~~or ~~issued~~failures ~~their~~may ~~reports~~be ~~dated~~found ~~April~~in ~~13,~~our ~~2011~~current ~~and~~or ~~May~~future ~~20,~~products ~~2010~~or inenhancements after ~~connection~~they ~~with~~have ~~the~~been ~~audits~~installed ofby ~~our~~customers. ~~financial~~If ~~statements~~this ~~for~~happens, ~~the~~we ~~years~~may ~~ended~~experience ~~December~~delay ~~31,~~in ~~2010~~or ~~and~~loss ~~2009~~of ~~that~~market ~~included~~acceptance anand ~~explanatory~~sales, diversion ~~paragraph~~of ~~describing~~development ~~the~~resources, ~~existence~~injury ofto ~~conditions~~our ~~that~~reputation ~~raise~~or ~~doubt~~increased ~~about~~service ~~our~~costs, ~~ability~~any toof ~~continue~~which ascould have a ~~going~~material ~~concern~~adverse effect ~~due~~on to our ~~having~~business, ~~sustained~~financial ~~operating~~condition ~~losses~~ and ~~capital~~results ~~deficits~~of ~~from~~ operations. ~~The~~ ~~fact~~Moreover, ~~that~~because weour ~~have~~products ~~received~~are ~~this~~designed ~~“going~~to ~~concern~~provide ~~opinion”~~critical data ~~from~~analysis ~~our~~services, ~~independent~~we ~~registered~~may ~~public~~receive ~~accounting~~significant ~~firm~~liability ~~will~~claims. ~~likely~~Although ~~make~~we itintend ~~difficult~~to ~~for~~obtain usproduct toliability ~~raise~~insurance ~~capital~~covering certain ondamages ~~favorable~~arising ~~terms~~from implementation and ~~could~~use ~~hinder,~~of toour ~~some extent~~products, our ~~operations. Additionally,~~insurance ifmay wenot ~~are~~cover ~~not~~all ~~able~~claims tosought ~~continue~~against asus. Liability aclaims ~~going~~could ~~concern,~~require itus isto ~~likely~~spend ~~that~~significant ~~stockholders~~time ~~will~~and ~~lose~~money ~~all~~in oflitigation ~~their~~or ~~investment. Our~~to ~~financial~~pay ~~statements~~significant dodamages. ~~not~~As ~~include~~a result, any ~~adjustments~~such ~~that~~claims, ~~might~~whether ~~result~~or ~~from~~not ~~the~~successful, ~~outcome~~could ofseriously ~~this~~damage ~~uncertainty~~our reputation and business.

~~Item~~We 2.must ~~Unregistered~~ensure ~~Sales~~the ofprotection ~~Equity Securities~~ and ~~Use~~privacy of customer ~~Proceeds~~data.

~~None~~We rely on complex encryption algorithms and technology to secure customer data. We believe our products protect the security and privacy of customer data by transmitting encrypted pointers to customer data, rather than the data itself, across the Internet and existing dedicated transmission lines. However, if customer data is misappropriated or unintentionally disclosed as a result of an actual or perceived failure of our software, our reputation, and ultimately our business, would be seriously harmed, and we could face liability claims.

~~Item 3. Defaults Upon Senior Securities.~~43

~~None~~We currently are dependent on contracts with the federal government for all of our revenues.

~~Item~~Revenues 4derived from federal government contracts accounted for 97.6% ~~Submission~~of our revenues in the first nine months of ~~Matters~~2011. We expect that government contracts will continue to be a ~~Vote~~significant source of ~~Security~~our ~~Holders~~revenues for the foreseeable future. Our business generated from government contracts may be adversely affected if:

~~None.~~· ability of the government to prepare, approve and execute a final federal fiscal budget;

~~Item~~· 5.levels ~~Other~~of ~~Information.~~government expenditures and authorizations for national and homeland security related programs decrease, remain constant or shift to programs in areas where we do not provide products and services;

~~Except~~· aswe ~~otherwise~~are ~~noted,~~prevented ~~the securities described in this Item were issued pursuant to the exemption~~ from ~~registration~~entering ~~provided~~into bynew ~~Section~~government ~~4(2)~~contracts ~~of the Securities Act of 1933 and/~~or ~~Regulation~~extending Dexisting ~~promulgated~~government ~~under the Securities Act. Each such issuance was made pursuant to individual~~ contracts ~~that~~based ~~are~~on ~~discrete~~violations ~~from~~or ~~one~~suspected ~~another~~violations ~~and are made only with persons who were sophisticated in such transactions and who had knowledge~~ of ~~and~~procurement ~~access~~laws toor ~~sufficient information about the Company to make an informed investment decision. Among this information was the fact that the securities were restricted securities.~~regulations;

~~Item~~· 6.we ~~Exhibits.~~are not granted security clearances that are required to sell our products or services or such security clearances are revoked; or

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

our reputation or relationship with government agencies is impaired.

~~SIGNATURES~~Most of our contracts with the government contain standard provisions that provide for termination at the convenience of the government pursuant to which we are entitled to recover costs incurred, settlement expenses, and profit on work completed prior to termination.

InIf ~~accordance~~we ~~with~~fail ~~the~~to ~~requirements~~comply ofwith ~~the~~complex ~~Exchange~~procurement laws ~~Act~~and regulations, ~~the~~we ~~registrant~~may ~~caused~~be ~~this~~subject ~~report~~ to becivil ~~signed~~and oncriminal ~~its~~penalties ~~behalf~~and byadministrative ~~the undersigned, thereunto duly authorized~~sanctions.

Dated: November 14, 2011	InferX Corporation
	By:	/s/ Vijay Suri
		Vijay Suri, President, CEO and CFO
		(Principal Executive, Financial and
		Accounting Officer)

We must comply with laws and regulations relating to the formation, administration and performance of government contracts. These laws and regulations affect how we do business with government agencies and may impose added costs on our business. For example, we are subject to the Federal Acquisition Regulations, which comprehensively regulate the formation, administration and performance of federal government contracts, and to the Truth in Negotiations Act, which requires certification and disclosure of cost and pricing data in connection with contract negotiations.

If a government review or investigation uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or debarment from doing business with government agencies, which could materially and adversely affect our business, financial condition and results of operations. In addition, a government may reform its procurement practices or adopt new contracting rules and regulations that could be costly to satisfy or that could impair our ability to obtain new contracts.

Risks Related to Our Common Stock

Currently, there is a limited trading market for our common stock, which may adversely impact your ability to sell your shares and the price you receive.

Our common stock is deemed to be a “penny stock,” which may make it more difficult for you to sell your shares.

Our common stock is subject to the “penny stock” rules adopted under Section 15(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The penny stock rules apply to companies whose common stock is not listed on the NASDAQ Stock Market or another national securities exchange and trades at less than $5.00 per share or that have tangible net worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. Remaining subject to the penny stock rules should be expected to have an adverse effect on the market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of them. This could cause our stock price to decline.

We need to raise additional capital, but that capital may not be available.

Our existing capital is insufficient to fund our operations beyond the fourth quarter of 2011. We believe the anticipated revenues from potential customer contracts along with the sale of a limited amount of equity will enable us to meet our financial obligations as they become due. However, we are not generating sufficient revenues to increase our working capital or to carry out our proposed business objectives and continue to operate as a going concern beyond the near term, and we need to obtain additional financing or reduce our expenses by curtailing our operations.

We cannot assure you that we will be successful or that our operations will generate sufficient revenues, if any, to meet the expenses of our operations. Although we are seeking additional financing, such financing may not be available or, if available, may not be available on satisfactory terms. Additionally, the nature of our business activities may require the availability of additional funds in the future due to more rapid growth than is forecast, and thus, we may need additional capital or credit lines to continue that rate of business growth. We may encounter difficulty in obtaining these funds and/or credit lines. Moreover, even if additional financing or credit lines were to become available, it is possible that the cost of such funds or credit would be high and possibly prohibitive.

If we were to decide to obtain such additional funds by equity financing in one or more private or public offerings, current stockholders would experience a corresponding decrease in their percentage ownership.

Our independent registered public accounting firm has expressed doubt regarding our ability to continue as a going concern.

Our audited financial statements for the years ended December 31, 2011 and 2010 have been prepared under the assumption that we will continue as a going concern. Our independent registered public accounting firms have issued their reports dated December 18, 2012 and April 13, 2011 in connection with the audits of our financial statements for the years ended December 31, 2011 and 2010 that included an explanatory paragraph describing the existence of conditions that raise doubt about our ability to continue as a going concern due to our having sustained operating losses and capital deficits from operations. The fact that we have received this “going concern opinion” from our independent registered public accounting firm will likely make it difficult for us to raise capital on favorable terms and could hinder, to some extent, our operations. Additionally, if we are not able to continue as a going concern, it is likely that stockholders will lose all of their investment. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.

Default Upon Senior Securities.

None.

Item 4.

Mine Safety Disclosures.

None.

Item 5.

Other Information.

Except as otherwise noted, the securities described in this Item were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933 and/or Regulation D promulgated under the Securities Act. Each such issuance was made pursuant to individual contracts that are discrete from one another and are made only with persons who were sophisticated in such transactions and who had knowledge of and access to sufficient information about the Company to make an informed investment decision. Among this information was the fact that the securities were restricted securities.

Item 6.

Exhibits.

	31*	Certification of the Principal Executive, Financial and Accounting Officer required by Rule 13a-14(a) or Rule 15d-14(a).

	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.

	101.INS**	XBRL Instance Document

	101.SCH**	XBRL Taxonomy Extension Schema

	101.CAL**	XBRL Taxonomy Extension Calculation Linkbase

	101.DEF**	XBRL Taxonomy Extension Definition Linkbase

	101.LAB**	XBRL Taxonomy Extension Label Linkbase

	101.PRE**	XBRL Taxonomy Extension Presentation Linkbase

*Filed herewith

**Pursuant to Rule 406T of Regulation S-T, these interactive data files 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 or Section 18 of the Securities Act of 1934 and otherwise are not subject to liability.

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: May 23, 2013	InferX Corporation

	By:	/s/ Paul B. Silverman
		President, CEO, and CFO
		(Principal Executive, Financial and
		Accounting Officer

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