UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~March 31~~June 30, 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.)
(State or other jurisdiction of incorporation or		(I.R.S. Employer Identification No.)
organization)

1934 Old Gallows Road
Tysons Corner, VA		22182
Tysons Corner
Virginia		22182
(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 ~~May 15~~July 16, 2012, there were 20,~~669~~657,453 outstanding shares of the registrant’s common stock, $.0001 par value.

TABLE OF CONTENTS

Item	Description	Page
PART I - FINANCIAL INFORMATION		3
ITEM 1.	FINANCIAL STATEMENTS.	3
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATION.	3433
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	4039
ITEM 4.	CONTROLS AND PROCEDURES.	4039
PART II - OTHER INFORMATION		39
ITEM 1.	LEGAL PROCEEDINGS.	4139
ITEM 1A.	RISK FACTORS	4140
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	4644
ITEM 3.	DEFAULT UPON SENIOR SECURITIES.	4644
ITEM 4.	MINE SAFETY DISCLOSURES.	4644
ITEM 5.	OTHER INFORMATION.	4644
ITEM 6.	EXHIBITS.	4645

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

INFERX CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, 2012 (UNAUDITED) AND AND DECEMBER 31, 2011

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2012			2011
	(UNAUDITED)
ASSETS

CURRENT ASSETS
Cash	$	20,722		$	152,874
Accounts receivable		255,970			231,822
Prepaid Expenses		2,639			2,639
Total current assets		279,331			387,335

Fixed assets, net of depreciation		4,090			7,884

Other Assets
Other assets		6,000			6,000
Computer software development costs, net of amortization		209,194			129,674
Total other asset		215,194			135,674

TOTAL ASSETS	$	498,615		$	530,893

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
Accounts payable and accrued expenses	$	3,355,290		$	3,093,299
Term loan		341,587			341,587
Related party payable		725,000			725,000
Current portion of notes payable, related party		59,350			50,600
Convertible debenture		199,500			199,500
Derivative liability		9,795,499			40,042,463
Liability for stock to be issued - common stock		12,400			18,620
Current portion of notes payable		93,744			65,687
Total current liabilities		14,582,370			44,536,756

Long-term Liabilities
Notes payable, net of current portion		338,995			347,052
Total Long-term liabilities		338,995			347,052

TOTAL LIABILITIES		14,921,365			44,883,808

MEZZANINE (TEMPORARY) EQUITY
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
Discount on preferred stock, series B		(120,803	)		(131,192	)
Total Mezzanine (Temporary) Equity		341,697			231,308

TOTAL MEZZANINE (TEMPORARY) EQUITY	$	341,697		$	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 20,657,453 and 19,998,203 shares issued and outstanding, respectively		2,066			1,999
Additional paid-in capital		3,692,851			1,658,198
Retained earnings (defict)		(18,459,364	)		(46,244,420	)
Total stockholders' equity (deficit)		(14,764,447	)		(44,584,223	)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	498,615		$	530,893

~~MARCH~~The ~~31,~~accompanying notes ~~2012~~are ~~(UNAUDITED)~~an ~~AND~~integral ~~DECEMBER 31,~~part ~~2011~~of these condensed consolidated financial statements.

	March 31,			December 31,
	2012			2011
	(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash	$	12,043		$	152,874
Accounts receivable		326,050			231,822
Advance		-			-
Prepaid expenses		17,639			2,639
Total current assets		355,732			387,335
Fixed assets, net of depreciation		5,986			7,884
Other Assets
Other assets		6,000			6,000
Computer software development costs, net of amortization		175,282			129,674
Total other asset		181,282			135,674
TOTAL ASSETS	$	543,000		$	530,893
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	3,231,359		$	3,093,299
Term loan		341,587			341,587
Related party payable		725,000			725,000
Notes payable, related party		59,350			50,600
Convertible debenture		199,500			199,500
Derivative liability		29,950,837			40,042,463
Liability for stock to be issued - common stock		224,900			18,620
Current portion of notes payable		93,657			65,687
Total current liabilities		34,826,190			44,536,756
Long-term Liabilities
Notes payable, net of current portion		339,082			347,052
Total Long-term liabilities		339,082			347,052
TOTAL LIABILITIES		35,165,272			44,883,808
MEZZANINE (TEMPORARY) EQUITY
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
Discount on preferred stock, series B		(147,142	)		(131,192	)
Total Mezzanine (Temporary) Equity		315,358			231,308
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~~INFERX ~~accompanying~~CORPORATION ~~notes~~CONDENSED ~~are~~CONSOLIDATED anSTATEMENTS ~~integral~~OF ~~part of~~OPERATIONS ~~these~~FOR ~~condensed~~THE ~~consolidated~~SIX ~~financial~~MONTHS ~~statements.~~ENDED JUNE 30, 2012 AND 2011 (UNAUDITED)

	Six Months Ended
	June 30,
	2012			2011

REVENUE	$	933,656		$	1,882,357

COST OF REVENUES
Direct labor and other fringes		93,668			280,180
Subcontractor		608,680			936,097
Other direct costs		8,711			25,165
Amortization of computer software development costs		-			-
Total costs of revenues		711,059			1,241,442

GROSS PROFIT		222,597			640,915

OPERATING EXPENSES
Indirect and overhead labor and fringes		429,893			735,725
Professional fees		281,824			190,574
Business development costs		3,177			4,892
Rent		39,000			44,037
Advertising and promotion		2,584			18,150
General and administrative		53,163			44,702
Stock based compensation		1,777,150			160,193
Depreciation		3,791			9,975
Total operating expenses		2,590,583			1,208,248

NET INCOME (LOSS) FROM OPERATIONS BEFORE OTHER EXPENSE AND PROVISION FOR INCOME TAXES		(2,367,986	)		(567,333	)

OTHER INCOME (EXPENSE)
Amortization of debt discount		(49,139	)		-
Fair value adjustment on derivative liability		30,246,964			(606,930	)
Interest expense, net of interest income		(44,785	)		(31,279	)

Total other income (expense)		30,153,040			(638,209	)

NET INCOME (LOSS) FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES		27,785,054			(1,205,542	)

Provision for income taxes		-			-

NET INCOME (LOSS) APPLICABLE TO SHARES	$	27,785,054		$	(1,205,542	)

NET INCOME (LOSS) PER BASIC SHARES	$	1.37		$	(0.07	)
NET INCOME (LOSS) PER DILUTED SHARES	$	0.20		$	(0.07	)

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC		20,282,550			17,741,713

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED		135,903,550			17,741,713

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

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS~~4

INFERX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED ~~MARCH~~JUNE 3130, 2012 AND 2011 (UNAUDITED)

	Three Months Ended
	March 31,
	June 30,
	2012			2011
REVENUE	$	~~509~~423,~~729~~927		$	1851,~~031,336~~021
COST OF REVENUES
Direct labor and other fringes		5142,~~232~~436			~~147~~132,~~709~~471
Subcontractor		~~317~~290,~~913~~767			~~510~~425,~~534~~563
Other direct costs		4,~~315~~396			168,~~684~~481
Total costs of revenues		373,460			674,927
Amortization of computer software development costs		-			-
GROSS PROFIT		136,269			356,409
Total costs of revenues		337,599			566,515
GROSS PROFIT		86,328			284,506
OPERATING EXPENSES
Indirect and overhead labor and fringes		~~312~~117,~~252~~641			~~367~~368,~~311~~414
Professional fees		~~219~~62,~~219~~605			73116,~~954~~620
Business development costs		~~385~~2,792			13,~~409~~483
Rent		19,500			2221,~~446~~591
Advertising and promotion		1,~~484~~100			611,~~776~~374
General and administrative		2330,~~103~~060			2816,~~239~~463
Stock based compensation		~~140~~1,~~550~~636,600			9960,~~641~~552
Depreciation		1,~~899~~892			54,~~514~~461
Total operating expenses		~~718~~1,~~392~~872,191			~~605~~602,~~290~~958
NET INCOME (LOSS) FROM OPERATIONS BEFORE OTHER EXPENSE AND PROVISION FOR INCOME TAXES		(~~582~~1,~~123~~785,863	)		(~~248~~318,~~881~~452	)
OTHER INCOME (EXPENSE)
Amortization of debt discount		(2226,~~800~~339	)		-
Loss on extinguishment of debt		-
Fair value adjustment on derivative liability		20,155,338			(900,930	)
Fair value adjustment on derivative liability		10,091,626			294,000
Interest expense, net of interest income		(23,056	)		(15,680	)
Interest expense, net of interest income		(21,729	)		(15,599	)
Total other income (expense)		20,105,943			(916,610	)
Total other income (expense)		10,047,097			278,401
NET INCOME (LOSS) FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES		18,320,080			(1,235,062	)
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	$	918,~~464~~320,~~974~~080		$	29(1,~~520~~235,062	)
NET INCOME (LOSS) PER BASIC SHARES	$	0.4789		$	(0.0007	)
NET INCOME (LOSS) PER DILUTED SHARES	$	0.0713		$	(0.0007	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC		20,~~001~~563,~~191~~908			17,~~496~~741,~~831~~713
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED		~~135~~136,~~622~~184,~~191~~908			3117,~~263~~741,~~664~~713

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

INFERX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011 (UNAUDITED)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

	Six Months Ended
	June 30,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	27,785,054		$	(1,205,542	)

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

Stock based compensation		1,777,150			160,193
Amortization of debt discount		49,139			-
Services rendered for liability for stock to be issued		212,600			-
Fair value adjustment for derivative liability		(30,246,964	)		606,930
Amortization of computer software development costs		-			-
Depreciation		3,791			9,975
Change in assets and liabilities
(Increase) decrease in accounts receivable		(24,148	)		(28,807	)
(Increase) decrease in advances		-			(3,000	)
(Increase) decrease in other current assets		-			0
Increase in accounts payable and accrued expenses		261,996			365,616
Increase (decrease) in liability for stock to be issued		-			-
Total adjustments		(27,966,436	)		1,109,907
Net cash (used in) operating activities		(181,382	)		(95,635	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in computer software costs		(79,520	)		(22,519	)
Net cash (used in) investing activities		(79,520	)		(22,519	)

CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayment) of line of credit, net		-			-
Proceeds received for shares of common stock and stock liability					68,000
(Repayment) of note payable, net		20,000			(21,868	)
Proceeds from notes payable - related parties		8,750			0
Proceeds received from convertible debentures		-			0
Proceeds received from convertible preferred		100,000			225,000
Net cash provided by financing activities		128,750			271,132

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(132,152	)		152,978

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

CASH AND CASH EQUIVALENTS - END OF PERIOD	$	20,722		$	185,805

SUPPLEMENTAL INFORMATION OF CASH FLOW ACTIVITY
Cash paid during the period for interest	$	12,724		$	14,952
Cash paid during the period for income taxes	$	1,050		$	179

SUPPLEMENTAL INFORMATION OF NONCASH ACTIVITY
Stock issued for liability for stock to be issued	$	216,500		$	-
Conversion of accounts payable and accrued expense for common stock and additional paid in capital or stock liability	$	2,320		$	89,182
Conversion of convertible debentures and accrued interest for common stock and additional paid in capital or stock liability					66,274

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

	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

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

5NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~INFERX~~JUNE ~~CORPORATION~~30, 2012 AND 2011 (UNAUDITED)

~~NOTES~~NOTE TO1- ~~CONDENSED~~ORGANIZATION ~~CONSOLIDATED~~AND ~~FINANCIAL STATEMENTS~~BASIS OF PRESENTATION

~~MARCH~~The 31unaudited condensed consolidated financial statements included herein have been prepared, ~~2012~~without ~~AND~~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, 2011 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.

~~NOTE~~These 1-unaudited condensed ~~ORGANIZATION~~consolidated ~~AND~~financial ~~BASIS~~statements OFreflect ~~PRESENTATION~~all adjustments, including normal recurring adjustments which, in the opinion of management, are necessary to present fairly the consolidated operations and cash flows for the periods presented.

~~The~~InferX ~~unaudited~~was incorporated ~~condensed~~under ~~consolidated~~the ~~financial statements~~laws ~~included~~of ~~herein~~Delaware ~~have~~in ~~been~~1999. ~~prepared,~~On ~~without~~December ~~audit~~31, ~~pursuant~~2005, toInferX ~~the rules~~ and ~~regulations~~Datamat ofSystems ~~the~~Research, ~~Securities~~Inc. ~~and Exchange Commission~~ (“~~SEC~~Datamat”)~~. The condensed consolidated financial statements and notes are presented as permitted on Form 10-Q~~, ~~and~~a docompany ~~not~~incorporated ~~contain~~in ~~information~~1992 ~~included~~under in the ~~Company’s~~corporate ~~annual~~laws ~~statements~~of ~~and notes. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in~~ the ~~United~~Commonwealth ~~States~~ of ~~America~~Virginia ~~have~~executed ~~been~~an ~~condensed~~Agreement ~~or omitted pursuant to such rules~~ and ~~regulations,~~Plan ~~although~~of ~~the Company believes that the disclosures~~Merger ~~are adequate to make~~ (the ~~information presented not misleading~~“Merger”). ItInferX isand ~~suggested~~Datamat ~~that~~had ~~these~~common ~~condensed~~majority ~~consolidated~~directors. The financial statements be ~~read~~herein inreflect ~~conjunction with~~ the ~~December 31~~combined entity, ~~2011~~and ~~audited~~all ~~financial~~intercompany ~~statements~~transactions and ~~the~~accounts ~~accompanying~~have ~~notes~~been ~~thereto~~eliminated. ~~While~~As ~~management believes~~a ~~the~~result ~~procedures~~of ~~followed~~the inMerger, ~~preparing~~InferX ~~these~~merged ~~condensed~~with ~~consolidated~~and into ~~financial statements are reasonable~~Datamat, the ~~accuracy~~surviving ~~of the~~entity. ~~amounts~~Upon ~~are in some respects dependent upon the facts that will exist~~completion, ~~and~~Datamat ~~procedures~~changed ~~that~~its ~~will~~name beto ~~accomplished~~InferX ~~by the Company later in the year~~Corporation.

~~These~~InferX ~~unaudited~~was formed ~~condensed~~to ~~consolidated~~develop and commercially market computer applications software systems that were initially developed by Datamat with ~~financial~~grants ~~statements~~from ~~reflect~~the ~~all~~Missile ~~adjustments,~~Defense ~~including~~Agency. ~~normal~~Datamat ~~recurring~~was ~~adjustments~~formed ~~which~~as a professional services research and development firm, specializing in the ~~opinion~~Department of ~~management,~~Defense. ~~are~~The ~~necessary to~~Company ~~present~~provided ~~fairly~~services ~~the~~and ~~consolidated~~software ~~operations~~to ~~and~~the ~~cash~~United ~~flows~~States ~~for~~government ~~the~~and ~~periods~~to ~~presented~~commercial entities as well.

~~InferX~~On ~~was~~March ~~incorporated~~16, 2009, ~~under~~ the ~~laws of~~Company ~~Delaware~~entered ininto ~~1999.~~an Onagreement ~~December~~and ~~31,~~plan ~~2005,~~of ~~InferX~~reorganization ~~and~~(the ~~Datamat~~“Merger ~~Systems~~Agreement”) ~~Research,~~with the Irus Group, Inc. (“~~Datamat~~Irus”), aunder ~~company~~which ~~incorporated in~~it ~~1992~~effected ~~under~~a ~~the~~reverse ~~corporate~~triangular ~~laws~~merger ofbetween ~~the~~Irus ~~Commonwealth~~and ofthe ~~Virginia~~Company’s ~~executed~~wholly-owned subsidiary, anIrus ~~Agreement~~Acquisition ~~and~~Corp. ~~Plan~~(formed offor ~~Merger (~~the ~~“Merger”). InferX~~purse ~~and~~of ~~Datamat~~completing ~~had~~this ~~common majority directors~~transaction). The ~~financial~~Merger ~~statements~~Agreement ~~herein~~was ~~reflect~~then ~~the~~amended on ~~combined~~June ~~entity~~15, ~~and~~2009 ~~all~~(the ~~intercompany transactions~~“First Amended and ~~accounts~~Restated ~~have~~Agreement”) ~~been~~to ~~eliminated.~~reflect Asthe achange ~~result~~in of the ~~Merger,~~amount ~~InferX~~of ~~merged with and into Datamat,~~ the ~~surviving~~shares ~~entity.~~issued ~~Upon~~to ~~completion,~~Irus ~~Datamat~~in ~~changed~~the ~~its name to InferX Corporation~~transaction.

~~InferX~~Under ~~was~~the ~~formed~~terms of tothe ~~develop~~First Amended and ~~commercially market~~Restated ~~computer~~Agreement, ~~applications~~the ~~software~~issued ~~systems~~and ~~that~~outstanding ~~were~~shares ~~initially~~of ~~developed~~Irus bycommon ~~Datamat~~stock ~~with~~was ~~grants~~automatically ~~from~~converted into the ~~Missile~~right ~~Defense~~to ~~Agency. Datamat~~receive ~~was~~56% ~~formed~~of asthe aissued ~~professional services research~~ and ~~development~~outstanding ~~firm,~~shares ~~specializing~~of in the ~~Department of Defense. The~~ Company ~~provided~~’s ~~services~~common ~~and software to the United States government and to commercial entities as well~~stock.

OnThe ~~March~~Merger Agreement 16also provides that, ~~2009~~at the effective time of the Merger, the Company’s ~~entered~~Board of Directors agreed to appoint Vijay ~~into~~Suri, anPresident ~~agreement~~and CEO of the Company and ~~plan~~have Vijay Suri fill a vacancy on its Board of ~~reorganization~~Directors. (In addition, effectiveness of the “Merger Agreement” is conditional upon (i) ~~with~~the Company restructuring existing debt by converting the ~~Irus~~existing ~~Group,~~debt ~~Inc.~~and ~~(“Irus”)~~warrants ~~under~~to ~~which~~common itstock ~~effected~~with the intention of having no more than 57-60 million shares of its common stock outstanding prior to a reverse split ~~triangular~~of ~~merger~~not ~~between~~less ~~Irus~~than ~~and~~1:10; (ii) the Company’s ~~wholly-owned~~using ~~subsidiary,~~its ~~Irus~~best ~~Acquisition Corp.~~efforts ~~(formed~~to ~~for~~reduce ~~the~~its ~~purse~~accounts ofpayable ~~completing~~by ~~this~~70%, ~~transaction~~(iii). Vijay Suri, President and CEO of The ~~Merger~~Irus ~~Agreement~~Group ~~was~~executing ~~then~~an ~~amended~~employment onagreement ~~June~~with 15the Company, ~~2009~~and (~~the~~iv) ~~“First Amended~~additional ~~and~~customary ~~Restated~~closing conditions ~~Agreement”)~~relating to ~~reflect~~delivery ~~the~~of ~~change~~financial instatements, ~~the~~closing ~~amount~~certificates ofas to representations and warranties, and the ~~shares~~delivery of ~~issued~~any torequired ~~Irus~~consents inor ~~the~~government ~~transaction~~approvals.

Under the terms of the First Amended and Restated Agreement, the issued and outstanding shares of Irus common stock was automatically converted into the right to receive 56% of the issued and outstanding shares of the Company’s common stock.7

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

6NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~INFERX~~JUNE ~~CORPORATION~~30, 2012 AND 2011 (UNAUDITED)

~~NOTES~~NOTE TO1- ~~CONDENSED~~ORGANIZATION ~~CONSOLIDATED~~AND ~~FINANCIAL STATEMENTS~~BASIS OF PRESENTATION (CONTINUED)

~~MARCH~~In 31accordance with the merger, ~~2012~~the ~~AND~~Company ~~2011~~on July 27, 2009 filed a Schedule 14C with the Securities and Exchange Commission. The Schedule 14C, contained 2 proposals; to increase the authorized common shares from 75,000,000 to 400,000,000 and to reverse split the common stock on a 1:20 basis. All share and per share amounts have been presented on a post-split basis.

~~NOTE~~On October 27, 2009, the Company and Irus completed the Merger. As consideration for the Merger, the Company issued 9,089,768 shares of common stock to Vijay Suri, the sole stockholder of Irus. As part of their employment agreements signed on 27 October 2009, both Vijay Suri and B.K. Gogia, each were issued 1-,000,000 ~~ORGANIZATION~~shares ~~AND~~of ~~BASIS~~preferred OFstock. ~~PRESENTATION~~On ~~(CONTINUED)~~June 2, 2010, the Board rescinded the 1,000,000 shares of preferred stock and issued Vijay Suri and B.K. Gogia 1,000,000 shares of common stock in recognition of their personal guarantee of certain corporate debt of the Company.

InIrus ~~accordance~~was ~~with~~a consulting ~~the~~firm ~~merger,~~advising ~~the Company~~ on ~~July~~the 27planning, ~~2009~~implementation ~~filed~~and adevelopment ~~Schedule~~of ~~14C~~complex ~~with~~business ~~the~~intelligence ~~Securities~~ and ~~Exchange~~corporate ~~Commission~~performance management systems. ~~The~~Irus ~~Schedule~~has ~~14C,~~successfully ~~contained~~implemented 2projects ~~proposals;~~across ~~to increase~~a ~~the~~broad ~~authorized~~cross-section ~~common~~of ~~shares~~clients ~~from~~in 75the government,~~000~~ financial services,~~000~~ toretail, ~~400~~manufacturing,~~000,000~~ and totelecommunications ~~reverse~~markets. ~~split~~Irus ~~the~~has ~~common~~provided ~~stock~~business onsolutions afor ~~1:20~~many ~~basis.~~large ~~All~~clients, ~~share~~including ~~and~~MasterCard, ~~per~~JP ~~share~~Morgan ~~amounts~~Chase, ~~have~~ConAgra, ~~been~~and ~~presented~~the onUS Navy, and collaborated with a ~~post-split~~wide ~~basis~~range of technology partners including Oracle, IBM/Cognos and Microsoft.

OnThe ~~October~~Merger with ~~27, 2009, the Company and~~ Irus ~~completed~~ ~~the~~was ~~Merger.~~accounted Asfor ~~consideration~~as ~~for~~a ~~the~~recapitalization ~~Merger,~~under the ~~Company~~purchase ~~issued~~method ~~9,089,768 shares~~ of ~~common stock to Vijay Suri~~accounting, ~~the~~as ~~sole stockholder of~~ Irus. Asbecame ~~part~~the ofaccounting ~~their employment agreements signed on 27 October 2009, both Vijay Suri and B~~acquirer.~~K. Gogia, each were~~ ~~issued~~The ~~1,000,000~~reported ~~shares~~amounts ofand ~~preferred~~disclosures ~~stock.~~contained Onin ~~June 2, 2010,~~ the ~~Board~~consolidated ~~rescinded~~financial ~~the~~statements ~~1,000,000~~are ~~shares~~those of ~~preferred~~Irus, ~~stock~~the ~~and~~operating ~~issued~~company. ~~Vijay~~In ~~Suri~~the ~~and B.K. Gogia 1~~transaction,~~000,000~~ ~~shares~~Irus ofdid ~~common~~assume ~~stock~~the intechnology ~~recognition~~ of ~~their~~the ~~personal~~Company ~~guarantee~~as ofwell ~~certain~~as ~~corporate debt of~~ the ~~Company~~liabilities.

~~Irus~~Effective ~~was~~July 1, a2009, ~~consulting~~the ~~firm~~Company ~~advising~~adopted on the ~~planning,~~Financial ~~implementation~~Accounting ~~and~~Standards ~~development~~Board of(“FASB”) ~~complex~~Accounting ~~business~~Standards ~~intelligence~~Codification ~~and~~(“ASC”) 105-10, ~~corporate~~Generally ~~performance~~Accepted ~~management~~Accounting ~~systems~~Principles – Overall (“ASC 105-10”). ~~Irus has~~ASC ~~successfully~~105-10 ~~implemented~~establishes ~~projects~~the ~~across~~FASB aAccounting Standards ~~broad~~Codification ~~cross-section~~(the “Codification”) as the source of ~~clients~~authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the ~~government,~~preparation of financial ~~services,~~statements ~~retail,~~in ~~manufacturing,~~conformity with U.S. GAAP. Rules and ~~telecommunications~~interpretive ~~markets.~~releases ~~Irus~~of ~~has~~the ~~provided~~SEC ~~business~~under ~~solutions~~authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC ~~many~~registrants. ~~large~~All ~~clients,~~guidance ~~including~~contained ~~MasterCard,~~in JPthe ~~Morgan~~Codification ~~Chase,~~carries an equal level of authority. The Codification superseded all ~~ConAgra,~~existing non-SEC accounting and ~~the~~reporting USstandards. ~~Navy~~All other non-grandfathered, ~~and~~non-SEC ~~collaborated~~accounting ~~with~~literature anot ~~wide~~included ~~range~~in the Codification is non-authoritative. The FASB will not issue new standards in the form of ~~technology~~Statements, ~~partners~~FASB ~~including~~Positions ~~Oracle~~or Emerging Issue Task Force Abstracts. Instead, ~~IBM/Cognos~~it ~~and~~will ~~Microsoft~~issue Accounting Standards Updates (“ASUs”).

The ~~Merger~~FASB ~~with~~will not ~~Irus~~consider ~~was~~ASUs ~~accounted for~~ as aauthoritative ~~recapitalization~~in ~~under~~their ~~the~~own ~~purchase~~right. ~~method~~ASUs ofwill ~~accounting,~~serve asonly ~~Irus~~to ~~became~~update the ~~accounting~~Codification, ~~acquirer.~~provide ~~The~~background ~~reported~~information about ~~amounts~~the guidance and ~~disclosures~~ ~~contained~~provide in the ~~consolidated~~bases ~~financial~~for ~~statements~~conclusions ~~are~~on ~~those~~the ofchange(s) ~~Irus,~~in the ~~operating company~~Codification. InReferences ~~the~~made ~~transaction,~~to ~~Irus~~FASB guidance ~~did~~throughout ~~assume~~this ~~the~~document ~~technology~~have ofbeen ~~the~~updated ~~Company~~for ~~as well as~~ the ~~liabilities~~Codification.

~~Effective July 1, 2009, the Company adopted~~Going 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”).Concern

~~The~~As ~~FASB~~shown ~~will~~in the ~~not~~accompanying ~~consider~~condensed ~~ASUs~~consolidated asfinancial ~~authoritative in~~statements, ~~their~~the ~~own~~Company ~~right.~~has ~~ASUs~~incurred ~~will~~a ~~serve~~net ~~only~~loss tofrom ~~update~~operations ~~the~~before ~~Codification,~~other income ~~provide~~(expense) ~~background~~of ~~information~~$(2,367,986) ~~about~~and ($567,333) for the ~~guidance~~six months ended June 30, 2012 and ~~provide the~~2011, ~~bases~~respectively, ~~for~~and ~~conclusions~~net onincome (loss) ~~the~~of ~~change~~$27,785,054 and (s$1,205,542), respectively. Net income recognized during the six months ended June 30, 2012 is due in large part to the ~~Codification.~~fair ~~References~~value ~~made~~adjustment to ~~FASB~~the ~~guidance~~derivative ~~throughout~~liability ~~this~~of ~~document~~$30,246,964. ~~have~~The Company has an accumulated deficit of ~~been~~$18,459,364 ~~updated~~as ~~for~~of ~~the~~June ~~Codification~~30, 2012.

~~Going Concern~~8

AsINFERX shown in the accompanying condensed consolidated financial 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.CORPORATION

7NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~INFERX~~JUNE ~~CORPORATION~~30, 2012 AND 2011 (UNAUDITED)

~~NOTES~~NOTE TO1- ~~CONDENSED~~ORGANIZATION ~~CONSOLIDATED~~AND ~~FINANCIAL STATEMENTS~~BASIS OF PRESENTATION (CONTINUED)

~~MARCH~~Additionally, our 31overall recurring losses and working capital deficiencies include the move by the federal government to convert contract support spaces to employees. This is negatively impacting our labor rates, ~~2012~~hours ~~AND~~billed, ~~2011~~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 significant doubt about the ability of the Company to continue as a going concern.

~~NOTE~~Management’s plans 1-to ~~ORGANIZATION~~address ~~AND~~these ~~BASIS~~conditions OFinclude ~~PRESENTATION~~continued ~~(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.

~~Additonally,~~The ~~our overall recurring losses~~Company’s ~~and~~long-term ~~working~~success ~~capital~~is ~~deficiencies~~dependent ~~include~~upon the ~~move~~obtainment byof ~~the~~sufficient ~~federal~~capital ~~government~~ to ~~convert~~fund ~~contract~~its ~~support~~operations; ~~spaces~~development toof ~~employees.~~its ~~This~~products; isand ~~negatively~~launching ~~impacting~~its ~~our~~products ~~labor rates, hours billed, and ability~~ to ~~expand current contracts. Further,~~ the ~~federal~~worldwide ~~government’s inability to negotiate and implement a comprehensive federal budget has directly impacted our success in acquiring new profitable government contracts~~market. ~~Combined~~These ~~with~~factors ~~the~~will ~~continued~~contribute ~~uncertainty in the commercial market due~~ to the ~~sustained~~Company’s ~~national~~obtaining ~~down-turn~~sufficient insales ~~business~~volume ~~and~~to ~~associated~~be ~~flat~~profitable. ~~recovery~~To ~~has~~achieve ~~increased~~these ~~sales cycles and reduced sales opportunities. Additionally~~objectives, the Company ~~continues~~ tomay be ~~constrained~~required byto ~~its~~raise ~~availability~~additional ~~of investment~~ capital tothrough ~~the~~public or ~~firm.~~private ~~The~~financings ~~Company~~or ~~expects~~other ~~the~~arrangements. ~~negative~~It ~~cash~~cannot ~~flow~~be ~~from operations~~assured tothat ~~continue~~such ~~its~~financings ~~trend~~will ~~through~~be ~~the~~available ~~next~~on ~~six~~terms ~~months,~~attractive ~~however~~ to the Company, ~~continues~~if toat ~~expand~~all. ~~current~~Such ~~contract~~financings ~~revenue backlog~~may ~~and~~be ~~build~~dilutive ~~its pipeline of contracts. These factors continue~~ to ~~raise~~existing ~~significant~~stockholders ~~doubt~~and ~~about~~may ~~the~~contain ~~ability~~restrictive ~~of the Company to continue as a going concern~~covenants.

~~Management’s~~The ~~plans~~Company is subject to ~~address~~certain ~~these conditions~~risks ~~include~~common ~~continued~~to ~~aggressive~~technology-based ~~efforts~~companies toin ~~expand~~similar ~~the~~stages ~~firm’s~~of ~~current~~development. ~~business~~Principal ~~backlog,~~risks byto ~~obtaining~~the ~~new government~~Company ~~and~~include ~~commercial~~uncertainty ~~contracts,~~of asgrowth ~~well~~in asmarket ~~expanding~~acceptance ~~integrator~~for ~~partnerships~~its ~~and~~products; ~~new~~history ~~technology.~~of ~~Commensurate~~losses ~~with~~in ~~Management’s aggressive~~recent ~~sales development plan~~years; ~~the~~ability ~~Company~~to ~~has~~remain ~~instituted~~competitive in aresponse ~~comprehensive~~to ~~communications~~new ~~and marketing plan~~technologies; ~~the~~costs ~~hiring~~to ~~of another~~defend, ~~sales~~as ~~representative,~~well ~~the~~as ~~hire~~risks of alosing ~~Practice~~patent ~~Manager~~and ~~for~~intellectual ~~Cyber~~property ~~Security,~~rights; ~~and~~reliance on ~~the~~limited ~~engagement~~number of ansuppliers; ~~external~~reliance ~~business~~on ~~development organization.~~outsourced ~~Management~~manufacture ~~believes~~of ~~that~~its ~~these~~products ~~combined~~for ~~efforts~~quality ~~will~~control ~~significantly~~and ~~improve~~product ~~the~~availability; uncertainty ~~success rate~~ of ~~sales~~demand ~~closure~~for ~~within the~~its ~~Company’s~~products ~~robust~~in ~~opportunity~~certain ~~pipeline.~~markets; ~~The~~ability ~~Company continues~~ to ~~seek~~manage ~~additional~~growth ~~capital~~effectively; ~~through~~dependence ~~the~~on ~~sale~~key ofmembers ~~the Company’s~~of ~~stock.~~its ~~Additionally, the executive~~ management; ~~team has put into place an aggressive cost~~ and ~~expense~~its ~~savings~~ability ~~spending plan~~ to ~~identify and~~obtain ~~eliminate~~adequate ~~costs~~capital ~~which~~to ~~are~~fund ~~directly~~future ~~impacting profitability~~operations.

The ~~Company’s long-term success is~~condensed ~~dependent~~consolidated ~~upon~~financial ~~the~~statements ~~obtainment~~do ofnot ~~sufficient~~include ~~capital~~any toadjustments ~~fund~~relating ~~its operations; development of its products; and launching its products~~ to the ~~worldwide~~carrying ~~market.~~amounts ~~These~~of ~~factors~~recorded ~~will~~assets ~~contribute~~or to the ~~Company’s obtaining sufficient sales volume to be profitable.~~carrying Toamounts ~~achieve~~and ~~these~~classification ~~objectives,~~of ~~the~~recorded ~~Company~~liabilities that may be required toshould ~~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~~unable to ~~existing~~continue ~~stockholders~~as ~~and~~a ~~may~~going ~~contain restrictive covenants~~concern.

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

The condensed consolidated financial statements do ~~not~~ include ~~any~~those ~~adjustments~~of ~~relating to~~ the ~~carrying~~Company ~~amounts~~and ofits ~~recorded~~wholly-owned ~~assets~~subsidiary. orAll ~~the~~intercompany ~~carrying~~accounts ~~amounts~~ and ~~classification of~~ ~~recorded~~transactions ~~liabilities~~have ~~that~~been ~~may~~eliminated bein ~~required should the Company be unable to continue as a going concern~~consolidation.

INFERX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~MARCH~~JUNE 3130, 2012 AND 2011 (UNAUDITED)

NOTE 2-

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

~~Principles~~Use of Estimates ~~Consolidation~~

The preparation of condensed consolidated financial statements ~~include~~ ~~those~~in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the ~~Company~~reported amounts of assets and ~~its~~liabilities ~~wholly-owned~~and disclosures ~~subsidiary.~~of ~~All~~contingent ~~intercompany~~assets ~~accounts~~and liabilities at the date of the financial statements and ~~transactions~~the ~~have~~reported ~~been~~amounts ~~eliminated~~of inrevenue and ~~consolidation~~expenses during the reporting period. Actual results could differ from those estimates.

~~Use~~Cash ofand Cash ~~Estimates~~Equivalents

The ~~preparation of condensed consolidated~~Company ~~financial~~considers ~~statements~~all inhighly ~~conformity~~liquid ~~with~~debt ~~accounting~~instruments ~~principles generally accepted in the United States of America requires management to make estimates~~ and ~~assumptions~~other ~~that~~short-term ~~affect~~investments ~~the~~with ~~reported~~a ~~amounts~~maturity of ~~assets~~three ~~and~~months ~~liabilities~~or ~~and~~less, ~~disclosures~~when ~~of contingent assets~~purchased, ~~and~~to ~~liabilities~~be atcash ~~the date of the financial statements and the reported amounts of revenue and expenses during the reporting period~~equivalents. ~~Actual results could differ from those estimates.~~

~~Cash~~The Company maintains cash and ~~Cash~~cash ~~Equivalents~~equivalent balances at one financial institution that is insured by the Federal Deposit Insurance Corporation up to $250,000.

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

The Company provides ~~maintains~~an ~~cash~~allowance ~~and~~for ~~cash~~doubtful ~~equivalent balances~~accounts, atwhich ~~one~~is ~~financial~~based ~~institution~~upon ~~that~~a review of outstanding receivables as well as historical collection information. Credit is ~~insured~~granted byto substantially all customers on an unsecured basis. In determining the ~~Federal~~amount ~~Deposit~~of ~~Insurance~~the ~~Corporation~~allowance, management upis required to ~~$250~~make certain estimates and assumptions. Management has determined that as of June 30,~~000~~ 2012, no allowance for doubtful accounts is required.

~~Allowance~~Fixed Assets ~~for Doubtful Accounts~~

~~The~~Fixed ~~Company~~assets are ~~provides~~stated anat ~~allowance for doubtful accounts~~cost, ~~which~~less isaccumulated ~~based upon a review of outstanding receivables as well as historical collection information~~depreciation. ~~Credit~~Depreciation is ~~granted to~~provided ~~substantially~~using ~~all~~the ~~customers~~straight-line onmethod anover ~~unsecured basis. In determining~~ the ~~amount~~estimated useful lives of the ~~allowance,~~related ~~management~~assets is(primarily ~~required~~three to ~~make certain~~five ~~estimates and assumptions~~years). ~~Management~~Costs ~~has determined that as~~ of ~~March~~maintenance ~~31,~~and ~~2012,~~repairs noare ~~allowance~~charged ~~for~~to ~~doubtful~~expense ~~accounts is required~~as incurred.

~~Fixed~~Computer Software ~~Assets~~Development Costs

~~Fixed~~During ~~assets~~2012 and ~~are~~2011 ~~stated~~through at2012, the Company capitalized certain software development costs. The Company capitalizes the cost of software in accordance with ASC 985-20 once technological feasibility has been demonstrated, ~~less~~as ~~accumulated~~the Company has in the past sold, leased ~~depreciation~~or otherwise marketed their software, and plans on doing so in the future. ~~Depreciation~~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 ~~provided~~based ~~using~~on the greater of (i) the ratio of current gross revenues to the sum of current and anticipated gross revenues, or (ii) the straight-line method over the ~~estimated~~remaining ~~useful~~economic ~~lives~~life of the ~~related~~software, ~~assets~~typically ~~(primarily three to~~ five years). ~~Costs~~It is possible that those anticipated gross revenues, the remaining economic life of ~~maintenance~~the ~~and~~products, ~~repairs~~or ~~are~~both, ~~charged~~may tobe ~~expense~~reduced as ~~incurred~~a result of future events. The Company has not developed any software for internal use.

~~Computer~~The ~~Software~~Company’s CTO ~~Development~~administered ~~Costs~~major modifications to the Company’s core products (i.e. Infer Agent, Infer Text). 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.

During ~~2012 and 2011,~~ the ~~Company capitalized~~ ~~certain~~six ~~software~~months ~~development~~ended ~~costs.~~June ~~The~~30, ~~Company capitalizes the cost of software in accordance with ASC 985-20 once technological feasibility has been demonstrated~~2012, as the Company ~~has~~capitalized ~~in the past sold~~$79,520 ~~leased or otherwise marketed their software, and plans on doing so~~ in ~~the~~computer ~~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 (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.

The 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.10

~~For~~INFERX ~~the three months ended March 31, 2012, the Company capitalized $45,608 in computer software costs.~~CORPORATION

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

~~The~~JUNE 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 impaired30, ~~the~~2012 ~~impairment~~AND ~~recognized~~2011 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.(UNAUDITED)

9NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

~~INFERX~~Recoverability of ~~CORPORATION~~Long-Lived Assets

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

~~MARCH~~Revenue Recognition ~~31, 2012 AND 2011~~

~~NOTE~~Revenue 2-is recognized ~~SUMMARY~~when OFpersuasive ~~SIGNIFICANT~~evidence ~~ACCOUNTING~~of ~~POLICIES~~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 (~~CONTINUED~~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, usually performing consulting services.

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

~~Revenue~~The isCompany does ~~recognized~~not ~~when~~derive ~~persuasive~~revenue ~~evidence~~from projects involving multiple revenue-generating activities. If a contract would involve the provision of anmultiple ~~arrangement~~service ~~exists~~elements, ~~delivery~~total ~~has~~estimated ~~occurred,~~contract ~~the~~revenue ~~fee~~would isbe ~~fixed~~allocated orto ~~determinable,~~each ~~and~~element ~~collectability~~based ison ~~probable.~~the Wefair ~~enter~~value ~~into~~of each ~~certain~~element. ~~arrangements~~The ~~where~~amount weof ~~are~~revenue ~~obligated~~allocated to ~~deliver~~each ~~multiple~~element ~~products~~would ~~and~~then /be orlimited ~~services~~to ~~(multiple~~the ~~elements).~~amount Inthat ~~these~~is ~~transactions, we~~not ~~allocate~~contingent upon the ~~total~~delivery of ~~revenue~~another ~~among~~element in the ~~elements~~future. ~~based~~Revenue onfor ~~the~~each ~~sales~~element ~~price~~would ofthen ~~each~~be ~~element~~recognized ~~when~~depending ~~sold~~upon ~~separately~~whether ~~(vendor~~the contract is a time-~~specific~~and-materials ~~objective~~contract ~~evidence)~~or a fixed-price, fixed-time contract.

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 timeStock-~~and-material contracts~~Based ~~and~~Compensation ~~fixed-price contracts.~~

~~The~~In 2006, the Company’s ~~business~~adopted isthe ~~not~~provisions ~~seasonal in~~of ~~nature.~~ASC ~~The~~718-10 ~~timing~~“Share-Based ofPayments” ~~contract~~(“ASC ~~awards,~~718-10”) ~~the~~which ~~availability~~requires recognition of ~~funding~~stock-based ~~from~~compensation ~~the~~expense ~~customer,~~for ~~the~~all ~~incurrence~~share-based ofpayments ~~contract~~based ~~costs~~on ~~and~~fair ~~unit deliveries~~value. ~~are~~Share-based ~~the~~payment ~~primary~~transactions ~~drivers~~within the scope of ~~our~~ASC ~~revenue~~718-10 ~~recognition.~~include ~~These~~stock ~~factors~~options, ~~are~~restricted ~~influenced~~stock byplans, ~~the federal government’s October~~performance-~~to-September fiscal~~based ~~year.~~awards, ~~This~~stock ~~process~~appreciation ~~has~~rights, ~~historically~~and employee ~~resulted~~share inpurchase ~~higher~~plans. ~~revenues~~This inadoption ~~the~~had ~~latter~~no ~~half~~effect ofon the ~~government~~Company’s ~~fiscal year~~operations. ~~Many~~Prior ~~of our~~to ~~government~~January ~~customers~~1, ~~schedule~~2006, ~~deliveries toward~~ the ~~end~~Company measured ofcompensation ~~the~~expense ~~calendar~~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 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.11

~~Stock-Based~~INFERX ~~Compensation~~ CORPORATION

InNOTES ~~2006, the Company adopted the provisions~~TO ofCONDENSED ~~ASC~~CONSOLIDATED ~~718-10~~FINANCIAL “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.STATEMENTS

~~The~~JUNE ~~Company has elected to use the modified–prospective approach method. Under that transition method~~30, ~~the calculated expense in 2006 is equivalent to compensation expense for all awards~~ ~~granted~~2012 ~~prior~~AND ~~to,~~2011 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.(UNAUDITED)

~~The~~NOTE ~~Company measures compensation expense for non~~2-~~employee~~ ~~stock-based~~SUMMARY ~~compensation~~OF ~~under~~SIGNIFICANT ~~ASC~~ACCOUNTING ~~505-50,~~POLICIES “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.(CONTINUED)

10Stock-Based Compensation (continued)

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

~~NOTES~~The TOCompany measures ~~CONDENSED~~compensation ~~CONSOLIDATED~~expense ~~FINANCIAL~~for non-employee stock-based compensation under ASC 505-50, “Accounting for Equity Instruments ~~STATEMENTS~~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.

~~MARCH 31, 2012 AND 2011~~Concentrations

~~NOTE~~For 2-the ~~SUMMARY~~six months OFended ~~SIGNIFICANT~~June ~~ACCOUNTING~~30, ~~POLICIES~~2012 ~~(CONTINUED)~~and 2011, the Company derived 82% and 83% of its revenue from three 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.

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

~~For~~Fair ~~the three months ended March 31, 2012~~Value ~~and 2011, the Company derived 100% and 82%~~ of ~~its~~Financial ~~revenue~~Instruments ~~from~~(other ~~five~~than ~~and~~Derivative ~~two~~Financial ~~customers,~~Instruments) 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.

~~Financial~~The ~~instruments~~carrying amounts ~~that~~reported ~~potentially subject~~in the ~~Company~~condensed toconsolidated ~~significant~~balance ~~concentrations~~sheets for cash and cash equivalents, and accounts payable approximate fair value because of ~~credit~~the ~~risk~~immediate ~~consist~~or ~~principally~~short-term maturity of ~~accounts~~these ~~receivable~~financial instruments. ToFor ~~date~~the notes payable, ~~accounts~~the carrying ~~receivable~~amount ~~have~~reported ~~been~~is ~~derived~~based ~~from~~upon ~~contracts~~the ~~with~~incremental ~~agencies~~borrowing ofrates ~~the~~otherwise ~~federal~~available ~~government~~to us for similar borrowings. ~~Accounts~~For ~~receivable~~the warrants that are ~~generally~~classified ~~due~~as ~~within~~derivatives, fair values were calculated at net present value using our weighted average borrowing rate 30for ~~days~~debt ~~and~~instruments nowithout ~~collateral~~conversion isfeatures ~~required~~applied to total future cash flows of the instruments.

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

The ~~carrying~~Company reviews ~~amounts~~the ~~reported~~terms inof ~~the~~convertible ~~condensed consolidated~~debt ~~balance~~and ~~sheets~~equity securities for ~~cash~~indications requiring bifurcation, and ~~cash~~separate ~~equivalents~~accounting, ~~and~~for the ~~accounts~~embedded ~~payable~~conversion ~~approximate~~feature. ~~fair~~Generally, ~~value~~embedded ~~because~~conversion offeatures, where the ~~immediate~~ ability to physical or ~~short~~net-~~term~~share ~~maturity~~settle the conversion option is not within the control of ~~these~~the Company, are bifurcated and accounted for as a derivative financial ~~instruments~~instrument. Bifurcation ~~For~~of the ~~notes~~embedded ~~payable,~~derivative instrument requires allocation of the ~~carrying~~proceeds ~~amount~~first ~~reported~~to isthe ~~based~~fair ~~upon~~value of the ~~incremental~~embedded ~~borrowing~~derivative ~~rates~~instrument ~~otherwise~~with ~~available~~the toresidual usallocated ~~for~~to ~~similar~~the ~~borrowings~~debt instrument. ~~For~~The ~~the~~resulting ~~warrants~~discount ~~that~~to ~~are~~the ~~classified~~face asvalue ~~derivatives,~~of ~~fair~~the ~~values~~debt ~~were~~instrument ~~calculated~~is atamortized ~~net~~through ~~present~~periodic ~~value~~charges ~~using~~to ~~our~~interest ~~weighted~~expense ~~average~~using ~~borrowing~~the ~~rate~~Effective ~~for~~Interest ~~debt~~Method. ~~instruments~~The ~~without~~Company ~~conversion~~values ~~features~~derivative ~~applied~~liability toonly ~~total~~when ~~future~~convertible ~~cash~~debt ~~flows~~is ofin ~~the~~default ~~instruments~~or has matured.

~~Convertible Instruments~~ 12

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

~~Income~~NOTES ~~Taxes~~TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Under~~JUNE ~~ASC 740 the liability method is used in accounting for income taxes. Under this method~~30, ~~deferred tax assets and liabilities are determined based on differences between~~ ~~financial~~2012 ~~reporting~~AND ~~and~~2011 ~~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.~~(UNAUDITED)

~~Uncertainty~~NOTE in2- ~~Income~~SUMMARY ~~Taxes~~OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

~~The Company follows ASC 740-10, Accounting for Uncertainty in~~ Income Taxes. This interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. ASC 740-10 is effective for fiscal years beginning after December 15, 2006. Management has adopted ASC 740-10 for 2008, and they evaluate their tax positions on an annual basis. The Company’s policy is to recognize both interest and penalties related to unrecognized tax benefits expected to result in payment of cash within one year are classified as accrued liabilities, while those expected beyond one year are classified as other liabilities. The Company has not recorded any interest or penalties since its inception.

~~The~~Under ~~Company~~ASC ~~files~~740 the ~~income~~liability ~~tax~~method ~~returns~~is used in ~~the~~ Uaccounting for income taxes.S. ~~federal~~Under this method, deferred tax ~~jurisdiction~~assets and ~~various~~liabilities ~~state~~are ~~tax~~determined based ~~jurisdictions.~~on ~~Certain~~differences ~~tax~~between ~~years~~financial ~~remain~~reporting ~~open~~and ~~for~~tax ~~examination~~bases byof ~~federal~~ assets and~~/or~~ ~~state~~liabilities, ~~tax~~and ~~jurisdictions.~~are ~~The~~measured ~~Company~~using isthe ~~currently~~enacted ~~not~~tax rates ~~under~~and ~~examination~~laws bythat ~~any~~will ~~other~~be ~~tax~~in ~~jurisdictions~~effect ~~for~~when ~~any~~the ~~tax~~differences ~~year~~are expected to reverse.

11Uncertainty in Income Taxes

~~INFERX~~The ~~CORPORATION~~Company follows ASC 740-10, Accounting for Uncertainty in Income Taxes. This interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. ASC 740-10 is effective for fiscal years beginning after December 15, 2006. Management has adopted ASC 740-10 for 2008, and they evaluate their tax positions on an annual basis. The Company’s policy is to recognize both interest and penalties related to unrecognized tax benefits expected to result in payment of cash within one year are classified as accrued liabilities, while those expected beyond one year are classified as other liabilities. The Company has not recorded any interest or penalties since its inception.

~~NOTES~~The TOCompany files ~~CONDENSED~~income ~~CONSOLIDATED~~tax ~~FINANCIAL~~returns in the U.S. federal tax jurisdiction and various state tax jurisdictions. Certain tax years remain open ~~STATEMENTS~~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.

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

~~NOTE~~Basic 2-net ~~SUMMARY~~earnings (loss) OFper ~~SIGNIFICANT~~common ~~ACCOUNTING~~share ~~POLICIES~~ (~~CONTINUED~~“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.

~~Earnings (Loss) Per Share of Common Stock~~ 13

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

~~The~~NOTES ~~following is a reconciliation of the computation for basic~~TO ~~and~~CONDENSED ~~diluted~~CONSOLIDATED ~~EPS:~~FINANCIAL STATEMENTS

	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

JUNE 30, 2012 AND 2011 (UNAUDITED)

~~Research~~NOTE ~~and~~2- ~~Development~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 ~~Company~~following ~~has~~is ~~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~~reconciliation ~~was~~of ~~established are not material, and accordingly,~~ the ~~Company~~computation ~~capitalizes~~for ~~all~~basic ~~research~~ and ~~development~~diluted ~~costs when incurred and amortizes those costs over a 5 year period starting on the date the product is available to the market.~~EPS:

	Six Months Ended
	June 30,		June 30,
	2012		2011

Net income (loss)	$	27,785,054	$	(1,205,543	)

Weighted-average common shares outstanding:
Basic		20,282,550		17,741,713
Convertible Notes		500,000		833,334
Convertible Debenture		99,750,000		1,050,000
Convertible Preferred		1,156,250		450,000
Warrants		8,275,250		6,454,000
Options		5,939,500		5,679,500
Diluted		135,903,550		32,308,547

Basic net income (loss) per share	$	1.37	$	(0.07	)

Diluted net income (loss) per share	$	0.20	$	(0.07	)

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

~~NOTES~~Research TOand development ~~CONDENSED~~expenses, ~~CONSOLIDATED~~included ~~FINANCIAL~~in the financial statements, consist of payroll, employee benefits, equity compensation, third ~~STATEMENTS~~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.

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

~~NOTE~~In 2-May ~~SUMMARY~~2011, FASB OFissued ~~SIGNIFICANT~~Accounting ~~ACCOUNTING~~Standards ~~POLICIES~~Update (~~CONTINUED~~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.

~~Recent~~In ~~Issued~~June ~~Accounting~~2011, FASB ~~Standards~~issued ASU No. 2011-05, Presentation of 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.

In May 2011, FASB issued 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.14

InINFERX June 2011, FASB issued ASU No. 2011-05, Presentation of 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.CORPORATION

InNOTES ~~September 2011, FASB issued ASU 2011-08,~~TO ~~Testing~~CONDENSED ~~Goodwill~~CONSOLIDATED ~~for~~FINANCIAL Impairment, which amended 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.STATEMENTS

InJUNE ~~July 2012~~30, ~~the FASB issued ASU 2012-02,~~ ~~Intangibles~~2012 –AND ~~Goodwill~~2011 ~~and Other~~ (~~Topic 350~~UNAUDITED): 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.

13NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

~~INFERX~~Recent Issued ~~CORPORATION~~Accounting Standards (continued)

~~NOTES~~In TOSeptember 2011, ~~CONDENSED~~FASB ~~CONSOLIDATED~~issued ~~FINANCIAL~~ASU 2011-08, Testing Goodwill for Impairment, which amended goodwill impairment guidance to provide an ~~STATEMENTS~~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.

~~MARCH~~In 31July 2012, the FASB issued ASU 2012-02, ~~AND~~Intangibles ~~2011~~– Goodwill and Other (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.

~~NOTE~~Other 2-ASU’s that ~~SUMMARY~~have OFbeen ~~SIGNIFICANT~~issued ~~ACCOUNTING~~or ~~POLICIES~~proposed ~~(CONTINUED)~~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.

~~Recent~~NOTE ~~Issued~~3- ~~Accounting~~FIXED ~~Standards (continued)~~ASSETS

~~Other~~Fixed ~~ASU’s~~assets ~~that~~consist ~~have~~of ~~been~~the ~~issued~~following oras ~~proposed~~of byJune ~~the~~30, ~~FASB~~2012 ~~ASC~~(unaudited) ~~that do not require adoption until a future date~~ and ~~are~~December ~~not~~31, ~~expected~~2011, ~~to have a material impact on the financial statements upon adoption.~~respectively:

NOTE 3- FIXED ASSETS

	Estimated Useful	June 30,			December 31
	Lives (Years)	2012 (unaudited)			2011

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			(467,605	)		(463,812
Total, net		$	4,090		$	7,884

~~Fixed~~Depreciation ~~assets~~expense ~~consist~~was of$3,791 and $9,975 for the ~~following~~six ~~as of~~months ~~March~~ended 31June 30, 2012 ~~(unaudited)~~ and ~~December 31,~~ 2011, respectively:.

	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

~~Depreciation~~INFERX ~~expense was $1,899 and $5,514 for the three months ended March 31, 2012 and 2011, respectively.~~CORPORATION

14NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~INFERX~~JUNE ~~CORPORATION~~30, 2012 AND 2011 (UNAUDITED)

~~NOTES~~NOTE TO4- ~~CONDENSED~~COMPUTER ~~CONSOLIDATED~~SOFTWARE ~~FINANCIAL STATEMENTS~~DEVELOPMENT COSTS

~~MARCH~~Computer 31software development costs consist of the following as of June 30, 2012 ~~AND~~and December 31, 2011, respectively:

NOTE 4- COMPUTER SOFTWARE DEVELOPMENT COSTS

	Estimated Useful	June 30,			December 31,
	Lives (Years)	2012 (unaudited)			2011

Computer software development costs	5	$	1,195,918		$	1,116,398

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

Total, net		$	209,194		$	129,674

~~Computer~~Amortization ~~software~~expense ~~development~~was ~~costs~~$0 ~~consist of~~ for the ~~following as~~six ofmonths ~~March~~ended 31June 30, 2012 and ~~December 31,~~ 2011, respectively:.

	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

NOTE 5-

NOTES PAYABLE

~~Amortization~~SBA ~~expense was $0 for the three months ended March~~Loan ~~31, 2012 and 2011, respectively.~~

~~NOTE~~On 5July 22, 2003, the Company and the U.S. Small Business Administration (“SBA”) entered into a Note (the “Note”) under the SBA’s Secured Disaster Loan program in the amount of $377,100. Under the Note, the Company agreed to pay principal and interest at an annual rate of 4% per annum, of $1,868 every month commencing twenty-five ~~NOTES~~(25) ~~PAYABLE~~months from the date of the Note (commencing August 2005). The Note matures July 2034.

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

OnAs ~~July~~of ~~22,~~June ~~2003~~30, the Company ~~and~~has ~~the U.S.~~an ~~Small~~outstanding ~~Business Administration (“SBA”) entered into a Note (the “Note”) under the SBA’s Secured Disaster Loan program in the amount of $377,100. Under the Note, the Company agreed to pay~~ principal ~~and~~balance ~~interest at an annual rate~~ of ~~4% per annum, of~~ $1347,~~868 every month commencing twenty-five (25) months from the date of the Note (commencing August 2005)~~739. ~~The Note matures July 2034.~~

The Company must comply with the default provisions contained in the Note. The Company is in default under the Note if it does not make a payment under the Note, or if it: a) fails to comply with any provision of the Note, the Loan Authorization and Agreement, or other Loan documents; b) defaults on any other SBA loan; c) sells or otherwise transfers, or does not preserve or account to SBA’s satisfaction for, any of the collateral (as defined therein) or its proceeds; d) does not disclose, or anyone acting on their behalf does not disclose, any material fact to the SBA; e) makes, or anyone acting on their behalf makes, a materially false or misleading representation to the SBA; f) defaults on any loan or agreement with another creditor, if the SBA believes the default may materially affect the Company’s ability to pay this Note; g) fails to pay any taxes when due; h) becomes the subject of a proceeding under any bankruptcy or insolvency law; i) has a receiver or liquidator appointed for any part of their business or property; j) makes an assignment for the benefit of creditors; k) has any adverse change in financial condition or business operation that the SBA believes may materially affect the Company’s ability to pay this Note; l) dies; m) reorganizes, merges, consolidates, or otherwise changes ownership or business structure without the SBA’s prior written consent; or n) becomes the subject of a civil or criminal action that the SBA believes may materially affect the Company’s ability to pay this Note. The Company is not in default and current on its obligation.16

AsINFERX ~~of March 31, 2012, the Company has an outstanding principal balance of $347,739.~~CORPORATION

15NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~INFERX~~JUNE ~~CORPORATION~~30, 2012 AND 2011 (UNAUDITED)

~~NOTES~~NOTE TO5- ~~CONDENSED~~NOTES ~~CONSOLIDATED~~PAYABLE ~~FINANCIAL STATEMENTS~~(CONTINUED)

~~MARCH 31, 2012 AND 2011~~Other

~~NOTE~~The Company had four notes payables totaling $65,000 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 $20,000, and all their accrued interest were converted into shares, leaving one convertible note for $30,000 and one non-convertible ~~NOTES~~note ~~PAYABLE~~for ~~(CONTINUED)~~$15,000.

~~Other~~Due 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.

~~The~~On ~~Company had four notes payables totaling~~January ~~$65~~5,~~000~~ ~~at June 30~~2012, ~~2011.~~the OfCompany ~~those~~entered ~~four~~in ~~notes~~an ~~payable,~~agreement ~~three~~with ~~were~~one ~~convertible~~of ~~into~~the ~~shares~~note ofholders ~~common~~to ~~stock~~convert at $~~0.06~~2,400 ~~per~~of ~~share and accrue~~ interest atowed ~~the~~on ~~rate~~a ofconvertible note 8%to ~~per~~40,000 ~~year~~shares ~~and~~of ~~one~~the ~~note~~Company's ~~payable~~common isstock ~~not convertible~~ and ~~accrues~~to ~~interest~~extend at the ~~rate~~maturity date of 5%the ~~per~~convertible ~~year. In~~note ~~July~~to ~~2011~~December ~~two convertible notes~~16, ~~totaling $20,000, and all their accrued interest were converted into shares~~2012. ~~the total outstanding~~ ~~note~~The ~~payable~~debt ~~balance~~has asnot ofbeen ~~March 31~~extended, ~~2012 of $45~~however,~~000~~ ~~($30,000~~no notice of ~~which~~default ishas ~~convertible~~been ~~and~~provided ~~$15,000~~to ~~non-convertible)~~the Company.

~~Due~~The ~~to the~~ Company’s ~~need~~did ~~for~~not ~~additional~~pay ~~financing,~~timely the ~~Board~~amounts ~~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,~~As ~~the~~a ~~note holders received upon issuance of the Note~~result, ~~20,000 shares of~~ the Company~~’s common~~ ~~stock,~~recorded ~~par~~as ~~value~~a ~~$0.0001~~“Liability ~~per~~for ~~share.~~stock ~~The Company also agreed that should the Company fail~~ to ~~pay~~be ~~interest and principal due~~issued at– ~~the~~common ~~maturity~~stock” ~~date~~$4,000 ~~the Note Holder shall receive an additional~~ (40,000 shares) ofdue ~~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~~agreement.

The total outstanding note payable balance as of ~~March~~June 3130, 2012 is $85,000 ($30,000 of which is convertible and $55,000 non-convertible).

The following represent the maturities of the notes payable for the next five years: – 2013 - $93,~~657~~744; in2014- ~~2013,~~ $9,010; in2015 ~~2014,~~- $9,377; in2016 - ~~2015,~~ $9,759; in2017 ~~2016,~~ - $10,157; inand ~~2017~~thereafter ~~and~~- $300,~~778 thereafter~~692.

16NOTE 6- NOTE PAYABLE – RELATED PARTY

~~INFERX~~In ~~CORPORATION~~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. No extension has been provided to the Company.

~~NOTES~~On TOFebruary 24, ~~CONDENSED~~2012, ~~CONSOLIDATED~~the ~~FINANCIAL~~Board of Directors approved the loan of a related party, Vijay Suri, President & CEO, in the amount of $8,750 ~~STATEMENTS~~for the specific purposes of financing critical payroll and other payment obligations. The Board authorized the Company to issue a third Promissory note with a principal amount of $8,750 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%.

~~MARCH~~The 31total outstanding note payable – related party balance as of June 30, 2012 ~~AND~~is ~~2011~~$59,350.

~~NOTE 5 NOTES PAYABLE (CONTINUED)~~17

InINFERX 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.CORPORATION

OnNOTES ~~February 24, 2012, the Board of Directors~~TO ~~approved~~CONDENSED ~~the~~CONSOLIDATED ~~loan~~FINANCIAL of a related party, Vijay Suri, President & CEO, in the amount of $8,750 for the specific purposes of financing critical payroll and other payment obligations. The Board authorized the Company to issue a third Promissory note with a principal amount of $8,750 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%.STATEMENTS

~~The~~JUNE ~~total outstanding note payable – related party balance as of March 31~~30, 2012 isAND ~~$59,350.~~2011 (UNAUDITED)

NOTE 7-

TERM LOAN

The Company had a line of credit in the amount of $850,000 as of December 31, 2011 with Citibank, N.A. with an outstanding balance of $341,587.

Effective March 9, 2012, the Line-of-Credit with Citibank, N.A. was sold to Entrepreneur Growth Capital, LLC. Through this action, the line of ~~credit~~ credit was terminated and is now a term loan secured by the Company’s assets, accounts receivables, and the personal guarantee by by the Company’s President & CEO, per the terms of the original agreement and stipulated by Entrepreneur Growth Capital, LLC through the acquisition of the note from Citibank.

Further, 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~~June 3130, 2012.

The loan accrues interest at annual interest rates of prime plus ¼ %.

17NOTE 8- CONVERTIBLE DEBENTURES

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

~~NOTES~~The TOCompany also ~~CONDENSED~~entered ~~CONSOLIDATED~~into ~~FINANCIAL~~a Security Agreement pursuant to which it granted to the Debenture holders a first lien against all of its assets, ~~STATEMENTS~~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.

~~MARCH~~The 31Company recognized the discount as a derivative liability, and in accordance with the ASC, values the derivative liability each reporting period to market. The Company has recognized a gain of $30,246,964 and a loss of ($606,930) for the six months ended June 30, 2012 ~~AND~~and 2011, respectively, due to the beneficial conversion of the various instruments. The convertible debentures were to mature from June 2010 to October 2010. The Company entered into an Amendment to Debenture and Warrants which extended the due date of the original $150,000 debenture from June 2010 to August 31, 2010, and then amended the exercise price of the Class B warrants from $0.50 to $0.20 on July 9, 2010.

~~NOTE~~There 8-were a ~~CONVERTIBLE~~total ~~DEBENTURES~~of three entities that invested money in the Company and received convertible debentures.

On December 23, 2009, the Company entered into a Debenture and Warrant Purchase Agreement pursuant to which Street Capital, LLC, the placement agent, agreed to use its best efforts to provide bridge financing through unnamed prospective purchasers in return for an 8% secured convertible debenture (“Debenture”) in the principal amount of $300,000 at a conversion price of $0.20 per share of the Company’s common stock and equity participation in the form of a class A common stock purchase warrant to purchase an aggregate of up to 450,000 shares of the Company’s common stock with an exercise price of $0.20, and a class B common stock purchase warrant to purchase an aggregate of up to 120,000 shares of the Company’s common stock, with an exercise price per share equal to $0.50. On July 9, 2010, the exercise price was changed to $0.20 as the Company failed to convert or repay the instrument by the due date of June 23, 2010. The Company received $150,000 of the $300,000 total principal on December 23, 2009 and entered into two additional debentures for $100,000 and $10,000 for a total of $110,000 in April 2010 with two private investors.18

~~The~~INFERX 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.CORPORATION

~~The~~NOTES ~~Company recognized the discount as~~TO aCONDENSED ~~derivative~~CONSOLIDATED ~~liability,~~FINANCIAL and in accordance with the ASC, values the derivative liability each reporting period to market. The Company has recognized a gain of $10,091,626 and $294,000 for the three months ended March 31, 2012 and 2011 due to the beneficial conversion of the various instruments. The convertible debentures were to mature from June 2010 to October 2010. The Company entered into an Amendment to Debenture and Warrants which extended the due date of the original $150,000 debenture from June 2010 to August 31, 2010, and then amended the exercise price of the Class B warrants from $0.50 to $0.20 on July 9, 2010.STATEMENTS

~~There~~JUNE ~~were a total of three entities that~~30, ~~invested~~2012 ~~money~~AND in2011 ~~the Company and received convertible debentures.~~(UNAUDITED)

~~The~~NOTE ~~original~~8- ~~debenture~~CONVERTIBLE ~~holder~~DEBENTURES investment was in 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~~CONTINUED) 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.

18The original debenture holder investment was in 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.

~~INFERX~~The ~~CORPORATION~~Board of Directors, on November 13, 2012, entered into a forbearance agreement with Fourth Street Fund to extend the maturity date of the Debenture to July 24, 2013. The Company also agreed with Fourth Street Fund to correct the amount due under the Debenture, to convert certain interest due under the Debenture, and to issue additional shares of the Company’s common stock under the Class A, B, and C warrant conversions as a result of the dilutive issuance by the Company in December 2010 that reduced the share price of the Company’s common stock to $0.002 per share. Additionally, the Company agreed to allow Fourth Street Capital to gift certain principal amounts of the debenture to a number of persons, and to limit the amount of further reductions for $50,000 of unpaid principal under the Debenture to $0.20 per share in the event that the Company met a new investment financing deadline of December 31, 2012.

~~NOTES~~The TOsecond debenture ~~CONDENSED~~has ~~CONSOLIDATED~~been ~~FINANCIAL~~amended from its original maturity date to September 30, 2011. The Company extended the debenture from its ~~STATEMENTS~~original date of October 31, 2010 to April 1, 2011 by issuing the holder 10,000 Class C warrants and issuing 10,000 penalty shares. The Company was forced to issue the Class C warrants in addition to the shares of common stock, due to the non-compliance of the agreements. The modifications made to the debt instruments, constituted a material modification and as a result, the original debt instrument was extinguished and the new 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.

~~MARCH~~The third and 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, ~~2012~~2010, ~~AND~~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, which is reflected in the financial statements, which extends the debenture to April 2, 2012 and in return the Company paid to the holder 100,000 shares of common stock. As of this filing date the holder has not converted any principal or warrants and has not been paid any interest. This debenture holder notified the Company on 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 a Form 8-K to announce that Rahul Argade, a debenture holder, notified the Company 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 8- CONVERTIBLE DEBENTURES (CONTINUED)~~19

~~The~~INFERX 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 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.CORPORATION

~~The~~NOTES ~~third and final debenture holder invested~~TO ~~$100,000~~CONDENSED ~~and~~CONSOLIDATED ~~received~~FINANCIAL 150,000 Series A warrants and 40,000 Series B warrants. The entire debenture agreement originally expired on October 31, 2010, 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, which is reflected in the financial statements, which extends the debenture to April 2, 2012 and in return the Company paid to the holder 100,000 shares of common stock. As of this filing date the holder has not converted any principal or warrants and has not been paid any interest. This debenture holder notified the Company on 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.STATEMENTS

~~Street~~JUNE ~~Capital LLC, 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~~2012 ~~Fund~~AND 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.(UNAUDITED)

AsNOTE a8- ~~result~~CONVERTIBLE ofDEBENTURES a dilutive issuance of shares on December 1, 2010 that was not disclosed to the holders of debentures issued by the Company, the sale of 1,000,000 shares of common stock in December 2010 to an investor for $0.002 per share triggered rights under 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"~~CONTINUED). The Debentures also provided that, in the event the Company 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.

Street Capital LLC, 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.

~~INFERX~~As ~~CORPORATION~~a result of a dilutive issuance of shares on December 1, 2010 that was not disclosed to the holders of debentures issued by the Company, the sale of 1,000,000 shares of common stock in December 2010 to an investor for $0.002 per share triggered rights under 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 the event the Company 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.

~~NOTES~~Without TOknowledge of ~~CONDENSED~~the ~~CONSOLIDATED~~Dilutive ~~FINANCIAL~~Issuance, one of the debenture holders (Street Capital) sent notices of conversion on January 19, 2011, May 19, ~~STATEMENTS~~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 June 30, 2012 to Fourth Street Fund is $99,500.

~~MARCH~~Additionally, with the change in conversion price to $0.002, and the fact that at December 31, ~~2012~~2011, ~~AND~~the Company has a closing stock price of $0.40, this resulted in a significant beneficial conversion feature in these instruments that has been recorded as a derivative liability by the Company in the amount of $38,703,000 of the total $39,628,463 change in the fair value of the derivative liability during 2011. In 2012, because the common stock price has dropped considerably, the fair value adjustment of $30,246,964 has been recorded as other income during the six months ended June 30, 2012 and the derivative liability has decreased to $9,795,499 as of June 30, 2012.

~~NOTE 8- CONVERTIBLE DEBENTURES (CONTINUED)~~20

~~Without~~INFERX knowledge of the Dilutive Issuance, one of the debenture holders (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.CORPORATION

~~Additionally,~~NOTES ~~with the change in conversion~~TO ~~price~~CONDENSED toCONSOLIDATED ~~$0.002,~~FINANCIAL and the fact that at December 31, 2011, the Company has a closing stock price of $0.40, this resulted in a significant beneficial conversion feature in these instruments that has been recorded as a derivative liability by the Company in the amount of $38,703,000 of the total $39,628,463 change in the fair value of the derivative liability during 2011. In 2012, as the common stock price has dropped considerably, the fair value adjustment of $10,091,626 has been recorded as other income and the derivative liability has decreased to $29,950,837.STATEMENTS

~~The~~JUNE ~~modifications made to all three debt instruments~~30, ~~constituted a material modification and as a result, the original debt instrument was extinguished and the new debt~~ ~~instrument~~2012 ~~was~~AND ~~recorded,~~2011 ~~with the resulting value of the penalty shares and warrants are reflected as a loss on extinguishment.~~(UNAUDITED)

AsNOTE of9- ~~March~~CONVERTIBLE ~~31,~~PREFERRED ~~2012,~~STOCK ~~the~~AND ~~Company~~WARRANTS ~~has~~– ~~$199,500 outstanding~~SERIES inB ~~convertible debentures with two debenture holders.~~(CONTINUED)

~~NOTE~~The 9-modifications made ~~CONVERTIBLE~~to ~~PREFERRED~~all ~~STOCK~~three ~~AND~~debt ~~WARRANTS~~instruments, –constituted ~~SERIES~~a Bmaterial 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 were reflected as a loss on extinguishment.

As of June 30,, 2012, the Company has $199,500 outstanding in convertible debentures with two debenture holders. In June 2011, the Board of Directors authorized the issuance of up to 1,100,000 shares of Series B 10% convertible voting preferred stock (“Series B Shares”) having a stated value of $.50 per share. The Series B shares are valid for 24 months from the date of issuance and are convertible at any time, at the option of the holder, into common shares at a rate of 1:1. Interest will be paid annually, either in cash or in common stock at the Company’s discretion based on the 30 day bid-price moving average. At the end of the 24 month term the Company will convert all outstanding Series B Shares and pay all outstanding interest in cash or in common stock based on the 30 day bid-price moving average.

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

On September 27, 2011 the Board of Directors reduced 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.

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

20As a result of the mandatorily redeemable nature of the Series B shares after 24 months and the fact that redemption of the Series B shares is completely outside of the Company’s control, aside from its liquidation or termination, the Company has classified the Series B shares outside of shareholders’ equity and in mezzanine (temporary) equity in accordance with ASC 480-25-4 regarding distinguishing liabilities from equity for mandatorily redeemable financial instruments.

~~INFERX~~The ~~CORPORATION~~Company accounted for the Series B Warrants as embedded derivatives that are required to be bifurcated from the carrying value of the equity instrument (Series B Shares). The relative fair value of all the Series B Warrants at their relative issue dates totaled $210,713 and is shown as a discount to the Series B Shares and will be amortized evenly over the 24-month life of the shares. In event that the holder converts any portion of their shares prior to the deadline, the appropriate remaining discount will be expensed immediately.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~21

~~MARCH~~INFERX ~~31, 2012 AND 2011~~CORPORATION

~~NOTE~~NOTES 9-TO CONDENSED ~~CONVERTIBLE~~CONSOLIDATED ~~PREFERRED~~FINANCIAL ~~STOCK AND WARRANTS – SERIES B (CONTINUED)~~STATEMENTS

AsJUNE ~~a result of the mandatorily redeemable nature of the Series B shares after 24 months and the fact that redemption of the Series B shares is completely outside of the Company’s control~~30, ~~aside from its liquidation or termination, the Company has classified the Series B shares outside of shareholders’~~ ~~equity~~2012 ~~and~~AND in2011 ~~mezzanine~~ (~~temporary~~UNAUDITED) equity in accordance with ASC 480-25-4 regarding distinguishing liabilities from equity for mandatorily redeemable financial instruments. The Company accounted for the Series B Warrants as embedded derivatives that are required to be bifurcated from the carrying value of the equity instrument (Series B Shares). The relative fair value of all the Series B Warrants at their relative issue dates totaled $210,713 (of which $38,750 was from the March 6, 2012 invetment) is shown as a discount to the Series B Shares and will be amortized evenly over the 24-month life of the shares. In event that the holder converts any portion of their shares prior to the deadline, the appropriate remaining discount will be expensed immediately.

~~The~~NOTE Company accounted for the beneficial conversion feature (“BCF”) of the Series B Shares at fair value and is shown as part of the derivative liability. The value of the BCF 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 Black9-~~Scholes~~ ~~value~~CONVERTIBLE ~~assuming~~PREFERRED noSTOCK ~~dividends,~~AND aWARRANTS ~~risk-free~~– ~~interest rate~~SERIES ~~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%~~CONTINUED) to the proceeds received ($462,500 of which $100,000 was from the March 6, 2012 invetment). 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: $251,787; Series B Warrants: $210,713.

~~NOTE~~The 10Company 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 ~~STOCKHOLDERS’~~value assuming ~~EQUITY~~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 (~~DEFICIT~~52.9%) to the proceeds received of $462,500. 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: $251,788; Series B Warrants: $210,712.

Preferred Stock

The Company was incorporated on May 26, 2005, and the Board of Directors authorized 10,000,000 shares of preferred stock with a par value of $0.0001. The Company as of December 31, 2009 has authorized the issuance of 2,000,000 shares of preferred stock. 1,000,000 of the shares were authorized to be issued to Vijay Suri in connection with the Merger Agreement, and 1,000,000 shares of preferred stock were authorized to be issued to B.K. Gogia the former CEO upon his resignation as CEO. The Company and Vijay Suri and B.K. Gogia on June 2, 2010, agreed to rescind the issuance of the preferred stock. As a result of the recession, the Company and its officers agreed to issue them each 1,000,000 shares of common stock for their personal guarantees of certain debt of the Company.

~~Common~~with ~~Stock~~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.

~~The Company was incorporated on May 26,~~Common 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.Stock

AsThe ~~of March 31, 2012, the~~ Company ~~had~~was ~~20,006,203~~incorporated ~~shares~~on ofMay ~~common~~26, ~~stock~~2005, ~~issued~~ and ~~outstanding.~~since ~~During~~then the ~~three~~Board ~~months~~of ~~ended~~Directors ~~March~~authorized 3175, ~~2012~~000, ~~the Company has issued 8,~~000 shares of common stock ~~for~~with ~~services~~a ~~rendered~~par value ~~which~~of ~~had been accrued for during 2011 for~~ $~~2,320~~0.0001. ~~The~~On ~~Company also~~March ~~recognized~~13, ~~$140~~2009,~~550~~ ~~for~~ the ~~fair~~Company’s ~~value~~Board of ~~warrants~~Directors ~~and~~approved ~~options~~the ~~vested~~increase ~~during~~of the ~~three~~authorized ~~months~~shares ~~ended March 31, 2012.The~~of ~~Company~~common ~~has an outstanding liability for~~ stock to ~~be issued of $224~~400,~~900 at March 31~~000, ~~2012~~000.

21As of June 30, 2012, the Company had 20,657,453 shares of common stock issued and outstanding. During the six months ended June 30, 2012, the Company issued 659,250 shares of common stock for services rendered in the amount of $218,820. The Company has an outstanding liability for stock to be issued of $12,400 (60,000 shares) at June 30, 2012.

~~INFERX~~During ~~CORPORATION~~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 consulting 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.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~Warrants

~~MARCH~~The ~~31,~~Company prior ~~2012~~to ~~AND~~the ~~2011~~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.

~~NOTE~~The ~~10-~~Company issued ~~STOCKHOLDERS'~~225,000 ~~EQUITY~~Class ~~(DEFICIT)~~A ~~(CONTINUED)~~warrants and 60,000 Class B warrants in connection with the convertible debenture on December 23, 2009. The Class A warrants have an exercise price of $0.20 per share and the Class B warrants have an exercise price of $0.50 per share. All warrants have a term of 5 years. The value of the warrants at inception was $98,130 which represented the debt discount. The Class B warrants exercise price was amended on July 9, 2010 to a price of $0.20 due to the Company’s failure to convert or repay the instrument by June 23, 2010.

During 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 2011.22

~~Warrants~~INFERX CORPORATION

~~The~~NOTES ~~Company prior to the reverse merger~~TO ~~with~~CONDENSED ~~Irus~~CONSOLIDATED ~~Group~~FINANCIAL ~~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.~~STATEMENTS

~~The~~JUNE ~~Company issued 225~~30,~~000 Class A warrants~~ ~~and~~2012 ~~60,000~~AND ~~Class~~2011 B warrants in connection with the convertible debenture on December 23, 2009. The Class A warrants have an exercise price of $0.20 per share and the Class B warrants have an exercise price of $0.50 per share. All warrants have a term of 5 years. The value of the warrants at inception was $98,130 which represented the debt discount. The Class B warrants exercise price was amended on July 9, 2010 to a price of $0.20 due to the Company’s failure to convert or repay the instrument by June 23, 2010.(UNAUDITED)

~~The~~NOTE ~~Company~~10- ~~issued~~STOCKHOLDERS’ ~~15,000~~EQUITY ~~Class~~(DEFICIT) A warrants and 4,000 Class B warrants to an individual investor in connection with the convertible debenture first entered into on April 1, 2010. The Class A warrants have an exercise price of $0.20 per share and the Class B warrants have an exercise price of $0.50 per share. All warrants have a term of 5 years. The value of the warrants at inception was $8,855 which represented the debt discount.(CONTINUED)

The Company issued ~~150~~15,000 Class A warrants and 404,000 Class B warrants to an individual investor in connection with the convertible debenture first entered into on April 19 1, 2010. The Class A warrants have an exercise price of $0.20 per share and the Class B warrants have an exercise price of $0.50 per share. All warrants have a term of 5 years. The value of the warrants at inception was $638,~~140~~855 which represented the debt discount.

The Company issued 150,000 Class A warrants and 40,000 Class B warrants to an ~~investment~~individual ~~banker~~investor asin ~~part~~connection ofwith ~~their~~the ~~overall~~convertible ~~compensation~~debenture first ~~package~~entered tointo ~~raise~~on ~~funds~~April ~~for~~19, ~~the Company~~2010. The Class A warrants have an exercise price of $0.20 per share and ~~expire~~the inClass 5B ~~years~~warrants have an exercise price of $0.50 ~~These~~per share. All warrants have ~~vested~~a asterm of ~~December~~5 ~~31,~~years. ~~2010,~~The ~~and~~value ~~have~~of ~~recorded~~the ~~$28,402~~warrants ~~as of~~at ~~December~~inception 31was $63,140 which ~~2010~~represented inthe ~~stock-based~~debt ~~compensation~~discount.

The Company issued ~~900~~150,000 warrants to an investment ~~consultant~~banker as part of their overall compensation package to raise funds for the Company. The ~~These~~ warrants have an exercise price of $0.20 per share and expire in ~~five~~5 years. These warrants ~~vest~~have ~~with~~vested ~~400,000~~as ~~over~~of ~~one~~December ~~year~~31, ~~beginning in July~~ 2010, ~~and the~~ ~~balance of 500,000 warrants vest based upon achievement of performance objectives mutually agreed between the Company~~ and ~~the~~have ~~Consultant. The~~recorded ~~Company incurred~~ $2628,~~933~~402 inas ~~stock-based compensation expense to record the first two scheduled vestings~~ of ~~100~~December 31,~~000~~ ~~warrants in July~~ 2010 ~~and October 2010. The third scheduled vesting occurred~~ in ~~January 2011 and the $18,997 was recorded as~~ stock -based ~~compensation~~ ~~in the nine months ended September 30, 2011~~compensation. ~~The contract was terminated on February 25, 2011 and 300,000 warrants are vested and the remaining 600,000 warrants are forfeited.~~

The Company issued 4900,~~500,~~000 warrants to ~~B.K.~~ ~~Gogia~~an investment consultant as part of ~~his~~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 over one year beginning in July 2010, and the balance of 500,000 warrants vest based upon achievement of performance objectives mutually agreed between the Company and the Consultant. The Company incurred $26,933 in stock-based compensation expense to record the first two scheduled vestings of 100,000 warrants in July 2010 and October 2010. The third scheduled vesting occurred in January 2011 and the $18,997 was recorded as stock based compensation in the nine months ended September 30, 2011. The contract was terminated on February 25, 2011 and 300,000 warrants are vested and the remaining 600,000 warrants are forfeited.

22The Company issued 4,500,000 warrants to B.K. Gogia as part of his overall compensation package. These warrants have an exercise price of $0.20 per share and expire in five years. These warrants vest based upon achievement of performance objectives mutually agreed between the Company and the Employee and the stock price being not less than $0.50 per share. Mr. Gogia tendered his resignation on April 6, 2012 for good cause and, as a result, the warrants vested. The Company recorded $1,620,000 as of June 30, 2012 in stock-based compensation.

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

~~NOTES~~As TOa ~~CONDENSED~~result of ~~CONSOLIDATED~~the ~~FINANCIAL~~Company’s failure to comply with the repayment terms of the three convertible debentures, the Company issued Class ~~STATEMENTS~~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. Thevalue of the Class C Warrants is $25,491.

~~MARCH~~The 31Company issued a total of 906,250 ~~2012~~warrants ~~AND~~as ~~2011~~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).

~~NOTE~~In ~~10-~~September 2011 ~~STOCKHOLDERS’~~one ~~EQUITY~~convertible ~~(DEFICIT)~~debenture ~~(CONTINUED)~~holder exercised all their A, B, & C warrants through a cashless exercise,, thus decreasing the total warrants outstanding amount by 435,000.

~~Warrants (continued)~~23

~~The~~INFERX 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 (see Note 9).CORPORATION

InNOTES ~~September 2011 one convertible debenture~~TO ~~holder~~CONDENSED ~~exercised~~CONSOLIDATED ~~all~~FINANCIAL ~~their A, B, & C warrants via cashless exercision, thus decreasing the total warrants outstanding amount by 435,000.~~STATEMENTS

OnJUNE ~~May 6~~30, ~~2011, the Board of Directors~~ authorized that the Company issue 33,750 shares of the Company's common stock to a vendor, Anshul Mohaan who is willing to convert $6,750 of accounts payable owed to him. The stock was authorized but not issued by March 31, 2012. ~~The~~AND ~~shares~~2011 ~~are reflected as a component of “Liability for stock to be issued - common stock.”~~(UNAUDITED)

OnNOTE December 15, 2011, 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 agreement, Stanley 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~~STOCKHOLDERS’ ~~Company~~EQUITY ~~recorded~~(DEFICIT) ~~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.~~(CONTINUED)

~~The~~On ~~Board of Directors~~December 15, ~~on March 13~~2011, ~~2012 authorized~~ the Company ~~grant~~entered tointo ~~Dr.~~a ~~Jerzy~~“Sales ~~Bala,~~Outsourcing ~~the~~Agreement” ~~Chief~~with ~~Technology~~Stanley ~~Officer,~~Altschuler ato ~~Common~~provide ~~Stock~~direct ~~Purchase~~sales support ~~Warrant~~and closure to ~~purchase~~pre-determined ~~1,000,000 shares~~list of ~~the~~clients. ~~Company's~~Pursuant ~~common~~to ~~stock~~the agreement, ~~such~~Stanley ~~shares~~Altschuler ofwould ~~the~~receive ~~warrant~~compensation that toincludes ~~vest~~a ~~immediately~~Common ~~upon~~Stock ~~grant~~Purchase atWarrant anto ~~exercise~~purchase ~~price~~500,000 shares of ~~$.30~~Common ~~per share~~Stock ~~that are~~ exercisable for ~~a period of~~ five years ~~from~~at ~~the~~$0.45 ~~date~~per share ofand ~~grant~~vest immediately. ~~The~~Additionally, ~~Board~~the ofAgreement ~~Directors~~provides ~~also~~for ~~authorized~~“Success ~~that~~Fee” ~~the~~paid ~~Company grant~~to aAgent ~~Common~~calculated ~~Stock~~as ~~Purchase~~10% of ~~Warrant~~gross tolicense ~~purchase~~revenue ~~50,000~~and ~~shares~~3.5% of ~~its~~gross ~~common~~services ~~stock~~/ toprofessional ~~another Company~~services ~~employee~~revenue inon ~~recognition~~sales ofcontracts ~~his~~resulting ~~contributions~~directly tofrom actions of the ~~Company~~Agent. ~~Such~~Stanley ~~shares~~Altschuler ofis ~~the~~also ~~warrant~~a ~~are~~member toof ~~vest~~Strategic ~~50,000~~Universal ~~shares on March 13~~Advisors, ~~2012~~LLC, ~~and~~a ~~50,000~~firm ~~shares~~which onhas a contract with the ~~first~~company to provide investment and ~~second~~public ~~anniversary~~relations ~~dates~~consulting ofservices ~~issue,~~to atthe anCompany. ~~exercise~~The ~~price~~term of ~~$.30~~the ~~per~~Sales ~~share~~Outsourcing ~~that are~~Agreement ~~exercisable~~is ~~for~~one-year. aThe ~~period~~Company ofrecorded ~~five~~an ~~years~~expense ~~from~~in the ~~date~~amount of ~~grant.~~$170,000 ~~The~~during ~~Company~~the ~~recorded~~year ~~$63,000~~ended asDecember ~~stock~~31, ~~based~~2011 ~~compensation~~in ~~during~~connection with the ~~three~~signing ~~month~~of ~~period~~this ~~ended~~agreement. ~~March~~No ~~31,~~amount ~~2012~~of inthe ~~connection~~success ~~with~~fee ~~these~~was ~~issuances~~paid.

23The Board of Directors, on March 13, 2012 authorized the Company grant to Dr. Jerzy Bala, the Chief Technology Officer, a Common Stock Purchase Warrant to purchase 1,000,000 shares of the Company's common stock, such shares of the warrant to vest immediately upon grant at an exercise price of $.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 150,000 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.Warrants (continued)

~~INFERX~~The ~~CORPORATION~~following is a breakdown of the warrants at June 30, 2012:

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

		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

~~MARCH~~The ~~31,~~warrants were ~~2012~~valued ~~AND~~utilizing ~~2011~~the same Black – Scholes criteria as the options described below.

~~NOTE 10- STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)~~24

~~The~~INFERX ~~following is a breakdown of the warrants at March 31, 2012:~~CORPORATION

		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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~The~~JUNE ~~warrants were valued utilizing the~~30, ~~same~~2012 ~~Black~~AND –2011 ~~Scholes criteria as the options described below.~~(UNAUDITED)

~~Options~~NOTE 10- STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)

Since October 2007, the Company’s Board of Directors and Shareholders approved the adoption of an option plan for a total of 5,000,000. The Company prior to the reverse merger with Irus exercised all of the options that were outstanding at the time. Subsequent to the reverse merger, the Company issued stock options in connection with certain employment agreements. The Company granted 5,939,500 options, 5,399,500 are vested, and none of which have been exercised as of March 31, 2012. Of the 5,939,500 that were granted only 540,000 remain unvested, and these vest on a varying schedule with the last date being June 30, 2013.Options

24Since October 2007, the Company’s Board of Directors and Shareholders approved the adoption of an option plan for a total of 6,500,000. 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 5,939,500 options, 5,479,500 are vested, and none of which have been exercised as of June 30, 2012. The options vest on a varying schedule with the last date being June 30, 2013.

~~INFERX~~These ~~CORPORATION~~options have exercise prices that range from $0.06 to $0.50 and were valued based on the black-scholes model with the following criteria:

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

~~MARCH~~The 31value attributable to options that vested for the six months ended June 30, 2012 ~~AND~~is ~~2011~~$157,150 and is reflected in the condensed consolidated statements of operations as stock based compensation.

NOTE 1011- ~~STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)~~COMMITMENTS

~~These options have exercise prices that~~Office ~~range from $0.06 to $0.50 and were valued based on the black-scholes model with the following criteria:~~Lease

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 Company leases office space in Sterling, Virginia pursuant to a lease with a related party through common ownership related to the former President & CEO, which is currently month to month. The lease provides for an annual rental of approximately $78,000.

~~NOTE~~Rent ~~11-~~expense for ~~COMMITMENTS~~the six months ended June 30, 2012 and 2011 was $39,000.

~~Office~~Board of ~~Lease~~Advisors Agreements

The Company’s board ~~leases~~of ~~office space~~directors inapproved ~~Sterling,~~the ~~Virginia~~addition ~~pursuant~~of two members to aits ~~lease~~Board of Advisors. Each of these members will provide assistance to the Company with arespect ~~related~~to ~~party~~their ~~through~~healthcare ~~common~~solution ~~ownership~~and ~~related~~predictive technology to prospective banking, insurance and healthcare customers. As consideration for the ~~President~~placement &on ~~CEO~~the Board of Advisors, the Company has, in addition to quarterly cash payments, ~~which~~granted isthose ~~currently~~Advisors ~~month~~options 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 ~~month~~that Advisor due to cash flow and liquidity issues. The ~~lease~~Company ~~provides~~has ~~for~~included anthese ~~annual~~fees ~~rental~~in their condensed consolidated statements of ~~approximately~~operations ~~$78~~for the six months ended June 30,~~000~~ 2012 and 2011.

~~Rent expense for the three months ended March 31, 2012 and 2011 was $19,500 and $22,446, respectively.~~25

~~Board~~INFERX ~~of Advisors Agreements~~ CORPORATION

~~The~~NOTES ~~Company’s board~~TO ofCONDENSED ~~directors~~CONSOLIDATED ~~approved~~FINANCIAL the addition of two members to its 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 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.STATEMENTS

~~Consulting~~JUNE ~~Agreements~~30, 2012 AND 2011 (UNAUDITED)

~~The~~NOTE ~~Company~~11- ~~has~~COMMITMENTS entered into consulting agreements with marketing and strategic consulting groups with terms that do not exceed one year. These companies are to be paid fees for the services they perform. The Company has included these fees in their condensed consolidated statements of operations for the three months ended March 31, 2012 and 2011.(CONTINUED)

~~On January 26, 2010,~~Consulting ~~the~~Agreements 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 was for one-year. The warrants did not vest until June 2010.

InThe Company ~~June~~has ~~2010, the Company~~ entered into a consulting ~~agreement~~agreements with amarketing ~~company to provide financial services~~ and ~~locate~~strategic ~~potential~~consulting ~~investment~~groups ~~opportunities. The~~with ~~term~~terms ofthat ~~the~~do ~~agreement~~not ~~was~~exceed ~~for~~ one- year,. ~~and~~These ~~the~~companies ~~consultant~~are ~~was~~ to ~~receive monthly payments of $7,500 as well as~~ be ~~issued~~paid ~~300,000 shares~~fees offor ~~restricted common stock, and 900,000 warrants that vest over~~ the ~~one-year~~services ~~period~~they ~~and upon certain financing criteria being met~~perform. ~~300,000~~The ~~of the warrants have vested and the~~ Company has included these fees in their condensed consolidated statements of ~~operation.~~operations ~~The~~for ~~agreement~~the ~~terminated~~six inmonths ~~February~~ended ~~2011,~~June ~~and the remaining 600~~30,~~000~~ ~~unvested~~2012 ~~warrants~~and ~~have been cancelled~~2011.

25On January 26, 2010, the Company entered into an agreement with Coady Diemar Partners, LLC, an investment banker in connection with investment banking services. Pursuant to the agreement, Coady Diemar Partners, LLC received a retainer of $30,000 payable in two tranches of $15,000, and received 150,000 warrants as well as an 8% fee on amounts raised. The term of the agreement was for one-year. The warrants did not vest until June 2010.

~~INFERX~~In June ~~CORPORATION~~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, and the consultant was to receive monthly payments of $7,500, 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 vested and the fees are included in the condensed consolidated statements of operations. The agreement terminated in February 2011, and the remaining 600,000 unvested warrants were cancelled.

~~NOTES~~In December TO2010, ~~CONDENSED~~the ~~CONSOLIDATED~~Company ~~FINANCIAL~~entered into an agreement with Strategic Global Advisors, LLC, a firm that provides investment and ~~STATEMENTS~~public relations consulting firm services. Pursuant to the agreement, Strategic Global Advisors, LLC will receive a retainer of $30,000 payable in four monthly payments of $7,500 and receive 500,000 options to purchase the Company's common stock that vest on the date of grant. The options were valued at $34,994. The Company has included these fees in their condensed consolidated statements of operations.

~~MARCH~~On March 312, ~~2012~~2011, ~~AND~~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. received 500,000 options to purchase shares of the Company's common stock; 300,000 vested during 2011(valued at $122,082 and included in 2011stock based compensation), and the remaining 200,000 vested in the first quarter of 2012 (valued at $66,000 and included in 2012 stock based compensation).

~~NOTE~~On March 1128, ~~COMMITMEMENTS~~2011, ~~(CONTINUED)~~The Board of Directors granted two employees 45,000 options to purchase shares of the Company's common stock; all of which vested upon grant. Employees’ grant of options was based on achievement of performance milestones. The vested options were valued at $13,370. The Company has included these fees in their condensed consolidated statements of operations.

InOn May ~~December~~2, ~~2010~~2011, the ~~Company~~Board ~~entered~~authorized ~~into an~~a consulting agreement with ~~Strategic Global Advisors, LLC,~~ a ~~firm~~consultant ~~that~~to ~~provides~~provide ~~investment~~comprehensive ~~and~~technical ~~public~~strategy ~~relations consulting firm services~~assessment. ~~Pursuant~~The toconsulting ~~the~~contract ~~agreement,~~was ~~Strategic~~executed ~~Global~~for ~~Advisors,~~a ~~LLC~~two-month ~~will~~period ~~receive~~for a ~~retainer~~consulting fee of $308,000 ~~payable in four monthly payments of $7,500~~ and ~~receive 500,000 options to purchase~~ the ~~Company's~~issuance ~~common stock that vest on the date~~ of ~~grant. The options were valued at $34~~8,~~994.~~000 ~~The Company has included these fees in their condensed consolidated statements of operations~~shares.

On January ~~March 2~~5, ~~2011~~2012, ~~The Board~~the ofCompany ~~Directors~~ entered ~~into~~in an agreement with ~~Assured~~Dave ~~Value~~Stocking ~~Advisors,~~to ~~Inc.~~convert $2,400 aof ~~merchant~~interest ~~and~~owed ~~investment banking~~on ~~services~~a ~~consultant~~convertible innote issued ~~connection~~by ~~with~~the ~~investment~~Company ~~banking services. Pursuant~~ to ~~the agreement~~40, ~~Assured Value Advisors, Inc. will receive 500,~~000 ~~options to purchase~~ shares of the Company's common stock; ofand ~~which~~to ~~300,000~~extend ~~have vested ($122,082 in 2011 stock based compensation), and~~ the ~~remaining~~maturity ~~200,000~~date ~~have~~of ~~vested~~of ~~($66,000 in 2012 stock based compensation) in~~ the ~~three~~convertible note ~~months~~to ~~ended~~December ~~March 31~~16, 2012.

On February ~~March 28~~24, ~~2011~~2012, ~~The Board~~the ofCompany ~~Directors~~entered ~~granted~~into ~~two~~a ~~employees~~consulting ~~45,000~~agreement ~~options~~with toManish ~~purchase~~Nandy ~~shares~~to ofprovide ~~the~~marketing ~~Company's~~assistance, ~~common~~primarily ~~stock;~~in ~~all~~the ofhealthcare ~~which~~area, ~~vested~~and ~~upon~~proposal ~~grant.~~development ~~Employees’~~services ~~grant~~to ofsupport several ~~options~~Company ~~was~~customer ~~based~~initiatives. onThe ~~achievement~~term of ~~performance~~the ~~milestones.~~agreement ~~The vested~~was ~~options~~for ~~were~~three ~~valued at $13~~months,~~370.~~ ~~The~~in ~~Company~~exchange ~~has~~for ~~included~~$6,500 ~~these~~and ~~fees~~37,500 ~~in their condensed consolidated~~common ~~statements~~shares ofvalued ~~operations~~at $15,000.

On May 2, 2011, the Board discussed and authorized the consulting agreement with a consultant to provide comprehensive technical strategy assessment. The consulting contract was executed for a two-month period and the Board authorized a consulting fee of $8,000 and that the Company should issue the consultant 8,000 shares under the consulting agreement.26

~~On January 5, 2012, the Company entered~~INFERX 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.CORPORATION

~~On February~~NOTES ~~24,~~TO ~~2012,~~CONDENSED ~~the~~CONSOLIDATED ~~Company~~FINANCIAL entered into a consulting agreement with Manish Nandy to provide marketing assistance, primarily in the healthcare area, and proposal development services to support several Company customer initiatives. The term of the agreement is for three months, and the consultant will receive a payment of $6,500. As of March 31, 2012, the Company recorded 37,500 shares as a “Liability for stock to be issued - common stock” owed to the Consultant as part of the agreement and recorded a $15,000 charge to prepaid expense. STATEMENTS

~~On February 24~~JUNE 30, 2012, ~~the~~AND ~~Company~~2011 entered into Advisory Board agreement with Michael P. Harden under which Michael P. Harden received a total of 100,000 shares of the Company's common stock to vest as follows: 20,000 shares following the execution of the Advisory Board agreement, 20,000 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.(UNAUDITED)

OnNOTE ~~February~~11- ~~24,~~COMMITMENTS 2012, the Company entered into Forbearance Agreement with Prem K. Dadlani and extended the date of repayment 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.(CONTINUED)

On February 24, 2012, the Company entered into aAdvisory ~~promissory~~Board ~~note~~ agreement with ~~Sanjeev~~Michael ~~Kohli~~P. ~~and~~Harden ~~Pyush~~under ~~Kumar~~which inMichael ~~the~~P. ~~principal~~Harden ~~amount~~received a total of ~~$20~~100,000 ~~each~~shares ~~pursuant~~of tothe ~~which~~Company's ~~Mr. Kohli~~common ~~shall~~stock ~~receive~~to vest as follows: 20,000 shares offollowing the ~~Company's~~execution ~~common~~of ~~stock~~the ~~and~~Advisory anBoard agreement, ~~additional 40~~20,000 shares of the Company's common stock ~~in the~~365 ~~event~~days ~~that~~after the ~~unpaid~~date ~~principal~~of ~~and~~the ~~accrued~~Agreement ~~interest~~and is20,000 ~~not~~shares ~~paid~~every ~~within~~180 ~~six~~days thereafter ~~months~~in ofequal ~~the date of the promissory note~~amounts.

On February 24, 2012, the Company entered into aForbearance ~~promissory~~Agreement ~~note~~with ~~agreement~~Prem ~~with~~K. aDadlani ~~consultant~~and ~~for~~extended ~~various~~the ~~services,~~date ~~including~~of ~~assistance~~repayment ~~with~~of ~~financings,~~the unpaid ~~with~~principal aand ~~grant~~accrued interest of ~~150~~the Dadlani Note to June 30, 2012 and to issue 100,000 shares of ~~the~~its ~~Company's~~ common stock to him as forbearance consideration.

26On December 22, 2011 and February 24, 2012 the Company entered into a promissory note agreement with Sanjeev Kohli and Pyush Kumar, respectively, in the principal amount of $20,000 each pursuant to which Mr. Kohli shall receive 20,000 shares of the Company's common stock and an additional 40,000 shares of the Company's common stock in the event that the unpaid principal and accrued interest is not paid within six months of the date of the promissory note. No payment was made, and these shares have been accrued for in the condensed consolidated statement of operations for the six months ended June 30, 2012.

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

~~NOTES~~On TOMarch ~~CONDENSED~~13, 2012, ~~CONSOLIDATED~~the ~~FINANCIAL~~Company entered into Consulting Agreement with Amrit Chase to provide assistance with the timely filing of the Company's ~~STATEMENTS~~Form 10-K for the year ended December 31, 2011. Under the terms of the Consulting Agreement, Amrit Chase received 150,000 shares of the Company's common stock and a payment of $10,000.

~~MARCH~~On ~~31,~~March 13, 2012, ~~AND~~the Company entered into Consulting Agreement with Ray Piluso to provide assistance with the timely filing of the Company's Form 10-K for the year ended December 31, 2011. Under the terms of the Consulting Agreement Ray Piluso received 100,000 shares of the Company's common stock.

~~NOTE 11 COMMITMEMENTS (CONTINUED)~~Employment Agreements

OnDuring ~~March~~the year 13ended December 31, ~~2012~~2009, the Company entered into afour ~~Consulting~~separate ~~Agreement~~employment agreements with ~~Amrit~~their ~~Chase~~key toexecutives. ~~provide~~The ~~assistance~~employment agreements ~~with~~range ~~the~~from ~~timely~~three ~~filing~~to offive years, and require the Company's ~~Form~~to compensate ~~10-K~~the key executives for a base salary, as well as provide for incentive compensation. In addition, the ~~year~~executives were ~~ended~~granted ~~December~~in 31total 3,250,000 stock options that vest through December 2011. ~~Under~~The ~~the~~Company ~~terms~~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 ~~Consulting~~Company ~~Agreement~~hired ~~Amrit~~two ~~Chase~~employees iswho were to receive ~~150~~200,000 ~~shares~~options ofthat vest equally over the ~~Company's~~next eight quarters ~~common~~and ~~stock~~60,000 options that vest equally over the next four quarters, respectively. As of June 30, 2012 a total of 160,000 options from these two employment agreements have vested and were valued at a ~~payment~~total of $1041,~~000~~238. The Company has included these fees in their condensed consolidated statements of operations.

OnNOTE ~~March~~12– ~~13,~~PROVISION ~~2012,~~OF ~~the~~INCOME Company entered into Consulting Agreement with Ray Piluso to provide assistance with the timely filing of the Company's Form 10-K for the year ended December 31, 2011. Under the terms of the Consulting Agreement Ray Piluso received 100,000 shares of the Company's common stock.TAXES

~~Employment~~Deferred ~~Agreements~~income taxes will be determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. At June 30, 2012 deferred tax assets consist of the following:

During the year ended December 31, 2009, the Company entered into four separate employment agreements with their key executives. The employment agreements range in years from 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 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 were 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 March 31, 2012 a total of 120,000 options from these two employment agreements have vested and were valued at a total of $37,238. The Company has included these fees in their condensed consolidated statements of operations. 27

~~NOTE~~INFERX ~~12 – PROVISION OF INCOME TAXES~~CORPORATION

~~Deferred~~NOTES ~~income~~TO ~~taxes~~CONDENSED ~~will~~CONSOLIDATED beFINANCIAL 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:STATEMENTS

Net operating losses	$	1,632,475
Valuation allowance	$	(1,632,4750	)
	$	-

JUNE 30, 2012 AND 2011 (UNAUDITED)

AtNOTE ~~March~~12- ~~31,~~PROVISION ~~2012,~~FOR ~~the~~INCOME ~~Company~~TAXES 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.(CONTINUED)

Net operating losses	$	1,689,703

Valuation allowance	$	(1,689,703	)

	$	-

~~INFERX~~At ~~CORPORATION~~June 30, 2012, the Company had net operating loss carry forward in the approximate amount of $4,969,715 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.

~~NOTES~~NOTE TO13- ~~CONDENSED~~RELATED ~~CONSOLIDATED~~PARTY ~~FINANCIAL STATEMENTS~~TRANSACTIONS

~~MARCH~~The 31Company incurred rent expense in the amount of $39,000for the six months ended June 30, 2012 ~~AND~~and 2011 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 June 30, 2012 relating to past due distributions prior to the reverse merger.

NOTE 1214- –MAJOR ~~PROVISION OF INCOME TAXES (CONINUED)~~CUSTOMERS

AFor ~~reconciliation~~the ofsix ~~the~~months ~~Company’s~~ended June 30, 2012 ~~effective~~and ~~tax~~2011, ~~rate~~the asCompany aderived ~~percentage~~82% and 83% of ~~income~~its ~~before~~revenue ~~taxes~~from three and ~~federal~~two ~~statutory~~customers, ~~rate~~respectively. ~~for~~These ~~the~~customers ~~nine~~are ~~months~~considered major ~~ended~~customers ~~March~~as ~~31,~~they ~~2012~~represent ~~and 2011~~10% or more of total revenue. The Company does not believe that there is ~~summarized~~any ~~below~~customer concentration risk associated with these customers.

	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	%

NOTE 15-

FAIR VALUE 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 three months ended March 31, 2012 and 2011 of $19,500 and $22,446, respectively to a company owned by a relative of an~~identical ~~officer~~instruments ofin ~~the~~active ~~Company~~markets. ~~. 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.~~

~~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 ~~three~~inputs: ~~months~~Instruments ~~ended~~with ~~March 31, 2012~~primarily ~~and~~unobservable ~~2011,~~value ~~the Company derived 100% and 82% of its revenue from five and two customers, respectively~~drivers. 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.

~~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~~FINANCIAL ~~instruments in active markets.~~STATEMENTS

~~Level~~JUNE 230, ~~inputs:~~2012 ~~Quoted~~AND ~~prices~~2011 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.(UNAUDITED)

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

28The following table represents the fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2012:

INFERX CORPORATION

	Level 1		Level 2		Level 3		Total

Cash	$	20,722	$	-	$	-	$	20,722

Total assets	$	20,722	$	-	$	-	$	20,722

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

Embedded conversion feature and derivative	$	—	$	-	$	9,795,499	$	9,795,499

Total liabilities	$	-	$	-	$	9,994,999	$	9,994,999

~~NOTES~~NOTE TO16- ~~CONDENSED~~SUBSEQUENT ~~CONSOLIDATED FINANCIAL STATEMENTS~~EVENTS

~~MARCH~~In 31November 2008, ~~2012~~the ~~AND~~Company entered into a convertible note with Mr. Prem Dadlani, in the amount of $15,000, with a term of six months. The Company was unable to repay the note due to cash flow and liquidity issues. Efforts to obtain a forbearance agreement have not been successful. In November 2011, Mr. Dadlani through legal counsel has sought resolution and payment. In an effort of good faith negotiations with Mr. Dadlani, The Board of Directors authorized, on February 24, 2012, that the Company issue 100,000 shares of the Company's common stock in exchange for a forbearance agreement in which the unpaid principal and accrued interest be extended until June 30, 2012. Subsequently, since the shares authorized on February 24, 2012 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 a forbearance agreement and to extend the maturity date of his note to April 30, 2013.

~~NOTE~~On 15April ~~FAIR~~3, ~~VALUE~~2012, ~~INSTRUMENTS~~the ~~(CONTINUED)~~company was notified of a Warrant In Debt had been filed in the General District Court of Fairfax County, Virginia, by PCT Law Group, PLLC, to appear in General District Court of Fairfax County, Virginia on April 30, 2012 in the matter to resolve unpaid debt in the amount of $12,156 plus attorney’s fees and court costs. The Company received a Garnishment Summons dated November 14, 2012 from the Court of Fairfax County, Virginia for the unpaid amount plus interest, judgment costs, and attorney fees for a total of $16,883.69. Although the Company disputes the amount outstanding, the Company is in negotiations with PCT Law Group, PLLC for settlement.

~~The following table represents the fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2012:~~29

	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

INFERX CORPORATION

29NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~INFERX~~JUNE ~~CORPORATION~~30, 2012 AND 2011 (UNAUDITED)

~~NOTES~~NOTE TO16- ~~CONDENSED~~SUBSEQUENT ~~CONSOLIDATED~~EVENTS ~~FINANCIAL STATEMENTS~~(CONTINUED)

~~MARCH~~As 31part of the July 23, 2012 ~~AND~~filing ~~2011~~of Form 8-K with the Securities and Exchange Commission, 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 per share. This sale triggered rights under 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 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.

~~NOTE~~Without ~~16-~~knowledge ~~SUBSEQUENT~~of ~~EVENTS~~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.

~~In November~~As ~~2008, the Company entered into~~ a ~~convertible~~result ~~note~~of ~~with Mr. Prem Dadlani, in~~ the ~~amount~~Dilutive ~~of $15~~Issuance,~~000,~~ ~~with a term of six~~the ~~months.~~debenture ~~The~~holders ~~Company~~were ~~was~~eligible ~~unable~~ to ~~repay~~be ~~the~~issued ~~note~~78,436,485 ~~due~~shares toof ~~cash~~common ~~flow and liquidity issues~~stock. ~~Efforts~~Instead, tothe ~~obtain~~debenture aholders ~~forbearance~~elected ~~agreement~~to receive ~~have~~only ~~not been successful. In November 2011~~23,698,615 ~~Mr.~~of ~~Dadlani~~the ~~through~~shares ~~legal~~due ~~counsel~~the ~~has~~debenture ~~sought~~holders ~~resolution~~ and ~~payment.~~to Inrelease anthe ~~effort~~Company ~~of good~~from ~~faith~~any ~~negotiations~~financial ~~with~~damages Mrincurred. ~~Dadlani,~~ The ~~Board~~debenture holders ofhave ~~Directors~~offered ~~authorized,~~to onplace ~~February~~57.48% ~~24,~~or ~~2012~~44,737,870 ~~that~~of the ~~Company issue 100,000~~ shares ofdue the ~~Company's~~debenture ~~common~~holders ~~stock~~into inescrow ~~exchange~~ for ~~a forbearance agreement in which~~ the ~~unpaid~~Company ~~principal~~to ~~and~~use ~~accrued interest~~to besecure ~~extended~~the ~~until~~necessary ~~June 30~~financing, ~~2012.~~incentivize ~~Subsequently,~~additional ~~since~~management ~~the~~talent ~~shares~~and ~~authorized~~make onacquisitions ~~February~~and ~~24,~~forego ~~2012~~being ~~were not~~ issued, ~~the~~10,000,000 ~~Board~~shares. ofA ~~Directors~~percentage ~~authorized,~~of onthe ~~October~~escrowed 10shares, ~~2012,~~to ~~that~~be ~~the~~mutually ~~Company~~agreed ~~issue 400~~to,~~000~~ ~~shares~~will ofbe cancelled upon the ~~Company’s~~settlement ~~common~~of ~~stock~~outstanding asdebt ~~consideration~~and ~~for~~past adue ~~forbearance~~salaries, ~~agreement~~certain ~~and~~intellectual toproperty ~~extend~~and ~~the~~patent ~~maturity~~enhancement ~~date~~ of ~~his~~its ~~note~~current tosoftware ~~April 30~~products, ~~2013~~and future financings.

OnImmediately ~~April~~prior 3,to ~~2012,~~ the ~~company~~issuance ~~was~~of ~~notified~~the shares of aInferX ~~Warrant~~common Instock ~~Debt~~under ~~had been filed in~~ the ~~General District Court of Fairfax County~~Debentures, ~~Virginia,~~there byare ~~PCT Law Group~~20, ~~PLLC~~669,453 toshares ~~appear in~~issued ~~General~~and ~~District~~outstanding ~~Court~~ of ~~Fairfax~~which ~~County,~~Vijay ~~Virginia~~Suri onowned 9,779,768 ~~April~~shares ~~30,~~or ~~2012~~48.9% inof the ~~matter~~issued toand ~~resolve~~outstanding ~~unpaid~~shares ~~debt in the amount~~ of ~~$12,156 plus attorney’s fees and court costs~~InferX. ~~The~~Following ~~Company received a Garnishment Summons dated November 14, 2012 from~~ the ~~Court~~conversion of ~~Fairfax~~ ~~County, Virginia for~~ the ~~unpaid~~Debentures ~~amount~~there ~~plus~~would be ~~interest~~44, ~~judgment costs~~368,068 ~~and~~shares ~~attorney~~of ~~fees~~InferX ~~for~~common astock ~~total~~issued ofand ~~$16,883~~outstanding.~~69.~~ ~~Although the~~The ~~Company~~debenture ~~disputes~~holders ~~the~~owned ~~amount~~23,698,615 ~~outstanding~~shares directly, excluding the ~~Company is in negotiations with PCT Law Group~~44,737,870 ~~PLLC~~escrowed ~~for~~shares ~~settlement~~discussed above.

OnAs ~~April~~a ~~13,~~result ~~2012~~of the ~~Company~~resignation ~~filed~~of ~~a Form~~Vijay ~~8-K~~Suri, ~~with~~President ~~the~~and ~~Securities~~CEO of InferX and ~~Exchange~~a ~~Commission~~member ~~notifying~~of ~~shareholders~~its ~~that~~Board onof ~~April~~Directors; 6,B.K. Gogia ~~2012,~~became asthe asole ~~result~~member of athe ~~deadlocked~~ Board of Directors of the ~~following~~Company. ~~employees~~The ~~submitted~~Board ~~their~~on October ~~letter~~10, of2012 ~~resignation~~issued asa ~~employees~~warrant ofto ~~the~~a ~~Company:~~consultant ~~B.K.~~to ~~Gogia,~~purchase ~~President, Technology~~up ~~Solutions~~to ~~Group~~2,000,000 ~~Raimondo~~shares ~~Piluso,~~of ~~COO~~the ~~and~~Company’s ~~Vice~~common ~~President~~stock at an exercise price of ~~Business~~$0.04 ~~Development,~~per ~~Jerzy~~share ~~Bala,~~for ~~CTO,~~five ~~and~~years; ~~Rahul~~all ~~Argade, Senior~~of ~~Director.~~which Bshares vested immediately.K. ~~Gogia~~In ~~maintained~~light ~~his~~of ~~position~~dilutive asissuance ~~Chairman~~in ofDecember 2010, the Board ofreduced ~~Directors.~~the ~~Subsequently,~~Series ~~Jerzy~~B ~~Bala,~~Preferred ~~CTO~~stock ~~and~~conversion ~~Rahul Argade,~~price ~~Senior~~from ~~Director~~$0.40 ~~rescinded~~to ~~their~~$0.07 ~~resignations~~per ~~based~~share onand repriced the ~~strategy~~warrants ~~and~~from $0.75 ~~direction~~to ~~presented~~$0.20 byto the ~~former~~eight ~~CEO~~purchasers of the 1,156,250 ~~Vijay~~Series ~~Suri~~B Preferred Shares.

Additionally, in the April 13, 2012 Form 8-K filing the Company informed shareholders that on April 12, 2012 Rahul Argade, the holder of an 8% secured convertible debenture, issued pursuant to a Debenture and Warrant Purchase Agreement dated December 23, 2009, notified the Company that it was in default under the terms of the Debenture for failure to repay the principal amount of $100,000 plus interest due, and that he would be exercising his default remedies under the Debenture, including the default interest rate of 22% on the unpaid principal balance effective as of April 7, 2012. The Debenture is secured by all assets of the Company, including its intellectual property.30

OnINFERX July 23, 2012, the Company filed a Form 8-K with the Securities and Exchange Commission notifying shareholders that Mr. Vijay Suri, President and CEO of InferX and a member of its Board of Directors, resigned as President and CEO and from the Board of the Company. Mr. B.K. Gogia, the founder of InferX, remained as Chairman of the Board and assumed the positions of Acting President and CEO of InferX while he started to form a new management team for the Company. Jerzy Bala, CTO, tendered his resignation on June 15, 2012, and Rahul Argade, Senior Director, also tendered his resignation.CORPORATION

30NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~INFERX~~JUNE ~~CORPORATION~~30, 2012 AND 2011 (UNAUDITED)

~~NOTES~~NOTE TO16- ~~CONSOLIDATED~~SUBSEQUENT ~~FINANCIAL~~EVENTS ~~STATEMENTS~~(CONTINUED)

~~DECEMBER~~The 31Board of Directors on October 10, ~~2011~~2012 authorized ~~AND~~the ~~2010~~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.

~~NOTE~~On ~~16-~~October ~~SUBSEQUENT~~15, ~~EVENTS~~2012, ~~(CONTINUED)~~the Company was notified of a Summons to appear in the Superior Court of Washington, DC, on October 13, 2012, in a matter which Fairchild Consultants, LLC, d/b/a Global Services a marketing support consulting services firm is seeking unpaid general consulting services fees in the amount of $9,900. Although the Company disputes the amount outstanding, the Company is in negotiations with Fairchild Consultants, LLC to settle this matter.

AsOn ~~part~~October ~~of the July 23~~25, 2012 ~~filing of Form 8-K with the Securities and Exchange Commission~~, the Company ~~notified shareholders that as~~ filed a ~~result~~Certificate of aDesignation ~~dilutive~~pursuant ~~issuance of~~to ~~shares~~Section on151 ~~December~~of 1,the ~~2010~~General ~~that~~Corporation ~~was~~Law ~~not~~of ~~disclosed to~~ the ~~two~~State ~~holders~~ of ~~debentures~~Delaware ~~issued~~to bydesignate the ~~Company~~rights and ~~that~~preferences itof ~~had~~the ~~sold~~ 1,~~000~~500,000 ~~shares~~ ofSeries ~~common~~B ~~stock~~Redeemable inConvertible ~~December~~Preferred ~~2010~~Stock tothat anbear ~~investor~~interest ~~for $0.002 per share. This sale triggered rights under the debentures to convert debt into common stock~~ at the ~~same~~rate ~~price. The Debentures were convertible into shares~~ of ~~common~~10% ~~stock~~per ~~at a conversion price~~annum, ~~equal~~such interest to ~~$0.20~~be ~~per~~paid ~~share~~annually ~~(the "Initial Conversion Price"). The Debentures also provided that,~~ in ~~the~~cash ~~event InferX sold any common stock~~ or ~~other~~in ~~equity~~kind ~~securities~~based atupon ~~an effective price per share that was lower than~~ the ~~Initial~~30 ~~Conversion~~day ~~Price~~bid ~~(a "Dilutive Issuance"), the Initial Conversion Price for the Debenture holders would be reduced to the lower~~ price ~~per share~~moving ~~charged~~average, inat ~~connection with~~ the ~~Dilutive~~Company’s ~~Issuance~~discretion.

~~Without~~The ~~knowledge~~Board of ~~the~~Directors, ~~Dilutive~~on ~~Issuance~~November 13, ~~one~~2012, ofentered ~~the~~into ~~debenture~~a ~~holders~~forbearance ~~sent~~agreement ~~notices~~with ofFourth ~~conversion~~Street onFund ~~January~~to ~~19,~~extend ~~2011,~~the ~~May~~maturity ~~19,~~date ~~2011~~of ~~and~~the ~~December~~Debenture 5to July 24, ~~2011~~2013. The OnCompany ~~each~~also ~~occasion, InferX~~agreed ~~honored~~with ~~the~~Fourth ~~holder’s~~Street ~~conversion~~Fund ~~request~~to ~~but~~correct ~~utilized~~ the ~~Initial~~amount ~~Conversion~~due ~~Price~~under ofthe ~~$0.20~~Debenture, ~~instead~~to ofconvert ~~the~~certain ~~Base~~interest ~~Conversion~~due ~~price~~under ofthe ~~$0.002~~Debenture, ~~per~~and ~~share.~~to Asissue aadditional ~~result~~shares of ~~InferX'~~the Company’s ~~failure~~common tostock ~~apply~~under the ~~Base~~Class ~~Conversion~~A, ~~Price~~B, ~~listed~~and inC ~~the~~warrant ~~debenture,~~ conversions onas ~~January~~a ~~19,~~result ~~2011,~~of ~~May~~the ~~19,~~dilutive ~~2011~~issuance ~~and~~by ~~December~~the 5,Company ~~2011,~~in ~~InferX~~December ~~failed~~2010 tothat ~~issue~~reduced ~~57,737,870~~the ~~shares~~share price of ~~common~~the Company’s common stock ~~due~~ to ~~the debenture holder~~$0.002 Onper ~~June~~share. 17Additionally, ~~2012,~~ the ~~other~~Company ~~debenture~~agreed ~~holder~~to ~~notified~~allow ~~InferX~~Fourth ~~and~~Street ~~Vijay~~Capital ~~Suri~~to ~~that~~gift hecertain ~~was~~principal ~~converting~~amounts ~~$20,000~~of the debenture to a number of ~~principal~~ persons, and ~~$21,397~~to inlimit ~~interest~~the ~~due~~amount ~~into~~of ~~InferX~~further ~~common~~reductions for ~~stock.~~$50,000 ~~Applying~~of unpaid principal under the ~~Base~~Debenture ~~Conversion~~to ~~Price~~$0.20 ~~that~~per ~~resulted~~share ~~from~~in the ~~Dilutive~~event ~~Issuance,~~ that the Company ~~should~~met ~~have~~a ~~issued~~new ~~the~~investment ~~second~~financing deadline ~~debenture~~of ~~holder~~December 2031,~~698,615~~ ~~shares~~2012.

AsIn aan ~~result~~effort ofto ~~the~~obtain ~~Dilutive~~required ~~Issuance, the~~equity ~~debenture~~or ~~holders~~debt ~~were~~financing ~~eligible~~for totechnology ~~be issued 78~~development,~~436,485~~ ~~shares~~market ofpenetration ~~common~~and ~~stock.~~revenue ~~Instead~~growth, the ~~debenture~~Board ~~holders~~of ~~elected~~Directors tosought ~~receive~~additional financing ~~only~~on 23October 2,~~698~~ 2012,~~615~~ of the ~~shares~~Board ~~due~~of ~~the~~Directors ~~debenture~~authorized ~~holders~~the ~~and~~sale toof ~~release~~an ~~the~~aggregate ~~Company~~16,666,667 ~~from~~shares ~~any~~of ~~financial~~the ~~damages~~Company’s ~~incurred. The debenture~~common ~~holders~~stock ~~have~~for ~~offered~~a tomaximum ~~place~~purchase ~~57.48%~~price orof 44$500,~~737,870~~000 ofbased ~~the~~upon ~~shares~~a ~~due~~per ~~the~~share ~~debenture~~price ~~holders~~of ~~into~~$0.03, ~~escrow~~or ~~for~~a ~~the~~pre-money ~~Company~~valuation toof ~~use to~~approximately ~~secure the necessary financing~~$3,000,000, ~~incentivize additional management talent~~ and ~~make~~established ~~acquisitions~~an ~~and~~aggregate ~~forego~~minimum ~~being~~purchase ~~issued~~of 10$200,000,~~000 shares.~~ Arepresenting ~~percentage~~6,666,666 shares of the ~~escrowed~~Company’s common stock. These shares, were to be ~~mutually~~issued ~~agreed~~ to, ~~will~~equity beinvestors ~~cancelled~~as ~~upon~~a unit of the ~~settlement~~Company’s ofcommon ~~outstanding~~stock ~~debt~~ and ~~past~~a ~~due~~warrant ~~salaries,~~exercisable for ~~certain~~five ~~intellectual~~years ~~property~~to ~~and~~purchase ~~patent~~50% ~~enhancement~~of the number of ~~its~~shares ~~current~~of ~~software~~common ~~products~~stock purchased by each investor, ~~and~~at ~~future~~an ~~financings~~exercise price of $0.05 per share.

~~Immediately~~Under ~~prior to~~ the ~~issuance~~terms of the ~~shares~~ ofabove ~~InferX~~financing, the ~~common~~Company ~~stock~~received ~~under~~on ~~the~~December ~~Debentures~~4, ~~there~~2012 ~~are~~from 20one investor $6,~~669~~000,~~453~~ ~~shares~~representing ~~issued~~the ~~and~~sale ~~outstanding~~ of ~~which Vijay Suri owned 9~~200,~~779,768~~000 shares ~~or 48.9%~~ of the ~~issued~~Company’s common stock and ~~outstanding~~issued ~~shares~~a ofwarrant ~~InferX.~~exercisable ~~Following~~for ~~the~~five ~~conversion of the Debentures there would~~years beto 44purchase 100,~~368,068~~000 shares of ~~InferX~~ common stock ~~issued~~at ~~and~~an ~~outstanding.~~exercise ~~The~~price ~~debenture~~of ~~holders~~$0.05 ~~owned~~per ~~23,698,615 shares directly, excluding the 44,737,870 escrowed shares discussed above~~share.

AsTo ameet ~~result~~critical ofshort-term ~~the~~financial ~~resignation of Vijay~~requirements ~~Suri, President and CEO of InferX and a member of its Board of Directors; B.K. Gogia became~~ the ~~sole member of the Board of Directors of the~~ Company. ~~The~~entered ~~Board~~into ~~on October 10, 2012 issued~~ a ~~warrant~~5% toConvertible aPromissory ~~consultant~~Note, towith ~~purchase~~an upinvestor toin ~~2,000,000 shares of~~ the ~~Company’s~~amount ~~common stock at an exercise price~~ of $013,000.04 ~~per~~Under ~~share~~the ~~for~~terms ~~five years; all~~ of ~~which~~the ~~shares vested immediately. In light of dilutive issuance in December 2010~~Note, the ~~Board~~entire ~~reduced~~principal ~~the~~amount, ~~Series~~together Bwith ~~Preferred~~all ~~stock~~accrued ~~conversion~~interest ~~price~~is ~~from~~due ~~$0.40~~on toJanuary ~~$0.07 per share and repriced the warrants from $0.75 to $0.20 to the eight purchasers of the 1~~2,~~156,250~~ ~~Series B Preferred Shares~~2013.

31The Board of Directors on December 14, 2012 approved the issuance of two warrants, one for 2,000,000 shares of the Company’s common stock to a consultant in connection with finding a new management team and additional financing for the Company, and a second warrant for 3,000,000 shares of the Company’s common stock to B.K. Gogia for his executive leadership and crisis management role that has allowed the Company to continue to operate, raise additional equity financing and complete the filing of the Company's Form 10-K. All warrants vest upon the closing of an initial equity investment of $200,000. In addition, Mr. Gogia was granted 1,500,000 shares of the Company's common stock in recognition of the assistance he has assumed role of Acting President and CEO without any salary and for recruiting a new management team.

~~INFERX CORPORATION~~31

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

~~MARCH~~NOTES ~~31,~~TO ~~2012~~CONSOLIDATED ~~AND~~FINANCIAL ~~2011~~STATEMENTS

~~NOTE~~JUNE ~~16-~~30, ~~SUBSEQUENT~~2012 ~~EVENTS~~AND 2011 (~~CONTINUED~~UNAUDITED)

~~The~~NOTE ~~Board~~16- ofSUBSEQUENT ~~Directors~~EVENTS 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.(CONTINUED)

OnThe ~~October~~Board ~~15,~~of ~~2012,~~Directors ~~the~~on ~~Company~~December ~~was notified~~17, of2012, are-priced ~~Summons~~(i) from $0.30 to ~~appear~~$0.05 inper share the ~~Superior~~warrant ~~Court~~issued ofto ~~Washington,~~Jerzy ~~DC,~~Bala onto ~~October~~purchase 131, ~~2012~~000,000 inshares aof ~~matter~~Common ~~which~~Stock and ~~Fairchild~~(ii) ~~Consultants,~~from ~~LLC, d/b/a~~$.20 ~~Global~~to ~~Services~~$.03 athe ~~marketing~~option ~~support~~to ~~consulting~~purchase ~~services~~1,750,000 ~~firm~~shares isof ~~seeking~~common ~~unpaid~~stock ~~general~~issued ~~consulting~~to ~~services~~B.K. ~~fees~~Gogia, in light of the ~~amount~~assistance ofthat ~~$9,900.~~each ~~Although~~provided to the Company ~~disputes~~following the ~~amount~~resignation ~~outstanding,~~of Vijay Suri and the inability of the Company isto inpay ~~negotiations~~any ~~with~~cash ~~Fairchild~~compensation to ~~Consultants~~them. The Company also issued 500,000 ~~LLC~~ of shares of its common stock to ~~settle~~Chris ~~this~~Manthorne ~~matter~~one of the Company’s former employees for settlement of his past due salary.

OnThe ~~October~~Board ~~25,~~of ~~2012,~~Directors ~~the~~on ~~Company~~December ~~filed~~20, a2012 ~~Certificate~~appointed ofPaul ~~Designation~~B. ~~pursuant~~Silverman toas ~~Section~~the ~~151~~new ofPresident ~~the~~and ~~General~~CEO ~~Corporation~~and ~~Law~~as ofa ~~the~~Director. ~~State~~The ofCompany ~~Delaware~~agreed to ~~designate~~issue ~~the~~to ~~rights~~Paul B. Silverman ~~and~~a ~~preferences~~total of ~~the~~15.0 1million warrants linked to Company’s growth,~~500~~ performance,~~000~~ ~~Series~~and future financing under terms as defined below. The Company issued to Paul B. ~~Redeemable~~Silverman ~~Convertible~~warrants ~~Preferred~~to ~~Stock~~purchase ~~that~~shares ~~bear~~of ~~intterest~~its atcommon ~~the~~stock ~~rate~~for a period of ~~10%~~five ~~per~~years ~~annum,~~with an exercise ~~such~~price ~~interest~~of to$.03 beper ~~paid~~share ~~annually~~or infair ~~cash~~market orvalue, inwhichever ~~kind~~is ~~based~~lower, ~~upon~~and ~~the~~a 30cashless ~~day~~exercise ~~bid~~provision. ~~price~~Warrants ~~moving~~are ~~average,~~vested atsubject to ~~the~~revenue ~~Company’s~~and ~~discretion~~market capitalization milestones.

The Board of Directors, on ~~November~~December 1320, 2012, ~~entered~~appointed ~~into~~Carlyle aD. ~~forbearance~~Eckstein ~~agreement~~as ~~with~~a ~~Fourth~~new ~~Street~~member ~~Fund~~of ~~to extentd~~ the ~~maturity~~Board ~~date~~ of ~~the~~Directors ~~Debenture~~and toissued ~~July~~a ~~24,~~warrant ~~2013. The Company also agreed with Fourth Street Fund~~ to ~~correct~~purchase ~~the amount due under the Debenture~~400,000 toshares ~~convert certain interest due~~at ~~under~~$.03 ~~the~~per ~~Debenture,~~share. ~~and~~The toBoard ~~issue additional shares~~ of ~~the~~Directors ~~Company’s~~also ~~common~~appointed ~~stock~~Mr. ~~under~~Eckstein ~~the Class A, B, and C warrant conversions~~ as aSenior ~~result~~Advisor offor the ~~dilutive issuance by the~~ Company inand ~~December~~issued ~~2010~~a ~~that~~warrant ~~reduced~~to ~~the~~purchase 600,000 ~~share~~shares ~~price~~ of the Company’s common stock toat $0.~~002~~03 per share. ~~Additionally,~~which ~~the~~will ~~Company~~vest ~~agreed~~at ~~to allow Fourth Street Capital to gift certain principal amounts of the debenture to a number of persons~~150, ~~and to limit the amount of further reductions for $50,~~000 ofshares ~~unpaid principal under the Debenture to $0.20~~ per ~~share in the event that the Company met a new investment financing deadline of December 31, 2012~~quarter.

InThe anCompany ~~effort~~could tonot ~~obtain~~meet ~~required~~the ~~equity~~minimum ornew ~~debt~~investment financing ~~for~~by ~~technology~~December ~~development~~31, ~~market~~2012. ~~penetration~~As ~~and~~of ~~revenue~~January ~~growth~~3, ~~the~~2013, ~~Board~~total ofprincipal ~~Directors~~and ~~sought~~interest ~~additional~~due ~~financing~~to onFourth ~~October~~Street 2Fund, ~~2012~~LP was $82,214.52. ~~the~~Fourth ~~Board~~Street ofFund, ~~Directors~~LP ~~authorized~~gifted the ~~sale~~following ofamounts: ~~an aggregate 16~~$10,~~666,667 shares~~500 ofon ~~the~~January ~~Company’s~~3, ~~common~~2013, ~~stock for a maximum purchase price of~~ $~~500~~26,000 ~~based~~on ~~upon~~January ~~a per share price of $0.03~~24, or2013 aand ~~pre-money valuation of approximately~~ $38,~~000,000,~~379.15 ~~and~~on ~~established~~February ~~an aggregate minimum purchase of $200~~12,~~000,~~ ~~representing 6~~2013,~~666,666 shares~~ ofreducing the ~~Company’s~~total ~~common~~principal ~~stock.~~amount ~~These shares were~~ to be$37,802.29 ~~issued to equity investores~~ as ~~a unit~~ of ~~the~~February ~~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~~12, ~~at an exercise price of $0~~2013.~~05 per share.~~

~~Under~~The ~~the~~Company ~~terms~~added oftwo ~~the~~advisors ~~above~~to ~~financing,~~its Board ~~the~~of ~~Company~~Advisors ~~received~~ on December 417, 2012 ~~from one investor $6~~,~~000,~~ ~~representing~~Robert ~~the~~King ~~sale~~and ofManish ~~200~~Nandy,~~000~~ ~~shares of the Company’s common stock~~ and ~~issued~~two aadditional ~~warrant~~advisors ~~exercisable~~on ~~for~~March ~~five~~6, ~~years to purchase 100~~2013,~~000~~ ~~shares~~Dr. ofOliver ~~common~~Alabaster and ~~stock~~Lawrence ~~at an exercise price of $0~~Hoffman.~~05 per share.~~

ToThe ~~meet~~Company ~~critical~~leased office ~~short-term~~space with ~~financial~~a ~~requirements~~ related party through common ownership to the former President & CEO. The lease was terminated on April 15, 2013. The Company entered into a 5%new ~~Convertible~~lease ~~Promissory~~agreement ~~Note,~~ with an ~~investor~~unrelated inparty ~~the~~on ~~amount~~May ~~of $6~~1,~~500~~ 2013. The ~~Under the~~ terms of the ~~Note, the~~lease ~~entire principal amount~~are $1,800 ~~together~~per ~~with~~month on ~~all~~a ~~accrued~~month ~~interest~~to ismonth ~~due~~basis. ~~on January 2, 2013~~.

The ~~Board~~Company entered ofinto ~~Directors~~a onconvertible ~~BDecember~~loan ~~14, 2012~~agreement ~~approved~~with ~~the~~an ~~issuance~~investor ofin ~~two~~the ~~warrants,~~amount ~~one~~of ~~for 2~~$64,000~~,000~~. The ~~shares~~loan ofis ~~the~~payable ~~Company’s~~within ~~common stock to a consultant in connection~~5 ~~with~~months ~~finding~~of aissuance, has ~~new~~an ~~management~~annual ~~team~~interest ~~and~~rate ~~additional~~of ~~financing for the Company~~10%, and ais ~~second~~convertible ~~warrant~~at ~~for~~any ~~3,000,000~~time ~~shares~~into ~~of the Company’s~~ common stock toat B$0.K03 per share. In ~~Gogia~~connection ~~for~~with ~~his executive leadership and crisis management role that has allowed~~ the ~~Company to continue to operate~~loan, ~~raise additional equity financing and complete~~ the ~~filing~~investor ofwas ~~the~~issued ~~Company's~~2,000,000 ~~Form 10-K. All~~ warrants ~~vest~~with ~~upon the closing of~~ an ~~initial~~exercise ~~equity~~price ~~investment~~ of $~~200,000~~0.05 Inper share ~~addition,~~that ~~Mr.~~are ~~Gogia~~exercisable ~~was~~for ~~granted~~five ~~1,500,000~~years ~~shares~~from of the ~~Company's~~date ~~common stock in recognition~~ of ~~the assistance he has assumed role of Acting President and CEO without any salary and for recruiting a new management team~~issuance.

~~INFERX~~Item ~~CORPORATION~~2. Management’s Discussion and Analysis or Plan of Operation.

~~NOTES~~The TOinformation ~~CONDENSED~~set ~~CONSOLIDATED~~forth ~~FINANCIAL~~and discussed ~~STATEMENTS~~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, 2011.

~~MARCH 31, 2012 AND 2011~~Overview

~~NOTE~~InferX 16is ~~SUBSEQUENT~~a ~~EVENTS~~leading provider ~~(CONTINUED)~~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.

~~The~~Predictive ~~Board~~analytics helps oforganizations ~~Directors~~make onbetter ~~December~~decisions 17by providing empirical, ~~2012,~~ ~~re-priced~~objective ~~(i)~~and ~~from~~consistent ~~$0.30~~methods toof ~~$0.05~~evaluating ~~per~~transactions, customers, ~~share~~or ~~the~~shippers ~~warrant~~in ~~issued~~this tocontext; ~~Jerzy~~and ~~Bala~~doing toit ~~purchase~~at ~~1,000,000~~high ~~shares~~volumes ofusing ~~Common~~disparate ~~Stock~~ and ~~(ii)~~geographically ~~from~~dispersed $enterprise databases.20 These tomodels ~~$.03~~are ~~the~~often ~~option~~"behavioral" because they may be used to ~~purchase~~predict ~~1,750,000~~future ~~shares~~behavior of ~~common~~account ~~stock~~or ~~issued~~customer actions in regard to; Be.Kg. ~~Gogia,~~likelihood ~~in light~~ of ~~the~~fraudulent ~~assistance that~~behavior. ~~each~~By ~~provided~~enabling organizations to ~~the~~instantly ~~Company~~differentiate ~~following~~between ~~the~~desirable ~~resignation~~and undesirable ofbusiness, ~~Vijay~~predictive ~~Suri~~models ~~and~~allow them to control the ~~inability~~level of ~~the~~risk ~~Company~~they are willing to ~~pay~~assume ~~any~~and ~~cash~~actions ~~compensation~~ to ~~them~~increase profitability. ~~The~~Our ~~Company~~patented ~~also~~and ~~issued~~patent-pending ~~500,000~~products ofsimultaneously ~~shares~~analyze ofdata ~~its~~in ~~common~~multiple ~~stock~~remote tolocations ~~Chris~~with ~~Manthorne~~disparate formats ~~one~~without ofthe need to move the ~~Company’s~~data ~~former~~to ~~employees for~~a ~~settlement~~central ofdata ~~his~~warehouse, ~~past~~thereby ~~due~~preserving ~~salary~~the privacy and security of the data.

~~The~~Since ~~Board~~inception, ofInferX has ~~Directors~~evolved onfrom ~~December~~a 20leading technical, ~~2012~~ ~~appointed~~database ~~Paul~~research B.and ~~Silverman~~development asfirm ~~the~~to ~~new~~its ~~President~~current ~~and~~position ~~CEO and~~ as a ~~Director~~developer of the next generation predictive analytics technology. ~~The~~InferX ~~Company~~and ~~agreed~~its topredecessor ~~issue~~Datamat toSystems ~~Paul~~Research, BInc. ~~Silverman a~~have ~~total~~been ofin ~~15.0~~business ~~million~~since 1992, ~~warrants~~originally ~~linked~~as toa ~~Company’s~~professional ~~growth,~~services ~~performance,~~research and ~~future~~development ~~financing~~firm, ~~under~~specializing ~~terms~~in astechnology ~~defined~~for ~~below.~~distributed analysis ~~The~~of ~~Company~~sensory ~~issued~~data relating to ~~Paul~~airborne B.missile ~~Silverman~~threats ~~warrants~~under tocontracts ~~purchase~~with ~~shares~~the Missile Defense Agency and other Department of ~~its~~Defense (DoD) ~~common~~contracts. ~~stock~~InferX ~~for~~Delaware awas ~~period~~formed ofin ~~five~~1999 ~~years~~to ~~with~~commercialize anDatamat's ~~exercise price~~missile defense technology to build applications of $real time predictive analytics.03 ~~per~~InferX ~~share~~and orDatamat ~~fair~~were ~~market~~merged ~~value,~~together ~~whichever~~in isAugust ~~lower,~~2006. ~~and~~In October 2006 InferX became public by completing a ~~cashless~~"reverse ~~exercise~~merger" ~~provision.~~with ~~Warrants~~Black ~~are~~Nickel ~~vested~~Acquisition ~~subject to~~Corp. ~~revenue~~which ~~and~~was ~~market~~a ~~capitalization~~fully ~~milestones~~reporting "shell company".

~~The~~On ~~Board~~March 16, 2009, InferX entered into an agreement and plan of ~~Directors~~reorganization on(the ~~December~~“Merger 20Agreement”) with the Irus Group, Inc. to effect ~~2012~~a ~~appointed~~reverse ~~Carlyle~~triangular Dmerger between The Irus Group, Inc. ~~Eckstein~~and asthe aCompany’s ~~new~~wholly-owned ~~member~~subsidiary, ofIrus Acquisition Corp. (formed for the ~~Board~~purpose of ~~Directors~~completing ~~and~~this ~~issued~~transaction). aThe ~~warrant~~Merger toAgreement ~~purchase~~was ~~400~~then amended on June 15,~~000~~ ~~shares~~2009 at(the “First ~~$.03~~Amended ~~per~~and ~~share.~~Restated ~~The~~Agreement”) ~~Board~~to reflect the change in the amount of ~~Directors~~the ~~also~~issued ~~appointed~~shares ~~Mr.~~to ~~Eckstein~~Irus asin ~~Senior~~the ~~Advisor~~transaction. ~~for~~Under the terms of the ~~Company~~First Amended and Restated Agreement, the issued aand ~~warrant~~outstanding toshares ~~purchase~~of The Irus Group common stock was automatically ~~600,000~~converted into the right to receive 56% of the issued and outstanding shares of the Company’s common stock ~~at $~~.03 ~~per~~On ~~share~~October ~~which will vest at 150~~28,~~000~~ 2009 ~~shares~~the ~~per~~merger ~~quarter~~was completed.

The ~~Company~~Irus ~~could~~Group, ~~not meet the minimum~~Inc. ~~new~~(“Irus”), ~~investment~~founded ~~financing~~in by1996, ~~December~~was ~~31,~~a ~~2012.~~consulting Asfirm ofspecializing ~~January~~in 3,bridging ~~2013,~~corporate ~~total~~performance ~~principal~~management and ~~interest~~business intelligence ~~due~~systems to ~~Fourth~~help ~~Street~~clients ~~Fund,~~answer ~~LP was~~challenging ~~$82,214~~business questions.~~52.~~ ~~Fourth~~Irus’ ~~Street~~specific ~~Fund,~~domain LPexpertise ~~gifted~~revolved around the ~~following~~planning, ~~amounts: $10~~consulting,~~500~~ onimplementation ~~January~~and 3,development ~~2013~~of complex business intelligence solutions. Irus developed knowledge in enterprise budgeting and planning systems, ~~$26~~allowing it to provide their customers,~~000~~ onwhich ~~January~~have 24included government, ~~2013~~financial ~~and~~services, $8retail,~~379.15~~ onmanufacturing, ~~February~~and ~~12,~~telecommunications ~~2013~~companies, ~~reducing~~many ~~the~~critical ~~total~~systems ~~principal~~and ~~amount~~processes tofor ~~$37,802.29~~business asintelligence ofinto ~~February~~corporate performance ~~12,~~management ~~2013~~solutions.

~~The Company added two advisors to its Board of Advisors on December 17, 2012, Robert King and Manish Nandy, and two additional advisors on March 6, 2013, Dr. Oliver Alabaster and Lawerence Hoffman.~~33

33Historically, we have derived nearly all of our sales revenues under federal government contracts. Under these contracts, we performed several critical tasks, including research and development and professional services consulting. Through terms of the contracts with our customers, we were able to retain ownership of the intellectual property associated with R&D efforts; which ultimately led to the creation of our current products. In fiscal 2002, faced with the prospect of continuing to receive relatively small and uncertain margins associated with fixed price government contracts, and the inherent limit of the market size, we began to further develop our software as a commercial product, concentrating on building specific applications that we believed would meet the growing needs 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.

~~Item~~Following 2our merger with the Irus Group, we expanded our customer base and services offerings, which we believed would increase our revenues and expenses in comparison to recent periods. ~~Management’s~~Our ~~Discussion~~services business, which represented over 99% of our total revenues in fiscal 2011, has significantly lower margins than our software business. The proportion of our services revenues relative to our total revenues in the six months ended June 30, 2012 was affected by our continued focus on the PA software side of the business and ~~Analysis~~the orcontinued ~~Plan~~uncertainty of the ~~Operation~~U.S. Government budget.

~~The~~Consulting: ~~information~~Our consulting ~~set~~line ~~forth~~of ~~and~~business ~~discussed in~~is ~~this~~comprised ~~Management’s~~of ~~Discussion~~two ~~and~~operating ~~Analysis~~segments: or(i) ~~Plan~~providing services to our customers in support of ~~Operation~~their corporate isenterprise ~~derived~~predictive ~~from~~and ~~our~~advanced ~~financial~~analytics ~~statements~~requirements; and ~~the~~(ii) ~~related notes,~~providing ~~which~~services ~~are~~to ~~included.~~BI ~~The~~customers ~~following~~in ~~information~~enterprise architecture design and ~~discussion~~implementation; ~~should~~business be/ ~~read~~IT instrategy ~~conjunction~~alignment; ~~with~~business ~~those~~process ~~financial~~simplification; ~~statements~~solution integration; and ~~notes~~product implementation, asenhancements, ~~well~~and asupgrades. Our consulting revenues are dependent upon general economic conditions and the ~~information~~level ~~provided~~of inproduct revenues, including the new software license sales of our ~~Annual~~application ~~Report~~products. onTo ~~Form~~the ~~10-K~~extent ~~for~~we are able to grow our ~~fiscal~~software ~~year~~products ~~ended~~revenues; ~~December~~we ~~31,~~would ~~2010~~also generally expect to be able to grow our consulting revenues.

~~Overview~~Software Business: Our software business 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 2014 will increase due to the continued demand for our PA software 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, as we bring to market our software-as-a-service (SaaS) and platform-as-a-service (PaaS) delivery models.

~~InferX~~During isthis ~~a leading~~fiscal ~~provider~~quarter, ofthe ~~next~~Company ~~generation~~continued ~~Predictive~~to ~~Analytics~~place ~~and~~great ~~Business~~emphasis ~~Intelligence~~on ~~solutions~~the ~~for~~enhancement ~~financial services, healthcare,~~ and ~~government enterprises.~~development ~~Our solutions include a wide variety~~ of ~~innovative~~our ~~technologies~~core ~~that~~technology ~~provide~~products ~~critical~~and ~~results for challenges such~~the asadaptation ~~healthcare~~into ~~fraud~~market-sector ~~mitigation,~~specific ~~healthcare~~solutions. ~~research,~~This ~~financial~~concentration ~~services~~of ~~risk~~effort ~~management~~resulted ~~and~~in ~~complex~~higher ~~intelligence analysis~~overhead, toon ~~name~~ a ~~few.~~year Weover ~~have~~year basis, ~~pioneered~~consisting ~~and~~primarily ~~commercialized a suite~~ of ~~powerful~~personnel ~~patented~~related ~~technologies~~expenditures; ~~for~~as ~~advanced~~noted ~~analytical~~by ~~solutions that direct decision making and improve corporate performance across~~ the ~~entire~~recent ~~enterprise.~~management ~~Our~~hire ~~solutions~~for ~~are~~our ~~targeted~~Cyber ~~towards~~Security ~~select sub-subsectors~~solution. ~~within~~We ~~the~~intend ~~healthcare,~~to ~~financial~~continue ~~services and public sector markets~~ to ~~address~~invest ~~significant~~significantly ~~ROI~~in ~~opportunities for~~ our ~~clients.~~product ~~Through broad,~~research ~~diversified market adoption of our predictive data analytical solutions, InferX plays a critical role in promoting the safety~~ and ~~security~~development ~~of our nation's assets~~ and ~~its~~market-driven ~~citizens,~~technology ~~while~~solutions ~~also empowering commercial enterprises with the knowledge and material~~which ~~insight~~are ~~necessary~~essential to ~~make~~maintaining ~~better~~our ~~business~~competitive ~~decisions and maximize profits~~position.

~~Predictive~~Critical ~~analytics helps~~Accounting organizations 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.Policies

~~Since~~The ~~inception,~~preparation ~~InferX has~~of ~~evolved~~financial ~~from~~statements in aconformity ~~leading~~with ~~technical,~~accounting ~~database~~principles ~~research~~generally ~~and~~accepted ~~development~~in ~~firm~~the toUnited ~~its~~States ~~current~~of ~~position~~America asrequires amanagement ~~developer~~to ofmake ~~the next~~estimates ~~generation~~and ~~predictive~~assumptions ~~analytics~~that ~~technology.~~affect ~~InferX~~the ~~and~~reported ~~its~~amounts ~~predecessor~~of ~~Datamat~~assets ~~Systems~~and ~~Research,~~liabilities ~~Inc.~~and ~~have~~disclosures ~~been~~of incontingent ~~business~~assets ~~since~~and liabilities ~~1992,~~at ~~originally~~the asdate aof ~~professional~~the ~~services~~financial ~~research~~statements and ~~development~~the ~~firm,~~reported ~~specializing~~amounts ~~in technology for distributed analysis~~ of ~~sensory~~revenue ~~data~~and ~~relating~~expenses toduring ~~airborne~~the ~~missile~~reporting ~~threats~~period. ~~under~~We ~~contracts~~rely ~~with~~on historical ~~the~~experience ~~Missile Defense Agency~~ and on other ~~Department~~assumptions ofwe ~~Defense (DoD)~~believe ~~contracts.~~to ~~InferX~~be ~~Delaware~~reasonable ~~was~~under ~~formed~~the circumstances in ~~1999~~making toour ~~commercialize~~judgments ~~Datamat's~~and estimates. ~~missile~~Actual ~~defense~~results ~~technology~~could todiffer ~~build~~from ~~applications of~~those ~~real time predictive analytics~~estimates. ~~InferX~~We ~~and~~consider ~~Datamat~~our ~~were~~critical ~~merged~~accounting ~~together~~policies into ~~August~~be ~~2006.~~those Inthat ~~October~~are complex ~~2006~~and ~~InferX~~those ~~became~~that ~~public by~~require ~~completing~~significant ajudgments ~~"reverse~~and ~~merger"~~estimates, ~~with~~including ~~Black~~the ~~Nickel~~following: ~~Acquisition~~recognition ~~Corp.~~of ~~which~~revenue, ~~was~~capitalization of asoftware ~~fully~~development ~~reporting~~costs ~~"shell~~and ~~company"~~income taxes.

OnUse ~~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, 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.Estimates

The ~~Irus~~preparation ~~Group, Inc.~~of ~~(“Irus”),~~consolidated ~~founded~~financial instatements ~~1996, specialized~~ in ~~bridging~~conformity ~~corporate~~with ~~performance~~accounting ~~management~~principles ~~and~~generally ~~business~~accepted ~~intelligence~~in ~~systems to~~the ~~help~~United ~~clients~~States ~~answer~~of ~~tough~~America ~~business~~requires management ~~questions.~~to ~~Irus’~~make ~~specific~~estimates ~~domain~~and ~~expertise~~assumptions ~~revolved~~that ~~around~~affect the ~~planning,~~reported ~~consulting, implementation~~amounts ~~and development~~ of ~~complex~~assets ~~business~~and ~~intelligence~~liabilities ~~solutions. Irus developed a deep understanding~~ and ~~breadth~~disclosures of ~~knowledge~~contingent inassets ~~enterprise~~and ~~budgeting~~liabilities ~~and~~at ~~planning~~the ~~systems,~~date ~~allowing~~of ~~Irus~~the tofinancial ~~provide~~statements ~~their~~and ~~customers~~the ~~marry~~reported ~~critical~~amounts ~~systems~~of revenue and ~~processes~~expenses ~~for~~during the reporting ~~business~~period. ~~intelligence~~Actual ~~into~~results ~~corporate~~could ~~performance~~differ ~~management~~from ~~solutions~~those estimates.

~~Irus’~~Allowance strategic approach, coupled 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~~Doubtful 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.Accounts

~~Historically,~~We weprovide ~~have~~an allowance ~~derived~~for ~~nearly~~doubtful ~~all~~accounts, ofwhich ~~our~~is ~~sales~~based ~~revenues~~upon ~~under~~a ~~federal~~review ~~government~~of ~~contracts.~~outstanding ~~Under~~receivables ~~these~~as ~~contracts,~~well weas ~~performed~~historical ~~several~~collection ~~critical tasks, including research and development and professional services consulting~~information. ~~Through terms of the contracts with our customers,~~Credit weis ~~were~~granted ~~able~~ to ~~retain~~substantially ~~ownership~~all ofcustomers ~~the~~on ~~intellectual~~an ~~property~~unsecured ~~associated with R&D efforts; which ultimately led to the creation of our current products~~basis. In ~~fiscal~~determining ~~2002, faced with~~ the ~~prospect~~amount of ~~continuing to receive relatively small and uncertain margins associated with fixed price government contracts, and~~ the ~~inherent limit of the market size~~allowance, wemanagement ~~began~~is required to ~~further~~make ~~develop~~certain ~~our~~estimates software as a commercial product, concentrating on building specific applications that we believed would meet the growing needs 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~~assumptions.

~~InferX’s~~Fixed services business consisted of professional IT consulting focused on business intelligence, corporate performance management and predictive analytics support. As a result of our merger with the Irus Group, we expanded and enhanced our customer base and services offerings, which we believe will increase our revenues and expenses in comparison to recent periods. Our services business, which represented over 99% of our total revenues in fiscal 2010, has significantly lower margins than our software business. The proportion of our services revenues relative to our total revenues in nine months ending September 30, 2011 was affected by our continued focus on the PA software side of the business and the continued uncertainty of the US Government budget.Assets

~~Consulting:~~Fixed ~~Our consulting~~assets ~~line~~are ~~of business is comprised of two operating segments: (i) providing services to our customers in support of their~~stated ~~corporate~~at enterprise predictive and advanced analytics requirements; and (ii) providing services to BI customers in enterprise architecture design and implementation; business / IT strategy alignment; business process simplification; solution integration; and product implementationcost, ~~enhancements,~~less ~~and~~accumulated ~~upgrades~~depreciation. ~~Our~~Depreciation ~~consulting~~is ~~revenues~~provided ~~are~~using ~~dependent upon general economic conditions and~~ the ~~level~~straight-line ofmethod ~~product~~over ~~revenues, including~~ the ~~new~~estimated ~~software~~useful ~~license sales~~ lives of ~~our application products. To~~ the ~~extent~~related weassets ~~are~~(primarily ~~able~~ three to ~~grow~~five ~~our~~years). ~~software~~Costs ~~products~~of ~~revenues;~~maintenance weand ~~would~~repairs ~~also~~are ~~generally~~charged ~~expect~~ to beexpense ~~able~~as ~~to grow our consulting revenues~~incurred.

~~Software~~Computer ~~Business:~~Software ~~Our~~Development software business 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 2012 will increase due to the continued demand for our PA software 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, as we bring to market our software-as-a-service (SaaS) and platform-as-a-service (PaaS) delivery models.Costs

~~During~~The ~~this~~Company ~~fiscal~~capitalized ~~quarter~~certain software development costs. The Company capitalizes the cost of software in accordance with ASC 985-20 once technological feasibility has been demonstrated, as the Company ~~continued~~has toin ~~place~~the ~~great~~past ~~emphasis~~sold, leased or otherwise marketed their software, and plans on doing so in the ~~enhancement~~future. The Company capitalizes costs incurred to develop and market their privacy preserving software during the development ofprocess, ~~our~~including ~~core~~payroll ~~technology~~costs ~~products~~for ~~and~~employees who are directly associated with the development process, services ~~adaptation~~performed ~~into~~by ~~market-sector~~consultants, ~~specific~~and ~~solutions~~attributable overhead costs. ~~This~~Amortization ~~concentration~~of such costs is based on the greater of ~~effort~~(i) ~~resulted~~the inratio of ~~higher~~current ~~overhead~~gross revenues to the sum of current and anticipated gross revenues, onor a(ii) ~~year~~the straight-line method over ~~year~~the remaining ~~basis,~~economic ~~consisting~~life ~~primarily~~ of ~~personnel~~the ~~related~~software, ~~expenditures;~~of five years, as ~~noted~~specified byin the ~~recent~~technological ~~management~~feasibility ~~hire~~study ~~for~~performed ~~our~~by ~~Cyber~~an ~~Security~~independent ~~solution.~~valuation ~~Key~~consultant toin ~~our~~2006. ~~future,~~It weis ~~intend~~possible tothat ~~continue~~those toanticipated ~~invest~~gross ~~significantly~~revenues, inthe ~~our~~remaining ~~product~~economic ~~research~~life ~~and~~of ~~development~~the ~~and~~products, ~~market-driven~~or ~~technology~~both, ~~solutions~~may ~~because~~be ~~they~~reduced ~~are~~as ~~essential~~a toresult ~~maintaining~~of ~~our~~future ~~competitive~~events. ~~position~~The Company has not developed any software for internal use.

~~Critical~~Recoverability ~~Accounting~~of ~~Policies~~Long-Lived Assets

The ~~preparation~~Company ofreviews ~~financial~~the ~~statements~~recoverability inof ~~conformity~~its ~~with~~long-lived ~~accounting~~assets ~~principles~~on ~~generally~~a ~~accepted~~periodic inbasis ~~the~~whenever ~~United~~events ~~States~~and ofchanges ~~America~~in ~~requires~~circumstances ~~management to~~have ~~make~~occurred ~~estimates~~which may ~~and~~indicate ~~assumptions~~a ~~that~~possible ~~affect~~impairment. ~~the~~The ~~reported~~assessment ~~amounts~~for ofpotential ~~assets~~impairment ~~and~~is ~~liabilities~~based ~~and~~primarily ~~disclosures~~on ofthe ~~contingent~~Company’s ~~assets~~ability to ~~and~~recover ~~liabilities at~~ the ~~date~~carrying value of ~~the~~its ~~financial~~long-lived ~~statements~~assets ~~and~~from ~~the~~expected ~~reported~~future ~~amounts~~cash offlows ~~revenue~~from ~~and~~its ~~expenses~~operations ~~during~~on ~~the~~an ~~reporting~~undiscounted ~~period~~basis. WeIf ~~rely~~such onassets ~~historical~~are ~~experience~~determined ~~and~~to onbe ~~other~~impaired, ~~assumptions~~the weimpairment ~~believe~~recognized tois bethe ~~reasonable~~amount ~~under~~by which the ~~circumstances~~carrying invalue ~~making~~of ~~our~~the ~~judgments~~assets ~~and~~exceeds ~~estimates.~~the ~~Actual~~fair ~~results~~value ~~could~~of ~~differ~~the ~~from those estimates~~assets. WeFixed ~~consider~~assets ~~our critical accounting policies~~ to be ~~those~~disposed ~~that are~~of ~~complex~~by ~~and~~sale ~~those~~are ~~that~~carried ~~require~~at ~~significant~~the ~~judgments~~lower ~~and~~of ~~estimates, including~~ the ~~following:~~then ~~recognition~~current ofcarrying value ~~revenue,~~or ~~capitalization of~~fair ~~software~~value ~~development~~less estimated costs ~~and~~to ~~income taxes~~sell.

35Revenue Recognition

~~Use~~Revenue is recognized when persuasive evidence of ~~Estimates~~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). We generate revenue from application license sales, application maintenance and support, professional services rendered to customers as well as from application management support contracts. Ourrevenue is generated under time-and-material contracts and fixed-price contracts, usually performing consulting services.

~~The~~Our ~~preparation~~business ofis not ~~consolidated~~seasonal ~~financial~~in ~~statements~~nature. inThe ~~conformity~~timing ~~with~~of ~~accounting~~contract ~~principles~~awards, ~~generally~~the ~~accepted~~availability inof funding from the ~~United~~customer, ~~States~~the incurrence of ~~America~~contract ~~requires~~costs ~~management~~and tounit ~~make~~deliveries ~~estimates~~are ~~and~~the ~~assumptions~~primary ~~that~~drivers ~~affect~~of ~~the~~our ~~reported~~revenue ~~amounts~~recognition. ofThese ~~assets~~factors ~~and~~are ~~liabilities~~influenced ~~and~~by ~~disclosures~~the offederal ~~contingent~~government’s ~~assets~~October-to-September ~~and~~fiscal ~~liabilities~~year. atThis process has historically resulted in higher revenues in the ~~date~~latter half of the ~~financial~~year. ~~statements~~Many of ~~and~~our ~~the~~government ~~reported~~customers ~~amounts~~schedule ofdeliveries ~~revenue~~toward ~~and~~the ~~expenses~~end ~~during~~of the ~~reporting period.~~calendar ~~Actual~~year, ~~results~~resulting ~~could~~in ~~differ~~increasing ~~from~~revenues ~~those~~and ~~estimates~~earnings over the course of the year.

~~Allowance for Doubtful Accounts~~ 35

WeAt ~~provide~~this antime ~~allowance~~we do ~~for~~not ~~doubtful~~derive ~~accounts,~~revenue ~~which~~from isprojects ~~based~~involving ~~upon~~multiple revenue-generating activities. If a ~~review~~contract ofwould ~~outstanding~~involve ~~receivables~~the asprovision ~~well~~of multiple asservice ~~historical~~elements, ~~collection~~total ~~information.~~estimated ~~Credit is~~contract ~~granted~~revenue would be allocated to ~~substantially~~each ~~all~~element ~~customers~~based on anthe ~~unsecured~~fair ~~basis~~value of each element. InThe ~~determining~~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 ~~allowance,~~future. ~~management~~Revenue for each element would then be recognized depending upon whether the contract is ~~required~~a time-and-materials tocontract ~~make~~or ~~certain~~a ~~estimates~~fixed-price, ~~and~~fixed-time ~~assumptions~~contract.

~~Fixed~~Stock-Based ~~Assets~~ Compensation

~~Fixed~~In ~~assets~~2006, ~~are~~we ~~stated~~adopted atthe ~~cost,~~provisions ~~less~~of ~~accumulated~~ASC ~~depreciation.~~718-10 ~~Depreciation~~“Share-Based isPayments” ~~provided~~(“ASC ~~using~~718-10”) ~~the~~which ~~straight~~requires recognition of stock-~~line~~based ~~method~~compensation ~~over~~expense ~~the~~for ~~estimated~~all ~~useful~~share-based ~~lives~~payments based on fair value. Share-based payment transactions within the scope of ~~the~~ASC ~~related~~718-10 ~~assets~~include ~~(primarily~~stock ~~three~~options, torestricted ~~five~~stock ~~years).~~plans, ~~Costs~~performance-based ofawards, ~~maintenance~~stock appreciation rights, and ~~repairs~~employee share ~~are~~purchase ~~charged~~plans. This adoption had no effect on the Company’s operations. Prior to January 1, 2006, we measured compensation expense asfor ~~incurred~~all of our share-based compensation using the intrinsic value method.

~~Computer~~We ~~Software~~have ~~Development~~elected ~~Costs~~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. 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.

~~The~~We ~~Company~~measure ~~capitalized~~compensation ~~certain~~expense ~~software~~for ~~development~~non-employee ~~costs.~~stock-based ~~The~~compensation ~~Company~~under ~~capitalizes the cost of software in accordance with~~ ASC ~~985~~505-2050, ~~once~~“Accounting ~~technological feasibility~~for ~~has~~Equity ~~been~~Instruments ~~demonstrated,~~that asare ~~the~~Issued to ~~Company~~Other ~~has~~Than inEmployees ~~the~~for ~~past sold~~Acquiring, ~~leased~~ or ~~otherwise~~in ~~marketed~~Conjunction ~~their~~with ~~software~~Selling, ~~and~~Goods ~~plans on~~or ~~doing so in the future~~Services". The ~~Company~~fair ~~capitalizes~~value ~~costs~~of ~~incurred~~the tooption issued ~~develop~~is ~~and~~used ~~market~~to ~~their~~measure ~~privacy preserving software during~~ the ~~development process~~transaction, ~~including~~as ~~payroll~~this ~~costs~~is ~~for~~more ~~employees~~reliable ~~who~~than ~~are~~the ~~directly~~fair ~~associated~~value ~~with~~of the ~~development process,~~ services ~~performed~~ byreceived. ~~consultants,~~The ~~and~~fair ~~attributable~~value is ~~overhead~~measured ~~costs.~~at ~~Amortization~~the value of ~~such~~the ~~costs~~Company’s iscommon ~~based~~stock on the ~~greater~~date ofthat ~~(i)~~ the ~~ratio of~~commitment ~~current~~for ~~gross~~performance ~~revenues~~by to the ~~sum~~counterparty has ofbeen ~~current~~reached ~~and~~or ~~anticipated~~the ~~gross~~counterparty’s ~~revenues,~~performance oris ~~(ii)~~complete. ~~the~~The ~~straight-line~~fair ~~method~~value ~~over~~of the ~~remaining economic~~equity ~~life~~instrument ofis ~~the~~charged ~~software,~~directly to ofcompensation ~~five~~expense ~~years,~~and asadditional ~~specified~~ paid-in ~~the~~capital. ~~technological~~For ~~feasibility~~common ~~study~~stock ~~performed~~issuances byto annon-employees ~~independent~~that ~~valuation consultant~~are infully ~~2006.~~vested Itand isare for ~~possible~~future ~~that~~periods, ~~those~~we ~~anticipated~~classify ~~gross~~these ~~revenues,~~issuances ~~the~~as ~~remaining~~prepaid ~~economic~~expenses ~~life~~and ofexpense the ~~products,~~prepaid orexpenses ~~both, may~~over bethe ~~reduced~~service asperiod. aAt no ~~result~~time ofhave ~~future~~we ~~events.~~issued ~~The~~common ~~Company~~stock ~~has~~for ~~not~~a ~~developed~~period ~~any~~that ~~software~~exceeds ~~for~~one ~~internal use~~year.

~~Recoverability of Long-Lived Assets~~ Concentrations

WeFinancial ~~review the recoverability~~instruments ofthat ~~its~~potentially ~~long-lived~~subject ~~assets on a periodic basis whenever events and changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment is based primarily on~~ the Company’s ~~ability~~ to ~~recover~~significant ~~the~~concentrations ~~carrying value~~ of ~~its~~credit ~~long-lived~~risk ~~assets~~consist ~~from~~principally ~~expected~~of ~~future~~accounts ~~cash flows from its operations on an undiscounted basis~~receivable. ~~If such assets are determined~~To ~~to be impaired~~date, ~~the~~accounts ~~impairment~~receivable ~~recognized~~have isbeen ~~the~~derived ~~amount~~from bycontracts ~~which~~with ~~the~~agencies ~~carrying value~~ of the ~~assets~~federal ~~exceeds the fair value of the assets~~government. ~~Fixed~~Accounts ~~assets~~receivable ~~to be disposed of by sale~~ are ~~carried~~generally due atwithin ~~the~~30 ~~lower~~days ofand ~~the~~no ~~then~~collateral ~~current~~is ~~carrying value or fair value less estimated costs to sell~~required.

~~Revenue~~Segment ~~Recognition~~ Reporting

~~Revenue~~We isfollow ~~recognized when~~the ~~persuasive evidence~~ provisions of anASC ~~arrangement exists~~280-10, ~~delivery~~“Disclosures ~~has~~about ~~occurred,~~Segments ~~the~~of ~~fee~~an isEnterprise ~~fixed or determinable,~~ and ~~collectability is~~Related ~~probable~~Information.” WeThis ~~enter~~standard ~~into certain arrangements where we are obligated to deliver multiple products and/or services (multiple elements).~~requires Inthat ~~these~~companies ~~transactions,~~disclose weoperating ~~allocate~~segments ~~the total revenue among the elements~~ based on the ~~sales~~manner ~~price~~in ofwhich ~~each~~management ~~element~~disaggregates ~~when~~the ~~sold~~company ~~separately (vendor-specific~~in ~~objective~~making ~~evidence). The Company generates revenue from application license sales, application maintenance and~~internal ~~support,~~operating ~~professional~~decisions. ~~services~~We ~~rendered~~believe tothat ~~customers~~there ~~as well as from application management support contracts. The Company’s revenue~~ is ~~generated~~only ~~under~~one ~~time-and-material~~operating ~~contracts and fixed-price contracts~~segment.

36Fair Value of Financial Instruments (other than Derivative Financial Instruments)

~~Our~~The ~~business~~carrying ~~is not~~amounts ~~seasonal~~reported in ~~nature.~~the ~~The~~consolidated ~~timing~~balance ofsheet ~~contract~~for ~~awards,~~cash ~~the~~and ~~availability~~cash ofequivalents, ~~funding~~and ~~from~~accounts ~~the~~payable ~~customer,~~approximate ~~the~~fair ~~incurrence~~value ofbecause ~~contract costs~~of ~~and~~the ~~unit~~immediate ~~deliveries~~or ~~are~~short-term ~~the~~maturity ~~primary drivers~~ of ~~our~~these ~~revenue~~financial ~~recognition~~instruments. ~~These~~For ~~factors are influenced by~~ the ~~federal~~notes ~~government’s October-to-September~~payable, ~~fiscal year. This process has historically resulted in higher revenues in~~ the ~~latter~~carrying ~~half~~amount ofreported ~~the~~is ~~year. Many~~based ofupon ~~our government customers schedule deliveries toward~~ the ~~end~~incremental ofborrowing ~~the~~rates ~~calendar~~otherwise ~~year,~~available ~~resulting~~to ~~in increasing revenues and earnings over~~ the ~~course~~Company offor ~~the~~similar ~~year~~borrowings.

At 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.36

~~Stock-Based~~Convertible ~~Compensation~~ Instruments

InWe ~~2006,~~review wethe ~~adopted~~terms ~~the~~of ~~provisions~~convertible ofdebt ~~ASC~~and ~~718-10~~equity ~~“Share-Based~~securities ~~Payments”~~for ~~(“ASC~~indications ~~718-10”)~~requiring ~~which~~bifurcation, ~~requires~~and ~~recognition~~separate ofaccounting, for the embedded conversion ~~stock-based~~feature. ~~compensation~~Generally, ~~expense~~embedded ~~for~~conversion ~~all~~features, ~~share-based~~where ~~payments~~the ~~based~~ability onto ~~fair~~physical ~~value.~~or ~~Share~~net-~~based~~share ~~payment~~settle ~~transactions~~the ~~within~~conversion ~~the~~option is not ~~scope~~within ofour ~~ASC~~control, ~~718-10~~are ~~include~~bifurcated ~~stock~~and ~~options,~~accounted ~~restricted~~for ~~stock~~as ~~plans,~~a ~~performance-based~~derivative ~~awards,~~financial ~~stock~~instrument. ~~appreciation~~Bifurcation ~~rights,~~of ~~and~~the ~~employee~~embedded derivative ~~share~~instrument ~~purchase~~requires ~~plans.~~allocation ~~This~~of ~~adoption~~the ~~had~~proceeds nofirst ~~effect~~to onthe fair value of the ~~Company’s~~embedded ~~operations.~~derivative ~~Prior~~instrument with the residual allocated to ~~January~~the 1,debt ~~2006,~~instrument. weThe ~~measured~~resulting ~~compensation expense~~discount ~~for~~to ~~all~~the face value of ~~our~~the ~~share-based~~debt ~~compensation~~instrument is amortized through periodic charges to interest expense using the ~~intrinsic~~Effective ~~value~~Interest ~~method~~Method.

WeIncome have elected to use the modified–prospective approach method. Under that transition method, the calculated expense in 2006 is equivalent to compensation expense for all awards granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair values. 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.Taxes

WeUnder ~~measure compensation expense for non-employee stock-based compensation under~~ ASC ~~505-50,~~740 ~~“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~~liability ~~issued~~method is used toin ~~measure~~accounting ~~the~~for ~~transaction,~~income ~~as this is more reliable than the fair value of the services received~~taxes. ~~The~~Under ~~fair~~this ~~value is~~method, ~~measured~~deferred attax ~~the~~assets ~~value~~and ofliabilities ~~the~~are ~~Company’s~~determined ~~common~~based ~~stock~~ on ~~the date that the commitment for performance by the counterparty~~differences ~~has~~between ~~been~~financial ~~reached~~reporting orand ~~the~~tax ~~counterparty’s~~bases ~~performance is complete. The fair value~~ of ~~the~~assets ~~equity instrument is charged directly to compensation expense~~ and ~~additional~~liabilities, ~~paid-in capital. For common stock issuances to non-employees that are fully vested~~ and are ~~for~~ ~~future~~measured ~~periods,~~using wethe ~~classify~~enacted ~~these~~tax ~~issuances~~rates ~~as prepaid expenses~~ and ~~expense~~laws ~~the prepaid expenses over the service period. At~~that nowill ~~time~~be ~~have~~in weeffect ~~issued~~when ~~common~~the ~~stock~~differences ~~for~~are aexpected ~~period~~to ~~that exceeds one year~~reverse.

~~Concentrations~~Income (Loss) Per Share of Common Stock

~~Financial~~Basic ~~instruments that~~net ~~potentially~~income ~~subject~~(loss) per ~~the~~common ~~Company~~share to(“EPS”) ~~significant~~is ~~concentrations~~computed ofusing ~~credit~~the ~~risk~~weighted ~~consist~~average ~~principally~~number of ~~accounts~~common ~~receivable.~~shares Tooutstanding for the period. ~~date,~~Diluted ~~accounts~~earnings ~~receivable~~per ~~have~~share ~~been~~include ~~derived~~additional dilution from ~~contracts~~common ~~with~~stock ~~agencies~~equivalents, ofsuch as stock issuable pursuant to the ~~federal~~exercise of ~~government~~stock options and warrants. ~~Accounts~~Common ~~receivable~~stock equivalents are ~~generally~~not included in the computation of diluted earnings per share when ~~due~~the ~~within~~Company 30reports ~~days~~a ~~and~~loss nobecause ~~collateral~~to isdo ~~required~~so would be anti-dilutive for the periods presented.

~~Segment~~Research ~~Reporting~~and Development

WeResearch ~~follow~~and ~~the provisions~~development ofexpenses ~~ASC~~include ~~280-10~~payroll, ~~“Disclosures~~employee ~~about~~benefits, ~~Segments~~equity ofcompensation, anand ~~Enterprise~~other ~~and~~headcount-related ~~Related~~costs ~~Information.”~~associated ~~This~~with ~~standard~~product ~~requires~~development. ~~that~~The ~~companies~~Company ~~disclose~~has ~~operating~~determined ~~segments~~that ~~based~~technological onfeasibility for the ~~manner~~software inproducts ~~which~~is ~~management~~reached ~~disaggregates~~shortly before the ~~company~~products ~~in making internal~~are ~~operating~~released ~~decisions~~to manufacturing. WeCosts ~~believe~~incurred ~~that~~after ~~there~~technological feasibility is ~~only~~established ~~one~~are ~~operating~~not ~~segment~~material, and accordingly, the Company expenses all research and development costs when incurred.

37Six Months Ended June 30, 2012 and 2011

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

~~The~~Revenue ~~carrying~~for ~~amounts~~the ~~reported~~six months ended June 30, 2012 was $933,656, a decrease from $1,882,357 for the same period in 2011; an approximate 50% decrease, our revenues were directly impacted by the ~~consolidated~~termination ~~balance~~of ~~sheet~~a ~~for~~couple ~~cash~~of ~~and~~US ~~cash~~Government ~~equivalents~~contracts, which directly impacted our revenue delivered government contracts and ~~accounts~~US ~~payable~~Governments ~~approximate~~authority ~~fair~~to ~~value~~finalize ~~because~~new ofcontract starts to coincide with the previous contract termination. This situation also reflects the ~~immediate~~continuing oruncertain ~~short-term~~economic ~~maturity~~environment across all of ~~these~~our ~~financial~~focus ~~instruments.~~market ~~For~~areas and the ~~notes~~slowness ~~payable,~~of the ~~carrying~~national ~~amount~~economic ~~reported~~recovery. isFrom ~~based~~a customer market perspective, we ~~upon~~did not see a significant improvement in the ~~incremental~~business ~~borrowing~~environment ~~rates~~for ~~otherwise~~capital ~~available~~expenditures toacross our enterprise, commercial, and government markets, during the ~~Company~~six ~~for~~months ~~similar~~ended ~~borrowings~~June 30, 2012.

~~Convertible~~Cost ~~Instruments~~of Revenues

WeCosts ~~review the terms~~ of ~~convertible~~revenues ~~debt and equity securities~~ for the ~~indications~~six ~~requiring~~months ~~bifurcation,~~ended ~~and~~June ~~separate accounting~~30, ~~for~~2012 ~~the~~were ~~embedded conversion feature. Generally~~$711, ~~embedded conversion features~~059, ~~where~~an ~~the~~approximate ~~ability~~43 to% ~~physical~~decrease orfrom ~~net-share settle the conversion option is not within our control~~$1,241,442 ~~are bifurcated and accounted~~ for asthe asame ~~derivative~~period ~~financial~~in ~~instrument~~2011. ~~Bifurcation of the embedded derivative~~The ~~instrument~~decrease ~~requires~~resulted ~~allocation~~primarily offrom ~~the~~lower ~~proceeds~~revenue ~~first~~and to the ~~fair~~associated ~~value~~lower ofattributable ~~the~~subcontractor ~~embedded~~costs ~~derivative~~as ~~instrument~~well ~~with~~as ~~the~~benefits ~~residual~~from ~~allocated~~our toongoing ~~the~~program ~~debt instrument. The resulting discount~~ to ~~the~~optimize ~~face~~efficiency ~~value~~and ofreduce ~~the~~delivery ~~debt instrument is amortized through periodic charges to interest expense using the Effective Interest Method~~costs.

~~Income~~Gross ~~Taxes~~ Margin

~~Under~~In ~~ASC~~the ~~740~~six ~~the~~months ~~liability~~ended ~~method~~June is30, ~~used~~2012, inour ~~accounting~~gross ~~for~~margin ~~income~~percentage ~~taxes.~~decreased ~~Under~~to ~~this~~24% ~~method,~~compared ~~deferred~~from ~~tax~~approximately ~~assets~~34% ~~and~~from ~~liabilities~~the ~~are~~corresponding ~~determined~~period ~~based~~of ~~on differences~~fiscal ~~between~~2011. ~~financial~~This ~~reporting~~decrease ~~and~~in ~~tax~~gross ~~bases~~margin ofpercentage ~~assets~~for ~~and~~the ~~liabilities,~~six ~~and~~months ~~are~~ended ~~measured~~June ~~using~~30, ~~the~~2012 ~~enacted~~was ~~tax~~the ~~rates~~result ~~and~~of ~~laws~~a ~~that~~substantial reduction ~~will~~in becost inof ~~effect~~goods ~~when~~sold ~~the~~which ~~differences~~was ~~are~~less ~~expected~~than tothe ~~reverse~~decrease in revenue.

~~(Loss) Per Share of Common Stock~~ 37

~~Basic~~Operating 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.Expenses

~~Research~~For ~~and~~the ~~Development~~six months ended June 30, 2012 operating expenses increased by approximately 114% from the corresponding period of fiscal 2011, which was primarily attributable to an increase in stock based compensation, offset by a reduction in labor costs.

~~Research~~Other ~~and~~Income 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.(Expense)

~~Three~~Other ~~Months~~income ~~Ended~~(expense) increased ~~March~~primarily ~~31,~~due ~~2012~~to ~~and~~a ~~2011~~benefit recorded for the fair value adjustment of $30,246,964.

~~Revenue~~Contract Backlog

~~Revenue for~~At ~~the~~June ~~three~~30, ~~months~~2012 ~~ended~~and December ~~March~~ 31, ~~2012~~2011, our estimated backlog was $~~509~~6,~~729~~433,500 aand ~~decrease from~~ $15,~~031~~790,~~336~~000, ~~for~~respectively, ~~the~~of ~~same~~which ~~period~~$2,369,000 inand ~~2011;~~$4,752,000, ~~an approximate~~respectively, ~~51%~~was ~~decrease,~~funded. ~~our~~We ~~revenues~~define ~~were~~backlog ~~directly~~as ~~impacted~~our byestimate of the ~~termination~~remaining offuture arevenue ~~couple~~from ofexisting USsigned ~~Government~~ contracts, ~~which~~over ~~directly~~the remaining ~~impacted~~base ~~our~~contract ~~revenue~~performance ~~delivered~~period ~~government contracts~~ and Ufrom ~~SGovernments~~the ~~authoritiy~~option toperiods ~~finalize~~of ~~new~~those ~~contract~~contracts, ~~starts~~assuming tothe ~~coincide~~exercise ~~with the~~of ~~previous~~all ~~contract~~related ~~termination~~options. We ~~This~~define ~~situation~~funded ~~also~~backlog ~~reflects~~as the ~~continuing~~portion ~~uncertain~~of ~~economic environment~~backlog ~~across~~for ~~all~~which offunding ~~our~~currently ~~focus~~is ~~market~~appropriated ~~areas~~ and ~~the~~obligated ~~slowness~~to ofus ~~the~~under ~~national~~a ~~economic~~contract or ~~recovery.~~other ~~From~~authorization afor ~~customer~~payment ~~market~~signed ~~perspective, we~~by ~~did~~an ~~not~~authorized ~~see~~purchasing aagency, ~~significant~~less ~~improvement in~~ the ~~business~~amount ~~environment~~of ~~for~~revenue ~~capital~~we ~~expenditures~~have ~~across~~previously ~~our enterprise, commercial,~~recognized. ~~and~~Our ~~government~~backlog ~~markets,~~does ~~during~~not ~~the~~include ~~three~~any ~~months~~estimate ~~ending~~of ~~March~~future ~~31,~~potential ~~2012.~~delivery Inorders ~~the~~that ~~firstquarter~~might ofbe ~~fiscal~~awarded ~~2012,~~under weour ~~had~~Government noWide ~~revenue from~~Acquisition ~~core~~Contracts PA(GWAC) ~~technology~~or ~~products;~~other ~~however~~multiple-award wecontract ~~have~~vehicles, ~~significant~~or PAsales ~~Technology~~and ~~opportunities~~services inof our ~~sales~~PA ~~pipeline~~technology.

38Factors That May Impact Net Sales and Gross Margin

~~Cost~~Product sales may continue to be affected by multiple factors, including 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 ~~Revenues~~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.

~~Costs~~Liquidity ~~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~~Capital ~~our ongoing program to optimize efficiency and reduce delivery costs.~~Resources

~~Gross~~We ~~Margin~~had cash of $20,722 of June 30, 2012. During the six months ended June 30, 2012, we used approximately $181,382 from our operating activities. Operations were funded primarily from consulting revenue generated in the six month period.

InWe ~~the~~will ~~three~~need ~~months~~to generate ~~ended~~significant ~~March~~additional ~~31,~~revenue ~~2012,~~to support our ~~gross~~projected ~~margin~~increases ~~percentage~~in ~~decreased~~staffing toand ~~26%~~other ~~compared~~operating toexpenses ~~approximately~~in ~~35%~~light ~~from~~of the ~~corresponding period~~requirements created by our business plan and enhancement of ~~fiscal~~our ~~2011~~core technology products and the adaptation of that technology into market-sector specific solutions. ~~This~~We ~~decrease~~are incurrently ~~gross~~expending ~~margin~~approximately ~~percentage~~$292,000 ~~for~~per ~~the~~month ~~three~~to ~~months~~support ~~ended~~our ~~March~~operations, and anticipate spending $262,000 monthly through December 31, 2012 ~~was~~and 2013. We expect to raise additional financing through the ~~result~~sale of acommon ~~substantial~~stock to ~~reduction~~supplement inthe ~~cost~~cash generated from our 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 ~~goods~~our ~~sold~~convertible ~~which~~preferred, ~~was~~preferred ~~greater~~and common ~~than~~stock it will be necessary for us to further reduce expenses to manage our business. Although we believe the ~~decrease~~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, ~~attributable~~reduce expenses or obtain necessary financing could impair our ability to ~~lower~~continue business operations and raises substantial doubt about our ability to remain as ~~subcontractor~~a ~~costs~~going concern.

~~Operating Expenses~~ 38

~~For~~Item ~~the three months ended March 31, 2012 operating expenses increased by approximately 5% from the corresponding period of fiscal 2011~~3. ~~The~~Quantitative ~~increasee was attributable primarly to a 15% decrease in indirect~~ and ~~overhead~~Qualitative ~~labor,~~Disclosures aAbout ~~113%~~Market ~~increase in professional fees associated with product and services sales and investor relations, and an approximate 20% increase in stock based compensation~~Risk.

~~Other~~Not ~~Income (Expense)~~applicable

~~Other~~Item ~~income increased primarily as a result in increase in the fair value of the derivative liability of $9,797,626~~4. InControls ~~addition the company incurred an increase in interest expense of $6,130~~ and ~~an increase to the amortization of debt discount of $22,800~~Procedures.

~~Contract~~Evaluation ~~Backlog~~of Disclosure Controls and Procedures.

AtOur ~~March 31~~management, ~~2012 and~~with ~~December~~the ~~31,~~participation ~~2011,~~of our ~~estimated~~Chief ~~backlog~~Executive ~~was~~Officer ~~$10,372,700 million~~ and ~~$5,790,000~~Chief ~~million,~~Financial ~~respectively~~Officer, ofhas ~~which~~evaluated ~~$5,433,200~~the ~~million and~~effectiveness ~~$4,752,000~~of ~~million,~~our ~~respectively,~~disclosure controls ~~was~~and ~~funded.~~procedures ~~We define backlog~~ (as ~~our~~such ~~estimate~~term ofis ~~the~~defined ~~remaining~~in ~~future~~Rules ~~revenue~~13a-15(e) ~~from~~and ~~existing signed~~15d-15(e) ~~contracts~~under ~~over~~ the ~~remaining~~Securities ~~base~~Exchange ~~contract~~Act ~~performance period and from the option periods~~ of ~~those contracts~~1934, ~~assuming~~as amended (the ~~exercise~~ of“Exchange ~~all~~Act”)) ~~related options. We define funded backlog~~ as ~~the portion~~ of ~~backlog~~June ~~for~~30, ~~which~~2012. ~~funding~~Based ~~currently~~on isthis ~~appropriated and~~evaluation, ~~obligated~~our toChief usExecutive ~~under~~Officer aand ~~contract~~Chief Financial orOfficer ~~other~~concluded ~~authorization~~that ~~for~~our ~~payment~~disclosure ~~signed~~controls byand anprocedures ~~authorized~~are ~~purchasing~~not ~~agency,~~effective ~~less~~due to the ~~amount of~~existence ~~revenue we have previously recognized. Our backlog does not include any estimate~~ of ~~future~~material ~~potential delivery orders that might~~weaknesses bein ~~awarded under~~ our ~~Government~~internal ~~Wide~~control ~~Acquisition~~over ~~Contracts~~financial ~~(GWAC)~~reporting oras ~~other~~discussed ~~multiple-award~~in ~~contract~~our ~~vehicles,~~Form or10-K ~~sales~~for ~~and~~the ~~services of~~year ~~our~~ended PADecember ~~technology~~31, 2011.

~~Factors~~Changes ~~That~~in ~~May~~Internal ~~Impact~~Control ~~Net~~over ~~Sales and~~Financial ~~Gross Margin~~ Reporting

~~Product~~No sales may continue to be affected by multiple factors, including 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~~internal ~~customers~~control ~~between~~over ~~government~~financial ~~and~~reporting ~~commercial markets; changes in the mix of direct sales and indirect~~were ~~sales;~~made ~~variations~~ in ~~sales channels; and final acceptance criteria of~~ the ~~product,~~three ~~system,~~months orended ~~solution~~June ~~as specified by the customer. For additional factors that may impact net product sales~~30, ~~see “Part II, Item 1A Risk Factors~~2012.” 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.

39Inherent Limitations on Effectiveness of Controls

~~Liquidity~~Our management does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and ~~Capital~~all ~~Resources~~fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. 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. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected.

WeThese ~~had~~inherent ~~cash~~limitations ofinclude ~~$12,043~~the realities that judgments in decision-making can be faulty and that breakdowns can occur because of ~~March~~simple ~~31,~~error ~~2012~~or mistake. ~~During~~Controls can also be circumvented by the ~~three~~individual ~~months~~acts ~~ended~~of ~~March~~some 31persons, ~~2012~~by collusion of two or more people, weor ~~used~~by ~~approximately~~management ~~$223~~override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events,~~973~~ ~~from~~and ~~our~~there ~~operating~~can ~~activities~~be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation ~~Operations~~of ~~were~~controls ~~funded~~effectiveness ~~primarily~~to ~~from~~future ~~consulting~~periods ~~revenue~~are ~~generated~~subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the ~~three~~degree ~~month~~of ~~period~~compliance with policies or procedures.

WePART ~~will~~II ~~need~~— toOTHER 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 $292,000 per month to support 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.INFORMATION

Item 31. ~~Quantitative~~Legal ~~and Qualitative Disclosures About Market Risk~~Proceedings.

~~Not~~Arnold ~~applicable~~Worldwide, Inc., the landlord of InferX at its former premises at 1600 International Drive, Suite 110, McLean, Virginia 22102, commenced an action against InferX in the General District Court of Fairfax County, on August 25, 2008, seeking (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 $180,066.53; and (ii) an order for possession of the Premises. Though the Company disputes the amount outstanding, it has made a good faith gesture to resolve this matter by making a payment of $30,000 on September 12, 2008, and entered into good-faith discussions to resolve the issue with Arnold Worldwide. The 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.

~~Item 4. Controls and Procedures.~~39

~~Evaluation~~We are involved in two 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 ~~disclosure~~$10,419.59. ~~controls~~We received a Garnishment Summons dated November 14, 2012 from the Court of Fairfax County, Virginia for the unpaid amount plus interest, judgment costs, and ~~procedures~~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 ~~management~~Consultants, ~~with~~ ~~the~~LLC, ~~participation~~d/b/a ofGlobal ~~our~~Services ~~Chief~~a ~~Executive~~marketing ~~Officer~~support ~~and~~consulting ~~Chief~~services ~~Financial~~firm ~~Officer,~~which ~~has~~represented ~~evaluated~~InferX ~~the~~Corporation ~~effectiveness~~in ofmatters ~~our~~for ~~disclosure~~government ~~controls~~regulatory ~~and~~contract ~~procedures~~filing ~~(as~~matters, ~~such~~commenced ~~term~~an isaction ~~defined~~against us in ~~Rules 13a-15(e) and 15d-15(e) under~~ the ~~Securities~~Superior ~~Exchange~~Court ~~Act~~ of ~~1934~~Washington, ~~as amended (the “Exchange Act”)) as of March 31~~DC, ~~2012. Based~~ on ~~this~~October ~~evaluation~~13, ~~our Chief Executive Officer and Chief~~2012, ~~Financial~~seeking ~~Officer~~unpaid ~~concluded~~general ~~that~~consulting ~~our~~services ~~disclosure~~fees ~~controls~~in ~~and~~the ~~procedures~~amount ~~are~~of ~~not~~$9,900. ~~effective~~Although ~~due~~we todispute the ~~existence~~amount ofoutstanding, ~~material~~we ~~weaknesses~~ are in negotiations ~~our~~with ~~internal~~Fairchild ~~control~~Consultants, ~~over~~LLC ~~financial~~to ~~reporting,~~settle ~~discussed~~this ~~below~~litigation.

~~Management’s~~Item ~~Report~~1A. onRisk ~~Internal Control Over Financial Reporting~~Factors.

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

~~(1)~~Our ~~Pertain~~business is rapidly evolving and intensely competitive, and is subject to ~~the~~changing technology, shifting user needs, and frequent introductions of new ~~maintenance~~products and services. We have many competitors from different industries, including providers of ~~records~~online ~~that~~products inand ~~reasonable~~services. Our ~~detail~~current ~~accurately~~and potential competitors range from large and ~~fairly~~established ~~reflect~~companies ~~transactions~~to emerging start-ups. Established companies have longer operating histories and ~~dispositions~~more established relationships with customers and end users, 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 ~~assets;~~competitors are more successful than we are in developing compelling products or in attracting and retaining clients, our revenues and growth rates could decline.

~~(2)~~The ~~Provide~~market ~~reasonable assurance~~for ~~that~~our ~~transactions~~products ~~are~~and ~~recorded~~services ~~as necessary to permit preparation of financial statements in accordance with generally~~is ~~accepted~~new ~~accounting principles,~~ and ~~that~~evolving ~~receipts~~ and ~~expenditures~~a ~~are~~viable ~~being~~market ~~made~~may ~~only~~never indevelop ~~accordance~~or ~~with~~may ~~authorizations~~take oflonger ~~our management~~to ~~and~~develop ~~directors;~~than ~~and~~we anticipate.

~~(3)~~Our ~~Provide~~software ~~reasonable~~and services ~~assurance~~represent ~~regarding~~what ~~prevention~~we orbelieve ~~timely~~is ~~detection~~a ofnovel ~~unauthorized~~entry ~~acquisition~~in an emerging market, ~~use~~and orwe ~~disposition~~do not know the extent to which our targeted customers will want to purchase them. The development of a viable market for our ~~assets~~products ~~that~~may ~~could~~be ~~have~~impacted by many factors which are out of aour ~~material~~control, ~~effect~~including oncustomer reluctance to try new products and services and the ~~financial~~existence ~~statements~~and emergence of products and services marketed by better-known competitors.

40If a 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.

~~Our~~If ~~management~~we ~~has evaluated~~do ~~the~~not ~~effectiveness~~continue ofto ~~our~~innovate ~~internal~~and ~~control~~provide products ~~over~~and ~~financial~~services ~~reporting~~that asare ofuseful ~~March~~to 31users, ~~2012~~we ~~based~~may onnot ~~the~~remain ~~criteria established in a report entitled Internal Control—Integrated Framework~~competitive, ~~issued~~and byour ~~the~~revenues ~~Committee~~and ofoperating ~~Sponsoring~~results ~~Organizations~~could ~~of the Treadway Commission (COSO)~~suffer.

~~Based~~Our success depends on ~~our~~providing ~~assessment,~~products and services ~~management~~that ~~has~~make ~~concluded~~using ~~that~~our technology a more useful and business impactful experience for our ~~internal~~customers. ~~controls~~Our ~~over~~competitors ~~financial~~are ~~reporting~~constantly developing ~~were~~innovations ~~not~~in ~~effective~~technology asembedded ofin ~~March~~their 31products and services. As a result, ~~2012~~we ~~due~~must continue to ~~the~~invest significant ~~existence~~resources ofin ~~several~~research ~~material~~and ~~weaknesses~~development in order to enhance our ~~internal~~predictive ~~control~~analytics ~~over~~technology ~~financial~~and ~~reporting~~our existing products and services and introduce new products and services solutions that people can easily and effectively use. ~~Our~~If ~~Board~~we ofare ~~Directors~~unable ~~has~~to ~~reviewed~~provide quality ~~the~~products ~~results~~and ofservices, ~~management~~then our users may become dissatisfied and move to a competitor’s ~~assessment~~products and services. In addition, these onnew aproducts ~~quarterly~~and ~~basis~~services wemay ~~will~~present ~~evaluate~~new ~~any~~and ~~changes~~difficult totechnology challenges, and our ~~internal~~operating ~~control~~results would also suffer ~~over~~if ~~financial~~our ~~reporting~~innovations are not responsive to ~~determine~~the ifneeds ~~material~~of ~~changes~~our ~~occurred~~users and or are not effectively brought to market. This may force us to compete in different ways and expend significant resources in order to remain competitive.

~~PART II — OTHER INFORMATION~~ 40

~~Item~~The 1.industry ~~Legal~~in ~~Proceedings~~which we operate is characterized by rapid technological changes, and our continued success will depend upon our ability to react to such changes.

~~Arnold~~The ~~Worldwide,~~markets ~~Inc.,~~for our ~~the~~products ~~landlord~~and ofservices ~~InferX~~are atcharacterized ~~its~~by ~~former~~rapidly ~~premises~~changing attechnology. ~~1600~~The ~~International~~introduction ~~Drive,~~of ~~Suite~~products ~~110,~~or ~~McLean,~~services ~~Virginia~~embodying ~~22102,~~new technology ~~commenced~~can anrender ~~action against~~our ~~InferX~~existing inproducts ~~the~~and ~~General~~services ~~District~~obsolete ~~Court~~and ofunmarketable ~~Fairfax~~and ~~County,~~can onexert ~~August~~price ~~25,~~pressures ~~2008,~~on ~~seeking~~existing ~~(i)~~products and ~~damages,~~services. ~~including~~It ~~rent~~is ~~due~~critical ~~under the~~to ~~sublease~~our ~~between~~success ~~InferX~~for ~~and~~us ~~Arnold~~to ~~Worldwide,~~be ~~late~~able ~~fees~~to ~~due~~anticipate ~~under~~changes ~~the~~in ~~sublease,~~technology ~~attorney’s~~and ~~fees~~to ~~due~~successfully ~~under~~develop ~~the~~and introduce ~~sublease~~new, enhanced and ~~interest,~~competitive ~~for~~products aand ~~total~~services ~~amount~~on ~~claimed~~a oftimely ~~$180,066~~basis.~~53;~~ ~~and~~We ~~(ii)~~cannot anassure ~~order~~you ~~for~~that ~~possession~~we ofwill ~~the~~successfully develop ~~Premises.~~new ~~Though~~products ~~the~~or ~~Company~~services ~~disputes the~~or ~~amount~~introduce ~~outstanding,~~new itapplications ~~has~~for ~~made~~existing aproducts ~~good~~and ~~faith~~services, ~~gesture~~that tonew ~~resolve~~products ~~this~~and ~~matter~~applications will byachieve ~~making~~market aacceptance ~~payment~~or ofthat ~~$30,000~~the onintroduction ~~September~~of 12new products, ~~2008,~~ ~~and~~services ~~entered~~or ~~into~~technological ~~good-faith~~developments ~~discussions~~by toothers ~~resolve~~will not ~~the~~render ~~issue~~our ~~with~~products ~~Arnold~~and ~~Worldwide~~services obsolete. ~~The~~Our ~~Company~~inability ~~agreed~~ to ~~the~~develop ~~entry~~products ofand ~~a Consent~~services ~~Order~~that ofare ~~Possession~~competitive ~~that~~in ~~allowed~~technology and ~~Arnold~~price ~~Worldwide~~and tomeet ~~take~~customer ~~possession~~needs ofcould ~~the~~have ~~premises.~~a ~~The~~material ~~lease~~adverse ~~for~~effect ~~the~~on ~~premises~~our atbusiness, ~~1600 International~~financial ~~Drive~~condition ~~terminated~~or ~~November~~results ~~30,~~of ~~2008~~operations.

WeOur ~~are~~management ~~involved~~controls ~~in two current lawsuits. PCT Law Group, PLLC,~~ a ~~legal~~substantial ~~law firm that represented InferX Corporation in certain matters concerning intellectual~~percentage ~~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.~~our Westock ~~received a Garnishment Summons dated November 14, 2012 from the Court of Fairfax County, Virginia for the unpaid amount plus interest, judgment costs,~~ and ~~attorney~~therefore ~~fees~~has ~~for a total of $16,883.69. Although we dispute~~ the ~~amount~~ability ~~outstanding,~~to weexercise ~~are~~substantial incontrol ~~negotiations~~over ~~with~~our ~~PCT Law Group to settle this litigation~~affairs.

~~Fairchild Consultants,~~As ~~LLC,~~of ~~d/b/a~~the ~~Global~~date ~~Services~~of athis ~~marketing~~filing, ~~support~~our ~~consulting~~directors ~~services~~and ~~firm~~executive ~~which~~officers ~~represented~~beneficially ~~InferX~~owned ~~Corporation~~11,806,152 inshares, ~~matters~~or ~~for~~approximately ~~government~~64.4%, ~~regulatory~~of ~~contract~~our ~~filing~~outstanding ~~matters,~~common ~~commenced~~stock anin ~~action~~the ~~against~~aggregate. usBecause inof the ~~Superior~~large ~~Court~~percentage of ~~Washington,~~stock ~~DC,~~held onby ~~October~~our ~~13,~~directors ~~2012,~~and executive ~~seeking~~officers, ~~unpaid~~these ~~general~~persons ~~consulting~~could ~~services~~influence ~~fees in~~ the ~~amount~~outcome of ~~$9,900.~~any ~~Although~~matter wesubmitted ~~dispute~~to ~~the~~a ~~amount~~vote ~~outstanding,~~of weour ~~are in negotiations with Fairchild Consultants, LLC to settle this litigation~~stockholders.

~~Item~~If 1Awe were to lose the services of Dr. Jerzy ~~Risk~~Bala, ~~Factors~~Raimondo 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.

WeOur future ~~face~~success ~~intense~~depends ~~competition~~in a large part upon the continued service of key members of our senior management team. On April 13, 2012 we filed a Form 8-K disclosing that B.K. Gogia, President of our Technology Systems Group, and Raimondo Piluso, Chief Operating Officer, resigned as a result of a disagreement regarding the business direction of the company, which has adversely affected our backlog of funded service contracts. Dr. Jerzy Bala, our CTO, resigned on June 15, 2012. The loss of their services may have a material adverse effect on our ability to grow our services and software businesses and obtain the financing necessary to do so.

~~Our~~We ~~business~~rely ison ~~rapidly evolving~~highly ~~and~~skilled ~~intensely~~personnel ~~competitive,~~ and ~~is subject to changing technology~~, ~~shifting user needs, and frequent introductions of new~~if ~~products~~we ~~and~~are ~~services.~~unable ~~We have many competitors from different industries, including providers of online products and services. Our current and potential competitors range from large and established companies~~ to ~~emerging~~retain ~~start-ups.~~or ~~Established~~motivate ~~companies~~key ~~have longer operating histories and more established relationships with customers and end users~~personnel, ~~and~~hire ~~they~~qualified ~~can use their experience and resources against us in a variety of competitive ways~~personnel, ~~including~~or bymaintain ~~making~~our ~~acquisitions,~~corporate ~~investing aggressively in research and development~~culture, ~~and~~we ~~competing aggressively for customers and market share. Emerging start-ups~~ may not be able to ~~innovate~~grow ~~and provide products and services faster than we can~~effectively. ~~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.~~

41Our performance largely depends on the talents and efforts of highly skilled individuals. Our future success depends on our continuing ability to identify, hire, develop, motivate, and retain highly skilled personnel for all areas of our organization. Competition in our industry for qualified employees is intense, and some of our competitors have directly targeted our employees. In addition, our compensation arrangements, such as our equity award programs, may not always be successful in attracting new employees and retaining and motivating our existing employees. Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existing employees.

~~The~~In ~~market~~addition, ~~for~~we ~~our~~believe ~~products~~that ~~and~~our ~~services~~corporate isculture ~~new~~fosters innovation, creativity, and ~~evolving~~teamwork. As our organization grows, and awe ~~viable~~are ~~market~~required ~~may~~to ~~never~~implement ~~develop~~more orcomplex organizational management structures, we may ~~take~~find ~~longer~~it increasingly difficult to ~~develop~~maintain ~~than~~the webeneficial ~~anticipate~~aspects of our corporate culture. This could negatively impact our future success.

Our 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. The development 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 and the existence and emergence of products and services marketed by better-known competitors.41

IfWe amay ~~viable~~not ~~market fails~~be able to ~~develop~~protect orimportant ~~develops~~intellectual property, ~~more~~and ~~slowly than~~ we ~~anticipate,~~could weincur ~~may~~substantial becosts ~~unable~~defending toagainst ~~recover~~claims ~~the~~that ~~losses we will have incurred to develop~~ our products ~~and~~infringe ~~services~~on ~~and~~the ~~may~~proprietary berights ~~unable to achieve profitability~~of others.

IfWe currently have received two patents and have filed four provisional patents, awaiting determination. While we dobelieve ~~not~~that ~~continue~~we tohave ~~innovate~~a ~~and~~proprietary ~~provide~~position in component technologies for our products, ~~and~~our ~~services~~ability ~~that~~to ~~are~~compete ~~useful~~effectively will depend, in part, on our ability to ~~users~~protect our proprietary technologies, processes and designs, to secure patents for the applications we have pending and to protect those patents that we may secure. We do not ~~remain~~know ~~competitive~~whether any of our pending patent applications will be issued or, ~~and~~if issued, that the claims allowed are or will be sufficiently broad to protect our ~~revenues~~technology or processes. Even if all of our patent applications are issued and ~~operating~~are ~~results~~sufficiently ~~could~~broad, ~~suffer~~our patents may be challenged or invalidated.

~~Our success~~We ~~depends~~could onincur ~~providing~~substantial costs ~~products~~in ~~and~~prosecuting ~~services~~or ~~that~~defending ~~make~~patent ~~using~~infringement ~~our~~suits ~~technology~~or aotherwise ~~more~~protecting ~~useful and business impactful experience for~~ our ~~customers. Our~~intellectual ~~competitors~~property ~~are constantly developing innovations in technology embedded in their products and services~~rights. As aWhile ~~result,~~ we ~~must continue to invest significant resources in research and development in order to enhance our predictive analytics technology~~ ~~and~~have ~~our~~attempted ~~existing products and services and introduce new products and services solutions that people can easily and effectively use. If we are unable~~ to ~~provide~~safeguard ~~quality products~~ and ~~services, then~~maintain our ~~users~~proprietary ~~may become dissatisfied and move to a competitor’s products and services. In addition~~rights, ~~these~~we ~~new~~do ~~products and services may present new and difficult technology challenges, and our operating results would also suffer if our innovations are~~ not ~~responsive~~know towhether ~~the~~we ~~needs~~have ofbeen ~~our users and~~ or ~~are~~will ~~not~~be ~~effectively~~completely ~~brought to market.~~ successful ~~This may force us to compete~~ in ~~different~~doing ~~ways and expend significant resources in order to remain competitive~~so.

~~The~~We ~~industry~~may inface ~~which~~liability weclaims ~~operate~~from isfuture ~~characterized~~customers byif ~~rapid technological changes, and~~ our ~~continued~~software ~~success~~malfunctions ~~will~~or ~~depend~~contains ~~upon~~undetected ~~our ability to react to such changes~~defects.

~~The~~Our ~~markets~~products ~~for~~have ~~our~~in ~~products~~the ~~and~~past ~~services~~contained, ~~are~~and ~~characterized~~may byin ~~rapidly~~the ~~changing~~future ~~technology.~~contain, ~~The~~undetected ~~introduction~~or ofunresolved ~~products~~errors orwhen ~~services~~first ~~embodying~~introduced, as new ~~technology~~ ~~can~~versions ~~render~~are ~~our~~released, or ~~existing~~otherwise. ~~products~~Despite ~~and~~extensive ~~services~~testing, ~~obsolete~~errors, ~~and~~defects ~~unmarketable~~or ~~and~~failures ~~can~~may ~~exert~~be ~~price~~found ~~pressures~~in onour ~~existing~~current or future products ~~and~~ ~~services.~~or Itenhancements after isthey ~~critical~~have tobeen ~~our~~installed ~~success~~by ~~for~~customers. usIf tothis behappens, ~~able~~we tomay ~~anticipate~~experience ~~changes~~delay in ~~technology~~or ~~and~~loss toof ~~successfully~~market ~~develop~~acceptance and ~~introduce~~ ~~new~~sales, diversion ~~enhanced~~of ~~and~~development ~~competitive~~resources, ~~products~~injury ~~and~~to ~~services~~our onreputation aor ~~timely~~increased ~~basis.~~service Wecosts, ~~cannot~~any ~~assure~~of ~~you~~which ~~that~~could wehave ~~will~~a ~~successfully~~material adverse ~~develop~~effect ~~new~~on ~~products~~our orbusiness, ~~services~~financial orcondition ~~introduce~~and ~~new~~results ~~applications~~of ~~for~~operations. ~~existing~~Moreover, ~~products~~because ~~and~~our ~~services,~~products ~~that~~are ~~new~~designed ~~products~~to ~~and~~provide ~~applications~~critical ~~will~~data ~~achieve~~analysis ~~market~~services, ~~acceptance~~we ormay ~~that~~receive ~~the~~significant ~~introduction~~liability ofclaims. ~~new~~Although ~~products,~~we ~~services~~intend orto ~~technological~~obtain ~~developments~~product byliability ~~others~~insurance ~~will~~covering ~~not~~certain ~~render~~damages ~~our~~arising ~~products~~from implementation and ~~services~~use ~~obsolete.~~of ~~Our~~our ~~inability~~products, toour ~~develop~~insurance ~~products~~may ~~and~~not ~~services~~cover ~~that~~all ~~are~~claims ~~competitive~~sought inagainst ~~technology~~us. ~~and~~Liability ~~price~~claims could require us to spend significant time and ~~meet~~money ~~customer~~in ~~needs~~litigation ~~could~~or ~~have~~to pay significant damages. As a ~~material~~result, any ~~adverse~~such ~~effect~~claims, onwhether ~~our~~or ~~business~~not successful, ~~financial~~could ~~condition~~seriously ordamage ~~results~~our ofreputation ~~operations~~and business.

~~Our~~We ~~management~~must ~~controls~~ensure athe ~~substantial~~protection ~~percentage of our stock~~ and ~~therefore~~privacy ~~has~~of customer ~~the ability to exercise substantial control over our affairs~~data.

AsWe ofrely ~~the~~on ~~May~~complex encryption ~~15,~~algorithms ~~2012,~~ and technology to secure customer data. We believe our ~~directors~~products protect the security and ~~executive~~privacy ~~officers~~of ~~beneficially~~customer data ~~owned~~by ~~11,806,152~~transmitting ~~shares,~~encrypted orpointers ~~approximately~~to ~~64.4%~~customer data, ofrather ~~our~~than ~~outstanding~~the ~~common~~data ~~stock in~~itself, across the ~~aggregate~~Internet and existing dedicated transmission lines. ~~Because~~However, ofif ~~the~~customer ~~large~~data ~~percentage~~is ofmisappropriated ~~stock~~or ~~held~~unintentionally bydisclosed ~~our~~as ~~directors~~a ~~and~~result ~~executive~~of ~~officers~~an actual or perceived failure of our software, ~~these~~our ~~persons~~reputation, ~~could~~and ~~influence the~~ultimately ~~outcome~~our ofbusiness, ~~any~~would ~~matter~~be ~~submitted~~seriously toharmed, aand ~~vote~~we ofcould ~~our~~face ~~stockholders~~liability claims.

IfWe wecurrently ~~were~~are todependent ~~lose~~on ~~the services of Dr. Jerzy~~contracts ~~Bala,~~with ~~Ray~~the ~~Piluso,~~federal ~~Vijay~~government ~~Suri~~for ,all ~~or B.K. Gogia, or other members~~ of our ~~senior management team, we may not be able to execute our business strategy~~revenues.

~~Our~~Revenues ~~future~~derived ~~success~~from ~~depends~~federal ingovernment acontracts ~~large~~accounted ~~part~~for ~~upon~~82% ~~the continued service~~ of ~~key members of~~ our ~~senior~~revenues ~~management~~in ~~team.~~the Infirst ~~particular,~~six ~~our~~months ~~CEO,~~of ~~Vijay Suri; B~~2012.K. ~~Gogia~~We ~~our~~expect ~~Chairman;~~that ~~Dr.~~government ~~Jerzy Bala, our Chief Technology Officer; and Raimondo Piluso, Chief Operating Officer, are~~contracts ~~critical~~will tosignificantly ~~the~~decline ~~overall management of InferX Corporation~~ as ~~well~~a asresult of the ~~development~~conclusion of our ~~technology,~~government ~~our culture, and our strategic direction~~contracts. ~~The~~We ~~loss~~must, oftherefore, orconcentrate ~~unavailability~~on ofsale ~~the services~~ of our ~~any~~software ~~one~~products ofto ~~these~~continue ~~individuals~~to ~~would~~remain ~~have~~in ~~a material adverse effect on our~~ business ~~prospects and/or potential earning capacity~~.

WeIf ~~rely on highly skilled personnel and, if~~ we ~~are~~fail ~~unable~~ to ~~retain~~comply orwith ~~motivate~~complex ~~key~~procurement laws ~~personnel,~~and ~~hire qualified personnel~~regulations, orwe ~~maintain~~may ~~our~~be ~~corporate~~subject ~~culture,~~to wecivil ~~may~~and ~~not~~criminal bepenalties ~~able to~~and ~~grow~~administrative ~~effectively~~sanctions.

~~Our performance~~We ~~largely~~must ~~depends~~comply onwith laws ~~the talents~~ and ~~efforts~~regulations ofrelating ~~highly skilled individuals. Our future success depends on our continuing ability~~ to ~~identify,~~the ~~hire~~formation, ~~develop,~~administration ~~motivate,~~ and ~~retain~~performance ~~highly skilled personnel for all areas~~ of ~~our~~government ~~organization~~contracts. ~~Competition~~These inlaws ~~our~~and ~~industry~~regulations affect ~~for~~how ~~qualified~~we ~~employees~~do isbusiness ~~intense,~~with ~~and~~government ~~some~~agencies ofand ~~our~~may ~~competitors~~impose ~~have directly~~added ~~targeted~~costs on our ~~employees~~business. InFor ~~addition~~example, ~~our~~we ~~compensation~~are ~~arrangements,~~subject ~~such~~to asthe Federal ~~our~~Acquisition ~~equity award programs~~Regulations, ~~may~~which ~~not~~comprehensively ~~always be~~regulate ~~successful~~the information, ~~attracting~~administration ~~new employees~~ and ~~retaining~~performance ~~and~~of ~~motivating~~federal ~~our~~government contracts, ~~existing~~and ~~employees.~~to ~~Our~~the ~~continued~~Truth ~~ability~~in toNegotiations ~~compete effectively~~Act, ~~depends~~which onrequires ~~our~~certification ~~ability~~and todisclosure ~~attract~~of ~~new~~cost ~~employees~~ and topricing ~~retain~~data ~~and~~in ~~motivate~~connection with ~~our~~contract ~~existing employees~~negotiations.

InIf a government review ~~addition~~or investigation uncovers improper or illegal activities, we ~~believe~~may ~~that~~be ~~our~~subject ~~corporate~~to ~~culture~~civil ~~fosters~~and ~~innovation~~criminal penalties and administrative sanctions, ~~creativity~~including termination of contracts, forfeiture of profits, suspension of payments, fines and ~~teamwork. As~~suspension or debarment ~~our~~from ~~organization~~doing ~~grows~~business with government agencies, which could materially and weadversely ~~are~~affect ~~required~~our tobusiness, ~~implement~~financial ~~more~~condition ~~complex~~and results ~~organizational~~of ~~management~~operations. ~~structures~~In addition, wea government may ~~find~~reform itits ~~increasingly difficult~~procurement topractices ~~maintain~~or ~~the~~adopt ~~beneficial~~new ~~aspects~~contracting ofrules ~~our~~and ~~corporate culture. This~~regulations that could ~~negatively~~be ~~impact~~costly to satisfy or that could impair our ~~future~~ability ~~success.~~to obtain new contracts.

WeRisks ~~may~~Related ~~not be able~~ to ~~protect~~Our ~~important~~Common ~~intellectual property, and we could incur substantial costs defending against claims that our products infringe on the proprietary rights of others.~~Stock

~~We currently have received two patents and have filed four provisional patents~~Currently, ~~awaiting~~there ~~determination.~~is ~~While we believe that we have~~ a ~~proprietary~~limited ~~position in~~trading ~~component technologies~~ market for our ~~products,~~common ~~our ability to compete effectively will depend~~stock, inwhich ~~part,~~may onadversely ~~our~~impact your ability to ~~protect our~~sell ~~proprietary~~your ~~technologies,~~shares ~~processes~~ and ~~designs, to secure patents for~~ the ~~applications~~price weyou ~~have pending and to protect those patents that we may secure~~receive. 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.

WeThere ~~could~~is ~~incur substantial~~currently ~~costs~~a inlimited ~~prosecuting~~trading market for our common stock and a more active trading market for our common stock may never develop or ~~defending~~be ~~patent~~sustained. The ~~infringement~~market ~~suits~~price of our common stock may be significantly affected by factors such as actual or ~~otherwise~~anticipated ~~protecting~~fluctuations in our operating ~~intellectual~~results, ~~property~~general ~~rights~~market conditions and other factors. ~~While~~In weaddition, the stock market has from time to time experienced significant price and volume fluctuations that have ~~attempted~~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 ~~safeguard~~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, ~~maintain~~therefore, can offer no assurances that the market for our ~~proprietary~~common ~~rights~~stock will be stable or appreciate over time. Furthermore, wefor 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 ~~know~~publish ~~whether~~press wereleases ~~have~~about ~~been~~such orcompanies, ~~will~~and be(iii) ~~completely~~to ~~successful~~obtain needed capital. These infactors ~~doing~~may sonegatively impact your ability to sell shares of our common stock and the price you receive.

WeOur ~~may~~common ~~face~~stock ~~liability~~is ~~claims~~deemed ~~from~~to ~~future~~be ~~customers~~a “penny ifstock,” ~~our~~which ~~software~~may ~~malfunctions~~make orit ~~contains~~more ~~undetected~~difficult ~~defects~~for you to sell your shares.

Our ~~products~~common ~~have~~stock inis subject to the ~~past~~“penny ~~contained,~~stock” ~~and~~rules ~~may~~adopted inunder Section 15(g) of the ~~future~~Securities ~~contain~~Exchange Act of 1934, ~~undetected~~as oramended ~~unresolved~~(the “Exchange ~~errors~~Act”). ~~when~~The ~~first~~penny ~~introduced,~~stock asrules ~~new~~apply ~~versions~~to ~~are~~companies ~~released, or~~whose ~~otherwise.~~common ~~Despite~~stock ~~extensive~~is ~~testing,~~not ~~errors,~~listed ~~defects~~on the NASDAQ Stock Market or ~~failures~~another ~~may~~national besecurities ~~found~~exchange inand ~~our~~trades ~~current~~at orless ~~future~~than ~~products~~$5.00 orper ~~enhancements after~~share ~~they~~or that have ~~been~~tangible ~~installed~~net byworth ~~customers.~~of Ifless ~~this~~than ~~happens~~$5,000,000 ($2,000,000 weif ~~may~~the ~~experience~~company ~~delay~~has inbeen oroperating ~~loss~~for ofthree ~~market~~or ~~acceptance~~more ~~and~~years). ~~sales~~These rules require, ~~diversion~~ ofamong ~~development~~other ~~resources~~things, ~~injury~~that brokers who trade penny stock to ~~our~~persons ~~reputation~~other orthan ~~increased~~“established ~~service~~customers” ~~costs~~complete certain documentation, ~~any~~make suitability inquiries of ~~which~~investors ~~could~~and ~~have~~provide ainvestors ~~material~~with ~~adverse effect~~certain oninformation ~~our~~concerning ~~business~~trading in the security, ~~financial~~including ~~condition~~a risk disclosure document and ~~results~~quote ofinformation ~~operations.~~under ~~Moreover,~~certain ~~because~~circumstances. ~~our~~Many ~~products~~brokers ~~are~~have ~~designed~~decided not to ~~provide~~trade ~~critical~~penny stocks because of the requirements ~~data~~of ~~analysis~~the ~~services,~~penny westock ~~may~~rules ~~receive~~and, ~~significant~~as ~~liability~~a ~~claims.~~result, ~~Although~~the wenumber ~~intend~~of broker-dealers willing to ~~obtain~~act ~~product~~as ~~liability~~market ~~insurance~~makers ~~covering~~in such securities is limited. ~~certain~~Remaining ~~damages~~subject ~~arising~~to ~~from~~the ~~implementation~~penny ~~and~~stock ~~use~~rules ofshould ~~our~~be ~~products,~~expected ~~our~~to ~~insurance~~have ~~may~~an ~~not~~adverse ~~cover~~effect ~~all~~on ~~claims~~the ~~sought~~market ~~against~~for ~~us.~~our common stock by reducing ~~Liability~~the ~~claims~~number ~~could~~of ~~require~~potential usinvestors. toThis ~~spend~~may ~~significant~~make ~~time~~it ~~and~~more ~~money~~difficult for investors in ~~litigation~~our orcommon stock to ~~pay~~sell ~~significant~~shares ~~damages.~~to Asthird ~~a result,~~parties ~~any~~or ~~such~~to ~~claims,~~otherwise ~~whether~~dispose orof ~~not~~them. ~~successful,~~This could ~~seriously~~cause ~~damage~~ our ~~reputation~~stock ~~and~~price ~~business~~to decline.

~~We must ensure the protection and privacy of customer data.~~43

We ~~rely~~need ~~on complex encryption algorithms and technology~~ to ~~secure~~raise ~~customer~~additional ~~data. We believe our products protect the security and privacy of customer data by transmitting encrypted pointers to customer data~~capital, ~~rather~~but ~~than the data itself, across the Internet and existing dedicated~~that ~~transmission~~capital ~~lines.~~may ~~However,~~not ~~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~~available.

43Our 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 ~~currently~~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 ~~dependent~~seeking onadditional ~~contracts~~financing, ~~with~~such financing may not be available or, if available, may not be available on satisfactory terms. Additionally, the ~~federal~~nature ~~government~~of ~~for~~our ~~all~~business activities may require the availability of ~~our~~additional ~~revenues~~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.

~~Revenues~~If ~~derived~~we ~~from federal~~were ~~government~~to ~~contracts~~decide to ~~accounted~~obtain ~~for~~such ~~97.6%~~additional offunds ~~our~~by ~~revenues~~equity financing in ~~the~~one ~~first~~or ~~nine~~more ~~months~~private ofor ~~2011.~~public Weofferings, ~~expect~~current ~~that~~stockholders ~~government~~would ~~contracts~~experience ~~will continue to be~~ a ~~significant~~corresponding ~~source~~decrease ofin ~~our~~their ~~revenues~~percentage ~~for the foreseeable future~~ownership. ~~Our business generated from government contracts may be adversely affected if:~~

·Our ~~ability~~independent ofregistered ~~the~~public ~~government~~accounting firm tohas ~~prepare,~~expressed ~~approve~~doubt ~~and~~regarding ~~execute~~our aability ~~final~~to ~~federal~~continue ~~fiscal~~as ~~budget;~~a going concern.

·Our ~~levels~~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 ~~government~~our ~~expenditures~~financial statements for the years ended December 31, 2011 and ~~authorizations~~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 ~~national~~us to raise capital on favorable terms and ~~homeland~~could ~~security~~hinder, ~~related~~to ~~programs~~some ~~decrease~~extent, ~~remain~~our ~~constant~~operations. orAdditionally, ~~shift~~if we are not able to ~~programs~~continue inas ~~areas~~a ~~where~~going weconcern, it is likely that stockholders will lose all of their investment. Our financial statements do not ~~provide~~include ~~products~~any ~~and~~adjustments ~~services;~~that might result from the outcome of this uncertainty.

·Item we2. ~~are~~Unregistered ~~prevented~~Sales ~~from~~of ~~entering~~Equity ~~into~~Securities ~~new~~and ~~government~~Use ~~contracts or extending existing government contracts based on violations or suspected violations~~ of ~~procurement laws or regulations;~~Proceeds.

~~· we are not granted security clearances that are required to sell our products or services or such security clearances are revoked; or~~None.

·Item ~~our~~3. ~~reputation~~Defaults orUpon ~~relationship~~Senior ~~with government agencies is impaired~~Securities.

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 terminationNone.

IfItem we4. ~~fail~~Submission toof ~~comply~~Matters ~~with complex procurement laws and regulations, we may be subject~~ to ~~civil~~a ~~and~~Vote ~~criminal~~of ~~penalties~~Security ~~and administrative sanctions~~Holders.

~~We must comply with laws and regulations relating to the formation, administration and performance of government contracts~~None. 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.

IfItem 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 operations5. InOther ~~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~~Information.

~~Risks~~Except ~~Related~~as otherwise noted, the securities described in this Item were issued pursuant to ~~Our~~the ~~Common~~exemption ~~Stock~~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.

~~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.~~44

~~There~~Item ~~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~~6. ~~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~~Exhibits. 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.

31*		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32*		Certification pursuant to Sections 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 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

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

~~Our~~**Pursuant ~~common stock is subject~~ to ~~the~~Rule ~~“penny~~406T ~~stock” rules adopted under Section 15(g)~~ of ~~the~~Regulation ~~Securities Exchange Act of 1934~~S-T, asthese ~~amended (the~~interactive ~~“Exchange~~data ~~Act”).~~files ~~The~~are ~~penny~~deemed ~~stock rules apply to companies whose common stock is~~ not ~~listed~~filed ~~on the NASDAQ Stock Market~~ or ~~another~~part ~~national~~of ~~securities~~a ~~exchange~~registration ~~and~~statement ~~trades at less than $5.00 per share~~ or ~~that~~prospectus ~~have~~for ~~tangible~~purposes ~~net worth~~ of ~~less~~Sections ~~than~~11 ~~$5,000,000 ($2,000,000 if the company has been operating for three~~ or ~~more~~12 ~~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~~Securities ~~and~~Act ~~quote information under certain circumstances. Many brokers have decided not to trade penny stocks because~~ of ~~the~~1933 ~~requirements of~~or ~~the~~Section ~~penny~~18 ~~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~~Securities ~~stock~~Act ~~rules should be expected to have an adverse effect on the market for our common stock by reducing the number~~ of ~~potential~~1934 ~~investors.~~and ~~This may make it more difficult for investors in our common stock to sell shares to third parties or to~~ otherwise ~~dispose~~are ofnot ~~them.~~subject ~~This could cause our stock price~~ to ~~decline~~liability.

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

~~Our~~In ~~existing~~accordance ~~capital is~~with ~~insufficient to fund our operations beyond~~ the ~~fourth~~requirements ~~quarter~~ of ~~2011. We believe~~ the ~~anticipated~~Exchange ~~revenues~~Act, ~~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,~~registrant wecaused ~~are~~this ~~not~~report ~~generating sufficient revenues~~ to ~~increase~~be ~~our~~signed ~~working~~on ~~capital~~its orbehalf toby ~~carry out our proposed business objectives and continue to operate as a going concern beyond~~ the ~~near term~~undersigned, ~~and~~thereunto weduly ~~need to obtain additional financing or reduce our expenses by curtailing our operations~~authorized.

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.

Dated: June 10, 2013	InferX Corporation

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

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.45

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

Filing Compare · INFERX CORP