Delaware | 7370 | 54-1614664 | ||
(State or jurisdiction of | (Primary Standard Industrial | (IRS Employer Identification No.) | ||
incorporation or organization) | Classification Number) |
McLean, Virginia 22102-4860
(Address and telephone number of principal executive offices)
McLean, Virginia 22102-4860
(Address of principal place of business or intended principal place of business)
President and Chief Executive Officer
1600 International Drive, Suite 110
McLean, Virginia 22102-4860
(703) 917-0880
(Name, address and telephone number of agent for service)
Ernest M. Stern, Esq.
Seyfarth Shaw LLP
815 Connecticut Avenue, N.W., Suite 500
Washington, D.C. 20006-4004
(202) 463-2400
Facsimile: (202) 828-5393
The information in this prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Page | ||||
Summary | 1 | |||
Risk Factors | 3 | |||
Use of Proceeds | 7 | |||
Determination of Offering Price | 7 | |||
Our Business | 8 | |||
Management’s Discussion and Analysis or Plan of Operation | 14 | |||
Management | 20 | |||
Executive Compensation | 22 | |||
Security Ownership of Certain Beneficial Owners and Management | 22 | |||
Certain Relationships and Related Transactions | 24 | |||
Selling Stockholders | 25 | |||
Plan of Distribution | 27 | |||
Description of Securities | 29 | |||
Market for Common Equity and Related Stockholder Matters | 31 | |||
Experts | 32 | |||
Legal Matters | 32 | |||
Disclosure of SEC Position on Indemnification for Securities Act Liabilities | 32 | |||
Where You Can Find More Information | 32 | |||
Index to Financial Statements | 33 |
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Issuer: | InferX Corporation | |
Selling stockholders: | The selling stockholders consist of certain existing stockholders who acquired common stock in connection with the founding of the company or the merger, as well as stockholders who purchased common stock and warrants to purchase common stock from us in October 2006 in a private placement transaction completed pursuant to Rule 506 of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”). |
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Shares offered by the selling stockholders: | The selling stockholders are offering all of the 4,473,402 shares of common stock offered by this prospectus. | |
Offering price: | The selling stockholders will sell their shares at prevailing market prices at a price of $.50 or a range per share until our common stock is listed for quotation on the OTC Bulletin Board, and after that at privately negotiated prices. | |
Terms of the offering: | The selling stockholders will determine when and how they will sell the common stock offered by this prospectus. We will cover the expenses associated with the offering, which we estimate to be approximately $30,000. See “Plan of Distribution.” | |
Use of proceeds: | We will not receive any proceeds from this offering. However, we will receive the proceeds from the exercise of the warrants. We will incur all costs associated with the filing of the registration statement with the SEC in connection with this offering. | |
No market for our common stock: | Our common stock is presently not traded on any market or securities exchange and we have not applied for listing or quotation on any public market. We anticipate seeking sponsorship for trading of our common stock on the OTC Bulletin Board. | |
Outstanding shares of common stock: | There were 10,758,905 shares of our common stock issued and outstanding at April 20, 2007. All of the common stock to be sold under this prospectus will be sold by existing stockholders. If the selling stockholders exercise their warrants the underlying shares of which are offered to be sold under this prospectus, there will be 10,845,826 shares of our common stock issued and outstanding. |
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• | levels of government expenditures and authorizations for national and homeland security related programs decrease, remain constant or shift to programs in areas where we do not provide products and services; | ||
• | we are prevented from entering into new government contracts or extending existing government contracts based on violations or suspected violations of procurement laws or regulations; | ||
• | we are not granted security clearances that are required to sell our products or services or such security clearances are revoked; or | ||
• | our reputation or relationship with government agencies is impaired. |
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• | Financial Services: Increase customer retention; optimization of cross selling; detection of money laundering; and fraud detection. | ||
• | Insurance: Increase customer profitability; fraud detection; optimization of cross selling; and customer compliance. | ||
• | Healthcare: Optimal treatment analysis; clinical drug trial analysis; analysis of medical images; and healthcare fraud and abuse detection. | ||
• | Retail: Promotion effectiveness analysis; product placement analysis; optimization of cross selling; and sales force optimization. |
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Patent | Information | Dates | Status | |||
InferAgent | Full application | Filed July 2003 | Pending | |||
US Serial: | ||||||
10/616,718 | ||||||
A hybrid Bayesian decision tree for classification | Full application US Serial: 60/556,554 | Filed March 2003 | Pending | |||
InferCluster | Provisional application | Filed September 2006 | Filed | |||
InferText | Provisional application | Filed September 2006 | Filed |
• | predictive modeling companies; | ||
• | CRM solutions providers; | ||
• | business intelligence solutions providers; and | ||
• | software companies supplying modeling, rules or analytic development tools. |
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• | access and mine remote data | ||
• | provide predictive analysis where many future risks and opportunities can be identified | ||
• | work with multiple databases in different formats | ||
• | preserve the privacy of data | ||
• | maintain the security and ownership of data | ||
• | eliminate the need for creating data warehouses | ||
• | provide near real time analysis and prediction |
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1. | components of DHS that are analyzing intelligence, detecting terrorist activities and detecting criminal activities or patterns; | ||
2. | other U.S. federal government departments where focus is on: |
• | detecting fraud, waste and abuse; | ||
• | detecting criminal activities; or | ||
• | improving service or performance; |
3. | international supply chain participants, such as importers, sea carriers, sea ports and terminal operators; and | ||
4. | commercial enterprises that we expect would be early adopters of advanced analytics technologies, such as financial services and insurance firms. |
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Name and Position | Age | Director Since | ||
B.K. Gogia | 55 | 2006 | ||
President, Chief Executive Officer and Chairman of the Board of Directors | ||||
Dr. Jerzy W. Bala | 48 | 2006 | ||
Chief Technical Officer and a Director | ||||
Scott B. Parliament | 49 | 2006 | ||
Chief Financial Officer, Vice President of Business Development and Marketing and a Director | ||||
Jesus Mena | 60 | — | ||
Chief Strategy Officer |
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Nonqualified | ||||||||||||||||||||||||||||||||||||
Non-Equity | Deferred | |||||||||||||||||||||||||||||||||||
Stock | Option | Incentive Plan | Compensation | All Other | ||||||||||||||||||||||||||||||||
Awards | Awards | Compensation | Earnings | Compensation | Total | |||||||||||||||||||||||||||||||
Name and Principal Position | Year | Salary ($) | Bonus ($) | ($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||||||||
B.K. Gogia | 2006 | $ | 82,500 | — | — | — | — | — | $ | 23,100 | (1) | $ | 105,600 | |||||||||||||||||||||||
President and Chief | 2005 | $ | 24,311 | — | — | — | — | — | $ | 23,254 | (1) | $ | 47,565 | |||||||||||||||||||||||
Executive Officer (PEO) | 2004 | $ | 55,370 | — | — | — | — | — | $ | 25,166 | (1) | $ | 80,536 |
(1) | Consists of an automobile allowance in the amounts of $9,073, $8,998 and $8,998, and life insurance premiums for which we are not the beneficiary in the amounts of $14,027, $14,256 and $16,168, for the years ended December 31, 2006, 2005 and 2004, respectively. |
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Percentage of | ||||||||
Amount and Nature | Outstanding | |||||||
Name and Address | of Beneficial Ownership | Shares Owned | ||||||
B.K. Gogia | 4,239,579 | (1) | 39.4 | % | ||||
Jerzy W. Bala | 496,524 | 4.6 | % | |||||
Scott B. Parliament | 181,109 | (2) | 1.7 | % | ||||
Jesus Mena | – | – | ||||||
Robert B. Prag | 746,166 | (3) | 6.9 | % | ||||
2455 El Amigo Road Del Mar, CA 92014 | ||||||||
John Lemak | 1,080,236 | (4) | 9.9 | % | ||||
Sandor Capital Master Fund, L.P. 2828 Routh Street, Suite 500 Dallas, TX 75201 | ||||||||
Lacuna Hedge Fund LLLP | 2,283,298 | (5) | 19.9 | % | ||||
c/o Lacuna Ventures 1100 Spruce Street, Suite 202 Boulder, CO 80302 | ||||||||
All directors and executive | 4,917,212 | 45.7 | % | |||||
officers as a group (4 persons) |
(1) | Includes 177,330 shares owned directly by Mr. Gogia’s daughter, 177,330 shares owned directly by Mr. Gogia’s son, and 35,466 shares owned directly by Mr. Gogia’s spouse. Mr. Gogia disclaims beneficial ownership of all shares owned directly by others. | |
(2) | Includes 10,000 shares owned directly by one of Mr. Parliament’s sons, and 10,000 shares owned directly by another of Mr. Parliament’s sons. Mr. Parliament disclaims beneficial ownership of all shares owned directly by others. | |
(3) | Based upon information provided to or otherwise known by the company and contained in the amended Schedule 13G filed by Mr. Prag on November 3, 2006. Includes 124,181 shares issuable upon the exercise of warrants that are exercisable within 60 days. |
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(4) | Based upon information provided to or otherwise known by the company and contained in the Schedule 13G filed by Sandor Capital Advisors, LLC, a Texas limited liability company (“Sandor Advisors”), and Mr. Lemak, the principal of Sandor Advisors, on November 1, 2006. Includes 311,985 shares directly owned by Mr. Lemak. Also includes 54,276 of the 612,545 shares issuable upon the exercise of warrants owned by Sandor Advisors and held by Sandor Capital Master Fund, L.P. (“Sandor Capital”) (428,364 shares) and Mr. Lemak (184,181 shares), in the aggregate, that are exercisable within 60 days. By their terms, the warrants held by Sandor Capital and Mr. Lemak are not exercisable to the extent that exercise by either of them would result in the joint beneficial ownership by Sandor Advisors and Mr. Lemak of greater than 9.99% of the company’s issued and outstanding common stock. If all of the warrants were exercisable in full, Sandor Advisors and Mr. Lemak would jointly beneficially own 1,636,505 shares of common stock, which would represent beneficial ownership of approximately 14.4% of the company’s issued and outstanding common stock. Mr. Lemak makes investment decisions on behalf of Sandor Advisors. | |
(5) | Based upon information provided to or otherwise known by the company and contained in the Schedule 13G filed by Lacuna Venture Fund LLLP (“Lacuna Venture Fund”), Lacuna Ventures GP LLLP (“Lacuna GP”) and Lacuna, LLC (“Lacuna LLC”) on November 3, 2006. In April 2007, Lacuna Venture Fund transferred all of its InferX shares and warrants to Hedge Fund LLLP, one of its affiliates (“Lacuna Hedge Fund,” and, together with Lacuna GP and Lacuna LLC, the “Lacuna Entities”). Also includes 663,298 of the 1,080,000 shares issuable upon the exercise of warrants owned by the Lacuna Entities that are exercisable within 60 days. By their terms, the warrants held by Lacuna Hedge Fund are not exercisable to the extent that exercise would result in the Lacuna Entities’ beneficial ownership of greater than 19.99% of the company’s issued and outstanding common stock. If all of the warrants were exercisable in full, the Lacuna Entities would beneficially own 2,700,000 shares of common stock, which would represent beneficial ownership of approximately 22.8% of the company’s issued and outstanding common stock. Rawleigh Ralls makes investment decisions on behalf of each of the Lacuna Entities. |
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Shares Held After | % Ownership After | |||||||||||||||
Name | Shares Owned | Shares Offered | Offering | Offering (1) | ||||||||||||
Jerzy W. Bala (2) | 496,524 | 70,000 | 426,524 | 4.0 | % | |||||||||||
Brian M. Barton (3) | 300,000 | 134,087 | 165,913 | 1.5 | % | |||||||||||
Cynthia M Boyle and John N. Boyle III (4) | 90,000 | 40,226 | 49,774 | * | ||||||||||||
Brian Corbman (5) | 300,000 | 134,087 | 165,913 | 1.5 | % | |||||||||||
Francisco de Cossio(6) | 10,000 | 10,000 | — | — | ||||||||||||
B.K. Gogia (7) | 4,239,579 | 225,000 | 4,014,579 | 37.3 | % | |||||||||||
Lacuna Hedge Fund LLLP (8) | 2,700,000 | 1,206,779 | 1,493,221 | 13.1 | % | |||||||||||
John Lemak (9) | 496,166 | 241,515 | 254,651 | 4.9 | % |
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Shares Held After | % Ownership After | |||||||||||||||
Name | Shares Owned | Shares Offered | Offering | Offering (1) | ||||||||||||
The London Family Trust (10) | 588,486 | 296,604 | 291,882 | 2.7 | % | |||||||||||
Paul T. Mannion, Jr. (11) | 400,000 | 250,000 | 150,000 | 1.4 | % | |||||||||||
Mark Nicosia (12) | 450,019 | 226,816 | 223,203 | 2.0 | % | |||||||||||
Richard O’Leary (13) | 300,000 | 134,087 | 165,913 | 1.5 | % | |||||||||||
Scott B. Parliament (14) | 181,109 | 45,000 | 136,109 | 1.3 | % | |||||||||||
Robert B. Prag (15) | 746,166 | 424,472 | 321,694 | 3.0 | % | |||||||||||
Michael Pruitt (16) | 75,000 | 33,521 | 41,479 | * | ||||||||||||
Andrew Reckles (17) | 400,000 | 250,000 | 150,000 | 1.4 | % | |||||||||||
Craig Samuels (18) | 300,000 | 134,087 | 165,913 | 1.5 | % | |||||||||||
Sandor Capital Master Fund, L.P. (19) | 1,142,339 | 550,078 | 592,261 | 4.9 | % | |||||||||||
David C. Stocking (20) | 152,500 | 67,043 | 85,457 | * |
* | Less than 1% | |
(1) | The calculation of the percentage owned is based on 10,758,905 shares outstanding (plus, with respect only to each holder of securities that are exercisable for or convertible into common stock within 60 days, shares underlying such securities). | |
(2) | Dr. Bala is Chief Technical Officer and a director of InferX. Dr. Bala acquired his shares in connection with the founding of InferX Delaware. | |
(3) | Includes 120,000 shares issuable upon the exercise of warrants that are exercisable within 60 days. The selling shareholder purchased these securities in our October 2006 private placement. | |
(4) | Includes 60,000 shares issuable upon the exercise of warrants that are exercisable within 60 days. The selling shareholders purchased these securities in our October 2006 private placement. | |
(5) | Includes 200,000 shares issuable upon the exercise of warrants that are exercisable within 60 days. The selling shareholder purchased these securities in our October 2006 private placement. | |
(6) | Mr. de Cossio acquired his shares in connection with the founding of Datamat and InferX Delaware. | |
(7) | Mr. Gogia is President, Chief Executive Officer and a director of InferX. Please see footnote 1 to the table under the heading “Security Ownership of Certain Beneficial Owners and Management” for an explanation of Mr. Gogia’s beneficial ownership. Mr. Gogia acquired his shares in connection with the founding of Datamat and InferX Delaware. | |
(8) | Includes 1,080,000 shares issuable upon the exercise of warrants, of which 663,298 are exercisable within 60 days. Please see footnote 5 to the table under the heading “Security Ownership of Certain Beneficial Owners and Management” for an explanation of Lacuna Hedge Fund LLLP’s beneficial ownership. The selling shareholder purchased these securities in our October 2006 private placement. | |
(9) | Includes 184,181 shares issuable upon the exercise of warrants, of which 54,276 are exercisable within 60 days. Please see footnote 4 to the table under the heading “Security Ownership of Certain Beneficial Owners and Management” for an explanation of Mr. Lemak’s beneficial ownership. The percentage indicated under the column “% Ownership After Offering” does not include shares that Mr. Lemak does not have the right to acquire within 60 days. The selling shareholder purchased these securities in our October 2006 private placement. | |
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(10) | Includes 211,109 shares issuable upon the exercise of warrants, of which 167,869 are exercisable within 60 days. The natural person who holds voting and investment power over the securities held by The London Family Trust is Robert S. London. The selling shareholder purchased these securities in our October 2006 private placement. | |
(11) | Mr. Mannion was President, a director and a founder of our predecessor, Black Nickel Acquisition Corp. I, from inception through October 2006. Mr. Mannion acquired his shares in connection with the founding of Black Nickel. | |
(12) | Includes 161,436 shares issuable upon the exercise of warrants that are exercisable within 60 days. The selling shareholder purchased these securities in our October 2006 private placement. | |
(13) | Includes 150,000 shares issuable upon the exercise of warrants that are exercisable within 60 days. The selling shareholder purchased these securities in our October 2006 private placement. | |
(14) | Mr. Parliament is Chief Financial Officer, Vice President of Business Development and Marketing and a director of InferX. Please see footnote 2 to the table under the heading “Security Ownership of Certain Beneficial Owners and Management” for an explanation of Mr. Parliament’s beneficial ownership. Mr. Parliament acquired his shares in connection with the founding of InferX Delaware. | |
(15) | Mr. Prag was a founder of our predecessor, Black Nickel Acquisition Corp. I. Please see footnote 3 to the table under the heading “Security Ownership of Certain Beneficial Owners and Management” for an explanation of Mr. Prag’s beneficial ownership. Mr. Prag acquired 400,000 of his shares in connection with the founding of Black Nickel, and he purchased the remainder of his securities in our October 2006 private placement. | |
(16) | Includes 50,000 shares issuable upon the exercise of warrants that are exercisable within 60 days. The selling shareholder purchased these securities in our October 2006 private placement. | |
(17) | Mr. Reckles was Secretary, a director and a founder of our predecessor, Black Nickel Acquisition Corp. I, from inception through October 2006. Mr. Mannion acquired his shares in connection with the founding of Black Nickel. | |
(18) | Includes 200,000 shares issuable upon the exercise of warrants that are exercisable within 60 days. The selling shareholder purchased these securities in our October 2006 private placement. | |
(19) | Includes 428,364 shares issuable upon the exercise of warrants, up to 54,276 of which are exercisable within 60 days. Please see footnote 4 to the table under the heading “Security Ownership of Certain Beneficial Owners and Management” for an explanation of Sandor Capital Master Fund, L.P.’s beneficial ownership. The percentage indicated under the column “% Ownership After Offering” does not include shares that Sandor Capital Master Fund, L.P.does not have the right to acquire within 60 days. The selling shareholder purchased these securities in our October 2006 private placement. | |
(20) | Includes 60,000 shares issuable upon the exercise of warrants that are exercisable within 60 days. The selling shareholder purchased these securities in our October 2006 private placement. |
1. | at fixed prices; | ||
2. | the market price prevailing at the time of sale; | ||
3. | a price related to such prevailing market price; or | ||
4. | such other price as the selling stockholders determine from time to time. |
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1. | a block trade in which the broker-dealer so engaged will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; | ||
2. | purchases by a broker-dealer as principal and resale by that broker-dealer for its account pursuant to this prospectus; | ||
3. | ordinary brokerage transactions in which the broker solicits purchasers; | ||
4. | through options, swaps or derivatives; | ||
5. | privately negotiated transactions; or | ||
6. | in a combination of any of the above methods. |
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(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page(s) | ||||
Audited Consolidated Financial Statements: | ||||
Report of Independent Registered Public Accounting Firm | F-1 | |||
Consolidated Balance Sheet as of December 31, 2006 | F-2 | |||
Consolidated Statements of Operations for the years ended December 31, 2006 and 2005 | F-3 | |||
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2006 and 2005 | F-4 | |||
Consolidated Statements of Cash Flows for the years ended December 31, 2006 and 2005 | F-5 | |||
Notes to Consolidated Financial Statements | F-6 | |||
Reviewed Financial Statements: | ||||
Report of Independent Registered Public Accounting Firm | F-27 | |||
Condensed Consolidated Balance Sheet as of March 31, 2007 (Unaudited) | F-28 | |||
Condensed Consolidated Statements of Operations for the three months ended March 31, 2007 and 2006 (Unaudited) | F-29 | |||
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2007 (Unaudited) | F-30 | |||
Notes to Condensed Consolidated Financial Statements (Unaudited) | F-31 |
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InferX Corporation
(Formerly Black Nickel Acquisition Corp. I)
February 16, 2007, except for Note 13, which is dated May 24, 2007
F-1
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2006
RESTATED | ||||
2006 | ||||
ASSETS | ||||
CURRENT ASSETS | ||||
Cash | $ | 79,554 | ||
Accounts receivable, net | 50,000 | |||
Prepaid expenses and other current assets | 7,505 | |||
Total current assets | 137,059 | |||
Fixed assets, net of depreciation | 29,198 | |||
Other Asset | ||||
Computer software development costs, net of amortization | 371,439 | |||
Total other asset | 371,439 | |||
TOTAL ASSETS | $ | 537,696 | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||
CURRENT LIABILITIES | ||||
Accounts payable and accrued expenses | $ | 129,394 | ||
Derivative liability | 1,031,703 | |||
Current portion of notes payable | 16,900 | |||
Total current liabilities | 1,177,997 | |||
Long-term Liabilities | ||||
Notes payable, net of current portion | 366,028 | |||
TOTAL LIABILITIES | 1,544,025 | |||
STOCKHOLDERS’ EQUITY (DEFICIT) | ||||
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized and no shares issued and outstanding | — | |||
Common stock, par value $0.0001 per share, 75,000,000 shares authorized and 9,129,392 shares issued and outstanding | 913 | |||
Additional paid-in capital | 1,846,575 | |||
Retained earnings (defict) | (2,853,817 | ) | ||
Total stockholders’ equity (deficit) | (1,006,329 | ) | ||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | 537,696 | ||
F-2
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
2006 | 2005 | |||||||
(Restated) | (Restated) | |||||||
REVENUE | $ | 199,991 | $ | 225,275 | ||||
COST OF REVENUES | ||||||||
Direct labor and other finges | 104,782 | 31,897 | ||||||
Amortization of computer software development costs | 177,003 | 177,003 | ||||||
Total costs of revenues | 281,785 | 208,900 | ||||||
GROSS PROFIT | (81,794 | ) | 16,375 | |||||
OPERATING EXPENSES | ||||||||
Indirect and overhead labor and fringes | 460,261 | 108,368 | ||||||
Professional fees | 365,532 | 102,630 | ||||||
Advertising and marketing | 58,585 | 127,652 | ||||||
Travel related costs | 23,282 | 31,141 | ||||||
Rent | 104,181 | 97,734 | ||||||
General and administrative | 62,860 | 44,204 | ||||||
Depreciation | 15,290 | 14,770 | ||||||
Total operating expenses | 1,089,991 | 526,499 | ||||||
NET LOSS FROM OPERATIONS BEFORE OTHER EXPENSE AND PROVISION FOR INCOME TAXES | (1,171,785 | ) | (510,124 | ) | ||||
OTHER EXPENSE | ||||||||
Loss on debt conversion | — | 38,462 | ||||||
Loss on fair value of derivative liability | 484,616 | — | ||||||
Interest expense, net of interest income (including $529,423 and $0 in shares issued for debt) | 554,757 | 16,196 | ||||||
NET LOSS FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES | (2,211,158 | ) | (564,782 | ) | ||||
Provision for income taxes | — | — | ||||||
NET (LOSS) APPLICABLE TO SHARES | $ | (2,211,158 | ) | $ | (564,782 | ) | ||
NET (LOSS) PER BASIC AND DILUTED SHARES | $ | (0.75 | ) | $ | (0.11 | ) | ||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | 2,942,269 | 5,350,000 | ||||||
F-3
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (RESTATED)
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
Additional | Retained | |||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-In | Earnings | |||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | (Deficit) | Total | ||||||||||||||||||||||
Balance — December 31, 2004 | — | $ | — | 2,538 | $ | 2,538 | $ | 102,957 | $ | (77,877 | ) | $ | 27,618 | |||||||||||||||
Issuance of shares to founders for services rendered | — | — | 114 | 114 | 191 | — | 305 | |||||||||||||||||||||
Issuance of shares for conversion of notes payable | — | — | 72 | 72 | 249,928 | — | 250,000 | |||||||||||||||||||||
Issuance of shares for cash | — | — | 19 | 19 | 74,981 | — | 75,000 | |||||||||||||||||||||
Contribution of capital by shareholder | — | — | — | — | 56,851 | — | 56,851 | |||||||||||||||||||||
Net loss for the year, as previously reported | — | — | — | — | — | (526,320 | ) | (526,320 | ) | |||||||||||||||||||
Prior period adjustment | — | — | — | — | 38,462 | (38,462 | ) | — | ||||||||||||||||||||
Net loss for the year, as restated | — | — | — | — | 38,462 | (564,782 | ) | (526,320 | ) | |||||||||||||||||||
Balance — December 31, 2005, as restated | — | — | 2,743 | 2,743 | 523,370 | (642,659 | ) | (116,546 | ) | |||||||||||||||||||
Issuance of shares for cash | — | — | 5 | 5 | 19,995 | — | 20,000 | |||||||||||||||||||||
Issuance of shares for conversion of accounts payable | — | — | 10 | 10 | 40,238 | — | 40,248 | |||||||||||||||||||||
Issuance of shares for consulting fees | — | — | 63 | 63 | 251,937 | — | 252,000 | |||||||||||||||||||||
Issuance of shares for guarantee of promissory notes | — | — | 132 | 132 | 529,291 | — | 529,423 | |||||||||||||||||||||
Contribution of capital by shareholder | — | — | — | — | 6,029 | — | 6,029 | |||||||||||||||||||||
To reflect share issuance in reverse merger, net of the 2,953 shares cancelled) | — | — | 6,797,047 | (2,273 | ) | 5,832 | — | 3,559 | ||||||||||||||||||||
Issuance of shares in the private placement, net of $147,493 of closing costs, and $547,087 applied to derivative liability for the proceeds of the warrants | — | — | 2,329,392 | 233 | 469,883 | — | 470,116 | |||||||||||||||||||||
Net loss for the year, as previously reported | — | — | — | — | — | (2,277,408 | ) | (2,277,408 | ) | |||||||||||||||||||
Prior period adjustment | — | — | — | — | — | 66,250 | 66,250 | |||||||||||||||||||||
Net loss for the year, as restated | — | — | — | — | — | (2,211,158 | ) | (2,211,158 | ) | |||||||||||||||||||
Balance — December 31, 2006, as restated | — | $ | — | 9,129,392 | $ | 913 | $ | 1,846,575 | $ | (2,853,817 | ) | $ | (1,006,329 | ) | ||||||||||||||
F-4
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
2006 | 2005 | |||||||
(Restated) | (Restated) | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net (loss) | $ | (2,211,158 | ) | $ | (564,782 | ) | ||
Adjustments to reconcile net (loss) to net cash used in operating activities: | ||||||||
Stock issued for services — pre-merger | 252,000 | 305 | ||||||
Stock issued for guarantee of debt — pre-merger | 529,423 | — | ||||||
Cash received in merger with Black Nickel | 3,559 | — | ||||||
Loss on fair value of derivative liability | 484,616 | — | ||||||
Loss on debt conversion | — | 38,462 | ||||||
Amortization of computer software development costs | 177,003 | 177,003 | ||||||
Depreciation | 15,290 | 14,770 | ||||||
Change in assets and liabilities | ||||||||
(Increase) decrease in accounts receivable | (25,002 | ) | 48,305 | |||||
Decrease in prepaid expenses and other current assets | 8,442 | 26,158 | ||||||
Increase (decrease) in accounts payable and accrued expenses | (22,049 | ) | 157,270 | |||||
Total adjustments | 1,423,282 | 462,273 | ||||||
Net cash (used in) operating activities | (787,876 | ) | (102,509 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Capital expenditures | (8,423 | ) | — | |||||
Computer software development costs | (34,896 | ) | (24,905 | ) | ||||
Net cash (used in) investing activities | (43,319 | ) | (24,905 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Increase (decrease) in cash overdraft | (12,071 | ) | (18,647 | ) | ||||
Issuance of stock for cash pre-merger | 20,000 | 75,000 | ||||||
Contributions of capital pre-merger | 6,029 | 56,851 | ||||||
Issuance of stock and warrants in private placement, net of closing costs of $147,493 | 1,017,203 | — | ||||||
Borrowings of promissory notes | 350,000 | — | ||||||
(Repayment) of promissory notes | (350,000 | ) | — | |||||
(Repayment) of notes payable | (75,412 | ) | (10,790 | ) | ||||
Borrowings (repayment) of note payable — related partry | (45,000 | ) | 25,000 | |||||
Net cash provided by financing activities | 910,749 | 127,414 | ||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 79,554 | — | ||||||
CASH AND CASH EQUIVALENTS — BEGINNING OF PERIOD | — | — | ||||||
CASH AND CASH EQUIVALENTS — END OF PERIOD | $ | 79,554 | $ | — | ||||
SUPPLEMENTAL INFORMATION OF CASH FLOW ACTIVITY | ||||||||
Cash paid during the year for interest | $ | 27,596 | $ | 6,791 | ||||
SUPPLEMENTAL INFORMATION ON NONCASH ACTIVITY | ||||||||
Conversion of notes payable to accounts payable | $ | 57,537 | $ | 288,462 | ||||
Conversion of accounts payable to stock — pre-merger | $ | 40,248 | $ | 250,000 | ||||
Stock issued for services — pre-merger | $ | 252,000 | $ | 305 | ||||
Stock issued for guaranty of debt — post-merger | $ | 529,423 | $ | — | ||||
F-5
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 1- | ORGANIZATION AND BASIS OF PRESENTATION | |
Black Nickel Acquisition Corp. I was incorporated in Delaware on May 26, 2005, and was formed as a vehicle to pursue a business combination. From inception through October 24, 2006, Black Nickel Acquisition Corp. I, was engaged in organizational efforts and obtaining initial financing. | ||
On May 17, 2006, Black Nickel Acquisition Corp. I entered into a letter of intent with InferX Corporation, a privately-held Virginia corporation (“InferX Virginia”), with respect to entering into a merger transaction relating to bridge financing for InferX Virginia and the acquisition of and merger with InferX Virginia. The transaction closed on October 24, 2006. Following the merger, Black Nickel Acquisition Corp. I effected a short-form merger of InferX Virginia with and into Black Nickel Acquisition Corp. I, pursuant to which the separate existence of InferX Virginia terminated and Black Nickel Acquisition Corp. I changed its name to InferX Corporation (“InferX” or the “Company”). | ||
The transaction was recorded as a recapitalization under the purchase method of accounting, as InferX became the accounting acquirer. The reported amounts and disclosures contained in the consolidated financial statements are those of InferX Corporation, the operating company. | ||
InferX was incorporated under the laws of Delaware in 1999. On December 31, 2005, InferX and Datamat Systems Research, Inc. (“Datamat”), a company incorporated in 1992 under the corporate laws of the Commonwealth of Virginia executed an Agreement and Plan of Merger (the “Merger”). InferX and Datamat had common majority directors. The financial statements herein reflect the combined entity, and all intercompany transactions and accounts have been eliminated. As a result of the Merger, InferX merged with and into Datamat, the surviving entity. Upon completion, Datamat changed its name to InferX Corporation. | ||
InferX was formed to develop and commercially market computer applications software systems that were initially developed by Datamat with grants from the Missile Defense Agency. Datamat was formed as a professional services research and development firm, specializing in the Department of Defense. The Company currently provides services and software to the United States government, and is in process of formalizing business plans that will enable them to provide software and services to commercial entities as well. |
F-6
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 1- | ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED) | |
Going Concern | ||
As shown in the accompanying financial statements the Company has incurred a loss of $2,211,158 and $564,782 for the years ended December 31, 2006 and 2005, respectively, and has a working capital deficiency of $1,040,938 as of December 31, 2006. The principal reasons for the recurring losses is due to the Company’s changed focus on developing its products for the commercial markets as it transitions away from the less profitable government services market, as well as the fair value adjustment in the Company’s derivative liability. The Company expects the negative cash flow from operations to continue its trend through the next twelve months. These factors raise significant doubt about the ability of the Company to continue as a going concern. | ||
Management’s plans to address these conditions include continued efforts to obtain government contracts as well as commercial contracts through expanding sources and new technology, and the raising of additional capital through the sale of the Company’s stock. | ||
The Company’s long-term success is dependent upon the obtaining of sufficient capital to fund its operations; development of its products; and launching its products to the worldwide market. These factors will contribute to the Company’s obtaining sufficient sales volume to be profitable. To achieve these objectives, the Company may be required to raise additional capital through public or private financings or other arrangements. | ||
It cannot be assured that such financings will be available on terms attractive to the Company, if at all. Such financings may be dilutive to existing stockholders and may contain restrictive covenants. | ||
The Company is subject to certain risks common to technology-based companies in similar stages of development. Principal risks to the Company include uncertainty of growth in market acceptance for its products; history of losses in recent years; ability to remain competitive in response to new technologies; costs to defend, as well as risks of losing patent and intellectual property rights; reliance on limited number of suppliers; reliance on outsourced manufacture of its products for quality control and product availability; uncertainty of demand for its products in certain markets; ability to manage growth effectively; dependence on key members of its management; and its ability to obtain adequate capital to fund future operations. | ||
The consolidated financial statements do not include any adjustments relating to the carrying amounts of recorded assets or the carrying amounts and classification of recorded liabilities that may be required should the Company be unable to continue as a going concern. |
F-7
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 2- | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Principles of Consolidation | ||
The consolidated financial statements include those of the Company and its wholly-owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation. | ||
Use of Estimates | ||
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. | ||
Cash and Cash Equivalents | ||
The Company considers all highly liquid debt instruments and other short-term investments with a maturity of three months or less, when purchased, to be cash equivalents. | ||
The Company maintains cash and cash equivalent balances at one financial institution that is insured by the Federal Deposit Insurance Corporation up to $100,000. | ||
Allowance for Doubtful Accounts | ||
The Company provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables as well as historical collection information. Credit is granted to substantially all customers on an unsecured basis. In determining the amount of the allowance, management is required to make certain estimates and assumptions. Management has determined that as of December 31, 2006, an allowance of $2,364 is required. | ||
Fixed Assets | ||
Fixed assets are stated at cost, less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets (primarily three to five years). Costs of maintenance and repairs are charged to expense as incurred. |
F-8
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 2- | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) | |
Computer Software Development Costs | ||
During 2006 and 2005, the Company capitalized certain software development costs. The Company capitalizes the cost of software in accordance with SFAS 86 once technological feasibility has been demonstrated, as the Company has in the past sold, leased or otherwise marketed their software, and plans on doing so in the future. The Company capitalizes costs incurred to develop and market their privacy preserving software during the development process, including payroll costs for employees who are directly associated with the development process and services performed by consultants. Amortization of such costs is based on the greater of (1) the ratio of current gross revenues to the sum of current and anticipated gross revenues, or (2) the straight-line method over the remaining economic life of the software, typically five years. It is possible that those anticipated gross revenues, the remaining economic life of the products, or both, may be reduced as a result of future events. The Company has not developed any software for internal use. For the years ended December 31, 2006 and 2005, the Company recognized $177,003 and $177,003 of amortization expense on its capitalized software costs, respectively. | ||
Recoverability of Long-Lived Assets | ||
The Company reviews the recoverability of its long-lived assets on a periodic basis whenever events and changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment is based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets. Fixed assets to be disposed of by sale are carried at the lower of the then current carrying value or fair value less estimated costs to sell. | ||
Revenue Recognition | ||
The Company generates revenue from professional services rendered to customers. The Company’s revenue is generated under time-and-material contracts and fixed-price contracts. | ||
Time-and-Material Contracts | ||
Time-and-material contracts revenue is generated whereby costs are generally incurred in proportion with contracted billing schedules and revenue is recognized as services are performed, with the corresponding cost of providing those services reflected as direct costs. The customers are billed in accordance with the contracts entered into. Such method is expected to result in reasonably consistent profit margins over the contract term. |
F-9
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 2- | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) | |
Revenue Recognition (Continued) | ||
Fixed-Price Contracts | ||
Revenue from firm-fixed-price contracts is recognized upon achievement of the milestones contained in the contracts in accordance with the provisions of Staff Accounting Bulletin 104. Revenue is not recognized until collectibility is assured, which does not take place until completion of the particular milestone. Costs are recognized as services are performed. | ||
The Company does not derive revenue from projects involving multiple revenue-generating activities. If a contract would involve the provision of multiple service elements, total estimated contract revenue would be allocated to each element based on the fair value of each element. | ||
The amount of revenue allocated to each element would then be limited to the amount that is not contingent upon the delivery of another element in the future. Revenue for each element would then be recognized depending upon whether the contract is a time-and-materials contract or a fixed-price, fixed-time contract. | ||
Research and Development | ||
Research and development costs are expensed as incurred. In addition, research and development costs of $49,366 and $12,642 have been included in indirect labor for the years ended December 31, 2006 and 2005, respectively. | ||
F-10
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 2- | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) | |
Stock-Based Compensation | ||
On December 16, 2004, the Financial Accounting Standards Board (“FASB”) published Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123R”). SFAS 123R requires that compensation cost related to share-based payment transactions be recognized in the financial statements. Share-based payment transactions within the scope of SFAS 123R include stock options, restricted stock plans, performance-based awards, stock appreciation rights, and employee share purchase plans. The provisions of SFAS 123R, as amended, are effective for small business issuers beginning as of the next interim period after December 15, 2005. The Company has adopted these provisions as of January 1, 2006 and this adoption did not have a material effect on the Company’s operations. | ||
On January 1, 2006, the Company adopted the provisions of FAS No. 123R “Share-Based Payment” (“FAS 123R”) which requires recognition of stock-based compensation expense for all share-based payments based on fair value. Prior to January 1, 2006, the Company measured compensation expense for all of its share-based compensation using the intrinsic value method prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations. The Company has provided pro forma disclosure amounts in accordance with FAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FASB Statement No. 123” (“FAS 148”), as if the fair value method defined by FAS No. 123, “Accounting for Stock Based Compensation” (“FAS 123”) had been applied to its stock-based compensation. | ||
The Company has elected to use the modified—prospective approach method. Under that transition method, the calculated expense in 2006 is equivalent to compensation expense for all awards granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair values estimated in accordance with the original provisions of FAS 123. Stock-based compensation expense for all awards granted after January 1, 2006 is based on the grant-date fair values estimated in accordance with the provisions of FAS 123R. The Company recognizes these compensation costs, net of an estimated forfeiture rate, on a pro rata basis over the requisite service period of each vesting tranche of each award. The Company considers voluntary termination behavior as well as trends of actual option forfeitures when estimating the forfeiture rate. |
F-11
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 2- | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) | |
Stock-Based Compensation (Continued) | ||
The Company issued one warrant to purchase 50,000 shares in May 2005, with an expiration of 6-months. The warrant expired prior to any exercise into shares of common stock. The Company’s warrants issued in the private placement in October 2006, were not stock based compensation and are reflected in the derivative liability. |
December 31, | ||||
2005 | ||||
Net (loss), as reported | $ | (564,782 | ) | |
Add: Stock-based employee compensation expense included in reported net (loss), net of related tax effects | — | |||
Less: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effects | — | |||
Pro forma net (loss) | $ | (564,782 | ) | |
Basic and diluted (loss) per share: | ||||
As reported | $ | (0.11 | ) | |
Pro forma | $ | (0.11 | ) | |
Concentrations | ||
The Company has derived all of its revenue from one customer. | ||
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of accounts receivable and unbilled receivables. To date, accounts receivable and unbilled receivables have been derived from contracts with agencies of the federal government. Accounts receivable are generally due within 30 days and no collateral is required. | ||
Segment Reporting | ||
The Company follows the provisions of SFAS 131, “Disclosures about Segments of an Enterprise and Related Information.” This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions. The Company believes that there is only one operating segment. |
F-12
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 2- | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) | |
Fair Value of Financial Instruments (other than Derivative Financial Instruments) | ||
The carrying amounts reported in the consolidated balance sheet for cash and cash equivalents, and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments. For the notes payable, the carrying amount reported is based upon the incremental borrowing rates otherwise available to the Company for similar borrowings. For the warrants that are classified as derivatives, fair values were calculated at net present value using the Company’s weighted average borrowing rate for debt instruments without conversion features applied to total future cash flows of the instruments. | ||
Convertible Instruments | ||
The Company reviews the terms of convertible debt and equity securities for indications requiring bifurcation, and separate accounting, for the embedded conversion feature. Generally, embedded conversion features, where the ability to physical or net-share settle the conversion option is not within the control of the Company, are bifurcated and accounted for as a derivative financial instrument. (See Derivative Financial Instruments below). 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. | ||
Derivative Financial Instruments | ||
The Company generally does not use derivative financial instruments to hedge exposures to cash-flow or market risks. However, certain other financial instruments, such as warrants or options to acquire common stock and the embedded conversion features of debt and preferred instruments that are indexed to the Company’s common stock, are classified as liabilities when either (a) the holder possesses rights to net-cash settlement or (b) physical or net share settlement is not within the control of the Company. In such instances, net-cash settlement is assumed for financial accounting and reporting, even when the terms of the underlying contracts do not provide for net-cash settlement. Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period. These derivative financial instruments are the Class A and Class B warrants issued in conjunction with the private placement. The warrants are indexed to an aggregate of 4,658,784 shares of the Company’s common stock as of December 31, 2006 and are carried at fair value. The liability amounted to $1,031,703 at December 31, 2006. |
F-13
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 2- | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) | |
Income Taxes | ||
Under Financial Accounting Standards Board Statement No. 109, “Accounting for Income Taxes,” the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. | ||
(Loss) Per Share of Common Stock | ||
Basic net (loss) per common share (“EPS”) is computed using the weighted average number of common shares outstanding for the period. Diluted earnings per share includes additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents are not included in the computation of diluted earnings per share when the Company reports a loss because to do so would be anti-dilutive for the periods presented. | ||
There were no options or warrants to purchase shares of common stock at December 31, 2005, and the Class A and Class B (2,329,392 each) were issued in October 2006 in the private placement however were not included as they would be considered anti-dilutive as the Company had a loss for this period. | ||
The following is a reconciliation of the computation for basic and diluted EPS: |
Years Ended | ||||||||
December 31, | December 31, | |||||||
2006 | 2005 | |||||||
Net (loss) | $ | (2,211,158 | ) | $ | (564,782 | ) | ||
Weighted-average common shares outstanding : | ||||||||
Basic | 2,942,269 | 5,350,000 | ||||||
Effect of dilutive securities- warrants | — | — | ||||||
2006 | 2005 | |||||||
Diluted | 2,942,269 | 5,350,000 | ||||||
2006 | 2005 | |||||||
Basic net (loss) per share | $ | (0.75 | ) | $ | (0.11 | ) | ||
2006 | 2005 | |||||||
Diluted net (loss) per share | $ | (0.75 | ) | $ | (0.11 | ) | ||
2006 | 2005 |
F-14
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 2- | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) | |
Recent Issued Accounting Standards | ||
In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities,” an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements.” FIN 46 establishes accounting guidance for consolidation of variable interest entities that function to support the activities of the primary beneficiary. In December 2003, the FASB revised FIN 46 and issued FIN 46 (revised December 2003) (“FIN 46R”). In addition to conforming to previously issued FASB Staff Positions, FIN No. 46R deferred the implementation date for certain variable interest entities. This revised interpretation is effective for all entities no later than the end of the first reporting period that ends after March 15, 2004. The Company does not have any investments in or contractual relationship or other business relationship with a variable interest entity and therefore the adoption of this interpretation will not have any impact on the Company’s results of operations, financial position or cash flows. | ||
On December 16, 2004, FASB issued SFAS No. 153, “Exchanges of Non-monetary Assets, an amendment of APB Opinion 29, Accounting for Non-monetary Transaction” (“SFAS 153”). This statement amends APB Opinion 29 to eliminate the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. Under SFAS 153, if a non-monetary exchange of similar productive assets meets a commercial-substance criterion and fair value is determinable, the transaction must be accounted for at fair value resulting in recognition of any gain or loss. SFAS 153 is effective for non-monetary transactions in fiscal periods that begin after June 15, 2005. The Company does not anticipate that the implementation of this standard will have a material impact on its financial position, results of operations or cash flows. | ||
In May 2005, the FASB issued Statement of Financial Accounting Standard No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”). SFAS 154 is a replacement of APB No. 20, “Accounting Changes”, and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements”. SFAS 154 applies to all voluntary changes in accounting principle and changes the requirements for accounting and reporting of a change in accounting principle. This statement establishes that, unless impracticable, retrospective application is the required method for reporting of a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. It also requires the reporting of an error correction which involves adjustments to previously issued financial statements similar to those generally applicable to reporting an accounting change retrospectively. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. |
F-15
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 2- | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) | |
Recent Issued Accounting Standards (Continued) | ||
In February 2006, the FASB issued Statement of Financial Accounting Standard No. 155, “Accounting for Certain Hybrid Instruments” (“SFAS 155”). FASB 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. This statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company will evaluate the impact of SFAS 155 on its consolidated financial statements. | ||
In September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” This standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. Early adoption is encouraged. The adoption of SFAS 157 is not expected to have a material impact on the consolidated financial statements. | ||
In September 2006, the FASB issued SFAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements 87, 88, 106 and 132(R)” (“SFAS 158”). SFAS 158 requires an employer to recognize the over-funded or under-funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. SFAS 158 also requires the measurement of defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end statement of financial position (with limited exceptions). Management does not expect adoption of SFAS 158 to have a material impact on the Company’s consolidated financial statements. | ||
In February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115”, (“FAS 159”) which permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. A business entity is required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is expected to expand the use of fair value measurement. FAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. | ||
In July 2006, the FASB issued Interpretation No. 48 (FIN No. 48), “Accounting for Uncertainty in Income Taxes.” This interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. Management is still evaluating what effect this will have on the Company’s consolidated financial statements. |
F-16
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 2- | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) | |
Recent Issued Accounting Standards (Continued) | ||
In September 2006, the United States Securities and Exchange Commission (“SEC”) issued SAB 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” | ||
This SAB provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB 108 establishes an approach that requires quantification of financial statement errors based on the effects of each of the company’s financial statements and the related financial statement disclosures. SAB 108 permits existing public companies to record the cumulative effect of initially applying this approach in the first year ending after November 15, 2006 by recording the necessary correcting adjustments to the carrying values of assets and liabilities as of the beginning of that year with the offsetting adjustment recorded to the opening balance of retained earnings. Additionally, the use of the cumulative effect transition method requires detailed disclosure of the nature and amount of each individual error being corrected through the cumulative adjustment and how and when it arose. The Company does not anticipate that SAB 108 will have a material impact on its consolidated financial statements. | ||
In December 2006, the FASB Staff issued FSP EITF — 00-19-2, “Accounting for Registration Payment Arrangements” (“EITF 00-19-2”). EITF 00-19-2 addresses an issuer’s accounting for registration payment arrangements. EITF 00-19-2 specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with SFAS No. 5, Accounting for Contingencies. EITF 00-19-2 is effective for financial statements issued for fiscal years beginning after December 15, 2006, and interim periods within those fiscal years. The Company believes that EITF 00-19-2 will have an impact on their consolidated financial statements as it relates to the Class A and Class B warrants entered into in connection with their private placement. The Company does not believe that their derivative liability will be classified as anything other than current. Management will continue to monitor the financial instruments to determine classification. | ||
F-17
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 3- | FIXED ASSETS | |
Fixed assets consist of the following as of December 31, 2006: |
Estimated Useful | ||||||||
Lives (Years) | 2006 | |||||||
Computer equipment | 5 | $ | 71,004 | |||||
Office machinery and equipment | 3 | 15,638 | ||||||
Furniture and fixtures | 5 | 538 | ||||||
Automobile | 5 | 58,476 | ||||||
145,656 | ||||||||
Less: Accumulated depreciation | (116,458 | ) | ||||||
Total, net | $ | 29,198 | ||||||
Depreciation expense was $15,290 and $14,770 for the years ended December 31, 2006 and 2005, respectively. | ||
NOTE 4- | COMPUTER SOFTWARE DEVELOPMENT COSTS | |
Computer software development costs consist of the following as of December 31, 2006: |
Estimated Useful | ||||||||
Lives (Years) | 2006 | |||||||
Computer software development costs | 5 | $ | 944,816 | |||||
Less: Accumulated amortization | (573,377 | ) | ||||||
Total, net | $ | 371,439 | ||||||
Amortization expense was $177,003 and $177,003 for the years ended December 31, 2006 and 2005, respectively. | ||
Amortization expense anticipated through December 31, 2009 is as follows: |
Year ended December 31: | ||||
2007 | $ | 163,187 | ||
2008 | 101,167 | |||
2009 | 107,085 | |||
$ | 371,439 | |||
F-18
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 5- | NOTES PAYABLE | |
SBA Loan | ||
On July 22, 2003, the Company and the U.S. Small Business Administration (“SBA”) entered into a Note (the “Note”) under the SBA’s Secured Disaster Loan program in the amount of $377,100. | ||
Under the Note, the Company agreed to pay principal and interest at an annual rate of 4% per annum, of $1,868 every month commencing twenty-five (25) months from the date of the Note (commencing August 2005). The Note matures July 2033. | ||
The Company must comply with the default provisions contained in the Note. The Company is in default under the Note if it does not make a payment under the Note, or if it: a) fails to comply with any provision of the Note, the Loan Authorization and Agreement, or other Loan documents; b) defaults on any other SBA loan; c) sells or otherwise transfers, or does not preserve or account to SBA’s satisfaction for, any of the collateral (as defined therein) or its proceeds; d) does not disclose, or anyone acting on their behalf does not disclose, any material fact to the SBA; e) makes, or anyone acting on their behalf makes, a materially false or misleading representation to the SBA; f) defaults on any loan or agreement with another creditor, if the SBA believes the default may materially affect the Company’s ability to pay this Note; g) fails to pay any taxes when due; h) becomes the subject of a proceeding under any bankruptcy or insolvency law; i) has a receiver or liquidator appointed for any part of their business or property; j) makes an assignment for the benefit of creditors; k) has any adverse change in financial condition or business operation that the SBA believes may materially affect the Company’s ability to pay this Note; l) dies; m) reorganizes, merges, consolidates, or otherwise changes ownership or business structure without the SBA’s prior written consent; or n) becomes the subject of a civil or criminal action that the SBA believes may materially affect the Company’s ability to pay this Note. | ||
As of December 31, 2006, the Company has an outstanding principal balance of $366,431. Interest expense on the SBA loan for the years ended December 31, 2006 and 2005 were $13,202 and $16,196, respectively. |
F-19
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 5- | NOTE PAYABLE (CONTINUED) | |
Automobile Loan | ||
The Company has a note payable with an automotive finance company in the original amount of $44,990 (the “Auto Note”). The Auto Note commenced in November 2003, and requires payments of $750 per month for a period of 60 months. The Auto Note is secured by the automobile. | ||
As of December 31, 2006, the outstanding principal balance of the Auto Note was $16,497. | ||
Other Notes Payable | ||
On March 3, 2000, the Company entered into an installment note with Tec-Masters, Inc. in the amount of $100,000. The amount was due May 1, 2000, however was extended with no maturity date. The $100,000 remained outstanding until December 31, 2005 when the Company converted this note into 28.77 shares of Datamat common stock (76,923 of InferX). There was no interest on this note, and was unsecured. | ||
On February 15, 2000, the Company entered into an installment note with an individual, in the amount of $100,000. The amount had no maturity date. The $100,000 remained outstanding until December 31, 2005 when the Company converted this note into 28.77 shares of Datamat common stock (76,923 of InferX). There was no interest on this note, and was unsecured. | ||
On February 9, 2000, the Company entered into an installment note with an individual, in the total amount of $25,000. The amount had no maturity date. The $25,000 remained outstanding until December 31, 2005 when the Company converted this note into 7.19 shares of Datamat common stock (19,231 of InferX). There was no interest on this note, and was unsecured. | ||
On February 9, 2000, the Company entered into an installment note with an individual, in the amount of $25,000. The amount had no maturity date. The $25,000 remained outstanding until December 31, 2005 when the Company converted this note into 7.19 shares of Datamat common stock (19,231 of InferX). There was no interest on this note, and was unsecured. | ||
Promissory Notes | ||
On May 18, 2006, the Company entered into five separate promissory notes with one fund, one trust and three individuals in the total amount of $350,000 (collectively, the “Promissory Notes”). The Promissory Notes were repaid On October 24, 2006 when the Company completed their reverse merger with Black Nickel Acquisition Corp. I. The Promissory Notes had accrued interest at an annual rate of 8% per annum, and was paid along with the principal balance, at the closing of the transaction. The interest totaled $12,196. | ||
In accordance with the Promissory Notes, the Company issued 250,000 shares of common stock (see Note 7). |
F-20
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 5- | NOTE PAYABLE (CONTINUED) | |
Promissory Notes (Continued) | ||
In accordance with the Promissory Notes, the Company and the lenders agreed that upon the reverse merger with Black Nickel, the Company would file a registration statement with the Securities and Exchange Commission on Form SB-2. The Company agreed to deadlines in the actual filing of the Form SB-2 as well as the effectiveness of the Form SB-2. Should the Company fail to meet the requirements as set forth in the Promissory Notes, they would be subject to a 1% penalty per month for every month they fail to secure an effective registration. This clause does not state whether the penalty would be paid in the form of cash or stock of the Company. Should the penalty include an open-ended cash settlement, the registration rights clause may be considered a derivative as defined in Emerging Issues Task Force (EITF) 00-19, “Accounting for Derivative Financial Instruments to, and Potentially Settled in, a Company’s Own Stock.” the company as of December 31, 2006 has filed a registration statement with the Securities and Exchange Commission on Form SB-2, and is in process of answering comments on this submission. There have been no amounts accrued on liquidated damages that are contained in the Registration Rights Agreement as the Company is in compliance with the filing. The parties have agreed to have the fee paid by the issuance of common stock. Accrual of such amount will occur commencing April 23, 2007. | ||
As of December 31, 2006, the repayment schedule of the Notes Payable for the next five years and in the aggregate are: |
2007 | $ | 16,900 | ||
2008 | 15,724 | |||
2009 | 8,559 | |||
2010 | 8,909 | |||
2011 | 9,271 | |||
Thereafter | 323,565 | |||
382,928 | ||||
Less: current portion | (16,900 | ) | ||
Long-term portion | $ | 366,028 | ||
NOTE 6- | NOTE PAYABLE – RELATED PARTIES | |
The President of the Company would lend money from time to time to the Company to fund operations. These amounts bore no interest and were unsecured. As of December 31, 2005, the amount outstanding to the President of the Company was $45,000. All amounts have been repaid to the President of the Company in 2006. |
F-21
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 7- | STOCKHOLDERS’ EQUITY (DEFICIT) | |
Preferred Stock | ||
The Company was incorporated on May 26, 2005, and the Board of Directors authorized 10,000,000 shares of preferred stock with a par value of $0.0001. The Company has not issued any shares of preferred stock since inception. | ||
Common Stock | ||
The Company was incorporated on May 26, 2005, and the Board of Directors authorized 75,000,000 shares of common stock with a par value of $0.0001. | ||
On May 26, 2005, the Company issued 1,500,000 to the founders of the Company for $50,000. | ||
On October 24, 2006, Black Nickel Acquisition Corp. I merged with the Company. At the closing of the merger and related private placement, the following occurred: | ||
a) The Company issued 250,000 shares of common stock for the providing of the bridge promissory notes to InferX in May 2006. The value of these shares was $529,423 based on the fair value of the Company’s stock when issued. The 250,000 shares represent the conversion of the 132 shares issued pre-merger between the companies; | ||
b) The Company issued 5,350,000 shares of common stock in exchange for 100% of the issued and outstanding shares of InferX; | ||
c) The Company issued 2,329,392 shares of common stock for gross proceeds of $1,164,696 in the private placement that closed when the merger was completed. From the $1,164,696, the Company repaid the bridge promissory notes plus accrued interest in the amount of $362,196, and paid $147,493 in closing costs. Of the total proceeds, $1,164,696, the Company allocated $547,087 of this amount to derivative liability, which represents the value of the Class A and Class B warrants issued with the common stock. The Company issued 2,392,392 Class A warrants and 2,329,392 Class B warrants (see d and e below and the Warrants section of Note 7). The price for all components were derived utilizing the relative fair value approach stipulated in APB 14; | ||
d) The Class A Warrants are exercisable at any time for shares of stock at an exercise price of $0.50 per share with a term of five (5) years, subject to anti dilution protection, so that any part of the 2,329,392 of the warrants shall be callable if the underlying warrant shares are registered and the stock trades in the open market for thirty (30) consecutive days at a closing price above $1.50 per share. Half of the warrants shall be callable if the Company is awarded a contract with a guaranteed minimum revenue of at least $1,000,000 with a department of the United Sates Government (not including the Missile Defense Agency) to deploy its existing technology for threat detection or other application; |
F-22
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 7- | STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED) | |
Common Stock (Continued) | ||
e) The Class B Warrants are exercisable at any time for shares of stock at an exercise price of $0.62 per share with a term of five (5) years, subject to anti dilution protection, so that any part of the 2,329,392 of the warrants shall be callable by the Company if the underlying warrant shares are registered and the stock trades in the open market for thirty (30) consecutive days at a closing price above $1.86 per share; | ||
f) The Company cancelled 300,000 shares of common stock in the reverse merger leaving 1,200,000 of the 1,500,000 previously outstanding shares from May 25, 2006 with the former owners of Black Nickel Acquisition Corp. I; and | ||
g) Shall reserve for a period of two (2) years from the closing of the Reverse Merger, no more than 2,200,000 shares of stock for a stock option plan, and any options granted under this plan will be subject to an exercise price of not less than $0.50 per share. There have been no issuance of options under this plan as of December 31, 2006. | ||
Warrants | ||
The Company in the private placement granted 2,329,392 Class A and 2,329,392 Class B warrants. The following is a breakdown of the warrants: |
Exercise | Date | |||||||||||
Warrants | Price | Issued | Term | |||||||||
2,329,392 | $ | 0.50 | 10/24/2006 | 5 years | ||||||||
2,329,392 | $ | 0.625 | 10/24/2006 | 5 years | ||||||||
4,658,784 | ||||||||||||
The Class A Warrants and Class B Warrants were valued utilizing the Black – Scholes method as follows: |
Class A | Class B | |||||||
Stock Price | $ | .50 | $ | .50 | ||||
Strike Price | $ | .50 | $ | .62 | ||||
Expected Life of Warrant | 5 yrs. | 5 yrs. | ||||||
Annualized Volatility | 50 | % | 50 | % | ||||
Discount Rate | 3.50 | % | 3.50 | % | ||||
Annual Rate of Quarterly Dividends | None | None | ||||||
Call Option Value | $ | .237 | $ | .206 |
Options | ||
There are no options outstanding, or granted as of December 31, 2006 and for the years ended December 31, 2006 and 2005, respectively. |
F-23
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 8- | RELATED PARTY TRANSACTIONS | |
The Company was advanced amounts as equity contributions by the Company’s President prior to the merger with Black Nickel Acquisition Corp. I. As of December 31, 2006, there is currently no outstanding amounts due the President of the Company. There were no other related party transactions during the years ended December 31, 2006 and 2005, respectively. | ||
NOTE 9- | COMMITMENTS | |
Rental | ||
The Company leases office space under an operating lease that has initial or remaining non-cancelable lease terms and expires in November 2008. The lease agreement provides for an annual 4% escalation of the base rent. As of December 31, 2006, the following presents the approximate future minimum lease payments required under this lease: |
For the Years Ended | ||||
December 31, | ||||
2007 | $ | 105,357 | ||
2008 | 100,441 | |||
$ | 205,798 | |||
Rent expense for the years ended December 31, 2006 and 2005 was $104,181 and $97,734, respectively. | ||
Consulting Agreements | ||
During 2006 and 2005, the Company entered into consulting agreements with marketing and strategic consulting groups with terms that do not exceed one year. These companies are to be paid fees for the services they perform. The Company has included these fees in their consolidated statements of operations for the years ended December 31, 2006 and 2005. | ||
Unused Financing Commitment | ||
In 2005, the Company had available a factoring financing facility in the maximum amount of $3,500,000. The facility provided for an advance rate of 90% on government invoicing and 85% on commercial invoicing at a rate of prime plus 2.5%. The facility was secured by a security interest in the accounts receivables and the personal guarantee of the majority shareholder. There were no amounts outstanding under the facility through the termination of the agreement in August 2005. |
F-24
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 10- | PROVISION FOR INCOME TAXES | |
Deferred income taxes will be determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. | ||
At December 31, 2006, deferred tax assets consist of the following: |
Net operating losses | $ | 833,000 | ||
Valuation allowance | (833,000 | ) | ||
$ | — | |||
At December 31, 2006, the Company had net operating loss carryforward in the approximate amount of $2,450,000, available to offset future taxable income through 2026. The Company established valuation allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating losses in future periods. | ||
A reconciliation of the Company’s effective tax rate as a percentage of income before taxes and federal statutory rate for the years ended December 31, 2006 and 2005 is summarized below. |
2006 | 2005 | |||||||
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 | % | |||||
F-25
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 11- | DEFINED CONTRIBUTION PLAN | |
The Company has a retirement plan which satisfies the requirements of Section 401(k) of the Internal Revenue Code. This defined contribution retirement plan covers substantially all employees. Participants can elect to have up to the maximum percentage allowable of their salaries reduced and contributed to the plan. The Company may make matching contributions equal to a discretionary percentage of the participants’ elective deferrals. The Company made no such contributions for the years ended December 31, 2006 and 2005, respectively. | ||
NOTE 12- | MAJOR CUSTOMER | |
The Company’s contracts with agencies of the federal government accounted for 100% of its revenue and accounts receivable as of and for the years ended December 31, 2006 and 2005, respectively. | ||
NOTE 13- | RESTATEMENT OF FINANCIAL STATEMENTS | |
The Company has restated its financial statements for the year ended December 31, 2006 to reverse the expense for common stock issued for debt guarantee that was incorrectly recognized in the previously issued financial statements. These shares represented a conversion of previously recognized shares that were already valued by the Company. The reversal was in the amount of $66,250. The entry reduced additional paid in capital and reduced the expense. | ||
The revised loss for the year ended December 31, 2006 decreased from $2,277,408 to $2,211,158; the accumulated deficit at December 31, 2006 decreased from $2,920,067 to $2,853,817; and the weighted average loss per share for the year ended December 31, 2006 decreased from ($0.78) per share to ($0.75) per share. | ||
The Company has restated its financial statements for the year ended December 31, 2005 to recognize an additional $38,462 as a loss on conversion of debt to equity due to the conversion price being $1.30 versus $1.50, the value the Company received in cash. The corresponding entry increased additional paid in capital this same amount. The $1.50 price and the loss on extinguishment of debt was calculated based on the estimated fair value of the Company’s common stock at December 31, 2005 as determined by recent sales of the Company’s common stock for cash to unrelated third parties. | ||
The revised loss for the year ended December 31, 2005 increased from $526,320 to $564,782; the accumulated deficit at December 31, 2005 increased from $604,197 to $642,659; and the weighted average loss per share for the year ended December 31, 2005 decreased from $200.35 per share to $214.99 per share (pre-merger with Black Nickel Acquisition Corp. I). |
F-26
InferX Corporation
May 7, 2007, except for Note 13, which is dated May 24, 2007
F-27
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, 2007
RESTATED | ||||
ASSETS | ||||
CURRENT ASSETS | ||||
Cash | $ | 2,065 | ||
Prepaid expenses and other current assets | 7,505 | |||
Total current assets | 9,570 | |||
Fixed assets, net of depreciation | 40,723 | |||
Other Asset | ||||
Computer software development costs, net of amortization | 362,211 | |||
Total other asset | 362,211 | |||
TOTAL ASSETS | $ | 412,504 | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||
CURRENT LIABILITIES | ||||
Accounts payable and accrued expenses | $ | 318,507 | ||
Derivative liability | 645,549 | |||
Current portion of notes payable | 16,980 | |||
Total current liabilities | 981,036 | |||
Long-term Liabilities | ||||
Notes payable, net of current portion | 361,752 | |||
TOTAL LIABILITIES | 1,342,788 | |||
STOCKHOLDERS’ EQUITY (DEFICIT) | ||||
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized and no shares issued and outstanding | — | |||
Common stock, par value $0.0001 per share, 75,000,000 shares authorized and 9,129,392 issued and outstanding | 913 | |||
Additional paid-in capital | 1,846,575 | |||
Retained earnings (defict) | (2,777,772 | ) | ||
Total stockholders’ equity (deficit) | (930,284 | ) | ||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | 412,504 | ||
F-28
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
2007 | 2006 | |||||||
REVENUE | $ | 100,000 | $ | 49,997 | ||||
COST OF REVENUES | ||||||||
Direct labor and other finges | 24,329 | 21,875 | ||||||
Subcontractor | 35,111 | 12,478 | ||||||
Other direct costs | 11,250 | 20,831 | ||||||
Amortization of computer software development costs | 44,251 | 44,251 | ||||||
Total costs of revenues | 114,941 | 99,435 | ||||||
GROSS PROFIT (LOSS) | (14,941 | ) | (49,438 | ) | ||||
OPERATING EXPENSES | ||||||||
Indirect and overhead labor and fringes | 149,884 | 37,485 | ||||||
Professional fees | 76,174 | 99,000 | ||||||
Travel related costs | 7,208 | 4,825 | ||||||
Rent | 26,609 | 25,326 | ||||||
General and administrative | 14,257 | 17,105 | ||||||
Depreciation and impairment | 15,361 | 3,772 | ||||||
Total operating expenses | 289,493 | 187,513 | ||||||
NET LOSS FROM OPERATIONS BEFORE OTHER EXPENSE AND PROVISION FOR INCOME TAXES | (304,434 | ) | (236,951 | ) | ||||
OTHER EXPENSE | ||||||||
Interest expense, net of interest income | 5,685 | 5,785 | ||||||
NET LOSS FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES | (310,119 | ) | (242,736 | ) | ||||
Provision for income taxes | — | — | ||||||
NET (LOSS) APPLICABLE TO SHARES | $ | (310,119 | ) | $ | (242,736 | ) | ||
NET (LOSS) PER BASIC AND DILUTED SHARES | $ | (0.03 | ) | $ | (0.05 | ) | ||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | 9,129,392 | 5,350,000 | ||||||
F-29
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
2007 | 2006 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net (loss) | $ | (310,119 | ) | $ | (242,736 | ) | ||
Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: | ||||||||
Stock issued for services | — | 22,500 | ||||||
Impairment loss | 10,473 | — | ||||||
Amortization of computer software development costs | 44,251 | 44,251 | ||||||
Depreciation | 4,888 | 3,772 | ||||||
Change in assets and liabilities | ||||||||
(Increase) decrease in accounts receivable | 50,000 | (1 | ) | |||||
(Increase) in prepaid expenses and other current assets | — | (67,245 | ) | |||||
Increase in accounts payable and accrued expenses | 189,123 | 306,357 | ||||||
Total adjustments | 298,735 | 309,634 | ||||||
Net cash provided by (used in) operating activities | (11,384 | ) | 66,898 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Capital expenditures | (16,413 | ) | — | |||||
Computer software development costs | (45,496 | ) | — | |||||
Net cash (used in) investing activities | (61,909 | ) | — | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Increase (decrease) in cash overdraft | — | (12,071 | ) | |||||
Contributions of capital pre-merger | — | 3,571 | ||||||
(Repayment) of notes payable | (4,196 | ) | (3,808 | ) | ||||
Borrowings (repayment) of note payable — related partry | — | (45,000 | ) | |||||
Net cash (used in) financing activities | (4,196 | ) | (57,308 | ) | ||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (77,489 | ) | 9,590 | |||||
CASH AND CASH EQUIVALENTS — BEGINNING OF PERIOD | 79,554 | — | ||||||
CASH AND CASH EQUIVALENTS — END OF PERIOD | $ | 2,065 | $ | 9,590 | ||||
SUPPLEMENTAL INFORMATION OF CASH FLOW ACTIVITY | ||||||||
Cash paid during the year for interest | $ | 27,596 | $ | 6,791 | ||||
SUPPLEMENTAL INFORMATION ON NONCASH ACTIVITY | ||||||||
Stock issued for services — pre-merger | $ | — | $ | 22,500 | ||||
F-30
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006 (UNAUDITED)
NOTE 1- | ORGANIZATION AND BASIS OF PRESENTATION | |
The unaudited condensed financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The condensed financial statements and notes are presented as permitted on Form 10-QSB and do not contain information included in the Company’s annual statements and notes. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the December 31, 2006 audited financial statements and the accompanying notes thereto. While management believes the procedures followed in preparing these condensed consolidated financial statements are reasonable, the accuracy of the amounts are in some respects dependent upon the facts that will exist, and procedures that will be accomplished by the Company later in the year. | ||
These condensed unaudited condensed consolidated financial statements reflect all adjustments, including normal recurring adjustments which, in the opinion of management, are necessary to present fairly the consolidated operations and cash flows for the periods presented. | ||
Black Nickel Acquisition Corp. I was incorporated in Delaware on May 26, 2005, and was formed as a vehicle to pursue a business combination. From inception through October 24, 2006, Black Nickel Acquisition Corp. I, was engaged in organizational efforts and obtaining initial financing. | ||
On May 17, 2006, Black Nickel Acquisition Corp. I entered into a letter of intent with InferX Corporation, a privately-held Virginia corporation (“InferX Virginia”), with respect to entering into a merger transaction relating to bridge financing for InferX Virginia and the acquisition of and merger with InferX Virginia. The transaction closed on October 24, 2006. Following the merger, Black Nickel Acquisition Corp. I effected a short-form merger of InferX Virginia with and into Black Nickel Acquisition Corp. I, pursuant to which the separate existence of InferX Virginia terminated and Black Nickel Acquisition Corp. I changed its name to InferX Corporation (“InferX” or the “Company”). | ||
The transaction was recorded as a recapitalization under the purchase method of accounting, as InferX became the accounting acquirer. The reported amounts and disclosures contained in the consolidated financial statements are those of InferX Corporation, the operating company. | ||
F-31
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006 (UNAUDITED)
NOTE 1- | ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED) | |
InferX was incorporated under the laws of Delaware in 1999. On December 31, 2005, InferX and Datamat Systems Research, Inc. (“Datamat”), a company incorporated in 1992 under the corporate laws of the Commonwealth of Virginia executed an Agreement and Plan of Merger (the “Merger”). InferX and Datamat had common majority directors. The financial statements herein reflect the combined entity, and all intercompany transactions and accounts have been eliminated. As a result of the Merger, InferX merged with and into Datamat, the surviving entity. Upon completion, Datamat changed its name to InferX Corporation. | ||
InferX was formed to develop and commercially market computer applications software systems that were initially developed by Datamat with grants from the Missile Defense Agency. Datamat was formed as a professional services research and development firm, specializing in the Department of Defense. The Company currently provides services and software to the United States government, and is in process of formalizing business plans that will enable them to provide software and services to commercial entities as well. | ||
Going Concern | ||
As shown in the accompanying condensed consolidated financial statements the Company has incurred a loss of $310,119 and $242,736 for the three months ended March 31, 2007 and 2006, respectively, and has a working capital deficiency of $971,466 as of March 31, 2007. The principal reasons for the recurring losses is due to the Company’s changed focus on developing its products for the commercial markets as it transitions away from the less profitable government services market, as well as the fair value adjustment in the Company’s derivative liability. The Company expects the negative cash flow from operations to continue its trend through the next twelve months. These factors raise significant doubt about the ability of the Company to continue as a going concern. | ||
Management’s plans to address these conditions include continued efforts to obtain government contracts as well as commercial contracts through expanding sources and new technology, and the raising of additional capital through the sale of the Company’s stock. | ||
The Company’s long-term success is dependent upon the obtaining of sufficient capital to fund its operations; development of its products; and launching its products to the worldwide market. These factors will contribute to the Company’s obtaining sufficient sales volume to be profitable. To achieve these objectives, the Company may be required to raise additional capital through public or private financings or other arrangements. | ||
It cannot be assured that such financings will be available on terms attractive to the Company, if at all. Such financings may be dilutive to existing stockholders and may contain restrictive covenants. | ||
F-32
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006 (UNAUDITED)
NOTE 1- | ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED) | |
Going Concern (Continued) | ||
The Company is subject to certain risks common to technology-based companies in similar stages of development. Principal risks to the Company include uncertainty of growth in market acceptance for its products; history of losses in recent years; ability to remain competitive in response to new technologies; costs to defend, as well as risks of losing patent and intellectual property rights; reliance on limited number of suppliers; reliance on outsourced manufacture of its products for quality control and product availability; uncertainty of demand for its products in certain markets; ability to manage growth effectively; dependence on key members of its management; and its ability to obtain adequate capital to fund future operations. | ||
The condensed consolidated financial statements do not include any adjustments relating to the carrying amounts of recorded assets or the carrying amounts and classification of recorded liabilities that may be required should the Company be unable to continue as a going concern. | ||
NOTE 2- | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Principles of Consolidation | ||
The condensed consolidated financial statements include those of the Company and its wholly-owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation. | ||
Use of Estimates | ||
The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. | ||
Cash and Cash Equivalents | ||
The Company considers all highly liquid debt instruments and other short-term investments with a maturity of three months or less, when purchased, to be cash equivalents. | ||
The Company maintains cash and cash equivalent balances at one financial institution that is insured by the Federal Deposit Insurance Corporation up to $100,000. | ||
F-33
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006 (UNAUDITED)
NOTE 2- | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) | |
Allowance for Doubtful Accounts | ||
The Company provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables as well as historical collection information. Credit is granted to substantially all customers on an unsecured basis. In determining the amount of the allowance, management is required to make certain estimates and assumptions. Management has determined that as of March 31, 2007, an allowance of $2,364 is required. | ||
Fixed Assets | ||
Fixed assets are stated at cost, less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets (primarily three to five years). Costs of maintenance and repairs are charged to expense as incurred. | ||
Computer Software Development Costs | ||
During 2007 and 2006, the Company capitalized certain software development costs. The Company capitalizes the cost of software in accordance with SFAS 86 once technological feasibility has been demonstrated, as the Company has in the past sold, leased or otherwise marketed their software, and plans on doing so in the future. The Company capitalizes costs incurred to develop and market their privacy preserving software during the development process, including payroll costs for employees who are directly associated with the development process and services performed by consultants. Amortization of such costs is based on the greater of (1) the ratio of current gross revenues to the sum of current and anticipated gross revenues, or (2) the straight-line method over the remaining economic life of the software, typically five years. It is possible that those anticipated gross revenues, the remaining economic life of the products, or both, may be reduced as a result of future events. The Company has not developed any software for internal use. For the three months ended March 31, 2007 and 2006, the Company recognized $44,251 and $44,251 of amortization expense on its capitalized software costs, respectively. | ||
F-34
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006 (UNAUDITED)
NOTE 2- | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) | |
Recoverability of Long-Lived Assets | ||
The Company reviews the recoverability of its long-lived assets on a periodic basis whenever events and changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment is based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets. Fixed assets to be disposed of by sale are carried at the lower of the then current carrying value or fair value less estimated costs to sell. | ||
Revenue Recognition | ||
The Company generates revenue from professional services rendered to customers. The Company’s revenue is generated under time-and-material contracts and fixed-price contracts. | ||
Time-and-Material Contracts | ||
Time-and-material contracts revenue is generated whereby costs are generally incurred in proportion with contracted billing schedules and revenue is recognized as services are performed, with the corresponding cost of providing those services reflected as direct costs. The customers are billed in accordance with the contracts entered into. Such method is expected to result in reasonably consistent profit margins over the contract term. | ||
Fixed-Price Contracts | ||
Revenue from firm-fixed-price contracts is recognized upon achievement of the milestones contained in the contracts in accordance with the provisions of Staff Accounting Bulletin 104. Revenue is not recognized until collectibility is assured, which does not take place until completion of the particular milestone. Costs are recognized as services are performed. | ||
The Company does not derive revenue from projects involving multiple revenue-generating activities. If a contract would involve the provision of multiple service elements, total estimated contract revenue would be allocated to each element based on the fair value of each element. | ||
The amount of revenue allocated to each element would then be limited to the amount that is not contingent upon the delivery of another element in the future. Revenue for each element would then be recognized depending upon whether the contract is a time-and-materials contract or a fixed-price, fixed-time contract. | ||
F-35
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006 (UNAUDITED)
NOTE 2- | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) | |
Stock-Based Compensation | ||
On December 16, 2004, the Financial Accounting Standards Board (“FASB”) published Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123R”). SFAS 123R requires that compensation cost related to share-based payment transactions be recognized in the financial statements. Share-based payment transactions within the scope of SFAS 123R include stock options, restricted stock plans, performance-based awards, stock appreciation rights, and employee share purchase plans. The provisions of SFAS 123R, as amended, are effective for small business issuers beginning as of the next interim period after December 15, 2005. The Company has adopted these provisions as of January 1, 2006 and this adoption did not have a material effect on the Company’s operations. | ||
On January 1, 2006, the Company adopted the provisions of FAS No. 123R “Share-Based Payment” (“FAS 123R”) which requires recognition of stock-based compensation expense for all share-based payments based on fair value. Prior to January 1, 2006, the Company measured compensation expense for all of its share-based compensation using the intrinsic value method prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations. The Company has provided pro forma disclosure amounts in accordance with FAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of FASB Statement No. 123” (“FAS 148”), as if the fair value method defined by FAS No. 123, “Accounting for Stock Based Compensation” (“FAS 123”) had been applied to its stock-based compensation. | ||
The Company has elected to use the modified–prospective approach method. Under that transition method, the calculated expense in 2006 is equivalent to compensation expense for all awards granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair values estimated in accordance with the original provisions of FAS 123. Stock-based compensation expense for all awards granted after January 1, 2006 is based on the grant-date fair values estimated in accordance with the provisions of FAS 123R. The Company recognizes these compensation costs, net of an estimated forfeiture rate, on a pro rata basis over the requisite service period of each vesting tranche of each award. The Company considers voluntary termination behavior as well as trends of actual option forfeitures when estimating the forfeiture rate. | ||
The Company’s warrants issued in the private placement in October 2006, were not stock based compensation and are reflected in the derivative liability. | ||
F-36
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006 (UNAUDITED)
NOTE 2- | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) | |
Concentrations | ||
The Company has derived all of its revenue from one customer. | ||
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of accounts receivable and unbilled receivables. To date, accounts receivable and unbilled receivables have been derived from contracts with agencies of the federal government. Accounts receivable are generally due within 30 days and no collateral is required. | ||
Segment Reporting | ||
The Company follows the provisions of SFAS 131, “Disclosures about Segments of an Enterprise and Related Information.” This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions. The Company believes that there is only one operating segment. | ||
Fair Value of Financial Instruments (other than Derivative Financial Instruments) | ||
The carrying amounts reported in the condensed consolidated balance sheet for cash and cash equivalents, and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments. For the notes payable, the carrying amount reported is based upon the incremental borrowing rates otherwise available to the Company for similar borrowings. For the warrants that are classified as derivatives, fair values were calculated at net present value using the Company’s weighted average borrowing rate for debt instruments without conversion features applied to total future cash flows of the instruments. | ||
Convertible Instruments | ||
The Company reviews the terms of convertible debt and equity securities for indications requiring bifurcation, and separate accounting, for the embedded conversion feature. Generally, embedded conversion features, where the ability to physical or net-share settle the conversion option is not within the control of the Company, are bifurcated and accounted for as a derivative financial instrument. (See Derivative Financial Instruments below). 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. | ||
F-37
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006 (UNAUDITED)
NOTE 2- | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) | |
Derivative Financial Instruments | ||
The Company generally does not use derivative financial instruments to hedge exposures to cash-flow or market risks. However, certain other financial instruments, such as warrants or options to acquire common stock and the embedded conversion features of debt and preferred instruments that are indexed to the Company’s common stock, are classified as liabilities when either (a) the holder possesses rights to net-cash settlement or (b) physical or net share settlement is not within the control of the Company. In such instances, net-cash settlement is assumed for financial accounting and reporting, even when the terms of the underlying contracts do not provide for net-cash settlement. Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period. These derivative financial instruments are the Class A and Class B warrants issued in conjunction with the private placement. The warrants are indexed to an aggregate of 3,029,271 shares of the Company’s common stock as of March 31, 2007 and are carried at fair value. The liability amounted to $645,549 at March 31, 2007. | ||
Income Taxes | ||
Under Financial Accounting Standards Board Statement No. 109, “Accounting for Income Taxes,” the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. | ||
(Loss) Per Share of Common Stock | ||
Basic net (loss) per common share (“EPS”) is computed using the weighted average number of common shares outstanding for the period. Diluted earnings per share includes additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents are not included in the computation of diluted earnings per share when the Company reports a loss because to do so would be anti-dilutive for the periods presented. | ||
There were no options or warrants to purchase shares of common stock at March 31, 2006, and the Class A and Class B (2,329,392 each) were issued in October 2006 in the private placement however were not included as they would be considered anti-dilutive as the Company had a loss for this period. | ||
F-38
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006 (UNAUDITED)
NOTE 2- | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) | |
The following is a reconciliation of the computation for basic and diluted EPS: | ||
Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2007 | 2006 | |||||||
Net (loss) | $ | (310,119 | ) | $ | (242,736 | ) | ||
Weighted-average common shares outstanding : | ||||||||
Basic | 9,129,392 | 5,350,000 | ||||||
Effect of dilutive securities- warrants | — | — | ||||||
Diluted | 9,129,392 | 5,350,000 | ||||||
Basic net (loss) per share | $ | (0.03 | ) | $ | (0.05 | ) | ||
Diluted net (loss) per share | $ | (0.03 | ) | $ | (0.05 | ) | ||
Research and Development | ||
Research and development costs are expensed as incurred. In addition, research and development costs of $2,121 and $-0- have been included in indirect labor for the three months ended March 31, 2007 and 2006, respectively. | ||
Recent Issued Accounting Standards | ||
In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities,” an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements.” FIN 46 establishes accounting guidance for consolidation of variable interest entities that function to support the activities of the primary beneficiary. In December 2003, the FASB revised FIN 46 and issued FIN 46 (revised December 2003) (“FIN 46R”). In addition to conforming to previously issued FASB Staff Positions, FIN No. 46R deferred the implementation date for certain variable interest entities. This revised interpretation is effective for all entities no later than the end of the first reporting period that ends after March 15, 2004. The Company does not have any investments in or contractual relationship or other business relationship with a variable interest entity and therefore the adoption of this interpretation will not have any impact on the Company’s results of operations, financial position or cash flows. | ||
F-39
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006 (UNAUDITED)
NOTE 2- | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) | |
Recent Issued Accounting Standards (Continued) | ||
On December 16, 2004, FASB issued SFAS No. 153, “Exchanges of Non-monetary Assets, an amendment of APB Opinion 29, Accounting for Non-monetary Transaction” (“SFAS 153”). This statement amends APB Opinion 29 to eliminate the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. Under SFAS 153, if a non-monetary exchange of similar productive assets meets a commercial-substance criterion and fair value is determinable, the transaction must be accounted for at fair value resulting in recognition of any gain or loss. SFAS 153 is effective for non-monetary transactions in fiscal periods that begin after June 15, 2005. The Company does not anticipate that the implementation of this standard will have a material impact on its financial position, results of operations or cash flows. | ||
In May 2005, the FASB issued Statement of Financial Accounting Standard No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”). SFAS 154 is a replacement of APB No. 20, “Accounting Changes”, and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements”. SFAS 154 applies to all voluntary changes in accounting principle and changes the requirements for accounting and reporting of a change in accounting principle. This statement establishes that, unless impracticable, retrospective application is the required method for reporting of a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. It also requires the reporting of an error correction which involves adjustments to previously issued financial statements similar to those generally applicable to reporting an accounting change retrospectively. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. | ||
In February 2006, the FASB issued Statement of Financial Accounting Standard No. 155, “Accounting for Certain Hybrid Instruments” (“SFAS 155”). FASB 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. This statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company will evaluate the impact of SFAS 155 on its consolidated financial statements. | ||
In September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” This standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. Early adoption is encouraged. The adoption of SFAS 157 is not expected to have a material impact on the consolidated financial statements. | ||
F-40
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006 (UNAUDITED)
NOTE 2- | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) | |
Recent Issued Accounting Standards (Continued) | ||
In September 2006, the FASB issued SFAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements 87, 88, 106 and 132(R)” (“SFAS 158”). SFAS 158 requires an employer to recognize the over-funded or under-funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. SFAS 158 also requires the measurement of defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end statement of financial position (with limited exceptions). Management does not expect adoption of SFAS 158 to have a material impact on the Company’s consolidated financial statements. | ||
In February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115”, (“FAS 159”) which permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. A business entity is required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is expected to expand the use of fair value measurement. FAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. | ||
In July 2006, the FASB issued Interpretation No. 48 (FIN No. 48), “Accounting for Uncertainty in Income Taxes.” This interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. Management is still evaluating what effect this will have on the Company’s consolidated financial statements. | ||
In September 2006, the United States Securities and Exchange Commission (“SEC”) issued SAB 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” | ||
This SAB provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB 108 establishes an approach that requires quantification of financial statement errors based on the effects of each of the company’s financial statements and the related financial statement disclosures. SAB 108 permits existing public companies to record the cumulative effect of initially applying this approach in the first year ending after November 15, 2006 by recording the necessary correcting adjustments to the carrying values of assets and liabilities as of the beginning of that year with the offsetting adjustment recorded to the opening balance of retained earnings. Additionally, the use of the cumulative effect transition method requires detailed disclosure of the nature and amount of each individual error being corrected through the cumulative adjustment and how and when it arose. The Company does not anticipate that SAB 108 will have a material impact on its consolidated financial statements. | ||
F-41
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006 (UNAUDITED)
NOTE 2- | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) | |
Recent Issued Accounting Standards (Continued) | ||
In December 2006, the FASB Staff issued FSP EITF – 00-19-2, “Accounting for Registration Payment Arrangements” (“EITF 00-19-2”). EITF 00-19-2 addresses an issuer’s accounting for registration payment arrangements. EITF 00-19-2 specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with SFAS No. 5, Accounting for Contingencies. EITF 00-19-2 is effective for financial statements issued for fiscal years beginning after December 15, 2006, and interim periods within those fiscal years. The Company believes that EITF 00-19-2 will have an impact on their consolidated financial statements as it relates to the Class A and Class B warrants entered into in connection with their private placement. The Company does not believe that their derivative liability will be classified as anything other than current. Management will continue to monitor the financial instruments to determine classification. | ||
NOTE 3- | FIXED ASSETS | |
Fixed assets consist of the following as of March 31, 2007: | ||
Estimated Useful | |||||||||
Lives (Years) | |||||||||
Computer equipment | 5 | $ | 87,417 | ||||||
Office machinery and equipment | 3 | 15,638 | |||||||
Furniture and fixtures | 5 | 538 | |||||||
Automobile | 5 | 58,476 | |||||||
162,069 | |||||||||
Less: Accumulated depreciation | (121,346 | ) | |||||||
Total, net | $ | 40,723 | |||||||
Depreciation expense was $4,888 and $3,772 for the three months ended March 31, 2007 and 2006, respectively. | ||
F-42
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006 (UNAUDITED)
NOTE 4- | COMPUTER SOFTWARE DEVELOPMENT COSTS | |
Computer software development costs consist of the following as of March 31, 2007: | ||
Estimated Useful | ||||||||
Lives (Years) | ||||||||
Computer software development costs | 5 | $ | 865,937 | |||||
Less: Accumulated amortization | (503,726 | ) | ||||||
Total, net | $ | 362,211 | ||||||
Amortization expense was $44,251 and $44,251 for the three months ended March 31, 2007 and 2006, respectively. At March 31, 2007, the Company wrote off net software development costs of $10,473 relating to their Inferview product. | ||
Amortization expense anticipated through December 31, 2009 is as follows: | ||
Period ended March 31: | ||||
2008 | $ | 152,714 | ||
2009 | 145,418 | |||
2010 | 64,079 | |||
$ | 362,211 | |||
NOTE 5- | NOTES PAYABLE | |
SBA Loan | ||
On July 22, 2003, the Company and the U.S. Small Business Administration (“SBA”) entered into a Note (the “Note”) under the SBA’s Secured Disaster Loan program in the amount of $377,100. | ||
Under the Note, the Company agreed to pay principal and interest at an annual rate of 4% per annum, of $1,868 every month commencing twenty-five (25) months from the date of the Note (commencing August 2005). The Note matures July 2033. | ||
F-43
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006 (UNAUDITED)
NOTE 5- | NOTES PAYABLE (CONTINUED) | |
SBA Loan (Continued) | ||
The Company must comply with the default provisions contained in the Note. The Company is in default under the Note if it does not make a payment under the Note, or if it: a) fails to comply with any provision of the Note, the Loan Authorization and Agreement, or other Loan documents; b) defaults on any other SBA loan; c) sells or otherwise transfers, or does not preserve or account to SBA’s satisfaction for, any of the collateral (as defined therein) or its proceeds; d) does not disclose, or anyone acting on their behalf does not disclose, any material fact to the SBA; e) makes, or anyone acting on their behalf makes, a materially false or misleading representation to the SBA; f) defaults on any loan or agreement with another creditor, if the SBA believes the default may materially affect the Company’s ability to pay this Note; g) fails to pay any taxes when due; h) becomes the subject of a proceeding under any bankruptcy or insolvency law; i) has a receiver or liquidator appointed for any part of their business or property; j) makes an assignment for the benefit of creditors; k) has any adverse change in financial condition or business operation that the SBA believes may materially affect the Company’s ability to pay this Note; l) dies; m) reorganizes, merges, consolidates, or otherwise changes ownership or business structure without the SBA’s prior written consent; or n) becomes the subject of a civil or criminal action that the SBA believes may materially affect the Company’s ability to pay this Note. | ||
As of March 31, 2007, the Company has an outstanding principal balance of $364,485. Interest expense on the SBA loan for the three months ended March 31, 2007 and 2006 were $3,658 and $4,049, respectively. | ||
Automobile Loan | ||
The Company has a note payable with an automotive finance company in the original amount of $44,990 (the “Auto Note”). The Auto Note commenced in November 2003, and requires payments of $750 per month for a period of 60 months. The Auto Note is secured by the automobile. | ||
As of March 31, 2007, the outstanding principal balance of the Auto Note was $14,247. | ||
F-44
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006 (UNAUDITED)
NOTE 5- | NOTE PAYABLE (CONTINUED) | |
As of March 31, 2007, the repayment schedule of the Notes Payable for the next five years and in the aggregate are: | ||
2008 | $ | 16,980 | ||
2009 | 13,556 | |||
2010 | 8,645 | |||
2011 | 8,998 | |||
2012 | 9,364 | |||
Thereafter | 321,189 | |||
378,732 | ||||
Less: current portion | (16,980 | ) | ||
Long-term portion | $ | 361,752 | ||
NOTE 6- | NOTE PAYABLE – RELATED PARTIES | |
The President of the Company would lend money from time to time to the Company to fund operations. These amounts bore no interest and were unsecured. As of December 31, 2005, the amount outstanding to the President of the Company was $45,000. These balances were repaid in the three months ended March 31, 2006. | ||
NOTE 7- | STOCKHOLDERS’ EQUITY (DEFICIT) | |
Preferred Stock | ||
The Company was incorporated on May 26, 2005, and the Board of Directors authorized 10,000,000 shares of preferred stock with a par value of $0.0001. The Company has not issued any shares of preferred stock since inception. | ||
Common Stock | ||
The Company was incorporated on May 26, 2005, and the Board of Directors authorized 75,000,000 shares of common stock with a par value of $0.0001. | ||
On May 26, 2005, the Company issued 1,500,000 to the founders of the Company for $50,000. | ||
On October 24, 2006, Black Nickel Acquisition Corp. I merged with the Company. At the closing of the merger and related private placement, the following occurred: | ||
F-45
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006 (UNAUDITED)
NOTE 7- | STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED) | |
Common Stock (Continued) | ||
a) The Company issued 250,000 shares of common stock for the providing of the bridge promissory notes to InferX in May 2006. The value of these shares was $529,423 based on the fair value of the Company’s stock when issued. The 250,000 shares represent the conversion of the 132 shares issued pre-merger between the companies; | ||
b) The Company issued 5,350,000 shares of common stock in exchange for 100% of the issued and outstanding shares of InferX; | ||
c) The Company issued 2,329,392 shares of common stock for gross proceeds of $1,164,696 in the private placement that closed when the merger was completed. From the $1,164,696, the Company repaid the bridge promissory notes plus accrued interest in the amount of $362,196, and paid $147,493 in closing costs. Of the total proceeds, $1,164,696, the Company allocated $547,087 of this amount to derivative liability, which represents the value of the Class A and Class B warrants issued with the common stock. The Company issued 2,392,392 Class A warrants and 2,329,392 Class B warrants (see d and e below and the Warrants section of Note 7). The price for all components were derived utilizing the relative fair value approach stipulated in APB 14; | ||
d) The Class A Warrants are exercisable at any time for shares of stock at an exercise price of $0.50 per share with a term of five (5) years, subject to anti dilution protection, so that any part of the 2,329,392 of the warrants shall be callable if the underlying warrant shares are registered and the stock trades in the open market for thirty (30) consecutive days at a closing price above $1.50 per share. Half of the warrants shall be callable if the Company is awarded a contract with a guaranteed minimum revenue of at least $1,000,000 with a department of the United Sates Government (not including the Missile Defense Agency) to deploy its existing technology for threat detection or other application. 1,629,513 of these warrants were exercised at a price of $.25 in April 2007; | ||
e) The Class B Warrants are exercisable at any time for shares of stock at an exercise price of $0.62 per share with a term of five (5) years, subject to anti dilution protection, so that any part of the 2,329,392 of the warrants shall be callable by the Company if the underlying warrant shares are registered and the stock trades in the open market for thirty (30) consecutive days at a closing price above $1.86 per share; | ||
f) The Company cancelled 300,000 shares of common stock in the reverse merger leaving 1,200,000 of the 1,500,000 previously outstanding shares from May 25, 2006 with the former owners of Black Nickel Acquisition Corp. I; and | ||
g) Shall reserve for a period of two (2) years from the closing of the Reverse Merger, no more than 2,200,000 shares of stock for a stock option plan, and any options granted under this plan will be subject to an exercise price of not less than $0.50 per share. There have been no issuance of options under this plan as of December 31, 2006. | ||
F-46
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006 (UNAUDITED)
NOTE 7- | STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED) | |
Warrants | ||
The Company in the private placement granted 2,329,392 Class A and 2,329,392 Class B warrants. The following is a breakdown of the warrants: | ||
Exercise | Date | |||||||||||||||
Warrants | Price | Issued | Term | |||||||||||||
2,329,392 | $ | 0.50 | 10/24/2006 | 5 years | ||||||||||||
2,329,392 | $ | 0.625 | 10/24/2006 | 5 years | ||||||||||||
4,658,784 | ||||||||||||||||
As noted in d above, 1,629,513 of the Class A warrants were exercised in April 2007. | ||
The Class A Warrants and Class B Warrants were valued utilizing the Black – Scholes method as follows: | ||
Class A | Class B | |||||||
Stock Price | $ | .50 | $ | .50 | ||||
Strike Price | $ | .50 | $ | .62 | ||||
Expected Life of Warrant | 5 yrs. | 5 yrs. | ||||||
Annualized Volatility | 50 | % | 50 | % | ||||
Discount Rate | 3.50 | % | 3.50 | % | ||||
Annual Rate of Quarterly Dividends | None | None | ||||||
Call Option Value | $ | .237 | $ | .206 |
Options | ||
There are no options outstanding, or granted as of March 31, 2007. | ||
NOTE 8- | RELATED PARTY TRANSACTIONS | |
The Company was advanced amounts as equity contributions by the Company’s President prior to the merger with Black Nickel Acquisition Corp. I. As of March 31, 2007, there is currently no outstanding amounts due the President of the Company. There were no other related party transactions during the three months ended March 31, 2007 and 2006, respectively. | ||
F-47
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006 (UNAUDITED)
NOTE 9- | COMMITMENTS | |
Rental | ||
The Company leases office space under an operating lease that has initial or remaining non-cancelable lease terms and expires in November 2008. The lease agreement provides for an annual 4% escalation of the base rent. As of March 31, 2007, the following presents the approximate future minimum lease payments required under this lease: | ||
For the Periods Ended | ||||
March 31, | ||||
2008 | $ | 105,297 | ||
2009 | 73,048 | |||
$ | 178,345 | |||
Rent expense for the three months ended March 31, 2007 and 2006 was $26,609 and $25,326, respectively. | ||
Consulting Agreements | ||
During 2007 and 2006, the Company entered into consulting agreements with marketing and strategic consulting groups with terms that do not exceed one year. These companies are to be paid fees for the services they perform. The Company has included these fees in their condensed consolidated statements of operations for the three months ended March 31, 2007 and 2006. | ||
Registration Rights Agreement | ||
Pursuant to the Registration Rights Agreement, commencing April 23, 2007, the Company is required to accrue a 1% fee should the registration statement fail to be effective. The 1% fee has agreed by the parties to be paid in the form of common stock of the Company. The fee relates to both the 250,000 shares issued to the former promissory note holders as well as the shares issued in the private placement. No amounts have been accrued as of March 31, 2007. | ||
NOTE 10- | PROVISION FOR INCOME TAXES | |
Deferred income taxes will be determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. | ||
F-48
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006 (UNAUDITED)
NOTE 10- | PROVISION FOR INCOME TAXES (CONTINUED) | |
At March 31, 2007, deferred tax assets consist of the following: | ||
Net operating losses | $ | 932,280 | ||
Valuation allowance | (932,280 | ) | ||
$ | — | |||
At March 31, 2007, the Company had net operating loss carryforward in the approximate amount of $2,742,000, available to offset future taxable income through 2027. The Company established valuation allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating losses in future periods. | ||
A reconciliation of the Company’s effective tax rate as a percentage of income before taxes and federal statutory rate for the three months ended March 31, 2007 and 2006 is summarized below. | ||
2006 | 2005 | |||||||
Federal statutory rate | (34.0 | )% | (34.0 | )% | ||||
State income taxes, net of federal benefits | 6.0 | 6.0 | ||||||
Valuation allowance | 28.0 | 28.0 | ||||||
0 | % | 0 | % | |||||
NOTE 11- | DEFINED CONTRIBUTION PLAN | |
The Company has a retirement plan which satisfies the requirements of Section 401(k) of the Internal Revenue Code. This defined contribution retirement plan covers substantially all employees. Participants can elect to have up to the maximum percentage allowable of their salaries reduced and contributed to the plan. The Company may make matching contributions equal to a discretionary percentage of the participants’ elective deferrals. The Company made no such contributions for the three months ended March 31, 2007 and 2006, respectively. | ||
NOTE 12- | MAJOR CUSTOMER | |
The Company’s contracts with agencies of the federal government accounted for 100% of its revenue and accounts receivable as of and for the three months ended March 31, 2007 and 2006, respectively. | ||
F-49
(FORMERLY BLACK NICKEL ACQUISITION CORP. I)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006 (UNAUDITED)
NOTE 13- | RESTATEMENT OF FINANCIAL STATEMENTS | |
The Company has restated its financial statements for the year ended December 31, 2006 to reverse the expense for common stock issued for debt guarantee that was incorrectly recognized in the previously issued financial statements. These shares represented a conversion of previously recognized shares that were already valued by the Company. The reversal was in the amount of $66,250. The entry reduced additional paid in capital and reduced the expense. | ||
The restatement decreased the accumulated deficit from $2,844,022 to $2,777,772 at March 31, 2007. The restatement had no effect on operations for the three months ended March 31, 2007 and 2006, respectively. | ||
F-50
Information Not Required In Prospectus
• | any breach of the director’s duty of loyalty to the corporation or its stockholders; | ||
• | acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; | ||
• | payments of unlawful dividends or unlawful stock repurchases or redemptions; or | ||
• | any transaction from which the director derived an improper personal benefit. |
SEC registration fee | $ | 240 | ||
Legal fees and expenses | 26,760 | |||
Printing expenses | 2,000 | |||
Accounting fees | 1,000 | |||
Miscellaneous | -0- | |||
Total | $ | 30,000 |
II-1
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3(i) | Certificate of Incorporation, as amended on October 27, 2006 (incorporated by reference to Exhibit 3(i) to the registrant’s Current Report on Form 8-K, filed on October 30, 2006) | |
3(ii) | By-laws (incorporated by reference to Exhibit 3(ii) to the registrant’s Registration Statement on Form 10-SB, on January 12, 2006) | |
4.1 | Form of common stock certificate (incorporated by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K, filed on October 30, 2006) | |
4.2 | Form of Class A warrant to purchase common stock (incorporated by reference to Exhibit 4.2 to the registrant’s Current Report on Form 8-K, filed on October 30, 2006) | |
4.3 | Form of Class B warrant to purchase common stock (incorporated by reference to Exhibit 4.3 to the registrant’s Current Report on Form 8-K, filed on October 30, 2006) | |
4.4 | Registration Rights Agreement (incorporated by reference to Exhibit 4.4 to the registrant’s Current Report on Form 8-K, filed on October 30, 2006) | |
5.1 | Legal opinion of Seyfarth Shaw LLP * | |
10.1 | Lease of the registrant’s principal executive offices, as amended (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K, filed on October 30, 2006) | |
10.2 | Employment Agreement with B.K. Gogia (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K, filed on October 30, 2006) | |
10.3 | Employment Agreement with J. Bala (incorporated by reference to Exhibit 10.1 to Amendment No 1 to the registrant’s Current Report on Form 8-K, filed on November 1, 2006) | |
10.4 | Employment Agreement with S. Parliament (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K, filed on November 16, 2006) | |
10.5 | Employment Agreement with J. Mena (incorporated by reference to Exhibit 10.5 to the registrant’s Current Report on Form 8-K, filed on October 30, 2006) | |
10.6 | Subscription Agreement (incorporated by reference to Exhibit 10.7 to the registrant’s Current Report on Form 8-K, filed on October 30, 2006) | |
10.7 | Agreement and Plan of Merger by and among Black Nickel Acquisition Corp. I, InferX Acquisition Corp. and InferX Corporation, dated October 24, 2006 (incorporated by reference to Exhibit 10.8 to the registrant’s Current Report on Form 8-K, filed on October 30, 2006) | |
10.8 | Award/Contract issued by Missile Defense Agency, effective October 31, 2006 (incorporated by reference to Exhibit 10.8 to the registrant’s Registration Statement on Form SB-2, filed on November 24, 2006) | |
23.1 | Consent of Michael Pollack, CPA, LLC * | |
23.3 | Consent of Seyfarth Shaw LLP (included with Exhibit 5.1) | |
24.1 | Power of attorney (included on the signature page of the Registration Statement on Form SB-2 filed on November 24, 2006) |
* | Filed with this registration statement. |
II-3
II-4
II-5
InferX Corporation | ||||
By: | /s/ B.K. Gogia | |||
B.K. Gogia | ||||
President, Chief Executive Officer, Principal Executive Officer and Director | ||||
SIGNATURE | TITLE | DATE | ||||
President, Chief Executive Officer, | ||||||
/s/ B.K. Gogia | Principal Executive Officer and | June 13, 2007 | ||||
B.K. Gogia | Director | |||||
* | Chief Technical Officer and Director | June 13, 2007 | ||||
Jerzy W. Bala | ||||||
Chief Financial Officer, Vice | ||||||
President of Business Development | ||||||
* | and Marketing, Principal Financial | June 13, 2007 | ||||
Scott B. Parliament | and Accounting Officer and Director | |||||
*By: | /s/ B.K. Gogia | |||||
B.K. Gogia | ||||||
(Attorney-in-fact) |