**UNITED
        STATES SECURITIES AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-Q**





(Mark
                One)þ
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934****For
                the quarterly period ended June 30, 2007****OR**r
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934****For
                the transition period from January 1, 2007 to June 30,
                2007**





**Commission
      file number: 1-31949**





**INX
      Inc.**


(Exact
      name of Registrant as specified in its charter)





**Delaware**
            **76-0515249**(State
                of incorporation)
            (I.R.S.
                Employer Identification Number)





**6401
      Southwest Freeway**


**Houston,
      Texas 77074**


(Address
      of principal executive offices)


(Zip
      code)





**(713)
      795-2000**


Registrant’s
      telephone number including area code





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





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):





Large
                Accelerated Filer o
            Accelerated
                Filer o
            Non-accelerated
                Filer þ


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


The
      Registrant has 6,962,499 shares of common stock outstanding as of July 26,
      2007.









1




**INX
      Inc. and Subsidiary**


**FORM
      10-Q for the Quarter Ended June 30, 2007**








**INDEX**




Part
                  I. Financial InformationItem
                  1. Financial Statements (Unaudited):
              3Condensed
                  Consolidated Statements of Operations for the three months ended
                  June 30,
                  2007 and 2006
              3Condensed
                  Consolidated Statements of Operations for the six months ended
                  June 30,
                  2007 and 2006
              4Condensed
                  Consolidated Balance Sheets at June 30, 2007 and December 31,
                  2006
              5Condensed
                  Consolidated Statement of Stockholders’ Equity for the six months ended
                  June 30, 2007
              6Condensed
                  Consolidated Statements of Cash Flows for the six months ended
                  June 30,
                  2007 and 2006
              7Notes
                  to Condensed Consolidated Financial Statements
              9Item
                  2. Management’s Discussion and Analysis of Financial Condition and Results
                  of Operations
              14Item
                  3. Quantitative and Qualitative Disclosures about Market
                  Risk
              18Item
                  4. Controls and Procedures
              19Part
                  II. Other InformationItem
                  1. Legal Proceedings
                Item
                  2. Unregistered Sales of Equity Securities and Use of
                  Proceeds
              19Item
                  4. Submission of Matters to a Vote of Security Holders
                Item
                  5. Other Information
              19Item
                  6. Exhibits
              20Signature
              20




2





**PART
      1. FINANCIAL INFORMATION**





**Item
      1. Financial Statements (Unaudited):**





INX
      INC.
      AND SUBSIDIARY





CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS


(In
      thousands, except share and per share amounts)


(Unaudited)





**Three
                months ended June 30,****2007**
            
            
            **2006**Revenue:Products
            
            $
            46,918
            
            
            $
            33,322Services
            
            
            6,809
            
            
            
            5,356Total
                revenue
            
            
            53,727
            
            
            
            38,678Cost
                of products and services:Products
            
            
            39,029
            
            
            
            26,962Services
            
            
            4,653
            
            
            
            4,084Total
                cost of products and services
            
            
            43,682
            
            
            
            31,046Gross
                profit
            
            
            10,045
            
            
            
            7,632Selling,
                general and administrative expenses
            
            
            9,042
            
            
            
            7,001Operating
                income
            
            
            1,003
            
            
            
            631Interest
                and other income (expense), net
            
            
            41
            
            
            
            (18
            )Income
                from continuing operations before income taxes
            
            
            1,044
            
            
            
            613Income
                tax expense
            
            
            7
            
            
            
            —Net
                income from continuing operations
            
            
            1,037
            
            
            
            613Income
                (loss) from discontinued operations, net of income taxes
            
            
            (3
            )
            
            
            143Net
                income
            
            $
            1,034
            
            
            $
            756Net
                income per share:Basic:Income
                from continuing operations
            
            $
            0.15
            
            
            $
            0.10Income
                from discontinued operations, net of income taxes
            
            
            —
            
            
            
            0.02Net
                income per share
            
            $
            0.15
            
            
            $
            0.12Diluted:Income
                from continuing operations
            
            $
            0.13
            
            
            $
            0.08Income
                from discontinued operations, net of income taxes
            
            
            —
            
            
            
            0.02Net
                income per share
            
            $
            0.13
            
            
            $
            0.10Shares
                used in computing net income per share:Basic
            
            
            6,862,538
            
            
            
            6,223,118Diluted
            
            
            7,817,371
            
            
            
            7,324,469





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










3







INX
      INC.
      AND SUBSIDIARY





CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS


(In
      thousands, except share and per share amounts)


(Unaudited)





**Six
                months ended June 30,****2007**
            
            
            **2006**Revenue:Products
            
            $
            86,468
            
            
            $
            55,633Services
            
            
            12,902
            
            
            
            9,321Total
                revenue
            
            
            99,370
            
            
            
            64,954Cost
                of products and services:Products
            
            
            71,361
            
            
            
            44,855Services
            
            
            9,457
            
            
            
            7,060Total
                cost of products and services
            
            
            80,818
            
            
            
            51,915Gross
                profit
            
            
            18,552
            
            
            
            13,039Selling,
                general and administrative expenses
            
            
            17,214
            
            
            
            12,846Operating
                income
            
            
            1,338
            
            
            
            193Interest
                and other income (expense), net
            
            
            17
            
            
            
            (103
            )Income
                from continuing operations before income taxes
            
            
            1,355
            
            
            
            90Income
                tax expense
            
            
            14
            
            
            
            1Net
                income from continuing operations
            
            
            1,341
            
            
            
            89Income
                from discontinued operations, net of income taxes
            
            
            59
            
            
            
            139Net
                income
            
            $
            1,400
            
            
            $
            228Net
                income per share:Basic:Income
                from continuing operations
            
            $
            0.20
            
            
            $
            0.01Income
                from discontinued operations, net of income taxes
            
            
            0.01
            
            
            
            0.03Net
                income per share
            
            $
            0.21
            
            
            $
            0.04Diluted:Income
                from continuing operations
            
            $
            0.17
            
            
            $
            0.01Income
                from discontinued operations, net of income taxes
            
            
            0.01
            
            
            
            0.02Net
                income per share
            
            $
            0.18
            
            
            $
            0.03Shares
                used in computing net income per share:Basic
            
            
            6,762,681
            
            
            
            6,135,350Diluted
            
            
            7,749,270
            
            
            
            7,202,067





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






4





INX
      INC.
      AND SUBSIDIARY





CONDENSED
      CONSOLIDATED BALANCE SHEETS


(In
      thousands, except share and par value amounts)





**June
                30,**
              **2007**
            
            
            **December
                31,**
              **2006****(Unaudited)****ASSETS**Current
                Assets:Cash
                and cash
                equivalents
            
            $
            7,826
            
            
            $
            1,795Accounts
                receivable, net of
                allowance of $210 and $299
            
            
            39,656
            
            
            
            42,424Inventory
            
            
            2,237
            
            
            
            1,157Other
                current
                assets
            
            
            1,958
            
            
            
            2,086Total
                current
                assets
            
            
            51,677
            
            
            
            47,462Property
                and equipment, net of accumulated depreciation of $3,008 and
                $2,414
            
            
            4,084
            
            
            
            3,854Goodwill
            
            
            12,097
            
            
            
            10,891Intangible
                and other assets, net of accumulated amortization of $1,364 and
                $1,264
            
            
            196
            
            
            
            313Total
                assets
            
            $
            68,054
            
            
            $
            62,520**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                Liabilities:Notes
                payable and current portion
                of long-term debt
            
            $
            37
            
            
            $
            4,609Accounts
                payable
            
            
            36,320
            
            
            
            28,798Accrued
                expenses
            
            
            4,627
            
            
            
            5,038Other
                current
                liabilities
            
            
            1,233
            
            
            
            1,385Total
                current
                liabilities
            
            
            42,217
            
            
            
            39,830Other
                long-term liabilities
            
            
            306
            
            
            
            306Commitments
                and contingenciesStockholders’
                Equity:Preferred
                stock, $.01 par value,
                5,000,000 shares authorized, no shares issued
            
            
            —
            
            
            
            —Common
                stock, $.01 par value,
                15,000,000 shares authorized,
              6,952,511
                and 6,603,070 shares
                issued
            
            
            70
            
            
            
            66Additional
                paid-in
                capital
            
            
            32,341
            
            
            
            30,598Retained
                deficit
            
            
            (6,880
            )
            
            
            (8,280
            )Total
                stockholders’
                equity
            
            
            25,531
            
            
            
            22,384Total
                liabilities and
                stockholders’ equity
            
            $
            68,054
            
            
            $
            62,520





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






5


INX
      INC.
      AND SUBSIDIARY





CONDENSED
      CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY


(In
      thousands, except share amounts)


(Unaudited)








**$.01
                par value**
              **Common
                Stock****Shares**
            
            
            **Amount**
            
            
            **Additional**
              **Paid-In**
              **Capital**
            
            
            **Retained**
              **Deficit**
            
            
            
            **Total**Balance
                at December 31, 2006
            
            
            6,603,070
            
            
            $
            66
            
            
            $
            30,598
            
            
            $
            (8,280
            )
            
            
            $
            22,384Exercise
                of common stock options
            
            
            240,116
            
            
            
            3
            
            
            
            429
            
            
            
            —
            
            
            
            
            432Issuance
                of shares as additional purchase price consideration for
              Datatran
                acquisition
            
            
            25,253
            
            
            
            —
            
            
            
            250
            
            
            
            —
            
            
            
            
            250Issuable
                shares as additional purchase price consideration for Network Architects,
                Corp. acquisition
            
            
            75,000
            
            
            
            1
            
            
            
            676
            
            
            
            —
            
            
            
            
            677Share-based
                compensation
              expense
                related to employee stock options
            
            
            —
            
            
            
            —
            
            
            
            240
            
            
            
            —
            
            
            
            
            240Share-based
                compensation
              expense
                related to directors’ stock grants
            
            
            9,072
            
            
            
            —
            
            
            
            90
            
            
            
            —
            
            
            
            
            90Share-based
                compensation
              expense
                related to employee
              restricted
                stock grants
            
            
            —
            
            
            
            —
            
            
            
            18
            
            
            
            —
            
            
            
            
            18Issuance
                of warrants
            
            
            —
            
            
            
            —
            
            
            
            40
            
            
            
            —
            
            
            
            
            40Net
                income
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,400
            
            
            
            
            1,400Balance
                at June 30, 2007
            
            
            6,952,511
            
            
            $
            70
            
            
            $
            32,341
            
            
            $
            (6,880
            )
            
            
            $
            25,531




The
      accompanying notes are an integral part of this condensed consolidated financial
      statement






6




INX
      INC.
      AND SUBSIDIARY





CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS


(In
      thousands)


(Unaudited)








**Six
                months ended June 30,****2007**
            
            
            **2006**CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income
            
            $
            1,400
            
            
            $
            228Adjustments
                to reconcile net income to net cash provided
              by
                (used in) operating
                activities:Net
                (income) from discontinued operations
            
            
            (59
            )
            
            
            (139
            )Depreciation
                and amortization
            
            
            716
            
            
            
            549Share-based
                compensation expense for stock options and stock grants
            
            
            356
            
            
            
            192Issuance
                of warrants
            
            
            40
            
            
            
            —Loss
                on retirement of assets
            
            
            10
            
            
            
            3Bad
                debt expense
            
            
            40
            
            
            
            26Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            2,728
            
            
            
            (10,462
            )Inventory
                (net of effect of acquisition)
            
            
            (1,080
            )
            
            
            (586
            )Accounts
                payable
            
            
            7,522
            
            
            
            10,586Other
                assets and liabilities
            
            
            (403
            )
            
            
            785Net
                cash provided by continuing operations
            
            
            11,270
            
            
            
            1,182Net
                operating activities of discontinued operations
            
            
            22
            
            
            
            (433
            )Net
                cash provided by operating activities
            
            
            11,292
            
            
            
            749CASH
                FLOWS FROM INVESTING ACTIVITIES:Acquisition
                of Datatran Network Systems
            
            
            (250
            )
            
            
            (1,000
            )Acquisition
                of Network Architects, Corp.
            
            
            —
            
            
            
            (394
            )Transaction
                costs paid for acquisitions
            
            
            (30
            )
            
            
            (36
            )Capital
                expenditures (net of effect of acquisitions)
            
            
            (856
            )
            
            
            (1,124
            )Net
                cash used in investing activities of continuing operations
            
            
            (1,136
            )
            
            
            (2,554
            )Net
                investing activities of discontinued operations
            
            
            15
            
            
            
            1,117Net
                cash used in investing activities
            
            
            (1,121
            )
            
            
            (1,437
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Exercise
                of stock options
            
            
            432
            
            
            
            443Net
                payments of short-term interest bearing credit facilities
            
            
            (4,350
            )
            
            
            2,016Payments
                on notes payable
            
            
            (222
            )
            
            
            (77
            )Net
                cash provided by (used in) financing activities of continuing
                operations
            
            
            (4,140
            )
            
            
            2,382Net
                financing activities of discontinued operations
            
            
            —
            
            
            
            (1
            )Net
                cash provided by (used in) financing activities
            
            
            (4,140
            )
            
            
            2,381NET
                INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            6,031
            
            
            
            1,693CASH
                AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
            
            
            1,795
            
            
            
            2,597CASH
                AND CASH EQUIVALENTS AT END OF PERIOD
            
            $
            7,826
            
            
            $
            4,290




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







7







INX
      INC.
      AND SUBSIDIARY





CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS


(In
      thousands)


(Unaudited)











**Six
                months ended**
              **June
                30,****2007**
            
            
            **2006**SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATION:Cash
                paid for interest
            
            $
            112
            
            
            $
            90Cash
                paid for income taxes
            
            $
            8
            
            
            $
            1SUPPLEMENTAL
                NONCASH INVESTING AND
              FINANCING
                ACTIVITIES:Acquisition
                of Datatran Network Systems:Fair
                value of assets acquired
            
            $
            500
            
            
            $
            1,551Common
                stock issued
            
            
            (250
            )
            
            
            (515
            )Acquisition
                of Network Architects, Corp.:Fair
                value of assets acquired
            
            
            677
            
            
            $
            965Common
                stock issued
            
            
            (677
            )
            
            
            (571
            )Acquisition
                of InfoGroup Northwest, Inc.:Fair
                value of assets acquired
            
            
            —
            
            
            $
            1,504Additional
                purchase price payable
            
            
            —
            
            
            
            (717
            )Transaction
                costs accrued
            
            
            —
            
            
            
            (70
            )Common
                stock issuable
            
            
            —
            
            
            
            (717
            )Issuance
                of warrants in connection with sale of Stratasoft, Inc.
            
            
            —
            
            
            
            128




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






8





**INX
      INC. AND SUBSIDIARY**





**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      thousands, except share and per share amounts)**





**1. Description
      of Business**





INX
      Inc.
      (“INX” or the “Company”) is a provider of Internet Protocol (“IP”)
      communications solutions for enterprise-class organizations based primarily
      on
      Cisco System, Inc. (“Cisco”) technology. These solutions include design,
      implementation and support of LAN/WAN routing and switching, IP telephony,
      voice
      over IP (“VoIP”), network security, network storage and wireless
      networks.





**2. Basis
      of Presentation**





The
      accompanying unaudited financial data as of June 30, 2007 and for the
      three-month and six-month periods ended June 30, 2007 and 2006 have been
      prepared by the Company pursuant to the rules and regulations of the Securities
      and Exchange Commission. Certain information and footnote disclosures normally
      included in financial statements prepared in accordance with accounting
      principles generally accepted in the United States have been condensed or
      omitted pursuant to such rules and regulations. The December 31, 2006 Condensed
      Consolidated Balance Sheet was derived from audited financial statements, but
      does not include all disclosures required by accounting principles generally
      accepted in the United States. However, the Company believes the disclosures
      are
      adequate to make the information presented not misleading. These Condensed
      Consolidated Financial Statements should be read in conjunction with the
      Consolidated Financial Statements and the notes thereto, included in the
      Company’s Annual Report on Form 10-K for the year ended December 31, 2006
      (“Annual Report”).





In
      the
      opinion of management, all adjustments (which include normal recurring
      adjustments, except as disclosed herein) necessary for a fair presentation
      of
      financial position as of June 30, 2007, results of operations for the
      three-month and six-month periods ended June 30, 2007 and 2006, cash flows
      for
      the six months ended June 30, 2007 and 2006, and stockholders’ equity for the
      six months ended June 30, 2007, have been included. The results of the interim
      periods are not necessarily indicative of results for the full year or any
      future period.





**3. Adoption
      of FASB Interpretation No. 48**





Effective
      January 1, 2007, the Company adopted FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement
      No. 109” (“FIN 48”). FIN 48 clarifies the accounting for
      uncertainty in income taxes recognized in an enterprise’s financial statements
      and prescribes a recognition threshold and measurement attribute for financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in a tax return. This Interpretation also provides related guidance on
      derecognition, classification, interest and penalties, and accounting in interim
      periods and disclosure. The adoption of FIN 48 did not have a material impact
      on
      the Condensed Consolidated Financial Statements for the three-month and
      six-month periods ended June 30, 2007.





The
      Company and its subsidiary file income tax returns in the U.S. federal
      jurisdiction and several states. With few exceptions, the Company is no longer
      subject to U.S. federal or state and local income tax examinations by tax
      authorities for years before 2003. The Company is currently not undergoing
      an
      income tax examination in any jurisdiction. The Company has no unrecognized
      tax
      benefits not recorded as of January 1, 2007, the date of adoption of FIN
      48.





There
      were
      no interest or penalties recorded for unrecognized tax benefits in the
      three-month and six-month periods ended June 30, 2007. There were no interest
      or
      penalties accrued in the Condensed Consolidated Balance Sheets at June 30,
      2007
      or December 31, 2006.





**4.
      Recent Accounting Pronouncements**





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 clarifies the
      definition of fair value, establishes a framework for measuring fair value,
      and
      expands the disclosures on fair value measurements. SFAS No. 157 is
      effective for fiscal years beginning after November 15, 2007. The adoption
      of SFAS 157 is not expected to have a material impact on the Company’s
      consolidated financial statements.


In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      No. 159, “The Fair Value Option for Financial Assets and Financial
      Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose
      to measure many financial instruments and certain other items at fair value
      that
      are not currently required to be measured at fair value. It also establishes
      presentation and disclosure requirements designed to facilitate comparisons
      between entities that choose different measurement attributes for similar types
      of assets and liabilities. SFAS 159 does not: (a) affect any existing
      accounting literature that requires certain assets and liabilities to be carried
      at fair value; (b) establish requirements for recognizing and measuring
      dividend income, interest income, or interest expense; or (c) eliminate
      disclosure requirements included in other accounting standards. SFAS 159 is
      effective as of the beginning of the first fiscal year that begins after
      November 15, 2007. The adoption of SFAS 159 is not expected to have a
      material impact on the Company’s consolidated financial
      statements.




9




**5.
      Acquisitions**





***Datatran
      Network Systems***





Under
      an
      Asset Purchase Agreement dated February 3, 2006, the Company purchased the
      assets and operations of Datatran Network Systems (“DNS”). DNS is a specialized
      provider of network solutions serving the Southern California market. DNS
      designs, implements and supports solutions based on Cisco technologies with
      a
      primary focus on IP Telephony. The Company completed the acquisition
      simultaneously with the execution of the Asset Purchase Agreement.





The
      consideration paid at closing pursuant to the Asset Purchase Agreement was
      $1,000 in cash, including $100 placed in escrow under holdback provisions
      defined in the Asset Purchase Agreement and 71,003 shares of the Company’s
      common stock valued at $500. Legal and other costs of $47 were paid in
      connection with the transaction, of which $32 was paid in cash and $15 was
      paid
      through the issuance of 2,105 shares of common stock. The $100 holdback was
      released from escrow and paid to DNS in May 2007.





Additional
      purchase price consideration valued at $500 and recorded as goodwill was paid
      to
      DNS in June 2007 for achievement of certain operating profit milestones during
      the twelve-month period ending February 28, 2007. The consideration consisted
      of
      a cash payment of $250 and issuance of 25,253 shares of the Company’s common
      stock with a value of $250. The calculation of the number of shares of Company’s
      common stock was determined by dividing $250 by $9.90, the average closing
      price
      per share for the common stock as reported by NASDAQ for the five consecutive
      trading days prior to March 1, 2007. Additionally, cash of $30 was paid to
      the
      broker of the transaction.





***Network
      Architects, Corp.***





Effective
      May 26, 2005, the Company acquired the operations and certain assets of
      Network Architects, Corp. (“Network Architects”), a data network and IP
      telephony systems design, installation and support business with branches in
      Albuquerque, New Mexico and El Paso, Texas. Additional purchase price
      consideration consisting of 75,000 shares of the Company’s common stock, were
      issued to Network Architects in June 2007 for achievement of certain operating
      profit milestones during the twelve-month period ending May 31, 2007. The
      additional purchase price consideration was valued at $677 and recorded as
      goodwill, determined by multiplying the shares issued by the closing price
      per
      share for the common stock as reported by NASDAQ on June 29, 2007.





Under
      the
      terms of the Asset Purchase Agreement, the Company will issue Network Architects
      a maximum of 75,000 shares of common stock as additional purchase price
      consideration following the twelve-month period ending May 31, 2008 if
      operating profit during such period exceeds $726. If operating profit is less
      than the applicable milestone for any of the two years, the number of shares
      of
      common stock issuable by the Company will be equal to 75,000 multiplied by
      the
      percentage of actual operating profit during the period as compared to the
      applicable milestone. Additional purchase price consideration, if any, will
      be
      recorded as goodwill.





**6.
      Discontinued Operations**





On
      November 3, 2005, the Company’s Board of Directors approved a plan to sell
      its Stratasoft and Valerent subsidiaries. Under a Stock Purchase Agreement
      (“Agreement”) dated January 26, 2006, INX sold all outstanding shares of
      Stratasoft’s common stock for a pretax gain on disposal of $302. Key terms of
      the sale are summarized as follows:





•
All
      outstanding Stratasoft common stock was sold for a purchase price of $3,000,
      which has been or is subject to reduction as follows:


•
$800
      placed in escrow, which is available to satisfy indemnified losses, if any,
      as
      defined in the Agreement. Funds placed in escrow are excluded from the estimated
      gain stated above. Approximately $621 in indemnified losses have been paid
      or
      presented for payment as of June 30, 2007.


•
$221
      representing a preliminary net working capital adjustment, as defined. The
      final
      working capital adjustment recorded during June 2006 resulted in the further
      reduction of the sale proceeds of $40.


•
The
        Company indemnified the buyer for potential losses as defined in the Agreement
        to a maximum of $1,400, inclusive of amounts placed in escrow. Excess funds
        held
        in escrow will be released on January 26, 2008 unless retained in escrow
        for potential indemnified losses as allowed in the Agreement under certain
        circumstances.
 •
The
        Company may receive additional consideration in the form of 10% of the
        outstanding Stratasoft common stock if revenue exceeds $10,000 for any
        consecutive twelve month period within two years of closing.
 •
The
        Company may receive additional cash consideration if Stratasoft is sold by
        the
        buyer to another party prior to January 26, 2008, for an amount in excess
        of $15,000.




10


Transaction
      costs of $815 were incurred by the Company in connection with the transaction,
      including the $128 value of warrants issued to the investment banker for the
      transaction for 40,000 shares of common stock with an exercise price of
      $6 per share. The warrants expire 5 years after January 26, 2006.
      Additional transaction costs of up to $120 are payable based on the final sale
      price. Additional costs of $134 were recorded as a reduction of the gain on
      sale
      for space leased by INX that will not be subleased to Stratasoft in the
      future.





The
      sale
      of Valerent operations involved two separate transactions which were closed
      in
      October 2006. The managed services business and related inventory, property
      and
      equipment were sold to OuterNet Management, L.P. for a cash sales price of
      $185.
      The consulting business and related property and equipment were sold to Vicano
      Acquisition Corp., a company owned by Valerent’s former President and
      brother-in-law of our CEO and largest shareholder. The consulting business
      was
      sold for cash paid at closing of $50 and a $70 promissory note to be received
      in
      twenty-four monthly installments of $3 plus interest of 10%. Additional
      consideration is due to the Company if certain revenue thresholds and conditions
      are met. The Company recorded a gain of $25 on the cash component of the
      transactions and will record a gain on proceeds under the $70 promissory note
      as
      received, of which a cumulative total of $23 was received through June 30,
      2007.





The
      results of operations and gain on disposal of discontinued operations are
      summarized below:





**Three
                Months Ended June 30,**
            
            
            **Six
                Months Ended June 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Revenue:Stratasoft
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            268Valerent
            
            
            —
            
            
            
            1,364
            
            
            
            —
            
            
            
            3,045Total
            
            $
            —
            
            
            $
            1,364
            
            
            $
            —
            
            
            $
            3,313Income
                (loss) from operations of discontinued subsidiaries:Stratasoft
            
            $
            —
            
            
            $
            —
            
            
            $
            12
            
            
            $
            (260
            )Valerent
            
            
            (9
            )
            
            
            (326
            )
            
            
            32
            
            
            
            (372
            )Total
            
            
            (9
            )
            
            
            (326
            )
            
            
            44
            
            
            
            (632
            )Gain
                on disposal of discontinued operations:Stratasoft
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            302Telecom
                and Computer Products Divisions
            
            
            —
            
            
            
            469
            
            
            
            —
            
            
            
            469Valerent
            
            
            6
            
            
            
            —
            
            
            
            15
            
            
            
            —Gain
                (loss) from discontinued operations, net of taxes
            
            $
            (3
            )
            
            $
            143
            
            
            $
            59
            
            
            $
            139





**7.
      Earnings Per Share**





Basic
      EPS
      is computed by dividing net income by the weighted-average number of common
      shares outstanding for the period. Diluted EPS is based on the weighted-average
      number of shares outstanding during each period and the assumed exercise of
      dilutive stock options and warrants less the number of treasury shares assumed
      to be purchased from the exercise proceeds using the average market price of
      the
      Company’s common stock for each of the periods presented.




The
      following table presents the
      calculation of basic and diluted earnings per share:





**Three
                Months Ended June 30,**
            
            
            **Six
                Months Ended June 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Numerator
                for basic and diluted earnings per share:Net
                income from continuing
                operations
            
            $
            1,037
            
            
            $
            613
            
            
            $
            1,341
            
            
            $
            89Income
                (loss) on disposal of
                discontinued operations, net of income taxes
            
            
            (3
            )
            
            
            143
            
            
            
            59
            
            
            
            139Net
                income
            
            $
            1,034
            
            
            $
            756
            
            
            $
            1,400
            
            
            $
            228


Denominator
                for basic earnings per share — weighted-average shares
                outstanding
            
            
            6,862,538
            
            
            
            6,223,118
            
            
            
            6,762,681
            
            
            
            6,135,350Effect
                of dilutive securities — shares issuable from assumed conversion of common
                stock options, restricted stock, and warrants
            
            
            954,833
            
            
            
            1,101,351
            
            
            
            986,589
            
            
            
            1,066,717Denominator
                for diluted earnings per share — weighted-average shares
                outstanding
            
            
            7,817,371
            
            
            
            7,324,469
            
            
            
            7,749,270
            
            
            
            7,202,067






11


**8.
      Credit Facility**





On
      April
      30, 2007, the Company entered into a new $50,000 senior credit facility
      agreement (“Agreement”) with Castle Pines Capital LLC (“CPC”) to provide
      inventory financing and to fund working capital requirements. The new facility
      with CPC replaced the $40,000 senior credit facility with CPC.  Key
      terms of the Agreement are summarized as follows:





·
            The
                Agreement provides a discretionary line of credit up to a maximum
                aggregate amount of $50,000 to purchase inventory from CPC approved
                vendors.·
            The
                Agreement provides a working capital revolving line of credit under
                the
                above line of credit with an aggregate outstanding sublimit of $10
                million.·
            The
                working capital revolving line of credit incurs interest payable
                monthly
                at the rate of prime plus 0.5%.·
            The
                Agreement contains customary covenants regarding maintenance of insurance
                coverage, maintenance of and reporting collateral, and submission
                of
                financial statements. The Agreement also contains covenants measured
                as of
                the end of each calendar quarter covering required maintenance of
                minimum
                current ratio, tangible net worth, working capital, and total liabilities
                to tangible net worth ratio (all as defined in the
                Agreement).·
            The
                credit facility is collaterized by substantially all assets of the
                Company.·
            The
                term of the Agreement is for one year, with automatic renewals for
                one
                year periods, except as otherwise provided under the
                Agreement.





On
      August
      1, 2007, the Company entered into an amendment (“Amendment”) to the above
      Agreement to provide an additional $10 million credit facility specifically
      for
      acquisitions (“Acquisition Facility”). Advances under the Acquisition Facility
      will be specific to each acquisition and subject to approval by CPC based on
      pre-established criteria contained in the amendment.  The new Acquisition
      Facility
      is discussed further in Part II, Item 5.





**9.
      Share-Based Compensation**





The
      Company uses the Black-Scholes option pricing model to calculate the grant-date
      fair value of an award. The fair value of options granted during the three-month
      and six-month periods ended June 30, 2007 and 2006 were calculated using the
      following estimated weighted average assumptions:





**Three
                Months Ended June 30,**
            
            
            **Six
                Months Ended June 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Expected
                volatility
            
            
            —
            
            
            
            64.1
            %
            
            
            61.32
            %
            
            
            64.4
            %Expected
                term (in years)
            
            
            —
            
            
            
            6.2
            
            
            
            6.5
            
            
            
            6.3Risk-free
                interest rate
            
            
            —
            
            
            
            5.1
            %
            
            
            4.5
            %
            
            
            5.0
            %Expected
                dividend yield
            
            
            —
            
            
            
            0
            %
            
            
            0
            %
            
            
            0
            %





There
      were
      no options granted during the three-month period ended June 30, 2007. Expected
      volatility is based on historical volatility over the period that IP
      communications solutions was the primary line of business of the Company.
      Beginning in 2006, the Company used the simplified method outlined in Securities
      and Exchange Commission Staff Accounting Bulletin No. 107 to estimate
      expected lives for options granted in any period. The risk-free interest rate
      is
      based on the yield on zero-coupon U.S. Treasury securities for a period that
      is
      commensurate with the expected term assumption. The Company has not historically
      issued any dividends and does not expect to in the future.





Share-based
      compensation expense recognized under SFAS 123R for the three-month and
      six-month periods ended June 30, 2007 and 2006 was as follows:








12


**Three
                Months Ended June 30,**
            
            
            **Six
                Months Ended June 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Cost
                of products and services — services
            
            $
            13
            
            
            $
            14
            
            
            $
            25
            
            
            $
            28Selling,
                general and administrative expenses
            
            
            118
            
            
            
            110
            
            
            
            223
            
            
            
            154Share-based
                compensation from continuing operations before income
                taxes
            
            
            131
            
            
            
            124
            
            
            
            248
            
            
            
            182Income
                tax benefit
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Share-based
                compensation from continuing operations
            
            
            131
            
            
            
            124
            
            
            
            248
            
            
            
            182Share-based
                compensation from discontinued operations
            
            
            —
            
            
            
            2
            
            
            
            (8
            )
            
            
            4Total
                share-based compensation
            
            $
            131
            
            
            $
            126
            
            
            $
            240
            
            
            $
            186





A
      summary
      of the activity under the Company’s stock option plans for the six-month period
      ended June 30, 2007 is presented below:




**Shares**
            
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual**
              **Term
                (Years)**
            
            
            **Aggregate**
              **Intrinsic**
              **Value**Options
                outstanding at December 31, 2006
            
            
            1,870,763
            
            
            $
            3.42Granted
            
            
            45,000
            
            
            $
            9.28
            
            
            
            
            
            $
            0Exercised
            
            
            (240,116
            )
            
            $
            1.79
            
            
            
            
            
            $
            2,016Canceled
            
            
            (34,947
            )
            
            $
            6.95
            
            
            
            
            
            $
            98Options
                outstanding June 30, 2007
            
            
            1,640,700
            
            
            $
            3.74
            
            
            
            6.33
            
            
            $
            8,681Options
                exercisable at June 30, 2007
            
            
            1,254,934
            
            
            $
            2.74
            
            
            
            5.55
            
            
            $
            7,885Options
                vested and options expected to vest at
              June
                30, 2007
            
            
            1,562,482
            
            
            $
            3.62
            
            
            
            6.50
            
            
            $
            8,463





The
      total
      intrinsic value of options exercised during the three-month periods ended June
      30, 2007 and 2006 was $795 and $141, respectively, and during the six-month
      periods ended June 30, 2007 and 2006 was $2,016 and $753, respectively. The
      total grant-date fair value of stock options that became fully vested during
      the
      six-month periods ended June 30, 2007 and 2006 was approximately $252 and $221,
      respectively. The weighted average grant-date fair value of options granted
      during the three-month periods ended June 30, 2007 and 2006 was $0 and $4.15,
      respectively, and during the six-month periods ended June 30, 2007 and 2006
      was
      $5.82 and $4.11, respectively. As of June 30, 2007, there was $1,403 of total
      unrecognized compensation cost, net of estimated forfeitures, related to
      unvested share-based awards, which is expected to be recognized over a
      weighted-average period of 3.4 years.





A
      summary
      of the status of nonvested restricted shares as of June 30, 2007 and changes
      during the six-month period ended June 30, 2007 is presented below:


**Nonvested
                Shares**
            
            **Shares**
            
            
            **Weighted**
              **Average**
              **Grant
                Date**
              **Fair
                Value**Nonvested
                at December 31, 2006
            
            
            37,194
            
            
            $
            7.48Granted
            
            
            12,161
            
            
            $
            9.38Vested
            
            
            (11,602
            )
            
            $
            9.38Forfeited
            
            
            (14,647
            )
            
            $
            7.51Nonvested
                at June 30, 2007
            
            
            23,106
            
            
            $
            7.51





As
      of June
      30, 2007, there was $166 of total unrecognized compensation cost related to
      nonvested share-based compensation arrangements granted under the Plan, which
      is
      expected to be recognized over the weighted-average period of
      4 years.





**10.
      Stockholders’ Equity**





In
      January
      2007, INX issued warrants to an investor relations firm under a personal
      services agreement to purchase up to 50,000 shares of common stock at an
      exercise price equal to $8.00 per share expiring January 1, 2009.
      Warrants for 25,000 shares are exercisable immediately and resulted in a
      charge to selling, general and administrative expense and a credit to additional
      paid-in capital of $40 in the six-month period ended June 30, 2007. Warrants
      for
      25,000 shares are exercisable after June 30, 2007 and will result in a
      charge of $46 during the third quarter of 2007.





Upon
      re-election to the Board of Directors in May 2007, INX issued 9,072 shares
      to
      its non-employee directors.  The issued shares were valued at $90
      determined by multiplying the shares issued by the closing price per share
      for
      the common stock as reported by NASDAQ on May 15, 2007.


13





**11.
      Commitments and Contingencies**





*Litigation*— On December 22, 2005, CenterPoint Energy Service Company filed a
      lawsuit in the District Court of Harris County, Texas styled *CenterPoint
      Energy Service Company (“CenterPoint”),* *LLC v. InterNetwork
      Experts, Inc. (now INX, Inc.), Yellow Transportation, Inc.* *and
      Cisco Systems, Inc.*claiming damages to product during shipment estimated
      to be $488 plus consequential damages, legal fees, court costs, and interest.
      On
      April 26, 2007 the Company settled its lawsuit with CenterPoint, resulting
      in a
      charge to selling, general and administrative expense of $50 in the six-month
      period ended June 30, 2007.





INX
      is
      also party to other litigation and claims which management believes are normal
      in the course of its operations. While the results of such litigation and claims
      cannot be predicted with certainty, INX believes the final outcome of such
      matters will not have a materially adverse effect on its results of operations
      or financial position.





On
      January 19, 2007, the Company was notified that a customer was terminating
      a NetSurant support services contract effective February 28, 2007. The
      customer paid a contract termination payment of $239 in June 2007, on which
      service revenue of $222 was recognized in the six-month period ended June 30,
      2007.  The Company continues to negotiate the final termination
      payment amount. Additional amounts, if any, would be recorded for amounts
      received in excess of $239 when agreed to in writing by the
      customer.





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





The
      following discussion is qualified in its entirety by, and should be read in
      conjunction with, our consolidated financial statements, including the notes
      thereto included elsewhere in this Form 10-Q and our annual report on Form
      10-K
      for the fiscal year ended December 31, 2006, as previously filed with the
      Securities and Exchange Commission. Amounts are presented in thousands except
      for share and per share data.





**Special
      notice regarding forward-looking statements**





This
      quarterly report on Form 10-Q contains forward-looking statements within the
      meaning of the Private Securities Litigation Reform Act of 1995 relating to
      future events or our future financial performance including, but not limited
      to,
      statements contained in Item 2. “Management’s Discussion and Analysis of
      Financial Condition and Results of Operations.” Readers are cautioned that any
      statement that is not a statement of historical fact including, but not limited
      to, statements which may be identified by words including, but not limited
      to,
“anticipate,” “appear,” “believe,” “could,” “estimate,” “expect,” “hope,”
“indicate,” “intend,” “likely,” “may,” “might,” “plan,” “potential,” “seek,”
“should,” “will,” “would,” and other variations or negative expressions thereof,
      are predictions or estimations and are subject to known and unknown risks and
      uncertainties. Numerous factors, including factors that we have little or no
      control over, may affect INX’s actual results and may cause actual results to
      differ materially from those expressed in the forward-looking statements
      contained herein. In evaluating such statements, readers should consider the
      various factors identified in our Annual Report on Form 10-K for our fiscal
      year
      ended December 31, 2006, as filed with the Securities and Exchange Commission
      including the matters set forth in Item 1. — “Risks Related to Our Business,”
which could cause actual events, performance or results to differ materially
      from those indicated by such statements.





**Results
      Of Operations**





*Period
      Comparisons.*The following tables set forth, for the periods indicated,
      certain financial data derived from our condensed consolidated statements of
      operations. Percentages shown in the table below are percentages of total
      revenue, except for the products and services components of gross profit, which
      are percentages of the respective product and service revenue.




14




**Three
      Months Ended June 30, 2007 Compared To the Three Months Ended June
      30,** **2006**





**Three
                Months Ended June 30,****2007**
            
            
            **2006****Amount**
            
            
            **%**
            
            
            **Amount**
            
            
            **%**Revenue:Products
            
            $
            46,918
            
            
            
            87.3
            
            
            $
            33,322
            
            
            
            86.2Services
            
            
            6,809
            
            
            
            12.7
            
            
            
            5,356
            
            
            
            13.8Total
                revenue
            
            
            53,727
            
            
            
            100.0
            
            
            
            38,678
            
            
            
            100.0Gross
                profit:Products
            
            
            7,889
            
            
            
            16.8
            
            
            
            6,360
            
            
            
            19.1Services
            
            
            2,156
            
            
            
            31.7
            
            
            
            1,272
            
            
            
            23.7Total
                gross profit
            
            
            10,045
            
            
            
            18.7
            
            
            
            7,632
            
            
            
            19.7Selling,
                general and administrative expenses
            
            
            9,042
            
            
            
            16.8
            
            
            
            7,001
            
            
            
            18.1Operating
                income
            
            
            1,003
            
            
            
            1.9
            
            
            
            631
            
            
            
            1.6Interest
                and other income (expense), net
            
            
            41
            
            
            
            0.0
            
            
            
            (18
            )
            
            
            (0.0
            )Income
                tax expense
            
            
            7
            
            
            
            0.0
            
            
            
            —
            
            
            
            0.0Net
                income from continuing operations
            
            
            1,037
            
            
            
            1.9
            
            
            
            613
            
            
            
            1.6Income
                (loss) from discontinued operations, net of
              income
                taxes
            
            
            (3
            )
            
            
            0.0
            
            
            
            143
            
            
            
            0.4Net
                income
            
            $
            1,034
            
            
            
            1.9
            
            
            $
            756
            
            
            
            2.0





*Revenue*.
      Total revenue increased by $15,049, or 38.9%, to $53,727 from $38,678. Products
      revenue increased $13,596, or 40.8% to $46,918 from $33,322. The increase in
      products revenue was primarily due to revenue increases in our Texas, Los
      Angeles, and New Mexico locations. Services revenue increased $1,453 or 27.1%
      to
      $6,809 from $5,356. The increase in services revenue was primarily due to large
      projects in our Pacific Northwest location and the Federal Division and
      continued growth in the NetSurant® post-sale recurring support services revenue,
      which increased 73.1% to $777 from $449.





*Gross
      Profit*. Total gross profit increased by $2,413, or 31.6%, to $10,045 from
      $7,632. Gross profit as a percentage of sales decreased to 18.7% from 19.7%,
      due
      to lower 2007 products revenue margins partially offset by significantly
      improved 2007 services revenue margins. Gross profit on the products sales
      component increased $1,529 or 24.0%, to $7,889 from $6,360 and, as a percentage
      of sales, decreased to 16.8% from 19.1%. The decrease from the first quarter
      of
      2006 is primarily due to large low gross margin projects. Gross profit on
      services revenue increased $884 or 69.5% to $2,156 from $1,272 and gross profit
      as a percent of services revenue increased to 31.7% from 23.7%. The increase
      in
      services gross margin was primarily due to significantly improved utilization
      of
      internal technical staff combined with reduced use of outside
      contractors.




*Selling,
      General and Administrative Expenses*. Selling, general and administrative
      expenses increased by $2,041, or 29.2% to $9,042 from $7,001. As a percentage
      of
      total revenue, these expenses decreased to 16.8% from 18.1%. Increased 2007
      expenses were incurred for additional sales compensation costs on substantially
      higher revenues, additional sales and administrative personnel costs from
      headcount increases, and higher professional fees due to the CenterPoint
      litigation and increased Sarbanes-Oxley consulting fees.





*Operating
      Income*. Operating income increased $372 to $1,003 from $631, primarily due
      to higher sales and proportionately lower selling, general and administrative
      expenses.





*Interest
      and Other Income (Expense), Net*. Interest and other income (expense), net,
      changed by $59 to income of $41 from expense of $18 due to the reduction of
      interest-bearing borrowings under the credit facility.





*Income
      (Loss) from Discontinued Operations, Net of Tax.*Income**from
      discontinued operations decreased by $146, to a loss of $3 from income of $143.
      Loss from discontinued operations of $3 in the second quarter of 2007 consisted
      of a loss from operations of $9 and a gain on disposal of Valerent of $6. The
      income from discontinued operations of $143 in the second quarter of 2006
      consisted of a loss from Valerent operations of $326, offset by the gain from
      adjustment of previously recorded accruals in the Telecom and Computer Products
      Divisions of $469.





*Net
      Income*. Net income increased $278 to $1,034 from $756, primarily due to
      higher sales and proportionately lower selling, general and administrative
      expenses.




15


**Six
      Months Ended June 30, 2007 Compared To the Six Months Ended June
      30,** **2006**


**Six
                Months Ended June 30,****2007**
            
            
            **2006****Amount**
            
            
            **%**
            
            
            **Amount**
            
            
            **%**Revenue:Products
            
            $
            86,468
            
            
            
            87.0
            
            
            $
            55,633
            
            
            
            85.6Services
            
            
            12,902
            
            
            
            13.0
            
            
            
            9,321
            
            
            
            14.4Total
                revenue
            
            
            99,370
            
            
            
            100.0
            
            
            
            64,954
            
            
            
            100.0Gross
                profit:Products
            
            
            15,107
            
            
            
            17.5
            
            
            
            10,778
            
            
            
            19.4Services
            
            
            3,445
            
            
            
            26.7
            
            
            
            2,261
            
            
            
            24.3Total
                gross profit
            
            
            18,552
            
            
            
            18.7
            
            
            
            13,039
            
            
            
            20.1Selling,
                general and administrative expenses
            
            
            17,214
            
            
            
            17.3
            
            
            
            12,846
            
            
            
            19.8Operating
                income
            
            
            1,338
            
            
            
            1.4
            
            
            
            193
            
            
            
            0.3Interest
                and other income (expense), net
            
            
            17
            
            
            
            0.0
            
            
            
            (103
            )
            
            
            (0.2
            )Income
                tax expense
            
            
            14
            
            
            
            0.0
            
            
            
            1
            
            
            
            0.0Net
                income from continuing operations
            
            
            1,341
            
            
            
            1.4
            
            
            
            89
            
            
            
            0.1Income
                from discontinued operations, net of
              income
                taxes
            
            
            59
            
            
            
            0.0
            
            
            
            139
            
            
            
            0.3Net
                income
            
            $
            1,400
            
            
            
            1.4
            
            
            $
            228
            
            
            
            0.4





*Revenue*.
      Total revenue increased by $34,416, or 53.0%, to $99,370 from $64,954. Products
      revenue increased $30,835, or 55.4% to $86,468 from $55,633. The increase in
      products revenue is primarily due to substantial revenue increases across
      virtually all locations. Services revenue increased $3,581 or 38.4% to $12,902
      from $9,321. The increase in services revenue is due to the growth in
      installation revenue across substantially all locations, including a large
      project in the Pacific Northwest, and continued growth in the NetSurant®
post-sale recurring support services revenue, which increased 76.8% to $1,482
      from $838. The NetSurant® revenue of $222 from a customer contract termination
      payment recorded in the six-month period ended June 30, 2007 was excluded from
      the calculation of the 76.8% growth rate.





*Gross
      Profit*. Total gross profit increased by $5,513, or 42.3%, to $18,552 from
      $13,039. Gross profit as a percentage of sales decreased to 18.7% from 20.1%,
      primarily due to lower 2007 products revenue margins partially offset by higher
      2007 services revenue margins. Gross profit on the products revenue component
      increased $4,329 or 40.2%, to $15,107 from $10,778 and, as a percentage of
      sales, decreased to 17.5% from 19.4%. The decrease from 2006 was due to large
      low margin projects, primarily in the second quarter of 2007. Gross profit
      on
      services revenue increased $1,184 or 52.4% to $3,445 from $2,261 and gross
      profit as a percent of services revenue increased to 26.7% from 24.3%. The
      increase in services gross margin was primarily due to improved utilization
      of
      internal technical staff.




*Selling,
      General and Administrative Expenses*. Selling, general and administrative
      expenses increased by $4,368, or 34.0% to $17,214 from $12,846. As a percentage
      of total revenue, these expenses decreased to 17.3% from 19.8%. Increased 2007
      expenses were incurred for additional sales compensation costs on substantially
      higher revenues, additional sales and administrative personnel costs from
      headcount increases, and higher professional fees due to the CenterPoint
      litigation and increased Sarbanes-Oxley consulting fees.





*Operating
      Income*. Operating income increased $1,145 to $1,338 from $193, primarily
      due to higher sales and proportionately lower selling, general and
      administrative expenses.





*Interest
      and Other Income (Expense), Net*. Interest and other income (expense), net,
      changed by $120 to income of $17 from expense of $103 due to reduced borrowings
      under the credit facility.





*Income
      from Discontinued Operations, Net of Tax.*Income**from
      discontinued operations decreased by $80, to $59 from $139. Income from
      discontinued operations of $59 in the six months ended June 30, 2007 consisted
      of income from operations of $44 and a gain on disposal of Valerent of $15.
      The
      income from discontinued operations of $139 in the six months ended June 30,
      2006 consisted of a loss from operations of $632, offset by the gain on disposal
      of Stratasoft in January 2006 of $302 and the gain from adjustment of previously
      recorded accruals in the Telecom and Computer Products Divisions of
      $469.





*Net
      Income*. Net income increased $1,172 to $1,400 from $228, primarily due to
      higher sales and proportionately lower selling, general and administrative
      expenses.


16


*Tax
        Loss Carryforward.*Because of our prior operating losses we have
        accumulated a net operating loss carryforward for federal income tax purposes
        that, as of June 30, 2007, was approximately $1.8 million and is available
        to
        offset future federal taxable income. This carryforward expires during the
        period 2023 through 2025. In addition to potential expiration, there are
        several
        factors that could limit or eliminate our ability to use these carryforwards.
        For example, under Section 382 of the Internal Revenue Code of 1986, as amended,
        use of prior net operating loss carryforwards is limited after an ownership
        change. If we achieve sustained profitability, which may not happen, the
        use of
        net operating loss carryforwards would reduce our tax liability and increase
        our
        net income and available cash resources. When all operating loss carryforwards
        have been used or have expired, we would again be subject to increased tax
        expense and reduced earnings due to such tax expense. The income tax expense
        recorded for 2007 and 2006 represents minimum state income tax payments due
        regardless of income or loss.


**Liquidity
      and Capital Resources**





***Sources
      of Liquidity***





Our
      principal sources of liquidity are collections from our accounts receivable
      and
      our credit facility with Castle Pines Capital (the “Credit Facility”), which we
      believe are sufficient to meet our short-term and long-term liquidity
      requirements. We use the Credit Facility to finance the majority of our
      purchases of inventory and to provide working capital when our cash flow from
      operations is insufficient. In 2007, we experienced positive cash flow from
      operating activities of continuing operations of $11,270 and positive cash
      flow
      from discontinued operations of $22. Our working capital increased to $9,460
      at
      June 30, 2007 from $7,632 at December 31, 2006.




*Accounts
      Receivable.*  The timing of our collection of accounts receivable
      and payments of our accounts payable is one of the principal influences on
      our
      cash flow from operations. We typically sell our products and services on
      short-term credit terms. We manage our credit risk by performing credit checks,
      obtaining letters of credit in certain instances, and conducting our own
      collection efforts. Our accounts receivable, net of allowance for doubtful
      accounts, were $39,656 and $42,424 at June 30, 2007 and December 31, 2006,
      respectively. The decrease in accounts receivable was attributable to improved
      collection of past due accounts during the second quarter of 2007 compared
      to
      the fourth quarter of 2006, which more than offset increased sales.





*Inventory.*  We
      had inventory of $2,237 and $1,157 at June 30, 2007 and December 31, 2006,
      respectively. The higher level of 2007 inventory is attributable to a large
      customer order to be shipped and recorded as revenue in the third quarter of
      2007. We try to minimize the amount of inventory on hand to reduce the risk
      that
      the inventory will become obsolete or decline in value. We are able to do this
      by relying on the ready availability of products from our principal suppliers.
      As noted above, we rely principally on our Credit Facility to finance our
      inventory purchases.





*Accounts
      Payable.*  We rely on our Credit Facility to finance a substantial
      portion of our trade accounts payable under terms ranging from 30 to
      60 days. Credit Facility balances within the Free Finance Period defined
      below are non-interest bearing and classified as accounts payable in our balance
      sheet. Credit Facility balances outstanding beyond the Free Finance Period
      are
      interest bearing and classified as notes payable in our balance sheet. Our
      accounts payable were $36,320 and $28,798 at June 30, 2007 and December 31,
      2006, respectively.  The increase in accounts payable is a result of
      higher sales during the second quarter of 2007 compared to the fourth quarter
      of
      2006.





***Contractual
      Obligations***





Our
      contractual cash obligations with terms in excess of one year consist of a
      software license obligation and lease obligations, substantially all of which
      are for office space. We do not have any material contractual purchase
      obligations. We purchase inventory to fulfill in-hand orders from customers
      and
      we attempt to minimize the amount of inventory on hand to reduce the risk that
      the inventory will become obsolete or decline in value. We are able to do this
      by relying on the ready availability of products from our principal
      suppliers.





We
      expect
      to be able to meet our contractual cash payment obligations by their due dates
      through cash generated from operations, augmented, if needed, by borrowings
      under the Credit Facility.





*Credit
      Facility.*   On April 30, 2007, we entered into a new Credit
      Facility with CPC which increased the total credit facility to $50,000 under
      similar terms and conditions as the previous Credit Facility as further
      discussed in Note 8 to Condensed Consolidated Financial Statements in Part
      I,
      Item 1. On August 1, 2007, we entered into an amendment to the Credit Facility
      with CPC to provide an additional $10 million credit facility specifically
      for
      acquisitions (“Acquisition Facility”). Advances under the Acquisition Facility
      will be specific to each acquisition and subject to approval by CPC based on
      pre-established criteria contained in the amendment as discussed further
      in Part II,
      Item 5.


17


As
      of June
      30, 2007, borrowing capacity and availability were as follows:





Total
                Credit Facility
            
            $
            50,000Borrowing
                base limitation
            
            
            (18,227)Total
                borrowing capacity
            
            
            31,773Less
                interest-bearing borrowings
            
            
            —Less
                non-interest bearing advances
            
            
            (31,387)Total
                unused availability
            
            $
            386


In
      addition to unused borrowing availability, liquidity at June 30, 2007 included
      our cash balance of $7,826.  The “unused availability” is the amount
      not borrowed, but eligible to be borrowed. The borrowing base restrictions
      generally restrict our borrowings under the Credit Facility to 85% of the
      eligible receivables, 100% of our Floorplanned inventory and 75% of Cisco vendor
      rebates receivable.





We
      use the
      Credit Facility to finance purchases of Cisco products from Cisco and from
      certain wholesale distributors. Cisco provides 60-day terms, and other wholesale
      distributors typically provide 30-day terms. Balances under the Credit Facility
      that are within those respective 60-day and 30-day periods (the “Free Finance
      Period”) do not accrue interest and are classified as accounts payable in our
      balance sheet. To the extent that we have credit availability under the Credit
      Facility, it gives us the ability to extend the payment terms past the Free
      Finance Period. Amounts extended past the Free Finance Period accrue interest
      and are classified as notes payable on our balance sheet. These extended payment
      balances under the Credit Facility accrue interest at the prime rate (8.25%
      at
      June 30, 2007) plus 0.5%.





As
      defined
      in the Credit Facility there are restrictive covenants measured at each quarter
      and year-end regarding minimum tangible net worth, maximum debt to tangible
      net
      worth ratio, minimum working capital and a minimum current ratio. At June
      30, 2007, we were in compliance with the loan covenants and we anticipate that
      we will be able to comply with the loan covenants during the next twelve months.
      If we violate any of the loan covenants, we would be required to seek waivers
      from CPC for those non-compliance events. If CPC refused to provide waivers,
      the
      amount due under the Credit Facility could be accelerated and we could be
      required to seek other sources of financing.





*Cash
      Flows.*During the six months ended June 30, 2007, our cash increased by
      $6,031. Operating activities provided cash of $11,292, investing activities
      used
      $1,121, and financing activities used $4,140.





*Operating
      Activities.*Operating activities provided $11,292 in the six months ended
      June 30, 2007, as compared to providing cash of $749 in the comparable 2006
      period. Operating activities from continuing operations provided $11,270 in
      the
      six months ended June 30, 2007, as compared to providing cash of $1,182 in
      the
      comparable 2006 period. Changes in asset and liability accounts provided $8,767
      in the six months ended June 30, 2007. The most significant sources of working
      capital related to an increase in accounts payable of $7,522 and a decrease
      in
      accounts receivable of $2,728, partially offset by the $1,080 increase in
      inventory, as discussed further above under “Sources of Liquidity”.





*Investing
      Activities.*Investing activities used $1,121 in the six months ended June
      30, 2007, compared to a use of $1,437 for the comparable period in 2006. Our
      2007 investing activities consisted primarily of $856 in capital expenditures
      and additional purchase price and related transaction costs of $280 for the
      Datatran acquisition. Our 2006 investing activities consisted of the purchase
      of
      Datatran, using cash of $1,036, and capital expenditures, which used cash of
      $1,124, less cash provided by the sale of Stratasoft stock of $1,117, net of
      transaction costs. Capital expenditures in both years were primarily related
      to
      purchases of computer equipment and software, and to a lesser degree, leasehold
      improvements. During the next twelve months, we do not expect to incur
      significant capital expenditures requiring cash, except for acquisitions, of
      which we cannot predict the certainty or magnitude.





*Financing
      Activities.*Financing activities used $4,140 in the six months ended June
      30, 2007, as compared to providing $2,381 in the comparable period in 2006.
      The
      funds used in the six months ended June 30, 2007 were primarily to reduce debt
      compared to funds provided through increased borrowings in the comparable 2006
      period.





**Related
      Party Transactions**





We
      lease
      office space from Allstar Equities, Inc., a Texas corporation, a company wholly
      owned by James H. Long, our Chief Executive Officer.  The lease
      expires on January 31, 2014 and has a rental rate of $20 per month.





**Item
      3. Quantitative and Qualitative Disclosures about Market
      Risk**





We
      incur
      certain market risks related to interest rate variations because we hold
      floating rate debt. Based upon the average amount of debt outstanding during
      the
      six months ended June 30, 2007, a one percent change in variable interest rates
      will not have a material impact on our financial condition.




18


Our
      business depends upon our ability to obtain an adequate supply of products
      and
      parts at competitive prices and on reasonable terms. Our suppliers are not
      obligated to have product on hand for timely delivery to us nor can they
      guarantee product availability in sufficient quantities to meet our demands.
      INX’s business is Cisco-centric. Any material disruption in our supply of
      products could have a material adverse effect on our financial condition and
      results of operations.





**Item
      4. Controls and Procedures**





Under
      the
      supervision and with the participation of certain members of our management,
      including our Chairman of the Board, Chief Executive Officer and Chief Financial
      Officer, we completed an evaluation of the effectiveness of the design and
      operation of our disclosure controls and procedures (as defined in Rules
      13a-15(e) and 15d-15(e) to the Securities Exchange Act of 1934, as amended
      (the
“Exchange Act”)). Based on that evaluation, we and our management have concluded
      that, our disclosure controls and procedures at June 30, 2007 were effective
      to
      ensure that information required to be disclosed by us in the reports that
      we
      file or submit under the Exchange Act is recorded, processed, summarized and
      reported within the time periods specified in the rules and forms of the SEC,
      and are designed to ensure that information required to be disclosed by us
      in
      these reports is accumulated and communicated to our management, as appropriate
      to allow timely decisions regarding required disclosures. In the first six
      months of 2007, there has been no change in our internal control over financial
      reporting that has materially affected, or is reasonably likely to affect,
      our
      internal control over financial reporting.





We
      will
      consider further actions and continue to evaluate the effectiveness of our
      disclosure controls and internal controls and procedures on an ongoing basis,
      taking corrective action as appropriate. Management does not expect that
      disclosure controls and procedures or internal controls can prevent all errors
      and all fraud. A control system, no matter how well conceived and operated,
      can
      provide only reasonable and not absolute assurance that the objectives of the
      control system are met. Further, the design of a control system must reflect
      the
      fact that there are resource constraints, and the benefits of controls must
      be
      considered relative to their costs. While management believes that its
      disclosure controls and procedures provide reasonable assurance that fraud
      can
      be detected and prevented, because of the inherent limitations in all control
      systems, no evaluation of controls can provide absolute assurance that all
      control issues and instances of fraud, if any, have been detected.





**PART
      II. OTHER INFORMATION**





**Item
      1. Legal Proceedings**





See
      Note
      11 to condensed consolidated financial statements in Part I, Item
      1.





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





See
      Note
      10 to condensed consolidated financial statements in Part I, Item 1 regarding
      issuance of 9,072 unregistered shares to its non-employee directors upon
      re-election to the Board of Directors in May 2007.





See
      Note 5
      to condensed consolidated financial statements in Part I, Item 1 regarding
      issuance of additional purchase price consideration consisting of 75,000
      unregistered shares of the Company’s common stock to Network Architects, Corp.
      in June 2007 for achievement of certain operating profit milestones during
      the
      twelve-month period ending May 31, 2007.





See
      Note 5
      to condensed consolidated financial statements in Part I, Item 1 regarding
      issuance of additional purchase price consideration consisting of issuance
      of
      25,253 unregistered shares of the Company’s common stock with a value of $250
      and cash of $250 to Datatran Network Systems in June 2007 for achievement of
      certain operating profit milestones during the twelve-month period ending
      February 28, 2007.





**Item
      4. Submission of Matters to a Vote of Security Holders**





See
      Item
      8.01 to Form 8-K filed May 15, 2007 which is incorporated herein by reference
      as
      the results of matters submitted to a vote of security holders required as
      part
      of this report.





**Item
      5. Other Information**





On
      August
      1, 2007, the Company entered into an amendment to the senior credit facility
      with CPC to provide an additional $10 million credit facility specifically
      for
      acquisitions (“Acquisition Facility”). Advances under the Acquisition Facility
      will be specific to each acquisition and subject to approval by CPC based on
      pre-established criteria contained in the amendment.  TheAcquisition
      Facility Amendment to the Amended and Restated Credit Agreement by and among
      Castle Pines Capital LLC, and INX, Inc. dated August 1, 2007(“Amendment”) is filed as
      Exhibit 10.2 to this Form 10-Q.  Key terms of the Amendment are
      summarized as follows:




19





·
            $10,000
                maximum aggregate commitment for
                acquisitions.


·
            Advances
                under the Acquisition Facility are not to exceed 80% of purchase
                price or
                six times adjusted EBITDA, as defined in the Amendment, for the twelve
                months immediately preceding the acquisition closing
                date.


·
            Interest
                is payable at the rate of prime plus
                2%.


·
            An
                acquisition commitment fee of 1% of the advance amount is payable
                with
                one-eighth paid at closing and seven-eighths paid with each loan
                funding.


·
            Repayment
                of each advance under the Acquisition Facility is interest only for
                first
                year then amortizing for 36 to 48 months, to be determined for each
                advance, with no penalty to prepay any principal balance. The loan
                will
                also be reduced annually by an amount equal to 25% of excess cash
                flow, as
                defined in the Amendment, beginning December 31,
                2008.


·
            CPC
                may negotiate with the Company to revise existing financial covenants
                in
                conjunction with each advance as
                required.


·
            Termination
                date of the senior credit facility was extended to August 1, 2009,
                subject
                to automatic renewal as defined in the
                Amendment.





**Item
      6. Exhibits**





See
      exhibit list in the Index to Exhibits is incorporated herein by reference as
      the
      list of exhibits required as part of this report.







SIGNATURE





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned, thereunto
      duly authorized.




INX
                Inc.Date:
                August 6, 2007
            By:
            /s/
                BRIAN FONTANABrian
                Fontana, Vice Presidentand
                Chief Financial Officer







20




**Index
      to Exhibits**








**Exhibit**
              **No.**
            
            **Description**
            
            **Filed
                Herewith or Incorporated by Reference From:**10.1
            
            Fifth
                Amendment to I-Sector Corporate Incentive Plan
            
            Exhibit
                10.1 to Form 8-K filed May 15, 200710.2
            
            Acquisition
                Facility Amendment to Amended and Restated Credit Agreement by and
                among
                Castle Pines Capital LLC, and INX, Inc. dated August 1,
                2007
            
            Filed
                herewith.31.1
            
            Rule
                13a-14(a)/15d-14(a) Certification of Principal Executive
                Officer
            
            Filed
                herewith.31.2
            
            Rule
                13a-14(a)/15d-14(a) Certification of Principal Financial
                Officer
            
            Filed
                herewith.32.1
            
            Section
                1350 Certification of Principal Executive Officer
            
            Filed
                herewith.32.2
            
            Section
                1350 Certification of Principal Financial Officer
            
            Filed
                herewith.









21