Table of Contents





UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 
 FORM
10-Q
 
 (Mark
One)
 R
                QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarterly period ended March 31, 2009OR£
                TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from January 1, 2009 to March 31,
    2009
 
 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, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 Large
      accelerated filer £
              Accelerated
      filer £
              Non-accelerated
      filer £
              Smaller
      reporting company R(Do
      not check if a smaller reporting company)
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes £    No
R
 
 The
Registrant has 8,812,326 shares of common stock outstanding as of May 4,
2009.
 
 
 INXInc. and Subsidiaries
 FORM
10-Q for the Quarter Ended March 31, 2009
 
 INDEX
 
 Part I. Financial Information
                3Item 1. Financial Statements
(Unaudited):
                3Condensed Consolidated Statements of Operations for the
      three months ended March 31, 2009 and 2008
                3Condensed Consolidated Balance Sheets at March 31, 2009 and
      December 31, 2008
                4Condensed Consolidated Statement of Stockholders’ Equity
      for the three months ended March 31, 2009
                5Condensed Consolidated Statements of Cash Flows for the
      three months ended March 31, 2009 and 2008
                6Notes to Condensed Consolidated Financial
      Statements
                7Item 2. Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
                12Item 4T. Controls and Procedures
                15Part II. Other Information
                15Item 1. Legal Proceedings
                15Item 2. Unregistered Sales of Equity Securities and Use
      of Proceeds
                15Item 6. Exhibits
                16Signature
                16
 
 2
 Table
of Contents
 PART1. FINANCIAL INFORMATION
 
 Item
1. Financial Statements (Unaudited):
 
 INX INC.
AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 (In
thousands, except share and per share amounts)
 (Unaudited)
 
 Three
      Months
                        Ended March 31,2009
                      
                      
                      2008Revenue:Products
                      
                      $
                      44,566
                      
                      
                      $
                      50,491Services
                      
                      
                      12,975
                      
                      
                      
                      9,152Total
      revenue
                      
                      
                      57,541
                      
                      
                      
                      59,643Cost
      of products and services:Products
                      
                      
                      36,122
                      
                      
                      
                      41,284Services
                      
                      
                      8,934
                      
                      
                      
                      6,212Total
      cost of products and services
                      
                      
                      45,056
                      
                      
                      
                      47,496Gross
      profit
                      
                      
                      12,485
                      
                      
                      
                      12,147Selling,
      general and administrative expenses
                      
                      
                      12,736
                      
                      
                      
                      10,384Operating
      (loss) income
                      
                      
                      (251
                      )
                      
                      
                      1,763Interest
      and other income (expense), net
                      
                      
                      12
                      
                      
                      
                      (73
                      )(Loss)
      income from continuing operations before income taxes
                      
                      
                      (239
                      )
                      
                      
                      1,690Income
      tax expense
                      
                      
                      51
                      
                      
                      
                      683Net
      loss (income) from continuing operations
                      
                      
                      (290
                      )
                      
                      
                      1,007(Loss)
      income from discontinued operations, net of income taxes
                      
                      
                      (39
                      )
                      
                      
                      4Net
      (loss) income
                      
                      $
                      (329
                      )
                      
                      $
                      1,011Net
      (loss) income per share:Basic:(Loss)
      income from continuing operations
                      
                      $
                      (0.03
                      )
                      
                      $
                      0.13(Loss)
      income from discontinued operations, net of income taxes
                      
                      
                      (0.01
                      )
                      
                      
                      —Net
      (loss) income per share
                      
                      $
                      (0.04
                      )
                      
                      $
                      0.13Diluted:(Loss)
      income from continuing operations
                      
                      $
                      (0.03
                      )
                      
                      $
                      0.12(Loss)
      income from discontinued operations, net of income taxes
                      
                      
                      (0.01
                      )
                      
                      
                      —Net
      (loss) income per share
                      
                      $
                      (0.04
                      )
                      
                      $
                      0.12Shares
      used in computing net (loss) income per share:Basic
                      
                      
                      8,706,210
                      
                      
                      
                      7,550,904Diluted
                      
                      
                      8,706,210
                      
                      
                      
                      8,242,191
 
 The
accompanying notes are an integral part of these condensed consolidated
financial statements.
 
 3
 Table
of Contents
 
 INXINC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 (In
thousands, except share and par value amounts)
 
 March
      31,
                      2009
                    
                    
                    December
      31,
                      2008(Unaudited)ASSETSCurrent
      Assets:Cash
      and cash equivalents
                    
                    $
                    8,681
                    
                    
                    $
                    10,937Accounts
      receivable, net of allowance of $629 and $735
                    
                    
                    46,710
                    
                    
                    
                    52,866Inventory,
      net
                    
                    
                    2,745
                    
                    
                    
                    2,406Other
      current assets
                    
                    
                    1,562
                    
                    
                    
                    1,275Total
      current assets
                    
                    
                    59,698
                    
                    
                    
                    67,484Property
      and equipment, net of accumulated depreciation of $5,896 and
      $5,429
                    
                    
                    4,998
                    
                    
                    
                    5,207Goodwill
                    
                    
                    12,751
                    
                    
                    
                    12,751Intangible
      and other assets, net of accumulated amortization of $2,531 and
      $2,346
                    
                    
                    1,667
                    
                    
                    
                    1,852Total
      assets
                    
                    $
                    79,114
                    
                    
                    $
                    87,294LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      Liabilities:Notes
      payable
                    
                    $
                    84
                    
                    
                    $
                    91Current
      portion of capital lease obligations
                    
                    
                    191
                    
                    
                    
                    77Accounts
      payable
                    
                    
                    36,620
                    
                    
                    
                    45,172Accrued
      expenses
                    
                    
                    6,885
                    
                    
                    
                    6,873Other
      current liabilities
                    
                    
                    783
                    
                    
                    
                    1,072Total
      current liabilities
                    
                    
                    44,563
                    
                    
                    
                    53,285Long-term
      Liabilities:Long-term
      portion of capital lease obligations
                    
                    
                    308
                    
                    
                    
                    163Other
      long-term liabilities
                    
                    
                    317
                    
                    
                    
                    250Total
      long-term liabilities
                    
                    
                    625
                    
                    
                    
                    413Commitments
      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, 8,802,835 and
      8,709,304 shares issued
                    
                    
                    88
                    
                    
                    
                    87Additional
      paid-in capital
                    
                    
                    51,350
                    
                    
                    
                    50,692Accumulated
      deficit
                    
                    
                    (17,512
                    )
                    
                    
                    (17,183
                    )Total
      stockholders’ equity
                    
                    
                    33,926
                    
                    
                    
                    33,596Total
      liabilities and stockholders’ equity
                    
                    $
                    79,114
                    
                    
                    $
                    87,294
 
 The
accompanying notes are an integral part of these condensed consolidated
financial statements.
 
 4
 Table
of Contents
 
 INXINC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
 (In
thousands, except share amounts)
 (Unaudited)
 
 $.01
      par value
                          Common Stock
                        
                        
                        Additional
                          Paid-In
                        
                        
                        AccumulatedShares
                        
                        
                        Amount
                        
                        
                        Capital
                        
                        
                        Deficit
                        
                        
                        TotalBalance
      at December 31, 2008
                        
                        
                        8,709,304
                        
                        
                        $
                        87
                        
                        
                        $
                        50,692
                        
                        
                        $
                        (17,183
                        )
                        
                        $
                        33,596Issuance
      of vested restricted common stock
                        
                        
                        38,367
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Share-based
      compensation expense related to employee stock options, employee
      restricted stock grants, and employee stock purchase plan
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        580
                        
                        
                        
                        —
                        
                        
                        
                        580Issuance
      of common stock  under employee stock purchase
    plan
                        
                        
                        83,470
                        
                        
                        
                        1
                        
                        
                        
                        166
                        
                        
                        
                        —
                        
                        
                        
                        167Purchase
      and retirement of treasury stock resulting from grantee election to fund
      payroll taxes out of restricted stock grant
                        
                        
                        (8,840
                        )
                        
                        
                        —
                        
                        
                        
                        (22
                        )
                        
                        
                        —
                        
                        
                        
                        (22
                        )Purchase
      and retirement of common stock
                        
                        
                        (19,466
                        )
                        
                        
                        —
                        
                        
                        
                        (66
                        )
                        
                        
                        —
                        
                        
                        
                        (66
                        )Net
      loss
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (329
                        )
                        
                        
                        (329
                        )Balance
      at March 31, 2009
                        
                        
                        8,802,835
                        
                        
                        $
                        88
                        
                        
                        $
                        51,350
                        
                        
                        $
                        (17,512
                        )
                        
                        $
                        33,926
 
 The
accompanying notes are an integral part of these condensed consolidated
financial statement.
 
 5
 Table
of Contents
 
 INXINC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In
thousands)
 (Unaudited)
 
 Three
      Months
                        Ended March 31,2009
                      
                      
                      2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      (loss) income
                      
                      $
                      (329
                      )
                      
                      $
                      1,011Adjustments
      to reconcile net income (loss) to net cash used in operating
      activities:Net
      loss (income) from discontinued operations
                      
                      
                      39
                      
                      
                      
                      (4
                      )Depreciation
      and amortization
                      
                      
                      727
                      
                      
                      
                      520Share-based
      compensation expense for employee stock options, stock
grants,
                        and
      employee stock purchase plan
                      
                      
                      580
                      
                      
                      
                      312Loss
      on retirement of assets
                      
                      
                      22
                      
                      
                      
                      15Bad
      debt expense
                      
                      
                      (5
                      )
                      
                      
                      (45
                      )Changes
      in operating assets and liabilities, net of effect of
      acquisitions:Accounts
      receivable
                      
                      
                      6,161
                      
                      
                      
                      (119
                      )Inventory
                      
                      
                      (339
                      )
                      
                      
                      (167
                      )Accounts
      payable
                      
                      
                      (8,552
                      )
                      
                      
                      (1,746
                      )Other
      assets and liabilities
                      
                      
                      (487
                      )
                      
                      
                      144Net
      cash used in operating activities
                      
                      
                      (2,183
                      )
                      
                      
                      (79
                      )CASH
      FLOWS FROM INVESTING ACTIVITIES:Acquisition
      of Select, Inc. purchase price adjustments
                      
                      
                      —
                      
                      
                      
                      (54
                      )Capital
      expenditures
                      
                      
                      (125
                      )
                      
                      
                      (563
                      )Net
      cash used in investing activities
                      
                      
                      (125
                      )
                      
                      
                      (617
                      )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from issuance of common stock for purchases under employee stock purchase
      plan
                      
                      
                      167
                      
                      
                      
                      —Proceeds
      from other short-term borrowings
                      
                      
                      —
                      
                      
                      
                      251Exercise
      of stock options
                      
                      
                      —
                      
                      
                      
                      403Excess
      tax benefits from stock option exercises
                      
                      
                      —
                      
                      
                      
                      601Purchase
      of common stock
                      
                      
                      (66
                      )
                      
                      
                      (1,536
                      )Purchase
      of treasury stock resulting from grantee election
                      
                      
                      (22
                      )
                      
                      
                      (3
                      )Payments
      on notes payable and capital lease obligations
                      
                      
                      (27
                      )
                      
                      
                      (124
                      )Net
      cash provided by (used in) financing activities
                      
                      
                      52
                      
                      
                      
                      (408
                      )NET
      (DECREASE) IN CASH AND CASH EQUIVALENTS
                      
                      
                      (2,256
                      )
                      
                      
                      (1,104
                      )CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
                      
                      
                      10,937
                      
                      
                      
                      9,340CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
                      
                      $
                      8,681
                      
                      
                      $
                      8,236
  
 SUPPLEMENTAL
      NONCASH INVESTING AND FINANCING ACTIVITIES:Capital
      lease obligation:Fair
      value of assets acquired
                  
                  $
                  279
                  
                  
                  $
                  —Capital
      lease obligation incurred
                  
                  
                  (279
                  )
                  
                  
                  —
 
 The
accompanying notes are an integral part of these condensed consolidated
financial statements.
 
 6
 Table
of Contents
 
 INXINC. AND SUBSIDIARIES
 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 technology infrastructure solutions
for enterprise-class organizations such as corporations, schools and federal,
state and local governmental agencies. The solutions INX provides consist of
three broad categories of technology infrastructure: network infrastructure,
unified communications and data center. Network infrastructure solutions consist
of network routing and switching, wireless networking and network security
solutions. Unified communications solutions consist of Internet Protocol (“IP”)
network-based voice or telephone solutions as well as IP network-based video
communications solutions. Data center solutions consist of network storage
solutions and data center server virtualization solutions. The accompanying
consolidated financial statements include the accounts of INX Inc. and its
wholly-owned subsidiaries, Select, Inc. and Valerent, Inc. All intercompany
transactions and accounts are eliminated in consolidation. Select, Inc. and
Valerent, Inc. were merged into INX Inc. as of the close of business on
December 31, 2008.
 
 2.
Basis of Presentation
 
 The
accompanying unaudited financial data as of March 31, 2009 and for the
three-month periods ended March 31, 2009 and 2008 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, 2008 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, 2008.
 
 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 March 31, 2009, results of operations for the
three-month periods ended March 31, 2009 and 2008, cash flows for the three
months ended March 31, 2009 and 2008, and stockholders’ equity for the three
months ended March 31, 2009, have been included. The results of the interim
periods are not necessarily indicative of results for the full year or any
future period.
 
 3.
Recent Accounting Pronouncements
 
 In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations”
(SFAS 141R). The purpose of issuing the statement is to replace current
guidance in SFAS 141 to better represent the economic value of a business
combination transaction. The changes to be effected with SFAS 141R from the
current guidance include, but are not limited to: (1) acquisition costs
will be recognized separately from the acquisition; (2) known contractual
contingencies at the time of the acquisition will be considered part of the
liabilities acquired and measured at their fair value; all other contingencies
will be part of the liabilities acquired measured at their fair value only if it
is more likely than not that they meet the definition of a liability;
(3) contingent consideration based on the outcome of future events will be
recognized and measured at the time of the acquisition; (4) business
combinations achieved in stages (step acquisitions) will need to recognize the
identifiable assets and liabilities, as well as noncontrolling interests, in the
acquiree, at the full amounts of their fair values; and (5) a bargain
purchase (defined as a business combination in which the total acquisition-date
fair value of the identifiable net assets acquired exceeds the fair value of the
consideration transferred plus any noncontrolling interest in the acquiree) will
require that excess to be recognized as a gain attributable to the acquirer.
SFAS 141R is effective for the Company beginning January 1, 2009. The
Company anticipates that the adoption of SFAS 141R will have a impact on
the way in which future business combinations will be accounted for compared to
prior practice.
 
 7
 Table
of Contents
 In
September 2006, the FASB issued Statement on Financial Accounting Standards
No. 157 “Fair Value
Measurements”(“SFAS 157”). SFAS 157 clarifies the definition
of fair value for financial reporting, establishes a framework for measuring
fair value and requires additional disclosures about the use of fair value
measurements. SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007 and interim periods within
those fiscal years. However, on February 12, 2008, the FASB issued FASB
Staff Position (“FSP”) SFAS No. 157-2 (“FSP 157-2”) which delays
the effective date of SFAS 157 for all non-financial assets and
non-financial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually).
FSP 157-2 partially defers the effective date of SFAS 157 to fiscal
years beginning after November 15, 2008, and interim periods within those
fiscal years for items within the scope of FSP 157-2. In addition, FASB
issued a staff position, FSP SFAS No. 157-1, to clarify that
SFAS No. 157 does not apply under SFAS No. 13, Accounting for Leases, and
other accounting pronouncements that address fair value measurements for
purposes of lease classifications under SFAS No. 13 and FSP
SFAS No. 157-3 to provide guidance for determining the fair value of a
financial asset when the market for that asset is not active. The Company
elected to defer adoption of SFAS 157 relating to non-recurring,
non-financial assets and liabilities until January 1, 2009. The adoption of
SFAS 157 did not have a material effect on the Company’s consolidated
financial statements.
 
 In April
2009 the FASB issued FSP FAS 157-4, “Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly,” to provide
additional guidance on estimating fair value when the volume and level of
activity for an asset or liability have significantly decreased and determining
when a transaction is not orderly. FSP FAS 157-4 applies to all assets and
liabilities within the scope of pronouncements that require or permit fair value
measurements under SFAS 157 except as specifically discussed in SFAS 157. FSP
FAS 157-4 does not apply to Level 1 inputs, regardless of changes in the volume
and level of activity for an asset or liability. Level 1 inputs are defined in
SFAS 157 as quoted prices for an identical asset or liability in an active
market.  FSP FAS 157-4 emphasizes that, regardless of whether the
volume and level of activity for an asset or liability have decreased
significantly and regardless of which valuation technique was used, the
objective of a fair value measurement under SFAS 157 remains the same—to
estimate the price that would be received to sell an asset or transfer a
liability in an orderly transaction between market participants at the
measurement date under current market conditions. The FSP FAS 157-4 specifically
addresses the market participant aspect of the objective of a fair value
measurement under SFAS 157 by stating that an entity’s intention to hold an
asset or liability is irrelevant for purposes of a fair value
measurement.  The adoption of FSP FAS 157-4 did not have a material
effect on the Company’s consolidated financial statements.
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial
Statements — an amendment of ARB No. 51” (SFAS 160).
SFAS 160 was issued to improve the relevance, comparability, and
transparency of financial information provided to investors by requiring all
entities to report noncontrolling (minority) interests in subsidiaries in the
same way, that is, as equity in the consolidated financial statements. Moreover,
SFAS 160 eliminates the diversity that currently exists in accounting for
transactions between an entity and noncontrolling interests by requiring they be
treated as equity transactions. SFAS 160 is effective for the Company
beginning January 1, 2009. The adoption of SFAS 160 did not have a material
impact on the Company’s consolidated financial statements.
 
 In
January 2009, the Company adopted SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (SFAS 162). SFAS 162 identifies the sources of
accounting principles and provides entities with a framework for selecting the
principles used in preparation of financial statements that are presented in
conformity with GAAP. The current GAAP hierarchy has been criticized because it
is directed to the auditor rather than the entity, it is complex, and it ranks
FASB Statements of Financial Accounting Concepts, which are subject to the same
level of due process as FASB Statements of Financial Accounting Standards, below
industry practices that are widely recognized as generally accepted but that are
not subject to due process. The FASB believes the GAAP hierarchy should be
directed to entities because it is the entity (not its auditors) that is
responsible for selecting accounting principles for financial statements that
are presented in conformity with GAAP. The adoption of SFAS 162
did not have a material effect on the Company’s consolidated financial
statements.
 
 On
January 1, 2009 the Company adopted FASB Staff Position EITF 03-6-1, “Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities”(“FSP
EITF 03-6-1”). FSP EITF 03-6-1 clarified that all outstanding unvested
share-based payment awards that contain rights to nonforfeitable dividends
participate in undistributed earnings with common shareholders. Awards of this
nature are considered participating securities and the two-class method of
computing basic and diluted EPS must be applied.  The adoption of EITF
03-6-1 did not have a material effect on the Company’s basic earnings per
share.
 
 In April
2009 the FASB issued  FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments.  This FSP amends FASB Statement No.
107, Disclosures about Fair
Value of Financial Instruments,to require disclosures about fair value
of financial instruments for interim reporting periods of publicly traded
companies as well as in annual financial statements. This FSP also amends APB
Opinion No. 28, Interim
Financial Reporting,to require those disclosures in summarized financial
information at interim reporting periods and is effective for interim periods
ending after June 15, 2009.  The Company expects to include the
required additional disclosures in its quarterly Report on Form 10-Q as of June
30, 2009.
 
 8
 Table
of Contents
  4.
Acquisitions
 
 Access
Flow, Inc.
 
 Under an
Asset Purchase Agreement dated June 6, 2008 (the “APA”), the Company
purchased the operations and certain assets, and assumed specified liabilities
of Access Flow, Inc. (“AccessFlow”). AccessFlow is a Sacramento,
California-based consulting organization focused on delivering VMware-based data
center virtualization solutions, with revenues for the twelve months ended
March 31, 2008 of approximately $10,500. The Company completed the
acquisition simultaneously with the execution of the APA. Neither AccessFlow nor
any shareholder of AccessFlow has any prior affiliation with the Company. The
APA contains customary representations and warranties and requires AccessFlow
and its Shareholders to indemnify the Company for certain liabilities arising
under the APA, subject to certain limitations and conditions.
 
 The
consideration paid at closing pursuant to the APA was (a) $2,450 in cash
and (b) 262,692 shares of the Company’s common stock. Additional
purchase consideration is payable to AccessFlow based on certain financial
performance during each of the two-year periods ending June 30, 2009 and
June 30, 2010. The financial performance upon which such additional
purchase consideration is based includes the following business components:
(i) the acquired AccessFlow Sacramento, California branch office revenue
excluding its hosting business, (ii) the acquired AccessFlow hosting
business, and (iii) customer billings for certain virtualization products
and services specified in the APA generated by the Company’s pre-existing
fourteen branch office locations. The APA specifies the computation of
additional purchase consideration earned under each business component,
including a minimum and maximum amount payable for each of the two years. For
each business component the minimum annual additional consideration payable is
zero and the maximum annual additional consideration payable is (i) $405,
(ii) $405, and (iii) $540, respectively. At the Company’s option, 50%
of such additional consideration may be paid in the form of common stock.
Additional purchase consideration, if any, will be recorded as
goodwill.
 
 NetTeks
Technology Consultants, Inc.
 
 Under an
Asset Purchase Agreement dated November 14, 2008 (the “Agreement”), the
Company purchased the operations and certain assets, and assumed specified
liabilities of NetTeks Technology Consultants, Inc. (“NetTeks”). NetTeks is a
Boston, Massachusetts-based network consulting organization with offices in
downtown Boston and Glastonbury, Connecticut, with revenues for the twelve
months ended September 30, 2008 of approximately $12,700. The Company
completed the acquisition simultaneously with the execution of the Agreement.
Neither NetTeks nor any shareholder of NetTeks has any prior affiliation with
the Company. The Agreement contains customary representations and warranties and
requires NetTeks and its shareholders to indemnify the Company for certain
liabilities arising under the Agreement, subject to certain limitations and
conditions.
 
 The
consideration paid at closing pursuant to the Agreement was (a) $1,350 in
cash and (b) 30,770 shares of the Company’s common stock, of which
15,385 common stock shares were held in escrow under holdback provisions defined
in the Agreement.  Additional purchase consideration is payable based
on NetTeks’ branch office operating income contribution during each of the
two-year periods ending November 30, 2009 and November 30, 2010. The
Agreement specifies the computation of additional purchase consideration earned
including a minimum of zero for each of the two-year periods and a maximum of
$1,313 for the period ending November 30, 2009 and $1,488 for the period
ending November 30, 2010. At the Company’s option, 50% of such additional
purchase price may be paid in the form of Common Stock. Additional purchase
consideration, if any, will be recorded as goodwill.
 
 VocalMash
 
 Under an
Asset Purchase Agreement dated December 4, 2008 (“VocalMash APA”), the
Company purchased the operations of VocalMash, a business owned and operated by
INX’s Vice President of Sales. VocalMash is an application integration company
that utilizes Web 2.0 technologies to integrate unified communications systems
with other enterprise applications. The Company completed the acquisition
simultaneously with the execution of the VocalMash APA. The VocalMash APA
contains customary representations and warranties and requires VocalMash and its
owner to indemnify the Company for certain liabilities arising under the
VocalMash APA, subject to certain limitations and conditions.
 
 The
consideration paid at closing pursuant to the VocalMash APA was
60,000 shares of the Company’s common stock. The common stock was valued at
$4.89 per share or $293. Additional purchase consideration of up to a
maximum of $380 may be payable under the VocalMash APA based on the achievement
of operating income contribution targets for 2009. Additional purchase
consideration, if any, will be recorded as goodwill.
 
 9
 Table
of Contents
 Pro
Forma Summary
 
 The
following pro forma consolidated amounts give effect to the Company’s
acquisition of AccessFlow, NetTeks, and VocalMash as if they had occurred
January 1, 2008. The pro forma consolidated amounts presented below are based on
continuing operations. The pro forma consolidated amounts are not necessarily
indicative of the operating results that would have been achieved had the
transaction been in effect and should not be construed as being representative
of future operating results.
 
 Three
      Months Ended March 31,
      2008Revenues
                  
                  $
                  66,089Net
      income from continuing operations
                  
                  $
                  1,259Net
      income per share from continuing operations:Basic
                  
                  $
                  0.16Diluted
                  
                  $
                  0.15Weighted
      average shares used in calculation:Basic
                  
                  
                  7,916,301Diluted
                  
                  
                  8,607,588
 
 5.
Earnings Per Share
 
 Basic
earnings per share is computed by dividing net income by the weighted-average
number of common shares outstanding for the period. Diluted earnings per share
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 March
31,2009
                          
                          
                          2008Numerator
      for basic and diluted earnings per share:Net
      (loss) income from continuing operations
                          
                          $
                          (290
                          )
                          
                          $
                          1,007(Loss)
      income on disposal of discontinued operations, net of income
      taxes
                          
                          
                          (39
                          )
                          
                          
                          4Net
      (loss) income
                          
                          $
                          (329
                          )
                          
                          $
                          1,011Denominator
      for basic earnings per share — weighted-average shares
      outstanding
                          
                          
                          8,706,210
                          
                          
                          
                          7,550,904Effect
      of dilutive securities — shares issuable from assumed conversion of common
      stock options, restricted stock, and warrants
                          
                          
                          —
                          
                          
                          
                          691,287Denominator
      for diluted earnings per share — weighted-average shares
      outstanding
                          
                          
                          8,706,210
                          
                          
                          
                          8,242,191
 
 For the
three month period ended March 31, 2009, the Company’s potentially dilutive
options of 386,635 were not used in the calculation of diluted earnings since
the effect of potentially dilutive securities in computing a loss per share is
antidilutive.  For the three month period ended March 31, 2008, the
Company’s potentially dilutive options of 218,500 and warrants of 625,000 were
not used in the calculation of diluted earnings since the effect of potentially
dilutive securities is antidilutive.
 
 6.
Share-Based Compensation
 
 The
Company recognized employee share-based compensation expense for stock option,
restricted stock grants, and the employee stock purchase plan of $580 and $312
during the three months ended March 31, 2009 and 2008, respectively. The
unrecognized compensation cost related to the Company's unvested stock options
as of March 31, 2009 and 2008 was $1,378 and $2,039, respectively and is
expected to be recognized over a weighted-average period of 1.7 years and
2.0 years, respectively.  The unrecognized compensation cost related
to the Company's unvested restricted shares as of March 31, 2009 and 2008 was
$3,446 and $1,766, respectively and is expected to be recognized over a
weighted-average period of 3.7 years and 4.0 years,
respectively.
 
 10
 Table
of Contents
 7.
Senior Credit Facility
 
 The
Company has a $60,000 maximum aggregate line of credit with Castle Pines
Capital LLC (“CPC”) under a senior credit facility. The CPC senior credit
facility is used primarily for inventory financing and working capital
requirements.  At March 31, 2009, $31,512 was outstanding under the
Facility and reported under accounts payable, and the unused availability was
$5,528.  At March 31, 2009, the Company was in compliance with the
loan covenants of the senior credit facility.
 
 8.
Stockholders’ Equity
 
 On
September 10, 2008, the Board of Directors authorized a common stock
repurchase plan of up to $2,000 of the Company’s common stock on or before
December 31, 2008. The purchases were required to be made in open market or
privately negotiated transactions in compliance with Rule 10b-18 under the
Securities Exchange Act of 1934, as amended, subject to market and business
conditions, applicable legal requirements and other factors. The plan also
requires the purchased shares to be retired as soon as practicable following the
purchase. The plan did not obligate the Company to purchase any particular
amount of common stock and could be suspended at any time at the Company’s
discretion.  On December 3, 2008, the Board of Directors modified
the existing common stock repurchase plan, authorizing the repurchase of $2,000
during the period January 1, 2009 to March 31, 2009.  During
the three-month period ended March 31, 2009, 19,466 shares were purchased for
$66. From inception of the repurchase plan to March 31, 2009,
300,339 shares were purchased for $1,762, an average purchase price of
$5.87 per share. The repurchase plan expired on March 31,
2009.
 
 9.
Commitments and Contingencies
 
 Self-Insured
Medical Plan
 
 Effective
January 1, 2009, the Company changed its employee medical insurance coverage to
self-insure for losses up to $100 per claim.  The Company maintains
stop loss coverage with a third party insurer to limit its total exposure with
an annual aggregate loss limit of $2,357 based on the current enrollment in the
plan. During the three month period ended March 31, 2009, we incurred medical
claims totaling $392 and recorded a liability of $91 as of March 31, 2009 as an
estimate of the ultimate cost of claims incurred as of the balance sheet date,
based on an analysis of historical data and actuarial estimates.
 
 Litigation
 
 The
Company served as a subcontractor to Complete Communications Services, Inc.
(“CoCom”), a subcontractor on certain school district contracts during 2007. On
August 24, 2007, CoCom filed a Chapter 11 Petition in
U.S. Bankruptcy Court. As of December 31, 2008, the Company had no
outstanding accounts receivable from CoCom. The Company received payments of
$102 during the ninety day period preceding the bankruptcy filing which could
potentially be deemed preferential. While the result of the potential preference
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 24, 2008, Schneider Rucinski Enterprises (“Plaintiff”) filed a
lawsuit in the United States District Court Southern District of California
(“Court”) styled Schneider
Rucinski Enterprises v. Touch Asia Outsourcing Solutions,
Stratasoft, Inc., INX
Inc., et alclaiming damages of $555 and other relief including
relief under RICO statutes. On December 8, 2008, we filed motions to
dismiss on the grounds of lack of federal jurisdiction and failure to state
claims upon which relief could be granted. Oral arguments were made during a
hearing on February 24, 2009 and, on March 3, 2009, the Court ruled in
INX’s favor, dismissing the lawsuit and closing the case.
 
 On
January 6, 2009, Lyondell Chemical Company (“Lyondell”) filed a
Chapter 11 Petition in U.S. Bankruptcy Court. As of December 31,
2008, the Company had an accounts receivable from Lyondell of $99, less an
allowance for doubtful accounts of $99. The Company received payments of $539
during the ninety day period preceding the bankruptcy filing which could
potentially be deemed preferential. INX cannot predict the final outcome of this
matter, including whether it could have a materially adverse effect on its
results of operations or financial position.
 
 On
February 6, 2009, INX filed a lawsuit in the United States District Court
Eastern District of Texas styled InternetworkExperts, Inc.
(INX) v. International Business Machines Corporationclaiming damages totaling $1,791 plus interest, attorney fees, and costs
of suit for breach of purchase orders in 2004 and 2006 under which payments were
due upon early termination of services. The amount that may ultimately be
recovered, if any, cannot be determined at this time, and such amount will be
recorded only upon settlement and payment by the defendant.
 
 11
 Table
of Contents
 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.
 
 
 Item2.
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 Quarterly Report on Form 10-Q and our Annual
Report on Form 10-K for the fiscal year ended December 31, 2008, 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. 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, 2008, as filed with the Securities and Exchange Commission
including the matters set forth in Item 1A. — “Risk Factors,” 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.
 
 Three Months Ended March 31, 2009
Compared To the Three Months Ended March 31, 2008
 
 Three Months Ended March
31,2009
                        
                        
                        2008Amount
                        
                        
                        %
                        
                        
                        Amount
                        
                        
                        %Revenue:Products
                        
                        $
                        44,566
                        
                        
                        
                        77.5
                        
                        
                        $
                        50,491
                        
                        
                        
                        84.7Services
                        
                        
                        12,975
                        
                        
                        
                        22.5
                        
                        
                        
                        9,152
                        
                        
                        
                        15.3Total
      revenue
                        
                        
                        57,541
                        
                        
                        
                        100.0
                        
                        
                        
                        59,643
                        
                        
                        
                        100.0Gross
      profit:Products
                        
                        
                        8,444
                        
                        
                        
                        18.9
                        
                        
                        
                        9,207
                        
                        
                        
                        18.2Services
                        
                        
                        4,041
                        
                        
                        
                        31.1
                        
                        
                        
                        2,940
                        
                        
                        
                        32.1Total
      gross profit
                        
                        
                        12,485
                        
                        
                        
                        21.7
                        
                        
                        
                        12,147
                        
                        
                        
                        20.4Selling,
      general and administrative expenses
                        
                        
                        12,736
                        
                        
                        
                        22.1
                        
                        
                        
                        10,384
                        
                        
                        
                        17.4Operating
      (loss) income
                        
                        
                        (251
                        )
                        
                        
                        (0.4
                        )
                        
                        
                        1,763
                        
                        
                        
                        3.0Interest
      and other income (expense), net
                        
                        
                        12
                        
                        
                        
                        —
                        
                        
                        
                        (73
                        )
                        
                        
                        (0.2
                        )Income
      tax expense
                        
                        
                        51
                        
                        
                        
                        0.1
                        
                        
                        
                        683
                        
                        
                        
                        1.1Net
      (loss) income from continuing operations
                        
                        
                        (290
                        )
                        
                        
                        (0.5
                        )
                        
                        
                        1,007
                        
                        
                        
                        1.7(Loss)
      income from discontinued operations, net of income taxes
                        
                        
                        (39
                        )
                        
                        
                        (0.1
                        )
                        
                        
                        4
                        
                        
                        
                        —Net
      (loss) income
                        
                        $
                        (329
                        )
                        
                        
                        (0.6
                        )
                        
                        $
                        1,011
                        
                        
                        
                        1.7
 
 Revenue. Total revenue
decreased by $2,102, or 3.5%, to $57,541 from $59,643. Products revenue
decreased $5,925, or 11.7% to $44,566 from $50,491. The decrease in products
revenue was primarily due to our markets becoming increasingly affected by the
continuing macroeconomic downturn in the United States.  We
experienced lower revenue in the Northwest Region, National Division, Southwest
Region, and Gulf Coast Region, partially offset by revenue from newly acquired
locations in the New England Region and Northern California Region and increased
products revenue from large projects in the Southern California and North Texas
Regions. Services revenue increased $3,823 or 41.8% to $12,975 from $9,152.
Services revenue increased in the majority of our Regions, led by increases in
the Federal Division, Central Texas Region, Southwest Region, and Southern
California Region, and the newly acquired locations in the New England Region
and Northern California Region.
 
 12
 Table
of Contents
 Gross Profit. Total gross
profit increased by $338, or 2.8%, to $12,485 from $12,147. Gross profit as a
percentage of revenue increased to 21.7% from 20.4%, due to higher products
revenue margins and substantially higher 2009 services revenues as a percent of
total revenues. Gross profit on the products sales component decreased $763 or
8.3%, to $8,444 from $9,207 and, as a percentage of sales, increased to 18.9%
from 18.2%. Gross profit on services revenue increased $1,101 or 37.4% to $4,041
from $2,940 and gross profit as a percent of services revenue decreased to 31.1%
from 32.1%. The services gross margin in both periods was within our target
range of 30 to 35%.
 
 Selling, General and Administrative
Expenses. Selling, general and administrative expenses increased by
$2,352, or 22.7% to $12,736 from $10,384. As a percentage of total revenue,
these expenses increased to 22.1% in 2009 versus 17.4% in 2008. Increased 2009
expenses reflect selling, general and administrative expenses of the operations
acquired in the NetTeks, AccessFlow, and VocalMash  acquisitions,
additional sales and administrative personnel costs from headcount increases,
and substantially higher audit and tax costs.
 
 Operating (Loss) Income.
Operating income decreased $2,014 to a loss of $251 from income of $1,763,
primarily due to lower sales and proportionately higher selling, general and
administrative expenses partially offset by higher gross margins.
 
 Interest and Other Income (Expense),
Net. Interest and other income (expense), net, changed by $85 to income
of $12 from expense of $73, primarily due to the elimination of borrowings under
our senior credit facility in June 2008.
 
 Income Tax Expense. Income
tax expense decreased by $632 to $51 from $683, primarily due to lower 2009
pretax income.  An income tax benefit was not recognized for the 2009
loss due to the corresponding valuation allowance recorded as discussed further
under “Deferred Tax
Assets” below.
 
 Net (Loss) Income. Net income
decreased $1,340 to a loss of $329 from income of $1,011, primarily due to lower
sales and proportionately higher selling, general and administrative expenses
partially offset by higher gross margins and lower income tax
expense.
 
 Tax Loss Carryforward.Because of our operating losses in 2003, 2005, 2006 and 2008, and
exercises of stock options, we have accumulated a net operating loss
carryforward for federal income tax purposes that, at March 31, 2009, was
approximately $2,540. Since United States tax laws limit the time during which
an NOL may be applied against future taxable income and tax liabilities, we may
not be able to take full advantage of our NOL carryforward for federal income
tax purposes. The carryforward will expire during the period 2023 through 2026
if not otherwise used. A change in ownership, as defined by federal income tax
regulations, could significantly limit the company’s ability to utilize its
carryforward.
 
 As a
result of the adoption of SFAS 123(R), we recognize tax benefits associated with
the exercise of stock options directly to stockholders’ equity only when
realized. Accordingly, deferred tax assets are not recognized for net operating
loss carryforwards resulting from windfall tax benefits. A windfall tax benefit
occurs when the actual tax benefit realized upon an employee’s disposition of a
share-based award exceeds the cumulative book compensation charge associated
with the award. At March 31, 2009, windfall tax benefits included in NOL
carryforward but not reflected in deferred tax assets are $2,540.
 
 Deferred Tax Assets.In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in which temporary
differences, as determined pursuant to SFAS No. 109, “Accounting for Income
Taxes,” become deductible. Management considers the reversal of deferred tax
liabilities, projected future income, and tax planning strategies in making this
assessment. Management’s evaluation of the realizability of deferred tax assets
must consider both positive and negative evidence. The weight given to the
potential effects of positive and negative evidence is based on the extent to
which it can be objectively verified. During the fourth quarter of 2008 and in
the first quarter of 2009, we recorded a valuation allowance related to the net
operating loss carryforwards and other temporary items as we determined it is
more likely than not that we will not be able to use the assets to reduce future
tax liabilities.
 
 13
 Table
of Contents
 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 LLC (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. Our working capital increased to $15,135 at March
31, 2009 from $14,199 at December 31, 2008, primarily due to improved
collections of accounts receivable and lower products revenues as a percent of
total revenues.
 
 The total
Credit Facility is $60,000 with an additional $10 million credit facility
specifically for acquisitions (“Acquisition Facility”). Substantially all of our
assets are pledged as collateral under the Credit Facility. Advances under the
Acquisition Facility are specific to each acquisition and subject to approval by
CPC based on pre-established criteria. There were no borrowings under the
Acquisition Facility outstanding at March 31, 2009.
 
 As of
March 31, 2009, borrowing capacity and availability were as
follows:
 
 Total
      Credit Facility
                    
                    $
                    60,000Borrowing
      base limitation
                    
                    
                    (22,960
                    )Total
      borrowing capacity
                    
                    
                    37,040Less
      interest-bearing borrowings
                    
                    
                    —Less
      non-interest bearing advances
                    
                    
                    (31,512
                    )Total
      unused availability
                    
                    $
                    5,528
 
 In
addition to unused borrowing availability, liquidity at March 31, 2009 included
our cash balance of $8,681. 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. The interest rate of
the Credit Facility is the prime rate plus 0.5% (3.75% at March 31, 2009) and
the interest rate of the Acquisition Facility is the prime rate plus 2.0% (5.25%
at March 31, 2009).
 
 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 March 31, 2009, 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 three
months ended March 31, 2009, our cash decreased by $2,256. Operating activities
used cash of $2,183, investing activities used $125, and financing activities
provided $52.
 
 Operating Activities.Operating activities used $2,183 in the three months ended March 31,
2009, as compared to using cash of $79 in the comparable 2008 period. During the
three months ended March 31, 2009, net income and noncash adjustments to net
income provided cash of $1,034, which was offset by changes in asset and
liability accounts using cash of $3,217.
 
 Investing Activities.Investing activities used $125 in the three months ended March 31, 2009,
compared to $617 used during the comparable period in 2008. Our investing
activities primarily consisted of capital expenditures of $125 in 2009 and $563
in 2008. 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 provided $52 in the three months ended March 31,
2009, as compared to using $408 in the comparable period in 2008. Funds provided
in the three months ended March 31, 2009 were primarily from the issuance of
stock under the employee stock purchase plan ($167).  The funds used
in the comparable 2008 period were primarily used to purchase common stock under
the common stock repurchase program discussed in Part II, Item 2 ($1,536),
partially offset by cash generated from the exercise of stock options ($403) and
excess tax benefits from stock option exercises ($601).
 
 14
 Table
of Contents
 Item4T. 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 March 31, 2009 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 three
months of 2009, 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.
 
 PARTII. OTHER
INFORMATION
 
 Item1. Legal Proceedings
 
 See Note
9 to condensed consolidated financial statements in Part I, Item 1, which is
incorporated herein by reference.
 
 Item2. Unregistered Sales of Equity Securities and Use of
Proceeds
 
 Issuer
Purchases of Equity Securities
 
 The
following table provides information regarding purchases by the Company of its
common stock during the first quarter ended March 31, 2009:
 
 Period
                
                Total
      Number
                  of
      Shares
                  Purchased
                
                
                Average
                  Price
      Paid
                  per Share
                
                
                Total
      Number of
                  Shares
      Purchased
                  as
      Part of Publicly
                  Announced
      Plans
                  or Programs
                
                
                Approximate
      Dollar
                  Amount
      of Shares
                  That
      May yet be
                  Purchased
      Under the
                  Plans or ProgramsJanuary
      1 to January 31, 2009
                
                
                1,500
                
                
                $
                4.87
                
                
                
                1,500
                
                
                $
                1,999February
      1 to February 29, 2009
                
                
                2,200
                
                
                $
                4.77
                
                
                
                2,200
                
                
                
                1,996March
      1 to March 31, 2009
                
                
                15,766
                
                
                $
                3.04
                
                
                
                15,766
                
                
                NoneTotal
                
                
                19,466
                
                
                $
                3.37
                
                
                
                19,466
 
 On
September 10, 2008, the Board of Directors authorized a common stock
repurchase plan of up to $2,000 of the Company’s common stock on or before
December 31, 2008. The purchases were required to be made in open market or
privately negotiated transactions in compliance with Rule 10b-18 under the
Securities Exchange Act of 1934, as amended, subject to market and business
conditions, applicable legal requirements and other factors. The plan also
requires the purchased shares to be retired as soon as practicable following the
purchase. The plan did not obligate the Company to purchase any particular
amount of common stock and could be suspended at any time at the Company’s
discretion.  On December 3, 2008, the Board of Directors modified
the existing common stock repurchase plan, authorizing the repurchase of $2,000
during the period January 1, 2009 to March 31, 2009.  During
the three-month period ended March 31, 2009, 19,466 shares were purchased for
$66. The repurchase plan expired on March 31, 2009.
 
 15
 Table
of Contents
 Item6. Exhibits
 
 See
exhibit list in the Index to Exhibits, which 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:
      May 12, 2009
                  By:
                  /s/ BRIAN
      FONTANABrian
      Fontana, Vice President
                    and
      Chief Financial Officer
  16
 Table
of Contents
 
 Index
to Exhibits
 
 Exhibit
                No.
              
              Description
              
              Filed
      Herewith or
                Incorporated
      by
                Reference From:10.1
              
              Renewal
      Amendment, effective February 11, 2009, to the Systems Integrator
      Agreement by and between Cisco Systems, Inc. and Internetwork Experts,
      Inc. dated November 13, 2001
              
              Filed
      herewith.10.2
              
              2009
      INX Named Executive Compensation Plan
              
              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.
   17