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
      1934





For
the quarterly period ended June 30, 2008





OR





£
            TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
the transition period from January 1, 2008 to June 30, 2008





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 8,752,299 shares of common stock outstanding as of August 4,
2008.













INXInc. and Subsidiaries


FORM
10-Q for the Quarter Ended June 30, 2008





INDEX







Part I. Financial Information
            3Item 1. Financial Statements (Unaudited):
            3Condensed Consolidated Statements of Earnings for the three
      months ended June 30, 2008 and 2007
            3Condensed Consolidated Statements of Earnings for the six
      months ended June 30, 2008 and 2007
            4Condensed Consolidated Balance Sheets at June 30, 2008 and
      December 31, 2007
            5Condensed Consolidated Statement of Stockholders’ Equity
      for the six months ended June 30, 2008
            6Condensed Consolidated Statements of Cash Flows for the six
      months ended June 30, 2008 and 2007
            8Notes to Condensed Consolidated Financial
      Statements
            9Item 2. Management’s Discussion and Analysis of
      Financial Condition and Results of Operations
            16Item 4T. Controls and Procedures
            21Part II. Other Information
            22Item 1. Legal Proceedings
            22Item 2. Unregistered Sales of Equity Securities and Use of
      Proceeds
            22Item 4. Submission of Matters to a Vote of Security
      Holders
            22Item 6. Exhibits
            22Signature
            22


2
 Index




PART
1. FINANCIALINFORMATION





Item
1. FinancialStatements (Unaudited):





INXINC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS


(In
thousands, except share and per share amounts)


(Unaudited)





Three
      Months
              Ended June 30,2008
            
            
            2007Revenue:Products
            
            $
            51,430
            
            
            $
            46,918Services
            
            
            12,561
            
            
            
            6,809Total
      revenue
            
            
            63,991
            
            
            
            53,727Cost
      of products and services:Products
            
            
            41,664
            
            
            
            39,029Services
            
            
            8,575
            
            
            
            4,653Total
      cost of products and services
            
            
            50,239
            
            
            
            43,682Gross
      profit
            
            
            13,752
            
            
            
            10,045Selling,
      general and administrative expenses
            
            
            11,871
            
            
            
            9,042Operating
      income
            
            
            1,881
            
            
            
            1,003Interest
      and other income (expense), net
            
            
            (98
            )
            
            
            41Income
      from continuing operations before income taxes
            
            
            1,783
            
            
            
            1,044Income
      tax expense
            
            
            680
            
            
            
            7Net
      income from continuing operations
            
            
            1,103
            
            
            
            1,037Income
      (loss) from discontinued operations, net of income taxes
            
            
            10
            
            
            
            (3
            )Net
      income
            
            $
            1,113
            
            
            $
            1,034Net
      income per share:Basic:Income
      from continuing operations
            
            $
            0.15
            
            
            $
            0.15Income
      from discontinued operations, net of income taxes
            
            
            —
            
            
            
            —Net
      income per share
            
            $
            0.15
            
            
            $
            0.15Diluted:Income
      from continuing operations
            
            $
            0.13
            
            
            $
            0.13Income
      from discontinued operations, net of income taxes
            
            
            —
            
            
            
            —Net
      income per share
            
            $
            0.13
            
            
            $
            0.13Shares
      used in computing net income per share:Basic
            
            
            7,579,303
            
            
            
            6,862,538Diluted
            
            
            8,281,715
            
            
            
            7,817,371





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


3
 Index




INXINC. AND SUBSIDIARIES


CONDENSEDCONSOLIDATED STATEMENTS OF EARNINGS


(In
thousands, except share and per share amounts)


(Unaudited)





Six
      Months
              Ended June 30,2008
            
            
            2007Revenue:Products
            
            $
            101,921
            
            
            $
            86,468Services
            
            
            21,713
            
            
            
            12,902Total
      revenue
            
            
            123,634
            
            
            
            99,370Cost
      of products and services:Products
            
            
            82,948
            
            
            
            71,361Services
            
            
            14,787
            
            
            
            9,457Total
      cost of products and services
            
            
            97,735
            
            
            
            80,818Gross
      profit
            
            
            25,899
            
            
            
            18,552Selling,
      general and administrative expenses
            
            
            22,255
            
            
            
            17,214Operating
      income
            
            
            3,644
            
            
            
            1,338Interest
      and other income (expense), net
            
            
            (171
            )
            
            
            17Income
      from continuing operations before income taxes
            
            
            3,473
            
            
            
            1,355Income
      tax expense
            
            
            1,363
            
            
            
            14Net
      income from continuing operations
            
            
            2,110
            
            
            
            1,341Income
      from discontinued operations, net of income taxes
            
            
            14
            
            
            
            59Net
      income
            
            $
            2,124
            
            
            $
            1,400Net
      income per share:Basic:Income
      from continuing operations
            
            $
            0.28
            
            
            $
            0.20Income
      from discontinued operations, net of income taxes
            
            
            —
            
            
            
            0.01Net
      income per share
            
            $
            0.28
            
            
            $
            0.21Diluted:Income
      from continuing operations
            
            $
            0.26
            
            
            $
            0.17Income
      from discontinued operations, net of income taxes
            
            
            —
            
            
            
            0.01Net
      income per share
            
            $
            0.26
            
            
            $
            0.18Shares
      used in computing net income per share:Basic
            
            
            7,565,104
            
            
            
            6,762,681Diluted
            
            
            8,199,449
            
            
            
            7,749,270





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


4
 Index




INX INC.
AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCESHEETS


(In
thousands, except share and par value amounts)





June 30,
              2008
            
            
            December 31,
              2007(Unaudited)ASSETSCurrent
      Assets:Cash
      and cash equivalents
            
            $
            12,604
            
            
            $
            9,340Accounts
      receivable, net of allowance of $484 and $470
            
            
            51,787
            
            
            
            45,128Inventory,
      net
            
            
            1,147
            
            
            
            1,439Deferred
      income taxes
            
            
            2,100
            
            
            
            2,100Other
      current assets
            
            
            1,657
            
            
            
            2,062Total
      current assets
            
            
            69,295
            
            
            
            60,069Property
      and equipment, net of accumulated depreciation of $4,351 and
      $3,728
            
            
            5,019
            
            
            
            4,421Goodwill
            
            
            21,010
            
            
            
            16,603Intangible
      and other assets, net of accumulated amortization of $1,889 and
      $1,592
            
            
            4,758
            
            
            
            3,148Total
      assets
            
            $
            100,082
            
            
            $
            84,241LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      Liabilities:Notes
      payable
            
            $
            67
            
            
            $
            6,200Accounts
      payable
            
            
            41,604
            
            
            
            37,233Accrued
      expenses
            
            
            7,405
            
            
            
            5,363Other
      current liabilities
            
            
            1,002
            
            
            
            1,440Total
      current liabilities
            
            
            50,078
            
            
            
            50,236Long-term
      Liabilities:Deferred
      income taxes
            
            
            1,565
            
            
            
            1,565Other
      long-term liabilities
            
            
            251
            
            
            
            413Total
      long-term liabilities
            
            
            1,816
            
            
            
            1,978Commitments
      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, 8,750,145 and
      7,548,892 shares issued
            
            
            87
            
            
            
            75Additional
      paid-in capital
            
            
            49,782
            
            
            
            36,497Common
      stock issuable
            
            
            740
            
            
            
            —Accumulated
      deficit
            
            
            (2,421
            )
            
            
            (4,545
            )Total
      stockholders’ equity
            
            
            48,188
            
            
            
            32,027Total
      liabilities and stockholders’ equity
            
            $
            100,082
            
            
            $
            84,241





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


5
 Index




INX INC.
AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY


(In
thousands, except share amounts)


(Unaudited)





$.01
      par value
              Common Stock
            
            
            Additional
              Paid-In
            
            
            Common
      Stock
            
            
            AccumulatedShares
            
            
            Amount
            
            
            Capital
            
            
            Issuable
            
            
            Deficit
            
            
            TotalBalance
      at December 31, 2007
            
            
            7,548,892
            
            
            $
            75
            
            
            $
            36,497
            
            
            $
            —
            
            
            $
            (4,545
            )
            
            $
            32,027Exercise
      of common stock options
            
            
            149,224
            
            
            
            2
            
            
            
            825
            
            
            
            —
            
            
            
            —
            
            
            
            827Issuance
      of vested restricted common stock
            
            
            1,118
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Issuance
      of shares as purchase price consideration and broker fees for Access Flow,
      Inc. acquisition
            
            
            250,627
            
            
            
            3
            
            
            
            3,270
            
            
            
            —
            
            
            
            —
            
            
            
            3,273Issuable
      shares as additional purchase price consideration for Network Architects,
      Corp. acquisition
            
            
            75,000
            
            
            
            —
            
            
            
            —
            
            
            
            740
            
            
            
            —
            
            
            
            740Share-based
      compensation expense related to employee stock options
            
            
            —
            
            
            
            —
            
            
            
            332
            
            
            
            —
            
            
            
            —
            
            
            
            332Share-based
      compensation expense related to employee restricted stock
      grants
            
            
            —
            
            
            
            —
            
            
            
            304
            
            
            
            —
            
            
            
            —
            
            
            
            304Share-based
      compensation expense related to directors’ stock grants
            
            
            7,443
            
            
            
            —
            
            
            
            90
            
            
            
            —
            
            
            
            —
            
            
            
            90Excess
      tax benefit from stock option exercises
            
            
            —
            
            
            
            —
            
            
            
            1,195
            
            
            
            —
            
            
            
            —
            
            
            
            1,195Purchase
      and retirement of treasury stock resulting from grantee election to fund
      payroll taxes out of restricted stock grant
            
            
            (329
            )
            
            
            —
            
            
            
            (3
            )
            
            
            —
            
            
            
            —
            
            
            
            (3
            )Issuance
      of common stock, net of issuance costs
            
            
            900,000
            
            
            
            9
            
            
            
            8,800
            
            
            
            —
            
            
            
            —
            
            
            
            8,809Purchase
      and retirement of common stock
            
            
            (184,985
            )
            
            
            (2
            )
            
            
            (1,534
            )
            
            
            —
            
            
            
            —
            
            
            
            (1,536
            )Exercise
      of warrants
            
            
            3,155
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Other
            
            
            —
            
            
            
            —
            
            
            
            6
            
            
            
            —
            
            
            
            —
            
            
            
            6Net
      income
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            2,124
            
            
            
            2,124Balance
      at June 30, 2008
            
            
            8,750,145
            
            
            $
            87
            
            
            $
            49,782
            
            
            $
            740
            
            
            $
            (2,421
            )
            
            $
            48,188





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


6
 Index




INXINC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(In
thousands)


(Unaudited)





Six
      Months
              Ended June 30,2008
            
            
            2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
            
            $
            2,124
            
            
            $
            1,400Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Net
      (income) from discontinued operations
            
            
            (14
            )
            
            
            (59
            )Tax
      expense from discontinued operations
            
            
            6
            
            
            
            —Depreciation
      and amortization
            
            
            1,102
            
            
            
            716Share-based
      compensation expense for stock options and stock grants
            
            
            726
            
            
            
            356Issuance
      of warrants
            
            
            —
            
            
            
            40Loss
      on retirement of assets
            
            
            22
            
            
            
            10Bad
      debt expense
            
            
            (71
            )
            
            
            40Changes
      in operating assets and liabilities, net of effect of
      acquisitions:Accounts
      receivable
            
            
            (6,588
            )
            
            
            2,728Inventory
            
            
            297
            
            
            
            (1,080
            )Accounts
      payable
            
            
            4,371
            
            
            
            7,522Other
      assets and liabilities
            
            
            1,731
            
            
            
            (403
            )Net
      cash provided by continuing operations
            
            
            3,706
            
            
            
            11,270Net
      operating activities of discontinued operations
            
            
            8
            
            
            
            22Net
      cash provided by operating activities
            
            
            3,714
            
            
            
            11,292CASH
      FLOWS FROM INVESTING ACTIVITIES:Acquisition
      of Access Flow, Inc.
            
            
            (2,278
            )
            
            
            —Acquisition
      of Select, Inc. purchase price adjustments
            
            
            (10
            )
            
            
            —Acquisition
      of Datatran Network Systems
            
            
            —
            
            
            
            (250
            )Transaction
      costs paid for acquisitions
            
            
            (320
            )
            
            
            (30
            )Capital
      expenditures
            
            
            (1,001
            )
            
            
            (856
            )Net
      cash used in investing activities of continuing operations
            
            
            (3,609
            )
            
            
            (1,136
            )Net
      investing activities of discontinued operations
            
            
            —
            
            
            
            15Net
      cash used in investing activities
            
            
            (3,609
            )
            
            
            (1,121
            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Issuance
      of common stock
            
            
            8,809
            
            
            
            —Exercise
      of stock options
            
            
            827
            
            
            
            432Excess
      tax benefits from stock option exercises
            
            
            1,195
            
            
            
            —Purchase
      of common stock
            
            
            (1,536
            )
            
            
            —Purchase
      of treasury stock resulting from grantee election
            
            
            (3
            )
            
            
            —Net
      payments of short-term interest bearing credit facilities
            
            
            (6,000
            )
            
            
            (4,350
            )Proceeds
      from other short-term borrowings
            
            
            251
            
            
            
            —Payments
      on notes payable
            
            
            (384
            )
            
            
            (222
            )Net
      cash provided by (used in) financing activities of continuing
      operations
            
            
            3,159
            
            
            
            (4,140
            )NET
      INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            3,264
            
            
            
            6,031CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
            
            
            9,340
            
            
            
            1,795CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
            
            $
            12,604
            
            
            $
            7,826





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


7
 Index




INXINC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(In
thousands)


(Unaudited)





Six
      Months
              Ended June 30,2008
            
            
            2007SUPPLEMENTAL
      NONCASH INVESTING AND FINANCING ACTIVITIES:Acquisition
      of Access Flow, Inc.:Fair
      value of assets acquired
            
            $
            5,987
            
            
            $
            —Common
      stock issued
            
            
            (3,273
            )
            
            
            —Transaction
      costs and noncompete agreements accrued
            
            
            (116
            )
            
            
            —Acquisition
      of Network Architects, Corp.:Fair
      value of assets acquired
            
            
            740
            
            
            
            500Common
      stock issuable
            
            
            (740
            )
            
            
            (250
            )Acquisition
      of Datatran Network Systems:Fair
      value of assets acquired
            
            
            —
            
            
            
            677Common
      stock issued
            
            
            —
            
            
            
            (677
            )





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


8
 Index




INX
INC. 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 Internet Protocol (“IP”) network-based
solutions for enterprise-class organizations such as corporations, schools and
federal, state and local governmental agencies based primarily on Cisco System,
Inc. (“Cisco”) technology. These solutions consist of network infrastructure, IP
voice and video communications systems, wireless network connectivity, network
storage systems, data center, and network and data security and include
planning, design and implementation professional services as well as managed
support services.





The
condensed consolidated financial statements of INX Inc. include the wholly owned
subsidiaries Select, Inc. and Valerent, Inc.





2.
Basis of Presentation





The
accompanying unaudited financial data as of June 30, 2008 and for the
three-month and six-month periods ended June 30, 2008 and 2007 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, 2007 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,
2007.





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, 2008, results of operations for the
three-month and six-month periods ended June 30, 2008 and 2007, cash flows for
the six month periods ended June 30, 2008 and 2007, and stockholders’ equity for
the six month period ended June 30, 2008, have been included. The results of the
interim periods are not necessarily indicative of results for the full year or
any future period.





Certain
prior period amounts in the balance sheet presented herein have been
reclassified to conform to the current period presentation. $250 in long-term
rent has been reclassified from current liabilities to other long-term
liabilities at December 31, 2007.





3.
Recent Accounting Pronouncements





In June
2008, the Financial Accounting Standards Board (FASB) issued 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. FSP
EITF 03-6-1 is effective for fiscal years beginning after December 15,
2008.  The Company is currently assessing the impact of FSP EITF
03-6-1 and anticipates any impact to basic earnings per share will be
immaterial.





In
December 2007, the Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin No. 110 (“SAB 110”) to extend the use of “simplified method”
for estimating the expected term of “plain vanilla” employee stock options for
award valuation. The method was initially allowed under Staff Accounting
Bulletin No. 107 (“SAB 107”) in contemplation of the adoption of SFAS 123(R) to
expense the compensation cost based on the grant date fair value of the award.
SAB 110 does not provide an expiration date for the use of the method. However,
as more external information about exercise behavior will be available over
time, it is expected that this method will not be used when more relevant
guidance is available (see note 6 for a further discussion). The adoption of SAB
110 did not have a material impact on the Company’s consolidated financial
statements.





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 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. The Company does anticipate that the adoption of SFAS 141R will
have a future impact on the way in which business combinations will be accounted
for compared to current practice. SFAS 141R is effective for the Company
beginning January 1, 2009. Early adoption is not permitted. The Company is
currently evaluating the impact that SFAS 141R will have on its future
acquisitions.


9
 Index


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 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: Including an Amendment of FASB
Statement No. 115“ (“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 for the Company
beginning January 1, 2008. The adoption of SFAS 159 did not have a material
impact on the Company’s consolidated financial statements.





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. The Company elected to
defer adoption of SFAS 157 relating to non-recurring, non-financial assets and
liabilities until January 1, 2009. The Company has not yet determined the
impact, if any, of adopting SFAS 157 with respect to non-recurring,
non-financial assets and liabilities on its consolidated financial statements.
The partial adoption of SFAS No. 157 did not have a material effect on the
Company’s consolidated financial statements.





4.
Acquisitions





Access
Flow, Inc.





Under an
Asset Purchase Agreement dated June 6, 2008 (the “APA”), the Company purchased
the operations andcertain assets,
and assumed specified liabilities of Access Flow, Inc.
(“AccessFlow”).  AccessFlow isa Sacramento, California-based
consulting organization focused on delivering VMware-based data center
virtualization solutions,with revenues for the twelve
months endedMarch 31, 2008of 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.


10
 Index


The
consideration paid at closing pursuant to the APA was (a) $2,450 in cash and (b)
238,692 shares of the Company’s common stock.  The common stock was
valued at $13.06 per share or $3,117.  The number of common stock
shares issued was determined by dividing $2,626,920 by the lesser of (i) the
average closing price per share for the common stock, as reported by NASDAQ for
the five consecutive trading days ending prior to the second day before June 6,
2008, which was $12.96 per share or (ii) $10.00 per share.  24,000
shares of common stock were retained by the Company under holdback provisions
defined in the APA.  To the extent such shares held by the Company are
not retained as reimbursement for contingencies defined in the APA, such shares
will be issued to AccessFlow and recorded as additional purchase consideration.
The two shareholders of AccessFlow entered into five-year noncompete agreements
at closing, which provide for payments to each in the aggregate amount of $50 in
equal monthly installments over the six month period subsequent to
closing.  Broker costs and professional fees of $320 were incurred in
the purchase, of which $148 was paid in cash, $16 accrued, and $156 was paid
through the issuance of 11,935 shares of 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.





The
following table summarizes the preliminary estimated fair values, including
professional fees and other related acquisition costs, at the date of
acquisition.





Intangibles:Noncompete
      agreements, amortized over 5 years
            
            $
            565Customer
      relationships, amortized over 4 years
            
            
            490Strategic
      relationships, amortized over 3 years
            
            
            399Trademark,
      amortized over 3 years
            
            
            323Service
      contracts, amortized over 4 years
            
            
            130Inventory
            
            
            5Property
      and equipment
            
            
            424Goodwill
            
            
            3,651Total
      acquisition cost
            
            $
            5,987





Select,
Inc.





Under a
Stock Purchase Agreement dated August 31, 2007 (the “SPA”), the Company
purchased all issued and outstanding capital stock of Select, Inc. (“Select”).
Located in Boston, Massachusetts, Select is a Cisco-centric solutions provider
focused on delivering IP Telephony, IP Storage and network infrastructure
solutions throughout New England with approximately $40,000 in annual revenues.
The Company completed the acquisition simultaneously with the execution of the
SPA. The SPA contains customary representations and warranties and requires
Select’s shareholders (“Shareholders”) to indemnify the Company for certain
liabilities arising under the SPA, subject to certain limitations and
conditions.





The
consideration paid at closing pursuant to the SPA was (a) $6,250 in cash,
including $1,000 placed in escrow under holdback provisions defined in the SPA
and (b) 231,958 shares of the Company’s Common Stock, $0.01 par value (the
“Common Stock”) valued at $10.60 per share or $2,459, which amount of shares was
determined by dividing $2,250 by $9.70, which is the greater of (i) average
closing price per share for the Common Stock as reported by Nasdaq for the five
consecutive trading days ending August 28, 2007 and (ii) $9.50. The President
and major shareholder of Select entered into a five-year noncompete agreement at
closing providing for equal monthly payments of $21 over two years, which were
recorded at their present value of $450. Cash of $6,000 was borrowed from the
Acquisition Facility under the Credit Agreement with Castle Pines Capital LLC.
In connection with the stock purchase, the Credit Agreement with Castle Pines
Capital LLC was amended for the modification of certain financial covenants and
for the addition of Select as a party to the Credit Agreement. Broker costs and
professional fees of $512 were incurred in the purchase, of which $339 was paid
in cash, $50 accrued, and $123 was paid through the issuance of 11,598 shares of
common stock.


11
 Index


Additional
purchase consideration is payable based on the Select branch office revenue and
operating profit during the two years subsequent to the date of the SPA. For the
twelve-month period ending August 31, 2008, if revenue is greater than $44,000
and operating profit contribution is greater than or equal to $1,760, then the
Company shall pay the Shareholders additional purchase consideration of $600 and
will pay the Shareholders an additional $50 for each $145 of operating profit
contribution in excess of $1,760 of operating profit contribution up to a
maximum of $600 with aggregate maximum of $1,200 in additional purchase
consideration. For the twelve-month period ending August 31, 2009, if revenue is
greater than $53,000 and operating profit contribution is greater than or equal
to $3,710, then the Company shall pay the Shareholders additional purchase
consideration of $600 and will pay an additional $50 for each $150 of operating
profit contribution in excess of $3,710 up to a maximum of $600 with an
aggregate maximum of $1,200 in additional purchase consideration. At the
Company’s option, 50% of such additional purchase price may be paid in the form
of Common Stock. Additional purchase price consideration, if any, will be
recorded as goodwill.





Pro
Forma Summary





The
following pro forma consolidated amounts give effect to the Company’s
acquisition of AccessFlow and Select as if they had occurred January 1, 2007.
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
              June 30,
            
            
            Six
      Months Ended
              June 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Revenues
            
            $
            65,714
            
            
            $
            69,472
            
            
            $
            128,780
            
            
            $
            125,494Net
      income from continuing operations
            
            $
            970
            
            
            $
            1,432
            
            
            $
            2,058
            
            
            $
            1,691Net
      income per share from continuing operations:Basic
            
            $
            0.12
            
            
            $
            0.19
            
            
            $
            0.26
            
            
            $
            0.23Diluted
            
            $
            0.11
            
            
            $
            0.17
            
            
            $
            0.24
            
            
            $
            0.20Weighted
      average shares used in calculation:Basic
            
            
            7,780,982
            
            
            
            7,380,721
            
            
            
            7,803,257
            
            
            
            7,280,864Diluted
            
            
            8,483,394
            
            
            
            8,335,554
            
            
            
            8,437,602
            
            
            
            8,267,453





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 was earned and
issuable to Network Architects as of June 30, 2008 and was issued in July 2008
for achievement of certain operating profit milestones during the twelve-month
period ending May 31, 2008.  The additional purchase price
consideration was valued at $740 and was recorded as additional
goodwill.  The shares issuable at June 30, 2008 were included in
common stock outstanding for purposes of presenting basic and diluted earnings
per share.




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.


12
 Index




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





Three
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Numerator
      for basic and diluted earnings per share:Net
      income from continuing operations
            
            $
            1,103
            
            
            $
            1,037
            
            
            $
            2,110
            
            
            $
            1,341Income
      on disposal of discontinued operations, net of income
taxes
            
            
            10
            
            
            
            (3
            )
            
            
            14
            
            
            
            59Net
      income
            
            $
            1,113
            
            
            $
            1,034
            
            
            $
            2,124
            
            
            $
            1,400Denominator
      for basic earnings per share — weighted-average shares
      outstanding
            
            
            7,579,303
            
            
            
            6,862,538
            
            
            
            7,565,104
            
            
            
            6,762,681Effect
      of dilutive securities — shares issuable from assumed conversion of common
      stock options, restricted stock, and warrants
            
            
            702,412
            
            
            
            954,833
            
            
            
            634,345
            
            
            
            986,589Denominator
      for diluted earnings per share — weighted-average shares
      outstanding
            
            
            8,281,715
            
            
            
            7,817,371
            
            
            
            8,199,449
            
            
            
            7,749,270





For the
three-month period ended June 30, 2008 and 2007, warrants to purchase common
stock of 575,000 and 625,000 shares, respectively, were excluded from the
determination of the dilutive shares since they are antidilutive.  For
the six-month period ended June 30, 2008 and 2007, warrants to purchase common
stock of 619,955 and 625,000 shares, respectively, were excluded from the
determination of the dilutive shares since they are antidilutive.  For
the three-month period ended June 30, 2008 and 2007, options to purchase 123,500
and 0 shares, respectively, were excluded in the calculation of diluted earnings
since they are antidilutive. For the six-month period ended June 30, 2008 and
2007, options to purchase 191,500 and 0 shares, respectively, were excluded in
the calculation of diluted earnings since they are antidilutive.




6.
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, 2008 and 2007 were calculated using the
following estimated weighted average assumptions:





Three
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Expected
      volatility
            
            
            59.8
            %
            
            
            —
            %
            
            
            59.864.1
            %
            
            
            61.3
            %Expected
      term (in years)
            
            
            6.5
            
            
            
            —
            
            
            
            6.5
            
            
            
            6.5Risk-free
      interest rate
            
            
            3.4
            %
            
            
            —
            %
            
            
            3.4
            %
            
            
            4.5
            %Expected
      dividend yield
            
            
            —
            %
            
            
            —
            %
            
            
            —
            %
            
            
            —
            %





The
expected term of stock options represents the weighted average period the stock
options are expected to remain outstanding. Because the Company’s options are
considered to be “plain vanilla”, the expected term was estimated using a
modified version of the simplified method of calculation, as prescribed by SAB
107. This modified calculation uses the actual life for options that have been
settled, and a uniform distribution assumption for the options still
outstanding. Under SAB 107, options are considered to be “plain vanilla” if they
have the following basic characteristics: granted “at-the-money”; exercisability
is conditioned upon service through the vesting date; termination of service
prior to vesting results in forfeiture; limited exercise period following
termination of service; and options are non-transferable and non-hedgeable. In
December 2007, the SEC issued SAB 110. SAB 110 permits the use of the simplified
method in SAB 107 for employee option grants after December 31, 2007 for
companies whose historical data about their employees’ exercise behavior does
not provide a reasonable basis for estimating the expected term of the options.
The Company adopted SAB 110 and continued to use the simplified method to
estimate the expected term for options granted after December 2007, as adequate
historical experience is not available to provide a reasonable estimate. The
Company intends to continue applying the simplified method until enough
historical experience is readily available to provide a reasonable estimate of
the expected term for employee option grants.





Expected
volatility is based on historical volatility over the period that IP
communications solutions was the primary line of business of the Company. 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.


13
 Index


Share-based
compensation expense recognized under SFAS 123R for the three-month and
six-month periods ended June 30, 2008 and 2007 was as follows:





Three
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Cost
      of products and services — services
            
            $
            41
            
            
            $
            13
            
            
            $
            91
            
            
            $
            25Selling,
      general and administrative expenses
            
            
            372
            
            
            
            218
            
            
            
            635
            
            
            
            331Share-based
      compensation from continuing operations before income
taxes
            
            
            413
            
            
            
            231
            
            
            
            726
            
            
            
            356Income
      tax benefit
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Share-based
      compensation from continuing operations
            
            
            413
            
            
            
            231
            
            
            
            726
            
            
            
            356Share-based
      compensation from discontinued operations
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (8
            )Total
      share-based compensation
            
            $
            413
            
            
            $
            231
            
            
            $
            726
            
            
            $
            348





A summary
of the activity under the Company’s stock option plans for the six-month period
ended June 30, 2008 is presented below:





Shares
            
            
            Weighted
              Average
              Exercise
              Price
            
            
            Weighted
              Average
              Remaining
              Contractual
              Term (Years)
            
            
            Aggregate
              Intrinsic
              ValueOptions
      outstanding at December 31, 2007
            
            
            1,480,736
            
            
            $
            4.83Granted
            
            
            1,000
            
            
            $
            7.80
            
            
            
            
            
            $
            3Exercised
            
            
            (149,224
            )
            
            $
            5.54
            
            
            
            
            
            $
            675Canceled
            
            
            (15,900
            )
            
            $
            10.03
            
            
            
            
            
            $
            (9
            )Options
      outstanding June 30, 2008
            
            
            1,316,612
            
            
            $
            4.69
            
            
            
            5.97
            
            
            $
            7,665Options
      exercisable at June 30, 2008
            
            
            878,912
            
            
            $
            2.76
            
            
            
            4.73
            
            
            $
            6,756Options
      vested and options expected to vest at June 30, 2008
            
            
            1,212,740
            
            
            $
            4.47
            
            
            
            6.28
            
            
            $
            7,322





The total
intrinsic value of options exercised during the three-month periods ended June
30, 2008 and 2007 was $565 and $795, respectively, and during the six-month
periods ended June 30, 2008 and 2007 was $675 and $2,016, respectively. The
total grant-date fair value of stock options that became fully vested during the
six-month periods ended June 30, 2008 and 2007 was approximately $235 and $252,
respectively. The weighted average grant-date fair value of options granted
during the three-month periods ended June 30, 2008 and 2007 was $4.70 and $0,
respectively, and during six-month periods ended June 30, 2008 and 2007 was
$4.70 and $5.82, respectively. Share-based compensation expense for employee
stock options was $163 and $130 for the three-month periods ended June 30, 2008
and 2007, respectively. Share-based compensation expense for employee stock
options was $332 and $239 for the six-month periods ended June 30, 2008 and
2007, respectively. As of June 30, 2008, there was $1,881 of total unrecognized
compensation cost, net of estimated forfeitures, related to unvested stock
option awards, which is expected to be recognized over a weighted-average period
of 1.9 years.





A summary
of the status of nonvested restricted shares as of June 30, 2008 and changes
during the six-month period ended June 30, 2008 is presented below:





Nonvested
      Shares
            
            Shares
            
            
            Weighted
              Average
              Grant
      Date
              Fair ValueNonvested
      at December 31, 2007
            
            
            195,509
            
            
            $
            11.30Granted
            
            
            74,943
            
            
            $
            8.04Vested
            
            
            (8,561
            )
            
            $
            11.49Forfeited
            
            
            (17,500
            )
            
            $
            10.51Nonvested
      at June 30, 2008
            
            
            244,391
            
            
            $
            10.35





Share-based
compensation expense related to employee restricted stock grants was $250 and
$101 for the three-month periods ended June 30, 2008 and 2007, respectively.
Share-based compensation expense related to employee restricted stock grants was
$394 and $109 for the six-month periods ended June 30, 2008 and 2007,
respectively. As of June 30, 2008, there was $2,038 of total unrecognized
compensation cost related to nonvested restricted stock awards granted under the
Plan, which is expected to be recognized over the weighted-average period of 3.8
years.


14
 Index


7.
Notes Payable





On June
3, 2008, the Company entered into an amendment to the Castle Pines Capital
LLC (“CPC”) senior credit facility (“Amendment”) to increase the maximum
aggregate line of credit to $60,000 from $50,000.  The CPC senior
credit facility is used primarily for inventory financing and working capital
requirements.  The Amendment also modified a financial
covenant. At June 30, 2008, the Company was in compliance with the loan
covenants of the senior credit facility, as amended.





8. Stockholders’
Equity





Registered
Direct Offering





In June,
2008, the Company sold 900,000 shares of common stock through a registered
direct offering to certain institutional investors at a price of $11.00 per
share.  The net cash proceeds, after deducting the placement agent’s
fee and other offering expenses of $1,091, were approximately
$8,809.  The net cash proceeds were partially used to repay the $6,000
outstanding balance under the Acquisition Facility, with the remainder to be
used for general corporate purposes including possible future
acquisitions.





Common
Stock Repurchase Plan





Effective
December 4, 2007, the Board of Directors authorized the purchase of up to $2,000
of the Company’s common stock on or before March 31, 2008. These 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 required 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. During the three-month
period ended March 31, 2008, 184,985 shares were purchased for $1,536, of which
3,800 shares were purchased in 2007 and settled and recorded in 2008. From
inception of the repurchase plan to March 31, 2008, 186,785 shares were
purchased for $1,554, an average purchase price of $8.27. The repurchase plan
expired on March 31, 2008.





On May 2,
2008, the Board of Directors authorized a new repurchase plan of up to $2,000 of
the Company’s common stock on or before July 31, 2008. These repurchases are
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 repurchased shares to
be retired as soon as practicable following the repurchase. The plan does not
obligate the Company to purchase any particular amount of common stock and could
be suspended at any time at the Company’s discretion.  No purchases
were made under this repurchase plan during the three-month period ended June
30, 2008.  During July, 2008, 346 shares were purchased for $3, an
average purchase price of $8.15.  The repurchase plan expired on July
31, 2008.





Employee
Stock Purchase Plan





On April
3, 2008, the Company’s Board of Directors approved the INX Inc. 2008 Employee
Stock Purchase Plan (the “Purchase Plan”) which was approved by Company
stockholders at the Annual Meeting on May 13, 2008. The purpose of the Purchase
Plan is to provide employees of the Company and its designated subsidiaries with
an opportunity to purchase common stock of the Company. The aggregate number of
shares of the Company’s common stock that will be available for issuance under
the Purchase Plan is 500,000 shares, which shares may be authorized but unissued
shares or treasury shares. Eligible employees may elect to participate in each
offering period by electing to contribute between 1% and 6% of such employee’s
compensation to the Purchase Plan on each payroll date during the offering
period. The Purchase Plan will initially be implemented with a $6 limit on the
amount of contributions that may be made to the Purchase Plan during any
offering period. The purchase price per share will be equal to 85% of the fair
market value on the first trading day of the offering period or, if less, 85% of
the fair market value on the last trading day of the purchase
period.





Issuance
of Common Stock to Directors





Upon
re-election to the Board of Directors in May 2008, INX issued 7,443 shares to
its non-employee directors.  The issued shares were valued at $90,
determined by multiplying the number of shares issued by the closing price per
share for the common stock as reported by NASDAQ on May 13,
2008.


15
 Index


9.
Commitments and Contingencies





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, 2007, the Company has accounts receivable from CoCom of $325,
less an allowance for doubtful accounts of $250. The remaining net accounts
receivable of $75 is covered by a subcontractor bond, which was collected in
July 2008. 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.





INX sold
all outstanding shares of Stratasoft, Inc. common stock for a pretax gain on
disposal of $302 under a Stock Purchase Agreement (“Agreement”) dated January
26, 2006, Terms of the sale required $800 be 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 $673 in indemnified losses, net of interest earned, have been paid
or presented for payment as of June 30, 2008. 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 were
scheduled to be released on January 26, 2008. However, certain potential
third-party claims remain outstanding, including the Schneider Rucinski lawsuit
discussed further below. As provided in the Agreement, funds of $127 held in
escrow at June 30, 2008 will not be released until such claims are
resolved.





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. On April 29, 2008,
the Court granted the motion of the Company and Stratasoft, Inc. to dismiss the
lawsuit in its entirety, without prejudice. The Plaintiff has various options
available to it including, but not limited to, filing a Motion to Reconsider,
appealing the Court’s verdict, or amending the original pleadings. 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.





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.





Item 2. Management’sDiscussion 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, 2007, 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, 2007, 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.





Registered
Direct Offering





In June,
2008, we sold 900,000 shares of common stock through a registered direct
offering to certain institutional investors at a price of $11.00 per
share.  The net cash proceeds were approximately $8,809, after
deducting the placement agent’s fee and other offering expenses of
$1,091.  The net cash proceeds were partially used to repay the $6,000
outstanding balance under the Acquisition Facility, with the remainder to be
used for general corporate purposes including possible future
acquisitions.


16
 Index


Acquisition
of Access Flow, Inc.





Under an
Asset Purchase Agreement dated June 6, 2008 (the “APA”), we purchased the operations andcertain assets,
and assumed specified liabilities of Access Flow, Inc.
(“AccessFlow”).  AccessFlow isa Sacramento, California-based
consulting organization focused on delivering VMware-based data center
virtualization solutions,with revenues for the twelve
months endedMarch 31, 2008of approximately
$10,500.The
acquisition was completed simultaneously with the execution of the APA. Neither
AccessFlow nor any shareholder of AccessFlow has any prior affiliation with us.
The APA contains customary representations and warranties and requires
AccessFlow and its Shareholders to indemnify us 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)
238,692 shares of our common stock.  The common stock was valued at
$13.06 per share or $3,117.  The number of common stock shares issued
was determined by dividing $2,626,920 by the lesser of (i) the average closing
price per share for the common stock, as reported by NASDAQ for the five
consecutive trading days ending prior to the second day before June 6, 2008,
which was $12.96 per share or (ii) $10.00 per share.  24,000 shares of
common stock were retained by the Company under holdback provisions defined in
the APA.  To the extent such shares held by the Company are not
retained as reimbursement for contingencies defined in the APA, such shares will
be issued to AccessFlow and recorded as additional purchase consideration. The
two shareholders of AccessFlow entered into five-year noncompete agreements at
closing, which provide for payments to each in the aggregate amount of $50 in
equal monthly installments over the six month period subsequent to
closing.  Broker costs and professional fees of $320 were incurred in
the purchase, of which $148 was paid in cash, $16 accrued, and $156 was paid
through the issuance of 11,935 shares of 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 our 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 our 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.





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 June 30, 2008
Compared To the Three Months Ended June 30, 2007





Three Months Ended June 30,2008
            
            
            2007Amount
            
            
            %
            
            
            Amount
            
            
            %Revenue:Products
            
            $
            51,430
            
            
            
            80.4
            
            
            $
            46,918
            
            
            
            87.3Services
            
            
            12,561
            
            
            
            19.6
            
            
            
            6,809
            
            
            
            12.7Total
      revenue
            
            
            63,991
            
            
            
            100.0
            
            
            
            53,727
            
            
            
            100.0Gross
      profit:Products
            
            
            9,766
            
            
            
            19.0
            
            
            
            7,889
            
            
            
            16.8Services
            
            
            3,986
            
            
            
            31.7
            
            
            
            2,156
            
            
            
            31.7Total
      gross profit
            
            
            13,752
            
            
            
            21.5
            
            
            
            10,045
            
            
            
            18.7Selling,
      general and administrative expenses
            
            
            11,871
            
            
            
            18.6
            
            
            
            9,042
            
            
            
            16.8Operating
      income
            
            
            1,881
            
            
            
            2.9
            
            
            
            1,003
            
            
            
            1.9Interest
      and other income (expense), net
            
            
            (98
            )
            
            
            (0.2
            )
            
            
            41
            
            
            
            —Income
      tax expense
            
            
            680
            
            
            
            1.1
            
            
            
            7
            
            
            
            —Net
      income from continuing operations
            
            
            1,103
            
            
            
            1.7
            
            
            
            1,037
            
            
            
            1.9Income
      from discontinued operations, net of income taxes
            
            
            10
            
            
            
            —
            
            
            
            (3
            )
            
            
            —Net
      income
            
            $
            1,113
            
            
            
            1.7
            
            
            $
            1,034
            
            
            
            1.9


17
 Index




Revenue. Total revenue
increased by $10,264, or 19.1%, to $63,991 from $53,727. Products revenue
increased $4,512, or 9.6% to $51,430 from $46,918. The increase in products
revenue was primarily due to revenue from operations acquired in the Select
acquisition and sales to a large customer which was not previously allowed under
our installation and managed services contract. Other regions experienced
significant products revenue increases but were offset by lower Federal products
sales which were due to increased price pressure on certain competitive bids
awarded in the 2008 period. Services revenue increased $5,752 or 84.5% to
$12,561 from $6,809. The increase in services revenue was primarily due to a new
subcontract under a U.S. Army Corp. of Engineers project, increased revenue
under the Iraq subcontract, and significant services revenue increases across
substantially all regions.





Gross Profit. Total gross
profit increased by $3,707, or 36.9%, to $13,752 from $10,045. Gross profit as a
percentage of sales increased to 21.5% from 18.7%, due to higher 2008 products
margins and proportionately higher services revenue which earns a substantially
higher margin compared to products revenue. Gross profit on the products sales
component increased $1,877 or 23.8%, to $9,766 from $7,889 and, as a percentage
of sales, increased to 19.0% from 16.8%, primarily due to increased vendor
rebates and increased revenues from maintenance contracts.  Gross
profit on services revenue increased $1,830 or 84.9% to $3,986 from $2,156 and
gross profit as a percent of services revenue was unchanged from the 2007
period.





Selling, General and Administrative
Expenses. Selling, general and administrative expenses increased by
$2,829, or 31.3% to $11,871 from $9,042. As a percentage of total revenue, these
expenses increased to 18.6% in 2008 versus 16.8% in 2007. Increased 2008
expenses reflect selling, general and administrative expenses of the operations
acquired in the Select acquisition, higher sales compensation costs resulting
from increased revenues, and additional sales and administrative personnel costs
from headcount increases.





Operating Income. Operating
income increased $878 to $1,881 from $1,003, primarily due to higher products
and services revenues and improved products margins, partially offset by higher
selling, general and administrative expenses as a percentage of
revenue.





Interest and Other Income (Expense),
Net. Interest and other income (expense), net, changed by $139 to expense
of $98 from income of $41, primarily due to the interest on borrowings to fund
the cash portion of the purchase price of Select, Inc., acquired in August
2007.  The borrowings were repaid in June 2008 from proceeds of
issuance of common stock.





Income Tax Expense. Income
tax expense increased by $673 to $680 from $7, primarily due to higher 2008
pretax income and the utilization of all net operating loss carryforwards for
book purposes in 2007.  The availability of net operating loss
carryforwards for federal income tax purposes are discussed further under “Tax Loss Carryforward”
below.





Net Income. Net income
increased $79 to $1,113 from $1,034, primarily due to higher products and
services revenues and improved margins, partially offset by increased selling,
general and administrative expenses and income tax expense.





Six Months Ended June 30, 2008
Compared To the Six Months Ended June 30, 2007





Six Months Ended
    June 30,2008
            
            
            2007Amount
            
            
            %
            
            
            Amount
            
            
            %Revenue:Products
            
            $
            101,921
            
            
            
            82.4
            
            
            $
            86,468
            
            
            
            87.0Services
            
            
            21,713
            
            
            
            17.6
            
            
            
            12,902
            
            
            
            13.0Total
      revenue
            
            
            123,634
            
            
            
            100.0
            
            
            
            99,370
            
            
            
            100.0Gross
      profit:Products
            
            
            18,973
            
            
            
            18.6
            
            
            
            15,107
            
            
            
            17.5Services
            
            
            6,926
            
            
            
            31.9
            
            
            
            3,445
            
            
            
            26.7Total
      gross profit
            
            
            25,899
            
            
            
            20.9
            
            
            
            18,552
            
            
            
            18.7Selling,
      general and administrative expenses
            
            
            22,255
            
            
            
            18.0
            
            
            
            17,214
            
            
            
            17.3Operating
      income
            
            
            3,644
            
            
            
            2.9
            
            
            
            1,338
            
            
            
            1.4Interest
      and other income (expense), net
            
            
            (171
            )
            
            
            (0.1
            )
            
            
            17
            
            
            
            —Income
      tax expense
            
            
            1,363
            
            
            
            1.1
            
            
            
            14
            
            
            
            —Net
      income from continuing operations
            
            
            2,110
            
            
            
            1.7
            
            
            
            1,341
            
            
            
            1.4Income
      from discontinued operations, net of income taxes
            
            
            14
            
            
            
            —
            
            
            
            59
            
            
            
            —Net
      income
            
            $
            2,124
            
            
            
            1.7
            
            
            $
            1,400
            
            
            
            1.4


18
 Index




Revenue. Total revenue
increased by $24,264, or 24.4%, to $123,634 from $99,370. Products revenue
increased $15,453, or 17.9% to $101,921 from $86,468. The increase in products
revenue was primarily due to revenue from operations acquired in the Select
acquisition and sales to a large customer which was not previously allowed under
our installation and managed services contract. Other regions experienced
significant products revenue increases but were offset by lower Federal products
sales which were due to increased price pressure on certain competitive bids
awarded in the 2008 period. Services revenue increased $8,811 or 68.3% to
$21,713 from $12,902. The increase in services revenue was primarily due to
revenue from operations acquired in the Select acquisition, a new subcontract
under a U.S. Army Corp. of Engineers project, increased revenue under the Iraq
subcontract, and a substantial increase in the Central Texas, North Texas, and
California regions’ services revenue.





Gross Profit. Total gross
profit increased by $7,347, or 39.6%, to $25,899 from $18,552. Gross profit as a
percentage of sales increased to 20.9% from 18.7%, due to higher margins on both
products and services. Gross profit on the products sales component increased
$3,866 or 25.6%, to $18,973 from $15,107 and, as a percentage of sales,
increased to 18.6% from 17.5% primarily due to higher vendor rebates. Gross
profit on services revenue increased $3,481 or 101.0% to $6,926 from $3,445 and
gross profit as a percent of services revenue increased to 31.9% from 26.7%. The
increase in services gross margin was primarily due to significantly improved
utilization of technical personnel in 2008 and costs incurred during the 2007
period to expand into new markets.





Selling, General and Administrative
Expenses. Selling, general and administrative expenses increased by
$5,041, or 29.3% to $22,255 from $17,214. As a percentage of total revenue,
these expenses increased to 17.9% in 2008 versus 17.3% in 2007. Increased 2008
expenses reflect selling, general and administrative expenses of the operations
acquired in the Select acquisition, higher sales compensation costs resulting
from increased revenues, and additional sales and administrative personnel costs
from headcount increases.





Operating Income. Operating
income increased $2,306 to $3,644 from $1,338, primarily due to higher products
and services revenues and improved margins, partially offset by increased
selling, general and administrative expenses.





Interest and Other Income (Expense),
Net. Interest and other income (expense), net, changed by $188 to expense
of $171 from income of $17, primarily due to the interest on borrowings to fund
the cash portion of the purchase price of Select, Inc., acquired in August
2007.  The borrowings were repaid in June 2008 from proceeds of
issuance of common stock.





Income Tax Expense. Income
tax expense increased by $1,349 to $1,363 from $14, primarily due to higher 2008
pretax income and the utilization of all net operating loss carryforwards for
book purposes in 2007.  The availability of net operating loss
carryforwards for federal income tax purposes is discussed further under “Tax Loss Carryforward”
below.





Net Income. Net income
increased $724 to $2,124 from $1,400, primarily due to higher products and
services revenues and improved margins, partially offset by increased selling,
general and administrative expenses and income tax expense.





Tax Loss Carryforward.Because of our operating losses in 2003, 2005 and 2006 and exercises of
stock options, we have accumulated a net operating loss carryforward for federal
income tax purposes that, at June 30, 2008, was approximately $3,049. 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 June 30, 2008, windfall tax benefits included in NOL
carryforward but not reflected in deferred tax assets are $3,049.





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 2007, we
reversed the 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 be able to use the assets to reduce future tax
liabilities.


19
 Index


Liquidity
and Capital Resources





Sources
of Liquidity





During
the six month period ended June 30, 2008, our principal sources of liquidity
were sales of common stock , cash flows from operations  and our
credit facility with Castle Pines Capital LLC (the “Credit
Facility”).  We believe cash flows from operations and availability
under our credit facilities 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 $19,217 at
June 30, 2008 from $9,833 at December 31, 2007, primarily due to cash generated
from operations and the issuance of common stock.





On June
3, 2008, we entered into an amendment to the Credit Facility (“Amendment”) to
increase the maximum aggregate line of credit to $60,000 from
$50,000.  The Credit Facility includes 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. In connection with the Select acquisition, $6,000 was borrowed under
the Acquisition Facility, which was repaid on June 26, 2008 from the proceeds of
the common stock issuance.





As of
June 30, 2008, borrowing capacity and availability were as follows:





Total
      Credit Facility
            
            $
            60,000Borrowing
      base limitation
            
            
            (19,974
            )Total
      borrowing capacity
            
            
            40,026Less
      interest-bearing borrowings
            
            
            —Less
      non-interest bearing advances
            
            
            (35,536
            )Total
      unused availability
            
            $
            4,491





In
addition to unused borrowing availability, liquidity at June 30, 2008 included
our cash balance of $12,604. 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% (5.50% at June 30, 2008) and the
interest rate of the Acquisition Facility is the prime rate plus 2.0% (7.00% at
June 30, 2008).





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, 2008, 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, 2008, our cash increased by $3,264. Operating activities
provided cash of $3,714, investing activities used $3,609, and financing
activities provided $3,159.


20
 Index




Operating Activities.Operating activities provided $3,714 in the six months ended June 30,
2008, as compared to providing cash of $11,292 in the comparable 2007 period.
During the six months ended June 30, 2008, net income and noncash adjustments to
net income provided cash of $3,895, which was partially offset by changes in
asset and liability accounts using cash of $189.





Investing Activities.Investing activities used $3,609 in the six months ended June 30, 2008,
compared to $1,121 used during the comparable period in 2007. Our investing
activities in 2008 primarily consisted of the acquisition of Access Flow, Inc.
($2,598, including transaction costs) and capital expenditures
($1,001).  Our investing activities in the 2007 period primarily
consisted of  capital expenditures ($856) and additional purchase
price paid to Datatran Network Systems ($250).  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 $3,159 in the six months ended June 30,
2008, as compared to using $4,140 in the comparable period in 2007. The
financing activities during the six months ended June 30, 2008 generated cash
primarily from the issuance of common stock ($8,809, net of issuance costs), the
exercise of stock options ($827), and excess tax benefits from stock option
exercises ($1,195), partially offset by the repayment of the Acquisition
Facility ($6,000) and common stock repurchases discussed in Note 8 to the
Consolidated Condensed Financial Statements in Part I, Item 1 ($1,536). Funds
used in the comparable 2007 period were primarily from net payments under the
short-term credit facility.





Related
Party Transactions





We leased
office space from Allstar Equities, Inc., a Texas corporation, a company wholly
owned by James H. Long, our Chief Executive Officer under a lease that
originally expired on January 31, 2014 and has a rental rate of $20 per month.
On January 25, 2008, Allstar sold the building and rights under the Lease to the
General Consulate of Equatorial Guinea (“Consulate”), an unrelated third party.
Other than the lessor, no changes were made to the terms of the existing lease
except for those modified under a First Amendment to INX Inc. Lease Agreement
(“Amendment”), as follows:





•
            INX
      has the sole option to terminate its lease with 120 days notice for
      reasons specified in the Amendment. INX is not required to pay rent during
      the 120 day notice period.





•
            INX
      has the right of first refusal on additional space on the second floor of
      the building.





The Audit
Committee of the Board of Directors reviewed and approved the related party
transaction contemplated by the Amendment.





Item 4T. Controlsand
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, 2008 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 2008, 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.


21
 Index




PART II. OTHER
INFORMATION





Item
1. LegalProceedings





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





Item
2. UnregisteredSales of Equity Securities and Use of
Proceeds





See Note
4 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 July 2008 for achievement of certain operating profit milestones during the
twelve-month period ending May 31, 2008.





See Note
8 to condensed consolidated financial statements in Part I, Item 1 regarding
issuance of 7,443 unregistered shares to its non-employee directors upon
re-election to the Board of Directors in May 2008.





Item
4. Submissionof Matters to a Vote of Security
Holders





See Item
8.01 to Form 8-K filed May 13, 2008 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
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 12, 2008
            By:
            /s/
      BRIAN FONTANABrian
      Fontana, Vice Presidentand
      Chief Financial Officer


22
 Index




Index
to Exhibits





Exhibit
              No.
            
            Description
            
            Filed
      Herewith or
              Incorporated
      by
              Reference From:10.1
            
            Asset
      Purchase Agreement by and among INX Inc., Access Flow, Inc., Steve Kaplan
      and Gary Lamb dated June 6, 2008
            
            Exhibit
      10.1 to Form 8-K filed June 9, 200810.2
            
            Amendment
      to Amended and Restated Credit Agreement by and among INX Inc., Select,
      Inc., and Castle Pines Capital LLC
            
            Exhibit
      10.1 to Form 8-K filed June 4, 200831.1
            
            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.






23