UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION


**WASHINGTON,
        D.C. 20549**
 
 **FORM
        10-Q**
 
 (Mark One)x
              **QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934****For
                  the quarterly period ended September 30, 2007****OR**o
              **TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934****For
                  the transition period from January 1, 2007 to September 30,
                  2007**
 
 **Commission
        file number: 1-31949**
 
 **INX
        Inc.**
 (Exact
        name of Registrant as specified in its charter)
 
 **Delaware**
              **76-0515249**(State
                  of incorporation)
              (I.R.S.
                  Employer Identification Number)
 
 **6401
        Southwest Freeway**
 **Houston,
        Texas 77074**
 (Address
        of principal executive offices)
 (Zip
        code)
 
 **(713)
        795-2000**
 (Registrant’s
        telephone number including area code)
 
 Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days. Yes x  No o
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
        one):
 
 Large
                  Accelerated Filer o
              Accelerated
                  Filer o
              Non-accelerated
                  Filer x
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). Yes o No x
 
 The
        Registrant has 7,500,492 shares of common stock outstanding as of October
        29,
        2007.
  
 1
 *Index*
  **INX
        Inc.and Subsidiaries**
 **FORM
        10-Q for the Quarter Ended September 30, 2007**
  **INDEX**
  Part I.
                    Financial InformationItem
                  1. Financial Statements (Unaudited):
              3Condensed
                    Consolidated Statements of Operations for the three
                    months ended September 30, 2007 and 2006
              3Condensed
                  Consolidated Statements of Operations for the nine
                  months ended September 30, 2007 and 2006
              4Condensed
                    Consolidated Balance Sheets at September 30, 2007 and
                    December 31, 2006
              5Condensed
                  Consolidated Statement of Stockholders’ Equity for the
                  nine months ended September 30, 2007
              6Condensed
                    Consolidated Statements of Cash Flows for the nine
                    months ended September 30, 2007 and 2006
              7Notes
                  to Condensed Consolidated Financial
                  Statements
              9Item
                    2. Management’s Discussion and Analysis of Financial
                    Condition and Results of Operations
              16Item
                  3. Quantitative and Qualitative Disclosures about Market
                  Risk
              21Item
                    4. Controls and Procedures
              21Part
                  II. Other Information
              21Item
                    1. Legal Proceedings
              21Item
                    6. Exhibits
              21Signature
              21
  2
 *Index*
  **PART
          1. FINANCIAL INFORMATION**
 
 **Item
          1. Financial Statements (Unaudited):**
 
 INX
          INC. AND SUBSIDIARIES
 
 CONDENSED
          CONSOLIDATED STATEMENTS OF OPERATIONS
 (In
          thousands, except share and per share amounts)
 (Unaudited)
 
 **Three
                    Months**
                  **Ended
                    September 30,****2007**
                
                
                **2006**Revenue:Products
                
                $
                45,222
                
                
                $
                39,847Services
                
                
                6,776
                
                
                
                5,397Total
                      revenue
                
                
                51,998
                
                
                
                45,244Cost
                    of products and services:Products
                
                
                37,335
                
                
                
                33,215Services
                
                
                5,110
                
                
                
                3,880Total
                      cost of products and services
                
                
                42,445
                
                
                
                37,095Gross
                    profit
                
                
                9,553
                
                
                
                8,149Selling,
                      general and administrative expenses
                
                
                8,543
                
                
                
                7,432Operating
                    income
                
                
                1,010
                
                
                
                717Interest
                      and other income (expense), net
                
                
                (17
                )
                
                
                (112
                )Income
                    from continuing operations before income taxes
                
                
                993
                
                
                
                605Income
                      tax expense
                
                
                7
                
                
                
                43Net
                    income from continuing operations
                
                
                986
                
                
                
                562Income
                      (loss) from discontinued operations, net of income
                      taxes
                
                
                38
                
                
                
                (291
                )Net
                    income
                
                $
                1,024
                
                
                $
                271Net
                      income per share:Basic:Income
                      from continuing operations
                
                $
                0.14
                
                
                $
                0.09Income
                    (loss) from discontinued operations, net of income taxes
                
                
                —
                
                
                
                (0.05
                )Net
                      income per share
                
                $
                0.14
                
                
                $
                0.04Diluted:Income
                      from continuing operations
                
                $
                0.12
                
                
                $
                0.08Income
                    (loss) from discontinued operations, net of income taxes
                
                
                0.01
                
                
                
                (0.04
                )Net
                      income per share
                
                $
                0.13
                
                
                $
                0.04Shares
                    used in computing net income per share:Basic
                
                
                7,081,511
                
                
                
                6,419,501Diluted
                
                
                8,037,221
                
                
                
                7,284,261
 
 The
          accompanying notes are an integral part of these condensed consolidated
          financial statements
  3
 *Index*
  INX
          INC.
ANDSUBSIDIARIES
 
 CONDENSED
          CONSOLIDATED STATEMENTS OF OPERATIONS
 (In
          thousands, except share and per share amounts)
 (Unaudited)
 
 **Nine
                    Months**
                  **Ended
                    September 30,****2007**
                
                
                **2006**Revenue:Products
                
                $
                131,690
                
                
                $
                95,480Services
                
                
                19,678
                
                
                
                14,718Total
                      revenue
                
                
                151,368
                
                
                
                110,198Cost
                    of products and services:Products
                
                
                108,696
                
                
                
                78,070Services
                
                
                14,567
                
                
                
                10,940Total
                      cost of products and services
                
                
                123,263
                
                
                
                89,010Gross
                    profit
                
                
                28,105
                
                
                
                21,188Selling,
                      general and administrative expenses
                
                
                25,757
                
                
                
                20,278Operating
                    income
                
                
                2,348
                
                
                
                910Interest
                      and other income (expense), net
                
                
                —
                
                
                
                (215
                )Income
                    from continuing operations before income taxes
                
                
                2,348
                
                
                
                695Income
                      tax expense
                
                
                21
                
                
                
                44Net
                    income from continuing operations
                
                
                2,327
                
                
                
                651Income
                      (loss) from discontinued operations, net of income
                      taxes
                
                
                97
                
                
                
                (152
                )Net
                    income
                
                $
                2,424
                
                
                $
                499Net
                      income per share:Basic:Income
                      from continuing operations
                
                $
                0.34
                
                
                $
                0.10Income
                    (loss) from discontinued operations, net of income taxes
                
                
                0.01
                
                
                
                (0.02
                )Net
                      income per share
                
                $
                0.35
                
                
                $
                0.08Diluted:Income
                      from continuing operations
                
                $
                0.30
                
                
                $
                0.09Income
                    (loss) from discontinued operations, net of income taxes
                
                
                0.01
                
                
                
                (0.02
                )Net
                      income per share
                
                $
                0.31
                
                
                $
                0.07Shares
                    used in computing net income per share:Basic
                
                
                6,870,521
                
                
                
                6,233,674Diluted
                
                
                7,853,269
                
                
                
                7,191,431
 
 The
          accompanying notes are an integral part of these condensed consolidated
          financial statements
  4
 *Index*
 
 INX
          INC.
ANDSUBSIDIARIES
 
 CONDENSED
          CONSOLIDATED BALANCE SHEETS
 (In
          thousands, except share and par value amounts)
 
 **September
                    30,**
                  **2007**
                
                
                **December
                    31,**
                  **2006****(Unaudited)****ASSETS**Current
                    Assets:Cash
                      and cash equivalents
                
                $
                8,514
                
                
                $
                1,795Accounts
                    receivable, net of allowance of $224 and $299
                
                
                42,058
                
                
                
                42,424Inventory
                
                
                1,573
                
                
                
                1,157Other
                    current assets
                
                
                2,301
                
                
                
                2,086Total
                      current assets
                
                
                54,446
                
                
                
                47,462Property
                    and equipment, net of accumulated depreciation of $3,349 and
                    $2,414
                
                
                4,345
                
                
                
                3,854Goodwill
                
                
                16,044
                
                
                
                10,891Intangible
                    and other assets, net of accumulated amortization of $1,449 and
                    $1,264
                
                
                3,667
                
                
                
                313Total
                      assets
                
                $
                78,502
                
                
                $
                62,520**LIABILITIES
                      AND STOCKHOLDERS’ EQUITY**Current
                      Liabilities:Notes
                    payable
                
                $
                6,472
                
                
                $
                4,609Accounts
                      payable
                
                
                34,312
                
                
                
                28,798Accrued
                    expenses
                
                
                5,918
                
                
                
                5,038Other
                      current liabilities
                
                
                1,550
                
                
                
                1,385Total
                    current liabilities
                
                
                48,252
                
                
                
                39,830Other
                      long-term liabilities
                
                
                526
                
                
                
                306Commitments
                    and contingenciesStockholders’
                      Equity:Preferred
                    stock, $.01 par value, 5,000,000 shares authorized, no shares
                    issued
                
                
                —
                
                
                
                —Common
                      stock, $.01 par value, 15,000,000 shares authorized, 7,393,582 and
                      6,603,070 shares issued
                
                
                74
                
                
                
                66Additional
                    paid-in capital
                
                
                35,506
                
                
                
                30,598Retained
                      deficit
                
                
                (5,856
                )
                
                
                (8,280
                )Total
                    stockholders’ equity
                
                
                29,724
                
                
                
                22,384Total
                      liabilities and stockholders’ equity
                
                $
                78,502
                
                
                $
                62,520
 
 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****Shares**
                
                
                **Amount**
                
                
                **Additional**
                  **Paid-In**
                  **Capital**
                
                
                **Retained**
                  **Deficit**
                
                
                **Total**Balance
                      at December 31, 2006
                
                
                6,603,070
                
                
                $
                66
                
                
                $
                30,598
                
                
                $
                (8,280
                )
                
                $
                22,384Exercise
                    of common stock options
                
                
                436,849
                
                
                
                5
                
                
                
                1,024
                
                
                
                —
                
                
                
                1,029Issuance
                      of vested restricted common stock
                
                
                918
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Issuance
                      of shares as additional purchase price consideration for Datatran
                      acquisition
                
                
                25,253
                
                
                
                —
                
                
                
                250
                
                
                
                —
                
                
                
                250Issuance
                    of shares as additional purchase price consideration for Network
                    Architects, Corp. acquisition
                
                
                75,000
                
                
                
                1
                
                
                
                676
                
                
                
                —
                
                
                
                677Issuance
                    of shares as purchase price consideration for Select, Inc.
                    acquisition
                
                
                243,556
                
                
                
                2
                
                
                
                2,360
                
                
                
                —
                
                
                
                2,362Share-based
                      compensation expense related to employee stock
                      options
                
                
                —
                
                
                
                —
                
                
                
                393
                
                
                
                —
                
                
                
                393Share-based
                    compensation expense related to directors’ stock
                    grants
                
                
                9,072
                
                
                
                —
                
                
                
                90
                
                
                
                —
                
                
                
                90Share-based
                      compensation expense related to employee restricted stock
                      grants
                
                
                —
                
                
                
                —
                
                
                
                29
                
                
                
                —
                
                
                
                29Issuance
                    of warrants
                
                
                —
                
                
                
                —
                
                
                
                86
                
                
                
                —
                
                
                
                86Treasury
                    stock resulting from grantee election to fund payroll taxes out
                    of
                    restricted stock grant
                
                
                (136
                )
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Net
                      income
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                2,424
                
                
                
                2,424Balance
                    at September 30, 2007
                
                
                7,393,582
                
                
                $
                74
                
                
                $
                35,506
                
                
                $
                (5,856
                
                
                $
                29,724
  The
          accompanying notes are an integral part of this condensed consolidated
          financial
          statement
  6
 *Index*
  INX
INC.
          AND SUBSIDIARIES
 
 CONDENSED
          CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In
          thousands)
 (Unaudited)
  **Nine
                    Months**
                  **Ended
                    September 30,****2007**
                
                
                **2006**CASH
                    FLOWS FROM OPERATING ACTIVITIES:Net
                      income
                
                $
                2,424
                
                
                $
                499Adjustments
                    to reconcile net income to net cash provided by (used in) operating
                    activities:Net
                      (income) loss from discontinued operations
                
                
                (97
                )
                
                
                152Depreciation
                    and amortization
                
                
                1,143
                
                
                
                854Share-based
                      compensation expense for stock options and stock
                      grants
                
                
                520
                
                
                
                271Issuance
                    of warrants
                
                
                86
                
                
                
                —Loss
                      on retirement of assets
                
                
                11
                
                
                
                20Bad
                    debt expense
                
                
                29
                
                
                
                3Changes
                      in operating assets and liabilities, net of effect of
                      acquisitions:Accounts
                    receivable
                
                
                6,031
                
                
                
                (13,227
                )Inventory
                
                
                13
                
                
                
                (2,001
                )Accounts
                    payable
                
                
                (1,343
                )
                
                
                14,456Other
                      assets and liabilities
                
                
                81
                
                
                
                62Net
                    cash provided by continuing operations
                
                
                8,898
                
                
                
                1,089Net
                      operating activities of discontinued operations
                
                
                43
                
                
                
                (516
                )Net
                    cash provided by operating activities
                
                
                8,941
                
                
                
                573CASH
                      FLOWS FROM INVESTING ACTIVITIES:Acquisition
                      of Select, Inc., net of $2,864 cash acquired
                
                
                (3,386
                )
                
                
                —Acquisition
                    of Datatran Network Systems
                
                
                (250
                )
                
                
                (1,000
                )Acquisition
                      of Network Architects, Corp.
                
                
                —
                
                
                
                (394
                )Acquisition
                    of InfoGroup Northwest, Inc.
                
                
                —
                
                
                
                (750
                )Transaction
                    costs paid for acquisitions
                
                
                (354
                )
                
                
                (32
                )Capital
                      expenditures (net of effect of acquisitions)
                
                
                (1,127
                )
                
                
                (1,589
                )Net
                    cash used in investing activities of continuing operations
                
                
                (5,117
                )
                
                
                (3,765
                )Net
                      investing activities of discontinued operations
                
                
                15
                
                
                
                1,251Net
                    cash used in investing activities
                
                
                (5,102
                )
                
                
                (2,514
                )CASH
                      FLOWS FROM FINANCING ACTIVITIES:Exercise
                    of stock options
                
                
                1,029
                
                
                
                482Borrowing
                      under acquisition credit facility
                
                
                6,000
                
                
                
                —Net
                      payments of short-term interest bearing credit
                      facilities
                
                
                (4,350
                )
                
                
                2,086Debt
                    issuance costs paid
                
                
                (12
                )
                
                
                —Proceeds
                    from other short-term borrowings
                
                
                472
                
                
                
                —Payments
                    on notes payable
                
                
                (259
                )
                
                
                (77
                )Net
                      cash provided by financing activities of continuing
                      operations
                
                
                2,880
                
                
                
                2,491Net
                    financing activities of discontinued operations
                
                
                —
                
                
                
                (1
                )Net
                      cash provided by financing activities
                
                
                2,880
                
                
                
                2,490NET
                    INCREASE IN CASH AND CASH EQUIVALENTS
                
                
                6,719
                
                
                
                549CASH
                      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
                
                
                1,795
                
                
                
                2,597CASH
                    AND CASH EQUIVALENTS AT END OF PERIOD
                
                $
                8,514
                
                
                $
                3,146
  The
          accompanying notes are an integral part of these condensed consolidated
          financial statements
  7
 *Index*
  INX
          INC.
          AND SUBSIDIARIES
 
 CONDENSED
          CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In
          thousands)
 (Unaudited)
  **Nine
                    Months**
                  **Ended
                    September 30,****2007**
                
                
                **2006**SUPPLEMENTAL
                    DISCLOSURES OF CASH FLOW INFORMATION:Cash
                      paid for interest
                
                $
                124
                
                
                $
                150Cash
                    paid for income taxes
                
                $
                79
                
                
                $
                8SUPPLEMENTAL
                    NONCASH INVESTING AND FINANCING ACTIVITIES:Acquisition
                      of Select, Inc.:Fair
                    value of assets acquired
                
                $
                6,566
                
                
                $
                —Common
                      stock issued
                
                
                (2,362
                )
                
                
                —Noncompete
                      agreement liability
                
                
                (450
                )
                
                
                —Transaction
                      costs accrued
                
                
                (50
                )
                
                
                —Acquisition
                      of Datatran Network Systems:Fair
                    value of assets acquired
                
                $
                500
                
                
                $
                1,515Common
                      stock issued
                
                
                (250
                )
                
                
                (515
                )Acquisition
                    of Network Architects, Corp.:Fair
                      value of assets acquired
                
                $
                677
                
                
                $
                965Common
                    stock issued
                
                
                (677
                )
                
                
                (571
                )Acquisition
                      of InfoGroup Northwest, Inc.:Fair
                    value of assets acquired
                
                $
                —
                
                
                $
                1,501Common
                    stock issued
                
                
                —
                
                
                
                (751
                )Debt
                      issuance costs accrued
                
                $
                (53
                )
                
                
                —Issuance
                    of warrants in connection with sale of Stratasoft, Inc.
                
                
                —
                
                
                $
                128
  The
          accompanying notes are an integral part of these condensed consolidated
          financial statements
  8
 *Index*
 
 **INX
          INC. ANDSUBSIDIARIES**
 
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(In
          thousands, except share and per share amounts)**
 
 **1. Description
          of Business**
 
 INX
          Inc.
          (“INX” or the “Company”) is a provider of Internet Protocol (“IP”)
          communications solutions for enterprise-class organizations based primarily
          on
          Cisco System, Inc. (“Cisco”) technology. These solutions include design,
          implementation and support of LAN/WAN routing and switching, IP telephony,
          voice
          over IP (“VoIP”), network security, network storage and wireless
          networks.
  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 September 30, 2007 and for
          the
          three-month and nine-month periods ended September 30, 2007 and 2006 have
          been
          prepared by the Company pursuant to the rules and regulations of the Securities
          and Exchange Commission. Certain information and footnote disclosures normally
          included in financial statements prepared in accordance with accounting
          principles generally accepted in the United States have been condensed
          or
          omitted pursuant to such rules and regulations. The December 31, 2006 Condensed
          Consolidated Balance Sheet was derived from audited financial statements,
          but
          does not include all disclosures required by accounting principles generally
          accepted in the United States. However, the Company believes the disclosures
          are
          adequate to make the information presented not misleading. These Condensed
          Consolidated Financial Statements should be read in conjunction with the
          Consolidated Financial Statements and the notes thereto, included in the
          Company’s Annual Report on Form 10-K for the year ended December 31,
          2006.
 
 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 September 30, 2007, results of operations for
          the
          three-month and nine-month periods ended September 30, 2007 and 2006, cash
          flows
          for the nine months ended September 30, 2007 and 2006, and stockholders’ equity
          for the nine months ended September 30, 2007, have been included. The results
          of
          the interim periods are not necessarily indicative of results for the full
          year
          or any future period.
 
 **3. Adoption
          of FASB Interpretation No. 48**
 
 Effective
          January 1, 2007, the Company adopted FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement
          No. 109” (“FIN 48”). FIN 48 clarifies the accounting for
          uncertainty in income taxes recognized in an enterprise’s financial statements
          and prescribes a recognition threshold and measurement attribute for financial
          statement recognition and measurement of a tax position taken or expected
          to be
          taken in a tax return. This Interpretation also provides related guidance
          on
          derecognition, classification, interest and penalties, and accounting in
          interim
          periods and disclosure. The adoption of FIN 48 did not have a material
          impact on
          the Condensed Consolidated Financial Statements for the three-month and
          nine-month periods ended September 30, 2007.
 
 The
          Company and its subsidiary file income tax returns in the U.S. federal
          jurisdiction and several states. With few exceptions, the Company is no
          longer
          subject to U.S. federal or state and local income tax examinations by tax
          authorities for years before 2003. The Company is currently not undergoing
          an
          income tax examination in any jurisdiction. The Company has no unrecognized
          tax
          benefits not recorded as of January 1, 2007, the date of adoption of FIN
          48.
 
 There
          were no interest or penalties recorded for unrecognized tax benefits in
          the
          three-month and nine-month periods ended September 30, 2007. There were
          no
          interest or penalties accrued in the Condensed Consolidated Balance Sheets
          at
          September 30, 2007 or December 31, 2006.
 
 **4.
          Recent Accounting Pronouncements**
 
 In
          September 2006, the FASB issued Statement of Financial Accounting Standards
          No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 clarifies the
          definition of fair value, establishes a framework for measuring fair value,
          and
          expands the disclosures on fair value measurements. SFAS No. 157 is
          effective for fiscal years beginning after November 15, 2007. The adoption
          of SFAS 157 is not expected to have a material impact on the Company’s
          consolidated financial statements.
 
 In
          February 2007, the FASB issued Statement of Financial Accounting Standards
          No. 159, “The Fair Value Option for Financial Assets and Financial
          Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose to measure many
          financial instruments and certain other items at fair value that are not
          currently required to be measured at fair value. It also establishes
          presentation and disclosure requirements designed to facilitate comparisons
          between entities that choose different measurement attributes for similar
          types
          of assets and liabilities. SFAS 159 does not: (a) affect any existing
          accounting literature that requires certain assets and liabilities to be
          carried
          at fair value; (b) establish requirements for recognizing and measuring
          dividend income, interest income, or interest expense; or (c) eliminate
          disclosure requirements included in other accounting standards. SFAS 159
          is
          effective as of the beginning of the first fiscal year that begins after
          November 15, 2007. The adoption of SFAS 159 is not expected to have a
          material impact on the Company’s consolidated financial statements.
 
 9
 *Index*
  **5.
          Acquisitions**
 
 ***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 inBoston,Massachusetts,Selectis aCisco-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
          acquisition was consummated to improve the Company’s geographical
          presence.  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”), 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 $480 were incurred in the purchase,
          of
          which $318 was paid in cash, $50 accrued, and $112 was paid through the
          issuance
          of 11,598 shares of common stock.
 
 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 INX 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.
  The
          following table summarizes the estimated fair values, including professional
          fees and other related acquisition costs, at the date of acquisition. The
          Company obtained a preliminary third party valuation estimate of certain
          tangible and intangible assets, which is subject to refinement.
 
 Intangibles:Customer
                    relationships, amortized over 10 years
                
                $
                2,823Noncompete
                    agreements, amortized over 5 years
                
                
                740Cash
                
                
                2,864Accounts
                    receivable
                
                
                5,694Inventory
                
                
                429Property
                    and equipment
                
                
                333Other
                    assets
                
                
                31Goodwill
                
                
                3,941Accounts
                    payable and other liabilities assumed
                
                
                (7,425
                )Total
                    acquisition cost
                
                $
                9,430
 
 ***Pro
          Forma Summary***
 
 The
          following pro forma consolidated amounts give effect to the Company’s
          acquisition of Select as if it had occurred January 1, 2006. 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.
  10
 *Index*
 
 **Three
                    Months Ended**
                  **September
                    30,**
                
                
                **Nine
                    Months Ended**
                  **September
                    30,****2007**
                
                
                **2006**
                
                
                **2007**
                
                
                **2006**Revenues
                
                $
                58,742
                
                
                $
                53,865
                
                
                $
                179,722
                
                
                $
                133,678Net
                    income from continuing operations
                
                $
                1,064
                
                
                $
                608
                
                
                $
                2,644
                
                
                $
                387Net
                    income per share from continuing operations:Basic
                
                $
                0.15
                
                
                $
                0.09
                
                
                $
                0.37
                
                
                $
                0.06Diluted
                
                $
                0.13
                
                
                $
                0.08
                
                
                $
                0.33
                
                
                $
                0.05Weighted
                    average shares used in calculation:Basic
                
                
                7,244,511
                
                
                
                6,663,056
                
                
                
                7,086,829
                
                
                
                6,477,229Diluted
                
                
                8,200,221
                
                
                
                7,527,816
                
                
                
                8,069,577
                
                
                
                7,434,986
 
 ***Datatran
          Network Systems***
 
 Under
          an
          Asset Purchase Agreement dated February 3, 2006, the Company purchased the
          assets and operations of Datatran Network Systems (“DNS”). DNS is a specialized
          provider of network solutions serving the Southern California market. DNS
          designs, implements and supports solutions based on Cisco technologies
          with a
          primary focus on IP Telephony. The Company completed the acquisition
          simultaneously with the execution of the Asset Purchase Agreement.
 
 The
          consideration paid at closing pursuant to the Asset Purchase Agreement
          was
          $1,000 in cash, including $100 placed in escrow under holdback provisions
          defined in the Asset Purchase Agreement and 71,003 shares of the Company’s
          common stock valued at $500. Legal and other costs of $47 were paid in
          connection with the transaction, of which $32 was paid in cash and $15
          was paid
          through the issuance of 2,105 shares of common stock. The $100 holdback was
          released from escrow and paid to DNS in May 2007.
 
 Additional
          purchase price consideration valued at $500 and recorded as goodwill was
          paid to
          DNS in June 2007 for achievement of certain operating profit milestones
          during
          the twelve-month period ending February 28, 2007. The consideration consisted
          of
          a cash payment of $250 and issuance of 25,253 shares of the Company’s common
          stock with a value of $250. The calculation of the number of shares of
          Company’s
          common stock was determined by dividing $250 by $9.90, the average closing
          price
          per share for the common stock as reported by NASDAQ for the five consecutive
          trading days prior to March 1, 2007. Additionally, cash of $30 was paid
          to the
          broker of the transaction.
 
 ***Network
          Architects, Corp.***
 
 Effective
          May 26, 2005, the Company acquired the operations and certain assets of
          Network Architects, Corp. (“Network Architects”), a data network and IP
          telephony systems design, installation and support business with branches
          in
          Albuquerque, New Mexico and El Paso, Texas. Additional purchase price
          consideration consisting of 75,000 shares of the Company’s common stock, were
          issued to Network Architects in June 2007 for achievement of certain operating
          profit milestones during the twelve-month period ending May 31, 2007. The
          additional purchase price consideration was valued at $677 and recorded
          as
          goodwill, determined by multiplying the shares issued by the closing price
          per
          share for the common stock as reported by NASDAQ on June 29, 2007.
 
 Under
          the
          terms of the Asset Purchase Agreement, the Company will issue Network Architects
          a maximum of 75,000 shares of common stock as additional purchase price
          consideration following the twelve-month period ending May 31, 2008 if
          operating profit during such period exceeds $726. If operating profit is
          less
          than the applicable milestone for any of the two years, the number of shares
          of
          common stock issuable by the Company will be equal to 75,000 multiplied
          by the
          percentage of actual operating profit during the period as compared to
          the
          applicable milestone. Additional purchase price consideration, if any,
          will be
          recorded as goodwill.
 
 **6.
          Discontinued Operations**
 
 On
          November 3, 2005, the Company’s Board of Directors approved a plan to sell
          its Stratasoft and Valerent subsidiaries. Under a Stock Purchase Agreement
          (“Agreement”) dated January 26, 2006, INX sold all outstanding shares of
          Stratasoft’s common stock for a pretax gain on disposal of $302. Key terms of
          the sale are summarized as follows:
 
 •
All
          outstanding Stratasoft common stock was sold for a purchase price of $3,000,
          which has been or is subject to reduction as follows:
 •
$800
          placed in escrow, which is available to satisfy indemnified losses, if
          any, as
          defined in the Agreement. Funds placed in escrow are excluded from the
          estimated
          gain stated above. Approximately $580 in indemnified losses net of interest
          earned have been paid or presented for payment as of September 30,
          2007.
  11
 *Index*
  •
$221
          representing a preliminary net working capital adjustment, as defined.
          The final
          working capital adjustment recorded during June 2006 resulted in the further
          reduction of the sale proceeds of $40.
 •
The
          Company indemnified the buyer for potential losses as defined in the Agreement
          to a maximum of $1,400, inclusive of amounts placed in escrow. Excess funds
          held
          in escrow will be released on January 26, 2008 unless retained in escrow
          for potential indemnified losses as allowed in the Agreement under certain
          circumstances.
 •
The
          Company may receive additional consideration in the form of 10% of the
          outstanding Stratasoft common stock if revenue exceeds $10,000 for any
          consecutive twelve month period within two years of closing.
 •
The
          Company may receive additional cash consideration if Stratasoft is sold
          by the
          buyer to another party prior to January 26, 2008, for an amount in excess
          of $15,000.
 
 Transaction
          costs of $815 were incurred by the Company in connection with the transaction,
          including the $128 value of warrants issued to the investment banker for
          the
          transaction for 40,000 shares of common stock with an exercise price of
          $6 per share. The warrants expire 5 years after January 26, 2006.
          Additional transaction costs of up to $120 are payable based on the final
          sale
          price. Additional costs of $134 were recorded as a reduction of the gain
          on sale
          for space leased by INX that will not be subleased to Stratasoft in the
          future.
 
 The
          sale
          of Valerent operations involved two separate transactions which were closed
          in
          October 2006. The managed services business and related inventory, property
          and
          equipment were sold to OuterNet Management, L.P. for a cash sales price
          of $185.
          The consulting business and related property and equipment were sold to
          Vicano
          Acquisition Corp., a company owned by Valerent’s former President and
          brother-in-law of the Company’s CEO and largest shareholder. The consulting
          business was sold for cash paid at closing of $50 and a $70 promissory
          note to
          be received in twenty-four monthly installments of $3 plus interest of
          10%.
          Additional consideration of $26 was earned for the first earnout period
          ended
          October 12, 2007 and additional consideration is due to the Company if
          certain
          revenue thresholds and conditions are met during the second earnout period
          ended
          October 12, 2008. The Company recorded a gain of $25 on the cash component
          of
          the transactions and will record a gain on proceeds under the $70 promissory
          note as received, of which a cumulative total of $29 was received through
          September 30, 2007.
 
 The
          results of operations and gain on disposal of discontinued operations are
          summarized below:
 
 **Three
                    Months**
                  **Ended
                    September 30,**
                
                
                **Nine
                    Months**
                  **Ended
                    September 30,****2007**
                
                
                **2006**
                
                
                **2007**
                
                
                **2006**Revenue:Stratasoft
                
                $
                —
                
                
                $
                —
                
                
                $
                —
                
                
                $
                268Valerent
                
                
                —
                
                
                
                1,115
                
                
                
                —
                
                
                
                4,201Total
                
                $
                —
                
                
                $
                1,115
                
                
                $
                —
                
                
                $
                4,469Income
                    (loss) from operations of discontinued subsidiaries:Stratasoft
                
                $
                —
                
                
                $
                —
                
                
                $
                12
                
                
                $
                (260
                )Valerent
                
                
                6
                
                
                
                (291
                )
                
                
                38
                
                
                
                (663
                )Total
                
                
                6
                
                
                
                (291
                )
                
                
                50
                
                
                
                (923
                )Gain
                    on disposal of discontinued operations:Stratasoft
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                302Telecom
                    and Computer Products Divisions
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                469Valerent
                
                
                32
                
                
                
                —
                
                
                
                47
                
                
                
                —Gain
                    (loss) from discontinued operations, net of taxes
                
                $
                38
                
                
                $
                (291
                )
                
                $
                97
                
                
                $
                (152
                )
 
 Prior
          to
          2004, the Company sold a computer products reselling business, PBX telephone
          systems dealer business, and the Telecom Systems division.  During
          2006, pending litigation was settled relative to its discontinued Telecom
          and
          Computer Products Divisions, with the impact reflected in the gain on disposal
          of discontinued operations detailed above.
 
 **7.
          Earnings Per Share**
 
 Basic
          EPS
          is computed by dividing net income by the weighted-average number of common
          shares outstanding for the period. Diluted EPS is based on the weighted-average
          number of shares outstanding during each period and the assumed exercise
          of
          dilutive stock options and warrants less the number of treasury shares
          assumed
          to be purchased from the exercise proceeds using the average market price
          of the
          Company’s common stock for each of the periods presented.
 
 The
          following table presents the calculation of basic and diluted earnings
          per
          share:
  12
 *Index*
 
 **Three
                    Months Ended September 30,**
                
                
                **Nine
                    Months Ended September 30,****2007**
                
                
                **2006**
                
                
                **2007**
                
                
                **2006**Numerator
                    for basic and diluted earnings per share:Net
                      income from continuing operations
                
                $
                986
                
                
                $
                562
                
                
                $
                2,327
                
                
                $
                651Income
                    (loss) on disposal of discontinued operations, net of income
                    taxes
                
                
                38
                
                
                
                (291
                )
                
                
                97
                
                
                
                (152
                )Net
                      income
                
                $
                1,024
                
                
                $
                271
                
                
                $
                2,424
                
                
                $
                499Denominator
                      for basic earnings per share — weighted-average shares
                      outstanding
                
                
                7,081,511
                
                
                
                6,419,501
                
                
                
                6,870,521
                
                
                
                6,233,674Effect
                    of dilutive securities — shares issuable from assumed conversion of common
                    stock options, restricted stock, and warrants
                
                
                955,710
                
                
                
                864,760
                
                
                
                982,748
                
                
                
                957,757Denominator
                      for diluted earnings per share — weighted-average shares
                      outstanding
                
                
                8,037,221
                
                
                
                7,284,261
                
                
                
                7,853,269
                
                
                
                7,191,431
 
 **8.
          Credit Facility**
 
 On
          April
          30, 2007, the Company entered into a new $50,000 senior credit facility
          agreement (“Agreement”) with Castle Pines Capital LLC (“CPC”) to provide
          inventory financing and to fund working capital requirements. The new facility
          with CPC replaced the $40,000 senior credit facility with CPC. Key terms
          of the
          Agreement are summarized as follows:
 
 ·
                  The
                      Agreement provides a discretionary line of credit up to a maximum
                      aggregate amount of $50,000 to purchase inventory from CPC
                      approved
                      vendors.
 ·
                  The
                      Agreement provides a working capital revolving line of credit
                      under the
                      above line of credit with an aggregate outstanding sublimit
                      of $10
                      million.
 ·
                  The
                      working capital revolving line of credit incurs interest payable
                      monthly
                      at the rate of prime plus 0.5%.
 ·
                  The
                      Agreement contains customary covenants regarding maintenance
                      of insurance
                      coverage, maintenance of and reporting collateral, and submission
                      of
                      financial statements. The Agreement also contains covenants
                      measured as of
                      the end of each calendar quarter covering required maintenance
                      of minimum
                      current ratio, tangible net worth, working capital, and total
                      liabilities
                      to tangible net worth ratio (all as defined in the Agreement,
                      as
                      amended).
 ·
                  The
                      credit facility is collaterized by substantially all assets
                      of the
                      Company.
 ·
                  The
                      term of the Agreement is for one year, with automatic renewals
                      for one
                      year periods, except as otherwise provided under the
                      Agreement.
 On
          August
          1, 2007, the Company entered into an amendment (“Amendment”) to the above
          Agreement to provide an additional $10 million credit facility specifically
          for
          acquisitions (“Acquisition Facility”).  Advances under the Acquisition
          Facility will be specific to each acquisition and subject to approval by
          CPC
          based on pre-established criteria contained in the Amendment.  Key terms of
          the Amendment are summarized as follows:
  ·
                  $10,000
                      maximum aggregate commitment for
                      acquisitions.
 ·
                  Advances
                      under the Acquisition Facility are not to exceed 80% of purchase
                      price or
                      six times adjusted EBITDA, as defined in the Amendment, for
                      the twelve
                      months immediately preceding the acquisition closing
                      date.
 ·
                  Interest
                      is payable at the rate of prime plus
                      2%.
 ·
                  An
                      acquisition commitment fee of 1% of the advance amount is payable
                      with
                      one-eighth paid at closing and seven-eighths paid with each
                      loan
                      funding.
 ·
                  Repayment
                      of each advance under the Acquisition Facility is interest
                      only for first
                      year then amortizing for 36 to 48 months, to be determined
                      for each
                      advance, with no penalty to prepay any principal balance. The
                      loan will
                      also be reduced annually by an amount equal to 25% of excess
                      cash flow, as
                      defined in the Amendment, beginning December 31,
                      2008.
 ·
                  CPC
                      may negotiate with the Company to revise existing financial
                      covenants in
                      conjunction with each advance as
                      required.
 ·
                  Termination
                      date of the senior credit facility was extended to August 1,
                      2009, subject
                      to automatic renewal as defined in the
                      Amendment.
  **9.
          Share-Based Compensation**
 
 The
          Company uses the Black-Scholes option pricing model to calculate the grant-date
          fair value of an award. The fair value of options granted during the three-month
          and nine-month periods ended September 30, 2007 and 2006 were calculated
          using
          the following estimated weighted average assumptions:
 
 13
 *Index*
 **Three
                    Months Ended September 30,**
                
                
                **Nine
                    Months Ended September 30,****2007**
                
                
                **2006**
                
                
                **2007**
                
                
                **2006**Expected
                      volatility
                
                
                60.2
                %
                
                
                63.4
                %
                
                
                60.4
                %
                
                
                64.3
                %Expected
                    term (in years)
                
                
                6.5
                
                
                
                6.5
                
                
                
                6.5
                
                
                
                6.3Risk-free
                      interest rate
                
                
                4.5
                %
                
                
                5.0
                %
                
                
                4.5
                %
                
                
                5.0
                %Expected
                    dividend yield
                
                
                0
                %
                
                
                0
                %
                
                
                0
                %
                
                
                0
                %
 
 Expected
          volatility is based on historical volatility over the period that IP
          communications solutions was the primary line of business of the Company.
          Beginning in 2006, the Company used the simplified method outlined in Securities
          and Exchange Commission Staff Accounting Bulletin No. 107 to estimate
          expected lives for options granted in any period. The risk-free interest
          rate is
          based on the yield on zero-coupon U.S. Treasury securities for a period
          that is
          commensurate with the expected term assumption. The Company has not historically
          issued any dividends and does not expect to in the future.
 
 Share-based
          compensation expense recognized under SFAS 123R for the three-month and
          nine-month periods ended September 30, 2007 and 2006 was as
          follows:
  **Three
                    Months Ended September 30,**
                
                
                **Nine
                    Months Ended September 30,****2007**
                
                
                **2006**
                
                
                **2007**
                
                
                **2006**Cost
                      of products and services — services
                
                $
                18
                
                
                $
                14
                
                
                $
                44
                
                
                $
                42Selling,
                    general and administrative expenses
                
                
                134
                
                
                
                63
                
                
                
                357
                
                
                
                217Share-based
                      compensation from continuing operations before income
                      taxes
                
                
                152
                
                
                
                77
                
                
                
                401
                
                
                
                259Income
                    tax benefit
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Share-based
                      compensation from continuing operations
                
                
                152
                
                
                
                77
                
                
                
                401
                
                
                
                259Share-based
                    compensation from discontinued operations
                
                
                —
                
                
                
                1
                
                
                
                (8
                )
                
                
                5Total
                      share-based compensation
                
                $
                152
                
                
                $
                78
                
                
                $
                393
                
                
                $
                264
 
 A
          summary
          of the activity under the Company’s stock option plans for the nine-month period
          ended September 30, 2007 is presented below:
  **Shares**
                
                
                **Weighted**
                  **Average**
                  **Exercise**
                  **Price**
                
                
                **Weighted**
                  **Average**
                  **Remaining**
                  **Contractual**
                  **Term
                    (Years)**
                
                
                **Aggregate**
                  **Intrinsic**
                  **Value**Options
                      outstanding at December 31, 2006
                
                
                1,870,763
                
                
                $
                3.42Granted
                
                
                200,000
                
                
                $
                9.88
                
                
                
                
                
                $
                912Exercised
                
                
                (436,849
                )
                
                $
                2.35
                
                
                
                
                
                $
                3,698Canceled
                
                
                (34,947
                )
                
                $
                6.95
                
                
                
                
                
                $
                98Options
                      outstanding September 30, 2007
                
                
                1,598,967
                
                
                $
                4.44
                
                
                
                6.55
                
                
                $
                15,992Options
                    exercisable at September 30, 2007
                
                
                1,059,201
                
                
                $
                2.68
                
                
                
                5.32
                
                
                $
                12,453Options
                      vested and options expected to vest at
                  September
                      30, 2007
                
                
                1,505,749
                
                
                $
                4.29
                
                
                
                6.77
                
                
                $
                15,289
 
 The
          total
          intrinsic value of options exercised during the three-month periods ended
          September 30, 2007 and 2006 was $1,682 and $278, respectively, and during
          the
          nine-month periods ended September 30, 2007 and 2006 was $3,698 and $1,213,
          respectively. The total grant-date fair value of stock options that became
          fully
          vested during the nine-month periods ended September 30, 2007 and 2006
          was
          approximately $255 and $268, respectively. The weighted average grant-date
          fair
          value of options granted during the three-month periods ended September
          30, 2007
          and 2006 was $6.22 and $0, respectively, and during the nine-month periods
          ended
          September 30, 2007 and 2006 was $6.14 and $3.51, respectively. As of September
          30, 2007, there was $2,120 of total unrecognized compensation cost, net
          of
          estimated forfeitures, related to unvested share-based awards, which is
          expected
          to be recognized over a weighted-average period of 4.4 years.
 
 A
          summary
          of the status of nonvested restricted shares as of September 30, 2007 and
          changes during the nine-month period ended September 30, 2007 is presented
          below:
 
 14
 *Index*
 **Nonvested
                    Shares**
                
                **Shares**
                
                
                **Weighted**
                  **Average**
                  **Grant
                    Date**
                  **Fair
                    Value**Nonvested
                      at December 31, 2006
                
                
                37,194
                
                
                $
                7.48Granted
                
                
                22,161
                
                
                $
                11.57Vested
                
                
                (13,999
                )
                
                $
                9.06Forfeited
                
                
                (14,647
                )
                
                $
                7.51Nonvested
                      at September 30, 2007
                
                
                30,709
                
                
                $
                9.71
 
 As
          of
          September 30, 2007, there was $298 of total unrecognized compensation cost
          related to nonvested share-based compensation arrangements granted under
          the
          Plan, which is expected to be recognized over the weighted-average period
          of
          4.3 years.
 
 **10.
          Stockholders’ Equity**
 
 In
          January 2007, INX issued warrants to an investor relations firm under a
          personal
          services agreement to purchase up to 50,000 shares of common stock at an
          exercise price equal to $8.00 per share expiring January 1, 2009.
          Warrants for 25,000 shares are exercisable immediately and resulted in a
          charge to selling, general and administrative expense and a credit to additional
          paid-in capital of $40 in the nine-month period ended September 30, 2007.
          Warrants for 25,000 shares are exercisable after June 30, 2007 and
          resulted in a charge to selling, general and administrative expense and
          a credit
          to additional paid-in capital of $46 in the three-month period ended September
          30, 2007.
 
 Upon
          re-election to the Board of Directors in May 2007, INX issued 9,072 shares
          to
          its non-employee directors.  The issued shares were valued at $90
          determined by multiplying the shares issued by the closing price per share
          for
          the common stock as reported by NASDAQ on May 15, 2007.
 
 **11.
          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 September 30, 2007, the Company has accounts receivable
          from CoCom of $325, less an allowance for doubtful accounts of
          $96.  Performance and subcontractor bonds were provided by general
          contractors under the school district contracts from which repayment of
          the
          CoCom accounts receivable may be recovered by the
          Company.  Additionally, the Company received payments of $102 during
          the ninety day period preceding the bankruptcy filing which could potentially
          be
          deemed preferential.  The Company’s accounts receivable and potential
          preferential payments, to the extent the lien was perfected, represent
          trust
          funds carrying a higher priority bankruptcy claim than unsecured creditors
          and
          possibly other secured creditors.  As of September 30, 2007, the
          Company has provided a $96 allowance specific to an unperfected lien on
          a school
          district contract for which the likelihood of asset impairment of the CoCom
          accounts receivable is probable.   With respect to the remaining
          CoCom accounts receivable and potential preferential payment liabilities,
          the
          Company believes the range of loss to be from $0 to $222.  Due to the
          uncertainty surrounding the issues involved in this matter and based on
          the
          facts and circumstances known to date, the Company believes that an estimate
          of
          loss, if any, that may be incurred cannot be made at this time and, as
          a result,
          there is no assurance that this matter will not have a material adverse
          effect
          on its results of operations.
 
 On
          December 22, 2005, CenterPoint Energy Service Company filed a lawsuit in
          the District Court of Harris County, Texas styled *CenterPoint Energy Service
          Company (“CenterPoint”),* *LLC v. InterNetwork Experts, Inc.
          (now INX, Inc.), Yellow Transportation, Inc.* *and Cisco Systems,
          Inc.*claiming damages to product during shipment estimated to be $488 plus
          consequential damages, legal fees, court costs, and interest. On April
          26, 2007
          the Company settled its lawsuit with CenterPoint, resulting in a charge
          to
          selling, general and administrative expense of $50 in the nine-month period
          ended September 30, 2007.
 
 INX
          is
          also party to other litigation and claims which management believes are
          normal
          in the course of its operations. While the results of such litigation and
          claims
          cannot be predicted with certainty, INX believes the final outcome of such
          matters will not have a materially adverse effect on its results of operations
          or financial position.
 
 On
          January 19, 2007, the Company was notified that a customer was terminating
          a NetSurant support services contract effective February 28, 2007. The
          customer paid a contract termination payment of $239 in June 2007, on which
          service revenue of $222 was recognized in the nine-month period ended September
          30, 2007.
 
 15
 *Index*
  **Item
          2. Management’s Discussion and Analysis of Financial Condition
          and Results** **of Operations**
 
 The
          following discussion is qualified in its entirety by, and should be read
          in
          conjunction with, our consolidated financial statements, including the
          notes
          thereto included elsewhere in this Form 10-Q and our annual report on Form
          10-K
          for the fiscal year ended December 31, 2006, as previously filed with the
          Securities and Exchange Commission. Amounts are presented in thousands
          except
          for share and per share data.
 
 **Special
          notice regarding forward-looking statements**
 
 This
          quarterly report on Form 10-Q contains forward-looking statements within
          the
          meaning of the Private Securities Litigation Reform Act of 1995 relating
          to
          future events or our future financial performance including, but not limited
          to,
          statements contained in Item 2. “Management’s Discussion and Analysis of
          Financial Condition and Results of Operations.” Readers are cautioned that any
          statement that is not a statement of historical fact including, but not
          limited
          to, statements which may be identified by words including, but not limited
          to,
“anticipate,” “appear,” “believe,” “could,” “estimate,” “expect,” “hope,”
“indicate,” “intend,” “likely,” “may,” “might,” “plan,” “potential,” “seek,”
“should,” “will,” “would,” and other variations or negative expressions thereof,
          are predictions or estimations and are subject to known and unknown risks
          and
          uncertainties. Numerous factors, including factors that we have little
          or no
          control over, may affect INX’s actual results and may cause actual results to
          differ materially from those expressed in the forward-looking statements
          contained herein. In evaluating such statements, readers should consider
          the
          various factors identified in our Annual Report on Form 10-K for our fiscal
          year
          ended December 31, 2006, as filed with the Securities and Exchange Commission
          including the matters set forth in Item 1. — “Risks Related to Our Business,”
which could cause actual events, performance or results to differ materially
          from those indicated by such statements.
 
 **Acquisitions**
 
 Under
          a
          Stock Purchase Agreement dated August 31, 2007 (the “SPA”), we purchased all
          issued and outstanding capital stock of Select, Inc.
          (“Select”).  Located inBoston,Massachusetts,Selectis aCisco-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
          acquisition was consummated to improve our geographical presence.  We
          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 us 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 our Common Stock, $0.01 par value (the “Common
          Stock”), 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 $480 were incurred in the purchase, of which $318
          was paid
          in cash, $50 accrued, and $112 was paid through the issuance of 11,598
          shares of
          common stock.
 
 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 we 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 we 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 our 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.
  **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.
 
 16
 *Index*
  **Three
          Months Ended September 30, 2007 Compared To the Three Months Ended September
          30,** **2006**
 
 **Three
                    Months Ended September 30,****2007**
                
                
                **2006****Amount**
                
                
                **%**
                
                
                **Amount**
                
                
                **%**Revenue:Products
                
                $
                45,222
                
                
                
                87.0
                
                
                $
                39,847
                
                
                
                88.1Services
                
                
                6,776
                
                
                
                13.0
                
                
                
                5,397
                
                
                
                11.9Total
                      revenue
                
                
                51,998
                
                
                
                100.0
                
                
                
                45,244
                
                
                
                100.0Gross
                    profit:Products
                
                
                7,887
                
                
                
                17.4
                
                
                
                6,632
                
                
                
                16.6Services
                
                
                1,666
                
                
                
                24.6
                
                
                
                1,517
                
                
                
                28.1Total
                      gross profit
                
                
                9,553
                
                
                
                18.4
                
                
                
                8,149
                
                
                
                18.0Selling,
                    general and administrative expenses
                
                
                8,543
                
                
                
                16.5
                
                
                
                7,432
                
                
                
                16.5Operating
                      income
                
                
                1,010
                
                
                
                1.9
                
                
                
                717
                
                
                
                1.5Interest
                    and other income (expense), net
                
                
                (17)
                
                
                
                0.0
                
                
                
                (112
                )
                
                
                (0.2
                )Income
                      tax expense
                
                
                7
                
                
                
                0.0
                
                
                
                43
                
                
                
                0.1Net
                    income from continuing operations
                
                
                986
                
                
                
                1.9
                
                
                
                562
                
                
                
                1.2Income
                      (loss) from discontinued operations, net ofincome
                      taxes
                
                
                38
                
                
                
                0.1
                
                
                
                (291
                )
                
                
                (0.6
                )Net
                    income
                
                $
                1,024
                
                
                
                2.0
                
                
                $
                271
                
                
                
                0.6
 
 *Revenue*.
          Total revenue increased by $6,754, or 14.9%, to $51,998 from $45,244. Products
          revenue increased $5,375, or 13.5% to $45,222 from $39,847. The increase
          in
          products revenue was primarily due to revenue from the Select acquisition
          and
          revenue increases in our Austin and Dallas locations, partially offset
          by a
          decrease in large projects in the Houston location.  Services revenue
          increased $1,379 or 25.6% to $6,776 from $5,397. The increase in services
          revenue was primarily due to large projects in our Pacific Northwest location,
          revenue from the Select acquisition, and continued growth in the NetSurant®
post-sale recurring support services revenue, which increased 30.8% to
          $1,001
          from $765.
 
 *Gross
          Profit*. Total gross profit increased by $1,404, or 17.2%, to $9,553 from
          $8,149. Gross profit as a percentage of sales increased to 18.4% from 18.0%,
          due
          to higher 2007 products revenue margins partially offset by lower 2007
          services
          revenue margins. Gross profit on the products sales component increased
          $1,255
          or 18.9%, to $7,887 from $6,632 and, as a percentage of sales, increased
          to
          17.4% from 16.6%. The improvement from the third quarter of 2006 is primarily
          due to higher vendor rebates as a percentage of products revenue and less
          large
          volume, low margin projects. Gross profit on services revenue increased
          $149 or
          9.8% to $1,666 from $1,517 and gross profit as a percent of services revenue
          decreased to 24.6% from 28.1%. The decrease in services gross margin was
          primarily due to lower margins on services revenue from the Boston acquisition
          combined with increased use of outside contractors.
  *Selling,
          General and Administrative Expenses*. Selling, general and administrative
          expenses increased by $1,111, or 14.9% to $8.543 from $7,432. As a percentage
          of
          total revenue, these expenses were approximately the same at 16.5% in 2007
          versus 16.5% in 2006. Increased 2007 expenses were incurred for additional
          sales
          compensation costs on higher revenues and additional sales and administrative
          personnel costs from headcount increases.
 
 *Operating
          Income*. Operating income increased $293 to $1,010 from $717, primarily due
          to higher sales and improved margins.
 
 *Interest
          and Other Income (Expense), Net*. Interest and other income (expense), net,
          changed by $95 to expense of $17 from expense of $112 due to the reduction
          of
          average interest-bearing borrowings under the credit facility in the 2007
          quarter versus the 2006 quarter.
 
 *Income
          (Loss) from Discontinued Operations, Net of Tax.*Income**from
          discontinued operations increased by $329, to income of $38 from a loss
          of $291.
          Income from discontinued operations of $38 in the third quarter of 2007
          consisted of income from operations of $6 and a gain on disposal of Valerent
          of
          $32. The loss from discontinued operations of $291 in the third quarter
          of 2006
          consisted of a loss from Valerent operations.
 
 *Net
          Income*. Net income increased $753 to $1,024 from $271, primarily due to
          higher sales, improved margins and the elimination of the operating loss
          from
          discontinued operations.
  17
 *Index*
 
 **Nine
          Months Ended September 30, 2007 Compared To the Nine Months Ended September
          30,** **2006**
 
 **Nine
                    Months Ended September 30,****2007**
                
                
                **2006****Amount**
                
                
                **%**
                
                
                **Amount**
                
                
                **%**Revenue:Products
                
                $
                131,690
                
                
                
                87.0
                
                
                $
                95,480
                
                
                
                86.6Services
                
                
                19,678
                
                
                
                13.0
                
                
                
                14,718
                
                
                
                13.4Total
                      revenue
                
                
                151,368
                
                
                
                100.0
                
                
                
                110,198
                
                
                
                100.0Gross
                    profit:Products
                
                
                22,994
                
                
                
                17.5
                
                
                
                17,410
                
                
                
                18.2Services
                
                
                5,111
                
                
                
                26.0
                
                
                
                3,778
                
                
                
                25.7Total
                      gross profit
                
                
                28,105
                
                
                
                18.6
                
                
                
                21,188
                
                
                
                19.2Selling,
                    general and administrative expenses
                
                
                25,757
                
                
                
                17.0
                
                
                
                20,278
                
                
                
                18.4Operating
                      income
                
                
                2,348
                
                
                
                1.6
                
                
                
                910
                
                
                
                0.8Interest
                    and other income (expense), net
                
                
                —
                
                
                
                0.0
                
                
                
                (215
                )
                
                
                (0.2
                )Income
                      tax expense
                
                
                21
                
                
                
                0.0
                
                
                
                44
                
                
                
                0.0Net
                    income from continuing operations
                
                
                2,327
                
                
                
                1.6
                
                
                
                651
                
                
                
                0.6Income
                      (loss) from discontinued operations, net ofIncome
                      taxes
                
                
                97
                
                
                
                0.0
                
                
                
                (152
                )
                
                
                (0.1
                )Net
                    income
                
                $
                2,424
                
                
                
                1.6
                
                
                $
                499
                
                
                
                0.5
 
 *Revenue*.
          Total revenue increased by $41,170, or 37.4%, to $151,368 from $110,198.
          Products revenue increased $36,210, or 37.9% to $131,690 from $95,480.
          The
          increase in products revenue is primarily due to substantial revenue increases
          across virtually all locations and one month’s revenue from the Select
          acquisition. Services revenue increased $4,960 or 33.7% to $19,678 from
          $14,718.
          The increase in services revenue is due to the growth in installation revenue
          across substantially all locations, including a large project in the Pacific
          Northwest, and continued growth in the NetSurant® post-sale recurring support
          services revenue, which increased 54.9% to $2,705 from $1,603. The NetSurant®
revenue of $222 from a customer contract termination payment recorded in
          the
          nine-month period ended September 30, 2007 was excluded from the calculation
          of
          the 54.9% growth rate.
 
 *Gross
          Profit*. Total gross profit increased by $6,917, or 32.6%, to $28,105 from
          $21,188. Gross profit as a percentage of sales decreased to 18.6% from
          19.2%,
          primarily due to lower 2007 products revenue margins partially offset by
          slightly higher 2007 services revenue margins. Gross profit on the products
          revenue component increased $5,584 or 32.1%, to $22,994 from $17,410 and,
          as a
          percentage of sales, decreased to 17.5% from 18.2%. The decrease from 2006
          was
          due to large low margin projects, primarily in the second quarter of 2007.
          Gross
          profit on services revenue increased $1,333 or 35.3% to $5,111 from $3,778
          and
          gross profit as a percent of services revenue increased to 26.0% from 25.7%.
          The
          increase in services gross margin was primarily due to improved utilization
          of
          internal technical staff.
  *Selling,
          General and Administrative Expenses*. Selling, general and administrative
          expenses increased by $5,479, or 27.0% to $25,757 from $20,278. As a percentage
          of total revenue, these expenses decreased to 17.0% from 18.4%. Increased
          2007
          expenses were incurred for additional sales compensation costs on substantially
          higher revenues, additional sales and administrative personnel costs from
          headcount increases, increased occupancy costs resulting from expanded
          locations, and higher professional fees due to the CenterPoint litigation
          and
          increased Sarbanes-Oxley consulting fees.
 
 *Operating
          Income*. Operating income increased $1,438 to $2,348 from $910, primarily
          due to higher sales and proportionately lower selling, general and
          administrative expenses.
 
 *Interest
          and Other Income (Expense), Net*. Interest and other income (expense), net,
          changed by $215 to expense of $0 from expense of $215 due to reduced borrowings
          under the credit facility.
 
 *Income
          from Discontinued Operations, Net of Tax.*Income**from
          discontinued operations increased by $249, to $97 from a loss of $152.
          Income
          from discontinued operations of $97 in 2007 consisted of income from operations
          of $50 and a gain on disposal of Valerent of $47. The loss from discontinued
          operations of $152 in 2006 consisted of a loss from operations of $923,
          offset
          by the gain on disposal of Stratasoft in January 2006 of $302 and the gain
          from
          adjustment of previously recorded accruals in the Telecom and Computer
          Products
          Divisions of $469.
 
 *Net
          Income*. Net income increased $1,925 to $2,424 from $499, primarily due to
          higher sales and proportionately lower selling, general and administrative
          expenses.
 
 18
 *Index*
  *Tax
          Loss Carryforward.*Because of our prior operating losses we have
          accumulated a net operating loss carryforward for federal income tax purposes
          that, as of September 30, 2007, was approximately $4.4 million and is available
          to offset future federal taxable income. This carryforward expires during
          the
          period 2023 through 2025. In addition to potential expiration, there are
          several
          factors that could limit or eliminate our ability to use these carryforwards.
          For example, under Section 382 of the Internal Revenue Code of 1986, as
          amended,
          use of prior net operating loss carryforwards is limited after an ownership
          change. If we achieve sustained profitability, which may not happen, the
          use of
          net operating loss carryforwards would reduce our tax liability and increase
          our
          net income and available cash resources. When all operating loss carryforwards
          have been used or have expired, we would again be subject to increased
          tax
          expense and reduced earnings due to such tax expense. The income tax expense
          recorded for 2007 and 2006 represents minimum state income tax payments
          due
          regardless of income or loss.  Due to the Company’s recurring losses,
          a valuation allowance was established to fully offset the net deferred
          tax
          assets at September 30, 2007 and December 31, 2006.
 
 **Liquidity
          and Capital Resources**
 
 ***Sources
          of Liquidity***
 
 Our
          principal sources of liquidity are collections from our accounts receivable
          and
          our credit facility with Castle Pines Capital (the “Credit Facility”), which we
          believe are sufficient to meet our short-term and long-term liquidity
          requirements. We use the Credit Facility to finance the majority of our
          purchases of inventory and to provide working capital when our cash flow
          from
          operations is insufficient. In 2007, we experienced positive cash flow
          from
          operating activities of continuing operations of $8,898 and positive cash
          flow
          from discontinued operations of $43. Our working capital decreased to $6,194
          at
          September 30, 2007 from $7,632 at December 31, 2006, due to cash payments
          for acquisitions.
  *Accounts
          Receivable.*  The timing of our collection of accounts receivable
          and payments of our accounts payable is one of the principal influences
          on our
          cash flow from operations. We typically sell our products and services
          on
          short-term credit terms. We manage our credit risk by performing credit
          checks,
          obtaining letters of credit in certain instances, and conducting our own
          collection efforts. Our accounts receivable, net of allowance for doubtful
          accounts, were $42,058 and $42,424 at September 30, 2007 and December 31,
          2006,
          respectively. The decrease in accounts receivable was attributable to improved
          collection of past due accounts during the third quarter of 2007 compared
          to the
          fourth quarter of 2006, which was substantially offset by receivables acquired
          in the Select acquisition.
 
 *Inventory.*  We
          had inventory of $1,573 and $1,157 at September 30, 2007 and December 31,
          2006, respectively. We try to minimize the amount of inventory on hand
          to reduce
          the risk that the inventory will become obsolete or decline in value. We
          are
          able to do this by relying on the ready availability of products from our
          principal suppliers. As noted above, we rely principally on our Credit
          Facility
          to finance our inventory purchases.  The increase in inventory is a
          result of product acquired in the Select acquisition.
 
 *Accounts
          Payable.*  We rely on our Credit Facility to finance a substantial
          portion of our trade accounts payable under terms ranging from 30 to
          60 days. Credit Facility balances within the Free Finance Period defined
          below are non-interest bearing and classified as accounts payable in our
          balance
          sheet. Credit Facility balances outstanding beyond the Free Finance Period
          are
          interest bearing and classified as notes payable in our balance sheet.
          Our
          accounts payable were $34,312 and $28,798 at September 30, 2007 and
          December 31, 2006, respectively.  The increase in accounts
          payable is a result of accounts payable acquired in the Select
          acquisition.
 
 ***Contractual
          Obligations***
 
 Our
          contractual cash obligations with terms in excess of one year consist of
          a
          software license obligation and lease obligations, substantially all of
          which
          are for office space. We do not have any material contractual purchase
          obligations. We purchase inventory to fulfill in-hand orders from customers
          and
          we attempt to minimize the amount of inventory on hand to reduce the risk
          that
          the inventory will become obsolete or decline in value. We are able to
          do this
          by relying on the ready availability of products from our principal
          suppliers.
 
 We
          expect
          to be able to meet our contractual cash payment obligations by their due
          dates
          through cash generated from operations, augmented, if needed, by borrowings
          under the Credit Facility.
 
 *Credit
          Facility.*   On April 30, 2007, we entered into a new Credit
          Facility with CPC which increased the total credit facility to $50,000
          under
          similar terms and conditions as the previous Credit Facility as further
          discussed in Note 8 to Condensed Consolidated Financial Statements in Part
          I,
          Item 1. On August 1, 2007, we entered into an amendment to the Credit Facility
          with CPC to provide an additional $10 million credit facility specifically
          for
          acquisitions (“Acquisition Facility”). Advances under the Acquisition Facility
          will be specific to each acquisition and subject to approval by CPC based
          on
          pre-established criteria contained in the amendment as discussed further
          in Part
          II, Item 5.  Borrowings from the Acquisition Facility of $6,000 were
          utilized in connection with the Select acquisition.
  As
          of
          September 30, 2007, borrowing capacity and availability were as
          follows:
 
 19
 *Index*
 Total
                      Credit Facility
                
                $
                50,000Borrowing
                    base limitation
                
                
                (16,162)Total
                      borrowing capacity
                
                
                33,838Less
                    interest-bearing borrowings
                
                
                —Less
                      non-interest bearing advances
                
                
                (32,270)Total
                    unused availability
                
                $
                1,568
 
 In
          addition to unused borrowing availability, liquidity at September 30, 2007
          included our cash balance of $8,514.  The “unused availability” is the
          amount not borrowed, but eligible to be borrowed. The borrowing base
          restrictions generally restrict our borrowings under the Credit Facility
          to 85%
          of the eligible receivables, 100% of our Floorplanned inventory and 75%
          of Cisco
          vendor rebates receivable.
 
 We
          use
          the Credit Facility to finance purchases of Cisco products from Cisco and
          from
          certain wholesale distributors. Cisco provides 60-day terms, and other
          wholesale
          distributors typically provide 30-day terms. Balances under the Credit
          Facility
          that are within those respective 60-day and 30-day periods (the “Free Finance
          Period”) do not accrue interest and are classified as accounts payable in our
          balance sheet. To the extent that we have credit availability under the
          Credit
          Facility, it gives us the ability to extend the payment terms past the
          Free
          Finance Period. Amounts extended past the Free Finance Period accrue interest
          and are classified as notes payable on our balance sheet. These extended
          payment
          balances under the Credit Facility accrue interest at the prime rate (7.75%
          at
          September 30, 2007) plus 0.5%.
 
 As
          defined in the Credit Facility there are restrictive covenants measured
          at each
          quarter and year-end regarding minimum tangible net worth, maximum debt
          to
          tangible net worth ratio, minimum working capital and a minimum current
          ratio. At September 30, 2007, we were in compliance with the loan covenants
          and we anticipate that we will be able to comply with the loan covenants
          during
          the next twelve months. If we violate any of the loan covenants, we would
          be
          required to seek waivers from CPC for those non-compliance events. If CPC
          refused to provide waivers, the amount due under the Credit Facility could
          be
          accelerated and we could be required to seek other sources of
          financing.
 
 *Cash
          Flows.*During the nine months ended September 30, 2007, our cash increased
          by $6,719. Operating activities provided cash of $8,941, investing activities
          used $5,102, and financing activities provided $2,880.
 
 *Operating
          Activities.*Operating activities provided $8,941 in the nine months ended
          September 30, 2007, as compared to providing cash of $573 in the comparable
          2006
          period. Operating activities from continuing operations provided $8,898
          in the
          nine months ended September 30, 2007, as compared to providing cash of
          $1,089 in
          the comparable 2006 period. Changes in asset and liability accounts, net
          of
          effect of acquisitions, provided $4,782 in the nine months ended September
          30,
          2007. The most significant sources of working capital related to a decrease
          in
          accounts receivable of $6,031 partially offset by a decrease in accounts
          payable
          of $1,343.
 
 *Investing
          Activities.*Investing activities used $5,102 in the nine months ended
          September 30, 2007, compared to a use of $2,514 for the comparable period
          in
          2006. Our 2007 investing activities consisted primarily of purchase price
          and
          related transaction costs of $3,704 for the Select acquisition, $1,127
          in
          capital expenditures, and additional purchase price and related transaction
          costs of $280 for the Datatran acquisition. Our 2006 investing activities
          consisted of the purchase of Datatran, using cash of $1,032, and capital
          expenditures, which used cash of $1,589, less cash provided by the sale
          of
          Stratasoft stock of $1,117, net of transaction costs. Capital expenditures
          in
          both years were primarily related to purchases of computer equipment and
          software, and to a lesser degree, leasehold improvements. During the next
          twelve
          months, we do not expect to incur significant capital expenditures requiring
          cash, except for acquisitions, of which we cannot predict the certainty
          or
          magnitude.
 
 *Financing
          Activities.*Financing activities provided $2,880 in the nine months ended
          September 30, 2007, as compared to providing $2,490 in the comparable period
          in
          2006. The funds provided in the nine months ended September 30, 2007 were
          primarily from borrowings under the acquisition credit facility partially
          offset
          by net payments of the short-term credit facility.  Funds provided in
          the comparable 2006 period were provided from increased borrowings under
          the
          short-term credit facility.
 
 **Related
          Party Transactions**
 
 We
          lease
          office space from Allstar Equities, Inc., a Texas corporation, a company
          wholly
          owned by James H. Long, our Chief Executive Officer.  The lease
          expires on January 31, 2014 and has a rental rate of $20 per month.
  20
 *Index*
 
 **Item
          3. Quantitative and Qualitative Disclosures about Market
          Risk**
 
 We
          incur
          certain market risks related to interest rate variations because we hold
          floating rate debt. Based upon the average amount of debt outstanding during
          the
          nine months ended September 30, 2007, a one percent change in variable
          interest
          rates will not have a material impact on our financial condition.
 
 Our
          business depends upon our ability to obtain an adequate supply of products
          and
          parts at competitive prices and on reasonable terms. Our suppliers are
          not
          obligated to have product on hand for timely delivery to us nor can they
          guarantee product availability in sufficient quantities to meet our demands.
          INX’s business is Cisco-centric. Any material disruption in our supply of
          products could have a material adverse effect on our financial condition
          and
          results of operations.
 
 **Item
          4.Controls and Procedures**
 
 Under
          the
          supervision and with the participation of certain members of our management,
          including our Chairman of the Board, Chief Executive Officer and Chief
          Financial
          Officer, we completed an evaluation of the effectiveness of the design
          and
          operation of our disclosure controls and procedures (as defined in Rules
          13a-15(e) and 15d-15(e) to the Securities Exchange Act of 1934, as amended
          (the
“Exchange Act”)). Based on that evaluation, we and our management have concluded
          that, our disclosure controls and procedures at September 30, 2007 were
          effective to ensure that information required to be disclosed by us in
          the
          reports that we file or submit under the Exchange Act is recorded, processed,
          summarized and reported within the time periods specified in the rules
          and forms
          of the SEC, and are designed to ensure that information required to be
          disclosed
          by us in these reports is accumulated and communicated to our management,
          as
          appropriate to allow timely decisions regarding required disclosures. In
          the
          first nine months of 2007, there has been no change in our internal control
          over
          financial reporting that has materially affected, or is reasonably likely
          to
          affect, our internal control over financial reporting.
 
 We
          will
          consider further actions and continue to evaluate the effectiveness of
          our
          disclosure controls and internal controls and procedures on an ongoing
          basis,
          taking corrective action as appropriate. Management does not expect that
          disclosure controls and procedures or internal controls can prevent all
          errors
          and all fraud. A control system, no matter how well conceived and operated,
          can
          provide only reasonable and not absolute assurance that the objectives
          of the
          control system are met. Further, the design of a control system must reflect
          the
          fact that there are resource constraints, and the benefits of controls
          must be
          considered relative to their costs. While management believes that its
          disclosure controls and procedures provide reasonable assurance that fraud
          can
          be detected and prevented, because of the inherent limitations in all control
          systems, no evaluation of controls can provide absolute assurance that
          all
          control issues and instances of fraud, if any, have been detected.
 
 **PART
          II.OTHER INFORMATION**
 
 **Item
          1. LegalProceedings**
 
 See
          Note
          11 to condensed consolidated financial statements in Part I, Item
          1.
 
 **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:
                    November 6, 2007
                
                By:
                /s/
                    BRIAN FONTANABrian
                    Fontana, Vice Presidentand
                    Chief Financial Officer
  
 21
 *Index*
  **Index
          to Exhibits**
  **Exhibit**
                  **No.**
                
                **Description**
                
                **Filed
                    Herewith or Incorporated by Reference From:**10.1
                
                Stock
                    Purchase Agreement by and among INX Inc., Dana Zahka, and All
                    Other
                    Shareholders of Select, Inc. dated August 31, 2007
                
                Exhibit
                    10.1 to Form 8-K filed September 4, 200710.2
                
                Amended
                    and Restated Financial Covenants Amendment to Amended and Restated
                    Credit
                    Agreement by and between INX Inc. and Castle Pines Capital LLC
                    dated
                    August 31, 2007
                
                Exhibit
                    10.2 to Form 8-K filed September 4, 200710.3
                
                Amendment
                    and Joinder to Credit Agreement by and among Select, Inc. and
                    Castle Pines
                    Capital LLC dated August 31, 2007
                
                Exhibit
                    10.3 to Form 8-K filed September 4, 200731.1
                
                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.
   22