##### Table of Contents



UNITED
    STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
    20549
  Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006Oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934   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 No.)6401 Southwest Freeway
    Houston, TX(Address of principal
    executive offices)

77074(Zip
    code)   Registrants telephone number:
    (713) 795-2000
  Securities registered pursuant to section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon stock, par value $0.01
    Warrants to purchase common stock

Nasdaq Capital Market
    Nasdaq Capital Market   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  o o þ
  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K.




---



##### 



INX
    Inc.FORM 10-K
    For the Year Ended December 31, 2006
    TABLE OF CONTENTS
  PagePART IItem 1


Business


3Item 1A


Risk
    Factors


14Item 1B


Unresolved Staff
    Comments


20Item 2


Properties


20Item 3


Legal
    Proceedings


21Item 4


Submission of
    Matters to a Vote of Security Holders


21PART IIItem 5


Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


22Item 6


Selected Financial
    Data


25Item 7


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


26Item 7A


Quantitative and
    Qualitative Disclosures About Market Risk


43Item 8


Financial
    Statements and Supplementary Data


44Item 9


Changes In and
    Disagreements With Accountants on Accounting and Financial
    Disclosure


73Item 9A


Controls and
    Procedures


73Item 9B


Other
    Information


73PART IIIItem 10


Directors,
    Executive Officers, and Corporate Governance


73Item 11


Executive
    Compensation


74Item 12


Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


74Item 13


Certain
    Relationships and Related Transactions, and Director
    Independence


74Item 14


Principal
    Accountant Fees and Services


74PART IVItem 15


Exhibits and
    Financial Statement Schedules


74SIGNATURES


75INDEX TO
    EXHIBITS


76Managed Services Provider AgreementAmendment No. 1 to Managed Services Provider AgreementAmendment Nine to Systems Integrator AgreementConsent of Grant Thornton LLPRule 13a-14(a)/15d-14(a) Certification of Chairman and Chief Executive OfficerRule 13a-14(a)/15d-14(a) Certification of Chief Financial OfficerSection 1350 Certification of Chief Executive OfficerSection 1350 Certification of Chief Financial OfficerReport of Independent Registered Public Accounting Firm   Form 10-K
  2




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##### Table of Contents



PART I  Item 1.
    Business  Special
    Notice Regarding Forward-Looking Statements
    General
         3




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##### Table of Contents



Industry
  IP
    Telephony and Convergence
      
    data communication has been performed using LAN/WAN IP network
    infrastructure, including the Internet;
    telephone/voice communication has been conducted using
    traditional circuit-switched PBX systems and the PSTN; and
    video communications have often been accomplished using
    stand-alone video conferencing systems using either multiple
    circuit-switched telephone lines over the PSTN or using data
    network communications.      
    elimination of redundant traditional telephone line circuits and
    cabling systems as internal voice communications move to the
    enterprises
    IP-based
    network cabling system;
    reduced cost resulting from consolidation of PSTN circuits to a
    central location so that all external communications to and from
    the enterprise occur through fewer or only one point of
    interface to the PSTN;
    more efficient support of telephone and data functions by a
    single support organization rather than multiple service
    providers and in-house support departments;
    simplified administration and lower costs for moves, adds and
    changes of the telephone system because an IP telephony handset
    can be moved or changed within an enterprise without rewiring
    the PBX or re-programming the telephone number as is required in
    a conventional PBX system; and
    elimination or reduction of long distance toll charges as
    enterprises operating a converged solution move their internal
    voice communications to the fixed-cost data network that often
    already exists between the enterprises remote facilities.   4




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IP-based
      endpoint-to-endpoint
    The
    Evolution to the Business Ready
    Network
      IP-based
   5




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##### Table of Contents



Converged
    Infrastructure
      e-mail,
    Pervasively
    Available Network Services
  quality-of-service
 6




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Security
    
    The ease with which attacks can be initiated through freely
    available tools. These attacks are as likely to come from inside
    the network as they are from the Internet.
    The increased number of users utilizing laptops and other mobile
    devices that may become infected while outside the controls of
    the network further complicates security issues once mobile
    users reconnect within the network, behind the firewall.
    In order to support mobile users, organizations are deploying
    more and more wireless solutions that create another network
    access point easily compromised by malicious users if not
    secured properly.
    While more difficult to exploit than wireless networks, unused
    network ports that are not properly secured are another
    potential network access point available to zealous hackers that
    are able to physically connect to such ports.
    Many organizations want to grant limited access to guests,
    consultants, and others while protecting their critical
    infrastructure from these less trusted users.
    There is an increasing trend towards criminal activity via
    network attacks; it is no longer an issue of only
    industrial espionage or vandalism.
    As security needs increase, the complexity of security solutions
    increases, requiring well designed solutions.
    Many organizations have policies driven by regulatory and
    compliance requirements (such as HIPPA and Sarbanes-Oxley) that
    dictate enhanced security stances.    Storage
     7




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Voice
  e-mail, e-mail
  Wireless
        Our
    Business
     8




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Products
    tm
    Services
    Design
    and Implementation Services
  ®
   9




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##### Table of Contents



Post-Implementation
    Support Services
  IP-based ® ® state-of-the-art
  ®
  ® ® ® ® ® ® ® ® ® ® ® ® ® ®
  Why We
    Offer Cisco-Centric IP Telephony Solutions
    Exclusively
     10




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##### Table of Contents



IP-based
    Competition
        The
    Geographic Markets We Currently Serve
    
    Los Angeles, California
    Boise, Idaho
    Metairie, Louisiana
    Albuquerque, New Mexico
    Eugene, Oregon
    Portland Oregon
    Austin, Texas
    Dallas, Texas
    El Paso, Texas
    Houston, Texas
    San Antonio, Texas
    Seattle, Washington
    Washington, DC   11




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Our Plans
    for Geographic Expansion
    start-up
      Customers
  and/or sub-contractor
  E-Rate
  E-Rate
 12




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##### Table of Contents



Sales and
    Marketing
    Supply
    and Distribution
  and/or
  Management
    Information Systems
    Employees
    Seasonality
    Certain
    Milestones in Our Corporate Development
     13




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##### Table of Contents



I-Sector
  General
    Information
  (713) 795-2000. Form 10-K, Form 10-Q, Form 8-K
  Item 1A.
    Risk
    Factors  We have a
    history of losses and may continue to incur losses.
    Our
    success is dependent upon maintaining our relationship with
    Cisco.
   14




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##### Table of Contents



Our
    success depends upon broad market acceptance of IP
    telephony.
    
    quality of infrastructure;
    security concerns;
    equipment, software or other technology failures;
    government regulation;
    inconsistent quality of service;
    poor voice quality over IP networks; and
    lack of availability of cost-effective, high-speed network
    capacity.    Although
    our success is generally dependent upon the market acceptance of
    IP telephony, our success also depends upon a broad market
    acceptance of Cisco-centric IP telephony.
    Our
    business depends on the level of capital spending by enterprises
    for communications products and services.
    Our
    profitability depends on Cisco product pricing and incentive
    programs.
   15




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A
    substantial portion of our customers are based in
    Texas.
    Our
    strategy contemplates rapid geographic expansion, which we may
    be unable to achieve, and which is subject to numerous
    uncertainties.
    We may
    require additional financing to achieve expansion of our
    business operations, and failure to obtain financing may prevent
    us from carrying out our business plan.
    We
    require access to significant working capital and vendor credit
    to fund our
    day-to-day
    operations. Our failure to comply with the financial and other
    covenants under our working capital facility could lead to a
    termination of the agreement and an acceleration of our
    outstanding debt.
  day-to-day and/or
 16




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We may be
    unable to manage our growth effectively, which may harm our
    business.
    Our
    operating results have historically been volatile, and may
    continue to be volatile, particularly from quarter to
    quarter.
  quarter-to-quarter
  
    volume and timing of orders received during the quarter;
    amount and timing of supplier incentives received in any
    particular quarter, which can vary substantially;
    gross margin fluctuations associated with the mix of products
    sold;
    general economic conditions;
    patterns of capital spending by enterprises for communications
    products;
    the timing of new product announcements and releases;
    pricing pressures;
    the cost and effect of acquisitions;
    the amount and timing of sales incentives we may receive from
    our suppliers, particularly Cisco; and
    the availability and cost of products and components from our
    suppliers.    We have
    many competitors and expect new competitors to enter our market,
    which could increase price competition and may affect the amount
    of business available to us and the prices that we can charge
    for our products and services.
     17




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##### Table of Contents




    develop and expand their products and services more quickly;
    adapt faster to new or emerging technologies and changing
    customer needs;
    take advantage of acquisitions and other opportunities more
    readily;
    negotiate more favorable agreements with vendors;
    devote greater resources to marketing and selling their
    products; and
    address customer service issues more effectively.    Business
    acquisitions, dispositions or joint ventures entail numerous
    risks and may disrupt our business, dilute stockholder value or
    distract management attention.
  and/or
  
    unanticipated costs and liabilities;
    difficulty of integrating the operations, products and personnel
    of the acquired business;
    difficulty retaining key personnel of the acquired business;
    difficulty retaining customers of the acquired businesses;
    difficulties in managing the financial and strategic position of
    acquired or developed products, services and technologies;
    difficulties in maintaining customer relationships, in
    particular where a substantial portion of the targets
    sales were derived from products that compete with products that
    we currently offer;
    the diversion of managements attention from the core
    business;
    inability to maintain uniform standards, controls, policies and
    procedures; and
    damage to relationships with acquired employees and customers as
    a result of integration of the acquired business.    Our
    international operations, which we plan to expand, will subject
    us to additional risks that may adversely affect our operating
    results due to increased costs.
   18




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
    unexpected changes in regulatory requirements and
    telecommunication standards;
    tariffs and other trade barriers;
    risk of loss in currency exchange transactions;
    exchange controls or other currency restrictions;
    difficulty in collecting receivables;
    difficulty in staffing and managing foreign operations;
    the need to customize marketing and products;
    inadequate protection of intellectual property in countries
    outside the United States;
    adverse tax consequences; and
    political and economic instability.    If we
    lose key personnel we may not be able to achieve our
    objectives.
    We may
    not be able to hire and retain highly skilled technical
    employees, which could affect our ability to compete effectively
    and could adversely affect our operating results.
    
    hire more employees with experience developing and providing
    advanced communications products and services;
    retrain our current personnel to sell IP telephony products and
    services; and
    retain personnel to service our products.    If we are
    unable to protect our intellectual property rights, our business
    may be harmed.
   19




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We may be
    found to infringe on third-party intellectual property
    rights.
  and/or
  Costs of
    compliance with the Sarbanes-Oxley Act of 2002 and the related
    SEC regulations may harm our results of operations.
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    
    Los Angeles, California
    Boise, Idaho
    Metairie, Louisiana
    Albuquerque, New Mexico
    Eugene, Oregon
    Portland Oregon
    Austin, Texas
    Dallas, Texas
    El Paso, Texas
    Houston, Texas
    San Antonio, Texas
    Seattle, Washington
    Washington, DC   20




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##### Table of Contents



Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders    Executive
    Officers of the Registrant
    Name

Age

PositionJames H. Long


48


Chairman of the Board and Chief
    Executive OfficerMark T. Hilz


48


President and Chief Operating
    OfficerBrian Fontana


49


Vice President and Chief Financial
    OfficerLarry Lawhorn


54


Controller and Chief Accounting
    OfficerPaul Klotz


45


Vice President of Operations   James H. Long
  Mark T. Hilz I-Sector
  Brian Fontana
  Larry Lawhorn
 21




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##### Table of Contents



Paul Klotz
  Family
    Relationships
   PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Market
    Information
    Common
    Stock
    High


Low2005First Quarter

$
7.73


$
4.94Second Quarter

$
8.14


$
5.20Third Quarter

$
8.40


$
4.45Fourth Quarter

$
5.80


$
4.042006First Quarter

$
7.48


$
5.55Second Quarter

$
7.15


$
5.40Third Quarter

$
6.89


$
5.77Fourth Quarter

$
7.99


$
6.40  22




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##### Table of Contents



Warrants
    High


Low2005First Quarter

$
1.70


$
0.80Second Quarter

$
1.53


$
0.80Third Quarter

$
1.50


$
0.75Fourth Quarter

$
0.90


$
0.502006First Quarter

$
1.50


$
0.55Second Quarter

$
1.30


$
0.50Third Quarter

$
1.06


$
0.72Fourth Quarter

$
1.55


$
1.05     Dividend
    Policy
    Equity
    Compensation Plan Information
    
    the number of shares of our common stock issuable upon exercise
    of outstanding options, warrants and rights, separately
    identified by those granted under equity incentive plans
    approved by our shareholders and those granted under plans,
    including individual compensation contracts, not approved by our
    shareholders (column A),
    the weighted average exercise price of such options, warrants
    and rights, also as separately identified (column B), and the
    number of shares remaining available for future issuance under
    such plans, other than those shares issuable upon exercise of
    outstanding options, warrants and rights (column C).  Column A


Column B


Column CNumber of SharesNumber of Shares





Remaining Availableto be Issued


Weighted Average


for Future IssuanceUpon Exercise of


Exercise Price of


Under Equity CompensationOutstanding Options,


Outstanding Options


Plans (Excluding SharesWarrants and Rights


Warrants and Rights


Reflected in Column A)Equity incentive plans approved by
    shareholders


1,907,957


$
3.50



176,644Equity incentive plans not
    approved by shareholders










Totals


1,907,957


$
3.50



176,644    23




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##### Table of Contents



Stock
    Performance Graph
    COMPARISON
    OF 5 YEAR CUMULATIVE TOTAL RETURN*
    AMONG INX INC.,
    THE NASDAQ STOCK MARKET (U.S.) INDEX AND THE RUSSELL 2000
    INDEX
  
  *
    
    $100 invested on
    12/31/01 in
    stock or index-including reinvestment of dividends.      12/01


3/02


6/02


9/02


12/02


3/03


6/03INX INC.



100.00




104.76




254.76




160.71




238.10




232.14




284.52NASDAQ STOCK MARKET (U.S.)



100.00




94.93




84.60




64.01




69.66




65.73




79.55RUSSELL 2000



100.00




103.98




95.30




74.90




79.52




75.95




93.73   9/03


12/03


3/04


6/04


9/04


12/04


3/05INX INC.



523.81




1866.67




1029.76




970.24




833.33




910.71




623.81NASDAQ STOCK MARKET (U.S.)



89.03




99.71




100.90




102.80




98.50




113.79




106.87RUSSELL 2000



102.24




117.09




124.42




125.01




121.44




138.55




131.16   6/05


9/05


12/05


3/06


6/06


9/06


12/06INX INC.



952.38




571.43




660.71




738.10




714.29




779.76




935.71NASDAQ STOCK MARKET (U.S.)



108.72




114.83




114.47




123.07




114.98




119.33




124.20RUSSELL 2000



136.82




143.24




144.86




165.06




156.76




157.45




171.47    24




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##### Table of Contents



Form 10-K
  Item 6.
    Selected
    Financial Data    Year Ended December 31,2006(1)


2005(1)


2004


2003(1)


2002(Dollars in thousands, except per share data)Operating Data:Revenue:Products

$
135,317


$
94,570


$
65,207


$
39,369


$
25,972Services


20,696



12,749



6,280



4,226



1,748Total

$
156,013


$
107,319


$
71,487


$
43,595


$
27,720Net income (loss) from continuing
    operations

$
1,511


$
(4,917
)

$
1,110


$
(147
)

$
528Net income (loss) per share from
    continuing operations:Basic

$
0.24


$
(0.86
)

$
0.24


$
(0.04
)

$
0.14Diluted

$
0.21


$
(0.86
)

$
0.23


$
(0.04
)

$
0.14Income (loss) from discontinued
    operations(2)

$
(316
)

$
(2,967
)

$
420


$
(1,689
)

$
(912
)Net income (loss)

$
1,195


$
(7,884
)

$
1,530


$
(1,836
)

$
(384
)Balance Sheet Data:Total assets

$
62,520


$
41,645


$
41,139


$
19,207


$
15,751Interest bearing borrowings under
    Credit Facility


4,350



2,464



8,122



1,688



Long-term debt (including current
    portion) from continuing operations


259



243



36



72



24     (1)
    
    The Datatran Network Systems acquisition was completed and
    initially reported in 2006, the Network Architects and InfoGroup
    Northwest acquisitions were initially reported in 2005, and the
    Digital Precision acquisition was initially reported in 2003.
    The 2005 and 2006 acquisitions are discussed further in
    Note 3 to consolidated financial statements in
    Part II, Item 8.(2)
    
    The Stratasoft and Valerent subsidiaries were discontinued in
    2005 as discussed further in Note 4 to consolidated
    financial statements in Part II, Item 8.(3)
    
    No cash dividends were declared or paid during the five years
    ended December 31, 2006. 25




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##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Please read the following discussion of our financial
    condition and results of operations together with
    Item 6. Selected Financial Data and our
    consolidated financial statements and the notes to those
    statements included elsewhere in this report. The following
    discussion and analysis contains forward-looking statements that
    involve risks and uncertainties. Our actual results may differ
    materially from those anticipated in these forward-looking
    statements as a result of certain factors, including, but not
    limited to, those set forth under Item 1A. Risk
    Factors and elsewhere in this report.
  General
          
    the mix of large, competitively bid sales transactions as
    compared to smaller, less competitive transactions;
    the mix of new customer transactions, which tend to be more
    competitively bid by us, as compared to transactions with
    existing customers, which tend to be somewhat less
    competitive; and
    the mix of products sold, with certain newer, advanced product
    categories generating higher gross margin than other, more
    traditional products.    
    the utilization of our technical engineering resources used to
    perform implementation services;
    the amount of
    NetSurant®
    recurring, post-sale support services as compared to the cost of
    operating our
    NetSurant®
    support center, which costs are somewhat fixed;
    the mix between the different types of service.  ® ®
 26




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##### Table of Contents



Strategy
      
    aligning ourselves with Cisco as our primary supplier for the IP
    communications technology that we offer;
    marketing our
    NetSurant®
    brand of post-sale support services to generate increased
    recurring services revenues and improve gross margin on service
    revenue;
    increasing the gross revenues from our higher gross margin
    services offerings, as compared to product sales that typically
    produce relatively lower gross margins;
    opening new branch offices in new markets;
    expanding geographically by acquiring complementary businesses
    and by opening new offices; 27




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##### Table of Contents




    marketing to larger customers as we become more of a
    national level provider of IP communications
    solutions; and
    developing and marketing our own custom products for certain
    specialized IP communications solutions.  work-in-progress
  ® ®
       28




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##### Table of Contents



Elimination
    of Minority Interest in Our Former InterNetwork Experts, Inc.
    Subsidiary
        Elimination
    of Holding Company Structure and Sale of Two
    Subsidiaries
    
    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 $448 in indemnified losses have been paid or
    presented for payment as of December 31, 2006.
    $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.
    We 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.  
    We 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. 29




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
    We 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.    brother-in-law
  Results
    of Operations
  Overview
  Sources of Revenue.
  quarter-to-quarter E-Rate
  ® ® ® ®
  Gross Profit and Gross Profit Margin.
 30




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Selling, General and Administrative
    Expenses.
    Acquisitions.
 31




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Tax Loss Carryforward.
 32




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##### Table of Contents



Period Comparisons.
  Year Ended December 31,2006


2005


2004Amount


%


Amount


%


Amount


%(Dollars in thousands)Revenue:Products

$
135,317



86.7


$
94,570



88.1


$
65,207



91.2Services


20,696



13.3



12,749



11.9



6,280



8.8Total revenue


156,013



100.0



107,319



100.0



71,487



100.0Gross profit:Products


25,132



18.6



14,855



15.7



10,844



16.6Services


5,365



25.9



3,721



29.2



2,097



33.4Total gross profit


30,497



19.5



18,576



17.3



12,941



18.1Selling, general and
    administrative expenses


28,710



18.4



22,759



21.2



11,268



15.8Operating income (loss)


1,787



1.1



(4,183
)


(3.9
)


1,673



2.3Interest and other (income)
    expense, net


232



0.1



236



0.2



96



0.1Income tax expense


44



0.0



475



.4



350



.5Minority interest






0.0



23



0.0



117



.1Net income (loss) from continuing
    operations


1,511



1.0



(4,917
)


(4.5
)


1,110



1.6Income (loss) from discontinued
    operations, net of taxes


(316
)


(0.2
)


(2,967
)


(2.8
)


420



.5Net income (loss)

$
1,195



0.8


$
(7,884
)


(7.3
)

$
1,530



2.1   Year
    Ended December 31, 2006 Compared to Year Ended
    December 31, 2005
  Total Revenue. ®
  Gross Profit. ®
 33




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##### Table of Contents



Selling, General and Administrative
    Expenses.
  Operating Income (Loss).
  Interest and Other Income (Expense),
    net.
  Loss from Discontinued Operations, net of
    tax.
  Net Income (Loss).
  Year
    Ended December 31, 2005 Compared to Year Ended
    December 31, 2004
  Total Revenue. ®
  Gross Profit.
 34




---



##### Table of Contents



Selling, General and Administrative
    Expenses.
  Operating Income (Loss).
  Interest and Other Income (Expense),
    net.
  Income (Loss) from Discontinued Operations, net of
    tax.
  Net Income (Loss).
 35




---



##### Table of Contents



Quarterly
    Results
    2006


2005Fourth


Third


Second


First


Fourth


Third


Second


FirstQuarter


Quarter


Quarter


Quarter


Quarter


Quarter


Quarter


Quarter(Dollars in thousands, except share and per share amounts)Revenue:Products

$
39,837


$
39,847


$
33,322


$
22,311


$
20,331


$
28,922


$
25,543


$
19,774Services


5,978



5,397



5,356



3,965



4,178



4,241



2,822



1,508Total revenue

$
45,815


$
45,244


$
38,678


$
26,276


$
24,509


$
33,163


$
28,365


$
21,282Gross profit:Products

$
7,722


$
6,632


$
6,360


$
4,418


$
3,932


$
4,106


$
3,480


$
3,337Services


1,587



1,517



1,272



989



1,072



1,349



976



324Total gross profit


9,309



8,149



7,632



5,407



5,004



5,455



4,456



3,661Selling, general and
    administrative expenses


8,432



7,432



7,001



5,845



5,160



4,545



4,044



9,010Operating income (loss)

$
877


$
717


$
631


$
(438
)

$
(156
)

$
910


$
412


$
(5,349
)Income (loss) from continuing
    operations

$
860


$
562


$
613


$
(524
)

$
(91
)

$
466


$
246


$
(5,538
)Income (loss) from discontinued
    operations


(164
)


(291
)


143



(4
)


(632
)


(701
)


(664
)


(970
)Net income (loss)

$
696


$
271


$
756


$
(528
)

$
(723
)

$
(235
)

$
(418
)

$
(6,508
)Income (loss) from continuing
    operations per share:Basic

$
0.13


$
0.10


$
0.10


$
(0.09
)

$
(0.02
)

$
0.08


$
0.04


$
(1.06
)Diluted

$
0.11


$
0.09


$
0.08


$
(0.09
)

$
(0.02
)

$
0.08


$
0.04


$
(1.06
)Net income (loss) per share:Basic

$
0.11


$
0.08


$
0.12


$
(0.09
)

$
(0.12
)

$
(0.04
)

$
(0.07
)

$
(1.25
)Diluted

$
0.09


$
0.07


$
0.10


$
(0.09
)

$
(0.12
)

$
(0.04
)

$
(0.07
)

$
(1.25
)      36




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##### Table of Contents



Critical
    Accounting Policies
  Revenue
    Recognition
    Products revenue
  EITF 99-19,
    Software No. 97-2,
  Technical support services revenue
  Revenue for fixed and flat fee services contracts
 37




---



##### Table of Contents



Other service revenue
  Arrangements with multiple deliverables No. 00-21, 00-21),
    
    The customer is required to pay the product billing in its
    entirety independent of any services performed.
    The product has value to the customer on a stand alone basis and
    pricing is comparable whether sold with or without services.
    The product is standard equipment not significantly altered by
    installation.
    Installation of the product can be performed by many other
    companies.
    Although there is a general right of return relative to
    delivered product, delivery of the undelivered items is
    considered probable and is substantially in our control .  00-21.
       38




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##### Table of Contents



Vendor
    Incentive Recognition
    Share-Based
    Compensation Expense
        2006


2005


2004Expected volatility


63.1
%


63.9
%


79.8
%Expected term (in years)


6.3



8.0



8.0Risk-free interest rate


4.7
%


4.4
%


3.6
%Expected dividend yield


0
%


0
%


0
%    39




---



##### Table of Contents



Liquidity
    and Capital Resources
  Sources
    of Liquidity
    Accounts Receivable.
  Inventory.
  Accounts Payable.
  Contractual
    Obligations
    Payments Due by PeriodLess Than








AfterContractual Obligations

Total


1 Year


1-3 Years


4-5 Years


5 Years(Dollars in thousands)Lease obligations

$
4,011


$
897


$
1,781


$
835


$
498Purchase obligations


776



469



307







Total contractual obligations

$
4,787


$
1,366


$
2,088


$
835


$
498    40




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##### Table of Contents



Credit Facility.
  
    The Agreement provides a discretionary line of credit up to a
    maximum aggregate amount of $40.0 million 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 $10.0 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 restrictive financial covenants measured as of the end
    of each calendar quarter as detailed further below.
    The line of credit is collateralized by substantially all of our
    assets.
    The Agreement has a two year term ending December 26, 2007
    and automatically renews for one year periods unless
    (1) 60 days notice is received from CPC, (2) we
    are in default, or (3) there is a change in vendor
    participation. We expect to renew the Agreement, but there is no
    assurance that financing will be available or the terms will be
    as favorable as the current Agreement.    Total Credit Facility

$
40,000Borrowing base limitation


(8,177
)Total borrowing capacity


31,823Less interest-bearing borrowings


(4,350
)Less non-interest bearing advances


(25,991
)Total unused availability

$
1,482     60-day 30-day 60-day 30-day
      
    maintain Minimum Tangible Net Worth of $8.0 million;
    maintain a maximum Debt to Tangible Net Worth ratio of 6.0 to 1; 41




---



##### Table of Contents




    maintain Minimum Working Capital of not less than
    $6.5 million; and
    maintain a Current Ratio of not less than 1.10 to 1.0.    Cash Flows.
  Operating Activities.
      Investing Activities.
  Financing Activities.
  Recent
    Accounting Pronouncements
       42




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##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk  Interest
    Rate Risk
   43




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  INX
    INC.
  INDEX TO
    FINANCIAL STATEMENTS
 AND
    FINANCIAL STATEMENT SCHEDULE
  PageReport of
    Independent Registered Public Accounting Firm


45Consolidated
    Balance Sheets at December 31, 2006 and 2005


46Consolidated
    Statements of Operations for the years ended December 31,
    2006, 2005 and 2004


47Consolidated
    Statements of Stockholders Equity for the years ended
    December 31, 2006, 2005 and 2004


48Consolidated
    Statements of Cash Flows for the years ended December 31,
    2006, 2005 and 2004


49Notes to
    Consolidated Financial Statements


51Schedule II
    Valuation and Qualifying Accounts


72  44




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM    I-Sector
        
    45




---



##### Table of Contents



INX INC.
    AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2006


2005(In thousands, except share and par value amounts)ASSETSCurrent Assets:Cash and cash equivalents

$
1,795


$
2,597Accounts receivable 
    trade, net of allowance of $299 and $161


42,424



24,903Inventory


1,157



79Other current assets


2,067



881Current assets of discontinued
    operations


19



2,564Total current assets


47,462



31,024Property and equipment, net of
    accumulated depreciation of $2,414 and $2,344


3,854



2,050Goodwill


10,891



7,121Intangible assets, net of
    accumulated amortization of $1,264 and $1,007


283



372Other assets






21Noncurrent assets of discontinued
    operations


30



1,057Total assets

$
62,520


$
41,645LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent Liabilities:Notes payable and current portion
    of long-term debt

$
4,609


$
2,707Accounts payable


28,798



13,825Accrued payroll and related costs


3,362



2,216Accrued expenses


1,676



1,480Other current liabilities


1,260



468Current liabilities of
    discontinued operations


125



2,936Total current liabilities


39,830



23,632Other long-term liabilities


306



Long-term liabilities of
    discontinued operations






7Commitments and ContingenciesStockholders Equity:Preferred stock, $.01 par
    value, 5,000,000 shares authorized, no shares issued






Common stock, $.01 par value,
    15,000,000 shares authorized, 6,603,070 and 5,975,626 issued


66



60Additional paid-in capital


30,598



27,546Retained deficit


(8,280
)


(9,600
)Total stockholders equity


22,384



18,006Total liabilities and
    stockholders equity

$
62,520


$
41,645    46




---



##### Table of Contents



INX INC.
    AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Year Ended December 31,2006


2005


2004(In thousands, except share and per share amounts)Revenue:Products

$
135,317


$
94,570


$
65,207Services


20,696



12,749



6,280Total revenue


156,013



107,319



71,487Cost of goods and services:Products


110,185



79,715



54,363Services


15,331



9,028



4,183Total cost of goods and services


125,516



88,743



58,546Gross profit


30,497



18,576



12,941Selling, general and
    administrative expenses


28,710



22,759



11,268Operating income (loss)


1,787



(4,183
)


1,673Interest expense


273



297



205Other (income) expense, net


(41
)


(61
)


(109
)Income (loss) from continuing
    operations before income taxes


1,555



(4,419
)


1,577Income tax expense


44



475



350Income (loss) from continuing
    operations before minority interest


1,511



(4,894
)


1,227Minority interest






23



117Net income (loss) from continuing
    operations


1,511



(4,917
)


1,110Income (loss) from discontinued
    operations, net of taxes


(316
)


(2,967
)


420Net income (loss)

$
1,195


$
(7,884
)

$
1,530Net income (loss) per share:Basic:Net income (loss) from continuing
    operations before minority interest

$
0.24


$
(0.86
)

$
0.27Minority interest










(0.03
)Income (loss) from discontinued
    operations, net of taxes


(0.05
)


(0.52
)


0.09Net income (loss) per share

$
0.19


$
(1.38
)

$
0.33Diluted:Net income (loss) from continuing
    operations before minority interest

$
0.21


$
(0.86
)

$
0.25Minority interest










(0.02
)Income (loss) from discontinued
    operations, net of taxes


(0.05
)


(0.52
)


0.08Net income (loss) per share

$
0.16


$
(1.38
)

$
0.31Shares used in computing net
    income (loss) per share:Basic


6,318,674



5,706,323



4,569,507Diluted


7,293,737



5,706,323



5,004,393    47




---



##### Table of Contents



INX INC.
    AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY
  $.01 Par Value


AdditionalCommon Stock


Paid-In


Treasury


RetainedShares


Amount


Capital


Stock


Deficit


Total(In thousands, except share and par value amounts)Balance at January 1, 2004


4,762,809


$
48


$
11,190


$
(1,373
)

$
(3,246
)

$
6,619Revaluation of consultant options










(199
)










(199
)Exercise of common stock options


100,345







280











280Proceeds from offering of units,
    net of offering costs of $1,145


1,150,000



12



7,536











7,548Issuance of INX common stock net
    of minority interest










71











71Retirement of treasury stock


(811,800
)


(8
)


(1,365
)


1,373







Net income


















1,530



1,530Balance at December 31, 2004


5,201,354



52



17,513







(1,716
)


15,849Exercise of common stock options


157,414



2



207











209Exchange of INX and
    I-Sector
    options










5,729











5,729Exchange of INX and
    I-Sector
    common stock


244,890



2



1,528











1,530Issuance of shares for Network
    Architects acquisition


308,166



3



1,997











2,000Issuance of shares for InfoGroup
    Northwest acquisition


65,102



1



512











513Issuance of stock options










57











57Vesting of consultant options










9











9Repurchase and retirement of
    common stock


(1,300
)






(6
)










(6
)Net loss


















(7,884
)


(7,884
)Balance at December 31, 2005


5,975,626



60



27,546







(9,600
)


18,006Cumulative effect of correction of
    accounting for professional fees as provided under SAB 108


















125



125Balance at January 1, 2006


5,975,626



60



27,546







(9,475
)


18,131Exercise of common stock options
    and other


332,859



3



610











613Issuance of shares for Datatran
    acquisition


73,108



1



514











515Issuance of shares as additional
    purchase price consideration for Network Architects acquisition


97,413



1



570











571Issuance of shares as additional
    purchase price consideration for InfoGroup Northwest acquisition


122,544



1



750











751Issuance of warrants










128











128Common stock grant to employee


1,520







10











10Share-based compensation expense
    related to employee stock options










462











462Share-based compensation expense
    related to employee restricted stock grants










8











8Net income


















1,195



1,195Balance at December 31, 2006


6,603,070


$
66


$
30,598


$



$
(8,280
)

$
22,384    48




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##### Table of Contents



INX INC.
    AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2006


2005


2004(In thousands)CASH FLOWS FROM OPERATING
    ACTIVITIES:Net income (loss)

$
1,195


$
(7,884
)

$
1,530Adjustments to reconcile net income
    (loss) to net cash provided by (used in) operating activities:(Income) loss from discontinued
    operations


316



2,967



(420
)Depreciation and amortization


1,178



949



661Share-based compensation expense
    for employee stock options and restricted stock grant


415







Bad debt expense


63



9



70Issuance of stock grant


10



66



(Gain) loss on retirement of assets


9



26



(4
)Tax benefit from discontinued
    operations






(466
)


(350
)Minority interest






23



117Exchange of options in merger of
    subsidiary






5,729



Changes in assets and liabilities
    that provided (used) cash:Accounts receivable, net


(17,584
)


1,678



(18,501
)Inventory


(1,053
)


302



(140
)Other current assets


(1,206
)


(579
)


485Other assets


21



(21
)


Accounts payable


14,981



3,875



3,981Accrued expenses


837



496



1,440Other current and long-term
    liabilities


792



468



317Net cash provided by (used in)
    continuing operations


(26
)


7,638



(10,814
)Net operating activities from
    discontinued operations


(684
)


412



326Net cash provided by (used in)
    operating activities


(710
)


8,050



(10,488
)CASH FLOWS FROM INVESTING
    ACTIVITIES:Capital expenditures (net of effect
    of acquisitions)


(1,921
)


(476
)


(846
)Acquisition of Datatran Network
    Systems


(1,000
)






Acquisition of InfoGroup Northwest,
    Inc.


(751
)


(1,900
)


Acquisition of Network Architects,
    Corp.


(394
)


(2,300
)


Proceeds of sale of fixed assets






31



4Transaction costs paid for
    acquisitions


(32
)


(362
)


Net cash used in investing
    activities of continuing operations


(4,098
)


(5,007
)


(842
)Net investing activities of
    discontinued operations


1,492



(77
)


(89
)Net cash used in investing
    activities


(2,606
)


(5,084
)


(931
)CASH FLOWS FROM FINANCING
    ACTIVITIES:Borrowings of short-term interest
    bearing Castle Pines Capital Credit Facility, net


1,886



2,464



Borrowings (payments) of short-term
    interest bearing Textron Facility, net






(8,122
)


6,423Exercise of stock options


613



209



280Proceeds from other short-term
    borrowings


407



370



Payments of other short-term
    borrowings


(391
)


(163
)


(25
)Proceeds from unit offering, net










7,548Purchase of common stock






(6
)


Net cash provided by (used in)
    financing activities of continuing operations


2,515



(5,248
)


14,226Net financing activities of
    discontinued operations


(1
)


(96
)


(81
)Net cash provided by (used in) in
    financing activities


2,514



(5,344
)


14,145NET INCREASE (DECREASE) IN CASH AND
    CASH EQUIVALENTS


(802
)


(2,378
)


2,726CASH AND CASH EQUIVALENTS AT
    BEGINNING OF PERIOD


2,597



4,975



2,249CASH AND CASH EQUIVALENTS AT END OF
    PERIOD

$
1,795


$
2,597


$
4,975    49




---



##### Table of Contents



INX INC.
    AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2006


2005


2004(In thousands)SUPPLEMENTAL DISCLOSURES OF CASH
    FLOW INFORMATION:Cash paid for interest

$
219


$
426


$
Cash paid for income taxes

$
14


$
42


$
SUPPLEMENTAL NONCASH INVESTING AND
    FINANCING ACTIVITIES:Acquisition of Datatran Network
    Systems:Fair value of assets acquired

$
1,515


$



$
Common stock issued


(515
)






Acquisition of Network Architects,
    Corp.:Fair value of assets acquired


965



4,300



Common stock issued


(571
)


(2,000
)


Acquisition of InfoGroup
    Northwest, Inc.:Fair value of assets acquired


1,502



2,400



Common stock issued


(751
)


(500
)


Acquisition of INX minority
    interest:Common stock issued






1,530



Minority interest acquired






(302
)


Obligation under software license
    agreement:Fair value of asset acquired


775







Obligation incurred


(775
)






Issuance of warrants in connection
    with sale of Stratasoft, Inc.


(128
)






Recognition of additional purchase
    price on Digital Precision acquisition through issuance of INX
    common stock










234Recognition of minority interest
    for issuance of INX common stock










(162
)Revaluation of options granted
    consultants










(199
)    50




---



##### Table of Contents



INX INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For the Years Ended December 31, 2006, 2005 and
    2004
 (In thousands, except share and per share amounts)
  1.
    Description
    of Business  I-Sector I-Sector
  2.
    Summary
    of Significant Accounting Policies  Basis of Presentation
  Principles of Consolidation
  Cash and Cash Equivalents
  Accounts Receivable
  Inventory first-in
  Property and Equipment
  Goodwill
  Intangible Assets
 51




---



##### Table of Contents



INX INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Impairment of Long-Lived Assets
  Income Taxes
  Use of Estimates
  Revenue Recognition
  Products revenue
  EITF 99-19,
    Software 97-2,
  Technical support services revenue
 52




---



##### Table of Contents



INX INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Revenue for fixed and flat fee services contracts
  Other service revenue
  Arrangements with multiple deliverables 00-21, 00-21),
    
    The customer is required to pay the product billing in its
    entirety independent of any services performed.
    The product has value to the customer on a stand alone basis and
    pricing is comparable whether sold with or without services.
    The product is standard equipment not significantly altered by
    installation.
    Installation of the product can be performed by many other
    companies.
    Although there is a general right of return relative to
    delivered product, delivery of the undelivered items is
    considered probable and is substantially in the control of the
    Company.  00-21.
 53




---



##### Table of Contents



INX INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      No. 06-3
  Vendor Incentives
  Advertising Costs
  Research and Development Costs
  Share-Based Compensation
   54




---



##### Table of Contents



INX INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Earnings Per Share
  Fair Value of Financial Instruments
  Recent Accounting Pronouncements
       55




---



##### Table of Contents



INX INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   3.
    Acquisitions    Datatran
    Network Systems
        Network
    Architects, Corp.
       56




---



##### Table of Contents



INX INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    InfoGroup
    Northwest, Inc.
        Datatran


Network


InfoGroupNetwork


Architects,


Northwest,Systems


Corp.


Inc.Allocated acquisition cost:Intangibles  customer
    relationships and noncompete agreements amortized over
    3 years

$
168


$
241


$
134Inventory


25







Property and equipment


38



500



297Security and customer deposits


5



4



15Goodwill


1,311



4,584



3,580Total acquisition cost

$
1,547


$
5,329


$
4,026  57




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##### Table of Contents



INX INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Pro
    Forma Summary (Unaudited)
    Year Ended December 31,2006


2005Revenues

$
156,058


$
132,854Net income (loss) from continuing
    operations

$
1,392


$
(2,597
)Net income (loss) from continuing
    operations:Basic

$
0.22


$
(0.42
)Diluted

$
0.19


$
(0.42
)Weighted average shares used in
    calculation:Basic


6,455,576



6,160,342Diluted


7,430,639



6,160,342   4.
    Discontinued
    Operations  Telecom
    and Computer Products Divisions
    Stratasoft
    and Valerent Subsidiaries
    
    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 $448 in indemnified losses have been paid or
    presented for payment as of December 31, 2006.
    $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. 58




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##### Table of Contents



INX INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    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.    brother-in-law
    Year Ended December 31,2006


2005


2004Revenues:Stratasoft.

$
268


$
5,277


$
8,201Valerent


4,330



6,662



6,942Total

$
4,598


$
11,939


$
15,143Loss from operations of
    discontinued subsidiaries:Stratasoft.

$
(288
)

$
(2,734
)

$
(265
)Valerent


(830
)


(239
)


279Total


(1,118
)


(2,973
)


14Gain on disposal of discontinued
    operations:Stratasoft.


302







Valerent


31







Telecom and Computer Products
    Divisions


469



106



57Cumulative effect of change in
    accounting method at Stratasoft






(566
)


Income tax benefit






466



349Income (loss) from discontinued
    operations, net of taxes

$
(316
)

$
(2,967
)

$
420  59




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##### Table of Contents



INX INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2006


2005Current assets of discontinued
    operations:Accounts receivable, net

$



$
1,533Inventory






592Costs and earnings in excess of
    billings






266Notes receivable and other current
    assets


19



173Total

$
19


$
2,564Noncurrent assets of discontinued
    operations:Property and equipment, net

$



$
392Patents, net






653Other noncurrent assets


30



12Total

$
30


$
1,057Current liabilities of
    discontinued operations:Accounts payable

$



$
620Billings in excess of costs and
    earnings






201Accrued expenses


61



1,376Deferred revenue


64



644Current portion of long-term debt






95Total

$
125


$
2,936Long-term liabilities of
    discontinued operations:Long-term debt

$



$
7      60




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##### Table of Contents



INX INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   5.
    Property
    and Equipment    December 31,2006


2005Equipment

$
305


$
287Computer equipment and software


4,242



2,220Furniture and fixtures


831



1,074Leasehold improvements


785



708Vehicles


105



1056,268



4,394Accumulated depreciation and
    amortization


(2,414
)


(2,344
)Total

$
3,854


$
2,050     6.
    Intangible
    Assets  December 31, 2006


December 31, 2005


WeightedGross





Gross





AverageCarrying


Accumulated


Carrying


Accumulated


RemainingAmount


Amortization


Amount


Amortization


LifeAmortized intangible assets:Customer lists

$
1,160


$
997


$
1,051


$
793



1.27Other


387



267



328



214



1.72Total

$
1,547


$
1,264


$
1,379


$
1,007     2007


1982008


732009


112010


1Total

$
283   7.
    Earnings
    Per Share     61




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##### Table of Contents



INX INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     December 31,2006


2005


2004Numerator for basic earnings per
    share:Net income (loss) from continuing
    operations before minority interest

$
1,511


$
(4,894
)

$
1,227Minority interest






(23
)


(117
)Income (loss) from discontinued
    operations, net of taxes


(316
)


(2,967
)


420Net income (loss)

$
1,195


$
(7,884
)

$
1,530Numerator for diluted earnings per
    share:Net income (loss) from continuing
    operations before minority interest

$
1,511


$
(4,894
)

$
1,227Minority interest






(23
)


(117
)INX income attributable to
    potential minority interest net income (loss) from continuing
    operations used in computing loss per share










(550
)Net income (loss) from continuing
    operations used in computing income (loss) per share


1,511



(4,917
)


560Income (loss) from discontinued
    operations, net of taxes


(316
)


(2,967
)


420Net income (loss)

$
1,195


$
(7,884
)

$
980Denominator for basic earnings per
    share  weighted-average shares outstanding


6,318,674



5,706,323



4,569,507Effect of dilutive securities:Shares issuable from assumed
    conversion of common stock options and restricted stock


975,063







434,886Denominator for diluted earnings
    per share  weighted-average shares outstanding


7,293,737



5,706,323



5,004,393    62




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##### Table of Contents



INX INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   8.
    Notes Payable
    and Long-Term Debt    December 31,2006


2005Revolving credit facility bearing
    interest of prime plus .5%

$
4,350


$
2,464Notes payable bearing interest of
    6.25% with monthly payments of $74 due July 2007


259



Notes payable bearing interest of
    5.25% with monthly payments of $38 due July 2006






222Obligation under capital lease,
    imputed interest of 10% maturing November 2006






21Total, all due within
    12 months

$
4,609


$
2,707     
    The Agreement provides a discretionary line of credit up to a
    maximum aggregate amount of $40,000 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 $10,000.
    The working capital revolving line of credit incurs interest
    payable monthly at the rate of prime plus .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 restrictive financial covenants measured as of the end
    of each calendar quarter covering current ratio, tangible net
    worth, minimum working capital, and total liabilities to
    tangible net worth ratio as defined.
    The line of credit is collateralized by substantially all assets
    of the Company.     63




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##### Table of Contents



INX INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   9.
    Income
    Taxes    Year Ended December 31,2006


2005


2004Current provision:Federal

$
16


$
475


$
591State


28







Total current provision


44



475



591Deferred benefit










(241
)Total expense from continuing
    operations


44



475



350Total benefit from discontinued
    operations






(466
)


(350
)Total

$
44


$
9


$
     Year Ended December 31,2006


2005


2004Federal income tax at statutory
    rate

$
761


$
(1,502
)

$
536Minority interest






1,956



40Meals and entertainment expenses


59



29



20State taxes, net of federal tax
    benefit


19







Other


15



(8
)


(5
)Valuation allowance


(810
)






(241
)Total expense from continuing
    operations

$
44


$
475


$
350     December 31,2006


2005Net deferred tax assets
    (liabilities):Accounts and notes receivable

$
234


$
334Closing and severance costs


16



194Deferred service revenue


93



126Amortization of intangibles


(518
)


Share-based compensation


1,589



Accrued liabilities


1,472



Other






141Depreciation


(492
)


(148
)Net operating loss carryforward


860



1,494Total


3,254



2,141Less: Valuation allowance


(3,254
)


(2,141
)Total

$



$
  64




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##### Table of Contents



INX INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        10.
    Stockholders
    Equity  Equity
    Compensation Plans
    1996 Incentive Stock Plan and the 1996 Non-Employee Director
    Stock Option Plan
  2000 Stock Incentive Plan
 65




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##### Table of Contents



INX INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Grant-Date
    Fair Value
    2006


2005


2004Expected volatility


63.1
%


63.9
%


79.8
%Expected term (in years)


6.3



8.0



8.0Risk-free interest rate


4.7
%


4.4
%


3.6
%Expected dividend yield


0
%


0
%


0
%     Share-Based
    Compensation Expense
      Cost of products and
    services  services

$
57Selling, general and
    administrative expenses


350Share-based compensation from
    continuing operations before income taxes


407Income tax benefit


Share-based compensation from
    continuing operations


407Share-based compensation from
    discontinued operations


55Total share-based compensation

$
462Impact of total share-based
    compensation on net income per share:Basic

$
(0.07
)Diluted

$
(0.06
)   paid-in-capital,
 66




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##### Table of Contents



INX INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2005


2004Basic and diluted:Net loss as reported

$
(7,884
)

$
1,530Add: share-based employee
    compensation recognized, net of related income tax effect


5,786



Deduct: share-based employee
    compensation, net of related income tax effect


(6,461
)


(90
)Pro forma net loss

$
(8,559
)

$
1,440Net loss per share:Basic  as reported

$
(1.38
)

$
0.33Basic  pro forma

$
(1.50
)

$
0.32Diluted  as reported

$
(1.38
)

$
0.31Diluted  pro forma

$
(1.50
)

$
0.29   Option
    Activity
    WeightedWeighted


AverageAverage


Remaining


AggregateExercise


Contractual


IntrinsicShares


Price


Term (Years)


ValueOptions outstanding at
    December 31, 2005


1,944,610


$
2.66Granted


281,867



7.03






$
Exercised


(327,859
)


1.87






$
1,682Canceled


(27,855
)


5.12Options outstanding
    December 31, 2006


1,870,763


$
3.42



6.66


$
8,312Options exercisable at
    December 31, 2006


1,420,484


$
2.34



5.88


$
7,837Options vested and options
    expected to vest at December 31, 2006


1,828,419


$
3.37



6.76


$
8,215    67




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##### Table of Contents



INX INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Weighted AverageGrant DateNonvested Shares

Shares


Fair ValueNonvested at January 1, 2006






Granted


37


$
7.48Vested






Forfeited






Nonvested at December 31, 2006


37


$
7.48     No. FAS 123R-3 No. FAS 123R-3
  Capital Stock
  Completion of Public Offering
  Warrants
 68




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##### Table of Contents



INX INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        11.
    Elimination
    of Minority Interest in InterNetwork Experts, Inc.  paid-in-capital paid-in-capital
  12.
    Major
    Customers  E-Rate
  13.
    Related
    Party Transactions   69




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##### Table of Contents



INX INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    
    A lease term of eighty-four months ending January 31, 2014.
    Base rent of $20 per month, gross. Under the Old Lease,
    occupancy expenses such as electricity, gas, water, janitorial,
    and security averaging approximately $280 per year are paid
    by the Company. Under the New Lease these services are included
    in the base rent with the costs born by the landlord.
    A buildout allowance of $31 to be used by the Company to
    partially offset the costs of remodeling the leased premises and
    first floor common areas. The buildout allowance was provided by
    reducing the monthly lease payment from $21 to $20.
    A security deposit of $20 is required, which is a reduction from
    the $38 currently held by Allstar.
    The Company has the option to terminate the lease at the end of
    the sixtieth or seventy-second month of the lease term. In order
    to exercise its option, the Company is required to provide
    Allstar with a minimum of 180 days advance written notice
    of its intent to terminate the lease. If 360 days of
    advance written notice is given by the Company, a termination
    fee of one months base rent is immediately payable, and if
    180 days of advance written notice is given by the Company,
    a termination fee of two months base rent is immediately
    payable.
    At any time during the term of the lease, Allstar has the right
    to pay the Company in cash the amount of unamortized buildout
    allowance, after which the monthly basic rent payable under the
    lease increases from $20 to $21 for the remaining term of the
    lease.
    The Company has the option to renew the lease for two additional
    terms of five years each at the lesser of the then prevailing
    fair market rental rate or 105% of the base rent under the New
    Lease.      14.
    Commitments
    and Contingencies  Litigation Inacom Corp v.
    I-Sector
    Corporation, f/k/a Allstar Systems, Inc.
  CenterPoint Energy Service Company, LLC v.
    InterNetwork Experts, Inc. (now INX, Inc.), Yellow
    Transportation, Inc. and Cisco Systems, Inc.
 70




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##### Table of Contents



INX INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Leases
  Obligation under Software License Agreement
  401(k) Plan
  15.
    Subsequent
    Event   71




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##### Table of Contents



Schedule II
    Valuation and Qualifying Accounts
    For Each of the Three Years Ended December 31, 2006
    (Amounts in Thousands)  Balance at


Charges to











Balance atBeginning


Costs and








Other


End ofof Year


Expenses


Write-offs


Recoveries


Changes


YearAccumulated provision deducted
    from related assets on balance sheetAllowance for doubtful accounts:2004

$
369


$
70


$
37


$
199


$



$
6012005


601



9



449











1612006


161



63



5



80







299   Note
 72




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##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Rules 13a-15(e) 15d-15(e)
    Form 10-K
  Item 9B.
    Other
    Information.   PART III  Form 10-K
  Item 10.
    Directors,
    Executive Officers, and Corporate Governance     73




---



##### Table of Contents



http://www.inxi.com.
  Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules             74




---



##### Table of Contents



SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) 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, March 8, 2007.



INX INC.
    (Registrant) By:
    /s/  JAMES
    H. LONG   Chief Executive Officer
    Signature

Capacity

Date/s/  JAMES
    H. LONGJames
    H. Long

Chief Executive Officer and
    Chairman of the Board of Directors

March 8, 2007/s/  BRIAN
    FONTANABrian
    Fontana

Vice President and Chief Financial
    Officer

March 8, 2007/s/  LARRY
    LAWHORNLarry
    Lawhorn

Controller and Chief Accounting
    Officer

March 8, 2007/s/  DONALD
    R. CHADWICKDonald
    R. Chadwick

Director

March 8, 2007/s/  CARY
    GROSSMANCary
    Grossman

Director

March 8, 2007/s/  JOHN
    B.
    CARTWRIGHTJohn
    B. Cartwright

Director

March 8, 2007  75




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##### Table of Contents



EXHIBIT INDEX  ExhibitNo.

Description

Filed Herewith or Incorporated by Reference From:2
.1

Stock Purchase Agreement by and
    among The Resource Group International Limited and INX Inc.
    dated January 26, 2006

Exhibit 2.1 to
    Form 8-K
    filed January 31, 20063
.1

Bylaws of the Company

Exhibit 3.1 to
    Form S-1,
    Registration
    No. 333-09789,
    filed August 8, 19963
.2

Certificate of Incorporation of
    the Company

Exhibit 3.2 to Amendment 1 to
    Form S-1,
    Registration
    No. 333-09789,
    filed August 8, 19963
.3

Certificate of Amendment to
    Certificate of Incorporation of Allstar Systems, Inc., dated
    June 24, 1997

Exhibit 3.4 to Amendment 5 to
    Form S-1,
    Registration
    No. 333-09789,
    filed August 8, 19963
.4

Certificate of Amendment to
    Certificate of Incorporation of Allstar Systems, Inc., dated
    March 5, 1999

Exhibit 3.3 to
    Form 8-A,
    Registration
    No. 001-31949,
    filed December 29, 20033
.5

Certificate of Amendment to
    Certificate of Incorporation of Allstar Systems, Inc. dated
    July 10, 2000

Exhibit 3.4 to
    Form 8-A,
    Registration
    No. 001-31949,
    filed December 29, 20033
.6

Certificate of Ownership and Merger

Exhibit 3.1 to
    Form 8-K,
    Registration
    No. 001-31949,
    dated January 6, 20064
.1

Specimen Common Stock Certificate

Exhibit 4.1 to Amendment 2 to
    Form S-1,
    Registration
    No. 333-09789,
    filed August 8, 199610
.1

Form of Employment Agreement by
    and between the Company and certain members of management

Exhibit 10.5 to Amendment 1
    to
    Form S-1,
    Registration
    No. 333-09789,
    filed August 8, 199610
.2

Employment Agreement by and
    between Allstar Systems, Inc. and James H. Long, dated
    August 15, 1996

Exhibit 10.3 to
    Form 10-K
    Registration
    No. 001-31949,
    filed March 12, 200410
.3

Amended & Restated
    Allstar Systems, Inc. 1996 Incentive Stock Plan, dated effective
    July 1, 1997

Exhibit 10.10 to
    Form 10-K
    Registration
    No. 001-31949,
    filed March 12, 200410
.4

Amended & Restated
    I-Sector
    Corp. Stock Incentive Plan, dated effective July 28, 2003

Exhibit 10.11 to
    Form 10-K
    Registration
    No. 001-31949,
    filed March 12, 200410
.5

Amended & Restated
    Internetwork Experts, Inc., Stock Incentive Plan dated effective
    August 1, 2003

Exhibit 10.12 to
    Form 10-K
    Registration
    No. 001-31949,
    filed March 12, 200410
.6

First Amendment to
    I-Sector
    Corporation Incentive Plan

Exhibit 10.1 to
    Form 8-K,
    Registration
    No. 001-31949,
    dated January 4, 200510
.7

Second Amendment to
    I-Sector
    Corporation Incentive Plan, as amended and restated

Exhibit 10.2 to
    Form 8-K,
    Registration
    No. 001-31949,
    dated March 21, 200510
.8

Third Amendment to
    I-Sector
    Corporation Incentive Plan

Exhibit 10.1 to
    Form 8-K,
    Registration
    No. 001-31949,
    dated May 17, 200510
.9

Fourth Amendment to
    I-Sector
    Corporate Incentive Plan

Exhibit 10.1 to
    Form 8-K,
    Registration
    No. 001-31949,
    filed June 6, 200610
.10

Lease Agreement by and between
    Allstar Equities, Inc. and
    I-Sector
    Corporation, dated February 1, 2002

Exhibit 10.32 to
    Form 10-K,
    Registration
    No. 000-21479,
    filed March 28, 200210
.11

Lease Agreement between INX Inc.
    and Allstar Equities, Inc., dated October 11, 2006

Exhibit 10.1 to
    Form 8-K,
    Registration
    No. 001-31949,
    filed October 12, 2006




---



##### Table of Contents



ExhibitNo.

Description

Filed Herewith or Incorporated by Reference From:10
.12

Employment Agreement by and
    between
    I-Sector
    Corporation and Brian Fontana, dated December 20, 2004

Exhibit 10.1 to
    Form 8-K,
    Registration
    No. 001-31949,
    filed December 20, 200410
.13

Confidentiality Agreement by and
    between
    I-Sector
    Corporation and Brian Fontana, dated December 20, 2004

Exhibit 10.2 to
    Form 8-K,
    Registration
    No. 001-31949,
    filed December 20, 200410
.14

Plan and Agreement of merger among
    I-Sector
    Corporation, INX Merger Sub, Inc. and InterNetwork Experts, Inc.
    dated as of February 1, 2005

Exhibit 10.1 to
    Form 8-K,
    Registration
    No. 001-31949,
    dated February 7, 200510
.15

Employment Agreement by and
    between
    I-Sector
    Corporation and Larry Lawhorn dated April 5, 2005

Exhibit 10.1 to
    Form 10-Q,
    Registration
    No. 001-31949,
    dated August 15, 200510
.16

Credit Agreement by and among
    Castle Pines Capital LLC,
    I-Sector
    Corporation, Valerent, Inc., InterNetwork Experts, Inc., and
    Stratasoft, Inc. dated December 27, 2005

Exhibit 10.1 to
    Form 8-K,
    Registration
    No. 001-31949,
    dated December 30, 200510
.17

Asset Purchase Agreement by and
    among INX Inc., Datatran Network Systems and Mel Sarowitz dated
    February 3, 2006

Exhibit 1.1 to
    Form 8-K
    filed February 6, 200610
.18

Systems Integrator Agreement by
    and between Cisco Systems, Inc. and Internetwork Experts, Inc.,
    dated November 13, 2001

Exhibit 10.5 to
    Form 10-K,
    Registration
    No. 001-31949,
    dated March 12, 200410
.19

Amendment One, dated
    January 28, 2002 to Systems Integrator Agreement by and
    between Cisco Systems, Inc. and Internetwork Experts, Inc.,
    dated November 13, 2001

Exhibit 10.6 to
    Form 10-K,
    Registration
    No. 001-31949,
    dated March 12, 200410
.20

Amendment Two, dated
    November 21, 2002 to Systems Integrator Agreement by and
    between Cisco Systems, Inc. and Internetwork Experts, Inc.,
    dated November 13, 2001

Exhibit 10.6 to
    Form 10-K,
    Registration
    No. 001-31949,
    dated March 12, 200410
.21

Amendment Three, dated
    January 20, 2003 to Systems Integrator Agreement by and
    between Cisco Systems, Inc. and Internetwork Experts, Inc.,
    dated November 13, 2001

Exhibit 10.8 to
    Form 10-K,
    Registration
    No. 001-31949,
    dated March 12, 200410
.22

Amendment Four, dated
    January 16, 2004 to Systems Integrator Agreement by and
    between Cisco Systems, Inc. and Internetwork Experts, Inc.,
    dated November 13, 2001

Exhibit 10.9 to
    Form 10-K,
    Registration
    No. 001-31949,
    dated March 12, 200410
.23

Amendment Five, dated
    January 27, 2005 to Systems Integrator Agreement by and
    between Cisco Systems, Inc. and Internetwork Experts, Inc.,
    dated November 13, 2001

Exhibit 10.23 to
    Form 10-K,
    Registration
    No. 001-31949,
    dated March 27, 200610
.24

Amendment Six, dated
    April 18, 2005 to Systems Integrator Agreement by and
    between Cisco Systems, Inc. and Internetwork Experts, Inc.,
    dated November 13, 2001

Exhibit 10.24 to
    Form 10-K,
    Registration
    No. 001-31949,
    dated March 27, 200610
.25

Amendment Seven, dated
    March 2, 2006, to Systems Integrator Agreement by and
    between Cisco Systems, Inc. and Internetwork Experts, Inc.,
    dated November 13, 2001

Exhibit 10.25 to
    Form 10-K,
    Registration
    No. 001-31949,
    dated March 27, 2006




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##### Table of Contents



ExhibitNo.

Description

Filed Herewith or Incorporated by Reference From:10
.26

Amendment Eight, dated
    March 20, 2006, to Systems Integrator Agreement by and
    between Cisco Systems, Inc. and INX Inc. (formerly Internetwork
    Experts, Inc.), dated November 13, 2001

Exhibit 10.26 to
    Form 10-K,
    Registration
    No. 001-31949,
    dated March 27, 200610
.27

Form of Change in Control
    Retention Agreement

Exhibit 10.1 to
    Form 8-K,
    Registration
    No. 001-31949,
    dated December 8, 200610
.28

Managed Services Provider
    Agreement by and between INX Inc. and CA, Inc. dated
    March 30, 2006

Filed herewith10
.29

Amendment No. 1 dated
    December 15, 2006, to Managed Services Provider Agreement
    by and between INX Inc. and CA, Inc. dated March 30, 2006

Filed herewith10
.30

Amendment Nine, dated
    November 13, 2006, to Systems Integrator Agreement by and
    between Cisco Systems, Inc. and INX Inc. (formerly
    Internetwork Experts, Inc.), dated November 13, 2001

Filed herewith21
.1

List of Subsidiaries of the Company

Exhibit 21.1 to
    Form 10-K,
    Registration
    No. 000-21479,
    filed March 31, 200323
.1

Consent of Grant Thornton LLP

Filed herewith31
.1

Rule 13a-14(a)/15d-14(a)
    Certification of Chairman and Chief Executive Officer

Filed herewith31
.2

Rule 13a-14(a)/15d-14(a)
    Certification of Chief Financial Officer

Filed herewith32
.1

Section 1350 Certification of
    Chief Executive Officer

Filed herewith32
.2

Section 1350 Certification of
    Chief Financial Officer

Filed herewith99
.1

Report of Independent Registered
    Public Accounting Firm

Filed herewith