The following discussion is qualified in its entirety by, and should be read in conjunction with, our condensed consolidated financial statements, including the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2008, as previously filed with the Securities and Exchange Commission. Amounts are presented in thousands except for share, per share data, percentages, and ratios.

Special notice regarding forward-looking statements

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 relating to future events or our future financial performance. Readers are cautioned that any statement that is not a statement of historical fact including, but not limited to, statements which may be identified by words including, but not limited to, "anticipate," "appear," "believe," "could," "estimate," "expect," "hope," "indicate," "intend," "likely," "may," "might," "plan," "potential," "seek," "should," "will," "would," and other variations or negative expressions thereof, are predictions or estimations and are subject to known and unknown risks and uncertainties. Numerous factors, including factors that we have little or no control over, may affect INX's actual results and may cause actual results to differ materially from those expressed in the forward-looking statements contained herein. In evaluating such statements, readers should consider the various factors identified in our Annual Report on Form 10-K/A for our fiscal year ended December 31, 2008, as filed with the Securities and Exchange Commission including the matters set forth in Item 1A. - "Risk Factors," which could cause actual events, performance or results to differ materially from those indicated by such statements.

Restatement

On August 12, 2009, management of the Company in consultation with the Audit Committee of the Board of Directors, determined that the Company's financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2009 required restatement. The restated reports were filed on September 2, 2009. The restatement affected the condensed consolidated financial statements as previously presented in the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2008 as follows:

? The Company previously presented its floor plan financing balances as trade accounts payable because it believed that its principal vendor had a substantial investment in the floor plan financing company. During the preparation of the Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, the Company became aware that the principal vendor had no ownership interest in its floor plan financing company. Consequently, the Company corrected its presentation of the floor plan balances in its Balance Sheets from trade accounts payable to accounts payable - floor plan and the related amounts in its Statements of Cash Flows from operating activities to financing activities. The correction of the error has no effect on the previously reported Statements of Operations. There is no impact to the Company's current liabilities or total liabilities as a result of this correction as of September 30, 2008.

? In addition to the aforementioned corrections, the Company recorded certain immaterial adjustments affecting the consolidated financial statements as of and for the three-month and nine-month periods ended September 30, 2008, which increased selling, general and administrative expense by $50 and reduced income tax expense by $4. These adjustments relate to stock option modifications.

The effect of the aforementioned corrections on the condensed consolidated financial statements as of and for the three month and nine month periods ended September 30, 2008 previously filed on the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2008 are more fully described in Note 10 of the Notes to Condensed Consolidated Financial Statements. The "Liquidity and Capital Resources" section of this Item 2 has been restated to reflect the impact of the aforementioned corrections.

Results of Operations

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

Three Months Ended September 30, 2009 Compared To the Three Months Ended

September 30,2008

                                                  Three Months Ended September 30,
                                              2009                              2008
                                     Amount             %             Amount               %
Revenue:                                                               (As Restated, Note 10)
Products                           $    46,813            80.9     $     59,576               82.8
Services                                11,046            19.1           12,366               17.2
Total revenue                           57,859           100.0           71,942              100.0
Gross profit:
Products                                10,193            21.8           10,067               16.9
Services                                 2,774            25.1            3,259               26.4
Total gross profit                      12,967            22.4           13,326               18.5
Selling, general and
administrative expenses                 13,284            22.9           12,595               17.5
Operating (loss) income                   (317 )          (0.5 )            731                1.0
Interest and other income, net              83             0.1              106                0.1
Income tax expense                          93             0.2              466                0.6
Net (loss) income from
continuing operations                     (327 )          (0.6 )            371                0.5
(Loss ) income from discontinued
operations, net of income taxes            (48 )             -                9                  -
Net (loss) income                  $      (375 )          (0.6 )   $        380                0.5

Revenue. Total revenue decreased by $14,083, or 19.6%, to $57,859 from $71,942. Products revenue decreased $12,763, or 21.4% to $46,813 from $59,576. The decrease in products revenue was primarily due to unanticipated product availability issues from our key manufacturer supplier, Cisco Systems, Inc., which led to an inability to complete certain projects during the quarter. We currently believe the product availability issues will improve somewhat during the latter part of the fourth quarter. Services revenue decreased $1,320 or 10.7% to $11,046 from $12,366. Professional services revenue decreased significantly over the prior year and managed services revenues were approximately the same as the prior year. Professional services revenue decreased in the Federal Division, Gulf Coast Region, and Northwest Region, partially offset by increases in the Central Texas and Southwest Regions and newly acquired locations in the New England Region.

Gross Profit. Total gross profit decreased by $359, or 2.7%, to $12,967 from $13,326. Gross profit as a percentage of revenue increased to 22.4% from 18.5%, due to higher products revenue margin partially offset by lower services revenue margin. Gross profit on the products sales component increased $126 or 1.3%, to $10,193 from $10,067 and, as a percentage of sales, increased to 21.8% from 16.9%, due to substantially higher vendor rebates on lower sales and reduced large project sales at low margins. Gross profit on services revenue decreased $485 or 14.9% to $2,774 from $3,259 and gross profit as a percent of services revenue decreased to 25.1% from 26.4%. The services gross margin decreased in 2009 due to reduced professional services revenues on a cost base which is primarily fixed in nature and lower managed services gross margin due to the higher cost base of an acquired location.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $689, or 5.5% to $13,284 from $12,595. As a percentage of total revenue, these expenses increased to 22.9% in 2009 versus 17.5% in 2008. Increased 2009 expenses reflect selling, general and administrative expenses of the operations acquired in the NetTeks, AdvancedNetworX, and VocalMash acquisitions, higher professional fees of $368 primarily due to the restatement of prior period financial statements and the start of the annual audit in the third quarter of 2009 instead of the fourth quarter as in prior years, and higher bad debt expense in 2009 of $249. These increases were partially offset by reduced commission expense due to lower sales and proportionately higher sales to non-commissioned accounts.

Operating (Loss) Income. Operating income decreased $1,048 to a loss of $317 from income of $731, primarily due to lower sales and proportionately higher selling, general and administrative expenses, partially offset by higher gross margins.

Interest and Other Income (Expense), Net. Interest and other income (expense), net, changed by $23 to income of $83 from income of $106, primarily due to payment discounts offered through January 2010 by our senior credit facility lender and interest income on cash balances.

Income Tax Expense. Income tax expense decreased by $373 to $93 from $466, primarily due to lower 2009 pretax income. An income tax benefit was not recognized for the 2009 loss due to the corresponding valuation allowance recorded as discussed further under "Deferred Tax Assets" below.

Net (Loss) Income. Net income decreased $755 to a loss of $375 from income of $380, primarily due to lower sales and proportionately higher selling, general and administrative expenses, partially offset by higher gross margins, higher interest and other income, and lower income tax expense.

Nine Months Ended September 30, 2009 Compared To the Nine Months Ended September

30,2008

                                                   Nine Months Ended September 30,
                                              2009                              2008
                                     Amount             %             Amount                %
Revenue:                                                               (As Restated, Note 10)
Products                           $   137,834            79.4     $     161,497              82.6
Services                                35,706            20.6            34,079              17.4
Total revenue                          173,540           100.0           195,576             100.0
Gross profit:
Products                                28,215            20.5            29,040              18.0
Services                                 9,780            27.4            10,185              29.9
Total gross profit                      37,995            21.9            39,225              20.1
Selling, general and
administrative expenses                 38,337            22.1            34,850              17.9
Operating (loss) income                   (342 )          (0.2 )           4,375               2.2
Interest and other income
(expense), net                             100             0.1               (65 )               -
Income tax expense                         212             0.2             1,829               0.9
Net (loss) income from
continuing operations                     (454 )          (0.3 )           2,481               1.3
(Loss ) income from discontinued
operations, net of income taxes           (104 )             -                23                 -
Net (loss) income                  $      (558 )          (0.3 )   $       2,504               1.3

Revenue. Total revenue decreased by $22,036, or 11.3%, to $173,540 from $195,576. Products revenue decreased $23,663, or 14.7% to $137,834 from $161,497. The decrease in products revenue was primarily due to the effect of the macroeconomic downturn in the United States during the first and second quarter of 2009 and the unanticipated product availability issues from our key manufacturer supplier during the third quarter of 2009 referenced above. Services revenue increased $1,627 or 4.8% to $35,706 from $34,079. Professional services and managed service revenue increased by approximately the same amount. Professional services revenue increased in the Central Texas Region, Southwest Region, Southern California Region, and the newly acquired location in the New England Region, partially offset by decreases in the Federal Division, Gulf Coast Region, and Northwest Region. Managed services revenue increased in newly acquired New England and Northern California locations and existing Southern California Region partially offset by decreased revenue in the Gulf Coast Region.

Gross Profit. Total gross profit decreased by $1,230, or 3.1%, to $37,995 from $39,225. Gross profit as a percentage of revenue increased to 21.9% from 20.1%, due to higher products revenue margins partially offset by lower services margins. Gross profit on the products sales component decreased $825 or 2.8%, to $28,215 from $29,040 and, as a percentage of sales, increased to 20.5% from 18.0% due to proportionately higher 2009 vendor rebates and increased 2009 revenues for third party support contracts recorded on a net basis. Gross profit on services revenue decreased $405 or 4.0% to $9,780 from $10,185 and gross profit as a percent of services revenue decreased to 27.4% from 29.9%. The services gross margin decreased in 2009 due to reduced professional services revenues on a cost base which is primarily fixed in nature and lower managed services gross margin due to the higher cost base of an acquired location.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $3,487, or 10.0% to $38,337 from $34,850. As a percentage of total revenue, these expenses increased to 22.1% in 2009 versus 17.9% in 2008. Increased 2009 expenses reflect selling, general and administrative expenses of the operations acquired in the NetTeks, AccessFlow, AdvancedNetworX, and VocalMash acquisitions, higher professional fees of $537 primarily due to the restatement of prior period financial statements and the start of the annual audit in the third quarter of 2009 instead of the fourth quarter as in prior years, and higher bad debt expense in 2009 of $346. These increases were partially offset by reduced commission expense due to lower sales and proportionately higher sales to non-commissioned accounts.

Operating (Loss) Income. Operating income decreased $4,717 to a loss of $342 from income of $4,375, primarily due to lower sales and proportionately higher selling, general and administrative expenses partially offset by higher gross margins.

Interest and Other Income (Expense), Net. Interest and other income (expense), net, changed by $165 to income of $100 from expense of $65, primarily due to the elimination of borrowings under our senior credit facility in June 2008.

Income Tax Expense. Income tax expense decreased by $1,617 to $212 from $1,829, primarily due to lower 2009 pretax income. An income tax benefit was not recognized for the 2009 loss due to the corresponding valuation allowance recorded as discussed further under "Deferred Tax Assets" below.

Net (Loss) Income. Net income decreased $3,062 to a loss of $558 from income of $2,504, primarily due to lower sales and proportionately higher selling, general and administrative expenses partially offset by higher gross margins and lower income tax expense.

Tax Loss Carryforward. Because of our operating losses in 2003, 2005, 2006 and 2008, and exercises of stock options, we have accumulated a net operating loss carryforward for federal income tax purposes that, at September 30, 2009, was approximately $3,268. Since United States tax laws limit the time during which an NOL may be applied against future taxable income and tax liabilities, we may not be able to take full advantage of our NOL carryforward for federal income tax purposes. The carryforward will expire during the period 2023 through 2026 if not otherwise used. A change in ownership, as defined by federal income tax regulations, could significantly limit the Company's ability to utilize its carryforward.

We recognize tax benefits associated with the exercise of stock options directly to stockholders' equity only when realized. Accordingly, deferred tax assets are not recognized for net operating loss carryforwards resulting from windfall tax benefits. A windfall tax benefit occurs when the actual tax benefit realized upon an employee's disposition of a share-based award exceeds the cumulative book compensation charge associated with the award. At September 30, 2009, we have windfall tax benefits of $3,268 included in NOL carryforward but not reflected in deferred tax assets.

Deferred Tax Assets. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences, generally become deductible. Management considers the reversal of deferred tax liabilities, projected future income, and tax planning strategies in making this assessment. Management's evaluation of the realizability of deferred tax assets must consider both positive and negative evidence. The weight given to the potential effects of positive and negative evidence is based on the extent to which it can be objectively verified. During the fourth quarter of 2008 and through the nine months ended September 30, 2009, we recorded a valuation allowance related to the net operating loss carryforwards and other temporary items as we determined it is more likely than not that we will not be able to use the assets to reduce future tax liabilities. As of September 30, 2009, the net deferred tax asset was $4,228 and was fully reserved with a valuation allowance of the same amount.

Liquidity and Capital Resources

Sources of Liquidity

Our principal sources of liquidity are collections from our accounts receivable and our credit facility (the "Credit Facility") with Castle Pines Capital LLC ("CPC"), which we believe are sufficient to meet our short-term and long-term liquidity requirements. We use the Credit Facility to finance the majority of our purchases of inventory and to provide working capital when our cash flow from operations is insufficient. Our working capital increased to $15,847 at September 30, 2009 from $14,173 at December 31, 2008, primarily due to cash flow generated by operations.

The total Credit Facility is $60,000 with an additional $10 million credit facility specifically for acquisitions ("Acquisition Facility"). Substantially all of our assets are pledged as collateral under the Credit Facility. Advances under the Acquisition Facility are specific to each acquisition and subject to approval by CPC based on pre-established criteria. There were no borrowings under the Acquisition Facility outstanding at September 30, 2009.

As of September 30, 2009, borrowing capacity and availability were as follows:

                  Total Credit Facility                $  60,000
                  Borrowing base limitation              (25,747 )
                  Total borrowing capacity                34,253
                  Less interest-bearing borrowings             -
                  Less non-interest bearing advances     (31,294 )
                  Total unused availability            $   2,959

In addition to unused borrowing availability, liquidity at September 30, 2009 included our cash balance of $12,116. 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 presented as "Accounts Payable - Floor Plan" in our balance sheet. To the extent that we have credit availability under the Credit Facility, we have the ability to extend the payment terms past the Free Finance Period for up to 120 days after original invoice date. Amounts extended past the Free Finance Period accrue interest and are presented as notes payable on our balance sheet. No such amounts related to this Credit Facility were outstanding at September 30, 2009 or December 31, 2008. The interest rate of the Credit Facility is the prime rate plus 0.5% (3.75% at September 30, 2009) and the interest rate of the Acquisition Facility is the prime rate plus 2.0% (5.25% at September 30, 2009).

As defined in the Credit Facility there are restrictive covenants measured at each quarter and year-end regarding minimum tangible net worth, maximum debt to tangible net worth ratio, minimum working capital and a minimum current ratio. At September 30, 2009, we were in compliance with the loan covenants and we anticipate that we will be able to comply with the loan covenants during the next twelve months. If we violate any of the loan covenants, we would be required to seek waivers from CPC for those non-compliance events. If CPC refused to provide waivers, the amount due under the Credit Facility could be accelerated and we could be required to seek other sources of financing.

Cash Flows. During the nine months ended September 30, 2009, our cash increased by $1,179. Operating activities provided cash of $11,353, investing activities used $1,557 and financing activities used $8,617.

Operating Activities. Operating activities provided $11,353 in the nine months ended September 30, 2009, as compared to providing cash of $1,929 in the comparable 2008 period. During the nine months ended September 30, 2009, net income and noncash adjustments to net income provided cash of $3,699 and changes in asset and liability accounts provided cash of $7,654, primarily through the reduction of account receivable from reduced sales and improved collections.

Investing Activities. Investing activities used $1,557 in the nine months ended September 30, 2009, compared to $4,436 used during the comparable period in 2008. Our 2009 investing activities primarily consisted of capital expenditures ($813), acquisition of AdvancedNetworX ($465), and payment of earnout in connection with the 2008 acquisition of AccessFlow ($209). Our investing activities in 2008 primarily consisted of the acquisition of Access Flow, Inc. ($2,661), including transaction costs and capital expenditures ($1,785). 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, for which we cannot predict the certainty or magnitude. As further described in Note 4 to the condensed consolidated financial statements, the AccessFlow, NetTeks, VocalMash, and AdvancedNetworX acquisition agreements contain contingent cash payment provisions that may be earned in future periods.

Financing Activities. Financing activities used $8,617 in the nine months ended September 30, 2009, as compared to providing $8,973 in the comparable period in 2008. Funds used in the nine months ended September 30, 2009 were primarily from net payments under the floor plan financing ($8,708) and the issuance of stock under the employee stock purchase plan ($326). The financing activities during the nine months ended September 30, 2008 generated cash primarily from the issuance of common stock ($8,870, net of issuance costs), net borrowings under the floor plan financing ($5,813), the exercise of stock options ($827), and excess tax benefits from stock option exercises ($1,590), partially offset by the repayment of the Acquisition Facility ($6,000) and common stock repurchases ($2,096).