forms3a.htm S-3/A 1 forms3a.htm INX S 3A 12-19-2007
As filed with the Securities and Exchange Commission on December 19, 2007
Registration No. 333 -146632
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Amendment No. 2 to
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
 
INX INC.
(Exact name of Registrant as specified in its charter)
 
Delaware
  
76-0515249
(State or Other Jurisdiction of Incorporation or Organization)
  
(I.R.S. Employer Identification Number)
6401 Southwest Freeway
Houston, TX 77074
(713) 795-2000
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
James H. Long
Chief Executive Officer
INX Inc.
6401 Southwest Freeway
Houston, TX 77074
(713) 795-2000
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Christopher M. Locke, Esq.
Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York 10177
(212) 351-4500
Approximate date of commencement of proposed sale to the public:  From time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. o
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box.  T 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨
If this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box.  ¨
If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box.  ¨
 
 
CALCULATION OF REGISTRATION FEE 
Title of Each Class of Securities to be Registered
  
Amount to be Registered
    
Proposed Maximum Offer Price Per Unit (1)
    
Proposed Maximum Aggregate Offering Price (1)
    
Amount of Registration Fee
  
Common stock issuable upon exercise of outstanding public warrants
    
575,000
     $
12.45
     $
7,158,750
     $
220
  
Units issuable upon exercise of outstanding Representatives’ Warrants, each Unit consisting of:
    
50,000
     $
19.92
     $
996,000
     $
31
  
(i) two shares of common stock
    
100,000
       (2)       (2)       (2)  
(ii) one warrant to purchase one share of common stock
    
50,000
       (2)       (2)       (2)  
Common stock, issuable upon the warrant included in the Units issuable upon exercise of the Representatives’ Warrants
    
50,000
     $
12.45
     $
622,500
      
20
  
Total (3):
                   $
8,777,250
     $
271
  (4)
(1)
Estimated solely for the purpose of calculating the registration fee payable pursuant to Rule 457(g) promulgated under the Securities Act of 1933, as amended.  The offering price of $12.45 per share for the common stock underlying the public warrants is the exercise price of those warrants.  The offering price of $19.92 per representatives’ unit is the exercise price of each representatives’ warrant.  The offering price of $12.45 per warrant underlying the representatives’ warrants is the exercise price of those warrants.
(2)
Pursuant to Rule 457(g) promulgated under the Securities Act of 1933, as amended, where warrants are registered for distribution, no separate registration fee is required on the same registration statement of the securities offered pursuant to the exercise of the warrants.
(3)
This Registration Statement also includes such indeterminate number of additional shares of common stock as may become issuable pursuant to Rule 416 promulgated under the Securities Act of 1933, as amended, as a result of anti-dilution provisions.
(4)
Previously paid.
 
    The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed without notice. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities, in any jurisdiction where the offer or sale is not permitted.
 
Subject to Completion, Dated December 19, 2007
 
PRELIMINARY PROSPECTUS

 
INX Inc.
 
725,000 Shares of Common Stock
50,000 Warrants

This prospectus covers the sale by us of up to (a) 575,000 shares of our common stock to be issued upon the exercise of our public warrants, (b) 100,000 shares of our common stock and 50,000 of our warrants to be issued upon the exercise of warrants we granted to the representatives of a public offering of units by us and (c) 50,000 shares of our common stock to be issued upon the exercise of the warrants underlying the representatives’ warrants.
 
Our public warrants were issued in a public offering of units, each unit comprised of two shares of common stock and one warrant, on May 7, 2004.  The warrants are exercisable at $12.45 per share at any time on or before May 7, 2009.  We may redeem some or all of the warrants at a price of $0.25 per warrant at any time after the closing price for our common stock on the principal exchange on which the stock trades equals or exceeds $16.60 per share for any five consecutive trading days by giving not less than 30 days notice to the holders of the warrants.
 
The representatives’ warrants were issued by us in connection with the public offering of the units and are dated as of May 7, 2004.  Holders of the representatives’ warrants may purchase up to an aggregate of 50,000 units, each unit consisting of two shares of common stock and one warrant, each warrant to purchase one share of common stock (on the same terms and conditions as the public warrants).  The representatives’ warrants are exercisable at $19.92 per unit and expire on May 7, 2009.
 
In addition to the sale of the securities referenced above by us, this prospectus covers resales by the holders of the representatives’ warrants who are identified in this prospectus as selling security holders of the shares of common stock and warrants issuable upon exercise of the representatives’ warrants and shares of common stock issuable upon exercise of the warrants underlying the representatives’ warrants.  Although we will receive proceeds in connection with the exercise of the representatives’ warrants and the underlying warrants by the holders of those warrants, we will not receive any proceeds from the resale of shares of common stock or the underlying warrants by the selling  security holders.
 
If all of the public warrants, the representatives’ warrants and the warrants underlying the representatives’ warrants are exercised, we will receive proceeds of up to $8,777,250.
 
Our common stock is traded on the Nasdaq Global Market under the symbol “INXI.”  Our public warrants are traded on the Nasdaq Global Market under the symbol “INXIW”.  On November 23, 2007, the closing price of our common stock was $10.68 per share and on November 20, 2007 the closing price of our public warrants was $1.76 per warrant.
 
Investing in our securities involves a high degree of risk.  Before buying any securities, you should read the discussion of material risks of investing in our securities in “Risk Factors” beginning on page 4 of this prospectus.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus.  Any representation to the contrary is a criminal offense.
 
 
The date of this prospectus is ___________, 2007
 
 
 
 
 
No dealer, sales representative or any other person has been authorized to give any information or to make any representations in connection with this offering other than those contained in or incorporated by reference in this prospectus, as supplemented or amended from time to time by us, and, if given or made, such information or representations must not be relied upon as having been authorized by us. This prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, nor shall there be any sale of these securities by any person in any jurisdiction in which such an offer, solicitation or sale would be unlawful. Neither the delivery of this prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in our affairs since the date of this prospectus or that the information contained in this prospectus is correct as of any time subsequent to the date of this prospectus.

 
 
This summary highlights selected information appearing elsewhere or incorporated by reference in this prospectus and may not contain all the information that is important to you.  This prospectus includes information about the securities we are offering as well as information regarding our business and detailed financial data. You should carefully read this prospectus and the registration statement of which this prospectus is a part in their entirety before investing in our securities, including the section entitled “Risk Factors,” and the information incorporated by reference in this prospectus.
 
Business Summary
 
We are a provider of Internet Protocol communications solutions for enterprise-class organizations such as corporations, schools and federal, state and local governmental agencies. We provide solutions based primarily on Cisco Systems, Inc. technology and provide our customers with implementation and support services. We believe that our focus and expertise enables us to better compete in the markets that we serve. Because we have significant experience implementing and supporting the critical technology building blocks of Internet Protocol telephony systems for enterprises, we believe we are well positioned to deliver superior solutions and services to our customers.
 
The convergence of data, voice, and video into a single seamless Internet Protocol communications infrastructure is increasingly responsible for driving business benefits through improved business operations. The foundation of a converged communication platform is a robust, secure, high-performance, high-availability Internet Protocol network infrastructure. As part of our commitment to full life-cycle solutions for our customers, we are dedicated to excellence not only in Internet Protocol telephony voice communications but also in the underlying network infrastructure components upon which Internet Protocol telephony depends.
 
The Internet Protocol communications solutions we offer are “Cisco-centric,” meaning they are based primarily on the products and technology of Cisco. These solutions include design, implementation and support of LAN/WAN routing and switching, Internet Protocol telephony, voice over IP, network security, network storage and wireless networks. We offer a full suite of advanced technology solutions that support the entire life-cycle of Internet Protocol communications. Our solutions are designed with the complete life-cycle of our customer’s Internet Protocol communications infrastructure in mind. Within a finite set of practice areas, we have standardized our design, implementation, and post-implementation support processes to drive a reliable and scaleable solution that can be tailored to meet the business objectives of our clients. Because of our substantial experience and technical expertise in the design, implementation and support of Internet Protocol communications solutions, we believe we are well-positioned to take advantage of what we believe to be a growing trend of implementation by enterprise organizations of Internet Protocol telephony and voice over Internet Protocol technology, and the use by enterprise organizations of the Internet Protocol network as the platform for all forms of communications.
 
The market for Internet Protocol communications solutions is extremely competitive. We compete with larger and better financed entities. We currently have thirteen physical offices, which are located in Texas, California, Idaho, Massachusetts, New Mexico, Oregon, Washington and Washington DC. We primarily market to enterprise-class organizations headquartered in or making purchasing decisions from markets that we serve with branch offices. We plan to continue to expand to additional markets throughout the U.S. by establishing additional branch offices in other markets, either by opening additional new offices or through acquisition.
 
We derive revenue from sales of both products and services. Our product sales consist primarily of sales of Cisco brand products. Our services revenues are derived from two principal types of services: professional services that include design and implementation engineering services, and post-sale support services, which consist of remote monitoring and managed services for enterprise network infrastructure, which we offer through our NetSurant branded service offering.
 
Our principal executive offices are located at 6401 Southwest Freeway, Houston, Texas 77074, and our telephone number is (713) 795-2000.
 
 
This Offering
 
Offering by INX
 
We are registering 725,000 shares of our common stock issuable by us upon exercise of outstanding public warrants and representatives’ warrants.  These shares include:
 
 
·
575,000 shares issuable upon exercise of the public warrants at a price per share of $12.45, issuable at any time on or prior to May 7, 2009.
 
 
·
100,000 shares issuable upon exercise of representatives’ warrants to purchase 50,000 units, each unit comprised of 2 shares of common stock and one warrant, at an exercise price of $19.92 per unit at any time on or prior to May 7, 2009.
 
 
·
50,000 shares issuable upon exercise of the warrant underlying the representatives’ units at $12.45 per share at any time on or prior to May 7, 2009.
 
We are also registering the issuance of the warrants underlying the representatives’ units issuable upon exercise of the representatives’ warrant.  We will pay the expenses of registering these securities.
 
In addition, we are registering for resale by the holders of the representatives’ warrants who are identified in this prospectus as selling security holders the shares of common stock and warrants issuable upon exercise of the representatives’ warrants and shares of common stock issuable upon exercise of the warrants underlying the representatives’ warrants.  Although we will receive proceeds in connection with the exercise of the representatives’ warrants and the underlying warrants by the holders of those warrants, we will not receive any proceeds from the resale of shares of common stock or the underlying warrants by the selling  security holders.
 
 
 
An investment in our securities involves various risks. You should carefully consider the following risk factors and other information incorporated by reference herein before deciding to purchase our securities.
 
We have a history of losses and may continue to incur losses.
 
We incurred a net loss from continuing operations in each fiscal year since 1999, except fiscal 2006, 2005, and 2003. During 2005 our income from continuing operations was $812 excluding the noncash charge for remeasurement of certain stock options. We cannot assure you that profitability will be achieved or continue in upcoming quarters or years. In order to continue profitability, we will have to maintain or increase our operating margin. We cannot assure you that we will be able to continue to achieve improved operating margins, or that operating margin will not decrease in the future. If we are unable to increase revenue, if our gross margin decreases, or if we are unable to control our operating expenses, our business could produce losses. We have only recently become profitable and are in a rapidly changing industry. In addition, our business depends upon winning new contracts with new customers, the size of which may vary from contract to contract. When we open new branch offices to expand our geographic presence, we expect the newly opened branch offices to produce operating losses for a period of six months to over one year. We plan to open multiple new branch offices in the near future. Whether we are able to remain profitable in the future will depend on many factors, but primarily upon the commercial acceptance of Internet Protocol telephony products and services, specifically those developed and marketed by Cisco.
 
Our success is dependent upon maintaining our relationship with Cisco.
 
Substantially all of our revenue for the years ended December 31, 2006, 2005, and 2004 was derived from the sale of Cisco products and related services. We anticipate that these products and related services will account for the majority of our revenue for the foreseeable future. We have a contract with Cisco to purchase the products that we resell, and we purchase substantially all of our Cisco products directly from Cisco. Cisco can terminate this agreement on relatively short notice. Cisco has designated us an authorized reseller and we receive certain benefits from this designation, including special pricing and payment terms. We have in the past, and may in the future, purchase Cisco-centric products from other sources. When we purchase Cisco-centric products from sources other than Cisco, the prices are typically higher and the payment terms are not as favorable. Accordingly, if we are unable to purchase directly from Cisco and maintain our status as an authorized reseller of Cisco network products, our business could be significantly harmed. If we are unable to purchase Cisco products from other sources on terms that are comparable to the terms we currently receive, our business would be harmed and our operating results and financial condition would be materially and adversely affected.
 
Our success depends upon broad market acceptance of Internet Protocol telephony.
 
The market for Internet Protocol telephony products and services is relatively new and is characterized by rapid technological change, evolving industry standards and strong customer demand for new products, applications and services. As is typical of a new and rapidly evolving industry, the demand for, and market acceptance of, recently introduced Internet Protocol telephony products and services are highly uncertain. We cannot assure you that the use of Internet Protocol telephony will become widespread. The commercial acceptance of Internet Protocol telephony products, including Cisco-centric products, may be affected by a number of factors including:
 
 
•
quality of infrastructure;
 
 
•
security concerns;
 
 
•
equipment, software or other technology failures;
 
 
•
government regulation;
 
 
•
inconsistent quality of service;
 
 
•
poor voice quality over Internet Protocol networks; and
 
 
•
lack of availability of cost-effective, high-speed network capacity.
 
If the market for Internet Protocol telephony fails to develop, develops more slowly than we anticipate, or if Internet Protocol telephony products fail to achieve market acceptance, our business will be adversely affected.
 
 
Although our success is generally dependent upon the market acceptance of Internet Protocol telephony, our success also depends upon a broad market acceptance of Cisco-centric Internet Protocol telephony.
 
We cannot assure you that the Cisco-centric Internet Protocol telephony products we offer will obtain broad market acceptance. Competition, technological advances and other factors could reduce demand for, or market acceptance of, the Cisco-centric Internet Protocol telephony products and services we offer. In addition, new products, applications or services may be developed that are better adapted to changing technology or customer demands and that could render our Cisco-centric products and services unmarketable or obsolete. To compete successfully, the Cisco-centric Internet Protocol telephony products we offer must achieve broad market acceptance and we must continually enhance our related software and customer services in a timely and cost- effective manner. If the Cisco-centric Internet Protocol telephony products we offer fail to achieve broad market acceptance, or if we do not adapt our existing services to customer demands or evolving industry standards, our business, financial condition and results of operation could be significantly harmed.
 
Our business depends on the level of capital spending by enterprises for communications products and services.
 
As a supplier of Internet Protocol telephony products, applications and services for enterprises, our business depends on the level of capital spending for communications products and services by enterprises in our markets. We believe that an enterprise’s investment in communications systems and related products and services depends largely on general economic conditions that can vary significantly as a result of changing conditions in the economy as a whole. The market for communications products and services may continue to grow at a modest rate or not at all. If our customers decrease their level of spending on communications systems and the related products and services, our revenue and operating results may be adversely affected.
 
Our profitability depends on Cisco product pricing and incentive programs.
 
Our annual and quarterly gross profits and gross margins on product sales are materially affected by Cisco product pricing and incentive programs. These incentive programs currently enable us to qualify for cash rebates or product pricing discounts and are generally earned based on sales volumes of particular Cisco products and customer satisfaction levels. We recognized vendor incentives as a reduction of a cost of sales amounting to $6,303, $2,876 and $3,480 in 2006, 2005 and 2004, respectively, representing 4.0%, 2.7%, and 4.9% of total revenues. From time to time Cisco changes the criteria upon which qualification for these incentives are based and there is no assurance that we will continue to meet the program qualifications. Cisco is under no obligation to continue these incentive programs.
 
A substantial portion of our customers are based in Texas.
 
We have only recently expanded outside of Texas. Because a majority of the customers we offer our Internet Protocol telephony products to are geographically concentrated in Texas, our customers’ level of spending on communication products may be affected by economic condition in Texas, in addition to general economic conditions in the United States. If demand for Internet Protocol telephony products by enterprises in Texas decreases, our business, financial condition and results of operations could be significantly harmed.
 
Our strategy contemplates rapid geographic expansion, which we may be unable to achieve, and which is subject to numerous uncertainties.
 
A component of our strategy is to become one of the leading national providers of Cisco-centric Internet Protocol telephony products. To achieve this objective, we must either acquire existing businesses or hire qualified personnel in various locations throughout the country, fund a rapid increase in operations and implement corporate governance and management systems that will enable us to function efficiently on a national basis. Identifying and acquiring existing businesses is a time-consuming process and is subject to numerous risks. Qualified personnel are in demand, and we expect the demand to increase as the market for Internet Protocol telephony grows. We will also likely face competition from our existing competitors and from local and regional competitors in the markets we attempt to enter. A rapid expansion in the size and geographical scope of our business is likely to introduce management challenges that may be difficult to overcome. We cannot assure you that we will be successful in expanding our operations beyond Texas or achieving our goal of becoming a national provider. An unsuccessful expansion effort would consume capital and human resources without achieving the desired benefit and would have an adverse affect on our business.
 
 
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 may need additional capital to grow our business. Our business plan calls for the expansion of sales of our Internet Protocol telephony products to enterprises in geographical markets where we currently do not operate, including expansion through acquisitions. If we do not have adequate capital or are not able to raise the capital to fund our business objectives, we may have to delay the implementation of our business plan. We can provide no assurance that we will be able to obtain financing if required, or if financing is available, there is no assurance that the terms would be favorable to existing stockholders. Our ability to obtain additional financing is subject to a number of factors, including general market conditions, investor acceptance of our business plan, our operating performance and financial condition, and investor sentiment. These factors may affect the timing, amount, terms or conditions of additional financing available to us.
 
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 othercovenants under our working capital facility could lead to a termination of the agreement and an acceleration of our outstanding debt.
 
We require access to significant working capital and vendor credit to fund our day-to-day operations. Our credit facility with Castle Pines Capital contains a number of financial and other covenants. A breach of these financial or other covenants, unless waived, would be a default under the credit facility. Upon an event of default, Castle Pines Capital may terminate the facility and/or declare all amounts outstanding under such facility immediately due and payable. The acceleration of our debt could have a material adverse effect on our financial condition and liquidity. Additionally, the amount of working capital available to us under the credit facility is dependent upon the amount and quality of our accounts receivable. A significant default or payment delays of our accounts receivable could materially adversely affect our borrowing base and our access to sufficient working capital.
 
We may be unable to manage our growth effectively, which may harm our business.
 
The ability to operate our business in a rapidly evolving market requires effective planning and management. Our efforts to grow have placed, and are expected to continue to place, a significant strain on our personnel, management systems, infrastructure and other resources. Our ability to manage future growth effectively will require us to successfully attract, train, motivate and manage new employees, to integrate new employees into our operations and to continue to improve our operational, financial and management controls and procedures. If we are unable to implement adequate controls or integrate new employees into our business in an efficient and timely manner, our operations could be adversely affected and our growth could be impaired.
 
Our operating results have historically been volatile, and may continue to be volatile, particularly from quarter to quarter.
 
Our quarter-to-quarter revenue, gross profit and operating profitability have fluctuated significantly. During quarterly periods in which we realize lower levels of revenue our profitability is negatively impacted. Our quarterly operating results have historically depended on, and may fluctuate in the future as a result of, many factors including:
 
 
•
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.
 
 
As a result of these and other factors, we have historically experienced, and may continue to experience, fluctuations in sales and operating results. In addition, it is possible that in the future our operating results may fall below the expectations of analysts and investors, and as a result, the price of our securities may fall.
 
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.
 
The markets for our all of products and services, and especially our Internet Protocol telephony products and services, are extremely competitive and subject to rapid change. Substantial growth in demand for Internet Protocol telephony solutions has been predicted, and we expect competition to increase as existing competitors enhance and expand their products and services and as new participants enter the Internet Protocol telephony market. Internet Protocol telephony involves the application of traditional computer-based technology to voice communication, and the hardware component of the solution is readily available. Accordingly, there are relatively few barriers to entry to companies with computer and network experience. A rapid increase in competition could negatively affect the amount of business that we get and the prices that we can charge.
 
Additionally, many of our competitors and potential competitors have substantially greater financial resources, customer support, technical and marketing resources, larger customer bases, longer operating histories, greater name recognition and more established relationships than we do. We cannot be sure that we will have the resources or expertise to compete successfully. Compared to us, our competitors may be able to:
 
 
•
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.
 
Some of our competitors may also be able to increase their market share by providing customers with additional benefits or by reducing their prices. We cannot be sure that we will be able to match price reductions by our competitors. In addition, our competitors may form strategic relationships with each other to better compete with us. These relationships may take the form of strategic investments, joint-marketing agreements, licenses or other contra