INX Inc. (NASDAQ: INXI) (the “Company”; or “INX”) today provided
an update on certain financial information for its fourth quarter
ended December 31, 2010, recent business conditions and the status
of completing the restatement of previously issued financial
statements and becoming current on its SEC filings (the "Accounting
Project").
BUSINESS UPDATE:
Since the Company is unable to provide operating results for the
quarter and year ended December 31, 2010, until it completes the
Accounting Project, in an effort to provide investors with as much
meaningful information as is possible, the Company is providing the
information below. The information provided herein is limited to
that which the Company does not expect to be impacted by any
adjustments related to correcting its accounting for revenue
recognition. Note that “bookings” as used herein represent the
dollar amount of credit approved customer orders for products, and
“billings” as used herein represent invoicing of customers at
contract amount for products and services, neither of which is the
same as “revenue” determined in accordance with Generally Accepted
Accounting Principles. “Bookings” and "billings" provide an
indication of near-term customer demand as well as an indication of
product availability from our suppliers.
For the Company's fourth quarter ended December 31, 2010
(unaudited):
- Product bookings decreased by
approximately 2% sequentially compared to the third quarter ended
September 30, 2010, and increased by approximately 18% compared to
the prior year quarter.
- Product billings decreased by
approximately 19% on a sequential basis compared to the third
quarter, and increased by approximately 11% compared to the prior
year period.
- Services billings increased by
approximately 9% compared to the third quarter, and increased by
approximately 34% compared to the prior year period.
As of December 31, 2010 (unaudited):
- Cash and cash equivalents is expected
to be approximately $12.1 million, compared to approximately $11.5
million at September 30, 2010 and approximately $13.2 million at
December 31, 2009.
- Short-term debt is expected to be
approximately $186,000 compared to approximately $184,000 at
September 30, 2010 and approximately $209,000 at December 31,
2009.
- Long-term debt is expected to be
approximately $66,000 compared to approximately $90,000 at
September 30, 2010 and approximately $209,000 at December 31,
2009.
Commenting on the trends in the Company's business, Mark Hilz,
the Company's President and CEO, said, "Fourth quarter customer
demand was slightly better than anticipated. The economic outlook
continues to improve and our customers are feeling better about
making investments in their IT infrastructure. As expected, product
billings decreased in the fourth quarter compared to the third
quarter. Product bookings for the fourth quarter were slightly
above our expectations. Our services billings continued to improve
and we have recovered from the loss of a large federal contract in
2009. We currently expect that first quarter product bookings will
be in a range of approximately minus 2% to plus 9% compared to the
fourth quarter, which would represent a year-over-year increase of
approximately 8% to 21%.
STATUS OF THE ACCOUNTING PROJECT
On March 26, 2010, the Company announced that it was delaying
its fourth quarter earnings release (for the year ended December
31, 2009) and that it would not file its Form 10-K by its due date
in order to allow the Company additional time for the reexamination
of its revenue recognition under Accounting Standards Codification
(ASC) 605-25, previously referred to as Emerging Issues Task Force
("EITF") No. 00-21 (“EITF 00-21”), “Revenue Arrangements with
Multiple Deliverables”.
On June 21, 2010, after conducting a reexamination of its past
revenue accounting, the Company announced that the audit committee
of its board of directors, upon the recommendation of management,
had determined that its previously issued financial statements for
the year ended December 31, 2008 and for the quarters ended March
31, 2009, June 30, 2009 and September 30, 2009, should no longer be
relied upon due to several types of revenue recognition errors.
This conclusion was reached as a result of the reexamination
referred to above.
Over the course of the several months following the June 21,
2010 announcement, the Company determined that correctly accounting
for revenue would require a detailed review of far more customer
contracts than had been previously anticipated, and that the
effort, time and expense related to performing these contract
reviews and implementing required process and systems changes would
be more substantial than it had previously expected.
In October 2010 the Company announced that it had begun applying
significantly more resources on the Accounting Project. The scope
of the project required reviewing thousands of customer contracts,
for which work has been substantially completed, and the
implementation of new software systems to perform the complex
multi-step processes required to properly account for multiple
contracts negotiated together as a single arrangement, allocate
revenue between the various deliverables within the arrangement,
and apply the related timing rules for deferral of revenue under
certain circumstances.
Through December 31, 2010, the Company estimates that it has
incurred approximately $4 million of expenses directly related to
the Accounting Project.
While the NASDAQ has granted an extension through April 11, 2011
to become compliant with Nasdaq continued listing rules, it is the
Company's goal to complete the Accounting Project and file all
required financial statement filings necessary to become current on
its required financial statement filings no later than March 31,
2011. However, there can be no assurance that the Company will be
able to achieve its goal.
At this time the Company anticipates that it will incur
approximately $2.5 million of additional expenses in the first
quarter ending March 31, 2011 directly related to the Accounting
Project.
Commenting on the Accounting Project, James Long, the Company’s
Executive Chairman, said, "We have made substantial progress on
this project since providing our last update in October. After
making substantial changes to our approach and the resources on the
project, we are in the final stages of reviewing and analyzing the
results of our contract reviews and testing new software systems
required to properly account for revenue recognition. The
non-revenue audit field work is substantially complete and our
auditors are concurrently performing revenue-related audit work
while we complete our internal revenue recognition review and
systems testing. We are hopeful that we will be able to achieve our
goal of becoming current with our SEC filings by March 31,
2011.”
Philip Rydzewski, the Company's Chief Financial Officer, added:
"Since joining INX at the end of December I have been devoting
substantially all of my efforts to driving this project to
completion. We are moving forward very aggressively to meet our
goal of a March 31st completion date."
SAFE HARBOR STATEMENT:
The statements contained in this document that are not
statements of historical fact including but not limited to,
statements identified by the use of terms such as “anticipate,”
“appear,” “believe,” “could,” “estimate,” “expect,” “hope,”
“indicate,” “intend,” “likely,” “may,” “might,” “plan,” “pointing
towards,” “potential,” “project,” “seek,” “should,” “will,”
“would,” and other variations or negative expressions of these
terms, are “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based on current expectations and
are subject to a number of risks and uncertainties. The financial
information contained in this press release is preliminary and
subject to change until the Company files its Annual Report on Form
10-K for the year ended December 31, 2010 and its Quarterly Reports
on Form 10-Q for the quarterly periods ended March 31, 2010, June
30, 2010, and September 30, 2010 with the Securities and Exchange
Commission. All numbers set forth in this press release are
unaudited.
Actual results could differ materially from the forward-looking
statements contained herein due to numerous factors, including:
- Events that occur or adjustments made
after the date of this announcement.
- Market and economic conditions,
including capital expenditures by enterprises for network,
telephone communications and data center systems products and
services.
- Unexpected customer contract
cancellations.
- Currently unforeseen events that cause
the contract reviews required to complete the Accounting Project to
take longer than currently anticipated.
- Currently unforeseen events that
otherwise cause further delays in the Company's ability to publish
its financial results within the time period indicated herein, or
provide an accurate estimate of the time and/or additional cost
required to publish its financial results.
- Credit and financial market conditions
that could impact customers' ability to finance purchases.
- Continuation of the Company’s credit
facility with its primary financier, which credit facility the
Company uses to finance the purchases of the majority of the
products that it sells to its customers.
- Catastrophic events.
Recipients of this document are cautioned to consider these
risks and uncertainties and to not place undue reliance on these
forward-looking statements. All information in this press release
is as of the date of this press release, and the Company expressly
disclaims any obligation or undertaking to update or revise any
forward-looking statement contained herein to reflect any change in
the Company's expectations with regard thereto, or any change in
events, conditions or circumstances upon which any statement is
based.
ABOUT INX INC.:
INX Inc. (NASDAQ: INXI) is a leading U.S. provider of IP
communications and data center solutions for enterprise
organizations. INX offers a suite of advanced technology solutions
focused around the entire lifecycle of enterprise IP network
communications and data center infrastructure. Services are
centered on the design, implementation and support of network
infrastructure, including routing and switching, wireless,
security, unified communications, and data center solutions such as
storage and server virtualization. Customers include enterprise
organizations such as corporations, as well as federal, state and
local governmental agencies. Additional information about INX can
be found on the Web at www.INXI.com.
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