ITEX 10Q 2008 Q0 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

Mark One)

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended January 31, 2008.

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 0-18275

ITEX CORPORATION

(Exact name of small business issuer as specified in its charter)

Nevada		93-0922994
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

3326 160th Ave SE, Suite 100, Bellevue, WA 98008-6418

(Address of principal executive offices)

(425) 463-4000

(Issuer’s telephone number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

¨	Large accelerated filer	¨	Accelerated filer
¨	Non-accelerated filer	x	Smaller reporting company
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

As of January 31, 2008, we had 17,816,248 shares of common stock outstanding.

ITEX CORPORATION

FORM 10-Q

For The Quarterly Period Ended January 31, 2008

INDEX

		Page(s)

PART I.	Financial Information

ITEM 1.	Financial Statements

	Consolidated Balance Sheets as of January 31, 2008 (unaudited) and July 31, 2007	1

	Consolidated Statements of Income for the Three and Six Month Periods Ended January 31, 2008 and 2007 (unaudited)	2

	Consolidated Statement of Stockholders’ Equity for the Six Month Period Ended January 31, 2008 (unaudited)	3

	Consolidated Statements of Cash Flows for the Three and Six Month Periods Ended January 31, 2008 and 2007 (unaudited)	4

	Notes to Consolidated Financial Statements (unaudited)	5

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

ITEM 4T.	Controls and Procedures	42

PART II.	Other Information

ITEM 1.	Legal Proceedings	42

ITEM 2.	Unregistered Sales of Equity Securities	43

ITEM 4.	Submission of Matters to a Vote of Security Holders	43

ITEM 5.	Other Information	43

ITEM 6.	Exhibits	45

	Signatures	45

ITEX CORPORATION

CONSOLIDATED BALANCE SHEETS

(In United States dollars in thousands, except par value)

	January 31, 2008			July 31, 2007
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,091		$	1,753
Accounts receivable, net of allowance of $644 and $265		823			1,113
Prepaid expenses		211			141
Loans and advances		71			94
Deferred tax asset		614			614
Notes receivable - corporate office sales		219			202
Other current assets		13			19
Total current assets		3,042			3,936

Property and equipment, net of accumulated depreciation of $114 and $85		137			133
Goodwill		3,093			1,740
Deferred tax asset, net of current portion		6,481			6,735
Intangible assets, net of amortization of $778 and $521		2,081			991
Notes receivable - corporate office sales, net of current portion		976			680
Investment		30			-
Other long-term assets		39			89
Total assets	$	15,879		$	14,304

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts and other expenses payable	$	167		$	122
Commissions payable to brokers		435			-
Accrued commissions to brokers		1,008			1,287
Accrued expenses		426			333
Deferred revenue		63			98
Advance payments		143			115
Current portion of notes payable		568			-
Total current liabilities		2,810			1,955

Long-term liabilities:
Notes payable, net of current portion		301			-
Other long-term liabilities		14			19
Total Liabilities		3,125			1,974

Commitments and contingencies

Stockholders’ equity:
Common stock, $.01 par value; 50,000 shares authorized; 17,816 and 17,929 shares issued and outstanding, respectively		178			179
Additional paid-in capital		28,904			28,981
Unearned stock compensation		(96	)		(129	)
Accumulated deficit		(16,232	)		(16,701	)
Total stockholders' equity		12,754			12,330

Total liabilities and stockholders’ equity	$	15,879		$	14,304

See Notes to Unaudited Consolidated Financial Statements

ITEX CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In United States dollars and ITEX dollars in thousands, except per share amounts)

	Three Months Ended January 31,					Six Months Ended January 31,
	2008		2007			2008		2007
	(unaudited)					(unaudited)
Revenue:
Marketplace revenue	$	4,136	$	3,665		$	7,968	$	7,455
ITEX dollar revenue		39		-			60		-
		4,175		3,665			8,028		7,455

Costs and expenses:
Cost of Marketplace revenue		2,756		2,470			5,254		5,053
Corporate salaries, wages and employee
benefits		413		369			785		760
Selling, general and administrative		373		224			946		674
Depreciation and amortization		151		74			289		145
		3,693		3,137			7,274		6,632

Income from operations		482		528			754		823

Other income (expense):
Net interest		6		23			5		17
Gain on sale of offices, net		-		-			-		70
Other		-		(1	)		-		(1	)
		6		22			5		86

Income before income taxes		488		550			759		909

Income tax expense		175		215			290		337

Net income	$	313	$	335		$	469	$	572

Net income per common share:
Basic	$	0.02	$	0.02		$	0.03	$	0.03
Diluted	$	0.02	$	0.02		$	0.03	$	0.03

Average common and equivalent shares:
Basic		17,567		17,885			17,618		17,863
Diluted		17,754		18,264			17,817		18,255

Supplemental information:
ITEX dollar activity included in costs and expenses:
Cost of Marketplace revenue	$	-	$	-		$	-	$	-
Corporate salaries, wages and employee benefits		-		-			1		-
Selling, general and administrative		39		-			59		-
Depreciation and amortization		-		-			-		-

	$	39	$	-		$	60	$	-

See Notes to Unaudited Consolidated Financial Statements

ITEX CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTH PERIOD ENDED JANUARY 31, 2008

(In United States dollars in thousands) (Unaudited)

	Common Stock						Additional paid			Unearned			Accumulated
	Shares			Amount			in capital			Compensation			deficit			Total

Balance, July 31, 2007		17,929		$	179		$	28,981		$	(129	)	$	(16,701	)	$	12,330

Stock based Board of Directors compensation		90			1			83									84

Repurchase and retirement of common stock		(203	)		(2	)		(160	)								(162	)

Stock based employee compensation											33						33

Net income														469			469

Balance, January 31, 2008		17,816		$	178		$	28,904		$	(96	)	$	(16,232	)	$	12,754

See Notes to Unaudited Consolidated Financial Statements

ITEX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In United States dollars in thousands)

	Three Months Ended January 31,						Six Months Ended January 31,
	2008			2007			2008			2007
	(unaudited)						(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	313		$	335		$	469		$	572
Items to reconcile to net cash provided by operations:
Depreciation and amortization		151			74			288			145
Disposal of equipment		2			-			2			-
Stock-based compensation		38			45			86			90
Increase (decrease) in allowance for uncollectible receivables		(79	)		(109	)		141			94
Decrease in deferred income taxes		171			173			254			295
Recognition of imputed interest		(3	)		(3	)		(6	)		(8	)
Gain on sale of offices		-			-			-			(70	)
Amortization of loan issuance costs		-			-			-			24
Changes in operating assets and liabilities:
Accounts receivable		91			233			286			258
Prepaid expenses		17			(15	)		(2	)		(29	)
Other current assets		3			(3	)		6			(18	)
Accounts and other expenses payable		-			(149	)		45			(53	)
Commissions payable to brokers		159			(276	)		435			383
Accrued commissions to brokers		203			109			(279	)		(207	)
Accrued expenses		(18	)		14			98			(88	)
Deferred revenue		(9	)		(29	)		(35	)		(71	)
Long-term liabilities		(3	)		23			(5	)		23
Advance payments		(18	)		1			2			27
Net cash provided by operating activities		1,018			423			1,785			1,367

CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisition		-			-			(2,000	)
Acquisition costs		(9	)		-			(56	)
Business sales		-			-			50
Investment in a blogging technology company		(30	)		-			(30	)
Payments received from notes receivable - corporate office sales		51			75			87			569
Payments received from loans		62			60			168			138
Advances on loans		(68	)		(121	)		(124	)		(204	)
BXI earnout		(38	)		-			(76	)		(33	)
Purchase of property and equipment		(13	)		(56	)		(36	)		(61	)
Net cash used in investing activities		(45	)		(42	)		(2,017	)		409

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on third party indebtedness		(136	)		-			(268	)		(749	)
Repurchase of common stock		-			(296	)		(162	)		(296	)
Net cash used in financing activities		(136	)		(296	)		(430	)		(1,045	)

Net increase in cash		837			85			(662	)		731
Cash at beginning of period		254			960			1,753			314
Cash at end of period	$	1,091		$	1,045		$	1,091		$	1,045

Supplemental cash flow information:
Cash paid for interest		19			-			42			93
Cash paid for taxes		27			31			74			97

Supplemental non-cash investing activities:
Intagio acquisition (Note 11)

See Notes to Unaudited Consolidated Financial Statements

ITEX CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

In thousands (except per share amounts)

NOTE 1 – DESCRIPTION OF OUR COMPANY AND SUMMARY OF OUR SIGNIFICANT ACCOUNTING POLICIES

Description of the Company

ITEX Corporation (“ITEX”, “Company”, “we” or “us”) was incorporated in October 1985 in the State of Nevada. Through our independent licensed broker and franchise network (individually, “Broker”, and together, the “Broker Network”) in the United States and Canada, we operate a leading exchange for cashless business transactions (the “Marketplace”) where products and services are exchanged for “currency” only usable in the Marketplace (“ITEX dollars”). We administer the Marketplace and act as a third-party record-keeper for our members’ transactions. A summary of significant accounting policies applied in the preparation of the accompanying consolidated financial statements follows:

Basis of Presentation

The accompanying unaudited, condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States and, pursuant to rules and regulations of the Securities and Exchange Commission, do not include all information and footnote disclosures normally included in audited financial statements. However, in the opinion of management, all adjustments necessary to present fairly the results of operations, financial position and cash flows have been made. For further information, these statements should be read in conjunction with the financial statements included in our Annual Report on Form 10-KSB for the year ended July 31, 2007.

Principles of Consolidation

The consolidated financial statements include the accounts of ITEX and our wholly-owned subsidiary, BXI Exchange, Inc (“BXI”). All inter-company accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions affecting the amounts reported in the consolidated financial statements and accompanying notes. Changes in these estimates and assumptions may have a material impact on our financial statements and notes. Examples of estimates and assumptions include estimating:

certain provisions such as allowances for accounts receivable

any impairment of long-lived assets

useful lives of property and equipment

the value and life of intangible assets

the value of assets and liabilities acquired through business combinations

deferred revenues and costs

expected lives of customer relationships

tax provisions and valuation allowances

accrued commissions and other accruals

litigation matters described herein

Actual results may vary from estimates and assumptions that were used in preparing the financial statements.

Operating and Accounting Cycles

For each calendar year, we divide our operations into 13 four-week billing and commission cycles always ending on a Thursday (“operating cycle”). For financial statement purposes, our fiscal year is from August 1 to July 31 (“year”, “2008” for August 1, 2007 to July 31, 2008, “2007” for August 1, 2006 to July 31, 2007). Our fiscal second quarter is from November 1 to January 31 (“second quarter”). We report our results as of the last day of each calendar month (“accounting cycle”).

Long-Lived Assets

In accordance with the provisions of SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. We look primarily at the market values of the assets, when available, or, alternatively, the undiscounted future cash flows in our assessment of whether or not they have been impaired. If impairment is deemed to have occurred, we then consider the undiscounted future cash flows to determine if an adjustment is appropriate. In our most recent review conducted in the fourth quarter of 2007, we determined no impairment was appropriate. We have not identified any events since the fourth quarter of 2007 that would require us to reassess impairment of our long-lived assets.

Goodwill

We record goodwill when the cost of an acquired entity exceeds the net amounts assigned to identifiable assets acquired and liabilities assumed. In accordance with SFAS 142, Goodwill and Other Intangible Assets, we conduct a formal impairment test of goodwill on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value below its carrying value. We analyzed goodwill as of July 31, 2007 and we did not identify any impairment. We have not identified any events since the July 31, 2007 that would require us to reassess the recoverability of our goodwill.

Intangible Assets

Upon acquisition, we amortize costs of acquired intangible assets using the straight-line method over the contractual life of two years for non-compete agreements and the estimated life of six years for membership lists. We periodically assess the remaining amortizable life when events or circumstances may warrant a revision to such lives.

Revenue Recognition

We generate our revenue by charging members percentage-based transaction fees, association fees, and other fees assessed in United States dollars and Canadian dollars where applicable (collectively and as reported on our financial statements “USD” or “Cash”). We recognize revenue when persuasive evidence of an arrangement exists, the transaction has occurred or a cycle period has ended, the charges are fixed and determinable and no major uncertainty exists with respect to collectibility.

Our largest sources of revenues are transaction fees and association fees. We charge members of the Marketplace an association fee every operating cycle in accordance with our members’ individual agreements. We also charge both the buyer and the seller a transaction fee based on the ITEX dollar value of that Marketplace transaction. Additionally, we may charge various auxiliary fees to members, such as annual membership dues, late fees, and insufficient fund fees. The total fees we charge to members are in USD and partially in ITEX dollars (see below, “Accounting for ITEX Dollar Activity”). We bill members for all fees at the end of each operating cycle. We track all financial activity in our internally developed database. Members have the option of paying USD fees automatically by credit card, by electronic funds transfer or by personal check. Currently, approximately 86% of member payments are made through electronic funds transfer or by credit cards using our Preferred Member Autopay System (“Autopay System”). If paying through our Autopay System, generally, the USD transaction fee is 5% to 6% of the ITEX dollar amount of the member’s purchases and sales during the operating cycle. If paying by check, generally, the USD transaction fee is 7.5% of the ITEX dollar amount of that member’s purchases and sales during the operating cycle.

In each accounting cycle, we recognize as revenue all transaction fees, association fees and applicable other fees that occurred during that month regardless of which operating cycle the fees occurred. We defer annual dues, which are prepaid, and recognize revenue over the period to which they apply.

Accounting for ITEX Dollar Activities

Primarily, we receive ITEX dollars from members’ transaction and association fees, but we also receive ITEX dollars, to a much lesser extent, from other member fees. We expend ITEX dollars on revenue sharing association fees and transaction fees with our Broker Network, and for general Marketplace costs. Our policy is to record transactions at the fair value of products or services received (when those values are readily determinable). Most of our ITEX dollar transactions during the periods presented in the accompanying financial statements lacked readily determinable fair values and were recorded at the cost basis of the trade dollars surrendered which we have determined to be zero.

Our accounting policy follows the accounting guidance of the Financial Accounting Standards Board’s (“FASB”) Emerging Issues Task Force (“EITF”) 93-11, Accounting for Barter Transactions Involving Barter Credits, which indicates that transactions in which non-monetary assets are exchanged for barter credits should be accounted for under the Accounting Principle Board (“APB”) 29, Accounting for Non-monetary Transactions. The basic principle of APB 29 is that, generally, exchanges of non-monetary assets should be recorded at fair value of the assets (or services) involved. The fair value of the assets received (in this case ITEX dollars) should be used to measure the cost if it is more clearly evident than the fair value of the asset surrendered or service provided. Our position is that the fair value of the non-monetary asset exchanged is more clearly evident than the fair value of the ITEX dollar received. In addition, there is no cost basis to us for ITEX dollars. Our conclusion may change if we could convert ITEX dollars into USD in the near term, as evidenced by a historical practice of converting ITEX dollars into USD shortly after receipt, or if quoted market prices in USD existed for the ITEX dollar.

We expend ITEX dollars primarily on the following items:

Co-op advertising with Marketplace members;

Revenue sharing with Brokers for transaction fees and association fees;

Incentives to Brokers for registering new members in the Marketplace;

We believe that the fair value of these items lack readily determinable fair values for several reasons. Under APB 29, fair value should not be regarded as determinable within reasonable limits if major uncertainties exist about the realizability of the value that would be assigned to the asset received in a non-monetary transaction at fair value. If neither the fair value of the non-monetary asset (or service) transferred or received in the exchange is determinable within reasonable limits, the recorded amount of the non-monetary asset transferred from the enterprise may be the only measure of the transaction. Because substantially all items upon which we expend ITEX dollars do not have readily determinable fair values, we have determined that meeting all of the required criteria for revenue recognition generally does not exist.

Because of all the above stated reasons, we believe that most of our ITEX dollar transactions during the periods presented in the accompanying financial statements lacked readily determinable fair values and were recorded at the cost basis of the trade dollars surrendered, which was zero. However, we have reflected in our financial statements those items that meet non-monetary recognition by having readily determinable fair values. Our consolidated statements of income include ITEX dollar expenses for corporate expenses for certain products or services we purchased at prices comparable to what we would have expended had we paid in USD.

While the accounting policies described above are used for financial reporting purposes, the Internal Revenue Service requires, for purposes of taxation, that we recognize revenues, expenses, assets, and liabilities for all transactions in which we either receive or spend ITEX dollars using the ratio of one U.S. dollar per ITEX dollar. For this reason, we track our ITEX dollar activity in statements to members and Brokers and in other ways necessary for the operation of the Marketplace and our overall business.

Accounting for Income Taxes

We account for income taxes in accordance with SFAS 109, Accounting for Income Taxes. Under SFAS 109, an asset and liability approach is required. Such approach results in the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities. We assess a valuation allowance on our deferred tax assets if it is more likely than not that a portion of our available deferred tax assets will not be realized. We record our deferred tax assets net of valuation allowances.

We also account for income taxes in accordance with FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 (“FIN 48”). Under the provisions of FIN 48, we recognize the tax benefits of tax positions only if it is more like than not that the tax positions will be sustained, upon examination by the applicable taxing authorities, based on the technical merits of the positions. FIN 48 also requires that we record potential interest and penalties associated with our tax positions. We have opted to record interest and penalties as a component of income tax expense.

Share-Based Compensation

We account for stock-based compensation in accordance with the provisions of SFAS 123(R), Share-Base Payment. Under the fair value recognition provisions of SFAS 123(R), we estimate stock-based compensation cost at the grant date based on the fair value of the award. We recognize the expense ratably over the requisite service period of the award. We have not issued stock options in the periods reported nor do we have any stock options outstanding.

Operating Leases

We account for our executive office and other property leases in accordance with SFAS 13, Accounting for Leases, and FASB Technical Bulletin 85-3, Accounting for Operating Leases with Scheduled Rent Increases (as amended). Accordingly, because the lease has “rent holidays”, we record minimum rental payments on a straight-line basis over the period in which we physically employed the leased property. We record the appropriate deferred rent liability or asset and amortize that deferred rent over the term of the lease as an adjustment to rent expense.

Contingencies

In the normal course of our business we are periodically involved in litigation or claims. We follow the provisions of SFAS 5, Accounting for Contingencies, to record litigation or claim-related expenses. We evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. We accrue for settlements when the outcome is probable and the amount or range of the settlement can be reasonably estimated. In addition to our judgments and use of estimates, there are inherent uncertainties surrounding litigation and claims that could result in actual settlement amounts that differ materially from estimates. We expense our legal costs associated with these matters when incurred.

Accounting for Acquisitions

We account for acquisitions as a purchase in accordance with the provisions of SFAS 141, Business Combinations. We report all acquired tangible and intangible assets and liabilities at fair value. We recognize the fair value of the purchased intangible assets as operating expenses through amortization charges over the estimated useful life of each separate intangible asset. Any excess purchase price over the fair values assigned to identifiable tangible and intangible assets is recorded as goodwill.

Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141 (revised 2007) (“SFAS No. 141R”), Business Combinations, which replaces SFAS No 141 and amends several others. The statement retains the purchase method of accounting for acquisitions but changes the way we will recognize assets and liabilities. It also changes the way we will recognize assets acquired and liabilities assumed arising from contingencies, requires us to capitalize in-process research and development at fair value, and requires us to expense acquisition-related costs as incurred. SFAS No. 141R is effective for us on, but not before, August 1, 2009, the beginning of our fiscal 2010 reporting periods. SFAS No. 141R will apply prospectively to our business combinations completed on or after August 1, 2009 and will not require us to adjust or modify how we recorded any acquisition prior to that date.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB 51, which changes the accounting and reporting requirements for minority interests. Under the provisions of SFAS No. 160, minority interests will be re-characterized as “noncontrolling interests” and reported as a component of equity separate from our equity. Subsequently, we would be required to record all changes in interests that do not result in changes in control as equity transactions. In addition, we would report net income attributable to noncontrolling interests on the face of our consolidated statement of operations. Upon a loss of control, we would record the interest sold, as well as any interest retained, at fair value with recognition of any gain or loss in earnings. SFAS No. 160 is effective for us on, but not before, August 1, 2009, the beginning of our fiscal 2010 reporting periods. SFAS No. 160 will apply prospectively, except for the presentation and disclosure requirements, which will apply retrospectively. We do not expect the adoption of SFAS No. 160 will have a material impact on our results of operations, cash flows or financial position.

In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Liabilities — Including an Amendment of FASB Statement No. 115 (“SFAS 159”), which permits an entity to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS 159 are elective; however the amendment to SFAS 115 applies to all entities with available-for-sale and trading securities. The FASB’s stated objective in issuing the standard is to improve financial reporting by entities by providing them with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedging accounting provisions. The provisions of SFAS 159 are effective for us on August 1, 2008, the beginning of our fiscal 2009 reporting periods. We are currently evaluating whether to adopt SFAS 159 and, if so, the impact of the adoption of SFAS 159 on our results of operations, cash flows and financial position.

In September 2006, the FASB issued SFAS 157, Fair Value Measurements (“SFAS 157”), which is intended to provide guidance for using fair value to measure assets and liabilities. In general, this pronouncement is intended to establish a framework for determining fair value and to expand the disclosures regarding the determination of fair value. With certain financial instruments, a cumulative effect of a change in accounting principle may be required with the impact of the change recorded as an adjustment to opening retained earnings. The provisions of SFAS 157 are effective for us is effective for us on August 1, 2008, the beginning of our fiscal 2009 reporting periods. We are currently evaluating the impact of the adoption of SFAS 157 on our results of operations, cash flows and financial position.

NOTE 2 – CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE, COMMISSIONS PAYABLE TO BROKERS AND ACCRUED COMMISSIONS TO BROKERS

Commissions to Brokers are computed on USD collections of our revenues from association fees, transactions fees, and other fees. Commissions payable to brokers include amounts owed for the most recently ended operating cycle. We pay commissions in two tranches with approximately 50% paid approximately one week after the end of the operating cycle and the remainder paid approximately two weeks later. Commissions accrued are the estimated commissions on the net accounts receivable balance and USD collections on accounts receivable since the most recently ended operating cycle.

The timing differences between our operating cycles and our accounting cycles cause fluctuations in the comparative balances of cash and cash equivalents, accounts receivable, commissions payable to brokers and accrued commissions to brokers presented on the consolidated balance sheets. Depending on the length of time between the end of the operating cycle and the end of the accounting cycle, members’ payments on accounts receivable balances may vary. The longer the time, the greater amount of USD collections causes an increase in the reported cash and cash equivalents balance and a decrease in the net accounts receivable balance. The difference between our operating cycle ending date and the reporting date for January 31, 2008 and July 31, 2007 was 14 days and 26 days, respectively. In July 2007, the 26 day difference allowed time to pay both tranches of the commissions payable to brokers leaving $0 payable at July 31, 2007. At January 31, 2008, the second tranche of commissions payable to brokers for the operating period ended February 7, 2008 had not yet been made so the consolidated balance sheet shows commissions payable to brokers of $435.

NOTE 3 – NOTES RECEIVABLE – CORPORATE OFFICE SALES

During 2004, we sold five corporate-owned offices to franchisees and an independent licensed broker. We facilitated these sales by issuing notes receivable to the buyers for part of the purchase prices. In the first quarter of 2007, one of these offices was sold to another broker by the existing broker. We settled the note receivable from this office from the selling broker for a payment of $328 and recorded a reserve of $65 on the note.

In the first quarter of 2008, we purchased a membership list, representing approximately two thousand member businesses, from Intagio (see Note 11 – Intagio Acquisition). These new member businesses are located primarily in six regions in the United States, four of which were previously not served by existing Brokers. We retained three of these regions as new corporate owned offices. We combined and sold two of the regions we acquired in the Intagio asset purchase to an existing franchisee for $100 ITEX dollars plus $260 USD composed of a one-time payment of $50 and a note receivable for $210 with a term of approximately seven years. Additionally, we sold a region acquired in the Intagio asset purchase for $200 to an existing franchisee who already had one of the notes receivable issued in 2004. Operating cycle payments remain the same on the note, but we extended the term to account for the $200 purchase price. Originally, the payoff date of the note was scheduled to be 2009, but after the sale, the payoff date of the note increased to 2011. We increased the principal due on that note by the present value of the payments equal to $184.

The aggregate total owed to us on January 31, 2008 is $1,195. Balances owed range from $13 to $356. Payoff dates for the notes range from 2011 to 2016.

Original Principal				Balance
Balance on 2004		Principal Additions		Receivable at				Long-Term
Notes		in 2008		January 31, 2008		Current Portion		Portion
$	2,695	$	394	$	1,195	$	219	$	976

The activity for the first six months of 2008 was as follows:

Balance at July 31, 2007	$	882
Additions from sales of Intagio regions		394
Interest income at stated rates		15
Imputed interest income		3
Payments received		(51	)
Balance at October 31, 2007	$	1,243
Interest income at stated rates		19
Imputed interest income		3
Payments received		(70	)
Balance at January 31, 2008	$	1,195

NOTE 4 - INTANGIBLE ASSETS

We acquired a membership list as part of our acquisition of BXI in the fourth quarter of 2005. We acquired an additional membership list from a franchisee in the fourth quarter of 2007. In connection with our asset acquisition from Intagio in the first quarter of 2008 (see Note 11 – Intagio Acquision), we acquired an additional membership list and a non-compete agreement. We subsequently sold part of the membership list. Changes in the carrying amount of the intangible assets are summarized as follows:

							Total
	Membership			Non-Compete			Intagible
	Lists			Agreement			Assets
Balance as of July 31, 2007	$	991		$	-		$	991
Additions from Intagio acquisition		1,350			210			1,560
Sales of certain regions acquired in the Intagio acquisition		(213	)		-			(213	)
Amortization		(94	)		(26	)		(120	)
Balance as of October 31, 2007	$	2,034		$	184		$	2,218

Amortization		(110	)		(27	)		(137	)
Balance as of January 31, 2008	$	1,924		$	157		$	2,081

The related amortization expense reflected in our results of operations totaled $137 and $256, respectively, for the three and six month periods ended January 31, 2008.

Estimated amortization expense for the remainder of 2008 and annually for the remaining useful life is as follows:

			Non-Compete
	Membership List		Agreement
Year ending July 31,	Amoritization		Amoritization		Total Amoritization

2008 (February - July)	$	221	$	53	$	274
2009		441		104		545
2010		441		-		441
2011		421		-		421
2012		192		-		192
2013		192		-		192
2014		16		-		16
Total	$	1,924	$	157	$	2,081

NOTE 5 – GOODWILL

As a result of our acquisition of BXI in the fourth quarter of 2005, we recorded $1,689 in goodwill. In the first quarter of 2008, we recorded an additional $1,466 in goodwill as a result of our asset purchase from Intagio as well as an additional $47 for acquisition costs. We subsequently reduced goodwill by $231 for sales of certain assets to existing franchisees (see Note 11 – Intagio Acquisition). Pursuant to the terms of the BXI Agreement of Merger dated June 30, 2005, to the extent we and our subsidiaries (including BXI) achieve certain revenue targets during the first twelve full quarters following the signing of the Merger Agreement, a maximum of $450 additional payments may be payable based on earnings over these quarters (“BXI earnout”). The BXI earnout is calculated on quarterly revenue in excess of $3,000 less certain legal expenses. The maximum quarterly BXI earnout payment before deductions is $38. The BXI earnout payments can be reduced by one half of the amount we spend to satisfy certain BXI legal claims we assumed. Pursuant to the terms of the Asset Purchase Agreement dated July 25, 2007 with Intagio, we entered into an additional, but separate, earnout agreement with all of the same provisions of the BXI earnout except for the term and the payment reduction for amounts spent on legal claims (“Intagio earnout”). The Intagio earnout is not concurrent with the BXI earnout. Instead, the Intagio earnout period begins when the BXI earnout ends on July 31, 2008. The Intagio earnout term is four full quarters ending July 31, 2009. Payments on the Intagio earnout could be a maximum of $150. Total BXI earnout payments we have made since the acquisition were $226. As of January 31, 2008, maximum remaining combined future payments on both earnout agreements is $225.

Changes to goodwill for the first quarter of 2008 were as follows:

Balance as of July 31, 2007	$	1,740
Adjustments for BXI legal claims		(3	)
Additions from the Intagio acquisition		1,513
Sales of certain regions acquired in the Intagio acquisition		(231	)
BXI earnout payment		38
Balance as of October 31, 2007	$	3,057

Adjustments for BXI legal claims		(2	)
BXI earnout payment		38
Balance as of January 31, 2008	$	3,093

NOTE 6 – COMMITMENTS

We utilize leased facilities in the normal course of our business. Certain lease agreements provide for payment of insurance, maintenance and other expenses related to the leased property. Certain lease agreements also provide an option for renewal at varying terms. The only leases not under month to month renewal terms is for our executive office space and our prototype office in Ohio. As of January 31, 2008, the future minimum commitments in both United States dollars (“U.S. dollars”) and ITEX dollars under these operating leases are as follows:

	Executive office				Prototype office				Total
Location:	Bellevue, Washington				Solon, Ohio
Expiration date:	April 30, 2010				May 31, 2009

Lease commitments for	U.S.		ITEX		U.S.		ITEX		U.S.		ITEX
the year ending July 31,	dollars		dollars		dollars		dollars		dollars		dollars
2008 (February - July)	$	77	$	-	$	11	$	6	$	88	$	6
2009		155		-		18		10		173		10
2010		116		-		-		-		116		-

Total	$	348	$	-	$	29	$	16	$	377	$	16

The lease expense, inclusive of utilities included in our lease payments, for our executive office space and three prototype offices for the three and six month periods ended January 31, 2008 was $57 and $111, respectively.

We have not leased any equipment in 2008 or 2007.

We have purchase commitments for telecommunications and data communications as well as for promotion and advertising. As of January 31, 2008, the future minimum commitments in both U.S. dollars and ITEX dollars under these purchase commitments are as follows:

	Telecommunications
	and data				Promotion and
	communications				advertising				Total
Purchase commitments for	U.S.		ITEX		U.S.		ITEX		U.S.		ITEX
the year ending July 31,	dollars		dollars		dollars		dollars		dollars		dollars
2008 (February - July)	$	21	$	-	$	12	$	47	$	33	$	47
2009		27		-		-		20		27		20
Thereafter		-		-		-		-		-		-
Total	$	48	$	-	$	12	$	67	$	60	$	67

NOTE 7 – NOTES PAYABLE AND LINE OF CREDIT

We have a revolving credit agreement to establish a $1,000 line of credit facility from our primary banking institution, US Bank. In the first quarter of 2008, US Bank extended the maturity date of this short-term debt facility for an additional year to November 30, 2008. We had no borrowings under this line of credit during the second quarter of 2008. During the first quarter of 2008, we borrowed and repaid $300 to fund the Intagio asset acquisition (see

Note 11 – Intagio Acquisition). Additionally during the first quarter of 2008, we borrowed and repaid $110 and $100, respectively to meet our short term cash flow needs. There is no outstanding balance under this line of credit as of January 31, 2008. We may utilize this credit facility for short-term needs in the future.

On August 1, 2007, we incurred a $1,137 note payable from The Intagio Group, Inc. in the form of a senior subordinated secured promissory note (“Intagio Note”) with interest at 8.0% and repayments in 24 equal monthly installments. Our total principal repayments during the first three and six month periods of 2008 were $136 and $268, respectively.

NOTE 8 – SHARE-BASED COMPENSATION

We account for share-based compensation in accordance with the provisions of SFAS 123(R), Share-Base Payment. Under the fair value recognition provisions of SFAS 123(R), we estimate share-based compensation cost at the grant date based on the fair value of the award. We recognize that expense ratably over the requisite service period of the award.

We have an equity incentive plan (“2004 Plan”) which allows for grants of nonqualified and incentive stock options and stock awards to eligible employees, directors, officers or consultants. Our stockholders adopted the 2004 Plan on March 15, 2004. Under the 2004 Plan, 2,000 shares of common stock are reserved and available for grant and issuance.

In January 2008 and 2007,we issued 30 and 40 shares, respectively, of fully vested common stock to each of our three directors. We issued these shares, an aggregate total of 90 and 120, respectively, as compensation for the directors’ service to ITEX Corporation during the calendar years of 2008 and 2007. The fair value of these shares was $84 and $83, respectively. We defer the value of issued shares as a component of prepaid expenses and amortize the expense over the directors’ service period.

As of January 31, 2008, there were no common stock options outstanding. There are 285 shares available for future grants under the 2004 Plan.

	Number of Shares/Options
						Options
	Available			Shares Granted		Granted
Balance at July 31, 2007		375			1,625		-

Granted		(90	)		90		-
Forfeited		-			-		-

Balance at January 31, 2008		285			1,715		-

Vesting as of January 31, 2008
Shares Vested					1,513		-
Shares Unvested					202		-
Balance at January 31, 2008					1,715		-

We recorded the following in stock based compensation:

	Three Months Ended January 31,				Six Months Ended January 31,
	2008		2007		2008		2007

Stock based compensation	$	38	$	45	$	86	$	90

NOTE 9 – STOCKHOLDERS’ EQUITY

In the second quarter of 2008 and 2007, we issued 90 and 120 shares, respectively, of common stock in connection with share-based compensation arrangements described in Note 8 – Share-Base Compensation. In connection with the 2008 grants, we increased common stock by $1 and additional paid-in capital by $83. The effect of the 2007 grants was an increase of $1 to common stock and $82 to additional paid-in capital.

During the first quarter of 2008, we repurchased and retired 203 shares of common stock for a total cost of $162. As a result, we decreased common stock by $2 and decreased additional paid-in capital by $160.

During the second quarter of 2007, we repurchased and retired 400 shares of common stock for a total cost of $296. As a result, we decreased common stock by $4 and decreased additional paid-in capital by $292.

As a result of stock granted to employees prior to 2007 and vesting over various terms, we amortized $17 and $33, respectively, of unearned stock compensation in the three and six month periods ended January 31, 2008.

NOTE 10 – LEGAL PROCEEDINGS

In September 2006, we filed a complaint for defamation, tortuous interference with business expectancies, civil conspiracy and unfair competition (ITEX Corporation v. Douglas Stambler et. al.; Superior Court, State of Washington, Spokane County; Case N0. 61-0041). To attempt to resolve a disputed Marketplace transaction, the defendants initiated a campaign to harm ITEX with false, misleading and harassing communications to ITEX and certain of our employees, brokers, directors, officers, legal counsel, and Marketplace members. Our complaint sought unspecified damages. In addition, we filed and received an anti-harassment order against one defendant. In January 2008, we dismissed the complaint upon execution of a stipulated judgment payable to us by a defendant in the amount of $100. We have agreed to not seek payment of the judgment as long as the defendant refrains from making any public statements regarding ITEX or our employees, brokers, officers, directors, legal counsel or Marketplace members and from making any contact with ITEX, our employees, officers, directors, brokers, and Marketplace members.

In October 2005, we were served with a statement of claim in Canada relating to a Marketplace dispute (Wembley Marketing Ltd. and Ariza Technology Inc. v. ITEX Corporation and Cable Network News LPLLP (“CNN”); Ontario Superior Court of Justice, Canada; Case No. 05-cv-296043PD3). Plaintiff seeks damages from us for alleged fraud or deceit or breach of contract in the amount of $1,300 Canadian. The claim relates primarily to plaintiff’s purchase of CNN advertising that plaintiff alleges was never fulfilled together with other products or services that plaintiff claims were not delivered. Except for one transaction representing approximately 26 Canadian ITEX dollars, all transactions cited in the claim were between the plaintiff and other members in the Marketplace. We intend to seek enforcement of our member agreement which includes changing the venue of the action to the United States and holding us harmless from transaction disputes between members. In December 2005, we filed a motion to stay or dismiss the claim based on lack of subject matter jurisdiction pursuant to a forum selection clause in our Trading Rules. In March 2006, the plaintiffs served responding affidavit material. In June 2006, we filed a Supplementary Motion Record with the court requesting that the action be dismissed or stayed and that our costs be reimbursed on the grounds that the corporate status of Wembley had been cancelled at the time it started the action. On July 24, 2006, the court stayed the action because Wembley's corporate status was cancelled at the time the action started and therefore had no status to start an action. The court also ordered the Plaintiffs' solicitor to pay the costs of the proceeding. Plaintiffs unsuccessfully appealed this decision. Plaintiff’s solicitor revived Wembley and brought a motion for leave to lift the stay of the action and allow it to proceed. In December 2007, Plaintiff’s motion was heard and the court ruled that it would not lift the stay because the costs awarded by the court in July 2006 have not yet been determined or paid.

In June 2003, a former Broker filed a complaint against us for wrongful termination of his brokerage agreement and breach of contract in connection with the termination of plaintiff's brokerage in 1999 (Bruce Kamm v. ITEX Corporation, Supreme Court of the State of New York County of New York, Index No.: 602031/2003). Plaintiff sought damages against us in the amount of $5,000 and a preliminary injunction enjoining us from selling a New York office, previously managed by plaintiff, to any person, company or entity. In July 2003, the Court denied plaintiff's motion for a preliminary injunction. Plaintiff failed to prosecute the action, and, in May 2004, the Court administratively dismissed the action. During September 2005, the Court granted a motion from plaintiff to vacate the dismissal of his action and for leave to amend the complaint. On or about October 12, 2005, we were served with an amended complaint stating claims of breach of contract, wrongful termination of the brokerage agreement and breach of covenant of good faith and fair dealing and seeking damages in the amount of $30,000 plus attorneys' fees. In November 2005, we filed a motion to dismiss the action for lack of subject matter jurisdiction pursuant to a forum selection clause in the contract between the parties requiring litigation be filed in Oregon. Our motion to dismiss was granted on December 12, 2005. In June 2006, plaintiff re-filed in the Circuit Court of the State of Oregon, (Bruce Kamm and Invision LTD v. ITEX Corporation, Case No. 0606-05949), stating claims of breach of contract and breach of covenant of good faith and fair dealing and seeking damages in the amount of $30,000 plus attorneys' fees. We moved the lawsuit to federal court in July 2006. Plaintiff filed a motion to remand the lawsuit to Oregon state court in August 2006 and the court ruled in favor of the motion in January 2007. We appealed the ruling and that appeal is pending in federal court. In the interim, the matter is stayed in state court except for discovery purposes. We believe the termination of plaintiff's brokerage was for proper cause and that plaintiff's claims are without merit.

We will vigorously defend against the lawsuits discussed above. While it is not feasible to predict the exact outcome of the proceedings, in our opinion, none of the foregoing proceedings should ultimately result in any liability that would have a material adverse effect on our results of operations, cash flows or financial position. We have not established any reserves for any potential liability relating to the foregoing litigation matters. However, litigation is subject to inherent uncertainties and unfavorable rulings could occur. If so, it could have a material adverse impact on our Consolidated Financial Statements in future periods. While it is not possible to predict the ultimate outcome of these matters, historically, we have been successful in defending ourselves against claims and suits that have been brought against us, and, generally, payments made in such claims and actions have not been material to our Consolidated Financial Statements.

From time to time we are subject to claims and litigation incurred in the ordinary course of business. In our opinion, the outcome of other pending legal proceedings, separately and in the aggregate, will not have a material adverse effect on our business operations, results of operations, cash flows or financial condition.

NOTE 11 – INTAGIO ACQUISITION

On August 1, 2007, we acquired from The Intagio Group, Inc. certain assets of a commercial trade exchange network including a membership list of approximately two thousand member businesses which increased our Marketplace to approximately 24 thousand member businesses. These new member businesses are located primarily in six regions in the United States, four of which were previously not served by existing Brokers. The total acquisition cost included:

1.	USD in the amount of $2,000 paid to Intagio

2.	Third party acquisition related costs of $47

3.	A secured promissory note in the amount of $1,137 due to the seller with interest at the rate of 8.00% and twenty-four equal monthly payments of $51.

4.	If and to the extent we achieve certain revenue targets during the four fiscal quarters beginning August 1, 2008, additional USD payments totaling up to $150.

To fund the $2,000 USD payment, we utilized $1,700 from our cash and cash equivalent balances and borrowed $300 on our line of credit. During the first quarter of 2008, we repaid the $300 balance on our line of credit in full and there was no balance outstanding as of January 31, 2008.

As of January 31, 2008, we have repaid $267 on the promissory note. Future minimum commitments under the promissory note are as follows:

Year ending July 31,

2008 (February - July)	$	278
2009		591

Total	$	869

After the acquisition of the Intagio membership list, we sold three of the newly acquired regions to two existing franchisees in two separate transactions. On August 1, 2007, we sold the greater New York City region comprised of approximately 200 former Intagio member businesses to our existing franchisee in New Jersey for $200. We financed the entire sales price by adding the present value of the payments, $184, to an existing note receivable from the franchisee. We modified the repayment terms accordingly to repay the entire balance in equal payments through 2011. We recorded a reduction of goodwill and membership lists and did not record a gain or loss on this transaction.

On August 20, 2007, we sold the Connecticut and Massachusetts regions comprised of approximately 500 former Intagio member businesses to our existing franchisee in Connecticut for $260. We received $50 of the purchase price in USD and financed the remaining $210 at 7.5% interest with payments in equal installments through 2014. We recorded a reduction of goodwill and membership lists and did not record a gain or loss on this transaction.

The following table summarizes the purchase consideration and fair values of the assets acquired at the date of acquisition:

Purchase Price Consideration
Cash paid to Intagio	$	2,000
Acquisition costs		47
Notes payable assumed		1,137
Total consideration paid	$	3,184

Assets Acquired
Membership list	$	1,350
Non-compete agreement		210
Accounts receivable		137
Goodwill		1,513
Advance payments		(26	)
Total assets	$	3,184

NOTE 12 – INCOME TAXES

Deferred tax assets on our balance sheet primarily include Federal and State net operating loss carryforwards (collectively “NOLs”) which are expected to result in future tax benefits. Realization of these NOLs assumes that we will be able to generate sufficient future taxable income to realize these assets. Deferred tax assets also include temporary differences between the financial reporting basis and the income tax basis of our assets and liabilities at enacted tax rates expected to be in effect when such assets or liabilities are realized or settled.

In assessing the recoverability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are expected to be deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and projections for future taxable income over the periods in which the deferred tax assets are expected to be deductible.

We periodically assess the realizability of our available NOLs to determine whether we believe we will generate enough future taxable income to utilize some portion or all of the available NOLs. During the fourth quarter of 2007, we performed an assessment of our available NOLs. In that assessment, we concluded that it was more likely than not that additional NOLs would result in realizable deferred tax assets. Accordingly, we removed our valuation allowance on available NOLs. As of January 31, 2008, we have no valuation allowance on available Federal NOLs. The deferred tax assets recorded on our balance sheet as of January 31, 2008 represent our estimate of all deferred tax benefits to be utilized in the current year, 2008, and future periods beyond 2008.

For reporting purposes, our effective tax rate was 35.8% and 38.2%, respectively, for the three and six month periods ended January 31, 2008. Our effective tax rates differ from the United States federal statutory rate of 34% primarily due to state income taxes, certain permanent differences and other items. We accrue for state tax liabilities by analyzing our revenue by state and calculating the applicable tax. The following table reflects the reconciliation of our income tax expense:

	Three Months Ended January 31,									Six Months Ended January 31,
	2008					2007				2008					2007

Income before income taxes	$	488				$	550			$	759				$	909

Federal tax expense		166		34.0	%		187	34.0	%		258		34.0	%		309	34.0	%
State tax expense		12		2.5	%		28	5.1	%		35		4.6	%		28	3.1	%
Permanent differences		3		0.6	%		-	0.0	%		3		0.4	%		-	0.0	%
Other		(6	)	-1.2	%		-	0.0	%		(6	)	-0.8	%		-	0.0	%
Income tax expense	$	175		35.9	%	$	215	39.1	%	$	290		38.2	%	$	337	37.1	%

On August 1, 2007, we adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 (“FIN 48”). As of January 31, 2008, in accordance with FIN 48, we have recorded unrecognized tax benefits of $170.

We file income tax returns in the United States and Canadian federal jurisdictions as well as various United States state jurisdictions. The tax years that remain subject to examination are 2004 through 2006. We do not believe there will be any material changes in our unrecognized tax positions over the next twelve months.

As of January 31, 2008, accrued expenses for uncertain tax positions related primarily to state jurisdictions on our consolidated balance sheet of $170 included $32 for interest and penalties associated with unrecognized tax benefits. We included $3 and $15, respectively, in state tax expense in the three and six month periods ended January 31, 2008.

NOTE 13 – RELATED PARTY TRANSACTIONS

We have periodically engaged related parties for services. The following summarizes the amounts we paid to these related parties:

	Three Months Ended				Six Months Ended
	January 31,				January 31,
	2008		2007		2008		2007
Amounts paid to:
A business owned by a member of
our Board of Directors for consulting
services	$	-	$	-	$	-	$	7
Businesses owned by relatives of our
employees or contractors		6		7		11		8
A business owned by our CEO and
an employee		-		-		13		-
Total amounts paid to related parties	$	6	$	7	$	24	$	15

NOTE 14 – SUBSEQUENT EVENT

On February 1, 2008, we acquired from ATX The Barter Company (“ATX”) certain assets of a commercial trade exchange network including a membership list of approximately four hundred member businesses in the Cleveland, Ohio region. The total acquisition cost included:

a)	USD in the amount of $325 paid to ATX

b)	Third party acquisition related costs of $9

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

ITEX, The Membership Trading Community^SM, is a leading exchange for cashless business transactions across North America (the “Marketplace”). We service our member businesses through our independent licensed brokers, area directors and franchise network (individually, “Broker” and together, the “Broker Network”) in the United States and Canada. Our business services and payment systems enable approximately 24 thousand member businesses (our “members”) to trade goods and services valued at more than $270 million without exchanging cash. These products and services are instead exchanged for ITEX dollars which can only be redeemed in the Marketplace (“ITEX dollars”). We administer the Marketplace and act as a third-party record-keeper for our members’ transactions. We generate revenue by charging members percentage-based transaction fees, association fees, and other fees assessed in United States dollars and Canadian dollars where applicable (collectively and as reported on our financial statements, “USD” or “Cash”).

Each operating cycle we generally charge our members association fees of $20 USD ($260 USD annually) and $10 ITEX dollars ($130 ITEX dollars annually). We also charge transaction fees in USD from both the buyer and seller computed as a percentage of the ITEX dollar value of the transaction.

Our revenue for the second quarter of 2008 increased $510,000 or 14% from $3,665,000 to $4,175,000 compared to the same quarter in 2007. Income from operations for the quarter ended January 31, 2008 decreased $46,000 or 9% from $528,000 to $482,000 compared to the same quarter in 2007.

We are seeking to continue to increase our revenue by:

·	Engaging certain advertising and promotions firms to actively promote our Marketplace.

·	Adding industry experienced members to our sales team.

·	Minimizing the barriers to join the Marketplace.

·	Increasing the benefits to members participating in the Marketplace.

·	Improving and enhancing our internet applications.

·	Adding new franchisees.

·	Managing corporate-owned offices.

RESULTS OF OPERATIONS (in thousands except per share amounts unless otherwise noted)

Condensed Results

	Three Months Ended				Six Months Ended
	January 31,				January 31,
	2008		2007		2008		2007
	(unaudited)				(unaudited)
Revenue	$	4,175	$	3,665	$	8,028	$	7,455
Costs and expenses		3,693		3,137		7,274		6,632
Income from operations		482		528		754		823

Net interest		6		22		5		16
Gain on sales of offices, net		-		-		-		70
Income before income taxes		488		550		759		909

Income tax expense		175		215		290		337

Net income	$	313	$	335	$	469	$	572

Net income per common share:
Basic	$	0.02	$	0.02	$	0.03	$	0.03
Diluted	$	0.02	$	0.02	$	0.03	$	0.03

Average common and equivalent shares:
Basic		17,567		17,885		17,618		17,863
Diluted		17,754		18,264		17,817		18,255

Revenue for the quarter ended January 31, 2008 increased by $510 or 14% to $4,175 from $3,665 for the comparable 2007 quarter. This increase in revenue in the quarter ended January 31, 2008 compared to prior year period includes $352 in revenue generated from our acquisition of Intagio assets, $119 in organic growth from existing operations, and $39 in ITEX dollar revenue. Revenue for the quarters ended January 31, 2008 and 2007, respectively, included new franchise fees of $20.

Revenue for the six month period ended January 31, 2008 increased by $573 or 8% to $8,028 from $7,455 for the comparable 2007 six month period. In the first quarter of 2007, we generated $357 in revenue (“conversion revenue”) by charging approximately twelve hundred former BXI members, who had positive ITEX dollar account balances, one-time sales transaction fees on their balances in order for them to adopt, for all future transactions, our standard ITEX fee plan where we assess transaction fees on both purchases and sales. The former standard BXI fee plan only assessed transaction fees on purchases. There was no conversion revenue in the first quarter of 2008. Without the conversion revenue, revenue would have been $7,098 in the six month period ended January 31, 2007, and our revenue from existing operations for the six month period ended January 31, 2008 would have reflected an increase of $930 or 13%. This increase in revenue in the six month period ended January 31, 2008 compared to prior year period includes $639 in revenue generated from our acquisition of Intagio assets, $211 in organic growth from existing operations, $60 in ITEX dollar revenue and $20 from the sale of a new franchise in Washington state.

Income from operations decreased $46 or 9% to $482 for the quarter ended January 31, 2008 from $528 for the comparable 2007 quarter. Contributing $26 or 5% of the decrease were legal fees and other expenses required to address the unsolicited third-party tender offer to acquire our outstanding common shares. The remaining decrease in income from operations of $20 or 4% was primarily due to increases in amortization of Intagio acquisition related intangibles of $74, bad debt expense of $47, other legal fees of $17, outside services of $13, and personnel expenses of $23 net of decreases in related contractor services. These increases were offset by an increase of $185 in Marketplace revenue net of corresponding costs of Marketplace revenue.

Income from operations decreased $69 or 8% to $754 for the six month period ended January 31, 2008 from $823 for the comparable 2007 six month period. The comparative decrease was primarily due to increases in amortization of intangibles of $133, bad debt expense of $40, professional fees of $39, outside services of $37, rents of $31, net of utilities, legal fees of $24, foreign exchange translation losses of $20, and supplies of $15. These increases were offset by an increase of $312 in Marketplace revenue net of corresponding costs of Marketplace revenue.

Income before income taxes decreased $62 or 11% to $488 for the quarter ended January 31, 2008 from $550 for the comparable 2007 quarter. This was due to a decrease in operating income of $46 in the second quarter of 2008 and a decrease in net interest income of $16 due to lower cash balances as a result of 2008 acquisitions.

Net income decreased $22 or 7% to $313 for the quarter ended January 31, 2008 from $335 for the comparable 2007 quarter. Earnings per share for the same quarters remained constant at $0.02 per share.

For more than four years, we have sustained our profitability while acquiring a significant competitor (BXI), acquiring select assets of a second competitor (Intagio), focusing our business model on cashless transaction processing and the support of our franchise network, and eliminating non-essential services. We believe we are providing excellent support to our Brokers in the Marketplace as demonstrated by the positive feedback we received in a Broker survey conducted in the third quarter of 2007. Presently, we continue to be profitable and to generate cash from operating activities.

Growing by acquisition

On August 1, 2007, we acquired from The Intagio Group, Inc., certain assets of a commercial trade exchange network (“Intagio assets”) including a membership list of approximately two thousand member businesses and nine former Intagio employees who managed the activity of the two thousand member businesses. These new member businesses are located primarily in six regions (“Intagio regions”) in the United States, four of which were previously not served by existing Brokers.

Our post-acquisition actions have contributed to the success of the Intagio acquisition. After the acquisition of the Intagio membership list, we sold three of the six newly acquired regions to two existing franchisees in two separate transactions. We subsequently terminated four of the nine former Intagio employees and added four full-time equivalents in the Intagio regions.

We have retained three Intagio regions to operate as corporate-owned offices (“prototype offices”). In our prototype offices, we intend to implement certain commission structures, test new ancillary charges and pursue other strategies in order to increase revenue and better serve members. If successful in increasing revenue and income from operations in these regions, we intend to use the prototype offices as a model for our Brokers. We believe we have successfully managed our prototype offices so far. Revenue from our prototype offices was $256 and $462 in the three and six month periods ended January 31, 2008. Our income from operations benefitted from contributions from prototype offices, excluding amortization of the acquired intangible assets, of $84 and $122 for the three and six month periods ended January 31, 2008.

Revenue from the Intagio acquisition, including the three prototype offices we retained and the two offices we sold, was $352 and $639 in the three and six month periods ended January 31, 2008. Our income from operations benefitted from contributions from the Intagio acquisition, including our prototype offices but excluding amortization of the acquired intangible assets, of $120 and $189 for the three and six month periods ended January 31, 2008.

Growing organically

In the twelve month period ended January 31, 2008, we have undertaken the following revenue-generating efforts:

·	To attract new franchisees we upgraded and expanded the franchise portion of our website, www.itex.com. We identified target markets, provided added detail about our company and business model, and allowed potential franchisees to calculate sample financial forecasts.

In order to utilize the bargaining power of our now 24 thousand Marketplace member businesses and their estimated 100 thousand employees, we announced our Executive Privileges Program to our Brokers on March 30, 2007. Subsequently, we added partnerships with several nationally recognized businesses. Our relationships differ from partner to partner. Our primary focus is to provide added benefits to our Marketplace member businesses to help them be successful.

We changed the overall appearance of our website, www.itex.com. Our upgraded website has a more casual, community approach conveying to our members the businesses that comprise the Marketplace and the benefits that come with their participation. To add to the community feel, we have expanded the member business profile section of our website to allow business owners to provide personal pictures and tell the Marketplace more about themselves. We believe that this enhanced personalized information will encourage other Marketplace businesses to conduct transactions with that business in our trading community.

Revenue, Costs and Expenses

The following table sets forth our selected consolidated financial information for the three month periods ended January 31, 2008 and 2007 with amounts expressed as a percentage of total revenues:

	Three Months Ended January 31,										Six Months Ended January 31,
	2008					2007					2008					2007
	(unaudited)										(unaudited)
	Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent
Revenue:
Marketplace revenue	$	4,136		99	%	$	3,665		100	%	$	7,968		99	%	$	7,455		100	%
ITEX dollar revenue		39		1	%		-		0	%		60		1	%		-		0	%
		4,175		100	%		3,665		100	%		8,028		100	%		7,455		100	%
Costs and expenses:
Cost of Marketplace revenue		2,756		66	%		2,470		67	%		5,254		65	%		5,053		68	%
Salaries, wages and employee benefits		413		10	%		369		10	%		785		10	%		760		10	%
Selling, general and administrative		374		9	%		224		6	%		947		12	%		674		9	%
Depreciation and amortization		150		4	%		74		2	%		288		4	%		145		2	%
		3,693		88	%		3,137		86	%		7,274		91	%		6,632		89	%

Income from operations		482		12	%		528		14	%		754		9	%		823		11	%
Other income, net		6		0	%		22		1	%		5		0	%		86		1	%

Income before income taxes		488		12	%		550		15	%		759		9	%		909		12	%
Income tax expense		175		4	%		215		6	%		290		4	%		337		5	%
Net income	$	313		7	%	$	335		9	%	$	469		6	%	$	572		8	%

Marketplace revenue

Marketplace revenue consists of transaction fees, association fees and other fees net of revenue adjustments. The following are the components of Marketplace revenue that are included in the consolidated statements of income:

	Three Months Ended January 31,				Six Months Ended January 31,
	2008		2007		2008		2007
	(unaudited)				(unaudited)
Broker offices:
Association fees	$	1,045	$	1,001	$	2,082	$	1,993
Transaction fees		2,786		2,530		5,249		5,352
Other fees		50		134		176		110

Prototype offices:
Association fees		66		-		138		-
Transaction fees		181		-		313		-
Other fees		8		-		10		-
	$	4,136	$	3,665	$	7,968	$	7,455

Marketplace revenue for the quarter ended January 31, 2008 increased by $471 or 13% to $4,136 from $3,665 during the same quarter in the prior year. Comparable association fee revenue increased by $44 or 4% and comparable transaction fee revenue increased by $256 or 10%. This increase in total Marketplace revenue in the quarter ended January 31, 2008 compared to prior year period includes $352 in revenue generated from our acquisition of Intagio assets (which includes $255 from our ongoing prototype offices) and $119 in organic growth from existing operations.

Marketplace revenue for the six month period ended January 31, 2008 increased by $513 or 7% to $7,968 from $7,455 during the period in the prior year. Comparable association fee revenue increased by $89 or 4%. While, comparable transaction fee revenue decreased by $103 or 2%, transaction fees in the first quarter of 2007 included $357 in conversion revenue. Excluding the conversion revenue, total Marketplace revenue in the six month period ended January 31, 2008 compared to prior year period would have reflected an increase of $870. This increase includes $639 in revenue generated from our acquisition of Intagio assets (which includes $461 from our ongoing prototype offices) and $211 in organic growth from existing operations and $20 from the sale of a new franchise in Washington state.

ITEX Dollar Revenue

We take extensive measures to maintain the integrity of our role in the Marketplace economy, and to protect against the misuse or misappropriation of ITEX dollars. For example:

·	Employees, approved on a case by case basis by management, may only participate in the Marketplace with certain controls such as having a fee paying account and maintaining a positive ITEX dollar balance in their account.

·	All ITEX dollar purchases for corporate purposes are approved by senior management.

·	We do not purchase inventory from members for the purpose of resale, nor do we participate as a seller in the Marketplace to generate transaction volume.

·	We do not sell or purchase ITEX dollars for USD.

As described below in Accounting for ITEX Dollar Activities, primarily, we receive ITEX dollars from members’ transaction fees, association fees, and other member fees. We expend ITEX dollars by revenue sharing association fees and transaction fees with our Broker Network, and for general Marketplace costs. ITEX dollars are only usable in our Marketplace.

Historically, we have not reported ITEX dollar activity in our financial statements because we concluded that our ITEX dollars do not have readily determinable fair values. However, as described above in “Growing by acquisition”, beginning in the first quarter of 2008, we began generating ITEX dollars from our prototype offices. Since we operate the prototype offices with our own employees, we do not expend any portion of the ITEX dollars earned back as commissions as we do with our Brokers.

Beginning in the first quarter of 2008, we spent a more than de minimus amount of ITEX dollars in the Marketplace for our corporate needs. In doing so, we received certain products or services at prices comparable to what we would have expended had we paid in USD. We recorded $39 and $0 as ITEX dollar revenue for the three month periods ended January 31, 2008 and 2007, respectively. The corresponding ITEX dollar expenses in the second quarter of 2008 were for legal, printing, outside services and miscellaneous expenses. We may increase ITEX dollar expenses for our corporate purposes in future periods.

Cost of Marketplace Revenue

Cost of Marketplace revenue consists of commissions paid to Brokers, salaries and employee benefits of our prototype offices and expenses directly correlated to Marketplace revenue. The following are the components of cost of Marketplace revenue that are included in the consolidated statements of income:

	Three Months Ended January 31,										Six Months Ended January 31,
	2008		% of Market- place Revenue			2007		% of Market- place Revenue			2008		% of Market- place Revenue			2007		% of Market- place Revenue
	(unaudited)										(unaudited)
Association fee commissions	$	433		10	%	$	439		12	%	$	859		11	%	$	840		11	%
Transaction fee commissions		2,109		51	%		1,901		52	%		3,949		50	%		3,981		53	%
Prototype office salaries, wages, employee benefits, and independent contractor expenses		138		3	%		-		0	%		273		3	%		-		0	%
Other Marketplace expenses		76		2	%		130		4	%		173		2	%		232		3	%
	$	2,756		67	%	$	2,470		67	%	$	5,254		66	%	$	5,053		68	%

Cost of Marketplace revenue increased by $286 or 12% to $2,756 from $2,470 for the quarters ended January 31, 2008 and 2007, respectively. The increase cost of marketplace revenue, primarily composed of Broker commissions, approximately correlates to the 13% increase in Marketplace revenue.

Cost of Marketplace revenue increased by $201 or 4% to $5,254 from $5,053 for the six month periods ended January 31, 2008 and 2007, respectively. The increase approximately correlates to the 7% increase in Marketplace revenue.

The following shows the commissions and prototype office salaries, wages and employee benefits separately as a percent of their related revenue:

	Three Months Ended January 31,										Six Months Ended January 31,
			% of					% of					% of					% of
			Related					Related					Related					Related
	2008		Revenue			2007		Revenue			2008		Revenue			2007		Revenue
	(unaudited)										(unaudited)
Association fee commissions	$	433		41	%	$	439		44	%	$	859		41	%	$	840		42	%
Transaction fee commissions		2,109		76	%		1,901		75	%		3,949		75	%		3,981		74	%
Prototype office salaries,
wages and employee
benefits		138		54	%		-		0	%		273		59	%		-		0	%

Corporate Salaries, Wages and Employee Benefits

Salaries, wages and employee benefits include expenses for corporate employee salaries and wages, payroll taxes, 401(k), payroll related insurance, medical and dental benefits and other personnel related items. As discussed above in “ITEX Dollar Revenue”, certain ITEX dollar expenses are also included. Comparative results are as follows:

	Three Months Ended January 31,										Six Months Ended January 31,
			% of					% of					% of					% of
			Total					Total					Total					Total
	2008		Revenue			2007		Revenue			2008		Revenue			2007		Revenue
	(unaudited)										(unaudited)
Salaries, wages and employee benefits	$	413		10	%	$	369		10	%	$	785		10	%	$	760		10	%

Salaries, wages and employee benefits expense increased by $44 or 12% to $413 for the quarter ended January 31, 2008 from $369 for the comparable 2007 quarter. This was primarily caused by an increase of two full-time equivalents.

Salaries, wages and employee benefits expense increased by $25 or 3% to $785 for the quarter ended January 31, 2008 from $760 for the comparable 2007 six month period. This was a result of adding two full-time equivalent employees, normal employee turnover and certain cost of living rate increases.

Selling, General and Administrative

Selling, general and administrative expenses include consulting, legal and professional services, as well as expenses for rent and utilities, marketing, insurance, bad debts, sales tax and other taxes, and other expenses. As discussed above in “ITEX Dollar Revenue”, certain ITEX dollar expenses are also included. Comparative results are as follows:

	Three Months Ended January 31,										Six Months Ended January 31,
			% of					% of					% of					% of
			Total					Total					Total					Total
	2008		Revenue			2007		Revenue			2008		Revenue			2007		Revenue
	(unaudited)										(unaudited)
Selling, general and administrative	$	373		9	%	$	224		6	%	$	946		12	%	$	674		9	%

Selling, general and administrative increased by $149 or 67% to $374 for the quarter ended January 31, 2008 from $224 for the comparable 2007 quarter. Contributing $26 or 12% of the increase were legal fees and other expenses required to address the unsolicited tender offer to attempt to acquire our outstanding common shares. The remaining increase in selling, general and administrative of $124 or 55% was primarily due to increases in bad debts expense of $47, ITEX dollar expenses of $39, other legal fees of $17, and outside services of $13.

Selling, general and administrative increased by $272 or 40% to $947 for the six month period ended January 31, 2008 from $674 for the comparable 2007 six month period. The increase was primarily due to increases in ITEX dollar expenses of $60, bad debts expense of $40, professional fees of $39, outside services of $37, rents of $31, net of utilities, legal fees of $24, foreign exchange losses of $20, and supplies of $15.

Depreciation and Amortization

Depreciation and amortization expenses include depreciation on our fixed assets and amortization of our intangibles. Comparative results are as follows:

	Three Months Ended January 31,										Six Months Ended January 31,
			% of					% of					% of					% of
			Total					Total					Total					Total
	2008		Revenue			2007		Revenue			2008		Revenue			2007		Revenue
	(unaudited)										(unaudited)
Depreciation and amortization	$	151		4	%	$	74		2	%	$	289		4	%		145	$	2	%

Depreciation and amortization increased by $77 or 104% to $150 for the quarter ended January 31, 2008 from $74 for the comparable 2007 quarter. Depreciation and amortization increased by $144 or 99% to $289 for the six month period ended January 31, 2008 from $145 for the comparable 2007 six month period. Increases in both the three and six month periods ended January 31, 2008 occurred primarily as a result of amortization of intangible assets acquired with the Intagio acquisition on August 1, 2007. Amortization on those intangible assets was $74 and $133 in the three and six month periods ended January 31, 2008.

Other Income

Comparative results are as follows:

	Three Months Ended January 31,											Six Months Ended January 31,
				% of					% of						% of						% of
				Total					Total						Total						Total
	2008			Revenue			2007		Revenue			2008			Revenue			2007			Revenue
	(unaudited)											(unaudited)
Interest income	$	25			1	%	$	22		1	%	$	47			1	%	$	44			1	%
Interest expense		(19	)		0	%		-		0	%		(42	)		-1	%		(28	)		0	%
Gain on sale of offices, net		-			0	%		-		0	%		-			0	%		70			1	%
	$	6			0	%	$	22		1	%	$	5			0	%	$	86			1	%

Other income decreased by $16 or 73% to $6 for the quarter ended January 31, 2008 from $22 for the comparable 2007 quarter. Other income decreased by $81 or 94% to $5 for the six month period ended January 31, 2008 from $86 for the comparable 2007 six month period. Decreases in both the three and six month periods ended January 31, 2008 occurred primarily as a result interest expense on long-term debt due to Intagio.

Income Taxes

Comparative results are as follows:

	Three Months Ended January 31,												Six Months Ended January 31,
				% of						% of						% of						% of
				Total						Total						Total						Total
	2008			Revenue			2007			Revenue			2008			Revenue			2007			Revenue
	(unaudited)												(unaudited)
Income before income taxes	$	488			12	%	$	550			15	%	$	759			9	%	$	909			12	%
Federal income tax rate		34	%					34	%					34	%					34	%
Federal tax expense		166			4	%		187			5	%		258			3	%		309			4	%
State tax expense		12			0	%		28			1	%		35			0	%		28			0	%
Permanent differences		3			0	%		-			0	%		3			0	%		-			0	%
Other		(6	)		0	%		-			0	%		(6	)		0	%		-			0	%
	$	175			4	%	$	215			6	%	$	290			4	%	$	337			5	%

On August 1, 2007, we adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 (“FIN 48”). We did not have any significant unrecognized tax benefits and there was no material effect on our results of operations, cash flows or financial condition as a result of implementing FIN 48.

We file income tax returns in the United States federal jurisdiction and various state jurisdictions. The tax years that remain subject to examination are 2003 through 2006. We do not believe there will be any material changes in our unrecognized tax positions over the next twelve months.

It is our policy to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of January 31, 2008, accrued expenses on our consolidated balance sheet included $32 for interest and penalties associated with unrecognized tax benefits. We included $3 and $15, respectively, in state tax expense in the three and six month periods ended January 31, 2008.

FINANCIAL CONDITION (in thousands)

We present our Consolidated Balance Sheets and Statements of Cash Flows in United States dollars and exclude any ITEX dollar activity. Our total assets were $15,879 and $14,304 at January 31, 2008 and July 31, 2007, respectively, representing an increase of $1,575 or 11%. This increase resulted primarily from an increase of $1,353 in goodwill, $1,090 in intangible assets, and $313 in notes receivable from corporate office sales resulting from the acquisition of Intagio assets, net of subsequent sales. These increases were substantially offset by a decrease of $662 in cash and cash equivalents because we used $2,000 as partial payment to Intagio in the Intagio acquisition, and a decrease of $290 in accounts receivable.

Accounts receivable balances, net of allowances of $644 and $265, were $823 and $1,113 as of January 31, 2008 and July 31, 2007, respectively. Comparative results are as follows:

			% of Gross					% of Gross
	January 31, 2008		Accounts					Accounts
	(Unaudited)		Receivable			July 31, 2007		Receivable
Gross accounts receivable	$	1,467		100	%	$	1,378		100	%
Less: allowance		644		44	%		265		19	%
Net accounts receivable	$	823		56	%	$	1,113		81	%

Gross accounts receivable increased by $89 or 6% due primarily to the acquired Intagio assets while net accounts receivable decreased by $290 or 26% because of an increase in the accounts receivable allowance of $379. As of January 31, 2008, our accounts receivable balances were older as compared with the balances at July 31, 2007. We attribute this primarily to extending the time allowed to collect receivables from former Intagio members, who were delinquent in paying cash fees owed prior to our acquisition, before we write them off. We expect to write-off most of the delinquent receivables in the third quarter of 2008.

Our total current liabilities were $2,810 and $1,955 at January 31, 2008 and July 31, 2007, respectively, representing an increase of $855 or 44%. The increase is due primarily to the current portion of a new note payable of $568 to Intagio as part of the Intagio asset acquisition.

Our stockholders’ equity increased $424 or 3% to $12,754 at January 31, 2008, compared to $12,330 at July 31, 2007. For more than four years, our stockholders’ equity has increased each and every quarter. On average, our stockholders’ equity over this period has increased 20% per quarter. On average, our market capitalization over this same period has increased 10% per quarter.

LIQUIDITY AND CAPITAL RESOURCES (in thousands)

Our principal sources of liquidity are our cash flows from operations and cash and cash equivalents. Our cash flows from operations were $1,018 and $1,785 for the three and six month periods ended January 31, 2008. Our cash and cash equivalent balance as of January 31, 2008 totaled $1,091. Additionally, we have a revolving credit agreement to establish a $1,000 line of credit facility from our primary banking institution, US Bank (“line of credit”). We have no outstanding balance on our line of credit as of January 31, 2008. Our cash and cash equivalent balances, outstanding balances on our line of credit, and working capital balances for recent periods are as follows:

	January 31, 2008		October 31, 2007			July 31, 2007		January 31, 2007
	(unaudited)
Cash and cash equivalents	$	1,018	$	254		$	1,753	$	1,045
Outstanding balance on our line of credit	$	-	$	-		$	-	$	-
Working capital	$	232	$	(332	)	$	1,981	$	912

Changes in cash and cash equivalents for the three and six month periods ended January 31, 2008 and 2007 were as follows (in thousands):

	Three Months Ended January 31,						Six Months Ended January 31,
	2008			2007			2008			2007
	(unaudited)						(unaudited)
Cash provided by operating activities	$	1,018		$	423		$	1,785		$	1,367
Cash provided by (used in) investing activities		(45	)		(42	)		(2,017	)		409
Cash used by financing activities		(136	)		(296	)		(430	)		(1,045	)
Increase (decrease) in cash	$	837		$	85		$	(662	)	$	731

We have financed our ongoing operations over the last several years primarily with cash provided by our operating activities.

Our business model has proven to be successful in generating free cash flow from operating activities. This positive cash flow enabled us, in large part, to complete the acquisition of the Intagio assets. We feel that our cash flows from operating activities will remain adequate to fund ongoing operating requirements including repayment of debt incurred in the Intagio acquisition.

As part of our contemplated future expansion activities we may continue to seek to acquire certain competitors or companies that have a subscription and/or transaction-based business-to-business model. While we are able to generate cash from our operating activities, we do not expect that it would be adequate for the types of acquisitions we would consider. If we do pursue an appropriate acquisition, we may seek to finance a portion of the acquisition cost.

Inflation has not had a significant impact on our business. Inflation affecting the U.S. dollar is not expected to have a material effect on our operations in the foreseeable future.

Operating Activities

We present our Consolidated Statements of Cash Flows using the indirect method as outlined and permitted by SFAS No. 95, Statement of Cash Flows. Under this method, we calculate cash provided by operations net of scheduled commission payments and payments for operating expenses, the timing of which is discretionary. For the quarter ended January 31, 2008, our operating activities provided $1,018 compared to $423 provided from the same quarter in the prior year, an increase of $595 or 141%. For the six month period ended January 31, 2008, our operating activities provided $1,785 compared to $1,367 provided from the same period in the prior year, an increase of $418 or 31%. The total cash we received exclusively from our members, net only of credit card returns, electronic fund transfer returns, and return checks is as follows:

	Three Months Ended January 31,										Six Months Ended January 31,
			% of					% of					% of					% of
			Total					Total					Total					Total
	2008		Cash			2007		Cash			2008		Cash			2007		Cash
	(unaudited)										(unaudited)
Credit cards, net	$	2,310		57	%	$	1,899		51	%	$	4,929		61	%	$	4,245		56	%
Electronic fund transfers, net		1,233		30	%		1,288		34	%		2,149		26	%		2,238		30	%
Checks and cash, net		550		13	%		554		15	%		1,056		13	%		1,077		14	%
Cash received from Marketplace members, net	$	4,093		100	%	$	3,741		100	%	$	8,134		100	%	$	7,560		100	%

Cash received from Marketplace members, net, increased by $352 or 9.4% in the quarter ended January 31, 2008 as compared to the same quarter in the prior year. Cash received from Marketplace members, net, increased by $573 or 7.6% in the six month period ended January 31, 2008 as compared to the same period in the prior year. In both the quarter and the six month period we increased, on a percentage basis, the combined cash received from credit cards and electronic fund transfers. These payment methods provide us with more immediate cash and less likelihood of non-payment on our billed receivables. Also, because most of the cash we receive from credit cards and electronic fund transfers comes when we initiate large batch transactions at scheduled times soon after operating cycle end dates, when Marketplace members pay by these methods, it enables us to accurately predict our cash balances and manage them most effectively from month to month.

We make our commission and payroll payments in two tranches, the first approximately one week after the end of our operating cycle and the second approximately two weeks later. In 2008, we paid both tranches for the most recently ended operating cycle in the first quarter. In 2007, we paid the first tranche for the most recently ended operating cycle on the first day of the second quarter. This happened because each year we divide our operations into 13 operating cycles each lasting 28 days for a total of 364 days per year. Our operating cycle in the first quarter of 2008 ended one day earlier than it did in the first quarter of 2007. Our payments for commissions and payroll were $2,414 and $2,614 for the quarter ended January 31, 2008 and 2007, respectively, representing a decrease of $200 or 8%. Our payments for commissions and payroll were $4,969 and $4,762 for the six month period ended January 31, 2008 and 2007, respectively, representing an increase of $207 or 4%.

Investing Activities

For the quarter ended January 31, 2008, our investing activities used $45 compared to $42 in the same quarter of the prior year, an increase of $3. Items that contributed to an increase in investing activities were: a BXI earnout payment of $38, a 15% equity investment of $30 in My Types, Inc., a blogging technology company, decreases in payments received on loans and notes of $22, and acquisition costs of $9 in advance of our acquisition of ATX The Barter Company on February 1, 2008. Offsetting these increases were decreases in: advances on loans of $53 and purchases of property and equipment of $43.

Financing Activities

For the quarter ended January 31, 2008, cash used for our financing activities was $136 compared to $296 used in the same quarter in the prior year, a decrease of $160 or 54%. In the current quarter we made principal repayments on our long-term debt with Intagio while in the same quarter in the prior period, we repurchased and retired 400 shares of common stock for $296.

Commitments and Contingencies

	Executive office				Prototype office				Total
Location:	Bellevue, Washington				Solon, Ohio
Expiration date:	April 30, 2010				May 31, 2009
Lease commitments for	U.S.		ITEX		U.S.		ITEX		U.S.		ITEX
the year ending July 31,	dollars		dollars		dollars		dollars		dollars		dollars
2008 (February - July)	$	77	$	-	$	11	$	6	$	88	$	6
2009		155		-		18		10		173		10
2010		116		-		-		-		116		-
Total	$	348	$	-	$	29	$	16	$	377	$	16

We have not leased any equipment in 2008 or 2007.

	Telecommunications
	and data				Promotion and
	communications				advertising				Total
Purchase commitments for	U.S.		ITEX		U.S.		ITEX		U.S.		ITEX
the year ending July 31,	dollars		dollars		dollars		dollars		dollars		dollars
2008 (February - July)	$	21	$	-	$	12	$	47	$	33	$	47
2009		27		-		-		20		27		20
Thereafter		-		-		-		-		-		-
Total	$	48	$	-	$	12	$	67	$	60	$	67

OTHER MATTERS

Critical Accounting Policies and Estimates

We have identified the policies below as critical to our business operations and to the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results.

In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe that the following discussion addresses our most critical accounting policies which are those that are most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. For a summary of all of our significant accounting policies, including the critical accounting policies discussed below, see Note 1, Summary of Significant Accounting Policies, to our consolidated financial statements filed with our 2007 annual report on Form 10-KSB.

Revenue Recognition

We generate our revenue by charging members percentage-based transaction fees, association fees, and other fees assessed in United States dollars and Canadian dollars where applicable (collectively and as reported on our financial statements “USD”). We recognize revenue when persuasive evidence of an arrangement exists, the transaction has occurred or a cycle period has ended, the charges are fixed and determinable and no major uncertainty exists with respect to collectibility.

Our largest sources of revenues are transaction fees and association fees. We generally charge members of the Marketplace an association fee every operating cycle in accordance with our members’ individual agreements. We also generally charge both the buyer and the seller a transaction fee based on the ITEX dollar value of the Marketplace transaction. Additionally, we may charge various auxiliary fees to members such as annual membership dues, late fees, finance charges and insufficient fund fees. The total fees we charge to members are substantially in USD and partially in ITEX dollars. We bill members for all fees at the end of each operating cycle. We track ITEX dollar fees in our internally developed database. Members have the option of paying USD fees automatically by credit card, by electronic funds transfer (“EFT”) or by check. Currently, approximately 73% of member payments are made through EFT or by credit cards using our Autopay System. If paying by credit card or EFT through our Autopay System, generally, the USD transaction fee is 5% to 6% of the ITEX dollar amount of the member’s purchases and sales during the operating cycle. If paying by check, generally, the USD transaction fee is 7.5% of the ITEX dollar amount of that member’s purchases and sales during the operating cycle.

As discussed below, we generally do not record revenues or expenses in our financial statements for ITEX dollars we receive from or expend to members or Brokers, but we do record revenues and expenses for ITEX dollars we spend on various products or services where the value of those ITEX dollars is readily determinable (see below, “Accounting for ITEX Dollar Activity”). Comparative results are as follows (in thousands):

	Three Months Ended January 31,						Six Months Ended January 31,
ITEX Dollar Summary	2008			2007			2008		2007
	(unaudited)						(unaudited)
Fees received	$	1,139		$	1,023		$	2,594	$	2,307
Expenditures		1,319			1,156			2,581		2,424
Increase	$	(180	)	$	(133	)	$	13	$	(117	)

Gross versus Net Revenue Recognition

In the normal course of business, we act as administrator of transactions between Marketplace members. We pay commissions to our Brokers after the close of each operating cycle based on member transaction and association fees collected in USD. We report revenue based on the gross amount billed to the ultimate customer, the Marketplace member. When revenues are recorded on a gross basis, any commissions or other payments to Brokers are recorded as costs or expenses so that the net amount (gross revenues less expenses) is reflected in Income from operations.

Determining whether revenue should be reported as gross or net is first based on an assessment of whether we are acting as the principal or acting as an agent in the transaction. In determining whether we serve as principal or agent, we follow the guidance in EITF 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent.” Pursuant to such guidance, we serve as the principal in transactions in which we have substantial risks and rewards of ownership. The determination of whether we are acting as a principal or an agent in a transaction involves judgment and is based on an evaluation of the terms of an arrangement. In our case, we administer the Marketplace, act as a third-party record-keeper for our members’ transactions, bill Marketplace members directly pursuant to contractual agreements with them for which we establish the terms, collect all revenue, and assess the collectibility of our accounts receivable monthly. Our revenues remain the property of ITEX.

Accounting for ITEX Dollar Activities

Primarily, we receive ITEX dollars from members’ transaction and association fees, but we also receive ITEX dollars, to a much lesser extent, from other member fees. We expend ITEX dollars on revenue sharing association fees and transaction fees with our Broker Network, and for general Marketplace costs. Our policy is to record transactions at the fair value of products or services received when those values are readily determinable. Most of our ITEX dollar transactions during the periods presented in the accompanying financial statements lacked readily determinable fair values and were recorded at the cost basis of the trade dollars surrendered which we have determined to be zero.

We expend ITEX dollars primarily on the following items:

Co-op advertising with Marketplace members;

Revenue sharing with Brokers for transaction fees and association fees;

Incentives to Brokers for registering new members in the Marketplace;

Resolution of member disputes, essentially reimbursing the members for some or all of their ITEX dollars spent on a transaction in which the member is dissatisfied.

Valuation of Notes Receivable

We determine a present value of our notes receivable using a monthly average United States Treasury note rate with approximately the same term as the note adjusted for the credit quality of the borrower to approximate a market value interest rate when we determine that a negotiated interest rate does not properly reflect the risk associated with the notes. We calculate the effective rate on the note given the market rate and the payment streams and record the note accordingly. We periodically review for our notes for possible impairment whenever events or changes in circumstances indicate that the carrying value has been impaired and may not be recoverable. Factors we consider important that could trigger an impairment review include the following:

Significant underperformance relative to expected historical or projected future operating results.

Change in management of the franchisee or independent licensed broker responsible for the note.

We look primarily to the undiscounted future cash flows in our assessment of whether or not notes receivable risk being uncollectible or unrecoverable.

Accounting for Income Taxes

Deferred tax assets on our balance sheet primarily include net operating loss carryforwards (“NOLs”) which are expected to result in future tax benefits. Realization of these NOLs assumes that we will be able to generate sufficient future taxable income to realize these assets. Deferred tax assets also include temporary differences between the financial reporting basis and the income tax basis of its assets and liabilities at enacted tax rates expected to be in effect when such assets or liabilities are realized or settled.

In assessing the recoverability of deferred tax assets, we periodically assess whether it is more likely that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible.

On January 31, 2008, we had NOLs of approximately $19,362 available to offset future taxable income. When circumstances warrant, we re-assess the realizability of our available NOLs for future periods. When this occurs, if we determine that the realizability of our NOLs has changed, we record the impact of that change as a component of our consolidated statements of income in that period.

The deferred tax assets recorded at January 31, 2008 represent our current estimate of all deferred tax benefits to be utilized in the current year and future periods beyond 2008.

Accounting for Acquisitions

Software for Internal Use

We have developed extensive software to manage and track the ITEX dollar activity in the Marketplace to calculate USD and ITEX dollar fees accordingly. We have also developed software to provide benefits and other services to our Brokers and members of the Marketplace. We account for qualifying costs incurred in the development of software for internal use in accordance with the American Institute of Certified Public Accountants’ Statement of Position (“SOP”) 98-1, Accounting for Costs of Computer Software Developed or Obtained for Internal Use. In accordance with SOP 98-1, costs incurred in the planning and post-implementation stages are expensed as incurred, while costs relating to application development are capitalized. Qualifying software development costs, including software in development meeting the criteria of SOP 98-1, are included as an element of property and equipment in the consolidated balance sheets.

Share Based Compensation

We account for share-based compensation in accordance with the provisions of SFAS 123(R), Share-Base Payment. Under the fair value recognition provisions of SFAS 123(R), we estimate share-based compensation cost at the grant date based on the fair value of the award. We recognize the expense ratably over the requisite service period of the award. We have not issued stock options in the periods reported nor do we have any outstanding stock options granted.

Goodwill

We record goodwill when the cost of an acquired entity exceeds the net amounts assigned to identifiable assets acquired and liabilities assumed. In accordance with Statement of Financial Accounting Standards (“SFAS”) 142, Goodwill and Other Intangible Assets, we conduct a formal impairment test of goodwill on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value below its carrying value.

Recent Accounting Pronouncements

FACTORS THAT MAY AFFECT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-QSB contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. All statements that express expectations and projections with respect to future matters may be affected by changes in our strategic direction, as well as developments beyond our control. We cannot assure you that our expectations will necessarily come to pass. Actual results could differ materially because of issues and uncertainties such as those listed below, in this section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this report. These factors, among others, may adversely impact and impair our business and should be considered in evaluating our financial outlook.

Our future revenue growth and profitability remains uncertain.

In the first quarter of 2008, we increased revenues through organic growth and by acquiring the Intagio assets. While our revenues increased in the quarter ended January 31, 2008, our revenues declined by 3% in the year ended July 31, 2007. We cannot assure you that our revenues will continue to increase in future quarters. We may continue to add revenue through acquisitions, but we cannot assure you that we or our Broker Network will be successful in our acquisition efforts or that financing for these endeavors will be available. We have sustained profitable operations for more than four years. However, our prospects for the future must be considered in light of the risks, expenses and difficulties frequently encountered by small businesses, including uncertainty of revenues, markets, profitability and the need to raise capital to fund our ongoing operations. We cannot assure you that we will be successful in addressing these risks or that we can continue to be operated profitably, which depends on many factors, including the success of our development and expansion efforts, the control of expense levels and the success of our business activities. Our future operating results will depend on a variety of factors, including those discussed in the other risk factors set forth below.

We are largely dependent on key personnel who may not continue to work for us.

Potentially, any loss of key officers, key management and other personnel could impair our ability to successfully execute our business strategy particularly when these individuals have acquired specialized knowledge and skills with respect to ITEX and our operations. Although we believe ITEX is currently being administered capably, we remain substantially dependent on the continued services of our key personnel including the services of CEO and Interim CFO Steven White. We place heavy reliance on Mr. White’s experience and management skills. We have not entered into formal employment agreements with our current executive officers including Mr. White. We carry a $2.0 million life insurance policy covering Mr. White to insure the business in the event of his death but do not carry life insurance for any other key personnel. If Mr. White or other key personnel were to leave ITEX unexpectedly, we could face substantial difficulty in hiring qualified successors and could experience a loss in productivity while any successor obtains the necessary training and experience. We believe we have the necessary management expertise to implement our business strategy and that support personnel can be increased as needed. However, we may need to attract, train, retain and motivate additional financial, technical, managerial, marketing and support personnel. We face the risk that, if we are unable to attract and integrate new personnel or retain and motivate existing personnel, our business will be adversely affected.

We may need additional financing; current funds may be insufficient to finance our plans for growth or our operations

Although we believe that our financial condition is stable and that our cash and cash equivalent balances and cash flows from operations provide adequate resources to fund our ongoing operating requirements, we have limited funds and have incurred recent contractual obligations. Our existing working capital may not be sufficient to allow us to execute our business plan as fast as we would like or to take full advantage of all available business opportunities. We believe our core operations reflect a scalable business strategy which will allow our business model to be executed with limited outside financing. However, we also may seek to acquire certain competitors. We have a line of credit with our primary banking institution which will provide additional reserve capacity for general corporate and working capital purposes and, if necessary, enable us to make certain expenditures related to the growth and expansion of our business model. However, if adequate capital were not available or were not available on acceptable terms at a time when we needed it, our ability to execute our business plans, develop or enhance our services, make acquisitions or respond to competitive pressures would be significantly impaired. Further, we cannot assure you that we will be able to implement various financing alternatives or otherwise obtain required working capital if needed or desired.

We are substantially dependent on our Broker Network.

Our success depends on our ability to expand, retain and enhance our Broker Network. We look to our Broker Network to enroll new Marketplace members, train them in the use of the Marketplace, facilitate business among members, provide members with information about Marketplace products and services and assure the payment of our dues and fees. Brokers have a contractual relationship with ITEX typically for a renewable three or five-year term. There can be no assurance that our Brokers will continue to participate in the Marketplace or that we will be able to attract new franchisees at rates sufficient to maintain a stable or growing revenue base. We depend on the ability of our Brokers to expand the number of members and the volume of transactions through the Marketplace. We cannot assure you that the market for our products and services will continue to develop as expected. If our industry does not grow, becomes saturated with competitors, if our products and services do not continue to achieve market acceptance, or if our Brokers are unsuccessful in enrolling new members to equalize the attrition of members leaving the Marketplace, the overall share of the market handled by our Broker Network could be reduced. Consequently our business operating results and financial condition may be materially adversely affected.

We are dependent on the value of foreign currency

We transact business in Canadian dollars as well as US dollars. In the three and six month periods ended January 31, 2008, approximately 7% and 8%, respectively, of our total revenues were derived from Canadian operations. While foreign currency exchange fluctuations are not believed to materially adversely affect our operations at this time, changes in the relation of the Canadian dollar to the US dollar could continue to affect our revenues, cost of sales, operating margins and result in exchange losses.

Acquisitions could result in operating difficulties, dilution and other harmful consequences.

We do not have a great deal of experience acquiring companies. We completed our acquisition of BXI in 2005 and the Intagio assets on August 1, 2007. We have evaluated, and expect to continue to evaluate, other potential strategic transactions. From time to time, we may engage in discussions regarding potential acquisitions. Any of these transactions could be material to our financial condition and results of operations. In addition, the process of integrating an acquired company, business or technology may create unforeseen operating difficulties and expenditures and is risky. The areas where we may face risks include:

The need to implement or remediate controls, procedures and policies appropriate for a public company at companies that prior to the acquisition lacked these controls, procedures and policies.

Diversion of management time and focus from operating our business to acquisition integration challenges.

Cultural challenges associated with integrating Brokers, members or employees from the acquired company into our organization.

The need to integrate each company’s accounting, management information, human resource and other administrative systems to permit effective management.

The anticipated benefit of many of these acquisitions may not materialize. Future acquisitions or dispositions could result in potentially dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses, or write-offs of goodwill, any of which could harm our financial condition. Future acquisitions may require us to obtain additional equity or debt financing, which may not be available on favorable terms or at all.

We are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes Oxley Act of 2002, and any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, under current SEC rules, we will be required to furnish a report by our management assessing the effectiveness of our internal control over financial reporting beginning with our Annual Report on Form 10-KSB for our fiscal year ending July 31, 2008. In addition, we must comply with Section 404(b) requirements to provide an auditor’s attestation report on internal control over financial reporting beginning with our Annual Report on Form 10-KSB for our fiscal year ending July 31, 2009. The Committee of Sponsoring Organizations of the Treadway Commission (COSO) provides a framework for companies to assess and improve their internal control systems. The Public Company Accounting Oversight Board’s (“PCOAB”) Auditing Standard No. 5, adopted by the SEC on July 27, 2007, provides the professional standards and related performance guidance for auditors to report on the effectiveness of our internal controls over financial reporting under Section 404. Our assessment of internal controls over financial reporting requires us to make subjective judgments and, particularly because Standard No. 5 is newly effective, some of the judgments will be in areas that may be open to interpretation. We are currently performing the system and process documentation and evaluation needed to comply with Section 404.

During this process, if we identify one or more material weaknesses in our internal control over financial reporting we will be unable to assert such internal control is effective. If we are unable to assert that our internal control over financial reporting is effective as of July 31, 2008 (or if our auditors are unable to state that we have maintained, in all material respects, effective internal controls), we could lose investor confidence in the accuracy and completeness of our financial reports. That would likely have an adverse effect on our stock price.

We cannot be certain as to the timing of completion of our evaluation, testing and any required remediation due in large part to the fact that there is very little precedent available by which to measure compliance with the new Auditing Standard No. 5. If we are not able to complete our assessment under Section 404 in a timely manner, we would be unable to conclude that our internal control over financial reporting is effective as of July 31, 2008.

ITEM 4T. CONTROLS AND PROCEDURES

(a) Disclosure controls and procedures.

Under the supervision and with the participation of our management, including the Chief Executive Officer, who is also the Interim Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Disclosure controls and procedures are defined under SEC rules as controls and other procedures that are designed to ensure that information required to be disclosed by a company in reports that it files under the Exchange Act are recorded, processed, summarized and reported within the required time periods. Based on that evaluation, our CEO and interim CFO concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report.

(b) Changes in internal control over financial reporting.

In general, we are assessing the effectiveness of our internal controls over financial reporting on an account by account basis as a part of our on-going accounting and financial reporting review process in order to comply with Section 404 of the Sarbanes-Oxley Act of 2002, which requires our management to assess the effectiveness of our existing internal controls for our fiscal year ended July 31, 2008. This effort includes documenting, evaluating the design of and testing the effectiveness of our internal controls over financial reporting. We intend to continue to refine and improve our internal controls on an ongoing basis. During this process, we may identify additional items for review or deficiencies in our system of internal controls over financial reporting that may require strengthening or remediation.

There have been no changes in our internal controls over financial reporting during our second quarter that we believe have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 8 – Litigation and Claims of the Notes to Financial Statements (Item 1) for information regarding legal proceedings.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES

On January 4, 2008, 30,000 shares of vested common stock were issued to each of the three directors as compensation for their service to the Company for the current Board term. The aggregate total of 90,000 shares was valued at $0.94 per share, the closing share price on the day of grant. The recipients were accredited, had access to all material information concerning the Company, and acquired the securities for investment. An appropriate legend was affixed to the certificate issued in the transaction. The issuance was deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act as a transaction by an issuer not involving any public offering.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Annual Meeting of our stockholders was held on December 14, 2007 in Bellevue, Washington. Our common stock was the only class of securities entitled to vote at the Annual Meeting. Only stockholders of record at the close of business on October 29, 2007 (“Record Date”) were entitled to receive notice and to vote at the Annual Meeting. As of the Record Date, there were 17,726,248 shares of common stock outstanding, each share entitled to one vote on each matter to be voted upon. There were 15,335,442 shares represented at the Annual Meeting in person or by proxy, representing 86.5 percent of the total number of shares outstanding. Only one proposal was submitted for a vote by the stockholders as summarized below.

PROPOSAL # 1 - Election of directors.

The following directors were elected to serve on the ITEX Board of Directors for a one-year term. No other director’s term of office continued after the meeting.

	Positions and Offices Held Within	Vote of the Stockholders
Directors	the Company	For		Abstain		Broker Non-Vote

Steven White	CEO, Interim CFO President, Director		14,898,057		437,385		1,025,680
Eric Best	Director		14,897,521		437,921		1,025,680
John Wade	Director, Secretary, Treasurer		14,900,557		434,885		1,025,680

ITEM 5. OTHER INFORMATION

Compensatory Arrangements

On February 28, 2008, ITEX Corporation increased the compensation of Steven White, Chief Executive Officer. Mr. White will receive an annual base salary of $150,000 for serving as CEO. Mr. White currently is not compensated for his services as ITEX’s interim Chief Financial Officer. Mr. White is also eligible to receive cash or stock bonuses on a recurring or nonrecurring basis in amounts determined by the Compensation Committee, and to participate in any benefit programs applicable to eligible employees generally that are adopted by the Board of Directors. Mr. White is employed at will and does not have an employment contract.

On February 28, 2008, the Compensation Committee of the Board of Directors approved, and ITEX and Mr. White entered into a Change of Control Agreement. The Change in Control Agreement defines the benefits Mr. White would receive in connection with a “change of control,” as defined in the agreement, or change in control events coupled with the loss of his employment. If eligible, upon a change of control Mr. White would receive a lump sum payment equal to one times his base salary and immediate vesting of all equity-based compensation. Upon termination of his employment either (i) by the Company without “cause,” or (ii) by Mr. White for “good reason” (as these terms are defined in the agreement) after a change in control occurs, Mr. White would receive a severance payment equal to two times his base salary. He would also receive a continuation of health and insurance benefits if the severance payment is made over a severance period rather than as a lump sum payment. The severance payment may be reduced if it would otherwise be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code or any similar tax. Under the agreement, Mr. White is subject to certain non-competition and non-solicitation provisions, and payment of severance benefits is conditioned upon his execution of a release of claims in favor of the Company.

On February 28, 2008, the Compensation Committee also approved a form of change of control agreement (“Severance Agreement”) to be utilized for certain key employees of ITEX that becomes applicable if there is a “change of control,” as defined in the agreement. The Severance Agreement is intended to help retain the employees and maintain a stable work environment by providing economic benefits to the employees if their employment is terminated after a change in control occurs. The Severance Agreement provides that if an eligible employee’s employment is terminated by ITEX without “cause” or by the employee for “good reason” (as these terms are defined in the agreement) within one year after a change in control occurs, the employee will generally be entitled to receive a continuation of the employee’s annual base salary, as severance pay, over a designated period following the severance date up to a maximum of twelve months. In addition, the employee will receive accelerated vesting of any equity-based compensation and continued medical group health and dental plan coverage for the period the employee receives severance pay. Payment of severance benefits is conditioned upon the employee’s execution of a release of claims in favor of the Company.

The foregoing descriptions of the Change of Control Agreement and Severance Agreements are qualified in their entirety by reference to the applicable agreements which are filed herewith as Exhibits 10.15 and 10.16, respectively, and incorporated herein by reference.

Regulation FD Disclosure

On February 28, 2008, ITEX Corporation announced that ITEX Chairman and CEO Steven White will be making a presentation at the Montgomery Technology Conference in Santa Monica, California. The presentation will include information about ITEX’s current operations and announce the Company’s strategy to enter the Software as a Service (SaaS) market. An archived video replay of the presentation will be available on the ITEX website (www.itex.com) under the Investor Relations section. The full text of the ITEX’s press release is attached to this Report as Exhibit 99.1 and incorporated herein by this reference.

The information in this section entitled “Regulation FD Disclosure,” including the exhibit attached hereto, is being furnished pursuant to Regulation FD and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that Section, and such information shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in any such filing.

ITEM 6. EXHIBITS

Exhibit Number		Description

10.14		Amendment to Loan Agreement and Note, dated as of November 13, 2007
10.15		Change of Control Agreement, dated as of February 28, 2008, between ITEX and Steven White
10.16		Form of Employee Severance Agreement, dated as of February 28, 2008
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification by Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1		Press Release issued February 28, 2008, announcing ITEX presentation at the Montgomery Technology Conference

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ITEX CORPORATION
	(Registrant)


Date: March 3, 2008	By:	/s/	Steven White
			Steven White
			Chief Executive Officer
			Interim Chief Financial Officer

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. freshman V good

ITEX (ITEX) Inactive 10-Q2008 Q0 Quarterly report

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