--------------------------------------------------------------------------------

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10 - KSB

     [X]  Annual report under section 13 or 15 (d) of the Securities Exchange
          Act of 1934

                     For the fiscal year ended July 31, 2003

     [ ]  TRANSITION REPORT UNDER 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
                 (Name of Small Business Issuer in its charter)

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

                 3400 Cottage Way, Sacramento, California       95825
                (Address of principal executive offices)      (Zip code)

                                (916) 679 - 1111
                           (Issuer's telephone number)

         Securities registered under Section 12 (b) of the Exchange Act

                                      None

      Securities registered pursuant to Section 12 (g) of the Exchange Act

                          Common Stock - $.01 par value

     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 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 [ ]

                                     - i -
<PAGE>




     Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10 -
KSB or any amendment to this Form 10 - KSB. [ ]

     State issuer's revenues for its most recent fiscal year $10,595,000.

     The aggregate market value of the voting common stock held by
non-affiliates of the Company as of July 31, 2003 was approximately $2,052,012
based upon 14,651,231 shares held by such persons and the closing price of $.14
on that date. Shares of the Company's common stock are reported by the OTC
Bulletin Board. Shares of common stock held by each officer and director and by
each person who owns 10% or more of the outstanding common stock have been
excluded because these people may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for any other
purpose.

     On July 31, 2003, approximately 18,170,065 shares of the Company's common
stock were outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE:

     Portions of the definitive Proxy Statement to be delivered to shareholders
in connection with the Annual Meeting of Shareholders are incorporated by
reference into Part III.

         Transitional Small Business Disclosure Format (check one):
            Yes [  ]    No [X]







                                     - ii -
<PAGE>



--------------------------------------------------------------------------------

                                ITEX CORPORATION

                                   FORM 10-KSB

                     For The Fiscal Year Ended July 31, 2003

                                      INDEX

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                                   Page
PART I
<S>               <C>                                                                               <C>
ITEM 1.            Description of Business                                                           1
                   -----------------------
ITEM 2.            Description of Property                                                           8
                   -----------------------
ITEM 3.            Legal Proceedings                                                                 9
                   -----------------
ITEM 4.            Submission of Matters To a Vote of Security Holders                               9
                   ---------------------------------------------------

PART II
ITEM 5.            Market for Common Equity and Related Stockholder Matters                          9
                   --------------------------------------------------------
ITEM 6.            Management's Discussion and Analysis                                             11
                   ------------------------------------
ITEM 7.            Financial Statements                                                             23
                   --------------------
ITEM 8.            Changes In and Disagreements With Accountants on Accounting and                  44
                   ----------------------------------------------------------------
                   Financial Disclosure
                   --------------------
ITEM 8A            Controls and Procedures                                                          44
                   -----------------------

PART III
ITEM 9.            Directors and Executive Officers of the Registrant                               45
                   --------------------------------------------------
ITEM 10.           Executive Compensation                                                           45
                   ----------------------
ITEM 11.           Security Ownership of Certain Beneficial Owners and Management and               45
                   -------------------------------------------------------------------
                   Related Stockholder Matters
                   ---------------------------
ITEM 12.           Certain Relationships and Related Transactions                                   45
                   ----------------------------------------------
ITEM 13.           Exhibits and Reports On Form 8-K                                                 45
                   --------------------------------
ITEM 14.           Principal Accountant Fees and Services                                           47
                   --------------------------------------
                   Signatures                                                                       47
                   ----------

</TABLE>



--------------------------------------------------------------------------------

                                    - iii -

<PAGE>




PART I

Special Note Regarding Forward-Looking Statements

         In addition to historical information, the discussion of the Company's
business contains forward-looking statements. These forward-looking statements
involve risks, uncertainties and assumptions. The actual results may differ
materially from those anticipated in these forward-looking statements as a
result of many factors, including but not limited to, those discussed in the
sections in this Annual Report on Form 10-KSB entitled "Competition,"
"Management's Discussion and Analysis" and "Business Risks." Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's opinions only as of the date of this report. ITEX
Corporation undertakes no obligation to revise or publicly release the results
of any revision to these forward-looking statements. Readers should carefully
review the risk factors described in this document as well as other documents
the Company files from time to time with the Securities and Exchange Commission,
including the quarterly reports on Form 10-QSB to be filed by the Company during
2003 and 2004.


ITEM 1.   DESCRIPTION OF BUSINESS

Overview

         ITEX Corporation ("ITEX" or the "Company") began its business in 1986.
Through our franchisees and Independent Licensed Broker ("ILB") network in the
United States and Canada, we provide a business-to-business payment system for
retail, professional, media and other corporate members. Our business services
and payment systems enable over $170 million a year in trade transactions to be
processed between approximately 14,000 members businesses which, collectively,
make up the ITEX trade exchange ("ITEX Exchange"). We administer the ITEX
Exchange and act as a third-party record-keeper for transactions entered into by
the members. We enable our member businesses to increase sales, open new markets
and utilize the full business capacity of their enterprises by providing a
private trade currency.

         At July 31, 2003, our services were offered through five corporate
regional offices and more than sixty Independent Licensed Brokers ("ILBs") and
franchisees in the United States and Canada. On June 16, 2003, we announced our
intent to divest some or all of our five corporate-owned trade offices. Between
August 8 and October 2, 2003, three of these offices were sold, leaving two
corporate-owned trade offices located in Seattle, Washington and Vancouver,
British Columbia. Our principal executive offices are located at 3400 Cottage
Way, Sacramento, California 95825.

         The Company manages the ITEX Exchange utilizing a private currency
called "ITEX Trade Dollars," to enable our members to purchase from and sell
their products or services to other members using ITEX Trade Dollars instead of
cash. A Trade Dollar is an accounting unit used by the ITEX Exchange to record
the value of transactions as determined by the parties in the exchange. ITEX
Trade Dollars denote the right to receive goods or services available from other
trade exchange members, or the obligation to provide goods or services to other
exchange members. Trade Dollars may only be used in the manner and for the
purpose set forth in the rules of the trade exchange. Trade Dollars are not
intended to constitute legal tender, securities or commodities.

         We assist members in marketing their products and services through our
broker and franchise network, newsletters, e-mail, faxes, trade directors, on
our website at www.itex.com and through other promotional means. Sales are
generally conducted by members directly, but can be facilitated by our trade
directors, ILBs and franchisees. Generally, sales are made at or near prevailing
retail prices.

                                       1
<PAGE>

         The use of the ITEX Exchange assists businesses to increase sales and
market share, decrease cash expenditures, reduce surplus inventory and take
advantage of underutilized capacity. Barter is especially useful to businesses
where the variable costs of products or services are low, such as hotels, media,
and other service related businesses. For example, a hotel that has not filled
its rooms by the end of the day has lost potential revenue, but still has nearly
the same overhead associated with owning and maintaining its facility.

         Occasionally, we engage in barter for our own account or to pay some of
our operating costs. For example, we may acquire merchandise for our account and
re-market and sell the merchandise to other members for ITEX Trade Dollars.
Typically, this is done to establish or maintain member relationships, take
advantage of favorable opportunities and to facilitate and enhance the trade
business for its members. We also earn trade dollars from members of the trade
exchange through collection of member association fees and from interest on
member credit lines.

         In order to facilitate trading, we occasionally grant lines of credit
(Trade Dollar loans) under guidelines that assess the financial stability of the
member and the demand by others for the member's product or service. In general,
members of the exchange can only use ITEX Trade Dollars to purchase the goods
and services offered by other members of the exchange. However, we have
reciprocal relations with a limited number of other trade exchanges, which makes
it possible for a member of the ITEX Exchange to purchase goods or services
offered by members of other trade exchanges and, conversely, allows members of
other trade exchanges with reciprocal agreements to acquire goods and services
from the ITEX Exchange.

         The Internal Revenue Service considers trade dollar income to be
equivalent to cash income and a trade dollar expense to be equal to a cash
dollar of expense. ITEX is obliged under the Tax Equity and Fiscal
Responsibility Act of 1982 (TEFRA) to send Forms 1099-B to each of our members
and to the Internal Revenue Service (which the Company does electronically). The
Form 1099-B reflects the total trade dollar sales made by the member for the
calendar year, less the amount of any returns. Trade dollars received are
required to be reported as gross income in tax returns. Expenditures of trade
dollars may be reported as deductions in tax returns if they qualify as a
deductible business expense or as other deductions that are permitted by the
Internal Revenue Code.

Independent Licensed Brokers and Franchisees

         ITEX Independent Licensed Brokers ("ILBs") and franchisees are
independent contractors with respect to the Company. We strive to upgrade and
broaden our services to ILBs and franchisees by providing training, assistance
in facilitating transactions, marketing materials, computer software systems,
and Internet-based resources, including directories, listings of goods and
services currently available from members, and the opportunity to advertise to
members locally, nationally and internationally.

         The ILBs and franchisees provide members with information about goods
and services that are available locally, nationally and internationally. ILBs
and franchisees do not have exclusive contractual rights to operate in a
geographical area. Both the ITEX broker contract and franchise agreement
provides for a five-year term unless the contract is terminated for cause (as
defined in the agreement). The contract makes provision for subsequent five-year
renewal terms as long as the ILB or franchisee is not in breach of the agreement
and is in compliance with any policies and procedures then in place as adopted
by the Company.

                                       2
<PAGE>

         Each ILB and franchisee is responsible for enrolling new ITEX members,
training them in the use of the system, facilitating business among members,
monitoring the delivery of goods and services between members and assuring
payment of association dues and fees to ITEX. Members of the ITEX Exchange have
a separate contractual relationship with the Company.

         ILBs and franchisees are paid a percentage of revenue collected from
ITEX members serviced by those ILBs and franchisees, which generally ranges from
40% to 75% depending on the volume of transactions and net increases in the
number of members enrolled during each 28-day accounting cycle.

         Our mission is to support and empower our network of ILBs and
franchisees; a commitment that we view to be as vital to our long-term success.
We depend on a high rate of repeat business and view the quality of our ILBs'
and franchisees' interactions with members as an important element of our
strategy. We seek a strong cooperative relationship with our ILBs and
franchisees and continue to develop that relationship by providing training,
marketing materials and programs, Internet and computer-related support. In
early fiscal 2003, we expanded our business model to offer the sale of ITEX
franchises to qualified individuals and entities at a cost of $10,000 per
franchise. The ITEX franchise system incorporates many of the elements of our
ILB agreements, and includes various provisions to meet state franchise and
business opportunity requirements.

Sources of Revenue

         We charge members of the ITEX Exchange an association fee of $20 cash
per four-week accounting cycle, $260 annually, and $10 ITEX Trade Dollars each
cycle, $130 Trade Dollars annually.

         We also receive cash transaction fees based on the trade dollar value
of the transaction, from both the buyer and the seller. Members are billed at
the end of each four-week accounting cycle. If a member pays automatically by
credit card or electronic funds transfer through our Preferred Member Autopay
system, the cash fee is 5% of the trade dollar amount of the member's purchases
and sales during the billing period. If a member pays by check or otherwise
after receiving a mailed statement at the end of each four-week cycle, the cash
fee is 7-1/2% of the trade dollar amount of that member's purchases and sales
during the period. As of July 31, 2003, approximately 85% of member payments
were made automatically through electronic funds transfer or by credit cards
using the Preferred Member Autopay system.

         We prepare our financial statements on an accrual basis. See Note 1 to
Consolidated Financial Statements for a description of accounting policies. We
do not recognize the earning or expense of Trade Dollars on our financial
reports, as discussed in the critical accounting policies. Trade Dollars are
recognized as required by the Internal Revenue Service for income tax reporting
purposes. We internally account for Trade Dollars in addition to cash in
statements to members and ILBs and franchisees and in other ways necessary for
operation of the trade exchange and our business. We consider the Trade Dollars
we receive from transactions to be valuable and utilize them in the operation of
our business, including the payment of obligations. Members, ILBs and
franchisees use Trade Dollars in exchange for goods and services and in the
operation of their businesses.

Business Strategies

         Our goal is to expand our position in the barter industry principally
in the United States and Canada by focusing on customer service, expanding the
range and availability of products and services offered through ITEX, increasing
the number of our members, and increasing the size and strength of our ILB and
franchise Network. To achieve this, we are in the process of instituting the
following business strategies:

                                       3
<PAGE>

     --   Support of the ITEX Independent Broker and Franchise Network. We seek
          to enhance the productivity and increase the revenues generated within
          the ITEX Exchange by increasing the level of training and support for
          new and existing ILBs and franchisees. We continue to refine our
          broker and franchisee operating manuals and related support materials.

     --   ITEX Trade Exchange Account Management (TEAM) Software. We have
          developed a comprehensive customer relationship management and trade
          exchange management software. This software provides members, brokers
          and our management team enhanced information systems and marketing
          tools. We plan to continually enhance our TEAM software.

     --   Develop Technologically Advanced Multi-Channel Barter System. We
          continue to upgrade and enhance our computer hardware, software, and
          related support, including improved Internet access to ITEX members,
          ILBs, and franchisees. Advances in computer and communications
          technology offer opportunities to provide members, ILBs and
          franchisees with additional tools and more effective computer
          applications. These tools should enable users to more easily engage in
          "real-time" trade exchange transactions.

     --   Marketing for New Brokers and Members. Our marketing strategy is to
          promote our brand and attract new brokers and members to the ITEX
          Exchange while educating them as to how to effectively use trade to
          grow their business. See "Sales, Marketing and Trading" below.

     --   Franchise development. We are prepared to further our efforts to
          develop and implement the franchising of new brokers. We are licensed
          in all requisite states, and are eligible to sell franchises in all 50
          states.

     --   Acquire local and regional trade exchanges. We are actively looking to
          acquire exchanges, which we can integrate into our existing Broker
          Network. We believe the resulting consolidation can be financially
          beneficial to both parties due to the centralization of various
          business functions including customer service, transaction processing,
          account billing, marketing, and business management.

Members

         The ITEX Exchange has approximately 14,000 members in the United States
and Canada. These members are in a variety of businesses such as media and
advertising, travel and entertainment, printing, hospitality, professional
services, construction and trade services, healthcare and dining. Members may
engage in barter activity for a number of reasons, including their desire to
accomplish the following goals:

     --   generate new sales
     --   add new channels of distribution
     --   decrease cash expenditures
     --   reduce slow moving inventory
     --   exchange unproductive assets and excess capacity for other products or
          services
     --   maximize efficiencies

         Members earn ITEX Trade Dollars, which they have the opportunity to
spend in any denomination, on products or services offered by ITEX members. The
following is a representative example of a transaction:

                                       4
<PAGE>

         A dentist needs to have her office remodeled. Through the ITEX
Exchange, she hires a contractor who agrees to perform the remodeling work for
$500 ITEX Trade Dollars. The dentist has ITEX Trade Dollars in her account to
spend because she had previously provided dental work to the owner of a vacation
resort, a restaurant owner and a lawyer, all members of the ITEX Exchange, in
exchange for ITEX Trade Dollars. The other members originally acquired ITEX
Trade Dollars by providing services for other ITEX Exchange members.

         Trade is especially useful to those businesses where the variable costs
of products or services are low such as hotels, media and other service-related
businesses. For example, a radio station or newspaper that has not filled
available advertising space has lost the opportunity to generate revenue but
still has incurred virtually the same costs. In short, businesses can leverage
their low variable cost and excess capacity into more purchasing power by
accepting ITEX Trade Dollars.

Sales, Marketing and Trading

Sales
-----

         The primary function of new member enrollment is to grow and retain the
ITEX Exchange member base and generate additional revenue. We provide
standardized marketing and support materials, advertising, ongoing training,
promotion and support to assist ILBs, franchisees and regional office sales
representatives in expanding the member base. These ILBs, franchisees and sales
representatives contact prospective members to market the benefits of barter and
joining ITEX. In addition, ILBs, franchisees and sales representatives attend
various meetings and networking events in their areas to generate new members
through the referrals of existing ITEX Exchange members.

Marketing
---------

         Our marketing strategy is to promote our brand and attract new members
to the ITEX Exchange while educating them as to how to effectively use trade to
grow their business. Our marketing efforts include a program of member, broker
and franchisee support and education. New tools for ILBs and franchisees to
customize and use in their consultative sales efforts include pre-designed
advertisements, brochures and sales presentations to give ITEX a consistent look
and message in all markets. To promote the ITEX Exchange, we market products and
services of existing members through directories, newsletters, e-mail, faxes,
trade directors and other means. In addition, we pursue strategic affiliations
with companies with access to potential members.

Trading
-------

         Our trade directors, ILBs and franchisees are responsible for
facilitating and maximizing transactions between members. The trade directors,
ILBs and franchisees facilitate transactions between members by searching to
fill member needs and making members aware of products that have become
available within the system. The trade directors, ILBs and franchisees take a
proactive approach to marketing products and services for the members they
service. In addition, members have access to an online directory of products and
services.

Systems and Technologies

         The ITEX Exchange is handled by a proprietary online system based on
Microsoft(R) technologies. The system is designed to facilitate the activities
of all parties involved in the ITEX Exchange, from employees to ITEX Exchange
members. The system extends well beyond record keeping and transaction
processing. The major features of the system are as follows:

                                       5
<PAGE>

     --   AIM Online - provides our ILBs, franchisees and corporate employees
          with customer relationship management features, including notes,
          calendaring and scheduling capabilities as well as trade exchange
          management features.

     --   Trade Flash - an online classified ad section where members can list
          items or services they are offering on trade, as well as to locate
          items or services they are seeking on trade.

     --   Member Directory - a categorized listing of ITEX members that allows
          members to advertise their business.

     --   Reporting - ILBs, franchisees and corporate employees are provided
          with a number of reports, allowing for a comprehensive analysis of
          various aspects of the ITEX Exchange.

         We take the steps necessary to ensure the adequate security of our
hardware and software systems, including monitoring any and all unwanted
intrusions and other attacks. We continue to improve the speed and reliability
of our information systems and trading tools for all of our users.

Industry Overview

General
-------

         The modern commercial barter industry was developed by establishing an
index of valuation for barter credits and debits. The index of valuation in the
industry is the "trade dollar." There are two basic types of commercial barter
businesses: corporate trade companies and retail trade exchanges, such as ITEX.
Corporate trade companies typically take ownership of products and services and
redistribute to channels outside the selling vendor's normal distribution
channel. Trade exchanges, on the other hand, act as third party record-keepers
for the exchange of products and services among their members. For every trade
transaction, trade dollars are posted to the buyer's and seller's trade
accounts. Members can transact business directly or may use the services of an
ILB or franchisee who matches buyers and sellers.

Barter Statistics
-----------------

         There is limited information on the size of bartering in the United
States and Canada. The Company believes the commercial barter industry has
limited growth potential and that barter exchanges need to be aggressive to
achieve growth.

Competition
-----------

         The barter industry is fragmented with several hundred trade exchanges
in North America. Competing trade companies in North America include Intagio
Trading Network and its BXI affiliate, Continental Trade Exchange, and various
other local and regional trade exchanges. ITEX believes it remains the industry
leader as the largest fully integrated retail trade exchange in North America
based on number of locations, members, trade volume, transactions, and revenue
generated through trade transactions of a single currency.

         We compete primarily on the basis of service, including the number of
available products and services and the liquidity of ITEX Trade Dollars. We
expect to encounter competition in our efforts to expand the ITEX Exchange and
to acquire desirable independent trade exchanges. In addition to existing trade
companies, new competitors can launch new exchanges at a relatively low cost
since technological and financial barriers to entry are relatively low. However,
we believe participation from a significant number of exchange members is
necessary to offer a quality exchange, which ultimately creates a difficult
barrier to entry for new competitors and may require significant ramp-up times
to make a competitive exchange successful. Nevertheless, our competitors could
include companies with longer operating histories, greater market presence and
name recognition, and with larger customer bases and greater financial,
technical and marketing resources than we do. These companies would be strong
competitors if they decided to develop a focused business effort in our
industry.

                                       6
<PAGE>

         In general, customer demands for wider availability of products and
services, stronger customer service, better computer servicing technology and
the emergence of the Internet as a medium for communication and business have
resulted in a more competitive industry. We believe that in order to capture
greater market share, local trade companies will need to expand into larger
regional or national organizations that possess the ability to offer a wider
selection of products and services, service a more diverse and dispersed member
clientele and have greater access to growth capital and management expertise.

         We believe we will remain in a good competitive position as long as we
continue to maintain the quality of our services and our relationships with
ILBs, franchisees and member base. Our ability to compete successfully will
depend, in large part, on our ability to continually enhance and improve our
existing products and services, to adapt products and services to the needs of
our ILBs, franchisees, members and potential members, to successfully develop
and market new products and services, and to continually improve our operating
efficiencies. However we cannot assure you that we will be able to compete
successfully, that competitors will not develop technologies, products or
strategic alliances and affiliations that make our products and services less
marketable or less useful or desirable. Furthermore, we may not be able to
successfully enhance our products and services, develop new products or services
or attain lower costs, when and as we need them. Increased competition, price or
other circumstances, could result in erosion of our market share, and may
require price reductions and increased spending on marketing and product
development. Increasing competition for our products and services could have a
material adverse effect on our business, operating results and financial
condition.

Research and Development

         We develop our own proprietary software for providing products and
services to our ILBs, franchisees and members. These efforts are funded through
operations. Research and development expense was approximately $145,000 and
$160,000 for the fiscal years ended July 31 2003 and 2002, respectively.

Regulatory

         ITEX, its ILBs and franchisees, are subject to various federal, state
and local laws, regulations and administrative practices affecting their
businesses, including, among others, the requirement to obtain business
licenses, tax withholding and remittance of matching contributions for
employees' social security accounts, and other such laws, regulations and
administrative practices required of businesses in general. The Company is a
third party record-keeper under the Tax Equity and Fiscal Responsibility Act
("TEFRA"), and is required to account for and report to the IRS the total of
trade sales transactions of each member of the exchange.

         With respect to our online technologies, there are currently few laws
or regulations directly applicable to access to or commerce on the Internet.
However, it is possible that a number of laws and regulations may be adopted
with respect to the Internet, covering issues such as taxes, user privacy,
pricing and characteristics and quality of products and services. We cannot
predict the impact, if any, that future regulation or regulatory changes might
have on our business.


                                       7
<PAGE>



Proprietary Rights

         We rely on a combination of copyright and trademark laws, trade
secrets, software security measures, license agreements and nondisclosure
agreements to protect our proprietary technology and software products. We have
filed a trademark and service mark application for our most current ITEX logo
and for the word mark "ITEX" (that is, independent of the logo). Our policy is
to strenuously police the use of our marks and to oppose any infringement. We
have registered the Internet domain name "ITEX.COM" and other related domain
names. The Company also has a Canadian trademark and service mark application in
process.

         We cannot be certain that others will not develop substantially
equivalent or superseding proprietary technology, or that equivalent products or
services will not be marketed in competition with our products, thereby
substantially reducing the value our proprietary rights. Furthermore, there can
be no assurance that any confidentiality agreements between us and our employees
or any license agreements with our customers will provide meaningful protection
of our proprietary information in the event of any unauthorized use or
disclosure of such proprietary information.

Employees

         As of July 31, 2003, we employed 28 full time and 10 part time
employees compared to 34 full-time and 18 part time employees at the end of the
last fiscal year. The decrease is due to our effort to eliminate non-essential
positions, employ a more experienced staff and create more efficiencies company
wide.

         From time to time we may employ independent consultants or contractors
to support research and development, marketing, sales and support and
administrative functions. Our employees are not represented by any collective
bargaining unit, and we have never experienced a work stoppage. We believe
relations with our employees are good.

Available Information

         Our Internet address is www.itex.com. Our SEC reports can be accessed
through the investor relations section of our website. There we make available,
free of charge, our annual report on Form 10-KSB, quarterly reports on Form
10-QSB, current reports on Form 8-K and any amendments to those reports, as soon
as reasonably practicable after we electronically file such material with, or
furnish it to, the SEC. The information found on our website is not part of this
or any other report we file with or furnish to the SEC.


ITEM 2.  DESCRIPTION OF PROPERTY

         Our executive offices are located in Sacramento, California. We also
lease space in various parts of the country for use by our regional trade
offices. As of July 31, 2003, the Company leased facilities as follows (actual
numbers):

                                       8
<PAGE>
<TABLE>
<CAPTION>

                                                                                      Rent due in fiscal 2004
            Location                    Property           Lease         Square           Cash         Trade
                                        Condition       Expiration         Feet           US $          Dollars
-----------------------------------------------------------------------------------------------------------------

<S>                                     <C>            <C>               <C>            <C>              <C>
(1)3400 Cottage Way                    Fair            7/31/03           9,624          $ 150,120         N/A
Sacramento, CA 95825
-----------------------------------------------------------------------------------------------------------------
(2)315 W. 36th St. #501                Good            9/30/04           1,800                            N/A
New York, NY 10018                                                                        0.00
-----------------------------------------------------------------------------------------------------------------
(2)5955 Airport Rd. Ste #224           Good            5/31/03           5,320                            N/A
Mississauga, ON  L4V 1R9                                                                  0.00
Canada
-----------------------------------------------------------------------------------------------------------------
99 S. Jackson #300 Seattle, WA         Good            5/31/04           4,400             N/A         87,000
98104

-----------------------------------------------------------------------------------------------------------------
203 - 129 East Colombia St             Good             3/1/06             415           4,725          4,725
New Westminster, BC V3l 3V7
-----------------------------------------------------------------------------------------------------------------
</TABLE>

     (1)  After 7/31/03 the lease was converted to a month-to-month basis.
     (2)  Offices in New York and Ontario were sold on August 7, 2003 and the
          lease assumed by the buyer

         We believe that our current facilities are adequate and suitable for
their current use, however the Company is evaluating whether to move its
executive offices to a new location in 2004. We believe that suitable facilities
will be available, when needed, upon commercially reasonable terms. We also
believe that all of the leased space and all property maintained within are
adequately insured.


ITEM 3.   LEGAL PROCEEDINGS

         See Note 12 - Legal Proceedings of the Notes to Financial Statements
(Item 7) for information regarding legal proceedings

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

         There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year ended July 31, 2003.


PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Market Information

         The Company's common stock trades on the OTC Bulletin Board under the
symbol "ITEX.OB" The range of high and low bid prices for the Company's common
stock for each quarter during the two most recent fiscal years is as follows:
<TABLE>
<CAPTION>

       Fiscal Year Ended July 31,                                    2003                      2002
                                                              --------------------  ----------------------
                                                              High         Low          High         Low
                                                              ----         ---          ----         ---
<S>                                                           <C>          <C>          <C>          <C>
       First Quarter                                          $0.14        $0.095       $0.30        $0.11
       Second Quarter                                         $0.15        $0.10        $0.15        $0.07
       Third Quarter                                          $0.21        $0.13        $0.25        $0.05
       Fourth Quarter                                         $0.21        $0.12        $0.22        $0.07
</TABLE>

                                       9
<PAGE>


         This table reflects the range of high and low bid prices for our common
stock during the indicated periods, as published by the OTC Bulletin Board. The
quotations merely reflect the prices at which transactions were proposed, and do
not necessarily represent actual transactions. Prices do not include retail
markup, markdown or commissions.

         There were approximately 910 holders of record of our common stock as
of July 31, 2003.

Dividend Policy

         We have not paid dividends on our common stock since our inception.
Dividends on common stock are within the discretion of the Board of Directors
and are payable from profits or capital legally available for that purpose. Our
current policy is to retain any future earnings to finance the operations and
growth of our business. Accordingly, we do not anticipate paying any dividends
on common stock in the foreseeable future.

Shares Eligible for Future Sale

         In general, Rule 144 under the 1933 Act provides that securities may be
sold if there is current public information available regarding the Company and
the securities have been held at least one year. Rule 144 also includes
restrictions on the amount of securities sold, the manner of sale and requires
notice to be filed with the SEC. Under Rule 144 a minimum of one year must
elapse between the later of the date of the acquisition of the securities from
the issuer or from an affiliate of the issuer, and any resale under the Rule. If
a one-year period has elapsed since the date the securities were acquired, the
amount of restricted securities that may be sold for the account of any person
within any three-month period, including a person who is an affiliate of the
Company, may not exceed the greater of 1% of the then outstanding shares of
common stock of the Company. If a two-year period has elapsed since the date the
securities were acquired from the issuer or from an affiliate of the issuer, a
seller who is not an affiliate of the Company at any time during the three
months preceding a sale is entitled to sell the shares without regard to volume
limitations, manner of sale provisions or notice requirements.

Recent Sales of Unregistered Securities

         (1) On February 20, 2003, 40,000 shares of common stock were issued to
each of the four non-employee directors as compensation for their service to the
Company for the current Board term. The aggregate total of 160,000 shares was
valued at $0.22 per share. The recipients were accredited, had access to all
material information concerning the Company, and acquired the securities for
investment. Appropriate legends were affixed to the certificates issued in the
transactions. The issuances were deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act as transactions
by an issuer not involving any public offering.

         (2) On March 5, 2003, 15,000 shares of common stock were issued to each
of two former directors of the Company, in exercise of employee stock options at
$0.09 per share. The former affiliates were sophisticated investors, 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 issuances were deemed to be exempt from registration under
the Securities Act in reliance on Section 4(2) of the Securities Act as
transactions by an issuer not involving any public offering.

                                       10
<PAGE>

         (3) On March 20, 2003, 100,000 shares of common stock were issued to
Spike Humer, CEO of the Company, as compensation authorized by the Board of
Directors in September 2002. On the same date, 140,000 shares of common stock
were issued to a former CEO and consultant of the Company for his services in
1999, pursuant to the terms of a Mutual Release and Settlement Agreement. The
shares were valued at $0.22 per share. The recipients were accredited or
sophisticated investors, had access to all material information concerning the
Company, and acquired the securities for investment. Appropriate legends were
affixed to the certificates issued in the transactions. The issuances were
deemed to be exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act as transactions by an issuer not involving
any public offering.

         (4) During May 2003, 12,500 shares of common stock were issued to two
former employees of the Company, in exercise of employee stock options at $0.11
per share. The former employees 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 transactions by an issuer not
involving any public offering.

ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS

         Our Management's Discussion and Analysis (MD&A) contains statements
that are forward-looking. These statements are based on current expectations and
assumptions that are subject to risks and uncertainties. Actual results could
differ materially because of factors discussed in "Business Risks" and elsewhere
in this report.

Overview

         ITEX Corporation operates a trade exchange and acts as third-party
record-keeper for transactions between members of the exchange. We charge
association fees for each of the 13 four-week accounting cycles per year, as
well as percentage based commissions on transactions. We also receive fees paid
in ITEX Trade Dollars, which we use to pay a portion of our own operating
expenses and to provide merchandise for sale for Trade Dollars to ITEX Exchange
members.

         In December 2002, the Company was notified by an insurgent group that
it intended to solicit proxies to elect a slate of four nominees to the board of
directors of ITEX Corporation. The nominees believed excessive compensation was
being paid by ITEX to its directors and that the financial resources of the
Company could be redirected more efficiently on behalf of stockholders. At the
Annual Meeting on January 31, 2003, shareholders elected the insurgent group,
which was lead by Steven White, the current Chairman of the Board.

         The new board immediately acted to terminate cash compensation to its
directors. Subsequently, in March 2003 the Company terminated the employment of
its Chief Financial Officer. In June 2003, the Company terminated the employment
of its Chief Executive Officer and also its Chief Operating Officer. The Company
is operating under the leadership of Steven White, Chairman of the Board, acting
as Interim Chief Executive Officer and Interim Chief Financial Officer, and Alan
Zimmelman, Director, acting as Interim Chief Operations Officer.

         During the fiscal year ending July 31, 2003, we had five corporate
regional trade offices in addition to our more than sixty ILBs and franchisees
in the United States and Canada. Between August 8 and October 2, 2003, three of
these offices were sold, in Toronto, Ontario, New York and Sacramento, leaving
two corporate-owned trade offices located in Seattle and Vancouver, British
Columbia.

                                       11
<PAGE>

Pro Forma Combined Statement of Operations (in 000's)

         The following unaudited pro forma condensed consolidated financial
information gives effect to the disposition of the Sacramento, New York and
Toronto ("NYTS") corporate-owned offices of Itex Corporation. These pro forma
statements are presented for illustrative purposes only. The pro forma
adjustments are based upon available information and assumptions that we believe
are reasonable. The pro forma condensed consolidated financial statements do not
purport to represent what the consolidated results of operations or financial
position of Itex Corporation would actually have been if the disposition of the
NYTS corporate-owned offices had in fact occurred on the dates that we refer to
below, nor do they purport to project the results of operations or financial
position of Itex Corporation for any future period or as of any date,
respectively. The unaudited pro forma financial information reflecting the
disposition of our NYTS corporate-owned offices provided below as part of this
Form 10-KSB filing updates the pro forma information included as part of our
report on Form 8-K filed October 28, 2003. The unaudited pro forma condensed
consolidated statements of operations for the periods presented were prepared
with the historical statements of operations of Itex Corporation for the full
fiscal year ended July 31, 2003, giving effect to the dispositions as though
they had occurred on August 1, 2002.
<TABLE>
<CAPTION>

                                Fiscal Year end      Pro Forma        Pro Forma
                                  July 31, 2003      Adjustments

<S>                            <C>                <C>               <C>
Revenues                       $          10,595  $             17  $      10,612
                                -----------------  ----------------  -------------
Trade exchange revenue                    10,595                17         10,612

Costs and expenses
Costs of trade exchange revenue            6,384             1,026          7,410
Selling, general and
 administrative expenses                   3,539              (839)         2,700
Costs and expenses of
 regulatory and litigation
 matters                                     580                 -            580
Depreciation and amortization                547              (225)           322
Proxy costs                                  187                 -            187
                                -----------------  ----------------  -------------
Total operating expenses                  11,237               (38)        11,199

Income (loss) from operations               (642)               55           (587)
                                -----------------  ----------------  -------------

Other income (expense)
Interest income (expense), net               (51)               37            (14)
Gain on sale of securities                     -                 -              -
Miscellaneous, net                            66                 -             66
                                -----------------  ----------------  -------------
                                              15                37             52
                                -----------------  ----------------  -------------

Net Income                     $            (627) $             92  $        (535)
                                =================  ================  =============

Basic and diluted loss per
 common share                  $           (0.04)                  $       (0.03)

 Weighted average pro forma
  shares outstanding - basic
  and diluted                             17,773                          17,773
                                =================                   =============
</TABLE>

                                       12
<PAGE>

         Management expects that the sale of the three NYTS offices will make a
significant contribution toward reducing our expense levels during fiscal 2004,
as well as a positive contribution toward our profitability. However, the
unaudited pro forma combined condensed financial information is presented for
illustrative purposes only and does not indicate the operating results that
actually would have occurred if the disposition of NYTS had been consummated on
August 1, 2001, nor our fiscal 2004 operating results. This pro forma financial
information should be read in conjunction with our audited July 31, 2003
financial statements and notes thereto contained in this report, as well as the
unaudited pro forma financial information, notes and assumptions filed with this
report. See "Financial Statements."

Critical Accounting Policies

         We have identified the policies below as critical to our business
operations and 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.

Revenue Recognition

         We recognize revenue from various cash fees charged in managing the
ITEX Exchange when persuasive evidence of an arrangement exists, the transaction
has occurred or the monthly service has been provided, the charges are fixed and
determinable and no major uncertainty exists with respect to collectibility.

         We charge members of the trade exchange an association fee of $20 cash
per four-week accounting cycle, $260 annually and $10 ITEX Trade Dollars each
cycle, $130 Trade Dollars annually in accordance with its ITEX Exchange member
agreements. Association fees can be paid by cash, check or by using our
Preferred Member Autopay system.

         We also receive cash transaction fees based on the value of the trade
transaction, from both the buyer and the seller. Members are billed at the end
of each four-week accounting cycle. If a member pays automatically by credit
card or electronic funds transfer through our Preferred Member Autopay system,
the cash fee is 5% of the trade dollar amount of the member's purchases and
sales during the billing period. If a member pays by check or otherwise after
receiving a mailed statement at the end of each four-week cycle, the cash fee is
7-1/2% of the trade dollar amount of that member's purchases and sales during
the period. Currently, approximately 85% of member payments are made
automatically through electronic funds transfer or by credit cards using the
Preferred Member Autopay system.

         As described below under accounting for trade dollar activity, we
historically have not recorded revenues for trade dollars received in exchanges
with our trade exchange members.

Accounting for Trade Dollar Activity

         We receive trade dollars for monthly services provided to our ITEX
Exchange members, and as transaction fees for exchanges made by our members. We
also expend trade dollars in the acquisition of goods and services used in our
operations. Historically, we have spent virtually all trade dollars for broker
commissions, advertising, salaries and legal settlements. Because there is no
readily estimable or determinable value for these goods and services, they are
not reflected in the accompanying financial statements. We have historically
spent more trade dollars that we have earned.

         Transactions that originate from the creation of trade dollars expended
for goods or services do not qualify as exchanges under APB 29 and, accordingly
are not reflected in the accompanying financial statements.

         Transactions that involve the exchange of goods or services for other
goods or services are accounted for in accordance with APB 29 and the
interpretations contained in EITF 93-11 and 99-17. Accordingly, we generally
record exchanges at the carrying value of goods or services exchanged, which is
typically zero, as the fair values of the goods or services exchanged lack
readily determinable fair values within reasonable limits as we have no history
of receiving cash in similar transactions, and therefore the earnings process
has not been completed.

                                       13
<PAGE>

Valuation of Customer Lists

         We assess the possible impairment of our customer lists whenever events
or changes in circumstances indicate that the carrying value 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

     --   Significant changes in the manner of our use of the acquired assets or
          the strategy for our overall business

     --   Significant negative industry or economic trends; significant decline
          in our stock price for a sustained period

     --   Our market capitalization relative to net book value

         We look primarily to the undiscounted future cash flows in our
assessment of whether or not long-lived assets have been impaired. At July 31,
2003, we determined no impairment was appropriate.

Results of Operations (in 000's)

         The following table sets fourth, for the periods indicated, our
selected consolidated financial information for the fiscal years ended July 31,
2003 and 2002, with amounts also expressed as a percentage of total revenues:

<TABLE>
<CAPTION>

                                            Fiscal Years Ended July 31,
                                          2003                       2002
                                 Amount          Pct*       Amount          Pct*
                                ---------      ---------   ---------      ---------
Revenue:
<S>                               <C>               <C>      <C>               <C>
Trade Exchange                    10,595            100%     10,137            100%

Costs and expenses:
Trade exchange                     6,384             60%      5,383             53%
Selling, general and
 administrative                    3,726             35%      4,354             43%
Regulatory and
 litigation                          580              5%        458              5%
Depreciation and
 amortization                        547              5%        712              7%
                                ---------                  ---------
                                  11,237            106%     10,907            108%

Loss from operations                (642)            -6%       (770)            -8%
Other income (expense)                15              0%        177              2%
                                ---------                  ---------      ---------

Loss before taxes                   (627)            -6%       (593)            -6%

Tax (provision) credit                 -                          -

Net loss                            (627)            -6%       (593)            -6%

</TABLE>

*    Percent of Total Revenue



                                       14
<PAGE>



         For the fourth quarter of fiscal 2003, revenue was $2,452, up 11% from
$2,210 for the fourth quarter of fiscal 2002. Revenue for the full fiscal year
ended July 31, 2003 was $10,595, up 4.5% from $10,137 for fiscal 2002.

         The fourth quarter of fiscal 2003 showed a loss of $766 after realizing
several write-downs for uncollectable GST tax, plus a reserve for accounts
receivable and a large legal accrual. This compares to a fourth quarter profit
of $103 for fiscal 2002 The net loss for fiscal 2003 is $627 compared to a net
loss of $593 during fiscal 2002. In addition, during the fourth quarter we
settled several outstanding lawsuits, incurring over $105 in legal fees and
settlements. The large legal accrual reserved in the fourth quarter was made in
that we are currently facing lawsuits from three former executives terminated
during 2003 and other litigation, and as a result recognized an aggregate
contingent liability of $400 during the fourth quarter for these claims. The
Company plans to vigorously defend itself against the plaintiffs. See Note 12 -
Legal Proceedings for further details.

Trade Exchange Revenue and Costs

         Total trade exchange revenue increased 4.5% to $10,595 in 2003 from
$10,137 in 2002. Following are the components of association fees and
transaction fees applicable to the ITEX trade exchange, which are included in
the consolidated totals:

            Revenues by Category       2003         2002
                                     ----------   ----------

            Association fees        $    3,052   $    3,018
            Transaction fees             7,271        7,042
            Franchising                     50            -
            Other fees                     222           77
                                     ----------   ----------
                                    $   10,595   $   10,137


         The average number of members of the ITEX trade exchange during fiscal
2003 and 2002 and the average trade exchange revenue per member were as follows
(actual numbers)


                                                 2003        2002
                                             ---------   ---------

       Average number of members               14,867      19,204
       Average annual revenue per member    $     713   $     528


         Our member base dropped by 23% primarily due to a tightening of cash
credit controls, which restricted former members from participating in the ITEX
system. Total costs of trade exchange expenses as a percentage of total trade
exchange revenue were 60% and 53% in fiscal 2003 and 2002, respectively. These
costs of revenue are ILB and franchise commissions, which totaled $6,384 during
the 2003 fiscal year, and $5,383 during fiscal 2002. The increase is a result of
increased broker commissions related to the conversion of corporate offices to
Independent Licensed Brokers or franchises during fiscal 2002. This trend will
continue into fiscal 2004, as a result of the sale of additional company-owned
trade offices, including those located in Toronto, Ontario, New York and
Sacramento.

                                       15
<PAGE>

Selling, General and Administrative Expenses

         Selling, general and administrative expenses decreased $628, or 14%,
from $4,354 in fiscal 2002 to $3,726 in fiscal 2003. The reduction in expenses
was primarily due to the reduction in salary, wages and benefits of $820. The
decrease in salary and wages is a result of the sale of the corporate-owned
offices in the prior fiscal year. In addition, during fiscal year 2003 we
continued our restructuring efforts which resulted in additional salary and wage
reductions. This trend will continue into fiscal 2004, as a result of the sale
of corporate-owned offices, including those located in Toronto, New York and
Sacramento.

Depreciation and Amortization

         Depreciation and amortization decreased $165 or 23% from $712 in fiscal
2002 to $547 in fiscal 2003. The decrease is a result the disposal of the
corporate headquarters building during the second quarter of fiscal 2002. In
addition we made an agreement with our primary lease vendor in the fourth
quarter of fiscal year 2002 to settle all current and future capital lease
payments at a discounted rate. The net effect was a reduction of depreciation
expense of $125. We are currently leasing office space in the same building for
$13 per month.

Regulatory and Litigation

         Regulatory and litigation costs increased to $580 during fiscal 2003,
from $458 in fiscal 2002.

Other Income and Expense

         We recognized net miscellaneous income of $66 in fiscal 2003 and $195
in fiscal 2002.

Liquidity and Capital Resources

         We experienced net losses and negative cash flows from operations
during each of the last two fiscal years. As of July 31, 2003, we had an
accumulated deficit of $29,980. During fiscal 2003, we primarily funded our
operations through our investing and financing activities. We experienced a
modest net increase in our cash position of $14 during fiscal 2003, compared to
a decrease in our net cash of $916 during the previous fiscal year. At July 31,
2003, we had approximately $104 in cash and cash equivalents.


                                      2003       2002
    Net cash provided by (used in)
    Operating activities          $    (74)  $   (615)
    Investing activities                69        123
    Financing activities                19       (424)
                                   --------   --------

    Net increase (decrease)             14       (916)
                                   ========   ========



                                       16
<PAGE>



         Operating Activities

         During fiscal 2003, our operating activities used net cash of $74
compared to the use of net cash in operations of $615 in fiscal 2002. The
reduction in the net cash consumed by operating activities for 2003 was
primarily attributable to (i) reduced selling, general and administrative
expenses due to the sale of corporate-owned offices, including salaries.

         Potential increases in net cash were offset by (i) the funding of legal
expenses, (ii) proxy costs related to the 2002-2003 election contest, and (iii)
a general reduction in our accounts payable and current liabilities.

         Investing Activities

         We reported net cash provided by investing activities of $69 in fiscal
2003 compared to $123 in net cash provided by investing activities in fiscal
2002. The $54 change was primarily due to the sale of corporate-owned offices in
the prior fiscal year, which generated $88 in proceeds.

         Financing Activities

         We reported net cash provided by financing activities of $19 in fiscal
2003, compared to net cash used by financing activities of $424 in fiscal 2002.
The difference primarily reflects the payment of the note payable resulting from
the purchase of Ubarter Canada from Network Commerce Inc. in fiscal 2002.

Fiscal 2004 plans

         We are continuing to implement the ITEX business plan which includes
supporting our independent broker and franchise network, expanding the ITEX
Exchange, enhancing our systems and services, developing enhanced trade exchange
software, promoting our brand while seeking new brokers, franchisees and
members, improving our member retention and customer service performance, and
acquiring local and regional trade exchanges.

         We believe our success also rests upon our ability to control our
operational costs while engaging in a strategy of controlled growth to ensure
the effective performance of our employees, ILBs, franchisees, and members. We
strive to direct the financial resources of the Company with greater efficiency
on behalf of stockholders. In furtherance of this objective, during June 2003 we
announced our intent to divest some or all of our corporate-owned trade offices.
Between August 8 and October 2, 2003, three of these offices were sold, as
discussed above. We intend to seek opportunities during fiscal 2004 to sell the
remaining two corporate-owned trade offices.

         Despite our fourth quarter loss during fiscal 2003 resulting from
several write-downs and reserves, management anticipates profitable operations
during the first quarter of fiscal 2004. During that quarter, we expect to
recognize a $1,429,000 gain from the sale of three corporate-owned offices.
Overall, we believe our efforts to restructure the Company and reduce overhead
will be rewarded. We expect to be able to fund our activities from operations
during fiscal 2004. In addition, we expect to be able to grow our available cash
each quarter along with achieving profitability for fiscal 2004. However, there
is a significant uncertainty. As discussed in Note12 - Legal Proceedings of the
Notes to Financial Statements, we are subject to various claims and lawsuits. We
accrued an aggregate liability during the fourth quarter of fiscal 2003 for
these claims, which itself offset prior net income and resulted in a loss for
the entire fiscal year. It is possible that one or more of these matters could
be resolved in a manner that ultimately would have a material adverse impact on
our business, and could negatively impact our profitability, our revenues,
operating margins, net income, and possibly our ability to sustain operations.

                                       17
<PAGE>


     As of July 31, 2003, ITEX had a $300 short-term note payable, bearing
interest of 16% with principal due on December 31, 2003. The note originated in
third quarter of fiscal 2001. In December, 2002 the Company further incurred
costs associated with this note by foregoing the interest, by only paying $0.1
per month. The $3.9 interest continued to accrue at a 16% APR. In addition the
Company paid the lender a 4% renewal charge of $12 annually. As of July 31,
2003, the note, including principal and interest totaled $330. Total interest
expense incurred in 2003 and 2002 was $48 and $69, respectively, with total
cumulative interest paid and accrued as of July 31, 2003 totaling $148, an
annual percentage rate over 21%. This note was secured by certain personally
owned real property of a former President and CEO of the Company. In a
subsequent event, the loan was paid in full with loan proceeds from the Chairman
of the Company. See Note 14 - Related Party Transactions of the Notes to
Financial Statements.

Trade Dollars Earned and Expended

         The Company earns ITEX Trade Dollars as compensation for management of
the trade exchange and as a result of transactions entered into by the Company
as a member of the exchange.

         In fiscal 2003, the Company earned 4,121 trade dollars and expended
7,986 trade dollars. In fiscal 2002, the Company earned 5,915 trade dollars and
expended 6,910 trade dollars.

         During the fiscal year ended July 31, 2003, the company received goods
and services using trade dollars to pay for such items. As described in the
Critical Accounting Policies below, exchanges involving trade dollars have
generally not been reflected at any value in the Company's financial statements.
Management believes these goods and services are a necessary part of conducting
business. If, in the future, the Company is unable to pay for such goods and
services using trade dollars, the Company's cash expenses could increase and
potentially reduce operating profits.

         Trade dollars are not legal tender and do not reflect the fair value of
the goods and services received. The fair value would be significantly less than
the amounts presented. The Company expends trade dollars for many items. The
Company would not necessarily expend these amounts if it had to spend cash.

         Since inflation of the US dollar has been moderate in recent years,
inflation has not had a significant impact on the Company. Inflation affecting
the US dollar is not expected to have a material future effect. The Company does
not guarantee the utilization of, or market for ITEX Trade Dollars. In addition,
the Company can expend ITEX Trade Dollars in excess of those credited to the
Company's account.

                                       18
<PAGE>

Recently Issued Accounting Standards

         In November 2002, the FASB published interpretation No, 45 "Guarantor's
Accounting and Disclosure requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others". The Interpretation expands on the
accounting guidance of Statements No. 5, 57, and 107 and incorporates without
change the provisions of FASB Interpretation No. 34, which is being superseded.
The Interpretation elaborates on the existing disclosure requirements for most
guarantees, including loan guarantees such as standby letters of credit. It also
clarifies that at the time a company issues a guarantee, the company must
recognize an initial liability for the fair value, or market value, of the
obligations it assumes under that guarantee and must disclose that information
in its interim and annual financial statements. The initial recognition and
initial measurement provisions apply on a prospective basis to guarantees issued
or modified after December 31, 2002, regardless of the guarantor's fiscal
year-end. The disclosure requirements in the Interpretation are effective for
financial statements of interim or annual periods ending after December 15,
2002. The Company is currently evaluating what effect the adoption of this
statement will have the Company's financial statements. The Company does not
expect the adoption of this statement to have a material effect on the Company's
financial statements.

         In December 2002, the FASB issued SFAS No. 148 "Accounting for
Stock-Based Compensation- Transition and Disclosure". This statement amends SFAS
No. 123, "Accounting for Stock-Based Compensation" to provide alternative
methods of transition for an entity that voluntarily changes to the fair value
method of accounting for stock-based compensation. In addition, SFAS 148 amends
the disclosure provision of SFAS 123 to require more prominent disclosure about
the effects of an entity's accounting policy decisions with respect to
stock-based employee compensation on reported net income. The effective date for
this Statement is for fiscal years ended after December 15, 2002. The Company
does not expect the adoption of this statement to have a material effect on the
Company's financial statements.

         In April 2003, the SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" was issued. This statement amends
and clarifies the accounting and reporting for derivative instruments, including
instruments embedded in other contracts such that contracts with comparable
characteristics are accounted for similarly. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003, except for hedging
relationships designated after June 30, 2003. Currently we do not expect SFAS
No. 150 to have a material effect on our financial statements.

         In May 2003, the SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" was issued.
This statement establishes standards for how to classify and measure certain
financial instruments with characteristics of both liabilities and equity. Many
instruments that were previously classified as equity will be required to be
reported as liabilities under SFAS No. 150. This statement is effective for
financial instruments entered into or modified after May 31, 2003 and at the
beginning of the first interim period beginning after June 15, 2003, except for
mandatorily redeemable instruments. Currently we do not expect SFAS No. 150 to
have a material effect on our financial statements.

Business Risks

         This Annual Report on Form 10-KSB contains statements that are
forward-looking. These statements are based on current expectations and
assumptions that are subject to risks and uncertainties. Actual results could
differ materially because of issues and uncertainties such as those listed below
and elsewhere in this report, including the sections entitled "Competition," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." These factors, among others, may adversely impact and impair our
business and should be considered in evaluating our financial outlook.

                                       19
<PAGE>

We have no history of sustained profits and our future profitability remains
uncertain. In addition, financial results for any particular period will not
predict results for future periods.

         We are working toward a goal of sustained profitability and took
several important steps during 2003, including reorganizing our senior
management team. Subsequent to the fiscal year end, we further consolidated our
operations by selling our trade offices located in Toronto, New York and
Sacramento. The sales of these three offices served to significantly reduce our
corporate staff and administrative expenses. In addition, we face lawsuits from
three former executives terminated during 2003 and other litigation. See "Legal
Proceedings" and Note 12 - Legal Proceedings of the Notes to Financial
Statements.

         Despite our fourth quarter legal expenses, we currently anticipate that
fiscal 2004 will be a profitable year. Our core business continues to have
modest growth and we are moving forward with our initiatives to support the ILB
and franchisee network while reducing corporate overhead. Our annual revenues
increased to $10,595 from $10,137 for the fiscal year ended July 31, 2003 and
2002, respectively. However our prospects 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 be operated profitably,
which depends on many factors, including the success of our marketing program,
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.

         During 2003 we experienced significant turnover of our principal
executive positions. 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 its operations. Although
management believes ITEX is currently being administered capably, we remain
substantially dependent on the continued services of our key personnel and in
particular, the services of Interim CEO Steven White. Management places heavy
reliance on Mr. White's experience and management skills. We do not carry life
insurance for any of our key personnel to insure the business in the event of
their death. We have not entered into employment agreements with our current
executive officers, including Mr. White. If any of these individuals were to
leave ITEX unexpectedly, we could face substantial difficulty in hiring
qualified successors and could experience a loss in productivity while any such
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 expect that we will
need to attract, train, retain and motivate additional 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; We have a history of unfavorable
financing; Our stockholders could suffer from our CEO's potential conflict of
interest as a major creditor of the Company.

                                       20
<PAGE>

         We have limited funds, and 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 are planning
to fund internally the development and implementation of our initiatives. We
believe we have designed a scalable business strategy, which will allow our
business model to be executed with limited outside financing. 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 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, given our operating loss history.

         On October 2, 2003, Steven White, our Interim CEO and chairman of the
board of directors loaned the Company $300. The loan was used to pay off an
existing note balance, which had accrued to $345 in exchange for a one-year
secured promissory note with interest at 8%, 13% less than the previous
effective interest rate. The loan is secured by a security interest in
substantially all of our assets. Circumstances may arise in which Mr. White's
interest as a creditor could conflict with his duty to act in the interest of
stockholders. See Note 14 of the Consolidated Financial Statements - Related
Party Transactions.

We are substantially dependent on our ILB and Franchisee network.

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

We will depend on the continued utility of the Internet and may have difficulty
accommodating technology advances, or upgrading and improving our computer
software and internet-based systems for members and independent licensed
brokers.

         Our computer systems are vital to providing accounting services for
members, ILBs and franchisees and communicating the availability of goods and
services offered for trade. Our Internet services are designed around certain
technology standards. Current and future success of our services may become
subject to additional industry standards as Internet commerce evolves. In
addition, the widespread adoption of new Internet or telecommunications
technologies or standards could require us to make substantial expenditures to
modify or adapt our services. As a result, our business may incur additional
costs of unknown proportions as we are confronted with new technology standards.
To be successful in the future, we believe it is important that our computer and
Internet systems reflect improvements in computer and communications technology.
Although we expect to be responsive to changes in the Internet and technology,
modifications may be expensive, complex, and require additional technical
expertise. We may not be successful in upgrading our computer systems and
Internet applications, or achieving widespread acceptance of our services before
competitors offer systems or services with speed and performance equal to or
greater than ours.

                                       21
<PAGE>

Dependence on the Value of Foreign Currency

         We transact business in Canadian dollars as well as US dollars. While
foreign currency exchange fluctuations are not believed to materially affect our
operations, changes in the relation of the Canadian dollar to the US dollar
could affect our revenues, cost of sales, operating margins and result in
exchange losses.

Inflation within the ITEX Exchange

         The viability of the ITEX Exchange is maintained by the confidence that
the members of the exchange have in the strength and stability of the ITEX Trade
Dollar. To maintain such confidence it is necessary that the exchange be
operated in a sound and economic manner. As in any economy, the availability and
velocity of currency is vital to maintain a healthy economic climate. An
uncontrolled supply of ITEX Trade Dollars could result in inflation or a
weakening of the ITEX Exchange economy due to decreased buying power or
opportunities of the ITEX Exchange member.

Our stock trades on the OTC Bulletin Board. Our stock price has been volatile
historically, which may make it more difficult for you to resell shares when you
want at prices you find attractive.

         The trading price of our common stock has been and may continue to be
subject to wide fluctuations. During fiscal 2003, the closing sale prices of our
common stock on the OTC Bulletin Board ranged from $0.09 to $0.21 per share and
the sale price of our common stock closed at $0.14 per share on July 31, 2003.
Our stock price may fluctuate in response to a number of events and factors,
such as quarterly variations in operating results, announcements of
technological innovations or new products by us or our competitors, changes in
accounting principles, sales of our common stock by existing stockholders, the
loss of any key personnel, the operating and stock price performance of other
companies that investors may deem comparable, and news reports relating to
trends in our markets. In addition, the stock market in general has experienced
extreme volatility that often has been unrelated to the operating performance of
companies. These broad market and industry fluctuations may adversely affect the
price of our stock, regardless of our operating performance.

         The OTC Bulletin Board is an electronic quotation medium used by
subscribing broker dealers to reflect dealer quotations on a real-time basis.
This over-the-counter market provides significantly less liquidity than the
NASDAQ Stock Market. Quotes for stocks included on the OTC Bulletin Board are
not listed in the financial sections of newspapers as are those for The NASDAQ
Stock Market. Shares that are thinly traded on the Bulletin Board often trade
only infrequently and experience a significant spread between the market maker's
bid and asked prices. Therefore, prices for securities traded solely on the OTC
Bulletin Board may be difficult to obtain and holders of common stock may be
unable to resell their securities at or near their original offering price or at
any price. In the event our securities are not included on the OTC Bulletin
Board and do not qualify for the NASDAQ, quotes for the securities may be
included in the electronic "pink sheets" for the over-the-counter market.

Litigation

         As discussed in "Legal Proceedings" and Note 12 - Legal Proceedings of
the Notes to Financial Statements, we are subject to a variety of claims and
lawsuits. While we believe that none of the litigation matters in which we are
currently involved will have a material adverse impact on our financial position
or results of operations, it is possible that one or more of these matters could
be resolved in a manner that ultimately would have a material adverse impact on
our business, and could negatively impact our profitability, our revenues,
operating margins, net income, and possibly our ability to sustain operations.


                                       22
<PAGE>

ITEM 7. FINANCIAL STATEMENTS

The following financial statements of ITEX Corporation are included in Item 7:

         Report of Independent Certified Public Accountants
         Consolidated Balance Sheets
         Consolidated Statements of Operations
         Consolidated Statement of Stockholders' Equity
         Consolidated Statements of Cash Flows
         Notes to Financial Statements





                                       23
<PAGE>




                          INDEPENDENT AUDITORS' REPORT


Board of Directors and Stockholders
ITEX Corporation
Sacramento, California


We have audited the accompanying consolidated balance sheets of ITEX Corporation
as of July 31, 2003 and 2002, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended July 31,
2003 and 2002. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Itex Corporation as
of July 31, 2003 and 2002, and the results of their operations and their cash
flows for the years ended July 31, 2003 and 2002 in conformity with accounting
principles generally accepted in the United States of America.



                                         /s/ Ehrhardt Keefe Steiner & Hottman PC
                                         ---------------------------------------
                                         Ehrhardt Keefe Steiner & Hottman PC

October 24, 2003
Denver, Colorado

















                                       24
<PAGE>

                                ITEX CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                            July 31,    July 31,
                                                             2003        2002
                                                           ----------  ----------
ASSETS

Current assets:
<S>                                                       <C>         <C>
      Cash and cash equivalents                           $      104  $       90
      Accounts receivable, net of allowance
       of $200 and 50                                            674         896
      Receivable-corporate office sales
       (Note 2)                                                   57          74
      Prepaid and other current assets                           153         130
                                                           ----------  ----------
Total current assets                                             988       1,190

Property and equipment, net of accumulated
 depreciation of $670                                            158         241
and   (Note 3)
 $561

Purchased member lists, net (Note 4)                             502         941

Receivable - regional office sales, less
 current portion (Note 2)                                        200         253

Other assets                                                      72          82
                                                           ----------  ----------

      Total assets                                        $    1,920  $    2,707
                                                           ==========  ==========

   LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
      Notes payable (Note 5)                              $      324  $      300
      Accounts payable                                           265         435
      Accounts payable to independent
       licensed brokers                                          874         680
      Accrued payroll and taxes                                  137         242
      Deferred revenue, current portion                           67          64
      Accrued audit and legal fees                               437         350
      Accrued legal settlements                                   79          82
      Other current liabilities (Note 6)                         127         365
                                                           ----------  ----------
Total current liabilities                                      2,310       2,518

Deferred revenue                                                  91         149



Stockholders' (deficit) equity (Note 8)
      Common stock, $.01 par value; 50,000 shares
       authorized; 18,170 and 17,727 shares issued and
       outstanding, respectively                                 182         177
Additional paid-in capital                                    29,313      29,226
Foreign currency translation                                      14           -
Treasury stock, at cost (2 shares)                               (10)        (10)
Accumulated deficit                                          (29,980)    (29,353)
                                                           ----------  ----------

Total stockholders' (deficit) equity                            (481)         40

                                                           ----------  ----------
      Total liabilities and stockholders'
       (deficit) equity                                   $    1,920  $    2,707
                                                           ==========  ==========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
 statements.


                                       25
<PAGE>

                                ITEX CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)


                                           For the fiscal years ended
                                                     July 31,
                                            -------------------------
                                               2003          2002
                                            -----------   -----------

Revenue:
 Trade exchange
  revenue                                       10,595        10,137
                                            -----------   -----------
                                                10,595        10,137
                                            -----------   -----------

Costs and expenses:
 Costs of trade exchange
  revenue                                        6,384         5,383
 Selling, general and
  administrative                                 3,726         4,354
 Costs and expenses of regulatory and
  litigation matters                               580           458
 Depreciation and
  amortization                                     547           712
                                            -----------   -----------
                                                11,237        10,907
                                            -----------   -----------

Loss from operations                              (642)         (770)
                                            -----------   -----------

Other income
 (expense):
 Other interest income
  (expense), net                                   (51)          (81)
 Gain on sale of
  securities                                         0            63
 Miscellaneous, net                                 66           195
                                            -----------   -----------
                                                    15           177

Loss before income
 taxes                                            (627)         (593)

Income taxes
 (expense) benefit                                   0             0
                                            -----------   -----------

                                                  (627)         (593)

                                            -----------   -----------
Net loss                                   $      (627)         (593)
                                            ===========   ===========


Average common and equivalent
 shares:
 Basic                                          17,733        17,050
                                            -----------   -----------
 Diluted                                        17,733        17,050
                                            -----------   -----------

Net loss per common
 share:
 Basic                                     $     (0.04)        (0.03)
 Diluted                                         (0.04)        (0.03)

The accompanying notes are an integral part of the consolidated financial
statements.


                                       26
<PAGE>

                                ITEX CORPORATION
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
               For the fiscal years ended July 31, 2003 and 2002
                                 (in thousands)

<TABLE>
<CAPTION>



                                             ---------------------------------------------------------------------------
                                                                        Unrealized
                                                             Additional  gain on               Foreign
                                              Common Stock    paid in   marketable Accumulated Currency  Treasury
                                               Shares Amount  capital   securities  deficit   Translation  stock  Total
                                             ---------------------------------------------------------------------------

<S>                                           <C>       <C>    <C>            <C>   <C>      <C>            <C>    <C>
Balance, July 31, 2001                        15,849    $159   $28,977        $34   $(28,760)$               (10)   400

Stock issued to employees and board members    1,155      12        91                                              103

Stock issued to outside consultants
                                                 250       2        27                                               29
Stock issued to previous board
                                                 140       1       104                                              105
Disposal of building at 3400 Cottage Way         333       3        27                                               30

Release of unrealized gain                                                    (34)                                  (34)

Net loss                                                                                (593)                      (593)

                                             ---------------------------------------------------------------------------
Balance, July 31, 2002                        17,727     177    29,226          0    (29,353)          0     (10)    40

Stock issued to employees                        100       1        21                                               22

Stock issued to outside consultants              140       2        27                                               29

Stock issued to new board                        160       2        34                                               36

Exercise of stock options                         43                 5                                                5
-------------------------                         --

Foreign Currency Translation                                                                          14             14

Net Loss                                                                                (627)                      (627)

                                             ---------------------------------------------------------------------------
Balance, July 31, 2003                        18,170     182    29,313          0    (29,980)         14     (10)  (481)
                                             ===========================================================================

</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements


                                       27
<PAGE>


                                ITEX CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)


                                                          Year ended July 31,
                                                          --------------------
                                                            2003      2002
                                                          --------------------
Cash flows from operating activities
  Net (loss) income                                       $   (627)  $   (593)
Items to reconcile to net cash (used in) operations:
  Gain on sale of regional offices                               -       (303)
  Recognition of imputed interest from regional office
   receivables                                                 (12)
  Loss on disposal of building                                   -        190
  Gain on lease settlement                                       -        (31)
  Stock based compensation                                      87        132
  Gain on sale of securities                                     -        (63)
  Depreciation and amortization                                548        712
  Change in allowance for uncollectible receivables            150          -
Changes in operating asets and liabilities:
  Accounts receivable                                           72        185
  Prepaids and other assets                                    (13)        (8)
  Accounts payable, other current liabilities and deferred
   revenue                                                    (415)      (236)
  Other long term liabilities                                    -          -
  Accounts payable to independent licensed brokers             194       (600)
  Non-current deferred revenue                                 (58)         -
                                                           --------   --------
Net cash provided by (used in) operating activities            (74)      (615)
                                                           --------   --------

Cash flows from investing activities:
  Proceeds from sales of regional offices                       82         88
  Proceeds from sales of securities                              -         64
  Net cash used in acquisition of business assets              (13)         0
  Purchase of property and equipment                                      (29)
                                                          ---------   --------
Net cash provided by (used in) investing activities             69        123
                                                           --------   --------

Cash flows from investing activities:
  Borrowings (repayments) of third party indebtedness            -       (424)
  Stock options excercised                                       5          -
                                                           ---------  --------
Net cash provided (used in) by financing activities              5       (424)
                                                           ---------  --------

Effect of exchange rates on cash and cash equivalents           14          -
                                                           --------   --------

Net increase (decrease) in cash and equivalents                 14       (916)
Cash and equivalents at beginning of period                     90      1,006
                                                           --------   --------
Cash and cash equivalents at end of period                     104         90
                                                           ========   ========

Supplemental cash flow information
----------------------------------
  Cash paid for interest                                        68         92
  Cash paid for income taxes                                                7

The accompanying notes are an integral part of the consolidated financial
statements


                                       28
<PAGE>

ITEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company
-----------

ITEX Corporation ("ITEX" or the "Company") was incorporated in October 1985 in
the State of Nevada. The Company operates a business-to-business payment system
for retail, professional, media and other corporate members for which it acts as
third-party record-keeper and in many cases, an independent broker for
transactions between members of the exchange. The Company collects monthly
association fees and percentage based transaction fees. In addition, the Company
provides merchandise for sale to its members for trade dollars.

A summary of significant accounting policies applied in the preparation of the
accompanying consolidated financial statements follows:

Revenue Recognition
-------------------

ITEX recognizes revenue from various cash fees charged in managing the trade
exchange when persuasive evidence of an arrangement exists, the transaction has
occurred or the monthly service has been provided, the charges are fixed and
determinable and no major uncertainty exists with respect to collectibility.

The Company charges members of the trade exchange an association fee of $20 cash
per four-week accounting cycle, $260 annually, and $10 ITEX Trade Dollars each
cycle, $130 Trade Dollars annually, in accordance with its trade exchange member
agreements. Association fees can be paid by cash, check or by using the
Company's Preferred Member Autopay system.

ITEX also receives cash transaction fees based on the value of the barter
transaction, from both the buyer and the seller. Members are billed at the end
of each four-week accounting cycle. If a member pays automatically by credit
card or electronic funds transfer through the Company's Preferred Member Autopay
system, the cash fee is 5% of the trade dollar amount of the member's purchases
and sales during the billing period. If a member pays by check or otherwise
after receiving a mailed statement at the end of each four-week cycle, the cash
fee is 7-1/2% of the trade dollar amount of that member's purchases and sales
during the period. Currently, approximately 85% of member payments are made
automatically through electronic funds transfer or by credit cards using the
Preferred Member Autopay system.

As described below under accounting for transactions in trade dollars, the
Company historically has not recorded revenues for trade dollars received in
exchanges with its trade exchange members.

Ongoing Independent Licensed Brokers and  Franchise Related Revenue
-------------------------------------------------------------------

Franchisees and existing Independent Licensed Brokers (ILB) are paid a
percentage of revenues collected by the Company, which ranges from 40% to 75%
depending on the volume of transactions of the members they service and net
increases in the number of members enrolled during each 28-day accounting cycle.
Receipts are recorded as revenue and payments to ILBs and franchisees are
included in costs of sales.

                                       29
<PAGE>

Accounting for Trade Dollar Activities
--------------------------------------

The Company receives trade dollars for monthly services provided to its ITEX
Exchange members and as transaction fees for exchanges made by its members. The
Company also expends trade dollars in the acquisition of goods or services used
in its operations. When reasonably determinable, the Company records these
transactions at the fair value of the goods or services received. Historically,
the Company has spent virtually all trade dollars for broker commissions,
advertising, salaries and legal settlements. Because there is no readily
estimable or determinable value for these goods and services, they are not
reflected in the accompanying financial statements. The Company also has the
ability to spend or create trade dollars with no obligations to the exchange.
The Company has historically spent more trade dollars that it has earned.

Transactions that originate from the creation of trade dollars expended for
goods or services do not qualify as exchanges under APB 29 and, accordingly are
not reflected in the accompanying financial statements.

Transactions that involve the exchange of goods or services for other goods or
services are accounted for in accordance with APB 29 and the interpretations
contained in EITF 93-11 and 99-17. Accordingly, the Company generally records
exchanges at the carrying value of goods or services exchanged which is
typically zero, as the fair values of the goods or services exchanged lack
readily determinable fair values within reasonable limits as the Company has no
history of receiving cash in similar transactions, and therefore the earnings
process has not been completed.

IRS Requirements
----------------

While the accounting policies described above are used for financial reporting
purposes, the Internal Revenue Service requires, for purposes of taxation, that
the Company recognize revenues, expenses, assets, and liabilities for all
transactions in which the Company either receives or spends ITEX trade dollars
using the ratio of one U.S. dollar per ITEX Trade Dollar. The Company accounts
for ITEX Trade Dollars internally, in addition to cash, in statements to members
and independent licensed brokers and in other ways necessary for the operation
of the trade exchange and the business of the Company.

Principles of Consolidation
---------------------------

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All inter-company accounts and transactions have
been eliminated.

Net Revenue and Deferred Revenue
--------------------------------

The Company charges cash association fees to each member and individual cash
transaction fees from the buyer and seller. Revenues related to the monthly
association fees and transaction fees are recognized immediately. Revenues
related to new membership fees and related commissions are deferred and
amortized over the average life of a membership, approximately four (4) years.

Cash and Cash Equivalents
-------------------------

Cash and cash equivalents includes all cash and highly liquid investments with
maturities at the date of purchase of 90 days or less.

                                       30
<PAGE>

Concentrations of Credit Risk
-----------------------------

At July 31, 2003, the Company maintained its major cash balances at one
financial institution located in Portland, Oregon and two financial institutions
in Canada. The balances are insured by the Federal Deposit Insurance Corporation
up to $100 and by the Canadian Deposit Insurance Corporation up to $39. At July
31, 2003, the Company's had no uninsured cash balance.

Property and Equipment
----------------------

Property and equipment are stated at cost and include those additions and
improvements that add to productive capacity or extend useful life. When
property or equipment are sold or otherwise retired, the cost and related
accumulated depreciation are removed from the respective accounts and the
resulting gain or loss is recorded in the statement of operations. The costs of
repair and maintenance are charged to expense as incurred. Depreciation is
computed using the straight-line method over useful lives of three to five
years.

Intangible Assets
-----------------

The Company amortizes costs of customer lists acquired in business combinations
using the straight-line method over the estimated life of four years.

Long-Lived Assets
-----------------

The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recovered. The Company looks primarily to the undiscounted future cash flows
in its assessment of whether or not long-lived assets have been impaired. At
July 31, 2003, the Company determined no impairment was appropriate.

Other Assets
------------

The Company accounts for holdings of equity securities of other companies
pursuant to Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" (SFAS 115). The Company's
equity securities generally qualify under the provisions of SFAS No. 115 as
available for sale. As of July 31, 2003 the Company was not holding any such
securities.

Income Taxes
------------

The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109. Under SFAS No. 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.

Income (Loss) Per Share
-----------------------

The Company prepares its financial statements in accordance with the provisions
of Statement of Financial Accounting Standards No. 128, "Earnings per Share",
which requires presentation on the face of the statement of operations for both
basic and diluted earnings per share. Basic earnings per share excludes
potential dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity.

                                       31
<PAGE>

Fair Value of Financial Instruments
-----------------------------------

All of the Company's significant financial instruments are recognized in its
balance sheet. The carrying value of financial assets and liabilities generally
approximates fair value as of July 31, 2003.

Estimates and Assumptions
-------------------------

Management uses estimates and assumptions in preparing financial statements in
accordance with accounting principles generally accepted in the United States of
America. Those estimates and assumptions affect the reported amounts of assets,
liabilities, revenue, expenses, gains and losses, and disclosures about
contingent assets and liabilities. Significant estimates include the fair value
of non-monetary transactions, various litigation matters described herein and
the recoverability of certain intangible assets. Actual results may vary from
estimates and assumptions that were used in preparing the financial statements.

Reclassifications
-----------------

Certain reclassifications have been made to the financial statements of prior
years to conform to the July 31, 2003 presentation. Such reclassifications had
no effect on the results of operations or stockholders' equity.

Recent Accounting Pronouncements
--------------------------------

In November 2002, the FASB published interpretation No, 45 "Guarantor's
Accounting and Disclosure requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others". The Interpretation expands on the
accounting guidance of Statements No. 5, 57, and 107 and incorporates without
change the provisions of FASB Interpretation No. 34, which is being superseded.
The Interpretation elaborates on the existing disclosure requirements for most
guarantees, including loan guarantees such as standby letters of credit. It also
clarifies that at the time a company issues a guarantee, the company must
recognize an initial liability for the fair value, or market value, of the
obligations it assumes under that guarantee and must disclose that information
in its interim and annual financial statements. The initial recognition and
initial measurement provisions apply on a prospective basis to guarantees issued
or modified after December 31, 2002, regardless of the guarantor's fiscal
year-end. The disclosure requirements in the Interpretation are effective for
financial statements of interim or annual periods ending after December 15,
2002. The Company is currently evaluating what effect the adoption of this
statement will have the Company's financial statements. The Company does not
expect the adoption of this statement to have a material effect on the Company's
financial statements.

In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation- Transition and Disclosure". This statement amends SFAS No. 123,
"Accounting for Stock-Based Compensation" to provide alternative methods of
transition for an entity that voluntarily changes to the fair value method of
accounting for stock-based compensation. In addition, SFAS 148 amends the
disclosure provision of SFAS 123 to require more prominent disclosure about the
effects of an entity's accounting policy decisions with respect to stock-based
employee compensation on reported net income. The effective date for this
Statement is for fiscal years ended after December 15, 2002. The Company does
not expect the adoption of this statement to have a material effect on the
Company's financial statements.

                                       32
<PAGE>

In April 2003, the SFAS No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities" was issued. This statement amends and
clarifies the accounting and reporting for derivative instruments, including
instruments embedded in other contracts such that contracts with comparable
characteristics are accounted for similarly. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003, except for hedging
relationships designated after June 30, 2003. Currently we do not expect SFAS
No. 150 to have a material effect on our financial statements.

In May 2003, the SFAS No. 150, "Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity" was issued. This statement
establishes standards for how to classify and measure certain financial
instruments with characteristics of both liabilities and equity. Many
instruments that were previously classified as equity will be required to be
reported as liabilities under SFAS No. 150. This statement is effective for
financial instruments entered into or modified after May 31, 2003 and at the
beginning of the first interim period beginning after June 15, 2003, except for
mandatory redeemable instruments. Currently we do not expect SFAS No. 150 to
have a material effect on our financial statements.


NOTE 2 - CORPORATE OFFICE RECEIVABLES -

During fiscal 2002 the Company sold its corporate-owned offices in Portland,
Lafayette, Orlando, Jensen Beach, Houston, and St. Louis to independent licensed
brokers.
<TABLE>
<CAPTION>

                                                             Balance at                 Long
                                                Sale Amount   July 31,    Current       Term        Projected Payoff
    Office Location           Date of Sale                      2003       Portion     Portion            Date
----------------------------------------------------------------------------------------------------------------------


<S>                                <C>                  <C>          <C>        <C>          <C>                  <C>
Portland, OR              October, 2001                 $92          $58        $15          $43       September, 2006
Lafayette, LA             October, 2001                 $38          $22         $9          $13            July, 2005
Orlando, FL               September, 2001               $78          $44        $15          $29         January, 2006
Jensen Beach, FL          October, 2001                 $50          $20         $5          $15            July, 2009
Houston, TX               November, 2001                $97          $85         $6          $79       September, 2014
St. Louis, MO             March, 2002                   $35          $28         $7          $21        December, 2007
                                                -------------------------------------------------

                                                       $390         $257        $57         $200
                                                =================================================
</TABLE>

The corporate-owned offices sold carried a net book value of $112 (consisting of
$8 in fixed assets and $104 in member lists) in exchange for receivables of
$415. The Company recognized a gain in fiscal year 2002 of $303, included in
miscellaneous income (expense). In fiscal year 2003, the Jensen Beach note was
written down by $25 to reflect a negotiated settlement between the Company and
the buyer.

                                       33
<PAGE>

NOTE 3 - PROPERTY AND EQUIPMENT

                                                     Accumulated
                            Estimated   Balance July Depreciation  Net Book
     Fixed Asset Type       Useful Life   31, 2003   July 31, 2003    Value
------------------------------------------------------------------------------
Computers                     3 years    $      265  $        240  $       25
Software                      3 years    $       12  $          5  $        7
Equipment                     5 years    $      413  $        311  $      102
Furniture                     5 years    $      138  $        114  $       24
                                          ----------  ------------  ----------
                                         $      828  $        670  $      158
                                          ==========  ============  ==========

Property and equipment is depreciated using the straight line method over the
asset's estimated useful life. Depreciation expense for property and equipment
was $108 and $256 for the fiscal years ending July 31, 2003 and 2002,
respectively.


NOTE 4 - PURCHASED MEMBER LISTS

At July 31, 2003, the cost of acquired member lists was $2,027, less accumulated
amortization of $1,525, for a net carrying value of $502. These amounts include
the new member lists acquired in the purchases of the Canada, Seattle and
Sacramento brokerages.

Changes in the carrying amount of member lists for the year ended July 31, 2003
are summarized as follows:

Balance as of July 31, 2002   $     941
Amortization                  $    (439)
                               ---------
Balance as of July 31, 2003   $     502
                               =========

NOTE 5 - NOTES PAYABLE

As of July 31, 2003 ITEX had a $300 short-term note payable, bearing interest of
16% with principal due on December 31, 2003. The note originated in third
quarter of fiscal 2001. In December, 2002 the Company further incurred costs
associated with this note by foregoing the interest, by only paying $0.1 per
month. The $3.9 interest continued to accrue at a 16% APR. In addition the
Company paid the lender a 4% renewal charge of $12 annually. As of July 31,
2003, the note, including principle and interest totaled $330. Total interest
expense incurred in 2003 and 2002 was $ 48 and $69, respectively, with total
cumulative interest paid and accrued as of July 31, 2003 totaling $148, an
annual percentage rate over 21%. This note was secured by certain personally
owned real property of a former President and CEO of the Company. In a
subsequent event, the loan was paid in full with loan proceeds from the Chairman
of the Company. See Note 14 - Related Party Transactions of the Notes to
Financial Statements.

NOTE 6 - OTHER CURRENT LIABILITIES

At July 31, 2003, the balance in other current liabilities consists primarily of
an accrual for the annual shareholders' meeting, and the Goods and Service Tax
(GST) payable to the Canadian government totaling $30 and $75 respectively.

                                       34
<PAGE>

NOTE 7 - COMMITMENTS AND CONTINGENCIES

The Company conducts a portion of its business utilizing leased facilities in
various cities in which it operates. 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 Company also leases a portion of its equipment and furniture under
operating leases. The aggregate future minimum commitments under operating
leases are as follows:

           Fiscal year ending July 31,
                           2004                        $  78
                           2005                           31
                           2006                            3
                                                  ----------------

           Total                                       $ 112
                                                  ----------------

Office rent expense for the periods ended July 31, 2003 and 2002 amounted to
$248 and $315, respectively. Equipment rent expense for the periods ended July
31, 2003 and 2002 amounted to $71 and $100, respectively.

In the ordinary course of business, the Company may be subject to litigation
matters and claims that are normal for its operations. The results of litigation
and claims cannot be predicted with certainty. For the employment-related and
other pending litigation matters, ITEX recognized an aggregate contingent
liability of $400 during the fourth quarter ended July 31, 2003, to cover
potential losses from and future expenses relating to these claims. See NOTE 12
for detailed discussion of legal matters.

NOTE 8 - STOCKHOLDERS' EQUITY

The Company adopted the following incentive stock option plans under which
common stock may be purchased by employees, officers, directors and consultants
of the Company. All option prices are at market price at the date of grant.
<TABLE>
<CAPTION>

Date of Plan Adoption            Number of            Grant Period               Date of Stockholder
                                 Shares                                          Approval
                                 Authorized
-----------------------------    --------------       -----------------------    ----------------------------

<S>                              <C>                  <C>                        <C>
February 11, 1994                200,000              10 years                   February 10, 1995
October 26, 1994                 750,000              10 years                   February 10, 1995
December 15, 1995              1,250,000              10 years                   May 3, 1996
September 3, 1997                965,000              10 years                   February 9, 1999
</TABLE>

The following summarizes activity for the fiscal years ended July 31, 2003 and
2002 activity (actual numbers)
<TABLE>
<CAPTION>

                                              Number of Options
                                     ----------------------------------
                                       Available           Granted              Option Price per Share
                                     --------------     --------------------------------------------------

<S>                                     <C>               <C>                        <C>
Balance, July 31, 2001                   86,000            4,416,000                  $0.40 - $6.13
   Granted                            (1,290,000)          1,290,000                  $0.08 - $0.21
   Cancelled                           3,506,000          (3,506,000)                 $0.08 - $6.13
                                     -----------          ----------

Balance, July 31, 2002                 2,302,000           2,200,000                  $0.40 - $6.13
   Granted                               (70,500)             70,500                  $0.11 - $0.13
   Cancelled                           2,080,000          (2,080,000)                 $0.08 - $6.13
                                     -----------          ----------

Balance, July 31, 2003                2,7744,500             190,500
</TABLE>


                                       35
<PAGE>

In the fiscal year 2003, the Company issued options to purchase 71 shares of
common stock to employees, officers and directors. Options to purchase 2,080
shares of common stock were canceled during the period according to the terms of
the option agreements. The exercise price of options granted were equal to the
fair market value as determined by the closing bid price for the Company's
common stock on the date of grant. Exercise prices varied from $0.08 to $0.21.
The options vest 25% immediately and 25% each year. Employee options expire if
they are not exercised within 30 days of termination of employment.

The weighted average contractual life of options granted through July 31, 2003,
is 5 years. The weighted average exercise prices for the options outstanding at
July 31, 2003 are as follows:
<TABLE>
<CAPTION>

    Exercise Price                Common Stock               Weighted Average Exercise
        Range                        Options                          Prices
------------------------      -----------------------        ---------------------------

<S>                                  <C>                               <C>
     $0.09 - $0.75                   190,500                           $0.24
</TABLE>

Stock-Based Compensation
------------------------

The Company accounts for stock-based compensation in accordance with. FASB
Statement No. 123, "Accounting for Stock-Based Compensation." Statement 123
allows for the Company to account for its stock option plans in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees" using the
intrinsic value method. The Company granted options to purchase 71 and 1,290
shares of common stock to employees and directors during the years ended July
31, 2003 and 2002.

The following table summarizes the difference between the fair value and
intrinsic value methods and the pro forma net income and net loss per share
amounts for the years ended July 31, 2003 and 2002 had the Company adopted the
fair value-based method of accounting for stock-based compensation.

                                                           Years ended July 31,
                                                          2003           2002
                                                      ------------   -----------
Difference between fair value and intrinsic                  $5             $97
value methods (additional compensation expense)

Net (loss) income                                           (632)          (690)


Net (loss) income per share - basic                         (.04)          (.04)

Net (loss) income per share - diluted                       (.04)          (.04)

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model, with the following weighted average
assumptions used for grants in fiscal 2003 and 2002: dividend yield of zero,
expected average annual volatility of 148%, average annual risk-free interest
rate of 3.5and 4.5%, and expected lives of five and three years.

                                       36
<PAGE>

Because Statement 123 method of accounting has not been applied to options
granted prior to August 1, 1996, the resulting pro forma compensation cost may
not be representative of that to be expected in future years. The impact on
future years is not known or reasonably estimable.

Statement 123 also applies to transactions in which an entity issues its equity
instruments to acquire goods or services from non-employees.

Shares Issued
-------------

In fiscal year 2003, the Company issued 442 shares to board members, executives
and outside consultants. The effect of this transaction was an increase of $4 in
common stock and $87 in additional paid-in capital. Shares issued include an
annual grant to outside board members of 40 shares each in lieu of cash
compensation.

NOTE 9 - INCOME TAXES

Comparative analysis of the provision (credit) for income taxes for the fiscal
years ended July 31, 2003 and 2002 follows:

                                                  Years ended July 31,
                                                2003               2002

Current
     Federal                                 $     0                 0
     State
                                             ------------       ------------
                                             $     0                 0
Deferred
     Federal
     State
                                             ------------       ------------

Tax (benefit) expense                        $     0                 0


The computed income tax expense (credit) differs from applying the U.S. federal
income tax rate due to losses before income taxes for the years ended July 31,
2003 and 2002 and because of realization of net operating losses in the years
ended July 31, 2003 and 2002. The following reconciles expected income tax
effects at a range of 34% to the provision (credit) for income taxes:

                                                        Years ended July 31,
                                                        2003            2002

Taxes at U.S. federal statutory rate                   $  (214)        $  (283)
Change in deferred tax valuation allowance other
than realization of net operating loss                     214             283
Other, net                                                   0               0
                                                   ------------   -------------

Tax (benefit) expense                                  $     0         $     0



                                       37
<PAGE>

The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities at July 31, 2003 and 2002 are presented
below:

                                                Years ended July 31,
                                                  2003         2002

Deferred tax assets:
   Net trade activity included for income tax  $       -    $       -
   purposes not recognized for financial
   reporting
   Investments and assets impaired for
    financial                                      1,051        1,069
   reporting not disposed of for tax purposes
   Amortization                                      557          598
   Net operating loss carryforward                 5,657        5,418
   Capital loss carryforward                                       -
   Other                                             554          673
                                                ---------    ---------
                                               $   7,819        7,758

Deferred tax liabilities:
   Amortization                                        0          (63)
                                                ---------    ---------

Net deferred tax assets                            7,819        7,695
Valuation allowance                               (7,819)      (7,695)
                                                ---------    ---------
                                               $       -    $       -



In assessing the realizability of deferred tax assets, management considers
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 generating of future taxable income during the periods in
which those temporary differences become deductible. Management considers 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. At this time, management has concluded that it is not
likely that the Company will realize the benefits of these deductible
differences as there can be no assurance that the Company will generate the
necessary taxable income in any future periods.

NOTE 10 - 401(k) SAVINGS PLAN AND BONUS PLAN

Employees of the Company may participate in a 401(k) savings plan, whereby the
employees may elect to make contributions pursuant to a salary deduction
agreement upon meeting age and length of service requirements. The Company may
make optional matching contributions of 50% of electing employees' deferrals, up
to a ceiling amount of 3% of gross annual wages. There were no matching
contributions to the plan for the years ended July 31, 2003 and 2002.

NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The following estimated fair value amounts have been determined using available
market information and appropriate valuation methodologies. However,
considerable judgment is necessarily required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented are
not necessarily indicative of the amounts that the Company could realize in a
current market exchange.

                                       38
<PAGE>

The use of different market assumptions and/or estimation methodologies may have
a material effect on the estimated fair value amounts.

Financial Accounting Standards Board Statement No. 107 requires the disclosure
of fair value for financial instruments. The following disclosures are made in
accordance with the requirements of that Statement. The estimated fair value has
been determined by the Company using appropriate valuation methodologies and
available or quoted market information.

                                                  Carrying         Fair Value
                                                   Amount
                                                -------------    --------------
                    Assets
Cash                                                   $ 104             $ 104
Accounts receivable                                      674               674
Regional office receivable                                57                57

                 Liabilities
Accounts payable                                       $ 265             $ 265
Accounts payable to brokers                              874               874
Current portion long-term debt                           324               324

The carrying values of cash, accounts receivable, notes receivable, accounts
payable, and portion of receivables due to independent licensed brokers
approximates their fair value at July 31, 2003.

The fair value of current and long-term portions of long-term indebtedness is
based on rates currently available to the Company for debt of similar terms and
remaining maturities. There are no quoted market prices for the debt or similar
debt.

NOTE 12 - LEGAL PROCEEDINGS

         In July 2003, ITEX, together with directors Eric Best, John Wade,
Steven White and Alan Zimmelman, became parties to a legal proceeding initiated
by Daniela Calvitti, former CFO of ITEX (Daniela C. Calvitti v. ITEX
Corporation, Eric Best, John Wade, Steven White, Alan Zimmelman, and DOES 1
through 50, inclusive, filed in the Sacramento County Superior Court, Case No.
03AS04123). Ms. Calvitti seeks damages from ITEX and its directors on several
theories of relief, including retaliation, wrongful termination in violation of
public policy, breach of written contract, breach of the implied covenant of
good faith and fair dealing, employment related defamation, intentional
infliction of emotional distress and negligence. Plaintiff's complaint was
subsequently amended to add claims for interference with contract and business,
and misrepresentation in relation to securities. Plaintiff seeks damages to be
determined at trial, together with exemplary or punitive damages and an award of
attorneys' fees and costs. The claim arises out of the termination of
plaintiff's employment with the Company during March 2003. The Company believes
it had cause to terminate the employment of plaintiff under the terms of her
employment agreement, and that plaintiff's claims are without merit.

         In August 2003, ITEX, together with Lakemont Capital and directors Eric
Best, John Wade, Steven White and Alan Zimmelman, became parties to a legal
proceeding initiated by Lewis "Spike" Humer, Jr. and Melvin Kerr, former CEO and
COO of ITEX, respectively (Lewis "Spike" Humer, Jr., Melvin Kerr v. ITEX
Corporation, Lakemont Capital, Eric Best, John Wade, Steven White, Alan
Zimmelman, and DOES 1 through 50, inclusive, filed in the Sacramento County
Superior Court, Case No. 03AS04427). The plaintiffs seek damages from ITEX and
its directors, as well as Lakemont Capital, on several theories of relief,
including breach of express contract, breach of implied covenant of good faith
and fair dealing, violation of Labor Code 1102.5, termination in violation of
public policy, intentional misrepresentation of fact and negligent
misrepresentation of fact. Plaintiffs seek damages to be determined at trial for
lost income and benefits, for mental distress, emotional distress and mental
anguish, as well as punitive damages, prejudgment interest, and an award of
attorneys' fees and costs. The claim arises out of the termination of
plaintiffs' employment with the Company in June 2003. The Company believes it
had cause to terminate the employment of each of the two plaintiffs under the
terms of their respective employment agreements, and that plaintiffs' claims are
without merit.

                                       39
<PAGE>

         The Company will initially seek to strike plaintiffs' claims relating
to punitive damages and emotional distress. Despite management's belief that
ITEX had cause to terminate the employment of each of the three plaintiffs, the
outcome of this matter cannot be predicted at this time and if either plaintiff
is successful in obtaining a jury verdict, the award could be substantial and
have a material adverse affect on the Company.

         In a related employment matter, Lewis Humer and Melvin Kerr filed
claims with the Labor Commissioner of the State of California (Case Nos.
08-40720 and 08-40721, respectively) for unpaid vacation pay, wages and expenses
totaling $20 and $5, respectively, and requesting penalties of $22 and $19,
respectively.

         On May 13-15, 2003, a jury trial was completed in the case of Moore, et
al v. ITEX Corporation, et al. (Wendy Moore, Rocky Moore and Sweetwater Lone
Tree Roofing, Inc. v. ITEX Corporation, Itex Trade Exchange, International Trade
Exchange, Abilene Trade Exchange, Inc. Adam Keidl and Carol Phelps, filed in the
32nd Judicial District Court of Nolan County, Texas, Cause No. 18,317). The
lawsuit involved claims brought under the Texas Deceptive Trade Practices Act
that independent representatives of ITEX made certain deceptive representations
to induce plaintiffs to join and participate in the ITEX exchange. The Company
denied wrongdoing and vigorously defended the claims as asserted in the
litigation. The jury found in favor of the lone corporate plaintiff as against
all defendants, and awarded Plaintiff $105 in damages (reduced by $50 if the
case was not appealed) for which ITEX was jointly and severally liable, plus
additional damages of $32 of which ITEX was liable for $10. After the filing of
a motion for a new trial, the matter was settled out of court and plaintiffs'
claims dismissed with prejudice.

         In June 2003, an action was filed by United Trade Network against ITEX
related to its opening of a company-owned store in Las Vegas, Nevada, and its
employment of John Madera. (United Trade Network v. ITEX Corporation, John
Madera, Does I-V, inclusive, filed in District Court, Clark County, Nevada, Case
No. A468693). Plaintiff alleged that defendant Madera breached a covenant not to
compete, and has alleged theft of trade secrets, tortuous interference with
economic advantage and breach of contract. Plaintiff sought injunctive relief
ordering that the employment of Madera be terminated, that its trade secrets be
protected and for compensatory damages in excess of $10. The Las Vegas office
was subsequently closed on June 19, 2003, and plaintiff's claims were dismissed
with prejudice.

         In a matter related to the opening of a broker office in Salt Lake
City, an action was filed in May 2003 against ITEX and its former CEO Lewis
Humer by an existing ITEX broker (Graham Norris, Sr. and Zibco Corporation, DBA
ITEX-in-Utah v. ITEX Corporation, Lewis "Spike" Humer, ITEX of Salt Lake, Eric
Laker, Tina Marie Fowler and Does 1-10, filed in Third Judicial District, Salt
Lake City, Utah, Case. No. 030909748). The complaint alleges breach of duty of
good faith and fair dealing and intentional interference with current and
prospective economic relations, and seeks unspecified damages, including
punitive damages. Management will endeavor to seek a resolution of the
underlying issues, but the outcome of this matter cannot be predicted at this
time.

         For the employment-related and other pending litigation matters, ITEX
accrued $400 during the fourth quarter ended July 31, 2003, to cover potential
losses from and future expenses relating to these claims.

                                       40
<PAGE>

         The Company is subject from time to time to claims and litigation
incurred in the ordinary course of business, which management believes will not
have a material effect on the financial position or results of operations of the
Company.

NOTE 13 - SUBSEQUENT EVENTS

During the first quarter of fiscal 2004 the Company sold its corporate-owned
offices in New York, Toronto, and Sacramento to an independent Broker and
franchisees.
<TABLE>
<CAPTION>


   Office                                         Balance at     Current     Long-Term      Projected
   Location       Date of Sale     Sale Amount October 2, 2003   Portion      Portion      Payoff Date
--------------------------------------------------------------------------------------------------------
<S>                   <C>               <C>            <C>           <C>         <C>              <C>
New York      August, 2003              $350           $350          $62         $288    January, 2009
Toronto       August, 2003              $600           $600         $102         $498    January, 2009
Sacramento    October, 2003             $800           $700          $99         $601    April, 2010
                                   ---------------------------------------------------
                                      $1,750         $1,650         $263       $1,387
                                   ===================================================
</TABLE>


The corporate-owned offices sold carried a net book value of $321(consisting of
$42 in fixed assets and $279 in member lists) in exchange for receivables of
1,650. The offices sold for a total of $1,750 with one office providing $100 on
the date of purchase. The Company will recognize a gain of $1,429 in the first
quarter of fiscal year 2004.


NOTE 14 - RELATED PARTY TRANSACTIONS

         As of July 31, 2003, we carried a $300 short-term note payable to an
individual, bearing interest of 16% with principal due on December 31, 2003. The
note originated in the third quarter of fiscal 2001, and carried an initial
service charge plus an additional annual renewal fee of 4%. Our payments of
interest and service charges under this note during the first two years of its
existence resulted in an effective annual interest rate of 21%. In December
2002, the Company further incurred costs associated with this note by foregoing
the interest, by only paying $0.10 per month. The unpaid interest continued to
accrue at a 16% APR. As of July 31, 2003, the note, including principal and
interest totaled $330. At July 31, 2003, the note was secured by certain
personally owned real property of a former President and CEO of ITEX.

         On October 2, 2003, the chairman of the Company acted to relieve ITEX
of this loan by loaning the Company $300. The loan was used to pay off the note
balance, which had accrued to $345 in exchange for a one-year secured promissory
note with interest at 8%, 13% less than the previous effective interest rate.
The loan is secured by a security interest in substantially all of our assets.

         As of July 31, 2003 the company paid Lakemont Capital $35 related to
the proxy contest at the annual shareholder meeting in February, 2003. At July
31, 2003 Lakemont Capital was due $20. Lakemont Capital, Ltd. is an affiliate of
the current Chairman of the Board of ITEX Corporation.




                                       41
<PAGE>



NOTE 15 - SIGNIFICANT FOURTH QUARTER ADJUSTMENTS

         Current management assessed the likelihood of collecting the $111 GST
receivable from exchange members as remote and has written off to bad debt
expense.

         The Company performed a detailed review of accounts receivable in the
fourth quarter of 2003. As such, management deemed that A/R should be adjusted
downward $314. The adjustment consists of a $138 increase in the bad debt
reserve and a direct write off of $176 for accounts receivable, both of which
were recorded as a direct reduction of revenues in the fourth quarter.

         The Company accrued $400 for defense and counter claim cost of three
former executives and an Independent Licensed Broker. See Table Below.


Summary of Significant 4th Quarter Adjustments

Goods and Services Tax Write Off         $      111
Accounts Receivable Write Down                  314
Accrued Legal                                   400
                                          ----------
Total Adjustments                        $      825
                                          ==========

Goods and Services Tax

         In December 2002, the Canadian Customs and Revenue Agency ("CCRA")
contacted the company regarding Goods and Services Tax ("GST") that should have
been assessed to the ITEX exchange membership base from March 2001 - December
31, 2002. In March 2003, former management billed the unbilled GST, for the
eight preceding quarters to the membership base and established a GST receivable
of $151 to offset the corresponding liability. A reserved $25 was also
established to account for the possibility that the Company may not be able to
fully collect on some of the older GST balances. As of July 31, 2003, the
collection efforts yielded receipts of $15. Current management has assessed the
likelihood of collecting the remaining $111 as remote and as a result of the
analysis has written off the remaining balance to bad debt expense. The company
remains obligated to pay the remaining tax balance of $78 as of July 31, 2003.

         As of July 31, 2003, the Company paid $89, leaving an outstanding
balance due CCRA of $78, including interest and penalties totaling $16.

Accounts Receivable

         The Company performed a detailed review of accounts receivable in the
fourth quarter of 2003. As such, management deemed that A/R should be adjusted
downward $314, The adjustment consisted of a $138 increase in the bad debt
reserve and a direct write off of $176, both of which were recorded as a direct
adjustment to revenues.


                                       42
<PAGE>

          (1) accounts receivable over ninety days outstanding average $40 per
month; (2) fee reversals from prior transactions average $45 per month; and (3)
approximately 50% of the Company's aged receivables, average $230 per month, are
collected with exceptions. Therefore, an increase of $138 ($62 had been
accounted for in previous periods) to the accounts receivable reserve was
necessary as of July 31, 2003. The AR reserve resulted in a reduction of
revenues in the fourth quarter. The Company is now assessing the accounts
receivable reserve on a quarterly basis.

Accounts Receivable Allowance Analysis

                                           Amount   Likelihood of      Total
                                                      occurrence
AR over 90 days                          $      40            100%  $       40
Average reversal of fees                        45            100%          45
AR aging total                                 230             50%         115
                                                                     ----------
                                                                          200
                                                                    ==========

Total Accounts Receivable (per
 Balance sheet)                                                            874

Reserve as a percentage of total AR                                         23%

Legal Accrual

         During the fourth quarter of fiscal 2003 the Company became a defendant
in three separate legal suits related to three former executives and an
Independent Licensed Broker. The Company accrued $400 to cover potential losses
from and future expenses relating to these claims. See Note 12 - Legal
Proceedings for further details.

Payroll Accrual

         During the fourth quarter of fiscal 2003 claims were filed by two
former executives for unpaid vacation, wages, and expenses. Although the Company
will vigorously defend these claims, a decision was made by management to accrue
for the total amount being claimed in both cases totaling approximately $67. See
Note 12 - Legal Proceedings for further details.

Item 8.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure.

         None.

Item 8A. Controls and Procedures

         Changes in Internal Controls

         In June 2003, the Board of Directors terminated the employment of the
Chief Executive Officer and the Chief Operating Officer who were in office
during the entirety of the third fiscal quarter of 2003. The employment of the
Chief Financial Officer was terminated during the middle of the third quarter of
2003.

         During the second half of fiscal 2003, the Board of Directors became
aware of certain deficiencies and weaknesses in our Internal Controls. To
address the deficiencies and weaknesses identified, we hired an Internal Control
Advisor in June 2003 and have implemented and continue to implement changes
required to our processes, procedures, systems and personnel. We have also taken
corrective actions with regard to our Internal Controls, which include, among
other things:

                                       43
<PAGE>

     --   Adopting of a Code of Ethics applicable to the CEO and Senior
          Financial Officers;
     --   Recognizing and communicating to managers and employees the duties and
          responsibilities of the Audit Committee;
     --   Granting employees full access to Company management, the Audit
          Committee and the independent auditors;
     --   Restructuring the finance department with an emphasis on
          accountability;
     --   Increasing supervisory and management review procedures during the
          month-end closing process;
     --   Establishing new processes and procedures for various activities
          including disbursements, revenues assurance and monitoring internal
          projects;
     --   Centralizing several critical functions including the accounts
          payable, billing and credit control;
     --   Performing accounting reconciliation activities on a more regular
          basis;
     --   Implementing a centralized purchase order system;
     --   Revising the approval authority matrix signatories and limits;
     --   Safeguarding how transactions are properly authorized; o Safeguarding
          assets against unauthorized or improper use;
     --   Safeguarding how transactions are properly recorded and reported;
     --   Implemented revenue recognition procedures;
     --   Conducted a detailed study of the adequacy of internal accounting and
          regulatory controls

         Evaluation of Disclosure Controls and Procedures

         Under the supervision and with the participation of our management,
including our Chairman performing the functions of interim principal executive
officer and interim principal financial officer, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14(c) as of the end of the period
covered by this report. Based on that evaluation, which was concluded in the
course of preparing our financial statements for the year ended July 31, 2003
and in connection with the audit of our financial statements for 2003 by our
independent auditors, management concluded that these disclosure controls and
procedures are effective in timely alerting them to material information
required to be included in our periodic SEC reports.

         During the course of this review and evaluation, we performed
additional substantive procedures, including a review of specific balance sheet
and operating expense accounts, a review of our revenue recognition and accounts
receivable policies, as well as implementing the additional internal controls
described above. We believe the actions we have taken and the additional
substantive procedures we have performed, provide us with reasonable assurance
that any deficiencies and weaknesses we identified in our disclosure controls
and procedures did not result in material misstatements in our consolidated
financial statements contained in this Annual Report on Form 10-KSB. We intend
to continue to evaluate and implement actions to improve the effectiveness of
our disclosure controls and procedures, and will take further actions as
dictated by our reviews.

         Despite the fact that improvements have been made, the corrective
actions and changes being made to our internal control over financial reporting
have not yet been fully implemented and tested. Notwithstanding management's
conclusions, the effectiveness of a system of disclosure controls and procedures
is subject to certain inherent limitations, including cost limitations,
judgments used in decision making, assumptions regarding the likelihood of
future events, soundness of internal controls and fraud. In addition, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the controls. Because of these
limitations, there can be no assurance that any system of disclosure controls
and procedures will be successful in preventing all errors or fraud, or in
making all material information known in a timely manner to the appropriate
management.


                                       44
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PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        with Section 16(b) of the Exchange Act.

         Information with respect to Directors may be found under the captions
"Election of Directors" and "Management Information" of our Proxy Statement for
the Annual Meeting of Shareholders (the "Proxy Statement"). This information is
incorporated herein by reference.

         The information in the Proxy Statement set forth under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" is also incorporated
herein by reference.

         We have adopted the ITEX Code of Ethics (the "Code of Ethics"), a code
of ethics that applies to our executive officers, including financial officers
and other finance organization employees. The Code of Ethics is publicly
available on our website at www.itex.com/corporate. If we make any substantive
amendments to the Code of Ethics or grant any waiver, including any implicit
waiver, from a provision of the code to our Chief Executive Officer, Chief
Financial Officer or Corporate Controller, we will disclose the nature of such
amendment or waiver on that website or in a report on Form 8-K.

Item 10. Executive Compensation

         The information in the Proxy Statement set forth under the captions
"Information Regarding Executive Officer Compensation" and "Information
Regarding the Board and its Committees - Director Compensation" is incorporated
herein by reference.

Item 11. Security Ownership of Certain Beneficial Owners and Management

         The information in the Proxy Statement set forth under the captions
"Equity Compensation Plan Information" and "Information Regarding Beneficial
Ownership of Principal Shareholders, Directors, and Management" is incorporated
herein by reference.

Item 12. Certain Relationships and Related Transactions

         The information set forth under the captions "Certain Relationships and
Related Transactions" of the Proxy Statement is incorporated herein by
reference.

                                       45
<PAGE>

Item 13. Exhibits and Reports on Form 8-K.

         a)  Exhibit Listing

Exhibit    Description
 Number

   3.1     Amended and Restated Articles of Incorporation of ITEX Corporation
   3.2     Amended and Restated Bylaws of ITEX Corporation
  10.1     ITEX Corporation 1995-96 Key Employee Incentive Stock Option Plan(1)
  10.2     ITEX Corporation 1996-97 Key Employee Incentive Stock Option Plan(1)
  10.3     ITEX Corporation 1997-98 Key Employee Incentive Stock Option Plan(1)
           Employment Agreement between ITEX Corporation and Lewis "Spike"
  10.4      Humer, Jr.(2)
           Employment Agreement  between ITEX Corporation and Daniela C.
  10.5      Calvitti(2)
  10.6     Employment Agreement  between ITEX Corporation and Melvin P. Kerr(2)
  10.7     Employee Nondisclosure Agreement for Lewis "Spike" Humer, Jr.
  10.8     Employee Nondisclosure Agreement for Melvin P. Kerr
  10.9     Form of Indemnification Agreement
 10.10     Form of ITEX Corporation Franchise Agreement
 10.11     Form of ITEX Corporation Independent Licensed Broker Agreement
           Contract for the Purchase of Toronto Corporate Office and Use of Itex
            Client Information dated August 7, 2003, between ITEX Corporation
            and NYTO Trade Incorporated, with Secured Promissory Note and
 10.12      Security Agreement(3)
           Contract for the Purchase of New York Corporate Office and Use of
            Itex Client
           Information dated August 7, 2003, between ITEX Corporation and 44
            Trade Corporation,
 10.13     with Secured Promissory Note and Security Agreement(3)
           Contract for the Purchase of Sacramento Corporate Office and Use of
            Itex Client Information dated October 2, 2003, between ITEX
            Corporation and Direct Business Exchange of California, Inc., with
 10.14      Secured Promissory Note and Security Agreement(3)
 10.15     Financing Agreement between ITEX Corporation and Steven White
  14.1     Code of Ethics for CEO and Senior Financial Officers
    21     Subsidiaries of ITEX Corporation
    23     Independent Auditors' Consent
           Certifications of Chief Executive Officer Pursuant to Section 302 of
  31.1      the Sarbanes-Oxley Act of 2002
           Certifications of Chief Financial Officer Pursuant to Section 302 of
  31.2      the Sarbanes-Oxley Act of 2002
           Certifications of Chief Executive Officer and Chief Financial Officer
  32.1      Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     (1)  Incorporated by reference to Registration Statement 333-53289 on Form
          S-8, filed May 21, 1998.
     (2)  Incorporated by reference to the amended Annual Report on Form
          10-KSB/A for the Fiscal Year Ended July 31, 2002, filed on December
          18, 2002.
     (3)  Incorporated by reference to the Report on Form 8-K filed October 28,
          2003

          b)  Reports on Form 8-K

     The following reports on Form 8-K were filed during the quarter ended July
31, 2003:

     Date of the Report         Item Reported
     ------------------         -------------

     June 16, 2003              CEO plan of succession; appointment of Internal
                                Control Advisor
     June 16, 2003              Termination of employment of CEO and COO;
                                Proposed disposition of corporate-owned offices

                                       46
<PAGE>

     The following reports were furnished under Item 12 of Form 8-K during the
quarter ended July 31, 2003:

     Date of the Report         Description
     ------------------         -----------
     May 16, 2003               Results of Operations
     June 24, 2003              Results of Operations


Item 14.  Principal Accountant Fees and Services

         Information concerning principal accountant fees and services appears
in the proxy statement under the heading "Fees Paid to EKS&H" and is
incorporated herein by reference.



SIGNATURES

         In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                 ITEX CORPORATION



Date: November 13, 2003          /s/  Steven White
                                 --------------------------------------------
                                 Steven White, Interim Chief Executive Officer
                                 Interim Chief Financial Officer


         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities an on
the dates indicated.


Date: November 13, 2003          By:  /s/ Steven White
                                    ---------------------------------------
                                    Steven White, Interim Chief Executive
                                    Officer, Interim Chief Financial Officer
                                    (Principal Executive Officer) and Chairman
                                    of the Board

Date: November 13, 2003          By:  /s/ Alan Zimmelman
                                    ---------------------------------------
                                    Alan Zimmelman, Interim Chief Operating
                                    Officer and Director

Date: November 13, 2003          By:  /s/  John Wade
                                    ---------------------------------------
                                    John Wade, Director


Date: November 13, 2003          By:  /s/  Eric Best
                                    ---------------------------------------
                                    Eric Best, Director


                                       47
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