UNITED STATES
                       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, 2001

                         Commission File Number 0-18275

                                ITEX CORPORATION
             (Exact Name of Registrant as Specified in its Charter)

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

                 3400 Cottage Way, Sacramento, California 95825
           -----------------------------------------------------------
           (Address of principal executive offices including zip code)

                                 (916) 679-1111
               -----------------------------------------------------
               (Registrant's telephone number including area code)


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

     Title of each class             Name of each exchange on which registered
          None                                          N/A
     ------------------              -----------------------------------------


Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock, par value $0.01 per share
                     ---------------------------------------
                                 (Title of class)



Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15 (d) of the  Securities  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

Check if there is no  disclosure of  delinquent  filers  pursuant to Item 405 of
Regulation S-B is not contained herein, and no disclosure will not 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 of this Form 10-KSB. [ ]

State the issuer's revenues for its most recent fiscal year:  $10,067,000

The approximate market value of stock held by non-affiliates is $1,730,000 based
upon  13,309,000  shares  held by such  persons  and the close  price of $.13 on
October 23, 2001.

The number of shares  outstanding  of the  Registrant's  $0.01 par value  common
stock at October 23, 2001 was 15,849,232.

DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of Registrant's definitive proxy statement to be filed pursuant
to Regulation 14A in connection with the annual meeting of stockholders:

                Part III, Items 10, 11, 12 and 13 of this report



<PAGE>2
                                ITEX CORPORATION
                                   FORM 10-KSB
                     For The Fiscal Year Ended July 31, 2001

INDEX

<TABLE>
<S>                 <C>                                                                     <C>
                                                                                               Page
                   PART I
ITEM 1.            DESCRIPTION OF BUSINESS
ITEM 2.            DESCRIPTION OF PROPERTY
ITEM 3.            LEGAL PROCEEDINGS
ITEM 4.            SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

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

ITEM 6.            MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN of Operation
ITEM 7.            FINANCIAL STATEMENTS
ITEM 8.            CHANGES IN AND DISAGREEEMENTS WITH ACCOUNTANTS AND ACCOUNTING AND
                   FINANCIAL DISCLOSURE

                   PART III
ITEM 9.            DIRECTOR, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
                   COMPLIANCE WITH SECTION 16(a) OF EXCHANGE ACT
ITEM 10.           EXECUTIVE COMPENSATION
ITEM 11.           SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT
ITEM 12.           CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13.           EXHIBITS AND REPORTS ON FORM 8-K


</TABLE>

<PAGE>3

PART I

ITEM 1.   DESCRIPTION OF BUSINESS

ITEX Corporation and its subsidiaries ("ITEX" or the "Company") operates what it
believes is one of the leading  retail trade  exchanges in the United States and
Canada.   ITEX  provides   business-to-business   barter  services  for  retail,
professional,  media and other corporate members. The ITEX retail trade exchange
headquartered  in Sacramento,  California,  has in excess of 20,000 members who,
collectively,  make up the trade exchange. The trade exchange contracts with the
Company to administer the exchange and to act as a third-party  recordkeeper for
transactions entered into by the members. At July 31, 2001 services were offered
through nine corporate owned stores and sixty-nine  independent licensed brokers
("ILB") in the United States and Canada.

ITEX was  incorporated  in Nevada  in 1982  under  the name  ITEX  Retail  Trade
Exchange and became  publicly  traded in 1992. In 1991,  the Company's  name was
changed to ITEX Inc. to reflect the change to a barter based business model. The
principal  executive  offices  are  located  at 3400  Cottage  Way,  Sacramento,
California 95825.

The Company  manages a private barter  currency using trade credits called "ITEX
Trade Dollars" to enable its members to sell their products or services to other
ITEX members in exchange for Trade  Dollars.  Trade Dollars earned allow members
to purchase  products and services from other  members  instead of using cash. A
Trade Dollar is an  accounting  unit used by the ITEX retail  trade  exchange to
record  the value of trades  as  determined  by the  parties  in trade  exchange
transactions.  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.  ITEX Trade Dollars are based on the U.S.
dollar in the United States and the Canadian dollar in Canada. Trade Dollars may
not be redeemed  for cash and may only be used in the manner and for the purpose
set  forth in the  rules of the  trade  exchange.  Trade  Dollars  are not legal
tender, securities or commodities.

The  Company  markets  products  and  services  offered by its  members  through
directories,  newsletters,  e-mail,  faxes,  trade directors,  on its website at
www.itex.com and through other promotional means. Sales are generally  conducted
by members directly, but can be facilitated by the Company's trade directors and
independent  licensed brokers.  Generally,  sales are made at or near prevailing
retail prices.

The use of the ITEX Retail Trade  Exchange  allows  businesses to increase sales
and market share,  decrease cash expenditures,  reduce surplus  inventory,  take
advantage of underutilized capacity and increase cash flow. Barter is especially
useful to businesses  where the variable  costs of products or services are low,
such as hospitality and professional  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,  the Company  engages in barter for its account.  For example,  it
acquires merchandise for its account and remarkets and trades 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 barter  business for its  members.  The Company also
engages in barter to pay for some of its operating costs.

In order to facilitate trading,  the Company occasionally grants lines of credit
to creditworthy  members.  Credit lines are issued under  guidelines that assess

<PAGE>4


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 members of the  exchange.
However, the Company has reciprocal relations with various other trade exchanges
pursuant  to which it is  possible  for a member of the ITEX trade  exchange  to
purchase  goods or services  offered by members of those other trade  exchanges,
and members of other trade  exchanges  with  reciprocal  agreements  may acquire
goods and services from the ITEX trade exchange.

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

ILBs are independent  contractors with respect to the Company or, in the case of
ITEX regional offices, are employees of the Company. ILBs service members of the
Exchange. ITEX is continuously striving to upgrade and broaden services to ILBs,
including  providing  ILBs with  training,  help 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.

Independent Licensed Brokers

Members of the exchange have a contractual relationship with the Company and are
assigned to an independent licensed broker (ILB), or a Company operated regional
office. Each ILB 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 dues and
fees to ITEX.

The ILB provides  members  with  information  about goods and services  that are
available locally,  nationally and  internationally.  ILBs do not have exclusive
contractual  rights to operate in a geographical  area. The ITEX broker contract
provides for a five-year  term unless the contract is  terminated  for cause (as
explained  in the ITEX  Independent  Licensed  Broker  Agreement).  The contract
automatically renews for subsequent five-year terms so long as the ILB is not in
breach and is in  compliance  with the contract and any policies and  procedures
then in place as adopted by the Company.

ILBs are paid a percentage of revenue  collected  from ITEX members  serviced by
those ILBs,  which  generally  ranges from 50% to 75% depending on the volume of
transactions  and net  increases in the number of members  enrolled  during each
28-day accounting cycle.

The Company views its commitment to its ILBs as vital to its long-term  success.
The Company  depends on a high rate of repeat  business and views the quality of
its ILBs'  interaction  with members as an important  element of its strategy to
continue to successfully  develop the Company's  business.  The Company believes
that it has a strong  cooperative  relationship  with ILBs and seeks to continue
that  relationship  by providing  training,  marketing  materials  and programs,
Internet and computer related support.

<PAGE>5

Sources of Revenue

ITEX generally  charges  members of the Trade Exchange an association fee of $20
cash each four week  accounting  cycle ($260 annually) and 10 ITEX Trade Dollars
each cycle (130 annually).  This rate structure has been in place since November
4, 1999,  when the cash fee was  increased  from $15 to $20 and the Trade Dollar
fee was decreased from 15 Trade Dollars to 10 Trade Dollars.

ITEX also receives  transaction fees on the 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 the Company's  Preferred Member (Autopay) system, the fee
is 5% of the  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 fee is 7-1/2% of the dollar
amount of that member's purchases and sales during the period. Approximately 66%
of payments  are made  through  electronic  funds  transfer  or by credit  cards
automatically using the Preferred Member Autopay system.

The Company prepares its financial  statements on an accrual basis. See Notes To
Consolidated  Financial Statements for a description of accounting policies. The
Company internally  accounts for Trade Dollars in addition to cash in statements
to  members  and ILBs and in other ways  necessary  for  operation  of the Trade
Exchange  and the  business  of the  Company.  The Company  considers  the Trade
Dollars  it  receives  from  transactions  to be  valuable  and uses them in the
operation of its  business,  including the payment of  obligations.  Members and
ILBs use Trade  Dollars in exchange for goods and services and in the  operation
of their businesses.

Company Strategies

The Company's goal is to expand its position in the barter industry  principally
in North  America by  focusing  on  customer  service,  expanding  the range and
availability  of products and services  offered  through  ITEX,  increasing  the
number of its members,  expanding  geographically  and  increasing  the size and
strength of its ILB network.  To achieve this,  the Company is in the process of
instituting the following business strategy.

Expand  Independent  Licensed  Broker (ILB) Stores in North  America
To grow the Company's member base and build brand  recognition,  the Company has
initiated a plan to place a  substantial  number of highly  qualified  ILBs with
adequate professional and financial resources. The Company is aiming to complete
this plan by the end of fiscal 2002.

Acquire local and regional trade exchanges
The Company  intends to continue  expanding  the  business  by  acquiring  other
strategically  located  trade  exchanges  in the  United  States  and Canada and
integrating these exchanges into its operations.  In considering acquisitions of
trade  exchanges,  the Company intends to look for candidates with the following
attributes:

o    regional presence complimenting its presence
o    significant member base offering a wide variety of products and services
o    sound credit management
o    positive cash flow
o    contribution of double digit growth to Company

These  acquisitions would provide the Company with the critical mass of products
and services in their  respective  regions  and,  therefore,  would  support the
Company's growth plans. The Company plans to fund these acquisitions through the

<PAGE>6

additional  positive cash flow provided by the acquired entity and the aggregate
value of acquired assets.

Develop technologically advanced multi-channel barter system
The Company is upgrading and enhancing  computer  software and related  support,
including  improved Internet access to ITEX members and ILBs. Recent advances in
computer  and  communications  technology  offers the Company  opportunities  to
provide  members  and ILBs with  additional  tools and more  effective  computer
applications.  Such  tools  will  enable  them to more  easily  engage  in trade
exchange  transactions.  Opportunities  include improving the Company's existing
on-line  system known as "Trade Flash" which provides  members with  information
about goods and services that are immediately available.  Another strategy is to
improve  member  profiles  so the system  will alert  members  when  products or
services they are seeking become available on the trade exchange. Presently, the
system provides  listings of members by category and separate  category listings
and descriptions of goods and services currently available for sale.

Purchase of Independent Licensed Broker Offices

Sacramento, California
On October  20,  1999,  the  Company  completed  the  acquisition  of all of the
outstanding stock of California Trade Exchange,  Inc., a California  corporation
which operated the business of the Company's largest  independent broker located
in Sacramento,  California. The Company issued 1,966,667 shares of the Company's
restricted  common stock that were assigned a value of $669,000 as payment.  The
primary  identifiable assets of the acquired business were accounts  receivable,
furniture and equipment and the right to service ITEX clients as  represented by
the Independent  Retail Broker Agreement for that office.  Of the total purchase
price,  $390,000 was assigned to the right to service the member list,  which is
being amortized over a four-year period.

The  Sacramento  brokerage  office was  licensed  to Collins M.  Christensen  on
September  15, 1995.  Mr.  Christensen,  the principal  owner of the  Sacramento
brokerage  business,  served as  President  and Chief  Executive  Officer of the
Company until November 5, 2001 and is currently a Director. Gerry Layo, minority
owner of the  Sacramento  brokerage  business  served as a vice president of the
Company in charge of broker  training  until March 7, 2000. Of the shares issued
in the  transaction,  Mr.  Christensen  received  1,573,334  shares and Mr. Layo
received 393,333 shares.

Seattle, Washington
In February 2000, the Company  acquired all of the issued and outstanding  stock
of Seattle Trade Network,  Inc., ("STN") a Washington  corporation that operated
the  business  of the  independent  broker  located in Issaqua  (Seattle  area),
Washington.  The purchase price  consisted of $150,000 cash,  150,000 ITEX Trade
Dollars and 200,000  shares of common  stock of the company.  In  addition,  the
Company  issued  15,000  warrants to  purchase  restricted  common  stock of the
Company at an exercise price of $0.75 per share. One of the former  stockholders
of "STN" continued as an ITEX employee to manage the Seattle office.

Houston, Texas
Also in February  2000,  the Company  acquired the assets of the operator of the
independent  broker office  located in Houston,  Texas.  The purchase  price was
$100,000  cash,  100,000 ITEX Trade Dollars and 100,000 shares of the restricted
common stock of the Company and the option to acquire up to an additional 25,000
shares of restricted  common stock at an exercise price of $0.75 per share.  The
owner of the  operation  has remained as an ITEX  employee to manage the Houston
office. The primary  identifiable  assets of the acquired business were accounts
receivable,  furniture  and  equipment  and the right to  service  ITEX  clients
serviced by that office.

<PAGE>7

Jensen Beach, Florida
In January 2001 the Company paid out $50,000 in exchange for the  termination of
the license of one of its independent licensed brokers in Jensen Beach, Florida.
The  agreement  was  rescinded  on October 4, 2001.  The Company will receive an
additional  $35,000 for a total of $85,000.  The Company will receive $5,000 per
cycle beginning November 22, 2001.

Sale of Regional Corporate Offices

In September and October 2001 the Company  transferred  its regional  offices in
Portland, Costa Mesa, Lafayette, and Orlando to independent licensed brokers.

Portland, Oregon
The sale of the  Portland  regional  office  took place on October  12, 2001 for
$100,000.  The Company will receive a down payment of $20,000.  The balance will
be paid at the rate of 15% of the total fees earned by that  office  during each
four-week cycle until paid in full.

Costa Mesa, California
The regional  office in Costa Mesa was closed on September 30, 2001. The members
will be serviced by an independent licensed broker in the area.

Lafayette, Louisiana
The sale of the  Lafayette  regional  office  took place on October 22, 2001 for
$40,000.  The Company  will  receive 36% of the total fees earned by that office
during each four-week cycle until the balance is paid in full.

Orlando, Florida
The sale of the Orlando  regional  office took place on  September  28, 2001 for
$104,000. The Company will receive $2,000 per four-week cycle for 52 cycles.

License

On  July 1,  2001,  the  Company,  pursuant  to a Fee  Paid  Independent  Retail
Brokerage Agreement (the "Agreement")  granted,  for a  US$400,000 fee ($160,000
paid,  and monthly  payments  thereafter),  a license for a  Vancouver,  British
brokerage.  The  franchise  was  intended to transfer  certain  members from the
Ubarter  acquisition.  The  large  number of former  Ubarter.com  members  doing
business in  Vancouver,  who are now part of ITEX and required a well  organized
and staffed ILB and office to facilitate their trades.

On September 17, 2001, the Company  entered into a Modification of the Agreement
discussed  above.  After entering into the Agreement,  ITEX and the  independent
operator  discovered the trade volume of certain  members  transferred  from its
recently  acquired Ubarter  acquisition was not as high as the parties expected.
The fees were reduced to US$250,000  (payable in  installments  every four weeks
starting on November 1, 2001). For payment of the fee, the independent  operator
has the  option (i) to pay at least  US$125,000  by  January  15,  2002 with the
balance payable in installments every four weeks without interest or (ii) to pay
the entire amount in installments  every four weeks with interest  accruing at a
rate of 9% with all interest  payable at the end of the term.  Due to unforeseen
expenditures upon the commencement of the independent  operator's business,  the
independent  operator is entitled to a credit of  CN$18,000  against any accrued
interest.


<PAGE>8

Members

ITEX has in excess of 20,000  members in North  America.  These  members  are in
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:

o    generate new sales,  add new channels of  distribution  and increase market
     share
o    decrease cash expenditures and thereby increase cash flow
o    reduce slow moving inventory
o    exchange  unproductive  assets and excess  capacity for useful  products or
     services
o    reduce need for financing
o    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 barter transaction: A dentist needs to have her
office remodeled. Through ITEX, she hires a contractor who agrees to perform the
remodeling work for $500 in Trade Dollars.  The dentist has Trade Dollars in her
account to spend because she had previously provided dental work to the owner of
a vacation resort,  a restaurant and a lawyer,  all members of ITEX, in exchange
for Trade  Dollars.  The other  members  originally  acquired  Trade  Dollars by
providing services for other ITEX members.

Barter 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 Trade Dollars.

Sales, Marketing and Trading

Sales

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

Marketing

The Company's  marketing strategy is to promote its brand and attract buyers and
sellers to the ITEX barter system.  Among other things, the Company issues press
releases and uses an in-house  marketing  department to facilitate the Company's
appearance in featured  articles in national  publications as well as with radio
and other print  advertising.  To promote their  services,  the Company  markets
products  and services of existing  members  through  directories,  newsletters,
e-mail,  faxes,  trade directors and other means. In addition,  the Company will
pursue  strategic  affiliations  with  companies with access to large numbers of
potential members.

Trading

The Company's trade directors and the ILBs are responsible for  facilitating and
maximizing  barter  transactions  between members.  The trade directors and ILBs



<PAGE>9

facilitate  trading between members by searching to fill member needs and making
members  aware of products  that have become  available  within the system.  The
trade  directors  and ILBs take a proactive  approach to marketing  products and
services  for their  members.  In  addition,  members  have  access to an online
directory of products and services.

Systems and Technologies

The Company's Trade Exchange is handled by its propriety  online system based on
Microsoft technologies. The systems are designed to facilitate the activities of
all parties  involved in the ITEX system,  from  employees to ITEX members.  The
system extends well beyond recordkeeping and transaction  processing.  The major
features of the system are as follows:

o    AIM Online - provides  the  Company's  ILBs and  corporate  employees  with
     customer relation management features,  including notes,  calendering,  and
     scheduling  capabilities  as  well as  prospect  management  functions  and
     features.
o    TradeFlash - 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.
o    Member Directory - a listing of ITEX members, divided into categories, that
     allows members to advertise their business.
o    Reporting -  independent  licensed  brokers  and  corporate  employees  are
     provided with a number of reports, allowing for a comprehensive analysis of
     all aspects of the Trade Exchange.

ITEX is  continuing  to develop  its  successor,  TEAM (Trade  Exchange  Account
Manager).  TEAM will further  improve on the existing  system and  incorporate a
significant  number of new features.  The new software will automate most of the
record-keeping  processes,  provide real-time  reporting on all transactions and
account  balances,   offer  the  latest  in  security,   and  provide  increased
integration between all of ITEX's systems.

ITEX is currently  taking  additional  steps to ensure adequate  security of the
Company's  hardware and software  systems.  The ITEX  technology  department  is
taking steps to monitor all servers for unwanted  intrusions  and other  attacks
and to improve the speed and reliability of service.

Industry Overview and Competition

General

The modern commercial barter industry developed along with the development of an
accepted  index of valuation for  establishing  barter  credits and debits.  The
accepted index of valuation in the industry is the "trade dollar." There are two
basic types of  commercial  barter  businesses:  corporate  trade  companies and
retail barter 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.  Barter exchanges,  on the other
hand,  act as third  party  record  keepers for the  exchange  of  products  and
services among their  members.  For every barter  transaction,  debit and credit
trade dollars are posted to the buyer and seller's  trade  account.  Members can
transact business directly between  themselves or use the services of an ILB who
matches buyers and sellers.

Barter Statistics

The  International  Reciprocal Trade Association  ("IRTA"),  a trade association
that prepares annual estimates of commercial  bartering in the United States and
Canada,  estimates  that $600  billion of products  and services are bartered or
traded annually worldwide,  $200 billion of which occurs in North America. These

<PAGE>10

figures include products and services that are traded directly between companies
or countries as well as those traded through organized trade companies. In 1996,
the last year for which IRTA provides  statistical  information,  IRTA estimated
that $9 billion of sales in North  America  were  transacted  through  organized
business-to-business  trading  companies,  including  corporate trade companies,
which  accounted  for  approximately  $7.6  billion of sales,  and retail  trade
exchanges such as ITEX, which accounted for approximately $1.4 billion.

IRTA  estimates  that trade volume  conducted by corporate  trade  companies and
barter exchanges in North America grew steadily between 1984 to 1995.  According
to the IRTA,  the annual value of products  and  services  bartered by corporate
trade  companies  and barter  exchanges  between  1994 to 1996 was,  on average,
approximately  $8.4  billion.  Of this amount,  barter  exchanges  accounted for
barter  sales of $1.4  billion in 1996,  compared  with $1.2 billion in 1995 and
$1.1 billion in 1994.

IRTA also  estimates that in 1996  approximately  400,000 firms in North America
were members of retail trade  exchanges  and that there were  approximately  450
retail trade exchanges in North America and another 200 worldwide. Most of these
trade  exchanges are smaller  companies with several hundred members and several
hundred thousand dollars of annual revenues. The Company believes the commercial
barter industry has significant  growth  potential and that barter exchanges can
capitalize on this growth potential.  Because only a relatively small percentage
of businesses  in the United  States and Canada  currently use the services of a
barter exchange,  there are significant growth opportunities for well-positioned
barter exchange companies in the commercial barter market.

Competition

The barter  industry is fragmented with over 450 retail trade exchanges in North
America.  Competing  barter  companies in North America  include  Barter Network
Inc., BXI and Continental Trade Exchange. For the most part, these companies are
regional  trade  exchanges,  which have not  experienced  significant  growth in
recent years.

ITEX  competes  primarily  on the  basis of  service,  including  the  number of
available  products and services and the  liquidity of ITEX Trade  Dollars.  The
Company  expects to  encounter  competition  in its efforts to expand the barter
business and to acquire desirable  independent  trade exchanges.  Competition is
expected  to increase in the  future,  as there are no  substantial  barriers to
initial entry. The Company believes, though, that the more market penetration it
achieves, the higher the barrier to entry will become for anyone contemplating a
similar  system.  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.  The Company believes that in order to
capture greater market share,  barter  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.

Acquisitions

Acquisition of Ubarter.com Canada in March 2001

As a part of its  acquisition  strategy,  the  Company  purchased  the assets of
Ubarter.com Canada from Network Commerce,  Inc. effective March 1, 2001. Ubarter
was the largest  retail  trade  exchange  in Canada  with over 3,500  members in


<PAGE>11


Vancouver,  BC,  Windsor,  Ontario and  Toronto.  The Company  acquired  Ubarter
primarily for its member base and profitability. The acquisition allowed ITEX to
expand its Canadian market.  The total amount of consideration  paid for Ubarter
Canada was $750,000. The aggregate consideration paid included:

o    cash payments of $250,000 at closing
o    issuance of a promissory note in the principal amount of $500,000  payable,
     $41,666 per month for 12 months. The promissory note bears no interest.

During October,  2001, the Company became  delinquent in its payments to Network
Commerce,  creating a default  status.  As of November 8, 2001, all payments had
been made,  however,  the Company is now required to pay an interest rate of 15%
until the note is paid in full.

Acquisition of Ubarter.com USA in June 2001

In continuing  its  acquisition  strategy,  the Company  purchased the assets of
Ubarter.com USA from Network Commerce,  Inc. effective June 1, 2001. Ubarter was
one of the  largest  on-line  trade  exchanges  in the world and  pioneered  the
on-line  business model.  ITEX acquired  Ubarter  primarily for its member base,
technology  assets and trademarks.  The total amount of  consideration  paid for
Ubarter USA was $300,000 in cash at closing.

Regulatory

The Company and its ILBs 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. The Company believes it has complied with TEFRA in the past.

Proprietary Rights

The Company has filed a trademark and service mark application for both the most
current  ITEX logo and for the word mark  "ITEX"  (that is,  independent  of the
logo). The Company's policy is to strenuously police the use of its marks and to
oppose any  infringement.  The Company has 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.

Employees

As of July 31, 2001, there were 87 full-time  employees.  From time to time, the
Company may employ  independent  consultants or contractors to support  research
and development,  marketing, sales and support and administrative organizations.
No collective  bargaining  units  represent  ITEX  employees.  ITEX believes its
relations with employees are good.

As of November 10,  2001,  there were 70  full-time  employees.  The decrease in
employees  is due to  corporate  restructuring  and the  elimination  of several
corporate regional offices.

Discontinued Businesses

From June 25,1998 to January 18, 2000,  the Company  administered  the BXI trade
exchange ("BXI") through its wholly-owned subsidiary, BXI Corporation,  based in
Burbank  California.  The BXI trade exchange has  approximately  13,800 members,


<PAGE>12


which are serviced by  approximately  100  independent  brokers.  On January 18,
2000, the net assets and business of BXI Corporation,  including all assets used
in operation of the BXI trade  exchange,  were sold. See Note 2 to  Consolidated
Financial Statements included in this Form 10-KSB.

Business Risks

Characteristics  and dynamics of the  Company's  business and markets in general
create risks to the Company's  long-term  success and to  predictable  financial
results. These risks include:

Dependence upon Management

The loss of key officers,  key management,  and other personnel could impair the
Company's  ability to successfully  execute its business  strategy.  The Company
places heavy reliance on their  experience and  management  skills.  The Company
does not  carry  life  insurance  for any of its key  personnel  to  insure  the
business in the event of their death.  If the Company fails to attract or retain
skilled  personnel,  its ability to provide management and technical support may
be limited,  and as a result,  the Company  may be unable to attract  ILBs.  The
Company may not be able to retain or hire the  necessary  personnel to implement
its business strategy.

Dependence upon Outside Advisors

To supplement the business experience of its officers and directors, the Company
may be required to employ accountants, technical experts, appraisers, attorneys,
or other  consultants  or advisors.  The  selection of any such advisors will be
made by the Company's officers without any input from stockholders. Furthermore,
it is  anticipated  that such  persons  may be engaged on an "as  needed"  basis
without a continuing  fiduciary or other obligation to the Company. In the event
the officers of the Company consider it necessary to hire outside advisors, they
may elect to hire  persons who are  affiliates,  if they are able to provide the
required services.

Need For Additional Financing

The Company has very limited  funds,  and such funds may not be adequate to take
advantage of any available business  opportunities.  Even if the Company's funds
prove to be  sufficient  to acquire an interest  in, or  complete a  transaction
with, a business opportunity, the Company may not have enough capital to exploit
the opportunity.  The Company may need to seek and utilize creative  alternative
vehicles of financing to continue and enhance day-to-day operations. The Company
is currently  seeking to re-finance the building in which its corporate  offices
are located.  There are no  assurances  that the Company will be  successful  in
refinancing its corporate office building,  or that refinancing will be on terms
favorable to the Company. Further, there are no assurances that the Company will
be  able to  implement  or  capitalize  on  various  financing  alternatives  or
otherwise obtain required working capital, the need for which may be substantial
given  the  Company's  operating  loss  history.  (See  risk  factor  regarding
operating losses and negative cash flow of primary business.)

No Assurance of Success or Profitability

There is no  assurance  that the  Company  will  acquire  a  favorable  business
opportunity.   Even  if  the  Company  should  become  involved  in  a  business
opportunity, there is no assurance that it will generate revenues or profits, or
that the market price of the Company's common stock will be increased thereby.

<PAGE>13

Leveraged Transactions

There is a possibility  that any  acquisition  of a business  opportunity by the
Company may be leveraged,  i.e., the Company may finance the  acquisition of the
business opportunity by borrowing against the assets of the business opportunity
to be  acquired,  or against  the  projected  future  revenues or profits of the
business  opportunity.  This could  increase  the  Company's  exposure to larger
losses.  A business  opportunity  acquired  through a leveraged  transaction  is
profitable  only if it generates  enough  revenues to cover the related debt and
expenses. Failure to make payments on the debt incurred to purchase the business
opportunity could result in the loss of a portion or all of the assets acquired.
There is no assurance that any business opportunity acquired through a leveraged
transaction  will  generate  sufficient  revenues to cover the related  debt and
expenses.

No Foreseeable Dividends

The Company has not paid  dividends on its common stock and does not  anticipate
paying such dividends in the foreseeable future.

Market Price of Common Stock

The market price of the Company's common stock may experience  extreme price and
volume  fluctuations.  The  market  price  of the  common  stock  may  fluctuate
substantially due to a variety of factors,  including: any actual or anticipated
fluctuations  in  our  financial   condition  and  operating   results;   public
announcements  concerning the Company or its competitors,  changes in accounting
principles;  sales of the Company's common stock by existing  stockholders;  and
the loss of any key personnel.

Operating losses and negative cash flow of primary business

Operating  losses and negative  cash flow have been incurred in the last several
fiscal years. Such losses and negative cash flow resulted in part from increased
staffing, marketing,  software development,  investment of computer hardware and
administrative  expenses while revenues remained  relatively flat and in part by
the Company's entries into new business ventures that required  substantial cash
investments.  There can be no assurance that the Company will be able to achieve
long-term profitability or positive cash flow.

Ability  to  recruit  independent  licensed  brokers  and to  develop  marketing
programs

The  success  of the  Company  depends  on its  ability to retain and expand its
network of ILBs and selected corporate regional offices to improve the operating
and marketing programs it furnishes to ILBs. Competition for qualified employees
and ILBs is  intense,  thus  there is no  assurance  that  the  Company  will be
successful in achieving this plan.

Ability to recruit members

The  success  of the  Company  depends  on its  ability to retain and expand the
number of  members.  The  Company  will be  dependent  on the ability of its ILB
network and selected  corporate regional offices to expand the number of members
and the volume of transactions through the trade exchange. There is no assurance
that the  Company or its ILBs will be  successful  in  enrolling  new members to
equalize the attrition of members leaving the Exchange.

<PAGE>14

Ability to upgrade and improve computer software and internet-based  systems for
members and independent licensed brokers

The Company's  computer systems are important to provide  accounting service for
members  and ILBs and  communicating  the  availability  of goods  and  services
offered for trade.  To be  successful  in the future the Company  believes it is
important  that its  computer  and  Internet  systems  reflect  improvements  in
computer and communications  technology.  There is no assurance that the Company
will be successful in upgrading its computer systems and Internet applications.

Dependence on the Value of Foreign Currency

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

Inability to Protect Trade Secrets and Client Lists Could  Adversely  Impact the
Company's Competitive Position

The  Company  uses  various  methods,   including  the  use  of  confidentiality
agreements  with  employees,  ILBs and  clients,  to protect its trade  secrets,
client lists and proprietary  know-how for services.  However,  such methods may
not provide  complete  protection and there can be no assurance that others will
not obtain the Company's proprietary  information,  or independently develop the
same or similar methods or contacts.

Inflation within the ITEX Retail Trade Exchange

The viability of the ITEX Retail Trade  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.  Toward this end, the Company  intends
from time to time to take actions to decrease  the number of ITEX Trade  Dollars
in the exchange by transferring some of its own holdings of Trade Dollars to the
Exchange and by seeking trading  opportunities which can generate a trade dollar
profit for the corporation.

If the Company  Fails to Maintain its Listing of Common Stock on the Nasdaq Over
the Counter Bulletin Board, the Liquidity of Investments in the Company's Common
Stock may be Adversely Affected.

The Nasdaq Over the Counter  Bulletin Board on which the Company's  common stock
is traded has established certain listing requirements that must be satisfied in
order for a company's shares to continue to be listed. The Company cannot assure
that it will always be able to meet those  listing  requirements  in the future.
Failure to meet the listing  requirements  could result in the  delisting of the

Company's  common  stock from the Over the  Counter  Bulletin  Board,  which may
adversely affect the liquidity of its shares in trading.

ITEM 2.   DESCRIPTION OF PROPERTY

In  February  2000,  the Company  purchased  an office  building in  Sacramento,
California.  The Company moved its corporate headquarters from Portland,  Oregon
and relocated its Sacramento  Regional Office to that location in June 2000. The

<PAGE>15

consideration  paid  consisted  of: (a)  $2000,000  cash, a promissory  note for
$300,000 with interest at 10%, with monthly  interest only payments until August
29, 2001 at which time the entire  principle  became due, (c) 333,333  shares of
common stock of the Company that will be increased,  if  necessary,  at a future
date to enable the seller to realize  $1,500,000 from the sale of the stock, and
(d) 200,000 ITEX Trade Dollars.  The Company  recorded the building at the total
cash paid,  the  promissory  note,  and the value of the stock  $1,500,000 to be
provided, for a total of $2,00,000.  The arrangement provides that if the seller
is unable to sell the stock,  the Company may satisfy this  obligation by paying
cash.  In the event that the stock  cannot be sold and the Company  does not pay
cash,  the seller has the option to foreclose on the  building.  The Company has
recorded the arrangement with respect to the stock as "common stock subject to a
put" in the balance sheet,  which is not included in stockholders'  equity.  The
Company is  currently  in  default of the  purchasing  agreement  and  exploring
options to re-finance the property or lease  appropriate  building space for its
operations.

The Company leases space in various parts of the country for use by regional
offices. As of October 30, 2001, the Company had leased facilities as follows:

<TABLE>
<S>                              <C>            <C>          <C>    <C>            <C>

                                                                      Rent due in fiscal 2002
                                  Property         Lease     Square                   Trade
Location                         Condition      Expiration    Feet        Cash       Dollars
------------------------------  -------------  ------------ -------  ------------   ---------
315 W. 36th St. #501                Good          9/30/04    1,800   $    31,500         N/A
New York, NY 10018
------------------------------  -------------  ------------ -------  ------------   ---------
121 Weldon Parkway                  Good          3/31/02    2,500   $    14,000         N/A
Maryland Heights, MO 63043
------------------------------  -------------  ------------ -------  ------------   ---------
610 SW Broadway #405                Good         12/31/01   10,900   $   107,800         N/A
Portland, OR 97205
------------------------------  -------------  ------------ -------  ------------   ---------
5955 Airport Rd. Ste #224           Good          5/31/03    5,320   $    62,400         N/A
Missisauga, ON L4V 1R9
------------------------------  -------------  ------------ -------  ------------   ---------
99 S. Jackson #300                  Good           6/1/03    4,400          N/A       96,300
Seattle, WA 98104
------------------------------  -------------  ------------ -------  ------------   ---------
2723 Yale                           Good           5/1/02      800          N/A       20,000
Houston, TX 77008

</TABLE>


The Company  sublets space in its Portland,  Oregon  location for  approximately
$13,700  per  month  and  space  in  its  Sacramento,   California   office  for
approximately $4,400 per month.

ITEM 3.   LEGAL PROCEEDINGS

Martin Kagan Litigation

During July 1998, the Company was served with a summons and complaint for a case
in Circuit  Court of  Multnomah  County,  Oregon,  styled  Martin  Kagan v. ITEX
Corporation.  The complaint  alleges breach of a stock option agreement  between
the Company and Kagan and seeks to set aside a settlement  agreement between the
parties dated January 14, 1997. The Company  answered the complaint  denying its
material  allegations.   Subsequently,  the  plaintiff  filed  a  first  amended
complaint  adding  Graham H. Norris,  the Company's  former  President and Chief
Executive Officer, as an additional party and modifying somewhat the allegations
of the original complaint.  The Company and Mr. Norris have answered the amended
complaint and denied all  allegations.  The Company has vigorously  defended the
action.  Trial before a court appointed referee was held on November 4, 8 and 9,
1999. On April 12, 2000, the referee issued a decision dismissing all of Kagan's
claims  except his claim for  unlawful  sale and  purchase  of  securities.  The
referee awarded Kagan $400,000 plus interest from July 14, 1998, plus reasonable
attorneys'  fees. The referee's  decision was confirmed by the Multnomah  County

<PAGE>16

Circuit Court and judgment has been entered. The judgment was amended to include
attorneys'  fees on January 12, 2001.  The Company has bonded the judgment  that
has been entered and guaranteed the bond with  certificates of deposit  totaling
$714,000.  The Company has  appealed and has been advised by its counsel that it
has a reasonable  chance for success in overturning the decision.  A reserve for
this settlement has been included in the  consolidated  financial  statements in
the amount of $499,000.

IBTEX, A.G. Litigation

During September 1998, the Company was served with a summons and complaint for a
case in the Circuit Court of Multnomah  County,  Oregon,  styled IBTEX,  A.G. v.
ITEX  Corporation,  Donovan Snyder and Graham Norris,  Sr. The complaint alleges
breach of contract, breach of duty of good faith and fair dealing and violations
of the Oregon Franchise Act. The defendants have answered the complaint  denying
its material  allegations,  demanding  that the disputes  between  IBTEX and the
Company be arbitrated  pursuant to an arbitration  agreement between the parties
and requiring  that the action be stayed until such time as the  arbitration  is
complete. The proceeding has been abated and no arbitration has been set and the
case has been dormant for many months. On November 30, 2000 the Company was sent
a copy of a new  related  case which  names the  Company as a  defendant  in the
Circuit Court of Multnomah County,  Oregon, styled IBTEX, A.G. v. Terry Neal, et
al, seeking no affirmative relief against the Company, but naming the Company as
a defendant.  The Company  accepted service of the summons and complaint in this
matter on February 1, 2001. The Company has filed a motion to dismiss,  which is
not yet calendared.  Management does not consider a negative  resolution of this
matter  to be  probable  and  therefore  no  reserve  has been  provided  in the
consolidated financial statements.

Desert Rose Foods Litigation

On April 28, 2000, ITEX Corporation was served with summons and complaint for an
action in the Circuit Court of Fairfax County, Virginia style Desert Rose Foods,
Inc. v. ITEX  Corporation  and ITEX USA,  Inc. The complaint  alleges  Breach of
Contract,  Fraud,  and  violations of federal law.  Plaintiff  asks for $750,000
compensatory  damages,  punitive damages,  other statutory damages, and interest
and  attorney's  fees.  Plaintiff  entered into a contract  with the Company for
delivery of goods  valued at  approximately  $120,000.  The Company has retained
local counsel in this case and is vigorously  defending the matter.  The Company
believes  Plaintiff's  complaint  is  frivolous.  The Company  has  successfully
defended  similar  actions.   The  Company  does  not  believe  this  action  is
significant  to the  Company's  financial  position.  This case was dismissed on
March  26,  2001 and  therefore  no  provision  has been  made in the  Company's
consolidated financial statements. The plaintiff has the right to re-file within
six months of the  dismissal.  To date,  the  Company has not been served with a
complaint.

Metro Sales

On May 28, 2000,  the Company was served with a summons and  complaint  filed in
the Circuit Court of Multnomah  County,  Oregon, in the matter of Metro Sales v.
ITEX.  The complaint  alleges breach of contract and violation of an Oregon Blue
Sky statute.  The Company denies all the  allegations  and intends to vigorously
defend this action.  No provision  was  included in the  Company's  consolidated
financial statements for this litigation.  This matter was settled during fiscal
year 2001 without any payment by the Company and with the  plaintiff  paying the
Company some of the disputed fees.

<PAGE>17

Skiers Edge Litigation

On June 19, 2000,  the Company was served with a summons and complaint  filed in
the District  Court for Summit  County,  Colorado,  in the matter of Skiers Edge
Condominium  Association v. George Owens. The complaint alleges that the Company
owes plaintiff association fees relating to interval timeshares that the Company
is alleged to own. The Company is defending this matter and does not foresee any
material  impact from this  matter.  The matter has been tried and is  presently
under submission to the court.

Claim of Terry Neal for Indemnity

On December 1, 2000 the Company received a demand from attorneys for Terry Neal,
founder and former chief executive officer of the Company,  claiming a right for
indemnity for fines and attorneys'  fees Mr. Neal is alleged to have incurred in
connection  with an SEC  investigation  and civil suit brought by the Securities
and Exchange  Commission  ("SEC") related to certain activities of Mr. Neal that
occurred  while he was a consultant  to the Company in fiscal years prior to the
fiscal  year  ended  July 31,  1998.  The  claim,  which at this  point is not a
lawsuit,  also includes the right to indemnity for  attorneys'  fees incurred in
his  defense  of the  IBTEX  litigation  as well as the right to  indemnity  for
attorneys'  fees  incurred  in his  defense  of the Kagan  matter.  The  Company
believes that any liability that may result from the two latter matters has been
adequately  provided for in these financial  statements.  The Company denies any
liability to indemnify Mr. Neal for SEC related expenses and fines, and believes
his other claims are excessive.  Furthermore,  the Company also has  affirmative
defenses  that gives it a right of set-off  against  Mr. Neal that  exceeds,  in
amount the $2.8  million for which he has claimed.  The Company will  vigorously
defend against his claims.

1401 El Camino Litigation

On March 1, 2001 the Company was served with a summons and  complaint out of the
Superior Court for Sacramento  County in the matter of El Camino Tower,  LLC vs.
Sacramento Trade Exchange,  Inc., dba ITEX of Sacramento,  adba ITEX California,
adba Sacramento  ITEX; ITEX  Corporation;  International  Trade Exchange,  Inc.;
Collins  M.   Christensen,   aka  Collie   Christensen,   individually  and  dba
International  Trade  Exchange.  The  complaint  alleges  that the  Company  has
breached a lease  previously  occupied by the Sacramento  regional  office.  The
matter was settled in October,  2001, for a combination payment of approximately
$33,000 trade dollars and  approximately  $33,000 cash. The  settlement  will be
paid, in monthly  payments,  pursuant to the settlement,  with the final payment
due on April 1, 2002.

Wendy Moore Litigation

On October 12, 2001,  the Company was served with a summons and  complaint for a
case in the District Court, 32nd Judicial District of Nolan County, Texas styled
Wendy  Moore,  Rocky  Moore and  Sweetwater  Lone Tree  Roofing,  Inc.  vs. ITEX
Corporation,  ITEX Trade Exchange,  International Trade Exchange,  Abilene Trade
Exchange, Inc., Adam Keidl, individually and Carol A. Phelps, individually.  The
complaint   alleges   that  the  Company  is  liable  for   certain   fraudulent
representations of an independent licensed broker in Abilene, Texas. The Company
denies any liability for the acts of the  independent  licensed broker and is in
the process of  retaining  counsel for a vigorous  defense of this  action.  The
Company is also in the process of demanding  both indemnity and defense from its
independent  licensed  broker.  No provision  has been included in the Company's
financial statements.


<PAGE>18


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

NONE

PART II

ITEM 5. MARKET PRICE OF AND  DIVIDENDS  ON THE  REGISTRANT'S  COMMON  EQUITY AND
RELATED STOCKHOLDER MATTERS

Public trading of the Company's  stock was initiated on June 11, 1992. The stock
was de-listed by the NASD from the Nasdaq Small Cap stock market on December 22,
1998 due to the Company's  inability to file its Form 10-K on a timely basis and
for public  policy  concerns.  During  this time,  the  Company's  common  stock
continued to be quoted in the pink sheets.  On May 17, 2001,  the NASD  approved
the Company's shares to be re-listed with NASDAQ Over the Counter Bulletin Board
("OTCBB").  The  Registrant's  common stock trades on the OTCBB under the symbol
"ITEX".

The following  are the Company's  common stock high and low closing sales prices
for fiscal years 2001 and 2000:

                                        High        Low
                                      --------    ----------
Fiscal 2001                           Fiscal quarters ended:
July 31, 2001                         $ 0.65      $ 0.18
April 30, 2001                          0.33        0.17
January 31, 2001                        0.35        0.15
October 31, 2000                        0.45        0.26

Fiscal 2000
Fiscal quarters ended:
July 31, 2000                         $ 0.60      $ 0.42
May 7, 2000                             1.78        0.35
February 12, 2000                       0.72        0.22
November 20, 1999                       0.40        0.22

As of July 31,  2001 there were 869  holders of record of the  Company's  common
stock.

The Company has not  declared  any  dividends  since its  inception.  Management
anticipates  that any future  profits  will be  retained  to  finance  corporate
growth.

Recent Sales of Unregistered Securities

For the year ended July 31,  2001,  the  Company  sold and issued the  following
securities which were not previously reported in its quarterly reports:

The Company granted  non-qualified stock options to its employees,  officers and
directors  pursuant to the 1999 Stock Option Plan,  in the  aggregate  amount of
369,000 shares at exercise prices ranging from $.40 to $1.00.

The Company  granted an  aggregate  of 13,000  shares of our common stock to its
outside directors under the 1999 Stock Option Plan for non-employee directors.

<PAGE>19

The sales and issuances of the shares of Common Stock,  options, put options and
warrants to purchase Common Stock in private  placements  listed above were made
in reliance upon the exemptions  from  registration  provided under Section 4(2)
and 4(6) of the Securities  Act of 1933, as amended,  and Rule 506 of Regulation
D,  promulgated  by  the  SEC  under  federal  securities  laws  and  comparable
exemptions for sales to "accredited"  investors under state securities laws. The
offers and sales were made to  accredited  investors  as defined in Rule  501(a)
under the Securities Act, no general solicitation was made by the Company or any
person  acting on the  Company's  behalf;  the  securities  sold were subject to
transfer  restrictions,  and the  certificates  for those  shares  contained  an
appropriate  legend  stating  that  they  had  not  been  registered  under  the
Securities Act and may not be offered or sold absent registration or pursuant to
an exemption therefrom.

ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION OR PLAN OF
OPERATIONS (in thousands, except per share amounts)

The following  discussion of the  Company's  financial  condition and results of
operations  should  be read  in  conjunction  with  the  consolidated  financial
statements  and the related  notes  thereto  included  elsewhere  in this Annual
Report on Form 10KSB. This discussion contains forward-looking  statements,  the
accuracy of which involves risks and uncertainties.  Actual results could differ
materially  from those  anticipated in the  forward-looking  statements for many
reasons  including,  but not limited  to,  those  discussed  in  "Business  Risk
Factors"  and  elsewhere  in this  Annual  Report  on Form  10KSB.  The  Company
disclaims any obligation to update information  contained in any forward-looking
statement.

Overview

ITEX Corporation and subsidiaries  ("ITEX" or the "Company") was incorporated in
October  1985 in the  State of  Nevada.  The  Company  operates  a retail  trade
exchange and acts as third-party record keeper for transactions  between members
of the exchanges.  The Company charges association fees for each of 13 four-week
accounting  cycles each year, as well as commissions on transactions.  ITEX also
receives  fees  paid in ITEX  trade  dollars,  which the  Company  uses to pay a
portion of its own operation  expenses and to provide  merchandise  for sale for
trade dollars to trade exchange members.

The Company  acquired  the BXI trade  exchange on June 25,  1998.  The BXI trade
exchange  operations are included in the financial  statements for the period of
June 25, 1998 to July 31, 1999.  On January 18, 2000 the net assets and business
of BXI  Corporation  were  sold  to  TAHO  Enterprises,  Inc.,  a  Massachusetts
corporation, for $4,000 cash.

Additionally,  in recent  years the  Company  has  engaged in the  operation  of
several new businesses  outside its core business of operating trade  exchanges.
These new businesses  have not been  profitable and commencing in March 1999 the
Company began the process of discontinuing these businesses and, where possible,
liquidating them. A significant  amount of the original  investments will not be
recovered.  It is the intent of the Company not to engage in business activities
or ventures that are not related to the Company's core business of operating the
ITEX Retail Trade Exchange.

The  Company  has  incurred  losses  from  operations  from its  trade  exchange
operations for the fiscal years ended July 31, 2001 and 2000 of $3,056 and $973,
respectively.  The  acquisition  of new  businesses  has resulted in  additional
expenses and additional costs for  professional  accounting and regulatory fees.
In  addition,  this year's  losses  have  increased  due,  in part,  to one-time
expenses  relating to the impairment of receivables of  approximately  $800. The
following  discussion  covers the two large  note  receivables  deemed  impaired
during  fiscal 2001:

<PAGE>20

MAXX
Former  President and CEO of ITEX  Corporation,  Collins  Christensen  owned 250
shares of MAXX International Inc. stock as of July 6, 2000. The ITEX Corporation
Board  of  Directors  were  advised  of  Mr.  Christensen's   interest  in  MAXX
International  Inc.  during a board  meeting on  September  20,  2000.  The ITEX
Corporation  Board of Directors was notified of a $300 loan authorized on August
7, 2000 by Mr. Christensen to MAXX International during the meeting of the Board
of Directors on November 20, 2000. The action taken by Mr.  Christensen  was not
ratified by the Board of  Directors at that time,  and has not been  ratified by
the  current  members of ITEX  Corporation's  Board of  Directors.  The note was
deemed  impaired in the last quarter of fiscal 2001 and was  consequently  taken
off the books. The Company is pursing efforts to collect the receivable.

Samana
At July 31, 1998,  the carrying value of the investment in the Samana resort was
equal to its cash cost of $1.026.  The  property  was held in the name of Villas
Punta Baleen, C. Por A., a Dominican  Republic  Company.  During the fiscal year
ended July 31, 1999, the Company decided to liquidate the investment rather than
holding it for  development.  In fiscal year 2000, the Company  liquidated  this
investment by selling its stock back to Quisqueya Lines y Consturctora C. por A.
(QLC), a company  controlled by the parties from whom the Company had originally
purchased  its shares in Villas Punta  Ballena,  C.Por A. At July 31, 1999,  the
investment in the Samana resort was carried at its net realizable value of $518,
based on the  selling  price of $550,  less  related  costs of $32.  The Company
received  cash of $200  from the  buyers  and a note for $350  (from  which  the
Company  paid  its  costs  of the  transaction).  The  buyers  have not paid the
remaining amount of the $350 in accordance with the terms of the sale agreement.

In order to proceed with  collecting  the note,  the Company has  researched the
activity of Quisqueya  Lines y  Consturctora  C. por A., the  promissory  on the
note. That company appears to be an active freight company doing business out of
North Miami.

The Company intends to pursue the recovery of this receivable,  however,  due to
the  non-performance  of QLC with respect to the  obligations  of the note,  the
Company  during the third  quarter of fiscal 2000,  established  an allowance of
$350, the full amount of the Samana note  receivable.  During the fourth quarter
of fiscal  2001,  the Company  removed the note from the books.  The Company has
contacted  a law firm in Miami,  Florida and expects to have a suit filed by the
second  quarter  of 2002,  with an  uncertain  expectation  of  success.  Once a
judgment is obtained, the Company will proceed to execute on the business assets
of the freight company,  obviating any need to pursue the property owned through
its Dominican Republic subsidiary.

<PAGE>21

Results of Operations (in 000's)

The following table sets forth, for the periods indicated, selected consolidated
financial  information  of  the  Company,  with  amounts  also  expressed  as  a
percentage of total revenues:

<TABLE>
<S>                                               <C>               <C>          <C>             <C>

                                                                 Fiscal Years Ended July 31,
                                                 ----------------------------------------------------------
                                                             2001                             2000

                                                   Amount           Pct*             Amount           Pct*
                                                 ---------         ------          ---------          -----
Revenue:
Trade exchange:
Association fees                                    4,496            45%              4,074            30%
Transaction fees                                    5,571            55%              9,568            70%
                                                 ---------         ------          ---------          -----
                                                   10,067           100%             13,642           100%

Costs and expenses:
Trade exchange                                      5,078            50%              7,075            52%
Selling, general and administrative                 7,051            70%              7,211            53%
Discontinued activities                               ---             0%                 49             0%
Regulatory and litigation                             410             4%                569             4%
Change in estimate for loss on                        ---             0%               (785)           (6%)
disposal of BXI
Depreciation and amortization                         584             6%                496             4%
                                                 ---------         ------          ---------          -----
                                                   13,123           130%             14,615           107%

Loss from operations                               (3,056)          (30%)              (973)           (7%)
Other income                                          166             2%                543             4%
                                                 ---------         ------          ---------          -----
Loss before taxes                                  (2,890)          (29%)              (430)           (3%)

Tax (provision) credit                               (241)            2%              1,885            14%

Cumulative effect of change in                        (20)            0%                ---             0%
accounting principle

Net (loss) income                                  (3,151)          (31%)             1,455            11%
                                                 =========         ======          =========          =====

* Percent of Total Revenue

</TABLE>

<PAGE>22

The following table sets forth selected  consolidated  financial  information of
the  Company  on a pro forma  basis (in  000's),  excluding  revenue,  costs and
expenses related to BXI Corporation,  whose net assets and business were sold by
the Company on January 18, 2000,  with amounts also expressed as a percentage of
total revenues:


<TABLE>
<S>                                <C>               <C>          <C>          <C>

                                           Fiscal Years Ended July 31,
                                     Amount           Pct*          Amount       Pct*
                                    ---------       --------       ---------    ------
Revenue:
Trade exchange:
Association fees                      4,496             45%          3,384         30%
Transaction fees                      5,571             55%          6,917         70%
                                    ---------       --------       ---------    ------
                                     10,067            100%         10,301        100%

Costs and expenses:
Trade Exchange                        5,078             50%          4,454         43%
Selling, general and                  7,051             70%          5,365         52%
administrative
Discontinued activities                  --              0%             49          0%
Regulatory and litigation               410              4%            609          6%
Depreciation and amortization           584              6%            496          4%
                                    ---------       --------       ---------    ------
                                     13,123            130%         10,973        106%

Loss from operations                 (3,056)           (30%)          (627)        (6%)
Other income                            166              2%            543          6%
                                    ---------       --------       ---------    ------
Loss before taxes                    (2,890)           (29%)        (1,215)       (12%)

Tax (provision) credit                 (241)             2%          1,885         18%

Cumulative effect of change in          (20)             0%             --          0%
accounting principle

Net (loss) income                    (3,151)           (31%)           670          6%
                                    =========       ========       =========    =======
</TABLE>

*    Precent of Total Revenue

<PAGE>23

Trade exchange revenue and costs

Total trade exchange revenue  decreased  $3,575, or 26%, from $13,642 in 2000 to
$10,067 in 2001. The decrease in Trade exchange  revenue is  attributable to the
sale of the net assets and business of BXI  Corporation  which was  completed in
January, 2000. The BXI Trade exchange revenue reported in 2000 was $3,341.

Following are the components of association fees and transaction fees applicable
to the ITEX trade exchange, which are included in the consolidated totals:

                                         2001                  2000 (1)
                                       --------                --------

Association fees                        $4,496                  $3,384
Transaction fees                         5,571                   6,917
                                       --------                --------
Total                                  $10,067                 $10,301

The average number of members of the ITEX trade exchange  during fiscal 2001 and
2000 and the average trade exchange revenue per member were as follows:

                                                   2001         2000 (1)
                                                --------        --------
Average number of members                        17,370          13,927
Average annual revenue per member               $   580         $   740


(1) Excludes results of BXI.

Total costs of trade exchange revenue as a percentage of total trade exchange
revenue were 50% and 52% in fiscal 2001 and 2000, respectively.

Corporate trading revenue and costs

Corporate trading revenue relates to transactions in which the Company has acted
as a principal  in the  purchase  and sale of goods.  These  transactions  often
involve a mixture  of cash and trade  credits.  Only the cash  portions  of such
transactions are included in the consolidated  financial  statements as there is
no persuasive evidence that the fair market value of the goods exchanged exceeds
the  monetary   consideration  received  for  these  goods.  Profit  margins  on
individual corporate trading transactions vary widely.

Management  had  invested  significant  management  salaries  and  Trade  Dollar
resources in the exploration of corporate and industrial  trading  opportunities
in fiscal year 2001.  However,  the  departmental  operations  allocated  to the
exploitation  of  corporate  and  industrial  trading  opportunities  have  been
discontinued  as of November 5, 2001.  The Company does not foresee any sizeable
allocation of dedicated  human  resources in these areas in the upcoming  fiscal
year.  Management believes large volume trading  opportunities reside within the
retail trade exchange and should be realized through the creative  management of
the core business  model.  No  significant  revenues  were realized  through the
resources  allocated  to  corporate  or  industrial  trade in fiscal  year 2001.
Substantial  costs were  incurred in fiscal year 2001,  primarily  from employee
salaries and benefits associated with the Corporate Trade Department.

<PAGE>24


Selling, general and administrative expenses

Selling,  general and administrative  expenses decreased $160 from 2000 to 2001.
In fiscal 2000, the consolidated total included $1,846 in selling,  general, and
administrative  costs associated with operation of the BXI Exchange;  there were
no such costs incurred in fiscal 2001. The net increase in selling,  general and
administrative  expenses  was related to the  write-off  of certain  receivables
deemed   uncollectable.  Such   receivables   include   notes  associated   with
Samana of $350 and MAXX  International  Inc.  of $300.  In  addition,  Company's
directors and officers  insurance  premium increased from $67 in 2000 to $150 in
2001.  The Company  incurred  increased  expenses  in excess of $100  related to
travel and other services attributed to investor relations,  including an annual
shareholders'  meeting held during the third  quarter of fiscal  2001.  Finally,
included in the selling,  general and administrative  expenses is the write-offs
of obsolete  software,  capitalized  in previous years in the amount of $74, the
write-off of mineral rights of $50, and a general strengthening of the allowance
for uncollectable receivables by $120.

Costs and expenses of regulatory and litigation matters

From 1996 to 2000, the Company was subject to an investigation by the Securities
and Exchange  Commission  which  included the Company's  accounting  for trading
transactions.  The Company entered into a consent and  undertaking  with the SEC
and was ordered to re-state its  financials for the year ended July 31, 1997 and
amend its Form 10K for the year ended 1997.  The  Company  was also  required to
file its Form 10K for the  years  ended  July 31,  1998 and  1999.  The  Company
complied with the SEC's order on May 3, 2000. In addition,  the Company has been
involved  in  various   litigation   matters  as  discussed  in  Item  3.  Legal
Proceedings. Costs and expenses of regulatory and litigation matters consists of
costs of  settlement  and legal and other  professional  costs  related to these
matters.

Costs and expenses of regulatory and litigation  matters decreased 28% from $569
in 2000 to $410 in 2001 primarily due to the  completion of matters  relating to
the SEC investigation in 2000 and early 2001.

Change in estimate for loss on disposal of BXI.

In May 1999, the Board of Directors  decided to sell the net assets and business
of Business Exchange  International  Corporation ("BXI"), a Barter Exchange with
corporate headquarters in Burbank,  California. On January 18, 2000, the Company
consummated  the sale of the net assets and  business of BXI  Corporation  to an
unrelated  third party for $4,000,  which was paid by the buyer in cash.  On the
measurement  date in May 1999,  the Company  recorded an  estimated  loss on the
disposal  of $2,000,  which  included  an  estimated  loss from  operations  and
disposition of BXI Corporation  from the period May 31, 1999 to January 18, 2000
of approximately  $780. Upon completion of the sale, the Company determined that
the actual loss on disposal was $1,215 and, accordingly,  the Company recorded a
change in estimate to eliminate  the  remaining  balance in the reserve of $785,
which is shown  separately as a reduction of costs and expenses in the statement
of operations.

Depreciation and amortization.

Depreciation and  amortization  increased from $496 in 2000 to $584 in 2001. The
increase is  primarily  a result of the  increased  amortization  related to the
membership  lists  purchased  through the  acquisitions  of  Ubarter-Canada  and
Ubarter-USA during fiscal year 2001.

<PAGE>25


Other income and expense.

Net  interest  expense was $57 in 2001 as  compared to $271 in 2000.  The higher
interest expense incurred during 2000 relates to debt initially  incurred during
1998, detailed as follows:

In November 1998 the Company  incurred debt with a face amount of $1,625 bearing
interest at 4%, from which the Company realized approximately $1,100 after a 20%
discount from the face value and fees paid to brokers and related  expenses.  In
July 1999 the Company  retired $313 of the above notes at the discounted  amount
of $250 and in January  2000  retired an  additional  $63 by payment of $50.  In
April  2000,  the  Company  retired  the  balance  of these  notes of  $1,250 by
converting  $675 plus  accrued  interest  into 1,134  shares of common stock and
payment of $575 plus accrued interest in cash.

In fiscal 2000, the Company  accrued  interest  income of $331 related to income
tax refund receivable.  In 2000, the Company realized gains on sales of portions
of its Wade Cook stock, realizing $235, all of which has been recognized as gain
because the stock had no carrying  value in the  financial  statements.  Also in
2000, the Company realized a gain of $100 from the sale of the rights to publish
its barter industry magazine and another gain of $100 from an extension fee with
regard to the sale of the assets and business of BXI Corporation.  Additionally,
in 2000 the  Company  received  a net fee of $150 for the  transfer  of  certain
marketing information to a third party.

In 2001, miscellaneous income of $223 primarily consists of rental income earned
from sub-letting leased building space. This was a decrease of $25 from 2000.

Liquidity and Capital Resources

The Company has experienced net losses and negative cash flows from  operations.
As of July 31, 2001, the Company has an accumulated deficit of ($28,760). During
fiscal 2001, the Company reported net cash provided by operations of $176 in the
consolidated statements of cash flows, as compared to cash used in operations of
($1,187)  in fiscal  2000.  In 2001  operations  were funded in by an income tax
refund from the prior year and by increases in trade payables.

The Company will  require  substantial  additional  funds to satisfy its working
capital requirements and to meet the objectives of its business plan. Management
plans to obtain  these  funds  primarily  from debt and equity  placements  with
institutional  investors  and  wealthy  individuals  until such time as its cash
requirements  can be satisfied  from  operations.  However,  no assurance can be
given that the Company will be able to raise  sufficient funds from such sources
or to generate  sufficient cash flow from operations to meet its working capital
requirements.   The  consolidated   financial  statements  do  not  include  any
adjustments  that might be  necessary  if the Company is unable to continue as a
going concern.

Management  believes the success and  continued  viability of the Company  rests
upon five  major  components.  First and  foremost,  operational  costs  must be
reduced and  controlled  within every  department  of the Company.  Unprofitable
departments  located within the corporate  headquarters  and corporate  regional
offices will be restructured,  sold, or eliminated. Second, a consistent program
of recruiting,  training,  and support of an expanded  professional  Independent
Broker  Network  must  buttress  the growth and  stability  of the Retail  Trade
Exchange.  Third, the Company and Independent  Broker Network must  dramatically
improve  the number  and  variety of  high-quality  members of the Retail  Trade
Exchange  and the  retention  thereof.  Fourth,  the Company  must  increase the
number,  velocity,  and size of trade  transactions  amongst  the members of the
Retail Trade Exchange. Lastly, the Company must exercise the discipline to focus
exclusively on potentially profitable ventures,  which directly and consistently

<PAGE>26


enhance the growth and  performance  of the Retail Trade  Exchange and financial
performance of the ITEX Corporation.

The Company  believes that its cash reserves and cash flows from operations will
be adequate to fund its  operations  through the first  quarter of fiscal  2002.
Substantial additional funds may be required to continue to operate the business
beyond that period.  Additional financing may not be available to the Company on
favorable  terms or at all. If  additional  financing  is not  available  to the
Company, it may need to dramatically change its business plan, sell or merge its
business,  or face  bankruptcy.  Future  capital  requirements  depend upon many
factors, including, but not limited to:

o    level of revenues in 2002
o    rate at which expense levels are reduced;
o    scope and success of  restructuring  efforts,  including  reductions in the
     Company's workforce.

During  fiscal  2000,  the Company  reported  net cash (used in)  operations  of
($1,187) in the consolidated  statements of cash flows, as compared to cash used
in   operations  of  ($1,535)  and  (3,302)  in  fiscal  years  1999  and  1998,
respectively.   Factors   contributing   to  the  negative   cash  flow  include
unprofitable operations,  discontinued  operations,  settlements of disputes and
litigation  and  legal  and  accounting   costs  connected  with  the  Company's
regulatory  matters and  expenditures.  Currently  management  is  attempting to
reduce such negative cash flows by discontinuing and liquidating,  to the extent
possible,  assets  and  operations  outside  the  Company's  core  business.  To
facilitate  this  effort,  management  is  refocusing  capital  resources on its
primary business of operating trade exchanges and related  activities.  However,
there can be no assurance that the Company will be successful in its efforts.

During the years ended July 31, 2000,  1999 and 1998,  the Company  raised funds
and capital as follows:

At July 31, 1999, the Company's working capital ratio was 0.3 to 1.0 as compared
to 0.8 to 1.0 at July 31,  1998.  The  decrease  in working  capital  ration was
indicative of a continued decrease in the liquidity of the Company. As a result,
management  believed  that it would be  difficult  for the  Company  to meet its
operating  cash  requirements  and  fiscal  1999  capital  requirements  through
existing  cash   balances,   cash  provided  by  operations  and  its  borrowing
arrangements.  To finance  future  expansion of the  Company's  core business of
operating the ITEX retail trade exchange and to retire  certain notes  described
below,  the Company  concluded the sale,  for $4,000 cash, of the net assets and
business of its wholly-owned subsidiary, BXI Corporation, which operated the BXI
trade exchange from June 25, 1998 to January 18, 2000.

During April 1998, the Company sold 53.5 shares of Series A preferred stock to a
small number of non-U.S.  persons in a non-registered private placement pursuant
to  Regulation  S under the  Securities  Act of 1933,  as  amended.  The Company
realized   gross  proceeds  of  $5,350  and  net  proceeds,   after  costs,   of
approximately  $4,730.  During  July  1998 the  Series  A  preferred  stock  was
converted  into 3,564  shares of common  stock.  Also during  fiscal  1998,  the
Company sold a portion of its available for sale  securities  for cash realizing
proceeds of $3,315. Cash realized from the Series A preferred stock and from the
sale of  available  for  sale  securities  was  primarily  used to  acquire  the
remaining  50% interest in the BXI trade  exchange,  funding of  investments  in
businesses or operations that have now been  discontinued,  and in the Company's
operations.

In November  1998 the Company  completed a  Regulation  D private  placement  of
promissory  note totaling  $1,625 at face value.  The notes bear interest at the
rate of 4% and were issued at a 20% discount. The Company has the right to repay
the notes and accrued  interest in cash or in common stock of the  Company.  The
maturity  date of the notes is  November  30,  2000.  The Company  realized  net

<PAGE>27


proceeds of $1,100,  which were used for working  capital and general  corporate
purposes.  In July  1999 the  Company  retired  $313 of the  above  notes at the
discounted  amount of $250 and in  January  2000  retired an  additional  $63 by
payment of $50. In April 2000, the Company retired the balance of these notes of
$1,250 by converting $675 plus accrued into 1,133,659 shares of common stock and
payment of $575 plus accrued interest in cash.

At July 31, 1999 the Company had  outstanding  bank loans totaling $200 pursuant
to bank  lines of credit.  These  outstanding  balances  have been paid in their
entirety.  As of April 2000, the Company does not have a line of credit with any
bank.

In July 1999, when the Company needed working capital,  an individual who was at
that time Chairman of the Board of  Directors,  and another  individual  who was
President,  CEO and a  Director  of the  Company,  loaned a total of $480 to the
Company.  The transactions were structured as convertible notes bearing interest
at 10% per annum.  The Company  paid those notes in full  together  with accrued
interest in January 2000.  The  conversion  privilege was never  exercised.  The
offering was made in reliance on Section 4(2) of the  Securities  Act of 1933 on
the basis of the  offering  having been made to officers  and  directors  of the
Company who had access to sufficient  information to make an informed investment
decision.

To finance future  expansion of the Company's core business,  provide  operating
capital for the ITEX retail  trade  exchange  and to retire the notes  described
above,  the  Company  sold  net  assets  and the  business  of its  wholly-owned
subsidiary, BXI Corporation, which operated the BXI trade exchange from June 25,
1998 until the sale of the  exchange  assets on January  18,  2000.  The Company
realized cash of $4,000 from the sale.

Trade dollars earned and expended

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

In fiscal 2001,  the Company earned 4,014 trade dollars and expended 7,130 trade
dollars.

In fiscal 2000,  the Company earned 3,212 trade dollars and expended 7,376 trade
dollars.

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 trade  dollars in excess of those  credited to the  Company's
account.

<PAGE>28

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following documents are filed as part of this Report:

Financial statements

Report of Ehrhardt Keefe Steiner & Hottman PC, Independent Public Accountants

Consolidated balance sheet at July 31, 2001

Consolidated  statements of operations and  comprehensive (loss) income  for the
fiscal years ended July 31, 2001 and 2000

Consolidated  statements of stockholders' equity for the fiscal years ended July
31, 2001 and 2000

Consolidated  statements  of cash flows for the fiscal years ended July 31, 2001
and 2000

Notes to consolidated financial statements

<PAGE>29


INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders
Itex Corporation
Sacramento, California

We have audited the accompanying consolidated balance sheets of Itex Corporation
as of July 31, 2001, and the related  consolidated  statements of operations and
comprehensive  (loss) income,  stockholders' equity and cash flows for the years
ended July 31, 2001 and 2000. 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 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, 2001,  and the results of their  operations and their cash flows for
the years ended July 31, 2001 and 2000 in conformity with accounting  principles
generally accepted in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial  statements,  the  Company's  history of operating  losses and current
status of default on several notes payable  raises  substantial  doubt about its
ability to continue as a going concern.  The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.


                     /s/EHRHARDT KEEFE STEINER & Hottman PC
                        -------------------------------------
                        Ehrhardt Keefe Steiner & Hottman PC

September 20, 2001
Denver, Colorado



<PAGE>30
                                ITEX CORPORATION
                           CONSOLIDATED BALANCE SHEET
                    (In thousands, except per share amounts)

<TABLE>
<S>                                                                              <C>
                                                                                 July 31, 2001
                                                                                --------------
Assets
Current assets:
     Cash and equivalents                                                                282
     Restricted cash                                                                     724
     Accounts receivable                                                               1,081
     Income tax refund and related interest receivable                                    22
     Prepaid and other current assets                                                    100
                                                                                --------------
         Total current assets                                                          2,209

Property and equipment, net of accumulated depreciation of  $1,041                     2,459

Purchased member lists, net                                                            1,520

Available for sale securities                                                             35
Other assets                                                                              82
                                                                                --------------
               Total assets                                                            6,305
                                                                                ==============
Liabilities and stockholders' equity Current liabilities:
     Long-term debt and capital lease obligations, current portion                       996
     Accounts payable                                                                    315
     Accounts payable to independent licensed brokers                                  1,280
     Deferred revenue, current portion                                                    43
     Accrued legal expenses                                                              701
     Other current liabilities                                                           839
                                                                                --------------
         Total current liabilities                                                     4,174
                                                                                --------------
Long-term debt and capital lease obligations                                             101
                                                                                --------------
Deferred revenue                                                                         130
                                                                                --------------
Common stock subject to a put (333,333 shares outstanding)                             1,500
                                                                                --------------
Commitments and contingencies                                                             --
                                                                                --------------
Stockholders' equity:
       Common stock, $.01 par value; 50,000 shares authorized;                           159
         15,849 shares issued and outstanding
     Additional paid-in capital                                                       28,977
     Unrealized gain on marketable securities                                             34
     Treasury stock, at cost (2 shares in 2000 and 1999)                                 (10)
     Accumulated deficit                                                             (28,760)
                                                                                --------------
         Total stockholders' equity                                                      400
                                                                                --------------
                Total liabilities and stockholders' equity                             6,305
                                                                                ==============

</TABLE>

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

<PAGE>31
                                ITEX CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)

<TABLE>
<S>                                                                     <C>                 <C>


                                                                      For the fiscal years ended July 31,
                                                                          2001                   2000
                                                                       ----------              ---------
Revenue:
    Trade exchange revenue                                             $ 10,067                $ 13,642
                                                                       ----------              ---------
                                                                         10,067                  13,642
                                                                       ----------              ---------
Costs and expenses:
    Costs of trade exchange revenue                                       5,078                   7,075
    Selling, general and administrative                                   7,051                   7,211
     Costs and expenses of discontinued activities                           --                      49
     Costs and expenses of regulatory and                                   410                     569
litigation matters
     Change in estimate for loss on BXI disposal                             --                    (785)
     Depreciation and amortization                                          584                     496
                                                                       ----------              ---------
                                                                         13,123                  14,615
                                                                       ----------              ---------
Loss from operations                                                     (3,056)                   (973)
                                                                       ----------              ---------
Other income (expense):
  Interest income on tax refunds                                             --                     331
  Other interest income (expense), net                                      (57)                   (271)
  Gain on sale of securities                                                 --                     235
  Miscellaneous, net                                                        223                     248
                                                                       ----------              ---------
                                                                            166                     543
                                                                       ----------              ---------
Loss before income taxes                                                 (2,890)                   (430)

Income taxes (expense) benefit                                             (241)                  1,885
                                                                       ----------              ---------
                                                                         (3,131)                  1,455

Cumulative effect of change in accounting
 principle, net                                                             (20)                     --
                                                                       ----------              ---------
Net (loss) income                                                      $ (3,151)               $  1,455
                                                                       ----------              ---------

Other comprehensive (loss) income - unrealized gain                         (79)                    113
on securities

Comprehensive (loss) income                                            $ (3,230)               $  1,568
                                                                       ==========              =========
Average common and equivalent shares:
    Basic                                                                15,849                  13,840
                                                                       ----------              ---------
    Diluted                                                              15,849                  15,775
                                                                       ----------              ---------

Net (loss) income per common share:
    Basic                                                              $   (.20)               $   0.11
    Diluted                                                                (.20)                   0.09
                                                                       ==========              =========

</TABLE>


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

<PAGE>32




                                ITEX CORPORATION
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                For the fiscal years ended July 31, 2001 and 2000
                                 (in thousands)
<TABLE>
<S>                         <C>         <C>        <C>          <C>           <C>            <C>           <C>
                                                                Unrealized
                               Common Stock        Additional    gain on
                            --------------------    paid in     marketable     Accumulated      Treasury
                            Shares       Amount     capital     securities      deficit          stock        Total
                            -------    ---------   ----------   -----------    ------------  ------------  ----------

Balance, July 31, 1999      11,762          118       27,130                    (27,064)          (10)          174

Acquisition of
Houston, Seattle, and
Sacramento Brokerages
and Sacramento
building                     2,309           24          917                                                    941

Common stock issued
to pay convertible
promissory notes             1,134           11          702                                                    713

Stock, options and
warrants issued for
goods and services             633            6          228                                                    234

Increase in unrealized
 gain                                                                 113                                       113

Net income                                                                        1,455                       1,455
                            -------    ---------   ----------   -----------    ------------  ------------  ----------
Balance, July 31, 2000      15,838     $    159     $ 28,977     $    113      $(25,609)     $    (10)     $  3,630

Stock issued to board
of directors during
year                            11

Decrease in
unrealized gain                                                       (79)                                      (79)


Net loss                                                                         (3,151)                     (3,151)


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

</TABLE>

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

<PAGE>33
                                ITEX CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
<TABLE>
<S>                                                                     <C>                  <C>

                                                                             Year ended July 31,
                                                                         ------------------------------
                                                                          2001                   2000
                                                                         --------              --------
Cash flows from operating activities
  Net (loss) income                                                      $(3,151)              $ 1,455
  Items to reconcile to net cash (used in) operations:
   Depreciation and amortization                                             548                 1,265
   Write-offs and writedowns                                                 414                    --
   Gain on sales of securities                                                --                  (235)
   Stock and options given for goods and services                             --                   234
   Costs charged to reserve for loss on BXI disposal                          --                  (769)
   Change in estimate for loss on BXI disposal                                --                  (785)
   Change in allowance for uncollectible receivables                         550                    --
   Payment of incentive compensation                                        (339)                   --

 Changes in operating assets and liabilities:
    Accounts and notes receivable                                           (872)                 (144)
     Income tax refund receivable                                          2,194                (2,216)
    Prepaids and other assets                                                 17                   (55)
    Accounts payable and other liabilities                                   218                  (115)
     Other long term liabilities                                             130                    --
    Accounts payable to independent licensed brokers                         467                   178
                                                                         --------              --------
      Net cash provided by (used in) operating activities                    176                (1,187)
                                                                         --------              --------
Cash flows from investing activities:
    Proceeds from disposal of BXI                                             --                 4,000
    Payments received on disposal of Samana                                   --                   168
    Sacramento building and purchased brokerages                              --                  (400)
    Proceeds from sales of securities                                         --                   235
    Net cash used in acquisition of business assets                         (704)                   --
    Purchase of property and equipment                                   $    (8)                 (125)
                                                                         --------              --------
     Net cash (used in) provided by investing activities                    (712)                3,878
                                                                         --------              --------

Cash flows from financing activities:
  (Payments) proceeds of related party notes payable                          --                  (480)
  Borrowings (repayments) of third party indebtedness                         26                  (898)
                                                                         --------              --------
    Net cash provided by (used in) financing activities                       26                (1,378)
                                                                         --------              --------
Net (decrease) increase in cash and equivalents                             (510)                1,313
Cash and equivalents at beginning of period                                1,516                   203
                                                                         --------              --------
Cash and cash equivalents at end of period                                 1,006                 1,516
                                                                         ========              ========
Supplemental cash flow information
   Cash paid for interest                                                $    83               $   289
   Cash paid for income taxes                                                 17                    --

Supplemental noncash investing and financing
 Stock issued for purchases of Sacramento,
Houston and Seattle brokerages and Sacramento
office building, including common
stock subject to a put of $1,500                                         $     0               $ 2,441
Debt and preferred stock converted to common stock                             0                   713


During the year ended July 31,  2001,  the  Company  acquired  $100 in  accounts
receivable,  $120 in  property  plant and  equipment  and $984 in  member  lists
through the issuance of $500 in current debt.

</TABLE>


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

<PAGE>34

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

NOTE 1 - MANAGEMENT'S PLAN

The Company's financial  statements have been prepared assuming that the Company
will  continue  as a going  concern.  During the year ended July 31,  2001,  the
Company  incurred  a  consolidated  net  loss of  approximately  $2,910.  During
October,  2001,  the  Company  became  delinquent  in its  payments  to  Network
Commerce, creating a default status. As of November 8, 2001, all payments had
been made,  however,  the Company is now required to pay an interest rate of 15%
until the note is paid in full.

The Company has experienced  net losses and negative cash flow from  operations.
As of July 31, 2001, the Company has an accumulated deficit of ($28,519). During
fiscal year 2001,  the Company  reported net cast provided by operations of $176
in the  consolidated  statements  of cash  flows,  as  compared  to case used in
operations of ($1,187) in fiscal year 2000. In 2001 operations were funded in by
an income tax refund from the prior year and by an increase in trade payables.

The Company will  require  substantial  additional  funds to satisfy its working
capital requirements and to meet the objectives of its business plan. Management
plans to obtain  these  funds  primarily  from debt and equity  placements  with
institutional  investors  and  wealthy  individuals  until such time as its cash
requirements  can be satisfied  from  operations.  However,  no assurance can be
given that the Company will be able to raise  sufficient funds from such sources
or to generate  sufficient cash flow from operations to meet its working capital
requirements.   The  consolidated   financial  statements  do  not  include  any
adjustments  that might be  necessary  if the Company is unable to continue as a
going concern.

Management  believes the success and  continued  viability of the Company  rests
upon five  major  components.  First and  foremost,  operational  costs  must be
reduced and  controlled  within every  department  of the Company.  Unprofitable
departments  located within the corporate  headquarters  and corporate  regional
offices will be restructured,  sold, or eliminated. Second, a consistent program
of recruiting,  training,  and support of an expanded  professional  Independent
Broker  Network  must  buttress  the growth and  stability  of the Retail  Trade
Exchange.  Third, the Company and Independent  Broker Network must  dramatically
improve  the number  and  variety of  high-quality  members of the Retail  Trade
Exchange  and the  retention  thereof.  Fourth,  the Company  must  increase the
number,  velocity,  and size of trade  transactions  amongst  the members of the
Retail Trade Exchange. Lastly, the Company must exercise the discipline to focus
exclusively on potentially profitable ventures,  which directly and consistently
enhance the growth and  performance  of the Retail Trade  Exchange and financial
performance of the ITEX Corporation.

NOTE 2 - 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 retail trade exchange for which it
acts as third-party  record--keeper  and in many cases,  a independent  licensed
broker for  transactions  between  members of the exchange.  The Company charges
monthly  association  fees, and percentage based  transaction fees. In addition,
the Company provides merchandise for sale to its members for trade dollars.

<PAGE>35

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

Revenue Recognition
For financial reporting purposes,  the Company records its barter and ITEX trade
dollar  transactions  based on a measure of fair value of the goods or  services
involved.  The Company  participates  in numerous  barter and ITEX trade  dollar
transactions   that  are  described   below.   The  Company  enters  into  these
transactions  primarily to generate cash transaction fees for the benefit of the
Company.  The Company  recognizes cash  association and transaction  fees as the
related services are performed.

Accounting for Association and Transaction Fees Received in ITEX Trade Dollars
In addition to receiving cash association and transaction fees, the Company also
receives  ITEX trade  dollars from members of the trade  exchange in  connection
with its  services in operating  the  exchange.  The Company uses trade  dollars
primarily for its operations.  In addition,  the Company uses ITEX trade dollars
for the acquisition of goods and services that are  subsequently  made available
for  purchase  by members of the  exchange  (enabling  the  Company to earn cash
transaction  fees). The Company does not record revenue when it earns ITEX trade
dollars as there is no persuasive  evidence that the value of services  provided
by the Company exceeds the monetary consideration received.  Further, not all of
the Company's performance obligations have been completed;  that is, the Company
must continue to successfully  operate the exchange in future periods to utilize
the ITEX trade dollars.

Accounting for ITEX Trade Dollars Spent by the Company for Goods and Services
Used in the  Company's  Operations
When ITEX trade dollars are exchanged by the Company for goods and services that
are used by the Company in its own operations, the Company records an expense or
asset equal to the fair value of the underlying goods or services received.  The
Company also records a  corresponding  revenue amount equal to the fair value of
the underlying goods or services received because at that point, the Company has
completed its  performance  obligations.  Fair value is determined by estimating
the cash  prices  for the sale of similar  goods and  services.  If the  Company
cannot  determine a fair value,  no value is  assigned  to the  transaction  for
financial reporting purposes.  The Company also assigns zero value to ITEX trade
dollars that are  exchanged in  transactions  in which cash is also paid and for
which  there is no  persuasive  evidence  that the  fair  value of the  goods or
services received exceeds the amount of monetary consideration paid.

A  significant  portion of ITEX trade  dollars  expended is for  advertising  in
various  forms.   Historically,   the  Company  has  not  conducted  significant
advertising  transactions in cash;  therefore,  ITEX trade dollars  expended for
advertising are not reflected as revenue or costs in the accompanying  financial
statements. In implementing its accounting policies and procedures,  the Company
has considered the guidance of EITF Issue No. 99-17, "Accounting for Advertising
Barter  Transactions",  which was written in the  context of Internet  companies
bartering with one another for web advertising,  but applies to other industries
as well. EITF 99-17 specifically  addresses  advertising barter transactions for
which there is no ultimate  realization of cash. It  tentatively  concludes that
revenue and expenses  from such  transactions  should be recognized in financial
statements  (at fair  value)  only if an entity  has a  historical  practice  of
receiving or paying cash for similar  transactions.  The EITF indicated that the
notion of a  "historical  practice"  should be similar to the  guidance  in EITF
Issue 93-11, "Accounting for Barter Transactions Involving Barter Credits." EITF
93-11  establishes  high  thresholds in the recognition of revenue or costs with
respect  to barter  transactions  such as " . . . if an entity can  convert  the
barter credits into cash in the near term, as evidenced by a historical practice
of converting barter credits into cash shortly after receipt,  or if independent
quoted market prices exist for items to be received . . ." The Company's  barter

<PAGE>36


transactions  denominated in ITEX trade dollars do not meet the high  thresholds
contemplated  in EITF  93-11  as  applied  with  respect  to EITF  99-17 of cash
equivalency or convertibility to cash. If there are any significant transactions
in the future that meet these high  thresholds,  the Company will report them in
the financial statements at fair value in accordance with Opinion 29.

Acquisition and Disposition of Barter-Type Commodities
The  Company  does not  record  in its  financial  statements  transactions  for
acquisition  and  disposition  of  barter-type  commodities  such as hotel  room
nights, media due bills and other barter-type  commodities (in exchange for ITEX
trade dollars or other barter-type  commodities) because additional  performance
by the Company is  required.  Typically,  the Company  must  arrange one or more
other  large ITEX  trade  dollar  transactions  to enable  the  provider  of the
commodities  to utilize the trade dollars  received by the provider.  Also,  the
provider  typically  must still  fulfill by shipping or otherwise  providing the
barter-type  commodities to the ultimate users.  The culmination of this process
occurs and revenue for  transaction  fees is  recognized by the Company when the
commodities  are provided to the ultimate  users and the Company  earns its cash
transaction  fees. The Company does not report the  commodities in its financial
statements as inventories because these transactions only represent  commitments
by the provider and the Company to perform in the future.

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 internally
accounts for ITEX trade  dollars,  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 intercompany 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 member.

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.

Concentrations of Credit Risk
At July 31,  2001,  the  Company  maintained  its  major  cash  balances  at one
financial  institution located in Portland,  Oregon. 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, 2001, the Company's uninsured cash
balances totaled $799.

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

<PAGE>37

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.  Leasehold  improvements are amortized on a straight-line  basis over the
shorter of the asset life or lease term.

Equipment  capital  leases have been  recorded  at the present  value of the net
minimum  lease  payments.  These assets are  amortized  using the  straight-line
method over lease terms 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, 2001, 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.

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.

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, 2001.

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

<PAGE>38

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, 2001 presentation.  Such  reclassifications had
no effect on the results of operations or stockholders' equity.

Recent Accounting Pronouncements
In July 2001, the FASB issued SFAS Nos. 141 and 142 "Business  Combinations" and
"Goodwill  and Other  Intangible  Assets."  Statement  141 requires all business
combinations  initiated  after  June 30,  2001 to be  accounted  for  using  the
purchase  method.  Under the  guidance of Statement  142,  goodwill is no longer
subject to amortization over its estimated useful life. Rather, goodwill will be
subject to at least an annual assessment for impairment by applying a fair value
base test.  Statement 142 is effective for financial  statement  dates beginning
after January 1, 2001.  Early  adoption is not  permitted.  The Company does not
expect either  statement to have a material impact on it consolidated  financial
statements.

Cumulative Effect of Change in Accounting Principle
The  Company  implemented  SEC  Staff  Accounting  Bulletin  No.  101,  "Revenue
Recognition  in  Financial  Statements,"  during  the  fourth  quarter  of 2001,
effective  as of the  beginning  of the year.  This  bulletin  requires  initial
membership fee revenues that do not represent a separate  earnings process to be
deferred  and  recognized  over  the  estimated   service   period.   Associated
incremental  direct  costs,  such as  commissions  to  salespeople,  may also be
deferred,  but only to the extent of revenues  subject to referral.  The Company
recorded  charge  of $20 for the  cumulative  effect  of  change  in  accounting
principle in 2001.  The effect of the change on the year ended July 31, 2001 was
to decrease revenues by $132 and expenses by $65.

NOTE 3 - NOTES RECEIVABLE IMPAIRMENT

MAXX
Former President and CEO of ITEX  Corporation,  Collins M. Christensen owned 250
shares of MAXX International Inc. stock as of July 6, 2000. The ITEX Corporation
Board  of  Directors  were  advised  of  Mr.  Christensen's   interest  in  MAXX
International  Inc.  during a board  meeting of  September  20,  2000.  The ITEX
Corporation  Board of Directors was notified of a $300 loan authorized on August
7, 2000 by Mr. Christensen to MAXX  International  during a meeting of the Board
of Directors on November 20, 2000. This action taken by Mr.  Christensen was not
ratified by the Board of  Directors at that time,  and has not been  ratified by
the current members of ITEX Corporation Board of Directors.  The note Receivable
was deemed  impaired  in the last  quarter of fiscal  2001 and was  consequently
taken off the books. The Company is pursing efforts to collect the receivable.

Samana
At July 31, 1998,  the carrying value of the investment in the Samana resort was
equal to its cash cost of $1.026.  The  property  was held in the name of Villas
Punta Baleen, C. Por A., a Dominican  Republic  Company.  During the fiscal year
ended July 31, 1999, the Company decided to liquidate the investment rather than
holding it for  development.  In fiscal year 2000, the Company  liquidated  this
investment by selling its stock back to Quisqueya Lines y Consturctora C. por A.
(QLC), a company  controlled by the parties from whom the Company had originally
purchased  its shares in Villas Punta  Ballena,  C.Por A. At July 31, 1999,  the
investment in the Samana resort was carried at its net realizable value of $518,
based on the  selling  price of $550,  less  related  costs of $32.  The Company


<PAGE>39

received  cash of $200  from the  buyers  and a note for $350  (from  which  the
Company  paid  its  costs  of the  transaction).  The  buyers  have not paid the
remaining amount of the $350 in accordance with the terms of the sale agreement.

In order to proceed with  collecting  the note,  the Company has  researched the
activity of Quisqueya  Lines y  Consturctora  C. por A., the  promissory  on the
note. That company appears to be an active freight company doing business out of
North Miami.

The Company intends to pursue the recovery of this receivable,  however,  due to
the  non-performance  of QLC with respect to the  obligations  of the note,  the
Company  during the third  quarter of fiscal 2000,  established  an allowance of
$350, the full amount of the Samana note  receivable.  During the fourth quarter
of fiscal  2001,  the Company  removed the note from the books.  The Company has
contacted  a law firm in Miami,  Florida and expects to have a suit filed by the
second  quarter  of 2002,  with an  uncertain  expectation  of  success.  Once a
judgment is obtained, the Company will proceed to execute on the business assets
of the freight company,  obviating any need to pursue the property owned through
its Dominican Republic subsidiary.

NOTE 4 - DIVESTITURE OF BXI CORPORATION

In May 1999, the Board of Directors  decided to sell the net assets and business
of Business Exchange  International  Corporation ("BXI"), a Barter Exchange with
corporate headquarters in Burbank,  California. On January 18, 2000, the Company
consummated  the sale of the net assets and  business of BXI  Corporation  to an
unrelated  third party for $4,000,  which was paid by the buyer in cash.  On the
measurement  date in May 1999,  the Company  recorded an  estimated  loss on the
disposal  of $2,000,  which  included  an  estimated  loss from  operations  and
disposition of BXI Corporation  from the period May 31, 1999 to January 18, 2000
of approximately  $780. Upon completion of the sale, the Company determined that
the actual loss on disposal was $1,215 and, accordingly,  the Company recorded a
change in estimate to eliminate  the  remaining  balance in the reserve of $785,
which is shown  separately as a reduction of costs and expenses in the statement
of operations.

NOTE 5 - BUSINESS ACQUISITIONS

Ubarter.com - Canada
Pursuant to an Asset Purchase Agreement the Company,  acquired substantially all
of the  assets of  Ubarter.com  Canada,  a wholly  owned  subsidiary  of Network
Commerce,  Inc. In addition to the assets, the Company assumed certain operating
liabilities.  The  acquired  assets  include a customer  list of more than 7,000
trade  and  barter  exchange  members,   inventories   throughout   Canada,  and
furnishings of the branch office.  The assets were acquired in exchange for cash
and a promissory note secured  against those assets.  The essential terms of the
transaction  include  payment  by the  Company of $250 (US) at the  closing  and
delivery of a promissory note for $500 (US), payable in monthly  installments of
$42 (US); the assumption of certain  liabilities  and  obligations in connection
with  the  branch  office,  including  the  lease  of  that  facility,  and  the
assumption,  using the Company's trade dollars, of the seller's trade deficit of
approximately  $4,500. The seller further agreed to indemnify the Company in the
event of any  non-disclosed  and  non-assumed  liabilities.  The purchase  price
allocation and consideration paid were as follows:


       Consideration                          Purchase Price Allocation
-----------------------------              --------------------------------
Note payable           $ 500                Accounts receivable       $ 100
Cash payment             250                Property and equipment       95
Acquisition costs        130                Customer lists              685
                       ------                                        ------
Total consideration    $ 880                Total                     $ 880

<PAGE>40


During October,  2001, the Company became  delinquent in its payments to Network
Commerce,  creating a default  status.  As of November 8, 2001, all payments had
been made,  however,  the Company is now required to pay an interest rate of 15%
until the note is paid in full.

Ubarter.com - Seattle
The Company, pursuant to an Asset Purchase Agreement, acquired substantially all
of the assets of Ubarter.com USA, a wholly owned subsidiary of Network Commerce,
Inc. These assets include a customer base exceeding 8,000  registered  trade and
barter  exchange  members and the physical  assets of the online trading system.
The Company  plans to manage the member  base from their  existing  Seattle,  WA
location  and host the  online  trading  system  from the  corporate  office  in
Sacramento, CA. The assets were acquired for a cash payment of $300 (US) made at
the time of closing.  The  transaction did not involve any exchange of shares of
ITEX trade dollars.  The essential terms of the  transaction  include payment by
the Company at the closing.  The seller  further agreed to indemnify the Company
in the event of any non-disclosed and non-assumed liabilities.

       Consideration                           Purchase Price Allocation
-----------------------------              --------------------------------

Cash payment           $ 300               Property and equipment     $  25
Acquisition costs         24               Customer lists               299
                       -------                                        ------
Total consideration    $ 324               Total                      $ 324
                       -------                                        ------

Sacramento

In October 1999, the Company exchanged 1,967 shares of the its restricted common
stock for all of the outstanding  stock of California  Trade  Exchange,  Inc., a
California  corporation,  which  operated the business of the Company's  largest
independent  brokerage  located  in  Sacramento,  California.  The  total  value
assigned  to the  acquisition,  which is  being  accounted  for by the  purchase
method,  was $669.  A total of $399 was  allocated  to the right to service  the
member lists,  which is being  amortized  over a four-year  life.  The principal
owner of the Sacramento  brokerage  business was the President,  Chief Executive
Officer and a Director of the  Company  and a minority  owner of the  Sacramento
brokerage  business  served as a vice  president of the Company in charge of ILB
training until March 7, 2000.

Seattle

In February 2000, the Company  acquired all of the issued and outstanding  stock
of Seattle Trade Network,  Inc., ("STN") a Washington corporation which operated
the business of the  independent  licensed  broker  located in Issaqua  (Seattle
area),  Washington.  The purchase  price  consisted of $150 cash, 150 ITEX Trade
Dollars and 200 shares of common stock of the company. In addition,  the Company
issued 15  warrants  to purchase  restricted  common  stock of the Company at an
exercise  price of $0.75 per  share.  One of the  former  stockholders  of "STN"
continued  as an ITEX  employee  to manage the Seattle  office.  The total value
assigned  to the  acquisition,  which is  being  accounted  for by the  purchase
method,  was $305.  Substantially all of the purchase price was allocated to the
right to service the member  lists,  which is being  amortized  over a four-year
life.


<PAGE>41

Houston

Also in February  2000,  the Company  acquired the assets of the operator of the
ILB office located in Houston,  Texas. The purchase price was $100 cash, payable
$50 at closing  and the  remainder  over time,  100 ITEX Trade  Dollars  and 100
shares of the  restricted  common stock of the Company and the option to acquire
up to an additional 25 shares of restricted common stock at an exercise price of
$0.75 per share.  The owner of the operation has remained as an ITEX employee to
manage the Houston office. The total value assigned to the acquisition, which is
being accounted for by the purchase method,  was $184.  Substantially all of the
purchase price was allocated to the right to service the member lists,  which is
being amortized over a four-year life.

The  following  unaudited  pro  forma  information  represents  the  results  of
operations of the Company as if all  acquisitions had occurred on August 1, 1999
after  giving  effect to  amortization  of the cost  assigned  to member  lists,
depreciation of acquired property and equipment, interest expense on the related
debt issuance and the assumed issuance of any common stock.

                                              Years Ended July 31,
                                     -------------------------------------
                                          2001                    2000
                                     -------------         ---------------
Revenue                              $    11,167           $       15,351
Net loss                             $    (4,759)          $       (6,622)
Net loss per common share            $      (.30)          $         (.42)


The unaudited pro forma information includes Ubarter through January 31, 2001.
For the periods subsequent to January 31, 2001 but prior to the acquisitions,
the income statements are not available and are thus, not reflected in the pro
forma information shown above. The following show the missing time frames for
pro forma disclosure:

         Ubarter - Canada  February, 2001
         Ubarter - Seattle February - May, 2001

The  unaudited  pro forma  information  does not purport to be indicative of the
results which would  actually  have been achieved for the periods  indicated had
the acquisitions  occurred as of August 1, 2000 or results which may be achieved
in the future.

NOTE 6 - SALES OF OTHER ASSETS

Samana
During  fiscal  2000,  the  Company  sold its  investment  in the Samana  resort
property to the  parties  from whom the Company  had  originally  purchased  the
property for $550.  The property was  previously  written down in fiscal 1999 to
$518,  based on the selling price less related costs of $32. The purchasers have
paid a total of $200.  The  remaining  balance  due of $350 has not been paid in
accordance  with the terms of the sale and the  Company is  contemplating  legal
action to enforce  the terms of the sale  agreement.  During the year ended July
31, 2001,  the Company made the  determination  that the amount to be ultimately
realized from this asset is in significant doubt and has written off the related
receivable while continuing its efforts to collect the amount due.

Magazine Publishing Rights
During fiscal 2000, the Company sold the rights to publish its magazine  related
to the commercial  barter industry for $100,  which was received in cash.  There
were no assets with book value in the balance sheet with respect to the magazine
publishing rights. The gain of $100 has been included in other income.

<PAGE>42

Marketing Information
During fiscal 2000,  the Company  conveyed  certain  marketing  information to a
third party for a net fee of $150, which has been included in other income.

NOTE 7 - PURCHASE OF SACRAMENTO OFFICE BUILDING

Item 2. Description of Property

In  February  2000,  the Company  purchased  an office  building in  Sacramento,
California.  The Company moved its corporate headquarters from Portland,  Oregon
and relocated its Sacramento  Regional Office to that location in June 2000. The
consideration  paid consisted of: (a) $200 cash, a promissory note for $300 with
interest at 10%, with monthly  interest  only payments  until August 29, 2001 at
which time the entire  principle  became due,  (c) 333 shares of common stock of
the Company that will be increased, if necessary, at a future date to enable the
seller to  realize  $1,500  from the sale of the  stock,  and (d) 200 ITEX Trade
Dollars.  The  Company  recorded  the  building  at the  total  cash  paid,  the
promissory  note, and the value of the stock $1,500 to be provided,  for a total
of $2,000.  The  arrangement  provides  that if the seller is unable to sell the
stock, the Company may satisfy this obligation by paying cash. In the event that
the stock cannot be sold and the Company  does not pay cash,  the seller has the
option to foreclose on the  building.  The Company has recorded the  arrangement
with  respect to the stock as  "common  stock  subject to a put" in the  balance
sheet,  which is not included in stockholders'  equity. The Company is currently
in default of the purchasing  agreement and exploring  options to re-finance the
property or lease appropriate building space for its operations.

NOTE 8- PROPERTY AND EQUIPMENT

Depreciation expense for property and equipment was $278 and $137 for the fiscal
years ending July 31, 2001 and 2000, respectively.

At July 31, 2001,  assets held under  capitalized  leases include  computers and
other equipment totaling $379.  Depreciation  expense for capitalized  equipment
leases  was $63 and $69 for the  fiscal  years  ended  July 31,  2001 and  2000,
respectively.

NOTE 9 - PURCHASED MEMBER LISTS

At July 31, 2001, the cost of acquired member lists was $2,241, less accumulated
amortization of $721, for a net carrying value of $1,520.  These amounts include
the  new  member  lists  acquired  in  the  purchases  of the  Canada,  Seattle,
Sacramento and Houston brokerages.

NOTE 10 - OTHER ASSETS

Mining Rights
During fiscal 2001 the Company  determined  that the mining  rights,  previously
recorded  on the books  for $50 were no  longer  of value and were  subsequently
removed.

NOTE 11 - OTHER CURRENT LIABILITIES

At July 31, 2001, the balance in other current liabilities consists primarily of
payroll related liabilities, business property taxes and accrued legal and audit
fees.

NOTE 12 - NOTES PAYABLE TO RELATED PARTIES

In July 1999, when the Company needed working capital,  an individual who was at
that time Chairman of the Board of  Directors,  and another  individual  who was
President,  CEO and a  Director  of the  Company,  loaned a total of $480 to the
Company.  The transactions were structured as convertible notes bearing interest
at 10% per annum.  The Company  paid those notes in full  together  with accrued

<PAGE>43

interest in January 2000. The conversion privilege was never exercised.

NOTE 13 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

The Company has entered into a $300  short-term  note payable to an  individual.
The note bears  interest at 13.5%  payable  monthly  with all  principal  due on
September  30,  2001.  The Company has  extended  this note,  with an  increased
interest  rate of 16%.  Subsequent  to  year-end,  the  Company  has  signed  an
agreement with the  individual to extend the note until February 28, 2002.  This
note is secured by certain  personally  owned  real  property  of the  Company's
former President and CEO.

The Company has entered into a $500 short term note payable to Network Commerce,
Inc for the acquisition of Ubarter.com,  a subsidiary of Network Commerce,  Inc.
Payments  of $42 per month will be made  through  March,  2002 at which time the
balance will be paid in full. At July 31, 2001 the balance was $333.

                        Description                             Balance at July
                                                                    31, 2001
------------------------------------------------------------   -----------------

Note payable from purchase of Sacramento office building,
10% interest only payment, due August 2001, secured
by the building                                                $         300

Note payable from purchase of Ubbarter.com at $42 per
month, no interest, due March 2002                                       333

Note payable, 13.5% interest only payment until
September 300 2001; extended at 16% interest until
February 28, 2002                                                        164
                                                               -----------------
                                                                       1,097

Less, current portion                                                   (996)
                                                               -----------------
                                                               $         101
                                                               =================


The annual maturity of capital lease obligations are as follows:

               Fiscal year ending July 31,
                         2002                      82
                         2003                      71
                         2004                      27
                         2005                      --
                         2006                      --
                      Thereafter                   --
                                                --------
Total                                             180
Less imputed interest                             (16)
                                                --------

Present value of minimum lease payments           164
Less, current portion                             (63)
                                                --------
                                                  101

<PAGE>44

The Company's non-cancelable capital leases have terms from 1 to 4 years, expire
during the years 2003 through  2004,  bear  interest at 8% to 15% and  currently
provide for aggregate monthly payments ranging from $0 to $2.

NOTE 14 - 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 aggregate future minimum  commitments  under operating leases are as
follows:

                Fiscal year ending July 31,
                           2002                    239
                           2003                    109
                           2004                     33
                           2005                      5
                           2006                     --
                        Thereafter                  --
                                                 ------
                           Total                    386
                                                 ======

Rent expense for the periods  ended July 31, 2001 and 2000  amounted to $516 and
$250, respectively.

In the  ordinary  course of business,  the Company may be subject to  litigation
matters  and claims  that are normal for its  operations.  While the  results of
litigation and claims cannot be predicted with certainty,  management  believes,
based on advice of counsel,  the final  outcome of such  matters will not have a
materially adverse effect on the consolidated  financial  position.  See Note 19
for detailed discussion of legal matters.

NOTE 15 - STOCKHOLDERS' EQUITY

Stock Options

The Company  adopted the  following  incentive  stock  option  plans under which
common stock may be granted to employees, officers, directors and consultants of
the Company. All option prices are at market price at the date of grant.

<PAGE>45

<TABLE>
<S>                            <C>                     <C>                        <C>


                                   Number of
                                    Shares                                       Date of Stockholder
Date of Plan Adoption             Authorized           Grant Period                   Approval
-----------------------------    --------------       -----------------------    ----------------------
February 11, 1994                     200                  10 years                February 10, 1995
October 26, 1994                      750                  10 years                February 10, 1995
December 15, 1995                   1,250                  10 years                      May 3, 1996
December 27, 1996                   1,000                   5 years                 February 9, 1999
January 1, 1997                       755                  10 years                 February 9, 1999
September 3, 1997                     965                  10 years                 February 9, 1999

</TABLE>


The following  summarizes  activity for the fiscal years ended July 31, 2001 and
2000 activity:

<TABLE>
<S>                             <C>              <C>            <C>
                                       Number of Options
                                  ----------------------------
                                  Available         Granted       Option Price per Share
                                  -----------     ------------    -----------------------

Balance July 31, 1999                660             3,842
   Granted                          (790)              790               $0.75 - $1.50
   Cancelled                         475              (475)              $0.63 - $6.13
                                  -----------     -----------
Balance, July 31, 2000               345             4,157
   Granted                          (369)              369               $0.40 - $6.13
   Cancelled                         110              (110)              $5.50
                                  -----------     -----------
Balance, July 31, 2001                86             4,416

</TABLE>

Prior to July 1999, options granted became exercisable  immediately and were not
cancelled if  unexercised  within 90 days of  termination.  Effective July 1999,
options granted become exercisable over a period of time,  typically four years,
and are forfeited by the employee if not exercised within 90 days of termination
of employment.  In October 1999 the Company informed terminated employees of its
intent to follow the  provisions  of the options  plans as to the  expiration of
options  of  terminated  employees,  if it had the  contractual  right to do so.
Depending on the former  employee's  length of employment,  effective October 1,
1999, the Company has given  terminated  employees from four months to two years
to exercise  their  options.  Options of certain  former  officers  totaling 110
shares were cancelled in their  entirety in November 1999. In addition,  certain
options to purchase 475 share of common stock  previously held by the founder of
the  Company and its former  Chairman  and Chief  Executive  Officer at exercise
prices  ranging  from $1.94 per share to $6.13 per share were  cancelled  by the
Company in November 1999 in accordance with the provisions of the option plans.



<PAGE>46

The weighted average  contractual life of options granted through July 31, 2001,
is 6.10 years. The weighted average exercise prices for the options  outstanding
at July 31, 2001 are as follows:

                                                      Weighted Average
 Exercise Price Range       Common Stock Options      Exercise  Prices
----------------------     -----------------------    ------------------
     $0.40 - 1.694                2,201                    $0.821
     $2.50 - 3.75                 1,206                    $3.369
     $5.50 - 6.125                  709                    $6.125

Warrants

As of July 31,  2001,  the  following  warrants  to purchase  common  stock were
outstanding:

Number of Shares              Exercise per Share             Expiration Date
----------------              ------------------            -------------------
      20                            $3.50                     January 27, 2002
     129                            $3.75                        June 16, 2003
       2                            $5.25                        April 1, 2001
      67                            $2.00                   September 30, 2003
      67                            $3.00                   September 30, 2003
      67                            $4.00                   September 30, 2003

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 69 and 1,293
shares of common stock to employees  and  directors  during the years ended July
31, 2001 and 2000.

The  following  table  summarizes  the  difference  between  the fair  value and
intrinsic  value  methods  and the pro forma net income and net income per share
amounts for the years  ended July 31, 2001 and 2000 had the Company  adopted the
fair value-based method of accounting for stock-based compensation.

                                                         Years ended July 31,
                                                        2001              2000
                                                     ---------         --------
Difference between fair value and intrinsic           $    28          $    68
value methods (additional compensation expense)

Net (loss) income                                      (3,179)           1,249

Net (loss) income  per share - basic                     (.20)             .09

Net (loss) income  per share - diluted                   (.20)             .08

<PAGE>47


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  2001 and 2000:  dividend  yield of zero,
expected average annual  volatility of 63%,  average annual  risk-free  interest
rate of 6.0%, and expected lives of four years and nine years.

Because the 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.  Accordingly,  the
implementation  of  Statement  123 may have a material  effect on the  Company's
financial  statements  and the pro forma  disclosures  in the notes  thereto  in
future periods.

NOTE 16 - INCOME TAXES

Comparative analysis of the provision (credit) for income taxes for the fiscal
years ended July 31, 2001 and 2000 follows:

                                  Years ended July 31,
                                  2001             2000
                               ----------       ---------
Current
     Federal                   $    241         $(1,885)
     State                                           --
                               ----------       ---------
                               $    241         $(1,885)
Deferred
     Federal                                         --
     State                                           --
                               ----------       ---------
                                                     --
Tax (benefit) expense          $    241         $(1,885)


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,
2001 and 2000 and because of  realization  of net  operating  losses in the year
ended July 31, 2000. The following  reconciles  expected income tax effects at a
range of 34% to the provision (credit) for income taxes:

                                                         Years ended July 31,
                                                       2001           2000
                                                    ----------    -------------

Taxes at U.S. federal statutory rate                $  (1,071)    $     (146)
Change in deferred tax valuation allowance other
than realization of net operating loss                    951         (1,906)
Other, net                                                361            167
                                                    ----------    -------------
Tax (benefit) expense                               $     241     $   (1,885)

<PAGE>48

The tax effects of temporary  differences that give rise to significant portions
of deferred tax assets and  liabilities  at July 31, 2001 and 2000 are presented
below:
<TABLE>
<S>                                                     <C>                 <C>
                                                             Years ended July 31,
                                                           2001              2000
Deferred tax assets:
   Net trade activity included for income tax purposes
   not recognized for financial reporting                $ 1,055           $  2,236
   Investments and assets impaired for financial
   reporting, not disposed of for tax purposes             1,087              1,105

   Amortization                                              651                685

   Net operating loss carryforward                         5,102              3,052

   Capital loss carryforward                                 102                102

   Other                                                     768                708
                                                         --------          ---------
                                                           8,765              7,888
Deferred tax liabilities:
   Amortization                                             (137)              (211)

Net deferred tax assets                                    8,628              7,677

Valuation allowance                                       (8,628)            (7,677)

                                                        $     --           $      --

</TABLE>


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 17 - 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  reduction
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, 2001 and 2000.

The Company has a bonus plan for its officers. Bonuses paid were $0 and $339 for
fiscal years ended July 31, 2001 and 2000, respectively.

NOTE 18 - 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

<PAGE>49

not  necessarily  indicative  of the amounts that the Company could realize in a
current  market  exchange.  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 Amount       Fair Value
                                             -----------------    --------------
Assets
Cash                                              1,006                1,006
Accounts receivable                               1,081                1,081

Liabilities
Accounts payable                                    315                  315
Accounts payable to brokers                       1,280                1,280
Current portion long-term debt                      996                  996
Long term debt                                      101                  101

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, 2001.

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 19 - LEGAL PROCEEDINGS

Martin Kagan Litigation

During July 1998, the Company was served with a summons and complaint for a case
in Circuit  Court of  Multnomah  County,  Oregon,  styled  Martin  Kagan v. ITEX
Corporation.  The complaint  alleges breach of a stock option agreement  between
the Company and Kagan and seeks to set aside a settlement  agreement between the
parties dated January 14, 1997. The Company  answered the complaint  denying its
material  allegations.   Subsequently,  the  plaintiff  filed  a  first  amended
complaint  adding  Graham H. Norris,  the Company's  former  President and Chief
Executive Officer, as an additional party and modifying somewhat the allegations
of the original complaint.  The Company and Mr. Norris have answered the amended
complaint and denied all  allegations.  The Company has vigorously  defended the
action.  Trial before a court appointed referee was held on November 4, 8 and 9,
1999. On April 12, 2000, the referee issued a decision dismissing all of Kagan's
claims  except his claim for  unlawful  sale and  purchase  of  securities.  The
referee awarded Kagan $400,000 plus interest from July 14, 1998, plus reasonable
attorneys'  fees. The referee's  decision was confirmed by the Multnomah  County
Circuit Court and judgment has been entered. The judgment was amended to include
attorneys'  fees on January 12, 2001.  The Company has bonded the judgment  that
has been entered and guaranteed the bond with  certificates of deposit  totaling
$714,000.  The Company has  appealed and has been advised by its counsel that it
has a reasonable  chance for success in overturning the decision.  A reserve for
this settlement has been included in the  consolidated  financial  statements in
the amount of $499,000.

<PAGE>50


IBTEX, A.G. Litigation

During September 1998, the Company was served with a summons and complaint for a
case in the Circuit Court of Multnomah  County,  Oregon,  styled IBTEX,  A.G. v.
ITEX  Corporation,  Donovan Snyder and Graham Norris,  Sr. The complaint alleges
breach of contract, breach of duty of good faith and fair dealing and violations
of the Oregon Franchise Act. The defendants have answered the complaint  denying

its material  allegations,  demanding  that the disputes  between  IBTEX and the
Company be arbitrated  pursuant to an arbitration  agreement between the parties
and requiring  that the action be stayed until such time as the  arbitration  is
complete. The proceeding has been abated and no arbitration has been set and the
case has been dormant for many months. On November 30, 2000 the Company was sent
a copy of a new  related  case which  names the  Company as a  defendant  in the
Circuit Court of Multnomah County,  Oregon, styled IBTEX, A.G. v. Terry Neal, et
al, seeking no affirmative relief against the Company, but naming the Company as
a defendant.  The Company  accepted service of the summons and complaint in this
matter on February 1, 2001. The Company has filed a motion to dismiss,  which is
not yet calendared.  Management does not consider a negative  resolution of this
matter  to be  probable  and  therefore  no  reserve  has been  provided  in the
consolidated financial statements.

Desert Rose Foods Litigation

On April 28, 2000, ITEX Corporation was served with summons and complaint for an
action in the Circuit Court of Fairfax County, Virginia style Desert Rose Foods,
Inc. v. ITEX  Corporation  and ITEX USA,  Inc. The complaint  alleges  Breach of
Contract,  Fraud,  and  violations of federal law.  Plaintiff  asks for $750,000
compensatory  damages,  punitive damages,  other statutory damages, and interest
and  attorney's  fees.  Plaintiff  entered into a contract  with the Company for
delivery of goods  valued at  approximately  $120,000.  The Company has retained
local counsel in this case and is vigorously  defending the matter.  The Company
believes  Plaintiff's  complaint  is  frivolous.  The Company  has  successfully
defended  similar  actions.   The  Company  does  not  believe  this  action  is
significant  to the  Company's  financial  position.  This case was dismissed on
March  26,  2001 and  therefore  no  provision  has been  made in the  Company's
consolidated financial statements. The plaintiff has the right to re-file within
six months of the  dismissal.  To date,  the  Company has not been served with a
complaint.

Metro Sales

On May 28, 2000,  the Company was served with a summons and  complaint  filed in
the Circuit Court of Multnomah  County,  Oregon, in the matter of Metro Sales v.
ITEX.  The complaint  alleges breach of contract and violation of an Oregon Blue
Sky statute.  The Company denies all the  allegations  and intends to vigorously
defend this action.  No provision  was  included in the  Company's  consolidated
financial statements for this litigation.  This matter was settled during fiscal
year 2001 without any payment by the Company and with the  plaintiff  paying the
Company some of the disputed fees.

Skiers Edge Litigation

On June 19, 2000,  the Company was served with a summons and complaint  filed in
the District  Court for Summit  County,  Colorado,  in the matter of Skiers Edge
Condominium  Association v. George Owens. The complaint alleges that the Company
owes plaintiff association fees relating to interval timeshares that the Company
is alleged to own. The Company is defending this matter and does not foresee any
material  impact from this  matter.  The matter has been tried and is  presently
under submission to the court.

<PAGE>51


Claim of Terry Neal for Indemnity

On December 1, 2000 the Company received a demand from attorneys for Terry Neal,
founder and former chief executive officer of the Company,  claiming a right for
indemnity for fines and attorneys'  fees Mr. Neal is alleged to have incurred in
connection  with an SEC  investigation  and civil suit brought by the Securities
and Exchange  Commission  ("SEC") related to certain activities of Mr. Neal that
occurred  while he was a consultant  to the Company in fiscal years prior to the
fiscal  year  ended  July 31,  1998.  The  claim,  which at this  point is not a
lawsuit,  also includes the right to indemnity for  attorneys'  fees incurred in
his  defense  of the  IBTEX  litigation  as well as the right to  indemnity  for
attorneys'  fees  incurred  in his  defense  of the Kagan  matter.  The  Company
believes that any liability that may result from the two latter matters has been
adequately  provided for in these financial  statements.  The Company denies any
liability to indemnify Mr. Neal for SEC related expenses and fines, and believes
his other claims are excessive.  Furthermore,  the Company also has  affirmative
defenses  that gives it a right of set-off  against  Mr. Neal that  exceeds,  in
amount the $2.8  million for which he has claimed.  The Company will  vigorously
defend against his claims.

1401 El Camino Litigation

On March 1, 2001 the Company was served with a summons and  complaint out of the
Superior Court for Sacramento  County in the matter of El Camino Tower,  LLC vs.
Sacramento Trade Exchange,  Inc., dba ITEX of Sacramento,  adba ITEX California,
adba Sacramento  ITEX; ITEX  Corporation;  International  Trade Exchange,  Inc.;
Collins  M.   Christensen,   aka  Collie   Christensen,   individually  and  dba
International  Trade  Exchange.  The  complaint  alleges  that the  Company  has
breached a lease  previously  occupied by the Sacramento  regional  office.  The
matter was  settled in October,  2001,  for a  combination  payment of $33 trade
dollars and $33 cash. The settlement will be paid, in monthly payments, pursuant
to the settlement, with the final payment due on April 1, 2002.

Wendy Moore Litigation

On October 12, 2001,  the Company was served with a summons and  complaint for a
case in the District Court, 32nd Judicial District of Nolan County, Texas styled
Wendy  Moore,  Rocky  Moore and  Sweetwater  Lone Tree  Roofing,  Inc.  vs. ITEX
Corporation,  ITEX Trade Exchange,  International Trade Exchange,  Abilene Trade
Exchange, Inc., Adam Keidl, Individually and Carol A. Phelps, Individually.  The
complaint   alleges   that  the  Company  is  liable  for   certain   fraudulent
representations of an independent licensed broker in Abilene, Texas. The Company
denies  any  liability  for the  acts of the  broker  and is in the  process  of
retaining counsel for a vigorous defense of this action.  The Company also is in
the  process of  demanding  both  indemnity  and  defense  from its  independent
licensed  broker.  No provision  has been  included in the  Company's  financial
statements.

<PAGE>52

NOTE 20 - SUBSEQUENT EVENTS

Sale of Regional Corporate Offices

In September and October 2001 the Company  transferred  its regional  offices in
Portland, Costa Mesa, Lafayette, and Orlando to independent licensed brokers.

Portland, Oregon
The sale of the  Portland  regional  office  took place on October  12, 2001 for
$100,000.  The Company will receive a down payment of $20,000.  The balance will
be paid at the rate of 15% of the total fees earned by that  office  during each
four-week cycle until paid in full.

Costa Mesa, California
The regional  office in Costa Mesa was closed on September 30, 2001. The members
will be serviced by an independent licensed broker in the area.

Lafayette, Louisiana
The sale of the  Lafayette  regional  office  took place on October 22, 2001 for
$40,000.  The Company  will  receive 36% of the total fees earned by that office
during each four-week cycle until the balance is paid in full.

Orlando, Florida
The sale of the Orlando  regional  office took place on  September  28, 2001 for
$104,000. The Company will receive $2,000 per four-week cycle for 52 cycles.

Jensen Beach, Florida
In January 2001 the Company paid out $50,000 in exchange for the  termination of
the license of one of its independent licensed brokers in Jensen Beach, Florida.
The  agreement  was  rescinded  on October 4, 2001.  The Company will receive an
additional  $35,000 for a total of $85,000.  The Company will receive $5,000 per
cycle beginning November 22, 2001.

License

On  July 1,  2001,  the  Company,  pursuant  to a Fee  Paid  Independent  Retail
Brokerage Agreement (the "Agreement")  granted,  for a  US$400,000 fee ($160,000
paid,  and monthly  payments  thereafter),  a license for a  Vancouver,  British
brokerage.

The  franchise  was  intended  to  transfer  certain  members  from the  Ubarter
acquisition.  The large number of former  Ubarter.com  members doing business in
Vancouver,  who are now part of ITEX and required a well  organized  and staffed
ILB and office to facilitate their trades.

On September 17, 2001, the Company  entered into a Modification of the Agreement
discussed  above.  After entering into the Agreement,  ITEX and the  independent
operator  discovered the trade volume of certain  members  transferred  from its
recently  acquired Ubarter  acquisition was not as high as the parties expected.
The fees were reduced to US$250,000  (payable in  installments  every four weeks
starting on November 1, 2001). For payment of the fee, the independent  operator
has the  option (i) to pay at least  US$125,000  by  January  15,  2002 with the
balance payable in installments every four weeks without interest or (ii) to pay
the entire amount in installments  every four weeks with interest  accruing at a
rate of 9% with all interest  payable at the end of the term.  Due to unforeseen
expenditures upon the commencement of the independent  operator's business,  the
independent  operator is entitled to a credit of  CN$18,000  against any accrued
interest.

<PAGE>53


Corporate Restructuring

On  November  6,  2001,  the  Company  announced  a major  restructuring  of its
corporate  operations,  with Lewis Humer, the Company's Chief Operating Officer,
assuming  total   responsibility   for   day-to-day   operations  and  corporate
restructuring,   with  the   termination  of  President  and  CEO,   Collins  M.
Christensen.  Mr.  Christensen  remains  a  member  of the  Company's  board  of
directors.

<PAGE>54


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

         None.

                                    PART III

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

The  information  called for in Item 9 of Part III is  incorporated by reference
from  the  definitive  proxy  statement  of the  Company  to be  filed  with the
Securities and Exchange Commission within 180 days from fiscal year end.

Item 10.  Executive Compensation.

The  information  called for in Item 9 of Part III is  incorporated by reference
from  the  definitive  proxy  statement  of the  Company  to be  filed  with the
Securities and Exchange Commission within 180 days from fiscal year end.

Item 11.  Security Ownership of Certain Beneficial Owners and Management.

The  information  called for in Item 9 of Part III is  incorporated by reference
from  the  definitive  proxy  statement  of the  Company  to be  filed  with the
Securities and Exchange Commission within 180 days from fiscal year end.

Item 12.  Certain Relationships and Related Transactions.

The  information  called for in Item 9 of Part III is  incorporated by reference
from  the  definitive  proxy  statement  of the  Company  to be  filed  with the
Securities and Exchange Commission within 180 days from fiscal year end.

                                     PART IV

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

     a)   Exhibit

         See attached

     b)  Reports on Form 8-K

         The  following  reports on Form 8-K were filed during the last quarter
of the period covered by this report:

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

         March 15, 2001                     Acquisition of substantially all of
                                            the Assets of Ubarter.com Canada

         July 23, 2001                      Sale of a License to Operate an ITEX
                                            Retail Exchange to an Independent
                                            Retail Broker in Vancouver, British
                                            Colombia, Canada

<PAGE>55

                                   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

                                                  /s/LEWIS HUMER, JR.
                                                     ------------------------
                                                     Lewis Humer, Jr.,
                                                     Chief Operating Officer
                                                     and Director (Principal
                                                     Executive 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 12, 2001             By:/s/ LEWIS HUMER, JR.
                                          --------------------------------------
                                           Lewis Humer, Jr., Chief Operating
                                           Officer and Director
                                           (Principal Executive Officer)



Date: November 12, 2001             By:/s/ DANIELA C. CALVITTI
                                           -------------------------------------
                                           Daniela C. Calvitti, Chief Financial
                                           Officer and Director (Principal
                                           Financial Officer)



Date: November 13, 2001             By:/s/ JEFFREY ELDER
                                           -------------------------------------
                                           Jeffrey Elder, Chairman of the Board


Date: November 12, 2001             By:/s/ JAY ABRAHAM
                                           -------------------------------------
                                           Jay Abraham, Director


Date: November 12, 2001             By:/s/ WILLIAM BRONSTON
                                           -------------------------------------
                                           William Bronston, M.D., Director


Date: November 13, 2001             By:/s/ JOHN DETHMAN
                                           -------------------------------------
                                           John Dethman, Director


Date: November 12, 2001             By:/s/ GERRY HARRIS
                                           -------------------------------------
                                           Gerry Harris, Director


                                           -------------------------------------
                                           Collie Christensen, Director