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, 2002

                         Commission File Number 0-18275

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

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

                 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  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:  $10,137,000

The aggregate market value of stock held by  non-affiliates  is $1,537,461 based
upon  13,976,922  shares held by such  persons and the closing  price of $.11 on
September 17, 2002.

The number of shares  outstanding of the Registrant's  common stock at September
17, 2002 was 17,727,565.

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 9, 10, 11, 12 and 13 of this report



<PAGE>


                                ITEX CORPORATION
                                   FORM 10-KSB
                     For The Fiscal Year Ended July 31, 2002


                                                                            Page
INDEX                                                                          I
            PART I
ITEM 1.     DESCRIPTION OF BUSINESS                                            1
ITEM 2.     DESCRIPTION OF PROPERTY                                           14
ITEM 3.     LEGAL PROCEEDINGS                                                 15
ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS               16
            PART II
ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS          16
ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN of Operation         16
ITEM 7.     FINANCIAL STATEMENTS                                              23
ITEM 8.     CHANGES IN AND DISAGREEEMENTS WITH ACCOUNTANTS AND                44
            ACCOUNTING AND FINANCIAL DISCLOSURE
            PART III
ITEM 9.     DIRECTOR, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;      44
            COMPLIANCE WITH SECTION 16(a) OF EXCHANGE ACT
ITEM 10.    EXECUTIVE COMPENSATION                                            44
ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT     44
ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                    44
ITEM 13.    EXHIBITS AND REPORTS ON FORM 8-K                                  45



<PAGE>



PART I

This  Annual  Report on Form  10-KSB and the  documents  incorporated  herein by
reference of ITEX Corporation (referred to as the "Company," "ITEX," "it," "we,"
"our," and "us") contains certain forward-looking statements and comments within
the safe harbor provisions  established under The Private Securities  Litigation
Reform  Act  of  1995.  These  statements   involve  known  and  unknown  risks,
uncertainties  and  other  factors  that may  cause the  actual  results  of the
operations of ITEX to be materially different from those expressed or implied in
such statements.  These factors include, but are not limited to the increase and
retention   of  qualified   Independent   Licensed   Brokers  and   Franchisees,
implementing  TEAM Software,  increasing  and expanding the membership  base and
number of trades,  generating working capital to pay the substantial debt of the
Company,  and acquiring and integrating trade exchanges.  These risk factors and
others are  discussed  in the periodic  reports and filings of ITEX  Corporation
with the  Securities and Exchange  Commission,  including but not limited to its
Form  10-KSBs  and  Form  10-QSBs.  All  statements  other  than  statements  of
historical  fact included in this filing,  including  without  limitations,  the
Company's  business  strategy,   plans  and  objectives,   are   forward-looking
statements.

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  exchange 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 approximately 20,000 members who,
collectively,  make up the trade  exchange.  The Company  administers  the trade
exchange ands acts as a third-party  record-keeper for transactions entered into
by the members.  At July 31, 2002,  services were offered through four corporate
regional offices and more than one hundred  Independent  Licensed Brokers (ILBs)
in the United States and Canada.

ITEX began its barter  business in 1986. ITEX is a Nevada  corporation  with its
principal executive offices located at 3400 Cottage Way, Sacramento,  California
95825.

The Company manages the ITEX Retail Trade Exchange  utilizing a private currency
of 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.  ITEX
Trade Dollars earned allows members to purchase products and services from other
members  using Trade  Dollars  instead of 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 U.S.  dollars.  Trade Dollars
may only be used in the manner and for the purpose set forth in the rules of the
trade exchange. Trade Dollars are not legal tender, securities or commodities.
<PAGE>

The Company  assists  members in marketing  their products and services  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,
independent  licensed brokers and, beginning in early 2003, by ITEX Franchisees.
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 and to pay for some
of its operating costs. For example, the Company may acquire merchandise for its
account and re-market and trade 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 earns trade  dollars from
members of the trade exchange through  collection of member association fees and
credit line interest to credit-worthy members.

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

ITEX  Independent  Licensed  Brokers  (ILBs)  and  any  future  Franchisees  are
independent  contractors  with respect to the Company and service members of the
exchange.  ITEX is continuously striving to upgrade and broaden services to ILBs
and  in  the  future,   Franchisees,   by  providing  training,   assistance  in
facilitating transactions,  marketing materials,  computer software systems, and
Internet-based  resources including directories,  listings of goods and services
currently  available  from members and the  opportunity  to advertise to members
locally, nationally and internationally.
<PAGE>

Independent Licensed Brokers & Future ITEX Franchisees

Members of the exchange have a contractual relationship with the Company and are
assigned to an (ILB) or, in early 2003, a Franchisee. Each ILB/future Franchisee
is responsible  for enrolling new ITEX members,  training them in the use of the
system,  facilitating  business among members,  monitoring the delivery of goods
and services between members and assuring payment of dues and fees to ITEX.

The ILBs/future  Franchisees  provide members with  information  about goods and
services that are available locally,  nationally and  internationally.  ILBs and
future  Franchisees  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 as 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/future  Franchisees  are paid a percentage of revenue  collected  from ITEX
members serviced by those ILBs/future  Franchisees,  which generally ranges from
40% to 75%  depending  on the volume of  transactions  and net  increases in the
number of members enrolled during each 28-day accounting cycle.

The Company views its commitment to its ILBs and to future  Franchisees as vital
to its long-term success.  The Company depends on a high rate of repeat business
and views the quality of its ILBs' and Franchisees' interactions 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.  The Company has recently expanded its business model to offer the sale
of ITEX  Franchises to qualified  individuals  and entities.  The ITEX Franchise
System will incorporate  many of the elements of the ITEX  Independent  Licensed
Broker Agreement and will include various provisions to meet state franchise and
business  opportunity  requirements.  The Company  believes  the ITEX  Franchise
opportunity  to be a significant  enhancement  to its business  model and to the
business  relationship  with  current  and future  independent  contractors.  In
addition,  the Company  believes the franchise  component of the business  model
will generate  significant  revenues for expansion and  development  of the ITEX
Retail Trade Exchange, its primary source of revenue.

Sources of Revenue

ITEX 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 Trade Dollars annually).

ITEX also  receives  cash  transaction  fees  based on the  dollar  value of the
transaction,  from both the buyer and the seller.  Members are billed at the end
of each four-week  accounting  cycle. If a member pays  automatically  by credit
card or electronic funds transfer through the Company's Preferred Member Autopay
system,  the cash 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 cash fee is
7-1/2% of the dollar  amount of that  member's  purchases  and sales  during the
period.   As  of  July  31,  2002,   approximately  85%  of  payments  are  made
automatically  through  electronic  funds  transfer or by credit cards using the
Preferred Member Autopay system.
<PAGE>

The Company plans to offer franchises for sale in early fiscal 2003 at a cost of
$10,000 per franchise.  The Company expects to reinvest a significant portion of
the fees  generated  through the sale of franchises  into various  marketing and
franchise training and support programs.

The Company prepares its financial  statements on an accrual basis. See Notes to
Consolidated  Financial Statements for a description of accounting policies. The
Company  generally  does not  recognize  the  earning  of Trade  Dollars  on its
financial  reports as  discussed  in the  critical  accounting  policies.  Trade
Dollars are  recognized as required by the Internal  Revenue  Service for income
tax reporting  purposes.  The Company  internally  accounts for Trade Dollars in
addition to cash in statements to members and ILBs/Franchisees 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/Franchisees 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 and Franchise Network.  To achieve this, the Company
is in the process of instituting the following business strategies.

Placement  of  a  Significant   number  of  ITEX  Franchises   throughout  Major
Metropolitan  Markets  within  the United  States
To increase  revenues  and to solidify the service to members of the ITEX Retail
Trade Exchange, the Company plans to place qualified individuals and entities as
ITEX Franchisees in the major metropolitan markets of the U.S. The Company plans
to  re-invest  the  majority  of the  resulting  revenues  from the sale of ITEX
Franchises  to expand its network of  franchisees,  brokers,  and members and to
enhance  its  service to the above.  The  Company  has  developed  and is in the
process of implementing a franchise development program that includes attendance
and exhibition in the most prominent franchise and business opportunity programs
in the U.S.  In  addition,  the  Company  expects a portion  of these  resulting
revenues to be utilized to increase the  awareness and  recognition  of the ITEX
Retail Trade Exchange  opportunity  and brand through the use of highly targeted
marketing initiatives.

Increase the number of Independent  Licensed  Brokers (ILBs) and  Franchisees in
Canada
To grow the Company's member base and build brand  recognition,  the Company has
initiated  a plan to place a number of highly  qualified  ILBs/Franchisees  with
adequate  professional and financial  resources within the Canadian market.  The
Company is aiming to  complete  this plan  before the end of fiscal  2003 and is
currently  evaluating  the  feasibility  of  franchising  throughout  all of the
Canadian  providences.  The  Company  expects to expand  the number of  entities
servicing  the members of the ITEX Retail  Trade  Exchange  within the  Canadian
market through a network of ILBs, Franchisees, or a combination thereof.

Support of the ITEX Independent Broker Network and ITEX Franchise Network

The Company  believes it can enhance the  productivity and increase the revenues
generated  within the ITEX  Retail  Trade  Exchange by  increasing  the level of
training  and  support  for new and  existing  independent  brokers  and  future
franchisees.   Such  training  and  support   initiatives   include  the  recent
improvements  in the  initial  and ongoing  sales and barter  training  programs
conducted through the regional ITEX University events. In addition,  the Company
continues  to refine its broker and  franchisee  operating  manuals  and related
support materials.
<PAGE>

Rollout  of the  ITEX  Corporation  Trade  Exchange  Account  Management  (TEAM)
Software
The Company believes it has developed the industry's most comprehensive customer
relationship  management and trade exchange management  software.  This software
was implemented in September of 2002 and provides  members,  brokers and Company
management  significantly  enhanced  information  systems and trading tools.  In
addition,  the  implementation  of TEAM has  allowed  the  Company to  eliminate
certain  software  and  technology  redundancies  allowing the  reallocation  of
resources  to  increase  its level of  member,  broker,  and  future  franchisee
support.

Develop  technologically  advanced  multi-channel  barter  system
The Company is continually upgrading and enhancing computer hardware,  software,
and related support,  including improved Internet access to ITEX members,  ILBs,
and  franchisees.  Recent  advances in computer  and  communications  technology
offer  the  Company   opportunities  to   provide  members,   ILBs,  and  future
franchisees with additional tools and more effective computer applications. Such
tools will enable  them to more  easily  engage in  "real-time"  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. In addition, the Company will
be offering on-line transaction processing,  dynamic supply and demand matching,
and expanded trading platforms such as on-line auctions.  The Company expects to
expand its Point of Sale  (POS)  transactions  through  the  placement  of split
dial-up  merchant   services  card  processing   machines  to  facilitate  trade
transactions via merchant card terminals.

Marketing  for new brokers and members
The Company's  marketing strategy is to promote its brand and attract buyers and
sellers to the ITEX barter system while  educating them as to how to effectively
use barter to grow their business.  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.  The  ITEX  Marketing  Department  has  begun an
extensive program of Member,  Broker and Franchisee  support and education.  New
tools for Brokers to customize and use in their  consultative sales efforts have
been   introduced   including   pre-designed   advertisements,   brochures   and
comprehensive  sales  presentations  to give the Company a  consistent  look and
message  in all  markets.  Member  education  tools have been  improved  and now
include a more  comprehensive  introduction  booklet and a  thirty-three  minute
video on how to properly and effectively  use the ITEX system.  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.

Franchise  Development and Placement
The Company has moved forward  aggressively in redeploying  significant internal
assets to develop and implement the franchising of new brokers.  The Company has
filed the required  Uniform  Franchise  Offering  Circular with the  appropriate
government  bodies and anticipates  approval to sell franchises in all 50 states
in the near future. The Company will focus on certain target markets,  including
the top 50 metropolitan areas in the U.S. The Company has acquired banner ads on
six  top-rated   Internet   sites  and  has  placed  ads  in  various   business
publications, trade journals and franchise publications, including The Franchise
Handbook and IFA Opportunities  Guide. The Company has secured membership in the
International Franchise Association and will attend the annual showcase event in
Washington,  D.C. in April  2003.  The  Company  will also attend a  significant
number of Franchise  Showcase  events  sponsored by MFV  Expositions and various
business opportunity expositions.
<PAGE>

Member (Customer) Service and Retention Programs/Strategies
The Company  believes member  satisfaction and retention is a key to its current
and future success.  The Company expects to build upon various  customer service
initiatives  such as the formation of the ITEX Quality  Assurance  Committee and
the ITEX  Dispute  Resolution  Committee  whose  purpose is to provide  enhanced
member support and trade exchange administration.

Acquire Local and Regional Trade Exchanges
The Company  will  continue to  evaluate  various  retail  trade  exchanges  for
possible  acquisition  to support the growth of the ITEX Retail Trade  Exchange.
The Company  believes there to be several local and regional  independent  trade
exchanges  suitable for acquisition  and integration  into the ITEX Retail Trade
Exchange. The Company believes the resulting  consolidation would be financially
beneficial  to  both  parties  due to the  centralization  of  various  business
functions including customer service,  transaction processing,  account billing,
marketing,  and  business  management.  In  addition,  the Company  believes the
resulting  consolidations  would be beneficial to its current and future members
by creating additional trade opportunities via an expanded member base.

Sale of Regional Corporate Offices

During  fiscal 2002 the Company  sold its regional  offices in  Portland,  Costa
Mesa,  Lafayette,  Orlando,  Jensen Beach, Houston, and St. Louis to independent
licensed brokers.


                                      Discounted    Balance
                                         Sale         at        Projected Payoff
Office Location      Date of Sale       Amount      7/31/02          Date
--------------------------------------------------------------------------------
Portland, OR         October, 2001       $ 92,000   $ 68,000     September, 2006
Lafayette, LA        October, 2001       $ 38,000   $ 29,000          July, 2005
Orlando, FL          September, 2001     $ 78,000   $ 60,000       January, 2006
Jensen Beach, FL     October, 2001       $ 75,000   $ 48,000          July, 2009
Houston, TX          November, 2001      $ 97,000   $ 88,000     September, 2014
St. Louis, MO        March, 2002         $ 35,000   $ 34,000      December, 2007
                                        --------------------
                                         $415,000   $327,000
                                        ====================

Members

ITEX has  approximately  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
<PAGE>

    o  exchange  unproductive  assets and excess capacity for useful products or
       services
    o  reduce the 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 the ITEX Retail Trade Exchange, she hires a contractor
who agrees to perform the remodeling work for 500 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 the ITEX Retail  Trade  Exchange,  in exchange for Trade  Dollars.  The other
members  originally  acquired Trade Dollars by providing services for other ITEX
Retail Trade Exchange 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
Retail Trade Exchange member base and generate additional  revenue.  The Company
provides  standardized  marketing and support  materials,  advertising,  ongoing
training,  promotion and support to assist ILBs, future Franchisees and regional
office sales representatives in expanding the member base.  ILBs/Franchisees and
sales  representatives  contact  prospective  members to market the  benefits of
barter  and  joining  ITEX.  In  addition,  ILBs/future  Franchisees  and  sales
representatives attend various meetings and networking events in their areas and
generate a significant  number of new members  through the referrals of existing
members of the ITEX Retail Trade Exchange.

Marketing
The Company's  marketing strategy is to promote its brand and attract buyers and
sellers to the ITEX Retail  Trade  Exchange  while  educating  them as to how to
effectively use barter to grow their business.  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.  The ITEX  Marketing  Department has
begun an  extensive  program  of  Member,  Broker  and  Franchisee  support  and
education.  New tools for  Brokers to  customize  and use in their  consultative
sales efforts have been introduced from pre-designed advertisements to brochures
and comprehensive  sales presentations to give the Company a consistent look and
message  in all  markets.  Member  education  tools have been  improved  and now
include a more  comprehensive  introduction  booklet and a  thirty-three  minute
video on how to properly and effectively  use the ITEX system.  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.
<PAGE>

Trading
The Company's trade directors,  ILBs and future  Franchisees are responsible for
facilitating  and maximizing  barter  transactions  between  members.  The trade
directors,  ILBs and future  Franchisees  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/Franchisees
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 system is  designed  to facilitate the activities of
all parties  involved in the ITEX  system,  from  employees to ITEX Retail Trade
Exchange members. The system extends well beyond  record-keeping and transaction
processing.  The major  features  of the system are as  follows:

     o AIM Online - provides the Company's ILBs/future Franchisees and corporate
       employees with customer relation management  features,  including  notes,
       calendaring, and scheduling capabilities as well as management  functions
       and features.
     o Trade Flash - an  online  classified  ad  section  where members can list
       items or services they are  offering on trade, as well as to locate items
       or services they are seeking on trade.
     o Member Directory -  a  categorized  listing  of  ITEX members that allows
       members to  advertise  their  business.
     o Reporting - ILBs/future Franchisees and corporate employees are  provided
       with a number of reports, allowing  for  a  comprehensive analysis of all
       aspects of the Trade Exchange.

ITEX is currently  taking  additional  steps to ensure adequate  security of its
hardware and software systems.  The ITEX technology  department monitors any and
all unwanted  intrusions and other attacks.  ITEX continues to improve the speed
and reliability of technology service for all of its users.

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's and seller's trade accounts. Members can
transact business  directly or may use the services of an ILB/future  Franchisee
who matches buyers and sellers.

Barter Statistics

The  International  Reciprocal  Trade Association ("IRTA"), a trade association,

<PAGE>

calculates  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 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 provide  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 and 1995. According
to the IRTA,  the annual value of products  and  services  bartered by corporate
trade  companies  and barter  exchanges  between  1994 and 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.

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

The Company 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.  ITEX  believes,  however,  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 and management expertise.

Acquisitions

Acquisition of Ubarter.com Canada in March 2001
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

<PAGE>

Canada with over 3,500 members in 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 payment of $250,000 at closing
     o Issuance  of  a  promissory  note  in  the  principal  amount of $500,000
       payable, $42,000  per month for 12 months

During October 2001,  the Company  became  delinquent in its payments to Network
Commerce,  creating a default status. In February 2002 Network Commerce accepted
a  discounted  settlement  of  $70,000 on an  outstanding  balance of $83,000 as
payment in full.

Acquisition of Ubarter.com USA in June 2001
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,  its ILBs and in the future  franchisees,  are  subject to various
federal,  state  and  local  laws,  regulations  and  administrative   practices
affecting their businesses,  including,  among others, the requirement to obtain
business licenses,  tax withholding and remittance of matching contributions for
employees'  social  security  accounts,  and other  such laws,  regulations  and
administrative  practices  required of businesses  in general.  The Company is a
third party  record-keeper  under the Tax Equity and Fiscal  Responsibility  Act
(TEFRA), and is required to account for and report to the IRS the total of trade
sales  transactions  of each  member  of the  exchange.  Currently  the  Company
believes it has complied with TEFRA.

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,  2002,  the  Company  employed  31 full  time  and 21 part  time
employees compared to 87 full-time employees at the end of the last fiscal year.
The  decrease  is due in  part to the  sale  of  several  corporate  offices  to
independent  brokers  during fiscal 2002.  In addition,  following the corporate
restructuring plan implemented in November, 2001, the Company made a significant
effort to eliminate all non-essential  positions and where prudent and feasible,
changed full time positions to part time.

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.
<PAGE>

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.  Management
places heavy reliance on its 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  or retain
members,  ILBs,  or  franchisees.  The  Company  believes  it has the  necessary
management  expertise to implement its business  strategy and support  personnel
can be increased as needed.

Dependence upon Outside Advisors
To supplement the business experience of its officers and directors, the Company
currently employs  accountants,  technical experts,  appraisers,  attorneys,  or
other consultants or advisors. The selection of any such advisors is made by the
Company's  officers,  subject to required  Board of Director or Audit  Committee
approval.  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 limited  funds,  and such funds may not be adequate to take full
advantage of all 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 fully
exploit or  maximize  the  opportunity.  However,  the  Company  has  designed a
scalable business strategy, which will allow its short-term business model to be
executed  with little or no outside  financing and expects to fund its marketing
and franchise initiatives through current projected revenues. However, there are
no  assurances  that the Company  will be able to  implement  or  capitalize  on
various  financing  alternatives or otherwise obtain required working capital if
needed or desired given the Company's  operating loss history.  (See risk factor
regarding operating losses and negative cash flow of primary business.)

The Company current has a $300,000 short-term note payable,  bearing interest of
16% with  principal  due on December 31,  2002.  This note is secured by certain
personally  owned real property of the Company's  former  President and CEO. The
Company does not anticipate  having  sufficient  funds to pay the principle when
due.  Although  it  expects  to be able to  refinance  the  note,  there  are no
assurances that it will be able to do so.

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.

Leveraged Transactions
Due to the  Company's  limited  cash  resources  the  Company  will  finance any
acquisition  of a business  opportunity  by borrowing  against the assets of the

<PAGE>

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 has experienced extreme price and
volume  fluctuations.  The market  price of the  common  stock may  continue  to
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,  the loss of any key personnel,  and general  economic  conditions
unrelated to the  performance  of the  Company.  The  Company's  common stock is
thinly traded and may be difficult for  stockholders  to liquidate a significant
amount of stock in a short  period of time.  In  addition,  any large  sale of a
significant  amount  of stock  may have a  potential  depressive  effect  on the
Company's stock prices.

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.  The Company has achieved significant  improvement in its operating
profits and cash flow with the  implementation  of the  corporate  restructuring
plan in November 2001 and expects to continue to see  improvement  over the next
fiscal year, however, there can be no assurance that the Company will be able to
achieve long-term profitability or positive cash flow.

Ability to Recruit Franchisees and to Develop Marketing Programs
The  success of the  Company  depends on its  ability to retain and  enhance its
network of ILBs and future  Franchisees and selected  corporate regional offices
to improve the  operating  and  marketing  programs it furnishes to  ILBs/future
Franchisees.  The Company also  believes  its future  success can be enhanced by
initial  development  and ongoing  expansion  of a network of ITEX  Franchisees.
Competition for qualified employees, ILBs and franchisees is intense, thus there
is no assurance that the Company will be successful in achieving this plan.  The
Company has not sold any franchises at this time.

Ability to Recruit Members
The  success  of the  Company  depends  on its  ability to retain and expand the
number of members in the Exchange. The Company depends on the ability of its ILB
network,  Franchisees  and  selected  corporate  regional  offices to expand the
number of members and the volume of  transactions  through the ITEX Retail Trade
Exchange.  There  is  no  assurance  that  the  Company,  its  ILBs,  or  future

<PAGE>

franchisees  will be  successful  in  enrolling  new  members  to  equalize  the
attrition of members leaving the Exchange.

Ability to Upgrade and Improve Computer Software and Internet-based  Systems for
Members and Independent Licensed Brokers
The Company's  computer systems are vital to providing  accounting  services for
members and  ILBs/Franchisees  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/Franchisees  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 retiring some of its own holdings of Trade Dollars. As in any
economy,  the  availability  and  velocity  of  currency  is vital to maintain a
healthy  economic  climate.  An uncontrolled  supply of ITEX Trade Dollars could
result in inflation or a weakening of the ITEX Retail Trade Exchange economy due
to decreased  buying power or  opportunities  of the ITEX Retail Trade  Exchange
member.

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 de-listing of the
Company's  common  stock from the Over the  Counter  Bulletin  Board,  which may
adversely affect the liquidity of its shares in trading.
<PAGE>


ITEM 2.   DESCRIPTION OF PROPERTY

In February 2000,  the Company  entered into an agreement to purchase a building
for its corporate  office  located in Sacramento,  California.  The Company paid
$200,000  cash,  200,000 ITEX Trade Dollars and issued  333,333 shares of common
stock. In addition, the Company signed a promissory note for $300,000 due August
29, 2001.

In  January  2002,  both  parties  agreed  to  cancel  the  transaction  and all
guarantees  in  exchange  for 50,000 ITEX Trade  Dollars.  The  original  seller
retained  the cash,  stock and Trade  Dollars  previously  paid and issued.  The
Company  entered  into a lease with the owner for  eighteen  months with monthly
payments of $12,510.

The  Company  leases  space in various  parts of the country for use by regional
offices. As of July 31, 2002, the Company had leased facilities as follows:
<TABLE>
<CAPTION>
<S>                               <C>           <C>         <C>          <C>           <C>

                                                                       Rent due in fiscal 2003
          Location             Property        Lease       Square        Cash          Trade
                               Condition     Expiration     Feet          US $        Dollars
-------------------------------------------------------------------------------------------------
3400 Cottage Way                 Fair          6/30/03      9,624      $150,120         N/A
Sacramento, CA  95825
-------------------------------------------------------------------------------------------------
315 W. 36th St. #501             Good          9/30/04      1,800      $ 31,500         N/A
New York, NY  10018
-------------------------------------------------------------------------------------------------
5955 Airport Rd. Ste #224        Good          5/31/03      5,320      $ 45,000         N/A
Mississauga, ON  L4V 1R9
Canada
-------------------------------------------------------------------------------------------------
99 S. Jackson #300               Good           6/1/03      4,400           N/A       96,300
Seattle, WA  98104
-------------------------------------------------------------------------------------------------
</TABLE>

The Company  believes  that  suitable  office space can be maintained at current
locations or acquired in other facilities as necessary or appropriate.


<PAGE>


ITEM 3.   LEGAL PROCEEDINGS

1401 El Camino Litigation

On March 1, 2001, El Camino Tower,  LLC brought a complaint  against the Company
in the  Superior  Court of  Sacramento  County  styled El Camino  Tower,  LLC v.
Sacramento  Trade Exchange,  Inc., et al. for breach of contract of the lease of
the former Sacramento  regional office.  The matter was settled in October 2001.
The final payment was made April 2002.

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 for breach of contract and  violation of an Oregon Blue Sky statute and the
Company brought a counterclaim.  In May 2001, the parties to the lawsuit entered
into a written  settlement  agreement and release.  On May 6, 2002,  Metro Sales
commenced a second  lawsuit  styled Metro Sales v. ITEX in the Circuit  Court of
the State of Oregon for the  County of  Multnomah,  for  breach of the  original
settlement  agreement.  The matter was  settled in October  2001 and the Company
made the final payment in April 2002.

Skiers Edge Litigation

On June 19, 2000, Skiers Edge Condominium Association brought a suit against the
Company in the  District  Court for Summit  County,  Colorado,  in the matter of
Skiers  Edge  Condominium  Association  v.  George  Owens for  association  fees
relating to interval  timeshares that the Company is alleged to own. On July 15,
2002, a judgment  was entered  against the Company for  $19,000.  Management  is
currently working with Skiers Edge to settle for a lesser amount.

Desert Rose Foods Litigation

On March 4, 2002, an action was brought in the Circuit Court of Fairfax  County,
Virginia styled Desert Rose Foods, Inc. v. ITEX Corporation et al. for breach of
contract,  fraud  and  violations  of  federal  law.  Plaintiff  asks  for  $750
compensatory damages,  punitive damages,  other statutory damages,  interest and
attorney's fees. Plaintiff entered into a contract with the Company for delivery
of goods  valued in excess of $100.  The  Company  has filed an answer,  grounds
defense and demurrer and has denied all of the Plaintiff's material allegations.
The parties are currently conducting discovery. All references to the RICO count
have been removed. Trial of the case is presently set for February 2003 before a
jury. The Company believes the Plaintiff's complaint lacks merit and the Company
intends to vigorously defend itself.
<PAGE>


Wendy Moore Litigation

On October 12, 2001, an action was brought in the District Court,  32nd Judicial
District of Nolan County,  Texas styled Wendy Moore, et al. v. ITEX Corporation,
et al. for  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.

Robofil Corporation

On November 14, 2001, an action was brought in the Superior Court for Sacramento
County in the matter of Robofil  Corporation,  et al. v. ITEX Corporation et al.
for  violation of fiduciary  responsibility  related to the purchase and sale of
hardwood  flooring by the Company to members and other third  parties.  The case
was dismissed in October 2002.

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 2002 and 2001:

                                      High        Low
                                      -------------------

Fiscal 2002 Fiscal quarters ended:
July 31, 2002                         $ 0.25     $ 0.07
April 30, 2002                          0.27       0.05
January 31, 2002                        0.16       0.07
October 31, 2001                        0.34       0.11
<PAGE>

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


As of July 31,  2002 there were 887  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.

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

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 the 13
four-week  accounting  cycles per 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.

In recent  years,  the  Company  had  engaged in the  operation  of several  new
businesses  outside  its core  business  of  operating  trade  exchanges.  Those
businesses were not profitable and it is the intent of the Company not to engage
in business activities or ventures that are not supportive of the Company's core
business of operating the ITEX Retail Trade Exchange.

In November 2001, the Company  announced a major  restructuring of its corporate
operations,  terminating Collins M. Christensen as President and Chief Executive
Officer.  As of the date of this filing, Mr. Christensen remains a member of the
Company's board of directors.  The Company  appointed  Lewis "Spike" Humer,  the
Company's Chief Operating Officer as President and Chief Executive  Officer.  In
addition,  the Company  appointed  Melvin Kerr as Chief Operating  Officer.  The
operations  during the last three  quarters of fiscal 2002 reveal the commitment
by the new  management  team to move the Company  towards  profitability  and to
provide value to its stockholders.

The  Company  has  incurred  losses  from  operations  from its  trade  exchange
operations for the fiscal years ended July 31, 2002 and 2001 of $770 and $3,056,
respectively.  Revenue  remained  relatively  constant  in 2001  and  2002.  The
improvement in operating  loss is due to  management's  efforts to  dramatically
decrease selling, general and administrative expenses.

Critical Accounting Policies

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

In the  ordinary  course of  business,  we have made a number of  estimates  and
assumptions  relating to the  reporting of results of  operations  and financial
condition in the  preparation  of our financial  statements  in conformity  with
accounting principles generally accepted in the United States of America. Actual
results  could  differ   significantly  from  those  estimates  under  different
assumptions and conditions.  We believe that the following  discussion addresses
our most critical accounting  policies,  which are those that are most important
to the  portrayal  of our  financial  condition  and results of  operations  and
require our most difficult, subjective, and complex judgments, often as a result
of the need to make  estimates  about the effect of matters that are  inherently
uncertain.

Revenue Recognition

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

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

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

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

Accounting for Trade Dollar Activities

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

Transactions  that  originate  from the creation of trade  dollars  expended for
goods or services do not qualify as exchanges under APB 29 and,  accordingly are
not reflected in the accompanying  financial  statements.  The Company currently
owns real estate  building  lots in Canada that were  purchased  with ITEX Trade
Dollars.  The  Company  intends  to market  these  lots for cash but there is no
assurance that the Company will be successful.

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

Valuation of Customer Lists

We assess the possible  impairment  of our  customer  lists  whenever  events or
changes  in   circumstances   indicate  that  the  carrying  value  may  not  be
recoverable.  Factors we consider  important  that could  trigger an  impairment
review include the following:

     o Significant underperformance relative to expected historical or projected
       future operating results
     o Significant  changes  in  the manner of our use of the acquired assets or
       the strategy for our overall business
     o Significant negative industry  or economic trends; significant decline in
       our stock price for a sustained period
     o Our market capitalization relative to net book value

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,
2002, the Company determined no impairment was appropriate.

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>
<CAPTION>
<S>                                            <C>              <C>                <C>             <C>

                                                              Fiscal Years Ended July 31,
                                                              ---------------------------
                                                        2002                              2001
                                               Amount            Pct*            Amount            Pct*
                                               ------            ----            ------            ----
Revenue:
Trade exchange                                $ 10,137           100%            10,067            100%

Costs and expenses:
Trade exchange                                   5,383            53%             5,078             50%
Selling, general and administrative              4,354            43%             7,051             70%
Regulatory and litigation                          458             5%               410              4%
Depreciation and amortization                      712             7%               584              6%

                                              ---------          -----           -------           -----
                                                10,907           108%            13,123            130%

Loss from operations                              (770)           (8)%           (3,056)           (30)%
Other income                                       177             2%               166              2%
                                              ---------          -----           -------           -----

Loss before taxes                                 (593)           (6)%           (2,890)           (29)%

Tax (provision) credit                             ---             0%              (241)             2%
<PAGE>

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

Net loss                                      $   (593)           (6)%           (3,151)           (31)%

</TABLE>

* Percent of Total Revenue

Trade Exchange Revenue and Costs

Total trade exchange revenue remained relatively constant with a slight increase
of 1% from $10,067 in 2001 to $10,137 in 2002.

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

                                    2002                    2001
                              -----------------       -----------------
Association fees                 $     3,018             $     3,020
Transaction fees                       7,042                   7,047
Other fees                                77                    ---
                              -----------------       -----------------
Total                            $    10,137             $    10,067

The average number of members of the ITEX trade exchange  during fiscal 2002 and
2001 and the average trade exchange revenue per member were as follows:

                                               2002            2001
                                            ----------     ------------
Average number of members                     22,018           17,370
Average annual revenue per member             $  460           $  580

Total costs of trade  exchange  revenue as a percentage of total trade  exchange
revenue were 53% and 50% in fiscal 2002 and 2001, respectively.  The increase is
a result of increased broker commissions  related to the conversion of corporate
offices to Independent Licensed Brokers during fiscal 2002.

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

<PAGE>

discontinued  as of November 5, 2001.  Management  believes large volume trading
opportunities,  such as  those  previously  sought  through  a  corporate  trade
department,  reside  within the retail  trade  exchange  and should be  realized
through the creative management of the core business model.

Selling, General and Administrative Expenses

Selling,  general and  administrative  expenses  decreased  $2,697, or 38%, from
$7,051 in 2001 to $4,354 in 2002. The reduction in expenses was primarily due to
the  reduction  in salaries of $1,200,  the closure of  unprofitable  offices of
$300, the favorable  settlement of a  lawsuit of $160 and the  elimination of an
additional $300 on unnecessary  expenses in 2002. In 2001,  expenses were higher
due to several non-recurring items totaling $700.

Following  the  first  quarter  of  fiscal  2002,  the  Company  went  through a
comprehensive  corporate  restructuring.  The  Company  reduced  the  number  of
management  and  support  staff  in both the  corporate  and  regional  offices.
Included in this  reduction was the  consolidation  of the  Company's  Corporate
Trade Department with its Retail Exchange located in Sacramento,  as the Company
refocuses on its core operations and expertise. International licensing has been
suspended with the exception of Canadian operations, which remains a core market
of the ITEX Retail  Trade  Exchange.  The  Company  also sold  several  regional
offices  to  ITEX  Independent  Licensed  Brokers  in  order  to  shift  certain
operational  expenses and oversight.  The sales of the regional  offices allowed
the  Company  to  reduce  the  significant  expenses  related  to  the  regional
operations  while  maintaining  a  substantial  interest in the  revenue  stream
generated from those offices through trade transactions and association fees.
<PAGE>


Depreciation and Amortization

Depreciation and amortization increased $128 or 22% from $584 in 2001 to $712 in
2002.

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 the latter part of fiscal 2001.  This  increase is offset by
the slight decrease in amortization  related to member lists taken off the books
in  connection  with the sale of the Houston and Jensen Beach  regional  offices
during fiscal 2002.

Other Income and Expense

The  Company  recognized  net  miscellaneous  income of $195 in 2002 and $223 in
2001.  During 2001 and the first few months of 2002,  the Company  earned rental
income from  sub-letting  leased building space in Portland and in its corporate
building.  The lease arrangements ended during the second quarter of fiscal 2002
in conjunction  with the Company's lease ending in Portland and the ownership of
the corporate building reverting to its previous owner. During 2002, the Company
recognized $303 from the sale of several  regional offices offset by the loss of
$190 on the sale of the headquarter building.

Liquidity and Capital Resources

The Company has experienced net losses and negative cash flows from  operations.
As of July 31,  2002,  the Company has an  accumulated  deficit of $29,353.  The
Company  reported  net  cash  used in  operations  of $615 in 2002  and net cash
provided by operations of $176 in 2001. In 2001 operations were funded primarily
by an income tax refund from the prior year.

The Company  reported net cash provided by investing  activities of $123 in 2002
and net cash  used in  investing  activities  of $712 in 2001.  The  significant
change is was due to the purchase of Ubarter Canada and Ubarter USA during 2001.
In addition, during 2002, the Company received net proceeds of $88 from payments
on  regional  offices  sales  during the year and $64 from the sale of Wade Cook
stock.

The Company  reported net cash used in financing  activities of $424 in 2002 and
net cash  provided by financing  activities  of $26 in 2001.  During  2002,  the
Company  paid off the note to  Network  Commerce  for the  purchase  of  Ubarter
Canada.

The Company  has  significantly  decreased  cash  expenditures  with the sale of
several regional offices to Independent  Licensed Brokers and the elimination of
all non-essential positions within the Company.

The Company  currently has a $300 short-term note payable,  bearing  interest of

<PAGE>

16% with  principal  due on December 31,  2002.  This note is secured by certain
personally  owned real property of the Company's  former  President and CEO. The
Company does not anticipate  having  sufficient  funds to pay the principle when
due.  Although  it  expects  to be able to  refinance  the  note,  there  are no
assurances that it will be able to do so.

Although no assurances can be given,  management  believes it has adequate funds
or will generate  sufficient  capital to fulfill its short-to-mid  term business
strategy.

Management  believes  the  success  of the  Company  rests  upon  the  following
components.  Firstly,  operational  costs must continue to be controlled  within
every  department  of the Company  through the use of proper  business  planning
tools,  effective  performance  management  techniques,  and  adequate  internal
financial reporting measures. Secondly, the Company must continue to engage in a
strategy of controlled growth and planned  reinvestment into the  infrastructure
to ensure effective performance of its employees,  brokers,  future franchisees,
and members while  generating  adequate  return-on-investment  performance and a
foundation  for future  growth.  The  Company  has  budgeted  $300 for  Franchse
Development  in Fiscal 2003.  Thirdly,  the Company must continue to improve its
member  retention and customer service  performance  through the development and
implementation of policies,  procedures,  and practices that ensure the value of
membership  continues to meet or exceed the  expectations  of the members of the
ITEX Retail  Trade  Exchange.  Fourth,  enhancements  in software  and  hardware
technology  must continue to be developed and implemented to improve the flow of
information,  enhance the  communication,  and expand the trading  activity  and
trade mediums of members of the ITEX Retail Trade Exchange.  Lastly, the Company
must explore opportunities, affiliations, and alliances to increase its range of
services to its members,  the number of members  participating  within the trade
exchange, and velocity of commissionable transactions between its total customer
base.

Trade Dollars Earned and Expended

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

In fiscal 2002,  the Company earned 5,915 trade dollars and expended 6,910 trade
dollars.

In fiscal 2001, the Company earned 4,014 trade dollars and expended 10,936 trade
dollars.

During the fiscal  year ended July 31,  2002,  the  Company  received  goods and
services using trade dollars to pay for such items. As described in the Critical
Accounting Policies above,  exchanges involving Trade Dollars have generally not
been reflected at any value in the Company's  financial  statements.  Management
believes these goods and services are a necessary  part of conducting  business.
If, in the  future,  the  Company is unable to pay for such  goods and  services
using Trade Dollars, the Company's cash expenses could increase and  potentially
reduce operating  profits.  Based on Trade Dollars utilized,  the following is a
partial list of items that could negatively affect ITEX Corporation's  financial
results if Trade Dollars could not be used:

                                   ITEX Trade
                                     Dollars

Legal fees                            46
Various travel expenses               80
Annual convention                     93
Office rent                           96
<PAGE>

Trade  dollars  are not legal  tender and do not  reflect  the fair value of the
goods and services received. The fair value would be significantly less than the
amounts presented. The Company expends trade dollars for many items. The Company
would not necessarily  expend these amounts if it had to spend cash. The Company
has the ability to create or spend trade dollars with no  obligation  due to the
exchange.  The  Company  abides  to the  policies  established  by the  Board of
Directors  to control the amount of spending  of trade  dollars.  The ability to
receive value is based on the strength of its exchange.

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

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, 2002

Consolidated  statements of operations and  comprehensive  (loss) income for the
fiscal years ended July 31, 2002 and 2001

Consolidated  statements of stockholders' equity for the fiscal years ended July
31, 2002 and 2001

Consolidated  statements  of cash flows for the fiscal years ended July 31, 2002
and 2001

Notes to consolidated financial statements
<PAGE>

INDEPENDENT AUDITORS' REPORT


Board of Directors and Stockholders
ITEX Corporation
Sacramento, California


We have audited the accompanying consolidated balance sheets of ITEX Corporation
as of July  31,  2002 and  2001,  and the  related  consolidated  statements  of
operations,  stockholders'  equity and cash  flows for the years  ended July 31,
2002 and 2001. These consolidated financial statements are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Itex Corporation as
of July 31, 2002,  and the results of their  operations and their cash flows for
the years ended July 31, 2002 and 2001 in conformity with accounting  principles
generally accepted in the United States of America.



/S/ EHRHARDT KEEFE STEINER & HOTTMAN PC
Ehrhardt Keefe Steiner & Hottman PC

September 24, 2002
Denver, Colorado

<PAGE>

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

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

                                                                                          July 31, 2002       July 31, 2001
                                                                                          -------------       -------------
                                      Assets
Current assets:
     Cash and cash equivalents                                                                 $     90       $         282
     Restricted cash                                                                               ----                 724
     Accounts receivable, net of allowance for doubtful accounts of $50                             896               1,081
     Receivable - regional office sales                                                              74                ----
     Prepaid and other current assets                                                               130                 122
                                                                                          -------------       -------------
  Total current assets                                                                            1,190               2,209

Property and equipment, net of accumulated depreciation of  $561                                    241               2,459

Purchased member lists, net                                                                         941               1,520

Receivable - regional office sales, less current portion                                            253                ----

Available for sale securities                                                                      ----                  35

Other assets                                                                                         82                  82
                                                                                          -------------       -------------
               Total assets                                                               $       2,707       $       6,305
                                                                                          =============       =============

                       Liabilities and stockholders' EQUITY
Current liabilities:
     Long-term debt, current portion                                                      $         300       $         996
     Accounts payable                                                                               435                 315
     Accounts payable to independent licensed brokers                                               680               1,280
     Accrued payroll and taxes                                                                      242                 313
     Deferred revenue, current portion                                                               64                  43
     Accrued audit and legal fees                                                                   350                  48
     Accrued legal settlements                                                                       82                 701
     Other current liabilities                                                                      365                 478
                                                                                          -------------       -------------
  Total current liabilities                                                                       2,518               4,174

Deferred revenue                                                                                    149                 130

Long-term debt and capital lease obligations                                                       ----                 101

Common stock subject to a put (0 and 333 shares in 2002 and 2001, respectively                     ----               1,500
outstanding)

Commitments and contingencies (NOTE 8)
<PAGE>

Stockholders' equity:


       Common stock, $.01 par value; 50,000 shares authorized;
         17,727 shares issued and outstanding                                                       177                 159
 Additional paid-in capital                                                                      29,226              28,977
Unrealized gain on marketable securities                                                           ----                  34
 Treasury stock, at cost (2 shares)                                                                 (10)                (10)
 Accumulated deficit                                                                            (29,353)            (28,760)
                                                                                          -------------       -------------
  Total stockholders' equity                                                                         40                 400

                Total liabilities and stockholders' equity                                $       2,707       $       2,867
                                                                                          =============       =============
</TABLE>

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





                                ITEX CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)
<TABLE>
<CAPTION>
<S>                                                                     <C>                           <C>


                                                                      For the fiscal years ended July 31,
                                                               ----------------------------------------------
                                                                         2002                      2001
                                                               --------------------       -------------------
Revenue:
 Trade exchange revenue                                           $         10,137          $         10,067

                                                                    ---------------           ---------------
                                                                            10,137                    10,067
                                                                    ---------------           ---------------
Costs and expenses:
 Costs of trade exchange revenue                                             5,383                     5,078
 Selling, general and administrative                                         4,354                     7,051
 Costs and expenses of regulatory and litigation matters                       458                       410
 Depreciation and amortization                                                 712                       584
                                                                    ---------------           ---------------
                                                                            10,907                    13,123
                                                                    ---------------           ---------------

Loss from operations                                                          (770)                   (3,056)
                                                                    ---------------           ---------------

Other income (expense):
  Other interest income (expense), net                                         (81)                      (57)
  Gain on sale of securities                                                    63                       ---
  Miscellaneous, net                                                           195                       223
                                                                    ---------------           ---------------
                                                                               177                       166

Loss before income taxes                                                      (593)                   (2,890)

Income taxes (expense) benefit                                                 ---                      (241)
                                                                    ---------------           ---------------

                                                                              (593)                   (3,131)

Cumulative effect of change in accounting principle,  net                      ---                       (20)
                                                                    ---------------           ---------------
Net loss                                                       $              (593)          $        (3,151)
                                                                    ---------------           ---------------

Other comprehensive (loss) income - unrealized gain on                         ---                       (79)
securities
                                                                    ---------------           ---------------
Comprehensive loss                                             $              (593)          $        (3,230)
                                                                    ===============           ===============
Average common and equivalent shares:
    Basic                                                                   17,050                    15,849
                                                                    ---------------           ---------------
    Diluted                                                                 17,050                    15,849
                                                                    ---------------           ---------------
Net loss per common share:
    Basic                                                      $              (.03)          $          (.20)
    Diluted                                                                   (.03)                     (.20)
</TABLE>

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



                                ITEX CORPORATION
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                For the fiscal years ended July 31, 2002 and 2001
                                 (in thousands)
<TABLE>
<CAPTION>
<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, 2000      15,838  $    159    $  28,977     $     113      $  (25,609)     $   (10)     $   3,630

Stock issued to board
members                         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

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

Stock issued to
outside consultant             250         2           27                                                       29

Stock issued to
previous board                 140         1          104                                                      105

Disposal of building
at 3400 Cottage Way            333         3           27                                                       30

Release of unrealized
gain                                                                (34)                                       (34)

Net loss
                                                                                   (593)                      (593)
                         ---------  ---------  ------------ -------------- ---------------- ----------- -----------
Balance, July 31, 2002      17,727   $    177   $    29,226   $       0      $  (29,353)      $    (10)   $     40
                         =========  =========  ============ ============== ================ =========== ===========

</TABLE>



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


<PAGE>


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

                                                                             Year ended July 31,
                                                                   -----------------------------------------
                                                                          2002                   2001
                                                                   -------------------     -----------------
Cash flows from operating activities
  Net (loss) income                                                 $           (593)       $        (3,151)

  Items to reconcile to net cash (used in) operations:
   Gain on sale of regional offices                                             (303)                   ---
   Loss on disposal of building                                                  190                    ---
   Gain on lease settlement                                                     ( 31)                   ---
   Stock based compensation                                                      132                    ---
   Gain on sale of securities                                                   ( 63)                   ---
   Depreciation and amortization                                                 712                    548
   Write-offs and write downs                                                    ---                    414
   Change in allowance for uncollectible receivables                             ---                    550
   Payment of incentive compensation                                             ---                   (339)
 Changes in operating assets and liabilities:
 Accounts receivable                                                             185                   (872)
     Income tax refund receivable                                                ---                  2,194
 Prepaids and other assets                                                        (8)                    17
 Accounts payable, other current liabilities and deferred revenue              ( 236)                   218
     Other long term liabilities                                                 ---                    130
 Accounts payable to independent licensed brokers                               (600)                   467
                                                                   -------------------     -----------------
   Net cash (used in) provided by operating activities                          (615)                   176
                                                                   -------------------     -----------------
Cash flows from investing activities:
    Proceeds from sales of regional offices                                       88                    ---
    Proceeds from sales of securities                                             64                    ---
    Net cash used in acquisition of business assets                              ---                   (704)
    Purchase of property and equipment                                           (29)                    (8)
                                                                   -------------------     -----------------
  Net cash provided by (used in) investing activities                            123                   (712)
                                                                   -------------------     -----------------
Cash flows from financing activities:
  Borrowings (repayments) of third party indebtedness                           (424)                    26
                                                                   -------------------     -----------------
 Net cash (used in) provided by financing activities                            (424)                    26
                                                                   -------------------     -----------------
Net decrease in cash and equivalents                                            (916)                  (510)
Cash and equivalents at beginning of period                                    1,006                  1,516
                                                                   -------------------     -----------------
Cash and cash equivalents at end of period                                        90                  1,006
                                                                   ===================     =================
Supplemental cash flow information
   Cash paid for interest                                           $             92                     83
   Cash paid for income taxes                                                      7                     17
</TABLE>


Supplemental non-cash investing and financing activities:
---------------------------------------------------------
During the year ended July 31, 2001,  the Company  acquired a license  agreement
with a $50 note payable, the Company acquired  various  assets of Ubarter.com in
Canada for $325 in cash and $500 note payable.
During 2002, the Company canceled a transaction for the original purchase of the
corporate office building.  The result was a decrease in fixed assets of $1,960,
a decrease in debt of $1,800  consisting  of $300  reduction of current debt and
$1,500  reduction of common stock  subject to a put,  the  re-issuance  of stock
valued at $30 and recorded a net loss of $190.
The  Company  sold  several  regional  offices  with a net  book  value  of $112
(consisting  of $8 in fixed  assets and $104 in member  lists) in  exchange  for
receivables of $415 and recorded a net gain of $303.
The Company  settled an $83 note  payable for $70 cash.  The  difference  of $13
reduced the member list associated with the original purchase.
The Company  entered into an agreement  with its primary  lease vendor to settle
all current and future payments at a greatly discounted rate. The net effect was
a reduction of net fixed assets of $29 and a reduction of current and  long-term
capital lease  liability of $161.  The Company  agreed to pay $101 to settle the
debt and recorded a net gain of $31.

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

<PAGE>


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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

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

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

Revenue Recognition

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

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

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

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

Ongoing Independent Licensed Brokers and Future Franchise Related Revenue

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

Accounting for Trade Dollar Activities

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

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

The  Company  currently  owns real  estate  building  lots in  Canada  that were
purchased with ITEX Trade Dollars.  The Company intends to market these lots for
cash but there is no assurance that the Company will be successful.

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

<PAGE>

IRS Requirements

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

Principles of Consolidation

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

Net Revenue and Deferred Revenue

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

Cash and Cash Equivalents

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

Concentrations of Credit Risk

At July 31,  2002,  the  Company  maintained  its  major  cash  balances  at one
financial institution located in Portland, Oregon and two financial institutions
in Canada. The balances are insured by the Federal Deposit Insurance Corporation
up to $100 and by the Canadian Deposit Insurance  Corporation up to $39. At July
31, 2002, the Company's uninsured cash balances totaled $154.

Property and Equipment

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

Intangible Assets

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

Long-Lived Assets

The Company  reviews its  long-lived  assets for impairment  whenever  events or
changes in circumstances  indicate that the carrying amount of the asset may not
be recovered.  The Company looks primarily to the undiscounted future cash flows
in its  assessment of whether or not long-lived  assets have been  impaired.  At
July 31, 2002, the Company determined no impairment was appropriate.

Other Assets

The Company  accounts  for  holdings  of equity  securities  of other  companies

<PAGE>

pursuant to Statement of Financial Accounting Standards No. 115, "Accounting for
Certain  Investments  in Debt and Equity  Securities"  (SFAS 115). The Company's
equity  securities  generally  qualify  under the  provisions of SFAS No. 115 as
available  for sale.  As of July 31,  2002 the  Company was not holding any such
securities.

Capitalized Software Development Costs

Direct costs incurred in the  development of software are  capitalized  once the
preliminary project stage is completed,  management has committed to funding the
project,  and  completion  and use of the software for its intended  purpose are
probable.  The  Company  ceases  capitalization  of  development  costs once the
software has been substantially completed and is ready for its intended use. The
Company has no capitalized costs included in its financial statements.

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, 2002.

Estimates and Assumptions

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

Reclassifications

Certain  reclassifications  have been made to the financial  statements of prior
years to conform to the July 31, 2002 presentation.  Such  reclassifications had
no effect on the results of operations or stockholders' equity.
<PAGE>

Recent Accounting Pronouncements

In August 2001, the FASB issued SFAS No. 143,  "Accounting for Asset  Retirement
Obligations."  SFAS No. 143 requires the fair value of a liability  for an asset
retirement  obligation to be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be made. The associated asset retirement
costs are  capitalized as part of the carrying  amount of the long-lived  asset.
SFAS No. 143 is effective for the Company for fiscal years  beginning after June
15,  2002.  The Company  believes the  adoption of this  statement  will have no
material impact on its consolidated financial statements.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of  Long-Lived  Assets."  SFAS No. 144 requires  that those  long-lived
assets be measured at the lower of carrying  amount or fair value,  less cost to
sell,  whether  reported in continuing  operations or  discontinued  operations.
Therefore,  discontinued operations will no longer be measured at net realizable
value or include amounts for operating  losses that have not yet occurred.  SFAS
No. 144 is effective for financial  statements issued for fiscal years beginning
after  December 15, 2001 and,  generally,  is to be applied  prospectively.  The
Company  believes the adoption of this statement will have no material impact on
its consolidated financial statements.

In April 2002, the FASB issued SFAS No. 145,  "Rescission of SFAS Nos. 4, 44 and
64,  Amendment of SFAS 13, and Technical  Corrections as of April 2000. SFAS No.
145  revises  the  criteria  for  classifying  the  extinguishment  of  debt  as
extraordinary and the accounting treatment of certain lease modifications.  SFAS
145 is effective in fiscal 2003,  and is not expected to have a material  impact
on the Company's consolidated financial statements.

In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with
Exit or Disposal  Activities."  SFAS No. 146 provides  guidance on the timing of
the recognition of costs  associated with exit or disposal  activities.  The new
guidance  requires  costs  associated  with exit or  disposal  activities  to be
recognized when incurred. Previous guidance required recognition of costs at the
date of commitment to an exit or disposal  plan. The provisions of the statement
are to be adopted  prospectively  after December 31, 2002. Although SFAS No. 146
may impact the accounting  for costs related to exit or disposal  activities the
Company may enter into in the future, particularly the timing of the recognition
of these  costs,  the adoption of the  statement  will not have an impact on the
Company's present financial condition or results of operations.

Cumulative Effect of Change in Accounting Principle

The Company  implemented SEC Staff Accounting  Bulletin (SAB) No. 101,  "Revenue
Recognition  in  Financial  Statements,"  during  the  fourth  quarter  of 2001,
effective as of the beginning of the year. This SAB 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 a 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 2 - REGIONAL OFFICE RECEIVABLES

During  fiscal 2002 the Company  sold its regional  offices in  Portland,  Costa
Mesa,  Lafayette,  Orlando,  Jensen Beach, Houston, and St. Louis to independent
licensed brokers.
<PAGE>

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

                                                    Balance
                                                      at                  Long
                                           Sale     July 31,   Current    Term     Projected Payoff
Office Location       Date of Sale        Amount     2002      Portion   Portion         Date
-----------------    ----------------    --------   --------   -------   -------   ----------------
Portland, OR         October, 2001          $ 92       $ 68      $ 19      $ 49    September, 2006
Lafayette, LA        October, 2001          $ 38       $ 29      $ 12      $ 17    July, 2005
Orlando, FL          September, 2001        $ 78       $ 60      $ 19      $ 41    January, 2006
Jensen Beach, FL     October, 2001          $ 75       $ 48      $  8      $ 40    July, 2009
Houston, TX          November, 2001         $ 97       $ 88      $  9      $ 79    September, 2014
St. Louis, MO        March, 2002            $ 35       $ 34      $  7      $ 27    December, 2007
                                         --------   --------   -------   -------
                                            $415       $327      $ 74      $253
                                         ========   ========   =======   =======
</TABLE>

The regional  offices sold carried a net book value of $112 (consisting of $8 in
fixed assets and $104 in member lists) in exchange for  receivables of $415. The
Company recognized a gain of $303, included in miscellaneous income (expense).

NOTE 3 - AVAILABLE FOR SALE SECURITIES

During the fiscal year ended July 31, 2002 the Company sold the remainder of its
available for sale  securities  for $64,  realizing a gain of $63. The Wade Cook
stock sold had no carrying value in the financial statements;  therefore the net
proceeds  from the sale of securities  was  recognized as a gain. As of July 31,
2001 the Company showed an asset of $35 for available for sale securities and an
unrealized gain of $34 as an equity component.

NOTE 4 - PROPERTY AND EQUIPMENT

                                                Accumulated
                    Estimated       Balance     Depreciation
Fixed Asset Type   Useful Life   July 31, 2002  July 31, 2002   Net Book Value
----------------   -----------   -------------  -------------   --------------
Computers          3 years           $253            $220            $ 33
Software           3 years           $ 11            $  1            $ 10
Equipment          5 years           $401            $239            $162
Furniture          5 years           $137            $101            $ 36
                                 ------------   -------------   --------------
                                     $802            $561            $241
                                 ============   =============   ==============

Property and  equipment is  depreciated  using the straight line method over the
asset's estimated useful life.  Depreciation  expense for property and equipment
was  $256 and  $278  for the  fiscal  years  ending  July  31,  2002  and  2001,
respectively.

In February  2000 the Company  entered  into an  agreement to purchase an office
building  for its  corporate  offices  located in  Sacramento,  California.  The
Company  paid  $200  cash,  333,  shares of common  stock,  plus 200 ITEX  trade
dollars. In addition, the Company recorded a note payable for $300 along with an
obligation  against the property of $1,500. In January 2002, both parties agreed
to cancel the  transaction  and all  guarantees  in  exchange  for 50 ITEX trade
dollars.  The  original  seller  retained  the cash,  stock  and  trade  dollars
previously paid and issued.  The Company has entered into a lease with the owner
for 18-months with monthly payments of $13.

The transaction  reduced assets on the Company's books by $1,960,  including the
building,   leasehold   improvements  and  related   accumulated   depreciation.

<PAGE>

Liabilities  were  reduced by  $1,800,  including  the note  payable of $300 and
common stock  subject to a put  totaling  $1,500.  Equity was  increased by $30,
including $3 of common stock and $27 of additional paid in capital.  The Company
recorded  a  net  loss  of  $190  on  disposal  of  the  building,  included  in
miscellaneous income (expense).

NOTE 5 - PURCHASED MEMBER LISTS

At July 31, 2001, the cost of acquired member lists was $2,027, less accumulated
amortization of $1,086,  for a net carrying value of $941. These amounts include
the new member  lists  acquired  in the  purchases  of the  Canada,  Seattle and
Sacramento brokerages.

The  weighted  average  amortization  period for the  purchased  member lists is
approximately  2.15 years. The following table shows the estimated  amortization
expense for these assets for each of the five succeeding fiscal years:

                     Fiscal year:

                     2003                 $  438
                     2004                 $  438
                     2005                 $   65

Changes in the carrying  amount of member lists for the year ended July 31, 2002
are summarized as follows:

           Balance as of July 31, 2001    $1,480
           Amortization                     (456)
           Member list dispositions         ( 83)
                                          -------
           Balance as of July 31, 2002    $  941

Dispositions consist of member lists sold with regional offices during 2002.

NOTE 6 - LONG-TERM DEBT, CURRENT

The Company has entered into a $300  short-term  note payable to an  individual.
The note  bears  interest  at 16%  payable  monthly  with all  principal  due on
December  31,  2002.  This note is  secured  by  certain  personally  owned real
property of the Company's former President and CEO.

In February  2002  an agreement  was reached  between  Network  Commerce and the
Company to settle the note  payable with a balance of $83 for a one time payment
of $70.  The  difference  of $13 was  recorded as a reduction  to the  purchased
member list.

In May 2002, the Company entered into an agreement with its primary lease vendor
to settle all current and future payments at a greatly  discounted rate. The net
effect was a reduction of net fixed assets of $29 and a reduction of current and
long-term  capital lease  liability of $161.  The Company  agreed to pay $101 to
settle the debt and recorded a net gain of $31. The Company  agreed to make four
payments,  $76 of which had been paid as of July 31, 2002.  The remaining $25 is
included in accounts payable.

NOTE 7 - OTHER CURRENT LIABILITIES

At July 31, 2002, the balance in other current liabilities  consists of accruals

<PAGE>

for business property taxes, annual  shareholders'  meeting,  annual ITEX broker
convention and the annual President's Club trip.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

The Company conducts a portion of its business  utilizing  leased  facilities in
various  cities in which it  operates.  Certain  lease  agreements  provide  for
payment  of  insurance,  maintenance  and other  expenses  related to the leased
property. Certain lease agreements also provide an option for renewal at varying
terms.  The Company also leases a portion of its equipment  and furniture  under
operating  leases.  The aggregate  future minimum  commitments  under  operating
leases are as follows:

           Fiscal year ending July 31,
                     2003                        $ 284
                     2004                           74
                     2005                           27
                     2006                          ---
                  Thereafter                       ---
                                                 -----
           Total                                 $ 385
                                                 -----

Office rent  expense for the  periods  ended July 31, 2002 and 2001  amounted to
$315 and $310,  respectively.  Equipment rent expense for the periods ended July
31, 2002 and 2001 amounted to $100 and $206, 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 13
for detailed discussion of legal matters.

NOTE 9 - STOCKHOLDERS' EQUITY

Stock Options

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

                        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

The following  summarizes  activity for the fiscal years ended July 31, 2002 and
2001 activity:
<PAGE>


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

Balance, July 31, 2000            345     4,157        $0.75 - $6.13
   Granted                       (369)      369        $0.40 - $1.00
   Cancelled                      110      (110)           $5.50
                             ---------   -------

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

Balance, July 31, 2002          2,302     2,200

In the fiscal year 2001,  the Company  issued  options to purchase 369 shares of
common  stock to  employees,  officers  and  directors.  Options to purchase 110
shares of common stock were canceled during the period according to the terms of
the option  agreements.  The exercise price of options granted were equal to the
fair market  value as  determined  by the  closing  bid price for the  Company's
common stock on the date of grant.  Exercise  prices varied from $0.40 to $1.00.
The options vest 25% immediately and 25% each year.  Employee  options expire if
they are not exercised within 30 days of termination of employment.

In the fiscal year 2002,  the Company issued options to purchase 1,290 shares of
common stock to employees,  officers and  directors.  Options to purchase  3,506
shares of common stock were canceled during the period according to the terms of
the option  agreements.  The exercise price of options granted were equal to the
fair market  value as  determined  by the  closing  bid price for the  Company's
common stock on the date of grant.  Exercise  prices varied from $0.08 to $0.21.
The options vest 25% immediately and 25% each year.  Employee  options expire if
they are not exercised within 30 days of termination of employment.

The weighted average  contractual life of options granted through July 31, 2002,
is 5 years. The weighted average exercise prices for the options  outstanding at
July 31, 2002 are as follows:


Exercise Price   Common Stock   Weighted Average
    Range          Options      Exercise Prices
--------------   ------------   ----------------
 $0.08 - 1.50        2,200           $0.36

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 1,290 and 369
shares of common stock to employees  and  directors  during the years ended July
31, 2002 and 2001.

The  following  table  summarizes  the  difference  between  the fair  value and
intrinsic  value  methods  and the pro forma net  income  and net loss per share
amounts for the years  ended July 31, 2002 and 2001 had the Company  adopted the
fair value-based method of accounting for stock-based compensation.
<PAGE>

                                             Years ended July 31,
                                             2002            2001
                                           --------        --------
Difference between fair value and
intrinsic value methods (additional
compensation expense)                       $   97         $    28

Net (loss) income                             (690)         (3,179)

Net (loss) income per share - basic           (.04)           (.20)

Net (loss) income per share - diluted         (.04)           (.20)

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  2002 and 2001:  dividend  yield of zero,
expected  average annual  volatility of 148% and 19%,  average annual  risk-free
interest  rate of 4.50 and 5.75%,  and  expected  lives of three  years and four
years.

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

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

Shares Issued

During 2002, the Company issued 760 shares to outside board members.  The effect
of this  transaction  was an increase of $8 in common stock of $60 in additional
paid-in   capital,   and  the  recognition  of  $68  in  selling,   general  and
administrative  expense.  Shares issued include an annual grant to outside board
members of 75 shares, a grant of 210 shares to special  committee  members and a
grant of 475 shares to board members in lieu of cash compensation.

During 2002, the Company issued 395 shares to selected employees.  The effect of
this  transaction  was an  increase of $4 in common  stock of $31 in  additional
paid-in   capital,   and  the  recognition  of  $35  in  selling,   general  and
administrative expense.

During 2002, the Company issued 250 shares to an outside consultant.  The effect
of this  transaction  was an increase of $2 in common stock of $27 in additional
paid-in   capital,   and  the  recognition  of  $27  in  selling,   general  and
administrative expense.

During 2002,  the Company issued 333 shares to original owner of the building on
3400 Cottage Way in  Sacramento,  California as part of the agreement to rescind
the  original  purchase  of the  building  by the  Company.  The  effect of this
transaction  was an increase of $3 in common stock of $27 in additional  paid-in
capital,  and the recognition of $30 included in miscellaneous  income (expense)
as loss on disposal of building.

During  2002,  the Company  issued 140 shares to members of the former  board of
directors.  The effect of this transaction was an increase of $1 in common stock

<PAGE>

of $104 in  additional  paid-in  capital,  and the  reduction of $105 in accrued
stock compensation.

NOTE 10 - INCOME TAXES

Comparative  analysis of the provision  (credit) for income taxes for the fiscal
years ended July 31, 2002 and 2001 follows:

                                      Years ended July 31,
                                    2002               2001

Current
  Federal                        $     ----         $     241
  State
                                 ------------       ------------
                                 $     ----         $     241
Deferred
  Federal
  State
                                 ------------       ------------

Tax (benefit) expense             $     ----         $     241

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,
2002 and 2001 and because of  realization  of net operating  losses in the years
ended July 31,  2002 and 2001.  The  following  reconciles  expected  income tax
effects at a range of 34% to the provision (credit) for income taxes:

                                      Years ended July 31,
                                     2002              2001

Taxes at U.S. federal statutory
 rate                             $     (283)        $  (1,071)
Change in deferred tax valuation
 allowance other than realization        283               951
 of net operating loss
Other, net                              ----               361
                                  -----------        ----------

Tax (benefit) expense             $        0         $     241

The tax effects of temporary  differences that give rise to significant portions
of deferred tax assets and  liabilities  at July 31, 2002 and 2001 are presented
below:

                                      Years ended July 31,
                                     2002              2001
Deferred tax assets:
  Net trade activity included     $         0        $   1,055
   for income tax purposes not
   recognized for financial
   reporting
   Investments and assets               1,069            1,087
   impaired for financial
   reporting, not disposed of
   for tax purposes
   Amortization                           598              651
<PAGE>

   Net operating loss carryforward      5,418            5,102
   Capital loss carryforward                0              102

   Other                                  673              768
                                  ------------       ----------
                                        7,758            8,765
Deferred tax liabilities:
   Amortization                           (63)            (137)
                                  ------------       ----------

Net deferred tax assets                 7,695            8,628
Valuation allowance                    (7,695)          (8,628)
                                  ------------       ----------
                                  $      ----        $    ----

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 11 - 401(k) SAVINGS PLAN AND BONUS PLAN

Employees of the Company may  participate in a 401(k) savings plan,  whereby the
employees  may  elect  to make  contributions  pursuant  to a  salary  deduction
agreement upon meeting age and length of service  requirements.  The Company may
make optional matching contributions of 50% of electing employees' deferrals, up
to a  ceiling  amount  of 3% of  gross  annual  wages.  There  were no  matching
contributions to the plan for the years ended July 31, 2002 and 2001.

The Company has a bonus plan for its officers.  Bonuses incurred were $50 and $0
for fiscal years ended July 31, 2002 and 2001, respectively. Management received
quarterly  bonuses  based on the  earnings  in each of the last two  quarters of
fiscal year 2002.

NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS

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

                                        Carrying
                                         Amount         Fair Value
                                        --------        ----------
                    Assets
Cash                                    $  90           $   90
Accounts receivable                       896              896
Regional office receivable                 74               74

                 Liabilities
Accounts payable                         $435             $435
Accounts payable to brokers               680              680
Current portion long-term debt            300              300

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, 2002.

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 13 - LEGAL PROCEEDINGS

1401 El Camino Litigation

On March 1, 2001, El Camino Tower,  LLC brought a complaint  against the Company
in the  Superior  Court of  Sacramento  County  styled El Camino  Tower,  LLC v.
Sacramento  Trade  Exchange,  Inc. et al. for breach of contract of the lease of
the former Sacramento  regional office.  The matter was settled in October 2001.
The final payment was made April 2002.

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. A settlement  agreement was reached.  Payment was made and the lawsuit was
dismissed.

Skiers Edge Litigation

On June 19, 2000, Skiers Edge Condominium Association brought a suit against the
Company in the  District  Court for  Summit  County,  Colorado  in the matter of
Skiers  Edge  Condominium  Association  v.  George  Owens for  association  fees
relating to interval  timeshares  tha the Company is alleged to own. On July 15,
2002,  a judgment  was  entered  against  the  Company  for $19.  Management  is
currently working with Skiers Edge to settle for a lesser amount.

Desert Rose Foods Litigation

On March 4, 2002, 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 Company believes the Plaintiff's
complaint lacks merit and the Company intends to vigorously defend itself.
<PAGE>


Wendy Moore Litigation

On October 12, 2001, an action was brought in the District Court,  32nd Judicial
District of Nolan County, Texas styled Wendy Moore et al. v. ITEX Corporation et
al. for fraudulent representations of an independent licensed broker in Abilene,
Texas.  The Company denies any liability for the acts of the broker and it 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.

Robofil Corporation

On November 14, 2001, an action was brought in the Superior Court for Sacramento
County in the matter of Robofil Corporation, et al., v. ITEX Corporation, et al.
for  violation  of fiduciary  resonsibility  related to the purchase and sale of
hardwood  flooring by the Company to members and other third  parties.  The case
was dismissed in October 2002.

NOTE 14 - SUBSEQUENT EVENTS

Corporate Office - Vancouver, BC

Effective  September  6, 2002 the  Company  opened a second  regional  office in
Canada, located in Vancouver,  British Columbia. The office will service clients
previously serviced by two independent licensed brokers.

NOTE 15 - RELATED PARTY TRANSACTIONS

In addition to related party transactions outlined in NOTE 9 to the consolidated
financial statements, the Company paid $22 in consulting fees to a member of the

<PAGE>

outside board.  The consulting  agreement  was  discontinued in September  2002.
During 2002,  the Company paid another  outside board member 60 trade dollars as
part of a consulting agreement.

NOTE 16 - Significant Fourth Quarter Adjustments

During the fourth quarter of 2002, the Company  recorded  approximately  $160 as
allowances to trade  activity  revenues.  In addition,  the Company  reduced the
recognized gain on the sale of regional offices by $60 for imputed interest.

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 on Item 9 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.

<PAGE>


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

     a) Exhibit

     99.1 Certification of Chief Executive Officer

     99.2 Certification of Chief Financial Officer

     b) Reports on Form 8-K

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

         Date of the Report       Item Reported
         ------------------       -------------
         August 16, 2002          July 31, 2002 Resignation of Gerry Harris from
                                  the Board of Directors

         September 27, 2001       July 1,  2001  Amendment  to  prior  Form  8-K
                                  regarding  the  License  of Independent Broker
                                  in Vancouver, British Colombia.

         August 16, 2001          March  1,  2001  Amendment  to  prior Form 8-K
                                  regarding purchase of assets from UBarter.com




                                   SIGNATURES

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

                                   ITEX CORPORATION




Date: October 29, 2002             /S/ LEWIS SPIKE HUMER
                                   ---------------------------------------------
                                   Lewis "Spike" Humer, Chief Executive Officer,
                                   President  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: October 29, 2002             By: /S/ LEWIS SPIKE HUMER
                                      ------------------------------------------
                                      Lewis  "Spike"  Humer,   Chief   Executive
                                      Officer, President and Director (Principal
                                      Executive Officer)

<PAGE>


Date: October 29, 2002             By: /S/ DANIELA C. CALVITTI
                                      ------------------------------------------
                                      Daniela  C.  Calvitti,   Chief   Financial
                                      Officer and Director (Principal  Financial
                                      and Accounting Officer)


Date: October 29, 2002             By: /S/ JEFFREY L. ELDER
                                      ------------------------------------------
                                      Jeffrey L. Elder, Chairman of the Board


Date: October 29, 2002             By: /S/ JAY ABRAHAM
                                      ------------------------------------------
                                      Jay Abraham, Director


Date: October 28, 2002             By: /S/ WILLIAM BRONSTON
                                      ------------------------------------------
                                      William Bronston, M.D., Director


Date: October 28, 2002             By: /S/ JOHN L. DETHMAN
                                      ------------------------------------------
                                      John L. Dethman, Director


Date: October ______, 2002         By:
                                      ------------------------------------------
                                      Collie M. Christensen, Director

<PAGE>
                                                                    Exhibit 99.1


                            CERTIFICATION PURSUANT TO
                      18 U.S.C. SECTION 1350, AS ADOPTED TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Lewis "Spike" Humer,  Chief Executive  Officer for ITEX  Corporation  certify
that:

1. I have reviewed the annual report on Form 10-KSB of ITEX Corporation;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report.

Dated:  October 28, 2002



                                     /S/ LEWIS SPIKE HUMER
                                     ___________________________________
                                     Lewis "Spike" Humer,
                                     Chief Executive Officer
                                     (Principal Executive Officer)

<PAGE>

                                                                    Exhibit 99.2

                            CERTIFICATION PURSUANT TO
                      18 U.S.C. SECTION 1350, AS ADOPTED TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Daniela C. Calvitti,  Chief Financial  Officer for ITEX  Corporation  certify
that:

1. I have reviewed the annual report on Form 10-KSB of ITEX Corporation;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report.

Dated:  October 28, 2002




                                   /S/ DANIELA C. CALVITTI
                                   ___________________________________
                                   Daniela C. Calvitti,
                                   Chief Financial Officer
                                   (Principal Financial and Accounting Officer)