ITEX CORP - FORM 10-Q - June 11, 2015

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EXCEL - IDEA: XBRL DOCUMENT - ITEX CORP	Financial_Report.xls
EX-32.1 - EXHIBIT 32.1 - ITEX CORP	v412325_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - ITEX CORP	v412325_ex31-2.htm
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EX-32.2 - EXHIBIT 32.2 - ITEX CORP	v412325_ex32-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

Mark One)

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

For the quarterly period ended April 30, 2015.

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

For the transition period from to

Commission File Number 0-18275

ITEX CORPORATION

(Exact name of registrant as specified in its charter)

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

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

(Address of principal executive offices)

(425) 463-4000

(Registrant’s telephone number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

(Do not check if a smaller

reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of April 30, 2015, we had 2,096,862 shares of common stock outstanding (including unvested restricted stock).

ITEX CORPORATION

FORM 10-Q

For the Three-month and Nine-month Period Ended April 30, 2015

INDEX

		Page(s)

PART I.	Financial Information

ITEM 1.	Financial Statements

	Consolidated Balance Sheets as of April 30, 2015 (unaudited) and July 31, 2014	1

	Consolidated Statements of Income for the Three and Nine-Months Ended April 30, 2015 and 2014 (unaudited)	2

	Consolidated Statement of Stockholders’ Equity for the Nine-Months Ended April 30, 2015 (unaudited)	3

	Consolidated Statements of Cash Flows for the Nine-Months Ended April 30, 2015 and 2014 (unaudited)	4

	Notes to Consolidated Financial Statements (unaudited)	5

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9

ITEM 4.	Controls and Procedures	32

PART II.	Other Information	32

ITEM 1.	Legal Proceedings	32

ITEM 2.	Unregistered Sales of Equity Securities	32

ITEM 6.	Exhibits	33
	Signatures	33

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ITEX CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

	April 30, 2015			July 31, 2014
	(unaudited)
ASSETS
Current assets:
Cash	$	1,287		$	3,673
Accounts receivable, net of allowance of $441 and $357		926			658
Prepaid expenses		168			104
Loans and advances		5			15
Deferred tax asset, net of allowance of $15		542			542
Notes receivable		306			318
Other current assets		20			30
Total current assets		3,254			5,340

Property and equipment, net of accumulated depreciation of $443 and $415		47			74
Goodwill		3,191			3,191
Deferred tax asset, net of allowance of $95 and net of current portion		3,246			3,492
Intangible assets, net of accumulated amortization of $3,311 and $3,270		116			157
Notes receivable, net of current portion		868			1,106
Other long-term assets		10			11
Total assets		10,732			13,371

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts and other expenses payable		41			52
Commissions payable to brokers		454			267
Accrued commissions to brokers		549			728
Accrued expenses		303			254
Deferred revenue		26			32
Advance payments		119			106
Note payable, current portion		-			3
Total current liabilities		1,492			1,442

Total liabilities		1,492			1,442

Commitments and contingencies

Stockholders’ equity:
Common stock, $0.01 par value; 9,000 shares authorized; 1,899 shares and 2,602 shares issued and outstanding, respectively		19			26
Additional paid-in capital		22,335			25,222
Stockholder notes receivable		(7	)		(161	)
Accumulated deficit		(13,107	)		(13,158	)
Total stockholders' equity		9,240			11,929

Total liabilities and stockholders’ equity	$	10,732		$	13,371

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

ITEX CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

	Three-months Ended April 30,				Nine-months Ended April 30,
	2015		2014		2015		2014

Revenue:
Marketplace revenue and other revenue	$	2,783	$	3,214	$	9,138	$	10,336

Costs and expenses:
Cost of Marketplace revenue		1,673		1,915		5,609		6,360
Salaries, wages and employee benefits		459		588		1,416		1,736
Selling, general and administrative		319		481		1,389		1,495
Depreciation and amortization		23		24		68		96
		2,474		3,008		8,482		9,687

Income from operations		309		206		656		649

Other income:
Other income		20		24		69		83

		20		24		69		83

Income before income taxes		329		230		725		732

Income tax expense		111		75		244		238

Net income	$	218	$	155	$	481	$	494

Net income per common share:
Basic	$	0.09	$	0.06	$	0.19	$	0.19
Diluted	$	0.09	$	0.06	$	0.19	$	0.19

Weighted average shares outstanding:
Basic		2,527		2,623		2,589		2,618
Diluted		2,533		2,628		2,594		2,618

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

ITEX CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE NINE-MONTHS ENDED APRIL 30, 2015

(In thousands)

(Unaudited)

	Common Stock						Additional Paid-in			Stockholder Notes			Accumulated
	Shares			Amount			Capital			Receivable			Deficit			Total

Balance at July 31, 2014		2,602		$	26		$	25,222		$	(161	)	$	(13,158	)	$	11,929

Common stock repurchased and retired		(14	)		-			(42	)		-			-			(42	)

Tender offer		(750	)		(8	)		(2,992	)		-			-			(3,000	)

Payments on stockholder notes receivable		-			-			-			37			-			37

Cancellation of broker stock purchase		(29	)		-			(117	)		117			-			-

Stock based compensation expense		90			1			264			-			-			265

Dividend payment		-			-			-			-			(430	)		(430	)

Net income		-			-			-			-			481			481

Balance at April 30, 2015		1,899		$	19		$	22,335		$	(7	)	$	(13,107	)	$	9,240

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

ITEX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Nine-months ended April 30,
	2015			2014
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	481		$	494
Items to reconcile to net cash provided by operations:
Depreciation and amortization		68			96
Stock based compensation		265			309
Increase (decrease) in allowance for uncollectible receivables		84			(27	)
Change in deferred income taxes		246			256
Changes in operating assets and liabilities:
Accounts receivable		(352	)		(276	)
Prepaid expenses		(64	)		(71	)
Loans and advances		10			(27	)
Other assets		11			(29	)
Accounts payable and other expenses payable		(11	)		(4	)
Commissions payable to brokers		187			(299	)
Accrued commissions to brokers		(179	)		378
Accrued expenses		49			40
Deferred revenue		(6	)		(5	)
Advance payments		13			(31	)
Long-term liabilities		-			(8	)
Net cash provided by operating activities		802			796

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments on note payable		(3	)		(2	)
Purchase of property and equipment		-			(47	)
Payments received from notes receivable		280			353
Advances on loans		(30	)		(442	)
Net cash provided by (used in) provided by investing activities		247			(138	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on Broker notes receivable		37			44
Repurchase of Common stock		(42	)		(352	)
Tender offer		(3,000	)		-
Cash dividend paid to Common Shareholders		(430	)		(435	)
Net cash used in financing activities		(3,435	)		(743	)

Net decrease in cash		(2,386	)		(85	)
Cash at beginning of period		3,673			3,352
Cash at end of period	$	1,287		$	3,267

Supplemental cash flow information:
Cash paid for taxes	$	14		$	48
Cancellation of Brokers notes receivable	$	117		$	-

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

ITEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(In thousands, except per share amounts)

Description of the Company

ITEX Corporation (“ITEX”, “Company”, “we” or “us”) was incorporated in October 1985 in the State of Nevada. Through our independent licensed broker and franchise networks (individually, “broker,” and together the “Broker Network”) in the United States and Canada, we operate a marketplace (the “Marketplace”) in which products and services are exchanged by Marketplace members utilizing our “virtual currency” (“ITEX dollars”). Our virtual currency is only usable in the Marketplace and allows thousands of member businesses (our “members”) to acquire products and services without exchanging cash. We administer the Marketplace and provide record-keeping and payment transaction processing services for our members.

Unaudited Interim Financial Information

We have prepared the accompanying consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These consolidated financial statements are unaudited and, in our opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of our consolidated balance sheets, operating results, and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted in accordance with the rules and regulations of the SEC. The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent liabilities as of the date of the financial statements and the reported amount of revenue and expenses during the reporting period. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in Item 8 of Part II, “Financial Statements and Supplementary Data,” of our 2014 Annual Report on Form 10-K filed with the SEC on October 15, 2014.

Principles of Consolidation

The consolidated financial statements include the accounts of ITEX Corporation and its wholly owned subsidiaries BXI Exchange, Inc and Virtual Currency Systems Corp. All inter-company accounts and transactions have been eliminated in consolidation.

Use of Estimates

Management has made a number of estimates and assumptions relating to the reporting of revenues, expenses, assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements. Actual results could differ from these estimates.

Income per Share

We prepare our financial statements using 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 Company. As of April 30, 2015, we had no contracts to issue common stock. The Company also had 198 unvested shares of restricted stock of which 15 shares were dilutive and resulted in additional 5 shares being included in dilutive earnings per share for the nine-months ended April 30, 2015.

The following table presents a reconciliation of the denominators used in the computation of net income per common share basic and net income per common share – diluted for the three and nine-month periods ended April 30, 2015 and 2014 (in thousands, except per share data) (unaudited):

	Three-months Ended April 30,				Nine-months Ended April 30,
	2015		2014		2015		2014

Net income available for shareholders	$	218	$	155	$	481	$	494

Weighted avg. outstanding shares of common stock		2,527		2,623		2,589		2,618
Dilutive effect of restricted shares		6		5		5		-
Common stock and equivalents		2,533		2,628		2,594		2,618
Earnings per share:
Basic	$	0.09	$	0.06	$	0.19	$	0.19
Diluted	$	0.09	$	0.06	$	0.19	$	0.19

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers," which amended revenue recognition guidance to clarify the principles for recognizing revenue from contracts with customers. The guidance requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This accounting guidance will be effective for the Company beginning in the first quarter of fiscal year 2018 using one of two prescribed retrospective methods. Early adoption is not permitted. We have not yet selected a transition method, nor have we determined the effect of the standard on our ongoing financial reporting.

NOTE 2 – COMMITMENTS

The Company leases office space under an operating lease. The lease commitment is for the Company’s corporate headquarters in Bellevue, Washington. The term of the lease expires the earlier of April 30, 2016 or upon 90 days’ notice from either the Company or its landlord.

Rent expense, including utilities and common area charges, was $47 and $48, respectively for the three-month periods ended April 30, 2015 and 2014. Rent expense was $128 for each of the nine-month periods ended April 30, 2015 and 2014.

In addition to the foregoing lease commitments, the Company is a party to several non-cancelable and non-refundable purchase commitments. Those purchase obligations consist primarily of arrangements for telecommunications and co-location services for the Company’s network operations.

There are no future minimum payments at April 30, 2015 under any non-cancelable commitments.

NOTE 3 – LEGAL PROCEEDINGS AND LITIGATION CONTINGENCIES

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

Management has regular litigation reviews, including updates from outside counsel, to assess the need for accounting recognition or disclosure of contingencies relating to pending lawsuits. The Company accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable, and the amount can be reasonably estimated. The Company does not record liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated or when the liability is believed to be only reasonably possible or remote. For contingencies where an unfavorable outcome is reasonably possible and which are significant, the Company discloses the nature of the contingency and, where feasible, an estimate of the possible loss. For purposes of our litigation contingency disclosures, “significant” includes material matters as well as other items which management believes should be disclosed.

Management judgment is required related to contingent liabilities and the outcome of litigation because both are difficult to predict. Litigation is subject to inherent uncertainties and unfavorable rulings could occur. Although management currently does not believe resolving any pending proceeding will have a material adverse impact on our financial statements, management’s view of these matters may change in the future. A material adverse impact on our financial statements could occur for the period in which the effect of an unfavorable final outcome becomes probable and reasonably estimable.

NOTE 4 – INCOME TAXES

Income tax expense during interim periods is based on applying an estimated annual effective income tax rate to year-to-date income, plus any significant unusual or infrequently occurring items which are recorded in the interim period.

The Federal effective tax rate related to our provision for income taxes in the three and nine-months ended April 30, 2015 is similar to that used in the similar periods ended April 30, 2014. The State effective tax rate related to our provision for income taxes in the three and nine-months ended April 30, 2015 is lower than that used in the three and nine-month periods ended April 30, 2014, due to the resolution of certain state tax positions which led to a reduction in the accrued expenses on our consolidated balance sheet for uncertain tax positions related primarily to state jurisdictions.

The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in various jurisdictions, permanent and temporary differences, and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is obtained, additional information becomes known or as the tax environment changes.

For the nine-months ended April 30, 2015 we have recognized income tax expense of $244 for our estimated federal and state income tax provision including both current and deferred income taxes for the nine-months ended April 30, 2015. Realization of our deferred tax asset is dependent upon future earnings in specific tax jurisdictions, the timing and amount of which are uncertain. As of April 30, 2015 the net deferred tax asset was $3,788.

We account for any uncertainty in income taxes by recognizing the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. We measure the tax benefits recognized in the financial statements from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The application of income tax law is inherently complex. As such, we are required to make subjective assumptions and judgments regarding income tax exposures. The result of the reassessment of our tax positions did not have an impact on the consolidated financial statements.

NOTE 5 – STOCKHOLDERS’ EQUITY (in thousands, except per share amounts)

On March 16, 2015, the Company commenced a partial tender offer to purchase up to 750 shares of its common stock, at a price of $4.00 per share. The tender offer expired on April 15, 2015. Based on the final tabulation by OTR, Inc., the depositary for the tender offer, approximately 889 shares of ITEX common stock were properly tendered and not withdrawn and not excluded because tendered conditionally. ITEX accepted for purchase 750 shares of its common stock, including all “odd lots” properly tendered, at a purchase price of $4.00 per share, for an aggregate cost of $3,000, excluding fees and expenses relating to the tender offer. The shares purchased in the tender offer represented approximately 26.1% of ITEX’s outstanding common shares (including shares of unvested restricted stock).

The Company has 5,000 shares of preferred stock authorized at $0.01 par value. No preferred shares were issued or outstanding as of April 30, 2015.

On March 9, 2010, the Company announced a $2,000 stock repurchase program, authorized by the Board of Directors. The program authorizes the repurchase of shares in open market purchases or privately negotiated transactions, has no expiration date and may be modified or discontinued by the Board of Directors at any time. During the nine-month period ended April 30, 2015, the Company repurchased 14 shares of common stock for $42. During the nine-month period ended April 30, 2014, the Company repurchased 83 shares of common stock for $352.

NOTE 6 – STOCK-BASED PAYMENTS (in thousands, except per share amounts)

We account for stock-based compensation in accordance with the related guidance. Under the fair value recognition provisions, we estimate stock-based compensation cost at the grant date based on the fair value of the award. We recognize that expense ratably over the requisite service period of the award and recognized $265 and $309 of stock based compensation expense for the nine-month periods ended April 30, 2015 and 2014, respectively.

At April 30, 2015, 183 shares of common stock granted under the 2004 Plan remained unvested and 15 under the 2014 plan. At April 30, 2015, the Company had $669 of unrecognized compensation expense, expected to be recognized in the future over a weighted-average period of approximately six years.

NOTE 7 – SUBSEQUENT EVENTS

At our Annual Meeting of Stockholders held on May 15, 2015, the stockholders re-elected the incumbent directors for another term and ratified the selection of EKS&H as our independent registered public accounting firm for the fiscal year ending July 31, 2015.

On May 15, 2015, the Board of Directors of ITEX Corporation declared a cash dividend of $0.05 per share payable on June 19, 2015, to stockholders of record as of the close of business on June 9, 2015.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in thousands, except per share amounts)

In addition to current and historical information, this Quarterly Report on Form 10-Q contains forward-looking statements. These statements relate to our future operations, prospects, potential products, services, developments, business strategies or our future financial performance. Forward-looking statements reflect our expectations and assumptions only as of the date of this report and are subject to risks and uncertainties. Actual events or results may differ materially. We have included a detailed discussion of certain risks and uncertainties that could cause actual results and events to differ materially from our forward-looking statements in the section titled “Risk Factors” below. We undertake no obligation to update or revise publicly any forward-looking statement after the date of this report, whether as a result of new information, future events or otherwise.

Overview

ITEX operates a marketplace (the “Marketplace”) in which products and services are exchanged by Marketplace members utilizing our “virtual currency” (“ITEX dollars”). Our virtual currency is only usable in the Marketplace and allows thousands of member businesses (our “members”) to acquire products and services without exchanging cash. We service our member businesses through our independent licensed brokers and franchise network (individually, “broker” and together, the “Broker Network”) in the United States and Canada. We administer the Marketplace and provide record-keeping and payment transaction processing services for our members. We generate revenue by charging members percentage-based transaction fees, association fees, and other fees assessed in United States dollars and Canadian dollars where applicable (collectively and as reported on our financial statements, “USD” or “Cash”).

For each calendar year, we divide our operations into 13 four-week billing and commission cycles always ending on a Thursday (“operating cycle”). For financial statement purposes, our fiscal year is from August 1 to July 31 (“year”, “2015” for August 1, 2014 to July 31, 2015, “2014” for August 1, 2013 to July 31, 2014). Our third quarter is the three-month period from February 1, 2015 to April 30, 2015 (“three-month period ended April 30”). Our first nine months is from August 1, 2014 to April 30, 2015. We report our results as of the last day of each calendar month (“accounting cycle”). The timing of billing and collection activities after the end of the billing cycle does not correspond with the end of the accounting period, therefore this timing difference results in the fluctuations of the balances of cash, accounts receivable, commissions payable and accrued commissions on the consolidated balance sheets and consolidated statements of cash flows.

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

The following summarizes our operational and financial highlights for the quarter and our outlook (in thousands except per share data):

Comparative Results. For the three-months ended April 30, 2015, as compared to the three-months ended April 30, 2014, our revenue decreased by $431, or 13%, from $3,214 to $2,783, our income from operations increased by $103, or 50%, from $206 to $309, and our net income increased by $63, or 41% from $155 to $218. For the nine-month period ended April 30, 2015, as compared to the nine-month period ended April 30, 2014, our revenue decreased by $1,198, or 12%, from $10,336 to $9,138 and our income from operations increased by $7, or 1%, from $649 to $656 and our net income decreased by $13 or 3% from $494 to $481.

Revenue Sources. Our decrease in revenues for the three and nine-months ended April 30, 2015 reflects a reduction in our transaction volume and a reduction in our membership base. For the three-months ended April 30, 2015, as compared to the three-months ended April 30, 2014 association revenue decreased $116, or 11% from $1,039 to $923 and our transaction revenue decreased $236, or 12% from $2,004 to $1,768. For the nine-months ended April 30, 2015, as compared to the nine-months ended April 30, 2014 association revenue decreased $231, or 7% from $3,241 to $3,010 and our transaction revenue decreased $834, or 13% from $6,627 to $5,793.

Revenue Trends. Our reduction in revenue this quarter was due to a reduction in members and a corresponding reduction in transaction and association fees generated from our members. We believe the reduction in members and transaction volume is attributed in part to customer access to more sales channel options, plus ease of purchasing power from big box stores and many Internet sites featuring discounted pricing. Although we seek to increase revenues through organic growth and the development of new revenue sources, the primary driver of revenue growth in past years has been through our business acquisitions. These acquisitions are intermittent and cannot be relied upon as a future source of revenue growth, because of the absence of acquisition candidates, lack of financing, or unacceptable terms. We have approximately 30% recurring revenues from association fees. Approximately two-thirds of our revenues each year come from transactions fees assessed during that year. We believe an expansion of our membership base will increase our recurring revenues. We continue to seek to increase our revenue by:

enhancing our internet applications;

offering expanded tools and features with ITEX Mobile^SM;

marketing the benefits of participation in the Marketplace;

expanding Marketplace offerings of goods and services;

Adding new brokers.

In order to add new brokers we are sustaining our broker recruiting incentives. Through our Broker Mentor program, existing brokers recruit prospective brokers and provide ongoing training to the prospective broker until certain performance thresholds are met. Upon meeting the performance thresholds, the prospective broker is offered a franchise for a reduced fee of $5 from our standard fee of $20. The mentoring broker receives a 5% commission override on the cash collected per cycle by the new broker.

Internet Applications and Web Services. We continually enhance our internet applications and web services to make our online services more user friendly to our employees, brokers and members, and to create confidence in the Marketplace. We refresh the content at our website www.itex.com to better tell our story and make it more community driven. We are seeking potential additional revenue opportunities which may be derived from licensing our virtual currency platform to third parties.

Smart Phone technology. We seek to provide useful tools to members to enable them to expand their trading community, find local customers and instantly complete transactions through a mobile device. During the first quarter we launched a Smart Phone application, ITEX Mobile^SM with ITEXpay^SM which enables our members to easily register new prospects into our Marketplace, complete transactions and search for other members.

Financial Position. We reduced our cash during the quarter as a result of the completion of a partial tender offer in which $3,000 was returned to stockholders through the purchase of 750 shares of ITEX common stock. At April 30, 2015, we had a cash balance of $1,287, compared to a balance of $3,673 at July 31, 2014. Our net cash flows provided by operating activities were $802 for the nine-month period ended April 30, 2015, compared to $796 for the corresponding period the previous year. Our business model has demonstrated the ability to generate consistent cash flows, which have historically supplied us with our primary source of liquidity. We seek to maintain a liquidity cushion sufficient to fund our business activity and handle contingencies, while preserving the ability to return cash to our stockholders through dividends and share buybacks. However, our Board of Directors may decide to use capital for acquisitions, revenue generating opportunities or other corporate purposes. See Risk Factor below “Our ability to pay dividends on our common stock is subject to the discretion of our Board of Directors and may be limited by our lack of liquidity or access to capital.”

RESULTS OF OPERATIONS

Condensed Results (in thousands, except per share data):

	Three-months ended April 30,				Nine-months ended April 30,
	2015		2014		2015		2014
	(unaudited)				(unaudited)
Marketplace revenue and other revenue	$	2,783	$	3,214	$	9,138	$	10,336

Cost of marketplace revenue	$	1,673	$	1,915	$	5,609	$	6,360
Operating expenses		801		1,093		2,873		3,327
Income from operations		309		206		656		649

Other income (expense)		20		24		69		83
Income before income taxes		329		230		725		732

Provision for income taxes		111		75		244		238

Net income	$	218	$	155	$	481	$	494

Net income per common share:
Basic	$	0.09	$	0.06	$	0.19	$	0.19
Diluted	$	0.09	$	0.06	$	0.19	$	0.19

Average common and equivalent shares:
Basic		2,527		2,623		2,589		2,618
Diluted		2,533		2,628		2,594		2,618

Revenue for the three-months ended April 30, 2015, as compared to the corresponding period of fiscal 2014 decreased by $431, or 13%. Revenue for the nine-month period ended April 30, 2015, as compared to the corresponding nine-month period of fiscal 2014, decreased by $1,198, or 12%. The decrease in revenues for the three and nine-months ended April 30, 2015 was from a reduction in transaction volume along with a reduction in our membership base.

Cost of Marketplace revenue, which includes association and transaction commissions paid to brokers and other Marketplace related expenses, decreased by $242, or 13% for the three-month period ended April 30, 2015, compared to the corresponding period of fiscal 2014. Cost of Marketplace revenue decreased by $751, or 12% for the nine-month period ended April 30, 2015, compared to the corresponding period of fiscal 2014. The cost of Marketplace revenue decreases for both periods were in line with the corresponding decrease in revenue.

Operating expenses which include corporate salaries, wages and employee benefits, selling, general and administrative, depreciation and amortization decreased by $292, or 27% for the three-months ended April 30, 2015, compared to the corresponding period of fiscal 2014. Operating expenses decreased by $454, or 14% for the nine-month period ended April 30, 2015, compared to the corresponding period of fiscal 2014.

The decrease in operating expenses in the three-months ended April 30, 2015, as compared to the corresponding period of fiscal 2014, primarily resulted from a $162 decrease in selling, general and administrative expense and a $129 decrease in salaries, wages and benefits.

The decrease in operating expenses in the nine-months ended April 30, 2015, as compared to the corresponding period of fiscal 2014, resulted from a $320 decrease in salaries, wages and benefits, a $106 decrease in selling, general and administrative expense, and a decrease of $28 in depreciation and amortization.

Income from operations for the three-months ended April 30, 2015, as compared to the corresponding quarter of fiscal 2014, increased by $103, or 50%. Income from operations for the nine-month period ended April 30, 2015, as compared to the corresponding period of fiscal 2014, increased by $7, or 1%.

Net income for the three-months ended April 30, 2015, as compared to the corresponding period of fiscal 2014, increased by $63, or 41%. Net income for the nine-month period ended April 30, 2015, as compared to the corresponding period of fiscal 2014, decreased by $13, or 3%.

Earnings per share, both basic and diluted, increased by $0.03, or 50% to $0.09 per share in the three-months ended April 30, 2015 compared to the three-months ended April 30, 2014. Earnings per share, both basic and diluted, was $0.19 per share for each of the nine-month periods ended April 30, 2015 and April 30, 2014.

Revenue, Costs and Expenses

The following table sets forth our selected consolidated financial information for the three-months ended April 30, 2015 and 2014, with amounts expressed as a percentage of total revenues (in thousands) (unaudited):

	Three-months ended April 30,										Nine-months ended April 30,
	2015					2014					2015					2014

	Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent
Revenue:
Marketplace revenue and other revenue	$	2,783		100	%	$	3,214		100	%	$	9,138		100	%	$	10,336		100	%

Costs and expenses:
Cost of Marketplace revenue		1,673		60	%		1,915		60	%		5,609		61	%		6,360		62	%
Salaries, wages and employee benefits		459		16	%		588		18	%		1,416		15	%		1,736		17	%
Selling, general and administrative		319		12	%		481		15	%		1,389		16	%		1,495		14	%
Depreciation and amortization		23		1	%		24		1	%		68		1	%		96		1	%
		2,474		89	%		3,008		94	%		8,482		93	%		9,687		94	%

Income from operations		309		11	%		206		6	%		656		7	%		649		6	%

Interest income, net		20		1	%		24		1	%		69		1	%		83		1	%

Income before income taxes		329		12	%		230		7	%		725		8	%		732		7	%

Provision for income taxes		111		4	%		75		2	%		244		3	%		238		2	%

Net income	$	218		8	%	$	155		5	%	$	481		5	%	$	494		5	%

Marketplace revenue

Marketplace revenue consists of transaction fees, association fees and other revenues. Other revenue includes late fees, finance charges and ITEX dollar revenue. The following are the components of Marketplace revenue that are included in the consolidated statements of income (in thousands) (unaudited):

	Three-months ended April 30,				Percent			Nine-months ended April 30,				Percent
	2015		2014		(decrease)			2015		2014		(decrease)

Transaction fees	$	1,768	$	2,004		-12	%	$	5,793	$	6,627		-13	%
Association fees		923		1,039		-11	%		3,010		3,241		-7	%
Other revenue		92		171		-46	%		335		468		-28	%
	$	2,783	$	3,214		-13	%	$	9,138	$	10,336		-12	%

Marketplace revenue decreased by $431, or 13%, for the three-months ended April 30, 2015, as compared to the corresponding period ended April 30, 2014. Marketplace revenue decreased by $1,198, or 12% for the nine-month period ended April 30, 2015, as compared to the nine-month period ended April 30, 2014.

Transaction fee revenue for the three-months ended April 30, 2015, as compared to the corresponding quarter of fiscal 2014, decreased by $236, or 12%. Transaction fee revenue for the nine-month period ended April 30, 2015, as compared to the corresponding period of fiscal 2014 decreased by $834, or 13%. The decrease for both the three and the nine-month periods is the result of the decrease in the volume of transactions that took place in the Marketplace. We believe there is a general decline in Marketplace transaction volume reflecting customer access to more sales channel options, plus ease of purchasing power from big box stores and many Internet sites featuring discounted pricing.

Association fee revenue for the three-months ended April 30, 2015, as compared to the corresponding quarter of fiscal 2014, decreased by $116, or 11%. Association fee revenue for the nine-month period ended April 30, 2015, as compared to the corresponding period of fiscal 2014, decreased by $231, or 7%. The decrease for both the three and nine-month periods is the result of a decrease in the net members participating in the Marketplace.

Other revenue for the three-months ended April 30, 2015, as compared to the corresponding quarter of fiscal 2014, decreased by $79, or 46%. Other revenue for the nine-months ended April 30, 2015, as compared to the corresponding quarter of fiscal 2014, decreased by $133, or 28%. The primary reason for the decrease in other revenue for both the three and nine-month periods is the result of a decrease in the use of ITEX dollars used for corporate purposes (see the next section “ITEX Dollar Revenue” for a discussion on how ITEX dollars are used and recorded in our financial statements).

ITEX Dollar Revenue

As described in notes to our consolidated financial statements in our annual report on Form 10-K filed with the SEC on October 15, 2014, we receive ITEX dollars from members’ transaction and association fees, and, to a lesser extent, from other member fees. ITEX dollars earned from members are later used by us as a method of payment in revenue sharing and incentive arrangements with our Broker Network, including co-op advertising, as well as for certain general corporate and Marketplace expenses. ITEX dollars are only usable in our Marketplace and are not convertible to USD.

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

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

We do not sell or purchase ITEX dollars for USD.

Occasionally we spend ITEX dollars in the Marketplace for our corporate needs. As discussed in the notes to our consolidated financial statements, we record ITEX dollar revenue in the amounts equal to expenses we incurred and paid for in ITEX dollars. We recorded $24 and $112 as ITEX dollar revenue for the three-months ended April 30, 2015 and 2014, respectively. We recorded $147 and $260 as ITEX dollar revenue for the nine-months ended April 30, 2015 and 2014, respectively.

The corresponding ITEX dollar expenses in the three and nine-month periods ended April 30, 2015 were for equipment, legal services, printing, outside services, marketing and miscellaneous expenses. We plan to continue to utilize ITEX dollars for our corporate purposes in future periods.

Costs of Marketplace Revenue

Cost of Marketplace revenue consists of commissions paid to brokers, payment of processing fees and other expenses directly correlated to Marketplace revenue. The following are the main components of cost of Marketplace revenue that are included in the consolidated statements of income (in thousands) (unaudited):

	Three-months ended April 30,						Percent			Nine-months ended April 30,						Percent
	2015			2014			(decrease)			2015			2014			(decrease)

Transaction fee commissions	$	1,298		$	1,485			-13	%	$	4,320		$	4,978			-13	%
Association fee commissions		320			366			-13	%		1,071			1,162			-8	%
Other costs of revenue		55			64			-14	%		218			220			-1	%
	$	1,673		$	1,915			-13	%	$	5,609		$	6,360			-12	%

Costs of Marketplace revenue as percentage of total revenue		60	%		60	%					61	%		62	%

Costs of Marketplace revenue for the three-months ended April 30, 2015, as compared to the three-months ended April 30, 2015, decreased by $242, or 13%. Costs of Marketplace revenue for the nine-month period ended April 30, 2015, as compared to nine-month period ended April 30, 2014, decreased by $751, or 12%. The overall decrease in costs of Marketplace revenue corresponds to the decrease in total Marketplace revenue for the same periods.

Transaction fee commissions decreased by $187 or 13% for the three-months ended April 30, 2015, as compared to the corresponding period of fiscal 2014. Transaction fee commissions decreased by $658 or 13% for the nine-month period ended April 30, 2015 as compared to the corresponding period of fiscal 2014. The decrease in transaction fee commissions for both the three and nine-month periods is due to similar decreases in the transaction fee revenue.

Association fee commissions decreased by $46 and $91, or 13% and 8%, respectively for the three and nine-month periods ended April 30, 2015 as compared to the corresponding periods of fiscal 2014. The decrease in association commissions was primarily due to the decrease in association fee revenue for the same periods.

Other costs of revenue consist of miscellaneous Marketplace-related expenses such as postage and credit card processing fees along with other commissions not associated with association or transaction revenue. Other costs of revenue decreased by $9 and $2 or 14% and 1%, respectively for the three and nine-month periods ended April 30, 2015 as compared to the corresponding periods of fiscal 2014.

Salaries, Wages and Employee Benefits

Salaries, wages and employee benefits include expenses for employee salaries and wages, payroll taxes, payroll related insurance, healthcare benefits, stock-based compensation, recruiting costs and other personnel related items. As discussed above in “ITEX Dollar Revenue,” certain ITEX dollar expenses are also included. Comparative results are as follows (in thousands) (unaudited):

	Three-months ended April 30,						Percent			Nine-months ended April 30,						Percent
	2015			2014			decrease			2015			2014			decrease

Salaries, wages and employee benefits	$	459		$	588			-22	%	$	1,416		$	1,736			-18	%

Salaries, wages and employee benefits as percentage of total revenue		16	%		18	%					15	%		17	%

Salaries, wages and employee benefits decreased by $129, or 22%, for the three-month period ended April 30, 2015 and decreased by $320 or 18%, for the nine-month period ended April 30, 2015 as compared to the corresponding periods of fiscal 2014. The decrease in both periods is primarily related to a reduction in headcount made at the beginning of the 2015 year.

Selling, General and Administrative Expenses

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

	Three-months ended April 30,						Percent			Nine-months ended April 30,						Percent
	2015			2014			decrease			2015			2014			decrease

Selling, general and administrative expenses	$	319		$	481			-34	%	$	1,389		$	1,495			-7	%

Selling, general and administrative expenses as percentage of total revenue		11	%		15	%					15	%		14	%

Selling, general and administrative expenses decreased by $162 and by $106, or 34% and 7%, respectively, for the three and nine-month periods ended April 30, 2015, as compared to the three and nine-month periods ended April 30, 2014.

The decrease is due primarily to a decrease in consulting and supplies offset somewhat by unfavorable foreign currency exchange rates and bad debt. Consulting fees for the three and nine-month periods ended April 30, 2015 decreased by $44 and by $95, or 98% and 86%, respectively, compared to the three and nine-months ended April 30, 2014, as we concluded certain outside consulting projects in the 2014 year. Supplies, which primarily includes costs associated with our use of ITEX dollars for business purposes, for the three and nine-month periods ended April 30, 2015 decreased by $90 and by $108, or 75% and 39%, respectively. Foreign currency expense for the nine-month period ended April 30, 2015 increased by $66, or 135%, due to the Canadian dollar declining in value against the US dollar. Bad debt expense for the nine-month period ended April 30, 2015 increased by $43, or 21%.

Depreciation and Amortization

Depreciation and amortization expenses include depreciation on our fixed assets and amortization of our intangible assets, including intangible assets obtained in business combinations. Comparative results are as follows (in thousands) (unaudited):

	Three-months ended April 30,						Percent			Nine-months ended April 30,						Percent
	2015			2014			decrease			2015			2014			decrease

Depreciation and amortization	$	23		$	24			-4	%	$	68		$	96			-29	%

Depreciation and amortization as percentage of total revenue		1	%		1	%					1	%		1	%

Depreciation and amortization decreased by $1 and $28, or 4% and 29%, respectively for the three and the nine-month periods ended April 30, 2015, as compared to the three and the nine-month periods ended April 30, 2014. There have been no material additions of property and equipment and intangible assets in 2015, which along with expiring intangible asset amortization periods has resulted in a decreased amount of depreciation and amortization.

Other income

Other income includes interest received on notes receivable and promissory notes.

Comparative results are as follows (in thousands) (unaudited):

	Three-months ended April 30,						Percent			Nine-months ended April 30,						Percent
	2015			2014			decrease			2015			2014			decrease

Other income	$	20		$	24			-17	%	$	69		$	83			-17	%

Other income, as percentage of total revenue		1	%		1	%					1	%		1	%

Interest income is derived primarily from our notes receivable for corporate office sales and general loans to brokers. From time to time, as part of our initiative to support brokers and as a way to generate return on capital; we provide loans to our brokers. Each loan is primarily secured by the broker’s ITEX office.

Income Taxes

Comparative results are as follows (in thousands) (unaudited):

	Three-Months ended April 30												Nine-months ended April 30,
	2015						2014						2015						2014
	Amount			Rate			Amount			Rate			Amount			Rate			Amount			Rate
Expected tax provison at federal statutory rate	$	112			34	%	$	80			35	%	$	246			34	%	$	256			35	%
State income taxes		(1	)		-2	%		(5	)		-2	%		(2	)		0	%		(18	)		-2	%

Provision for income taxes	$	111			32	%	$	75			33	%	$	244			34	%	$	238			33	%

We recognized a $111 and $244 provision for income taxes, in the three and nine-month periods ended April 30, 2015, respectively, as compared to the $75 and $238 provision for income taxes in the three and nine-month periods ended April 30, 2014. Provision for income taxes increased by $36 and $6, respectively for the three and nine-months ended April 30, 2015, as compared to the corresponding period of fiscal 2014. The increase in income taxes in 2015 was due to the increase of taxable income in the comparable periods.

The Federal effective tax rate related to our provision for income taxes in the three and nine-months ended April 30, 2015 is similar to that used in the same periods ended April 30, 2014. The State effective tax rate related to our provision for income taxes in the three and nine-months ended April 30, 2015 and 2014 is lower than statutory rates due to the resolution of certain state tax positions which led to a reduction in the accrued expenses on our consolidated balance sheet for uncertain tax positions related primarily to state jurisdictions.

LIQUIDITY AND CAPITAL RESOURCES

We finance ongoing operations primarily with cash provided by our operating activities. Our principal sources of liquidity are cash flows provided by operating activities, existing cash and cash equivalents, and a line of credit facility. As of April 30, 2015 and July 31, 2014, we had $1,287 and $3,673, respectively, in cash. Additionally, we have a revolving credit agreement to establish a $1,000 line of credit facility from our primary banking institution, U.S. Bank (“line of credit”). The current line of credit agreement expires in November 2015. We had no outstanding balance on our line of credit as of April 30, 2015.

The following table presents a summary of our cash flows for the nine-months ended April 30, 2015 and 2014 (in thousands) (unaudited):

	Nine-months ended April 30,
	2015			2014

Cash provided by operating activities	$	802		$	796
Cash provided by (used in) provided by investing activities		247			(138	)
Cash (used in) financing activities		(3,435	)		(743	)
Decrease in cash	$	(2,386	)	$	(85	)

We have financed our operational needs through cash flow generated from operations. We used operational cash flow for routine operating expenses, membership list purchases, loans to brokers, stock buybacks and quarterly dividend payments to common stockholders.

As part of our contemplated future expansion activities and our evaluation of strategic alternatives and opportunities, we may seek to acquire certain competitors or other business to business enterprises, or consider partnering or other collaboration agreements, or a merger or other strategic transaction. Such alliances, mergers or acquisitions or dispositions could result in potentially dilutive issuances of our equity securities, the expenditure of our cash or the incurrence of debt or contingent liabilities. We expect that our current working capital would be adequate for this purpose. However, we may seek to finance a portion of the acquisition cost subject to the consent of any secured creditors. We believe that our financial condition is stable and that our cash balances, other liquid assets, and cash flows from operating activities provide adequate resources to fund ongoing operating requirements.

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

Operating Activities

For the nine-months ended April 30, 2015, net cash provided by operating activities was $802 compared with $796 in the nine-months ended April 30, 2014 an increase of $6, or 1%.

The difference between our net income and our net cash provided by operating activities was attributable to non-cash expenses included in net income, and changes in the operating assets and liabilities, as presented below (in thousands) (unaudited):

	Nine-months ended April 30,
	2015			2014

Net income	$	481		$	494
Add: non-cash expenses		663			634
Add: changes in operating assets and liabilities		(342	)		(332	)
Net cash provided by operating activities	$	802		$	796

Non-cash expenses are primarily associated with the amortization of intangible assets, depreciation and amortization of property and equipment, bad debt expense, stock-based compensation and changes in the deferred portion of the provision (benefit) for income taxes.

Changes in operating assets and liabilities primarily reflect changes in working capital components of the balance sheet apart from cash and cash equivalents. Net cash provided by operating activities also reflects changes in some non-current components of the balance sheet, such as long-term deferred rent and non-current prepaid expenses and deposits.

As discussed earlier in the overview section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations, for each calendar year, we divide our operations into 13 four-week billing and commission cycles always ending on a Thursday, while we report our financial results as of the last day of each calendar month. The timing of billing and collection activities after the end of the billing cycle does not correspond with the end of the accounting period, therefore this timing difference results in the fluctuations of the balances of cash, accounts receivable, commissions payable and accrued commissions.

Investing Activities

Net cash provided by (used in) investing activities was primarily the result of purchases of property and equipment, collections on notes receivable and advances on loans.

For the nine-months ended April 30, 2015, net cash provided by investing activities was $247 compared with $138 used in investing activities in the nine-months ended April 30, 2014, an increase of $385, or 279%. In the nine-months ended April 30, 2015, the net cash provided by investing activities was primarily related to $280 in note receivable principal collections offset by $30 in loans made to brokers and $3 used for the payments on notes payable. In the nine-months ended April 30, 2014, the net cash used in investing activities was primarily related to $442 in loans made to brokers and $47 used for the purchase of property and equipment offset by $353 in note receivable principal collections.

Financing Activities

Our net cash used in financing activities consists of cash dividends to stockholders, discretionary repurchases of our common stock and principal payments on stockholders’ notes receivable.

For the nine-months ended April 30, 2015, net cash used in financing activities was $3,435 compared with $743 used in financing activities in the nine-months ended April 30, 2014, an increase of cash used in financing activities of $2,692, or 362%.

In the nine-months ended April 30, 2015, the net cash used in financing activities was primarily related to a $3,000 tender offer, $430 in cash dividends to our stockholders and $42 to repurchase 14 shares of our common stock through our stock repurchase program offset by $37 received in principal payments on stockholder notes receivable.

In the nine-months ended April 30, 2014, the net cash used in financing activities was $435 in cash dividends to our stockholders and $352 to repurchase 83 shares of our common stock through our stock repurchase program offset by $44 received in principal payments on stockholder notes receivable.

Commitments

There are no future minimum payments at April 30, 2015 under any non-cancelable commitments.

We also have a revolving credit agreement to establish a $1,000 line of credit facility from our primary banking institution, U.S. Bank (“line of credit”). The current line of credit agreement expires in November 2015. We had no outstanding balance on our line of credit as of April 30, 2015.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate significant estimates used in preparing our financial statements, including those related to:

revenue recognition, including allowances for uncollectible accounts;

accounting for ITEX dollar activities;

the allocation of purchase price in business combinations;

valuation of notes receivable;

accounting for goodwill and other long-lived intangible assets;

accounting for income taxes;

share-based compensation; and

litigation matters

We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates if our assumptions change or if actual circumstances differ from those in our assumptions.

For a summary of all of our significant accounting policies, including the critical accounting policies discussed above, see Note 1, Summary of Significant Accounting Policies, to our consolidated financial statements filed with our 2014 annual report on Form 10-K.

Recent Accounting Pronouncements

For a discussion of new accounting pronouncements and their impact on the Company, see Note 1 of the Notes to Consolidated Financial Statements included in this Form 10-Q.

FACTORS THAT MAY AFFECT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains statements that are forward-looking such as estimates, projections, statements relating to our business plans, objectives and expected operating results. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. All statements that express expectations and projections with respect to future matters may be affected by changes in our strategic direction, as well as developments beyond our control. We cannot assure you that our expectations will necessarily come to pass. Actual results could differ materially because of issues and uncertainties such as those listed below, in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” ITEM 2 and elsewhere in this report. These factors, among others, may adversely impact and impair our business and should be considered in evaluating our financial outlook.

Our revenue growth and success is tied to the operations of our independent Broker Network, and as a result the loss of our brokers or the financial performance of our brokers can negatively impact our business

We service our member businesses primarily through our independent licensed broker and franchise network (individually, “broker”, together, the “Broker Network”) as well as through any corporate-owned offices we may operate from time to time. Our financial success primarily depends on our brokers and the manner in which they operate and develop their offices. We depend on the ability of our brokers to enroll new members, train them in the use of the Marketplace, grow our transactional volume by facilitating business among members, manage member relationships, provide members with information about ITEX products and services, and assure the payment of our fees. Brokers are independently owned and operated and have a contractual relationship with ITEX, typically for a renewable five-year term. Our inability to renew a significant portion of these agreements on terms satisfactory to our brokers and us could have a material adverse effect on our business, financial condition and results of operations. Further, our brokers may not be successful in increasing the level of revenues generated compared to prior years, or even sustaining their own business activities, which depends on many factors, including industry trends, the strength of the local economy, the success of their marketing activities, control of expense levels, the employment and management of personnel, and being able to secure adequate financing to operate their businesses. There can be no assurance that our brokers will be successful in adding members or increasing the volume of transactions through the Marketplace, or that if they do not renew their agreements or terminate operations we will be able to attract new brokers at rates sufficient to maintain a stable or growing revenue base. If our brokers are unsuccessful in generating revenue, enrolling new members to equalize the attrition of members leaving the Marketplace, or if a significant number of brokers become financially distressed and terminate operations, our revenues could be reduced and our business operating results and financial condition may be materially adversely affected.

Future revenue growth remains uncertain and our operating results and profitability may decline

Marketplace revenue decreased 9% for the year ended July 31, 2014, compared to the previous year ended July 31, 2013 and decreased 12% for the nine-months ended April 30, 2015 compared to the same period ended April 30, 2014. Although we seek to increase revenues through organic growth and the development of new revenue streams, we cannot assure you that our revenues will increase in future quarters or future years. We may be unable to add revenue through acquisitions, either because of the absence of acquisition candidates, lack of financing, or unacceptable terms. We have approximately 30% recurring revenues. We do not have an order backlog, and approximately two-thirds of our revenues each quarter come from variable transaction fees computed as a percentage of the ITEX dollar value of the transactions occurring during that quarter. Our operating results in one or more future quarters may fall below the expectations of investors.

We cannot assure you that we can continue to be operated profitably, which depends on many factors, including the overall development and expansion of our industry, our success in expanding our member base, the control of our expense levels and the success of our business activities. We may make investments in marketing, broker and member support, technology and further development of our operating infrastructure which entail long-term commitments. Our industry as a whole may be adversely affected by industry trends and economic factors. Despite our efforts to expand our revenues, we may not be successful. We experience a certain amount of attrition from members leaving the Marketplace. If new member enrollments do not continue or are insufficient to offset attrition, we will increasingly need to focus on keeping existing members active and increasing their activity level in order to maintain or grow our business. We cannot assure you that this strategy would be successful to offset declining revenues or profits.

Our ability to pay dividends on our common stock is subject to the discretion of our Board of Directors and may be limited by our lack of liquidity or access to capital.

Our dividend policy is subject to the discretion of our Board of Directors and depends upon a number of factors, including our earnings, financial condition, cash and capital needs and general economic or business conditions. Although we are currently declaring cash dividends on our common stock as a way to return value to our stockholders, we are not required to do so and we cannot assure you that we will continue to pay dividends in the future. We have sought to maintain a liquidity cushion sufficient to fund our business activities and handle contingencies, while preserving the ability to return cash to our stockholders through dividends and share buybacks. However, our Board of Directors may decide to use capital for acquisitions, revenue generating opportunities or other corporate purposes. If liquidity from our cash flow is inadequate or unavailable, we may be required to scale back or eliminate the dividends we pay to our stockholders. Any reduction of, or the elimination of, our common stock dividend in the future could adversely affect the market price of our common stock.

Our ability to use our net operating loss carryforwards to offset future taxable income would be limited if we do not generate sufficient taxable income or if an ownership change occurs, which would negatively impact our results of operations and stockholders’ equity

As of April 30, 2015, we reported a consolidated federal net operating loss (“NOL”) carryforward deferred tax asset of approximately $3,788, which represents approximately 35% of our total assets. The use of our NOL carryforwards is subject to uncertainty because, in addition to the factors discussed below, it is dependent upon the amount of taxable income we generate. There can be no assurance that we will have sufficient taxable income, if any, in future years to use the net operating loss carryforwards before they expire. If we have uncertainties surrounding our ability to continue to generate future taxable income to realize these tax assets, a valuation allowance will be established to offset our deferred tax assets. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not (greater than 50%) that a tax benefit will not be realized.

Additionally, the future utilization of our NOL carryforwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that could occur in the future. Federal and state tax laws impose restrictions on the utilization of NOL and tax credit carryforwards in the event of an “ownership change” as defined by Section 382 of the Internal Revenue Code of 1986, as amended. Generally, an ownership change occurs if the percentage of the value of the stock that is owned in the aggregate by our direct or indirect “five percent shareholders” increases by more than 50% over their lowest ownership percentage at any time during any three-year testing period. Future changes in our stock ownership, which may be outside of our control, may trigger an “ownership change.” In addition, future equity offerings or acquisitions that have equity as a component of the purchase price could result in an “ownership change.” If an “ownership change” has occurred or does occur in the future, utilization of the NOL carryforwards or other tax attributes may be limited, which could potentially result in increased future tax liability to us and cause us to pay U.S. federal income taxes earlier than we otherwise would, adversely affecting our future cash flow. The write off of NOL carryforward tax benefits would also negatively affect our net earnings and reduce stockholders’ equity.

If our goodwill or intangible assets become impaired we may be required to record a charge to earnings, and there could be a negative impact on stockholders’ equity

We have goodwill of $3,191 and net other intangible assets of $116 as of April 30, 2015, which represents approximately 31% of our total assets. Goodwill represents the excess of cost over the fair value of identified net assets acquired. Goodwill acquired in a purchase business combination is determined to have an indefinite useful life and is not amortized, but instead tested for impairment at least annually. We review our amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Factors that may be a change in circumstances, indicating that the carrying value of our goodwill or amortizable intangible assets may not be recoverable, include a decline in our stock price and market capitalization, reduced future cash flow estimates, adverse changes in legal factors or the business climate, and lowered expectations of future financial results. We may be required to record a significant charge in our consolidated financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined, which would reduce earnings in such period, and reduce stockholders’ equity. We cannot accurately predict the amount, if any, or the timing of any impairment of assets. Should the value of goodwill or other intangible assets become impaired, there could be an adverse effect on our financial condition and consolidated results of operations.

Our brokers could take actions that could harm our business, our reputation and adversely affect the ITEX Marketplace

Our agreements with our brokers require that they understand and comply with all laws and regulations applicable to their businesses, and operate in compliance with our Marketplace Rules. Brokers are independently owned and operated and are not our employees, partners, or affiliates. We set forth operational standards and guidelines; however, we have limited control over how our broker businesses are run. Our brokers have individual business strategies and objectives, and may not operate their offices in a manner consistent with our philosophy and standards. We cannot assure that our brokers will avoid actions that adversely affect the reputation of ITEX or the Marketplace. Improper activity stemming from one broker can generate negative publicity which could adversely affect our entire Broker Network and the Marketplace. Our image and reputation and the image and reputation of other brokers may suffer materially, and system-wide sales could significantly decline if our brokers do not operate their businesses according to our standards. While we ultimately can take action to terminate brokers that do not comply with the standards contained in our agreements, and even though we may implement compliance and monitoring functions, we may not be able to identify problems and take action quickly enough and, as a result, our image and reputation may suffer, causing our revenues or profitability to decline. Further, the success and growth of our Broker Network depends on our maintaining a satisfactory working relationship with our existing brokers and attracting new brokers to our network. Lawsuits and other disputes with our brokers could discourage our brokers from expanding their business or lead to negative publicity, which could discourage new brokers from entering our network or existing brokers from renewing their agreements, and could have a material adverse effect on our business, financial condition and results of operations.

Stockholders or investors may attempt to effect changes or acquire control over our business, which could adversely affect our results of operations and financial condition.

Recent developments in corporate governance indicate there is lack of agreement between boards of directors and stockholders as to the relative balance of authority in the corporate decision-making process, and shareholders are challenging the longstanding legal principle that directors, rather than the stockholders, manage the business and affairs of the corporation. During the past several years, U.S. companies have seen a high and increasing level of insurgent campaigns, proxy solicitations, and shareholder derivative actions or other attempts to acquire control of companies or effect operational changes. In recent years, we have been the subject of two proxy contests seeking control of our board of directors, as well as a related lawsuit. We cannot assure you that we will not be subject to further proxy contests, litigation or other activity or demands in the future. If we are, such activity or demands could harm the Company because:

Responding to proxy contests, litigation and other actions by dissident shareholders can interfere with our ability to execute our strategic plan, disrupt our operations, be costly and time-consuming, and divert the attention of our management and employees from the pursuit of business strategies;

Perceived uncertainties as to our future direction diverts the attention of, damages morale and creates instability among members of our Broker Network, and adversely impact our existing and potential strategic and operational relationships and opportunities;

We may experience difficulties in hiring, retaining and motivating personnel during the resulting uncertain and turbulent times;

If individuals are elected or appointed to our Board of Directors with a specific agenda, it may adversely affect our ability to effectively implement our business strategy and create additional value for our stockholders;

We would experience substantial increases in legal fees, insurance, administrative and associated costs incurred in connection with responding to proxy contests and related litigation;

A successful change in control of the Company could result in substantial compensation charges and other expenses, and potentially allow an insurgent shareholder to reimburse his proxy or takeover expenses, resulting in substantial charges.

We may be held responsible by members, third parties, regulators or courts for the actions of, or failures to act by, our brokers or their employees, which exposes us to possible adverse judgments, other liabilities and negative publicity

From time to time we are subject to claims for the conduct of our brokers in situations where a broker is alleged to have caused injury to a member as a result of a transaction in the Marketplace. Third parties, regulators or courts may seek to hold us responsible for the actions or failures to act by our brokers or their employees. The failure to comply with laws and regulations by our brokers, or litigation involving potential liability for broker activities could be costly and time consuming for us, divert management attention, result in increased costs of doing business, lead to adverse judgments, expose us to possible fines and negative publicity, or otherwise harm our business.

Failure to deal effectively with member disputes could result in costly litigation, damage our reputation and harm our business

ITEX faces risks with respect to transactional disputes between members of the Marketplace. From time to time we receive complaints from members who may not have received the products or services that they had purchased, concerning the quality of the products or services, or who believe they have been defrauded by other members. We also receive complaints from sellers because a buyer has changed his or her mind and decided not to honor the contract to purchase the item. While ITEX does, in some cases, as part of its transaction dispute resolution process, reverse transactions, reduce or eliminate credit lines, suspend accounts, or take other measures with members who fail to fulfill their payment or delivery obligations to other members, the determination as to whether a transaction is reversed or how to resolve a specific dispute is made by ITEX in its sole discretion. Measures we may take to resolve transactional disputes or combat risks of fraud have the potential to damage relations with our members or brokers or decrease transactional activity in the Marketplace by restricting the activities of certain members. Furthermore, negative publicity and member sentiment generated as a result of member complaints or fraudulent or deceptive conduct by members of our Marketplace could damage our reputation, or reduce our ability to attract new members or retain our current members.

We occasionally receive communications from members requesting reimbursement or threatening or commencing legal action against us if no reimbursement is made. In addition, because we service our member businesses through our Broker Network, we are subject to claims and could potentially be found liable for the conduct of our brokers in a situation where that broker has caused injury to a member. Litigation involving disputes between members and liability for broker actions could be costly and time consuming for us, divert management attention, result in increased costs of doing business, lead to adverse judgments, or otherwise harm our business. In addition, affected members may complain to regulatory agencies that could take action against us, including imposing fines or seeking injunctions.

Use of our services for illegal purposes could damage our reputation and harm our business

Our members, typically small businesses, actively market products and services through the Marketplace and our website. We may be unable to prevent our members from selling unlawful or stolen goods or unlawful services, or selling goods or services in an unlawful manner, and we could be subject to allegations of civil or criminal liability for unlawful activities carried out by members through our services. It is possible that third parties, including government regulators and law enforcement officials, could allege that our services aid and abet certain violations of certain laws, for example, laws regarding the sale of counterfeit items, the fencing of stolen goods, selective distribution channel laws, and the sale of items outside of the U.S. that are regulated by U.S. export controls.

Although we have prohibited the listing of illegal goods and services and implemented other protective measures, we may be required to spend substantial resources to take additional protective measures or discontinue certain service offerings, any of which could harm our business. Any costs incurred as a result of potential liability relating to the alleged or actual sale of unlawful goods or services could harm our business. In addition, negative media publicity relating to the listing or sale of unlawful goods and stolen goods using our services could damage our reputation, diminish the value of our brand, and make members reluctant to use our services.

ITEX’s virtual currency, ITEX dollars, is also susceptible to potentially illegal or improper uses. Recent changes in law have increased the penalties for intermediaries providing payment services for certain illegal activities. Despite measures taken by ITEX as administrator and as transaction processor and record-keeper to detect and lessen the risk of this kind of conduct, illegal activities could still be funded using ITEX dollars. Any resulting claims or liabilities could harm our business.

Our business is subject to online security risks, including security breaches and identity theft

We host confidential information as part of our client relationship management and transactional processing platform. Our security measures may not detect or prevent security breaches that could harm our business. Currently, a significant number of our members authorize us to bill their credit card or bank accounts directly for fees charged by us. We take a number of measures to ensure the security of our hardware and software systems and member and client information. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may result in the technology used by us to protect transaction data being breached or compromised. Many companies have been the subject of sophisticated and highly targeted attacks on portions of their websites. In addition, any party who is able to illicitly obtain a members’ password could access the members’ transaction data. An increasing number of websites have reported breaches of their security. Any compromise of our security could harm our reputation and, therefore, our business, and could result in a violation of applicable privacy and other laws. In addition, a party that is able to circumvent our security measures could misappropriate proprietary information, cause interruption in our operations, damage our computers or those of our users, or otherwise damage our reputation and business. Under credit card rules and our contracts with our card processors, if there is a breach of credit card information that we store, we could be liable to the credit card issuing banks for their cost of issuing new cards and related expenses. In addition, if we fail to follow credit card industry security standards, even if there is no compromise of customer information, we could incur significant fines or lose our ability to give customers the option of using credit cards to pay their fees. If we were unable to accept credit cards, our business would be seriously damaged.

We continue to enhance our systems for data management and protection, and intrusion detection and prevention. In the third quarter of 2014, we upgraded our software platform with .NET technology. However, our servers may be vulnerable to computer viruses, physical or electronic break-ins, and similar disruptions. We may need to expend significant resources to protect against security breaches or to address problems caused by breaches. Security breaches, including any breach by us or by parties with which we have commercial relationships that result in the unauthorized release of our members’ personal information, could damage our reputation and expose us to a risk of loss or litigation and possible liability. Our insurance policies carry coverage limits which may not be adequate to reimburse us for losses caused by security breaches.

Unplanned system interruptions or system failures could harm our business and reputation

Any interruption in the availability of our transactional processing services due to hardware and operating system failures will reduce our revenues and profits. Our revenue depends on members using our processing services. Any unscheduled interruption in our services results in an immediate, and possibly substantial, loss of revenues. Frequent or persistent interruptions in our services could cause current or potential members to believe that our systems are unreliable, leading them to switch to our competitors or to avoid our website or services, and could permanently harm our reputation. Furthermore, any system failures could result in damage to our members’ and brokers’ businesses. These persons could seek compensation from us for their losses. Even if unsuccessful, this type of claim likely would be time-consuming and costly for us to address.

Although our systems have been designed around industry-standard architectures to reduce downtime in the event of outages or catastrophic occurrences, they remain vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunication failures, terrorist attacks, computer viruses, computer denial-of-service attacks, and similar events or disruptions. Some of our systems are not fully redundant, and our disaster recovery planning may not be sufficient for all eventualities. Our systems are also subject to break-ins, sabotage, and intentional acts of vandalism. Despite any precautions we may take, the occurrence of a natural disaster, a decision by any of our third-party hosting providers to close a facility we use without adequate notice for financial or other reasons, or other unanticipated problems at our hosting facilities could cause system interruptions, delays, and loss of critical data, and result in lengthy interruptions in our services. Our business interruption insurance may not be sufficient to compensate us for losses that may result from interruptions in our service as a result of system failures.

Failure to comply with laws and regulations that protect our members’ and brokers’ personal and financial information could result in liability and harm our reputation

We store personal and financial information for members of the Marketplace and our brokers. Privacy concerns relating to the disclosure and safeguarding of personal and financial information have drawn increased attention from federal and state governments. Federal and state law requires us to safeguard our members’ and brokers’ financial information, including credit card information. Although we have established security procedures to protect against identity theft and the theft of this personal and financial information, breaches of our privacy may occur. To the extent the measures we have implemented are breached or if there is an inappropriate disclosure of confidential or personal information or data, we may become subject to litigation or administrative sanctions, which could result in significant fines, penalties or damages and harm to our brand and reputation. Even if we were not held liable, a security breach or inappropriate disclosure of confidential or personal information or data could harm our reputation. In addition, we may be required to invest additional resources to protect us against damages caused by these actual or perceived disruptions or security breaches in the future. Changes in these federal and state regulatory requirements could result in more stringent requirements and could result in a need to change our business practices. Establishing systems and processes to achieve compliance with these new requirements may increase our costs and could have a material adverse effect on our business, financial condition and results of operations.

We may have claims and lawsuits against us that may result in adverse outcomes

From time to time we are subject to a variety of claims and lawsuits. See Note 3 ― “Legal Proceedings and Litigation Contingencies” included in the “Notes to Consolidated Financial Statements”. Adverse outcomes in one or more claims could occur which may result in significant monetary damages that could adversely affect our ability to conduct our business. Although management does not believe resolving any pending matter, individually or in the aggregate, would have a material adverse impact on our financial statements, litigation and other claims are subject to inherent uncertainties and management’s view of these matters may change in the future. A material adverse impact on our financial statements could occur for the period in which the effect of an unfavorable final outcome becomes probable and reasonably estimable.

If we lose the services of our Chief Executive Officer, our business could suffer

Our Board places heavy reliance on the continued services of our Chief Executive Officer, Steven White, and his industry experience and relationships, management and operational skills. We have not entered into an employment agreement with Mr. White. If we were to lose the services of Mr. White, we could face substantial difficulty in hiring a qualified successor or successors, and could experience a loss in performance while any successor obtains the necessary training and experience. Corporate staff and our brokers could lose confidence in the direction and stability of the Company and choose to pursue other opportunities. In addition, in connection with a management transition we may need to attract, train, retain and motivate additional financial, technical, managerial, marketing or support personnel. We face the risk that if we are unable to attract and integrate new personnel, or retain and motivate existing personnel, our business, financial condition and results of operations will be adversely affected.

Alliances, mergers and acquisitions could result in operating difficulties, dilution and other harmful consequences

We expect to evaluate and consider potential strategic transactions, including business combinations, acquisitions and dispositions of businesses, technologies, services, products and other assets and strategic investments. At any given time we may be engaged in discussions or negotiations with respect to one or more of these types of transactions. Any of these transactions could be material to our financial condition and results of operations. The process of integrating an acquired company, business or technology may create unforeseen operating difficulties and expenditures and is risky. The areas where we may face difficulties include:

•

Diversion of management time, as well as a shift of focus from operating the businesses to challenges related to integration and administration;

•

Challenges associated with integrating employees from the acquired company into the acquiring organization. These may include declining employee morale and retention issues resulting from changes in, or acceleration of, compensation, or changes in management, reporting relationships, future prospects, or the direction of the business;

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The need to integrate each company’s accounting, management, information, human resource and other administrative systems to permit effective management, and the lack of control if such integration is delayed or not implemented;

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The need to implement controls, procedures and policies appropriate for a public company at companies that prior to acquisition had lacked such controls, procedures and policies;

•

The need to transition operations, members, and customers onto our existing platforms; and

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Liability for activities of the acquired company before the acquisition, including violations of laws, rules and regulations, commercial disputes, tax liabilities and other known and unknown liabilities.

The expected benefit of any of these strategic relationships may not materialize and the cost of these efforts may negatively impact our financial results. Future alliances, mergers or acquisitions or dispositions could result in potentially dilutive issuances of our equity securities, the expenditure of our cash or the incurrence of debt, contingent liabilities or amortization expenses of which could adversely affect our results of operations and dilute the economic and voting rights of our stockholders. Future acquisitions may require us to obtain additional equity or debt financing, which may not be available on favorable terms or at all.

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

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

We are dependent on the value of foreign currency.

We transact business in Canadian dollars as well as USD. Revenues denominated in Canadian dollars comprised 6.7% and 7.6% in the years ended July 31, 2014 and 2013, respectively. Part of our cash reserves are held in Canadian banks and subject to currency exchange rate fluctuations. Foreign currency expense for the nine-months ended April 30, 2015 increased by $66 compared to the nine-months ended April 30, 2014. Foreign currency exchange fluctuations may or may not materially adversely affect our operations. Changes in the relation of the Canadian dollar to the USD could affect our revenues, cost of sales, operating margins or value of bank holdings which could result in exchange losses.

Our Brokers may default on their loans

From time to time we finance the operational and expansion activities of our brokers. We loan brokers funds for general operational purposes, to acquire the management rights to select member accounts, and for other reasons. These loans are repaid from regular deductions from broker commissions. We had outstanding loans to brokers of $1,174 at April 30, 2015 and $1,424 at July 31, 2014. In the event one or more brokers default on their loans, it may adversely affect our financial condition.

The emergence of “virtual currencies” could result in competitive trading platforms which may reduce transaction volume and revenues

Virtual currencies are receiving increasing interest from investors, businesses and governments. Examples include private virtual currency or payment systems such as Bitcoin, Ripple, and Litecoin. As peer-to-peer currencies, they rely on a system of mutual trust and do not rely on a central bank, a third party or other intermediary to effect transactions or act as guarantor in the event the currency collapses. They do not have the status of legal tender. However, increased popularity or government acceptance of virtual currencies could encourage competitors to utilize virtual or community currencies or the exchange of online credits for goods and services. Our potential competitors could enjoy advantages, including greater financial resources and access to capital, a wider geographic presence, more accessible branch office locations, more aggressive marketing campaigns, better brand recognition, the ability to offer a wider array of services or more favorable pricing alternatives. If other virtual or community currencies gain widespread merchant acceptance, to the extent that we cannot compete effectively, it may adversely affect our business operations and financial performance.

The emergence of increased regulation related to virtual currencies could increase our costs by requiring us to update our products and services; or subject us to operational requirements that result in substantial compliance costs which would adversely affect our business

Innovation in the payments industry has led to a variety of virtual currencies, community currencies and reward points, and federal and state regulatory regimes are seeking to revise antiquated currency provisions. The increased attention to virtual currencies could result in changes in federal or state regulations or the adoption of new regulations that could affect us as well as many companies transacting in credits that might be called “virtual currency.” For example, the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the U.S. Treasury, as the delegated administrator of the Bank Secrecy Act (“BSA”) issued interpretive guidance in March 2013 to clarify the applicability of regulations to persons creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies. Although we do not believe we as a payment processor are currently subject to the BSA requirements that could potentially change with new regulation. Registering with FinCEN and complying with FinCEN’s regulations would be burdensome, as would getting licensed as a money transmitter and complying with the money transmission regulatory regimes in each state. Changes to existing laws or regulations or adoption of new laws or regulations relating to the use of virtual currencies could require us to incur significant costs to update our products and services, significantly increase our compliance costs or may impose conditions that we are unable to meet. This could make our business cost-prohibitive in the affected state or states and could materially adversely affect our business.

The market for our securities has limited liquidity and may become less liquid

Our common stock currently trades on the OTC Pink tier of the over-the-counter market known as the OTC Marketplace. The OTC Marketplace has three tiers, consisting of OTCQX, OTCQB and OTC Pink marketplaces. Many of the securities quoted in the OTC Marketplace do not have a liquid market. They are infrequently traded and can move up or down in price substantially from one trade to the next. As a result, an investment in our shares may be illiquid even if there is a market. Moreover, our securities are not listed on a national securities exchange. Under current regulations national securities exchanges have the ability to offer certain advantages to listed companies. For example, securities listed on a national securities exchange are exempt from state Blue Sky laws covering the offer or sale of securities within the state. We avail ourselves of applicable Blue Sky exemptions, however there are certain states in which we have not qualified for an exemption and our shares may not be traded. National securities exchanges also offer the ability to margin certain listed securities and the potential inclusion of listed securities in certain exchange-traded funds and indices. These differences between our marketplace and the national securities exchanges may make certain investors choose to not invest in our stock.

ITEM 4. CONTROLS AND PROCEDURES

(a) Disclosure controls and procedures.

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report.

(b) Changes in internal control over financial reporting.

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

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 3 ― “Legal Proceedings and Litigation Contingencies” included in the Notes to Consolidated Financial Statements for information regarding legal proceedings.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table provides information about our purchases or any affiliated purchaser during the three-months ended April 30, 2015 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act.

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (1)
02/01/15 - 02/28/15	-		-		-		-
03/01/15 – 03/31/15	-		-		-		-
04/01/15 - 04/30/15		-		-		-	$	1,054,605

⁽¹⁾

Amounts shown in this column reflect amounts remaining under the $2.0 million stock repurchase program, authorized by the Board of Directors and announced on March 9, 2010. The program authorizes the repurchase of shares in open market purchases or privately negotiated transactions, has no expiration date and may be modified or discontinued by the Board of Directors at any time.

Item 6. Exhibits

Exhibit Number		Description

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**		Certification by Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**		Certification by Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

**		Furnished, not filed

SIGNATURES

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

	ITEX CORPORATION
	(Registrant)

Date: June 11, 2015	By:	/s/ Steven White
		Steven White
		Chief Executive Officer
		(Duly Authorized Officer)

Date: June 11, 2015	By:	/s/ John Wade
		John Wade
		Chief Financial Officer

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