UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE Securities Exchange Act of 1934
For The Quarterly Period Ended
October 31, 2000
Commission File Number 0-18275
ITEX CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
Nevada 93-0922994
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State (or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3400 Cottage Way, Sacramento, California 95825
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(Address of principal executive offices including zip code)
916-679-1111
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(Issuer's telephone number including area code)
Indicate by check whether the Registrant: (1) 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
Number of Shares of Common Stock, $0.01 Par Value Outstanding at
December 12, 2000:
16,170,065
(This Form 10-QSB includes 13 pages)
<PAGE>2
ITEX CORPORATION
FORM 10-QSB
For The Quarterly Period Ended October 31, 2000
INDEX
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Page
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Part I. Financial Information
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET AT OCTOBER 31, 2000 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTH
PERIODS ENDED OCTOBER 31, 2000 AND 1999 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTH
PERIODS ENDED OCTOBER 31, 2000 AND 1999 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
See Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Part II. Other Information
Item 1. LEGAL PROCEEDINGS 10
Item 2. CHANGES IN SECURITIES 13
Item 3. DEFAULT UPON SENIOR SECURITIES 13
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
Item 5. OTHER INFORMATION 13
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 13
</TABLE>
<PAGE>3
ITEX CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands, except per share amounts)
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October 31, 2000
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Assets
Current assets:
Cash and equivalents $ 28
Restricted cash 556
Accounts receivable 689
Note receivable 300
Income tax refund and related interest receivable 2,254
Prepaids and other current assets 108
----------------
Total current assets 3,935
Property and equipment, net of accumulated depreciation of
$844 2,628
Goodwill and purchased member lists, net 733
Note receivable from sale of Investment in Samana Resort 350
Available for sale securities 88
Other assets 72
----------------
Total assets $ 7,806
================
Liabilities and stockholders' equity
Current liabilities:
Long-term debt and capital lease obligations, current portion $ 63
Accounts payable 823
Accounts payable to brokers 784
Accrued incentive compensation 339
Other current liabilities 724
----------------
Total current liabilities 2,733
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Long-term debt and capital lease obligations 490
----------------
Common stock subject to a put (333 shares outstanding) 1,500
----------------
Commitments and contingencies --
Stockholders' equity:
Common stock, $.01 par value; 50,000 shares authorized;
15,838 shares issued and outstanding 159
Additional paid-in capital 28,977
Unrealized gain on marketable securities 88
Treasury stock, at cost (2 shares in 2001 and 2000) (10)
Accumulated deficit (26,131)
----------------
Total stockholders' equity 3,083
----------------
Total liabilities and stockholders' equity $ 7,806
================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>4
ITEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
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Three Months Ended October 31,
------------------------------------------------
2000 1999
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(Recast from the 16-week
period used in the
previously filed
fiscal 2000 Form 10-Q)
Revenue:
Trade exchange revenue $ 2,282 $ 4,220
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2,282 4,220
------------------- ------------------------
Costs and expenses:
Costs of trade exchange revenue 1,131 2,189
Selling, general and administrative 1,514 1,429
Costs and expenses of discontinued operations -- 49
Costs of regulatory and litigation matters 99 76
Depreciation and amortization 130 147
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2,874 3,890
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(Loss) Income from operations (592) 330
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Other income (expense):
Interest income (expense), net 21 (92)
Miscellaneous, net 49 100
------------------- ------------------------
70 8
------------------- ------------------------
(Loss) income before income taxes (522) 338
Provision for income taxes -- --
------------------- ------------------------
Net (loss) income $ (522) $ 338
=================== ========================
Other comprehensive income - holding (loss) gain
on marketable securities (25) 350
------------------- ------------------------
Comprehensive (loss) income $ (547) $ 688
=================== ========================
Average common and equivalent shares 15,838 12,324
=================== ========================
Net (loss) income per common share (basic and diluted) $ (0.03) $ 0.03
=================== ========================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>5
ITEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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Three Months Ended October 31,
---------------------------------------
2000 1999
-------------- -----------------------
(Recast from the
16-week period used in
the previously filed
fiscal 2000 Form 10-Q)
Cash flows from operating activities:
Net (loss) income $ (522) $ 338
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization 130 472
Gain on sale of magazine rights -- (100)
Charge to reserve for BXI sale -- (382)
Stock and options issued for goods and services -- --
Changes in operating assets and liabilities:
Accounts and notes receivable (30) 422
Income tax refund and related interest receivable (38)
Prepaids and other current assets 8 70
Accounts payable and other current liabilities (133) (640)
Accounts payable to brokers (29) (94)
Deferred revenue -- (120)
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Net cash provided by (used in) operating activities (614) (34)
-------------- -----------------------
Cash flows from investing activities:
Proceeds from initial payment on sale of Samana -- 118
Proceeds from sale of magazine rights -- 100
Increase in note receivable (300) --
Equipment, information systems and other -- (3)
-------------- -----------------------
Net cash provided by (utilized in) investing activities (300) 215
-------------- -----------------------
Cash flows from financing activities:
Repayments of bank line of credit -- (150)
Borrowings (repayments) on third party indebtedness (18) 30
-------------- -----------------------
Net cash provided by (used in) financing activities (18) (120)
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Net increase (decrease) in cash and cash equivalents (932) 61
Cash and cash equivalents at beginning of period 1,516 203
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Cash and cash equivalents at end of period $ 584 $ 264
============== =======================
Supplemental cash flow information:
Cash paid for interest $ 17 $ 21
Cash paid for income taxes -- --
Supplemental noncash investing and financing activities:
The Company issued common stock in exchange for the stock
of the corporation that had previously operated the independent
ITEX brokerage office in Sacramento, California -- 669
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>6
ITEX CORPORATION
nOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
NOTE 1 - UNAUDITED INTERIM INFORMATION
ITEX Corporation (the "Company" or "ITEX") and its wholly-owned subsidiaries
prepare and report financial results using a fiscal year ending July 31.
Commencing with the first quarter of the fiscal year ending July 31, 2001, the
Company reports its interim results based on calendar quarters ending October
31, January 31, and April 30.
Previously, the Company reported interim results using 13 four-week "accounting
cycles", with the first quarter containing four four-week accounting cycles and
the second, third and fourth quarters each containing three accounting cycles of
four weeks each. The dates for reporting interim results were as follows:
November 20, February 12 and May 7. BXI Corporation's practice was to close its
books based on calendar quarters and for consolidated reporting, the ITEX data
for the 16-week period ended November 20, 1999 was combined with those of BXI
for the three months ended October 31, 1999. The comparative interim financial
statements contained in this Form 10-QSB for the first quarter of fiscal 2000
have been recast to effect cutoff of the first interim period as of October 31,
1999 for the results of ITEX instead of November 20, 1999, as previously
reported in Form 10-Q for the interim period ended November 20, 1999.
Following is summarized financial data for the first quarter of fiscal 2000
originally reported in the Form 10-Q dated November 20, 1999, using the 16-week
reporting period:
Sixteen Week Period Ended
November 20, 1999
--------------------------
Total assets $ 6,520
Stockholders' equity 777
Total revenue 4,679
Income from operations 325
Net income 333
Net income per share 0.03
This Form 10-QSB includes the consolidated financial statements of the Company
and its wholly-owned subsidiaries. The consolidated balance sheet as of July 31,
2000 is excerpted from the Company's audited financial statements for the fiscal
year then ended. The Company's consolidated financial statements included in
this Form 10-QSB for the interim periods ended October 31, 2000 and 1999 include
all normal recurring adjustments which, in the opinion of the Company, are
necessary for a fair statement of the results of operations, financial position,
and cash flows as of the dates and for the periods presented. The Company's
operating results for the three months ended October 31, 2000 are not
necessarily indicative of the results that may be expected for the fiscal year
ending July 31, 2001.
The Notes to Consolidated Financial Statements included in the Company's July
31, 2000 Annual Report on Form 10-K should be read in conjunction with these
consolidated financial statements.
<PAGE>7
NOTE 2 - NOTE RECEIVABLE
On September 6, 2000, the Company invested $300 in a note receivable by the
advance of cash to MAXX International, Inc. ("MAXX"), a publicly-traded company.
The loan was made expressly for enabling payment of past due amounts owed by
MAXX for exclusive credit card licensing rights held by MAXX pursuant to
licensing arrangements between MAXX and Treasures of the Vatican. The promissory
note bears interest of 18% per annum, with principle and interest due on or
before October 2, 2000 or, in the event of MAXX making certain specified
payments to the licensor, the due date would be extended to November 3, 2000.
The credit card licensing rights were pledged by MAXX to the Company as
collateral.
On November 30, 2000, the Company informed MAXX in writing that the note
receivable was in default and that the Company intends to foreclose on the
collateral and to also hold MAXX responsible for any deficiency that might occur
in recovery of principle, interest, and costs. The Company believes that in the
event that it cannot collect the full amount owed to it by MAXX, the value that
will be recovered from the collateral is significantly greater than the amount
of the promissory note, accrued interest, and costs. However, the Company has
not included interest income of $5 earned on the note receivable in the results
of operations for the three months ended October 31, 2000. The Company has
continued to classify the note receivable as a current asset because the Company
believes that in less than 12 months from October 31, 2000, it will either
collect the balance owed or realize at least the amount owed from the
collateral.
In August 2000 the Company had announced the signing of a letter of intent for a
merger of the Company and MAXX to be effected by an exchange of common shares of
the two companies. On December 6, 2000, the Company announced that it had
terminated discussions with MAXX with respect to a possible merger of the
Company and MAXX.
NOTE 3 - STOCK OPTIONS
On September 6, 2000, the Company granted options to purchase 100,000 shares of
common stock to a consultant, with an exercise price of $1.00 per share and a
term of five years.
On October 23, 2000, the Company granted options to purchase 50,000 shares of
common stock to an officer, with an exercise price of $0.75 per share and a term
of five years.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (in thousands, except per share amounts) Overview
ITEX Corporation and subsidiaries ("ITEX" or the "Company") operates the ITEX
Retail Trade Exchange and acts as third-party recordkeeper for transactions
between members of the exchange. The Company charges association fees for each
of 13 four-week accounting cycles each year, as well as commissions on
transactions. ITEX also receives fees paid in ITEX trade dollars, which the
Company uses to pay a portion of its own operating expenses and to provide
merchandise for sale for trade dollars to trade exchange members.
The BXI trade exchange was acquired by the Company on June 25, 1998. The BXI
trade exchange operations are included in the financial statements for the
three-month period ended October 31, 1999. On January 18, 2000 the net assets
and business of BXI Corporation were sold to TAHO Enterprises, Inc., a
Massachusetts corporation, for $4,000 cash.
Additionally, for several years prior to and including the fiscal year ended
July 31, 1999, the Company engaged in the operation of several new businesses
<PAGE>8
outside its core business of operating trade exchanges. These new businesses
were not profitable and commencing in March 1999 the Company began the process
of discontinuing these businesses and, where possible, liquidating them. It is
the intent of the Company not to engage in business activities or ventures that
are not related to the Company's core business of operating the ITEX Retail
Trade Exchange. In recent years, the Company has generally incurred quarterly
and fiscal year operating losses from its trade exchange operations. Such losses
were increased by costs associated with the discontinued operations discussed
above and costs and expenses of regulatory and litigation matters connected with
disputes about the acquisition of the BXI trade exchange, an SEC investigation,
and other legal and regulatory matters.
Results of Operations
The following table sets forth, for the periods indicated, selected consolidated
financial information of the Company, with amounts also expressed as a
percentage of net revenues:
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Three Months Ended October 31,
-------------------------------------------------------------------
2000 1999
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(Recast from the 16-week
period used in the previously
filed fiscal 2000 Form 10-Q)
Amount Pct * Amount Pct *
-------- -------- ------------- -------
Revenue:
Trade exchange:
Association fees $ 946 41% $ 1,066 25%
Transaction fees 1,336 59% 3,154 75%
-------- -------- ------------- -------
2,282 100% 4,220 100%
-------- -------- ------------- -------
Costs and expenses:
Trade exchange 1,131 50% 2,189 52%
Selling, general, administrative 1,514 66% 1,429 34%
Discontinued operations -- -- 49 1%
Regulatory and litigation 99 4% 76 1%
Depreciation and amortization 130 6% 147 4%
-------- -------- ------------- -------
2,874 126% 3,890 92%
-------- -------- ------------- -------
income (Loss) from operations (592) (26%) 330 8%
Other income (expense) 70 3% 8 --
-------- -------- ------------- -------
income (Loss) before taxes (522) (23%) 338 8%
Tax provision -- -- -- --
-------- -------- ------------- -------
Net income (Loss) $ (522) (23%) $ 338 8%
======== ======== ============= =======
</TABLE>
* Percent of Total Revenue
Trade exchange revenue and costs
Total trade exchange revenue decreased to $2,282 in the first quarter of fiscal
2001 ("fiscal 2001") as compared to $4,220 in the first quarter of fiscal 2000
("fiscal 2000"). This was primarily attributable to there being no revenue from
the BXI trade exchange in fiscal 2001, as compared to revenue of $1,847 from the
BXI trade exchange in fiscal 2000. The net assets and business of BXI
Corporation were sold by the Company on January 18, 2000.
Revenue of the ITEX Retail Trade Exchange (the "ITEX Exchange") decreased
slightly to $2,282 in fiscal 2001 from $2,373 in fiscal 2000. Association fee
revenue for the ITEX Exchange increased to $946 in fiscal 2001 from $652 in
fiscal 2000. This resulted primarily from an increase in the monthly cash
association fee from $15 per cycle to $20 per four-week cycle, which took effect
in November 1999. Future revenue from association fees is expected to continue
<PAGE>9
at higher levels as a result of this higher cash fee structure. Transaction fees
for the ITEX Exchange decreased to $1,336 in fiscal 2001 from $1,721 in fiscal
2000 due to a decreased average volume of trading per member. Total quarterly
average revenue per member decreased in fiscal 2001 to $158 (not in thousands)
from $178 (not in thousands) in fiscal 2000.
Costs of trade exchange revenue decreased to $1,131 in the first quarter of
fiscal 2001 from $2,189 in the first quarter of fiscal 2000. The fiscal 2000
amount included $1,360 attributable to the BXI trade exchange.
Selling, general and administrative expenses
Selling, general and administrative expenses increased to $1,514 in fiscal 2001
from $1,429 in fiscal 2000. This was attributable to the effects of increased
facilities, personnel, and other costs of the Sacramento, New York, Houston and
Seattle brokerage operations, which were purchased by the Company in fiscal
2000.
Costs and expenses of discontinued operations
During fiscal 2000, the Company incurred costs and expenses of $49 in connection
with activities that have been discontinued. These are described in the
Company's Annual Report on Form 10-K and Form 10-K/A for the fiscal year ended
July 31, 2000.
Costs and expenses of regulatory and litigation matters
During fiscal 2001 and fiscal 2000, the Company incurred costs and expenses of
$99 and $76, respectively, in connection with regulatory and litigation matters.
These are described in the Company's Annual Report on Form 10-K/A for the fiscal
year ended July 31, 2000.
Depreciation and amortization
Depreciation and amortization decreased to $130 in fiscal 2001 from $147 in
fiscal 2000 primarily as a result of certain member lists becoming fully
amortized, which was partially offset by depreciation and amortization in fiscal
2001 from the acquisitions of the Sacramento, Seattle, and Houston brokerages
and the Sacramento office building. The acquisition of the Sacramento brokerage
occurred late in the first quarter of fiscal 2000 and all the other acquisitions
occurred after the first quarter of fiscal 2000.
Liquidity and Capital Resources
At October 31, 2000, the Company's working capital ratio was 1.44 to 1 as
compared to 1.56 to 1 at July 31, 2000. At October 31, 2000, stockholders'
equity decreased to $3,083 from $3,630 at July 31, 2000 as a result of the
Company's net loss of $522 in the first quarter of fiscal 2001.
During fiscal 2001, the Company reported net cash (used) in operating activities
of $(614) as compared to net cash used in operating activities of $(34) in
fiscal 2000. This change resulted from the net loss in the first quarter of
fiscal 2001.
During fiscal 2001, the Company reported net cash (used) in investing activities
of $(300) as compared to net cash provided by in investing activities of $215 in
fiscal 2000. In fiscal 2001, the Company received $118 from the initial payment
<PAGE>10
(after related costs) in connection with the sale of the interest in the Samana
resort property and $100 from the sale of the rights to publish the Company's
barter industry magazine (alt.finance). In fiscal 2001, the Company invested
$300 in a note receivable owed to the Company by a third party. See Note 2 of
Notes to Consolidated Financial Statements included in this Form 10-QSB.
During fiscal 2001, the Company reported net cash (used) in financing activities
of $(18) primarily as a result of the repayment of capitalized equipment lease
obligations. During fiscal 2000, the Company reported net cash (used) in
financing activities of $(120) primarily as a result of repayment of bank loans
totaling $150.
Certain financing transactions, the sale of BXI Corporation, and repayment of
various debts of the Company are discussed in the Company's Annual Report on
Form 10-K for the fiscal year ended July 31, 2000. Currently management is
attempting to further improve the cash flows and financial condition of the
Company and the focus of the Company on its primary business of operating trade
exchanges and related activities. However, there can be no assurance that the
Company will be successful in its efforts.
Inflation
Since inflation has been moderate in recent years, inflation has not had a
significant impact on the Company. Inflation is not expected to have a material
future effect.
Inflation may be a factor within the ITEX Retail Trade Exchange. The viability
of the ITEX Retail Trade Exchange is maintained by the confidence that the
members of the exchange have in the strength and stability of the ITEX Trade
Dollar. To maintain such confidence it is necessary that the exchange be
operated in a sound and economic manner. Toward this end, the Company intends
from time to time to take actions to decrease the number of ITEX Trade Dollars
in circulation in the exchange by transferring some of its own holdings of trade
dollars to the Exchange.
Quantitative and Qualitative Disclosures About Market Risk
All trade credits are made in U.S. dollars and, therefore, currency fluctuations
are believed to have no impact on the Company's net revenues. The Company has no
long-term debt or investments and therefore is not subject to interest rate
risk.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
o Martin Kagan Litigation.
During July 1998, the Company was served with a summons and complaint for a case
in Circuit Court of Multnomah County, Oregon, styled Martin Kagan v. ITEX
Corporation. The complaint alleges breach of a stock option agreement between
the Company and Kagan and seeks to set aside a settlement agreement between the
parties dated January 14, 1997. The Company answered the complaint denying its
material allegations. Subsequently, the plaintiff filed a first amended
complaint adding Graham H. Norris, the Company's former President and Chief
Executive Officer, as an additional party and modifying somewhat the allegations
of the original complaint. The Company and Mr. Norris have answered the amended
complaint and denied all allegations. The Company has vigorously defended the
action. Trial before a court appointed referee was held on November 4, 8 and 9,
1999. On April 12,2000, the referee issued a decision dismissing all of Kagan's
claims except his claim for unlawful sale and purchase of securities. The
referee awarded Kagan $400,000 plus interest from July 14, 1998, plus reasonable
attorneys' fees. The referee's decision was confirmed by the Multnamah County
Circuit Court and judgment has been entered The company has bonded the judgment
<PAGE>11
that has been entered and guaranteed the bond with a certificate of deposit for
$550,000. The company has appealed and has been advised by its counsel that it
has a reasonable chance for success in overturning the decision.
o IBTEX, A.G. Litigation.
During September 1998, the Company was served with a summons and complaint for a
case in the Circuit Court of Multnomah County, Oregon, styled IBTEX, A.G. v.
ITEX Corporation, Donovan Snyder and Graham Norris, Sr. The complaint alleges
breach of contract, breach of duty of good faith and fair dealing and violations
of the Oregon Franchise Act.
The defendants have answered the complaint denying its material allegations,
demanding that the disputes between IBTEX and the Company be arbitrated pursuant
to an arbitration agreement between the parties and requiring that the action be
stayed until such time as the arbitration is complete. The proceeding has been
abated and no arbitration has been set and the case has been dormant for many
months. During November, 2000 the Company was sent a copy of a new related case
which names the Company as a defendant in the Circuit Court of Multnomah County,
Oregon, styled IBTEX, A.G. v. Terry Neal, et al, seeking no affirmative relief
against the Company, but naming the company as a defendant. The Company has not
been served with a summons and complaint in this matter.
o Wade Cook Financial Corporation Litigation.
During February 1998, an action was filed in Washington (Seattle) State Court by
Associated Reciprocal Traders, Ltd., ("ART") an ITEX wholly owned subsidiary,
based on Wade Cook Financial Corporation's ("WCFC") refusal to permit transfer,
without restricted legend, of WCFC stock issued to ART in exchange for a media
due bill. ART filed a Motion for Replevin and Preliminary Injunction requesting
delivery and transfer of the certificates of WCFC stock to ART based upon
compliance by ART with the requirements of Rule 144 of the Securities Act of
1933. After two separate hearings, on October 2, 1998, the Court ruled that the
requirements of Rule 144 had been met, but that issues raised by WCFC concerning
the radio spots, pursuant to the due bill, required a trial of the merits of the
action. During August 1999, the matter was settled. WCFC has agreed that ART is
the owner of 1,400,000 shares of WCFC unrestricted stock which may be sold by
ITEX at no more than 100,000 shares a month, at current market prices, subject
to right of first refusal by WCFC. The settlement agreement also provided for
the transfer of 300,000 ITEX trade dollars to WCFC, which the Company has
completed. As of October 31, 2000, the Company had realized approximately
$175,000 in cash and paid a liability of $60,000 from the disposal of
approximately 800,000 shares of its Wade Cook common stock.
o Desert Rose Foods Litigation.
On April 28, 2000, ITEX Corporation was served with summons and complaint for an
action in the Circuit Court of Fairfax County, Virginia style Desert Rose Foods,
Inc. v. ITEX Corporation and ITEX USA, Inc. The complaint alleges Breach of
Contract, Fraud, and violations of federal law. Plaintiff asks for $750,000
compensatory damages, punitive damages, other statutory damages, interest and
attorneys fees. Plaintiff entered into a contract with the Company for delivery
of goods valued at approximately $120,000. The Company has retained local
counsel in this case. and is vigorously defending the matter. The Company
believes Plaintiff's complaint is frivolous. The Company has successfully
defended similar actions. The Company does not believe this action is
significant to the Company's financial position. The matter is set for trial in
April 2001.
<PAGE>12
o Antelope Company v. Zoring.
The Company was served with a summons and complaint on June 1, 2000, in the
matter of Antelope Company v. Zoring International Incorporated and ITEX
Corporation, filed in the District Court of the City and County of Denver,
olorado. The complaint alleges that in December 1997, the plaintiff entered into
a lease with Zoring of certain office space in Denver, Colorado, and that ITEX
guaranteed the lease. Zoring is alleged to have defaulted on the lease and the
plaintiff is seeking to enforce the lease guaranty. The Company agrees that the
lease was breached, but contends that the plaintiff failed to mitigate its
damages. The Company intends to defend the action and has set up a reserve for
loss in the event that the plaintiff is successful. The matter is presently
pending the assignment of a trial date and the completion of discovery.
o Metro Sales v ITEX.
On May 28, 2000, the Company was served with a summons and complaint out of the
Circuit Court of Multnomah County, Oregon, in the matter of Metro Sales v. ITEX.
The complaint alleges breach of contract and violation of an Oregon Blue Sky
statute. The Company denies all the allegations and intends to vigorously defend
this action.
o Skiers Edge Litigation.
On June 19, 2000, the Company was served with a summons and complaint out of the
District Court for Summit County, Colorado, in the matter of Skiers Edge
Condominium Association v. George Owens. The complaint alleges that the Company
owes plaintiff association fees relating to interval timeshares that the Company
is alleged to own. The Company is defending this matter and does not foresee any
material impact from this matter.
o Claim of Terry Neal for Indemnity
On December 1, 2000 the Company received a demand from attorneys for Terry Neal,
founder and former chief executive officer of the Company, claiming a right for
indemnity for fines and attorneys' fees Mr. Neal is alleged to have incurred in
connection with an SEC investigation and civil suit brought by the Securities
and Exchange Commission ("SEC") related to certain activities of Mr. Neal that
occurred while he was a consultant to the Company in fiscal years prior to the
fiscal year ended July 31, 1998. The claim, which at this point is not a
lawsuit, also includes the right to indemnity for attorneys' fees incurred in
his defense of the IBTEX litigation as well as the right to indemnity for
attorneys' fees incurred in his defense of the Kagan matter. The Company
believes that any liability that may result from the two latter matters has been
adequately provided for. The Company denies any liability to indemnify Mr. Neal
for SEC related expenses and fines, and believes his other claims are excessive.
Furthermore, the Company also has affirmative defenses that gives it a right of
set-off against Mr. Neil that exceeds, in amount the $2.8 million for which he
has claimed. The Company will vigorously defend against his claims.
<PAGE>13
Item 2. Changes in Securities.
None.
Item 3. Default Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
The Exhibits hereto are listed in the accompanying Exhibit Index.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
<TABLE>
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ITEX CORPORATION
December 15, 2000 /s/ COLLINS M CHRISTENSEN
------------------------------- ---------------------------------------------------------------------
Date Collins M. Christensen, Director, President and Chief Executive
Officer (principal executive officer and director)
DECEMBER 15, 2000 /S/ Daniela C. Calvitti
------------------------------- ---------------------------------------------------------------------
Date Daniela C. Calvitti, Chief Financial Officer
</TABLE>
