Allow me to wax personal for a few minutes. Rarely do I take joy in the demise of any business or person. This week I’m taking exception. My long-time nemesis, Tradia, is finally gone. I have to say, I’m pretty stoked. I realize also that none of what I could say about the situation would be kind. So I’ll refrain. It’s enough to say Tradia will now be buried with the likes of all of the other ashes of former exchanges whose policy of piracy leads directly to their demise.

Let this be a lesson to us all: taking advantage of members and employees by spending large credit lines and doing bad deals is what will kill your exchange and gives the industry a bad name.

Do any of you remember when I started this site and was doing a weekly video? My production was just ok. This video series looks to be one of the best. Seriously. I’m not used to giving this many accolades to anything ITEX, but this franchise is doing it really well. Check it out if you have one minute and one second to spare.

Barron Perales, San Antonio ITEX trade broker, said, “This cashless event is designed to demonstrate how ITEX functions as an economic saver for the small business owner. All vendors will be selling at 100% ITEX barter. In addition, the food, entertainment, photographer, Santa, and decorations were all secured with ITEX barter.”

Dinner will feature various cuisines offered by local restaurant owners such as Green Vegetarian Cuisine and Coffee, Simple Simon’s Pizza, Texas Pride Barbecue and other great restaurants apart of ITEX. ITEX members will offer their goods and services for sale for ITEX barter dollars only. No cash will be exchanged.

Business owners seeking to stretch their cash are invited to attend the event to observe how barter transactions work as well as to see the vast array of products and services available for purchase through ITEX barter.

ITEX will provide a free booth in the trade show to any business owner who joins ITEX before the event. Entrepreneurs will enjoy the opportunity to earn ITEX dollars at the show and build up their account quickly.

“Businesses are struggling to conserve their cash in today’s tight economy,” Perales said. “ITEX members can get a jump-start on their holiday shopping at the trade show without spending a penny of cash. They can also sell their own goods and services for trade dollars without any cost, building up their ITEX balance for their own holiday shopping. They can have a wonderful Christmas without spending cash, and they can see how that is done by attending the trade show.”

Business owners wanting to take advantage of the free booth offer can learn more by contacting the San Antonio ITEX office at 210.281.1111.

Last year I spent some time covering the ITEX software as a service initiative and SuperTradeExchange. This year’s report includes a nice section about ITEX’s web services…

We expanded our investment in information technology personnel and network infrastructure in support of our new subscription-based service offerings.  In February 2009, we began offering third-party subscription rights to our proprietary online broker and client relationship management platform to companies whose business model will be enhanced by using a digital currency.   Our fees include a one-time subscription fee in addition to a percentage of the gross merchandise value (GMV) of transactional activity hosted by the platform. As of July 31, 2010 we have a total of $264,000 of deferred revenue derived from web services reflected on our balance sheet,

Something that new, and that has a pipeline as long as a large-scale sale, but is generating 6% of total revenue for the company, is a great thing. And I was probably wrong. I wrote a long one last year about how I thought ITEX was bartering for a buyout, and that they were positioning themselves to be purchased by Super Media. I may have been wrong about it.

Here’s the link:

http://www.sec.gov/Archives/edgar/data/860518/000114420410054531/0001144204-10-054531-index.htm

• A Partner at a prominent $90+ million capital firm, with over 16 years of experience serving as a CEO of high-growth companies and turnarounds. He has served as CEO and founder of one of the first dynamically generated e-commerce sites; President and Founder of an enterprise Software-as-a-Service company with Fortune 500 customers; CEO and founder of a technology company serving clients such as Albertsons, Bain & Company, and Exodus Computing; CTO and board member of a venture-backed online mortgage bank which became one of the five largest in the US during his tenure; and turnaround CEO of a multi-office recruiting and technology business.
• A senior executive with operational experience that includes a career of over 15 years within the barter industry.  As an operator he has been able to significantly grow his barter business through organic growth.  Beyond his operational experience, the candidate has served on numerous boards and maintains a high level of peer acknowledgement.

The Committee will continue to communicate with you regarding details of our ideas to improve ITEX.  Our website, www.enhanceitex.com (the “Website“), will be the primary channel over which we will impart information on vital matters.  We encourage shareholders to visit our website regularly and to share their thoughts with us.

At ITEX, the Bellevue, Wash., membership trading company that has 24,000 members and 90 offices around the country, that percentage is 6%. According to Alan Zimmelman, a spokesman for ITEX, barter exchanges work best in local economies and is done predominately via the phone or electronic messaging, rather than over the Internet. Members will use the Internet to search for ways to spend their barter dollars but will call or email one of ITEX’s brokers when they want to engage in a trade. “The Internet will grow but it is a slow process,” said Zimmelman, noting it’s easier to pick up the phone, send a text or email. ITEX members do use the Internet to post advertisements or electronic newsletters.

Members of bartering exchange NuBarter do use the Internet to make deals, even though the company has customer service reps at the ready to help members. On NuBarter.com members are given a line of credit and search for what they want to use that line of credit for. Once they find something they click buy and the seller is contacted via an email. If it is approved the seller and buyer will make arrangements.

NuBarter, which is based in Savannah, Ga., but has offices around the country and a network of barter exchange partners around the world, put together a network of roughly 2,300 members who trade among themselves. A line of credit is given to the members and NuBarter’s job is to make sure the goods and services stay balanced. For instance, NuBarter won’t let 10 hair salons on the network if there is only demand for two. What’s more, in order for a small business to be allowed into the network, it has to go through an interview process. The line of credit is based on criteria, including years of service, number of employees and size of the business, said Gary Field, president of NuBarter.

Full story at http://www.foxsmallbusinesscenter.com/strategy/2010/09/10/bartering-saves-bucks-businesses/

The Committee’s three independent director nominees are Wayne P. Jones, Alnesh Mohan, and Sidd Pagidipati. The relevant portions of their biographies are set forth below.

Wayne P. Jones

Mr. Jones has been involved in franchising and business operations for over 30 years. Mr. Jones is past CEO of Pizza Hut Franchise Association, President of KFC Canada, Senior VP of Operations for Arby’s Restaurants, and Vice President Marketing & Development for Tumbleweed Restaurants, Inc. He also held executive and marketing positions at the H.J Heinz and General Mills companies. Mr. Jones has been a Professor of Business at the University of Louisville, College of Business & Public Administration, Louisville, Kentucky, since 1998. Mr. Jones is CEO and Managing Director of The University Group, LTD, a management consultancy, and consults with a wide range of clients. He is an active lecturer in Corporate Strategy, New Venture Creation, New Product Development, Franchising and Marketing Strategy. He is also a Certified Expert Witness in franchising who serves as an Expert Witness in Marketing and Franchising cases. Mr. Jones holds a Ph.D. from Marquette University, and an MBA from the University of Louisville.

Alnesh Mohan

Mr. Mohan has been involved in the accounting services industry since 1994. Mr. Mohan has served as Partner at Quantum Advisory Partners LLP, a business advisory firm, since 2005, and as Vice-Chairman and CEO of Corner Market Capital Corporation, an investment fund, since 2006. Through Quantum Advisory Partners LLP, Mr. Mohan acts on behalf of a number of public companies and is currently CFO of Hudson Resources Inc., a publicly listed company on the TSX Venture Exchange. Mr. Mohan has a Bachelor of Business Administration degree from Simon Fraser University, and a Master’s of Science in Taxation from Golden Gate University. Mr. Mohan has been a registered Chartered Accountant in British Columbia since 1997, and a registered Certified Public Accountant in Illinois since 2000. Prior to his current positions at Quantum and Corner Market Capital, Mr. Mohan was a Tax Manager at KPMG from 2001-2005 consulting on corporate & personal tax compliance in Canada and the United States.

Sidd Pagidipati

Mr. Pagidipati is the Co-Founder and former Chief Executive Officer of Freedom Health, the 3rd largest Medicare Advantage health plan in Florida and one of the largest privately held health plans in the United States. Inc. Magazine recognized Freedom Health as the 7th fastest-growing private company in America in 2009 (growing over 10,000% in three years) and the 225th fastest growing company in 2010–making the Inc. 500 two years in a row. In 2008, the Indo-US Chamber of Commerce selected Mr. Pagidipati as the Business Man of the Year. In 2009, Mr. Pagidipati founded and became CEO of BusinessChamber.com, an online local networking company. Prior to co-founding Freedom Health, Mr. Pagidipati worked as an investment banker at Merrill Lynch and Donaldson, Lufkin & Jenrette (DLJ), where his expertise included debt and equity financings. Mr. Pagidipati graduated from Magna Cum Laude Georgetown University with a degree in Economics and International Relations.

The Chairman of the Committee – David Polonitza commented:

“The Company’s existing board and management team’s strategy to build on operations other than ITEX’s core franchise business is failing. While revenues generated by the franchise business continues to be stagnant, Corporate overhead related to Company-run barter offices, ITEX media, and other initiatives appears to have grown faster (increase of $2.4 million since FY 2006) than corresponding revenue growth within these segments (increase of $1.5 million since FY 2006). Management’s expenditure of over $4 million on acquisitions mostly related to these segments since 2006 have yielded virtually no increases to the Company’s operating cash flow, due in part to the growth of the Company’s overhead costs by over 80% during that time period.

             (in thousands)          FY 2006   FY 2007   FY 2008   FY 2009
             --------------          -------   -------   -------   -------
         Gross Association and
     Transaction Fees generated by
               Franchisees            $14,256   $13,980   $14,219   $14,569
     -----------------------------    -------   -------   -------   -------
         (Increase/Decrease) Since FY 2006          -$276      -$37      $313

    Net Association and Transaction
     Fees generated by Franchisees
           paid to ITEX Corp.          $4,170    $4,713    $4,689    $5,234
    -------------------------------    ------    ------    ------    ------
       (Increase/Decrease) Since FY 2006           $543      $519    $1,064

             Other Revenue               $390      $191    $1,745    $1,933
             -------------               ----      ----    ------    ------
       (Increase/Decrease) Since FY 2006          -$199    $1,355    $1,543

    Corporate Overhead and Expenses
      (Salaries, Other Marketplace
       Expenses, Media Costs, and
                  SG&A)                $2,944    $3,098    $4,308    $5,378
    -------------------------------    ------    ------    ------    ------
       (Increase/Decrease) Since FY 2006           $154    $1,364    $2,434

          Operating Cash Flow          $1,616    $1,806    $2,126    $1,789
          -------------------          ------    ------    ------    ------

    *Source - SEC Filings

“Only by increasing the overall percentage of fees that franchisees pay ITEX Corporate over the past few years has ITEX been able to increase its cash flows. In our opinion, this short-term increase to operating cash flows is contributing to the long-term decline in the health of ITEX’s franchise-system which is its core business.

                (in thousands)       FY 2006   FY 2007    FY 2008   FY 2009
                --------------       -------   -------    -------   -------
         Total Gross Association and
          Transaction Fees generated
                by Franchisees        $14,256    $13,980   $14,219   $14,569
         ---------------------------  -------    -------   -------   -------
          Total Commissions paid to
                  Franchisees         $10,086     $9,267    $9,530    $9,335
          -------------------------   -------     ------    ------    ------
            Net Total Fees paid by
           Franchisees to ITEX Corp.   $4,170     $4,713    $4,689    $5,234
           -------------------------   ------     ------    ------    ------

          Overall % of Franchisee's
          Revenue paid to ITEX Corp.     29.2%      33.7%     32.9%     35.9%
          --------------------------     ----       ----      ----      ----

    *Source - SEC Filings

“We believe the current board is incapable of leading the revitalization of the franchise system and ending unprofitable ventures due to its closed nature, non-ITEX business relationships with one another, and a near decade of service together as board members at two separate companies.

“If the status quo is maintained, we are deeply concerned that the Company’s future is in jeopardy. Shareholders cannot afford to allow this board to have more time to implement an effective strategy. We will not linger on the sidelines at this critical juncture. Our nominees can help implement a strategic plan designed to create value for all shareholders.”

The Committee’s issues with the current ITEX’s board and management can be summarized as follows:

Ill-advised capital allocation decisions

Failure to grow the franchise business

ITEX’s elevated member churn rate

Increases in Corporate overhead surpassing corresponding increases in non-franchisee related revenues

The identification of a material weakness in ITEX’s internal controls

Lack of true independence of ITEX’s board

Capital Allocation

Since 2006, management expended over $4 million in acquisitions. These acquisitions helped to increase Corporate Overhead and Expenses by over $2 million annually, outpacing non-franchise operations revenue gains over that time period. These acquisitions have done little to increase the overall revenue growth of the franchise system. Due to these significant capital expenditures producing miserable results, we are skeptical of management’s future plans for ITEX’s capital.

Increasing Corporate Overhead

Between FY 2006-FY 2009, ITEX’s full time employee count has increased 68% to 32 Full Time Employees from 19, while Corporate Overhead and Expenses (to include salaries and selling, general, and administrative expenses) increased by 79% to $5.37 million. Over that same period, overall revenues increased by only 12% or $1.85 million, while overhead expansion increased by over $2 million – outpacing revenue growth. Management’s “growth” plans have actually resulted in decreasing overall cash flows.

Member churn rate

Though ITEX does not publish their member churn rates in their financial statements, within investor presentations and the 2009 annual meeting, we have discovered the following:

                                         FY 2007        FY 2008  FY 2009
          Approximate Churn Rates             14%            18%      16%

    * Source - FY 07 and 08 Information based upon June 2008
     ITEX Investor relations presentation
    posted on ITEX.com.  FY 09 information is an estimate based
     on information provided to
     shareholders at ITEX's FY 2009 Annual Meeting.

Approximately 10,000 member businesses have left the ITEX marketplace between FY2007-FY2009 based upon ITEX’s publicly disclosed churn rates. With only 24,000 ITEX members, the amount of businesses leaving the ITEX system is unacceptable. We partly attribute this high rate of turnover to ITEX’s acquisition policy, and the squeezing of franchisees in general through higher fees to ITEX Corporate, resulting in their inability to properly maintain staffing to satisfy their existing members.

Corporate Governance and Accounting Issues

We believe shareholder concerns regarding governance are being ignored. The board has given no indication that it intends to change its composition, despite the fact that each of ITEX’s three current board members have non-ITEX business relationships with one another. Additionally, in FY 2009, an ITEX board member was retained by the Company as a consultant by the “interim” CFO, who also serves as the CEO and Chairman of the Company. This board member was to assist with internal audit matters during fiscal 2009. Subsequently, the Company has admitted that material weaknesses existed in its internal auditing procedures during FY 2010. This is the second time a material weakness was identified by the Company since 2005. We believe a CFO with a strong accounting background is needed to ensure the Company can correct its accounting deficiencies.

Our Plan to Enhance Shareholder Value at ITEX

We believe that ITEX is the leader in the barter industry and business can be revitalized with the help of our highly qualified director nominees. If elected at the 2010 Annual Meeting of Shareholders, our nominees would, subject to their fiduciary duties, endeavor to work with the other board members to address the concerns discussed above. A general outline of the initiatives that our nominees would seek to implement are as follows:

Rework ITEX’s fee policies, and the implementation of a franchisee incentive program that allows franchisee’s to grow, while improving ITEX’s operating cash flow

Actively recruit entrepreneurs with the proper fit to join ITEX’s franchises brokers

Refocus the company on franchise-related initiatives

End an ineffective acquisition strategy – organic growth will be the focus

Upon restructuring the franchise business, return excess cash flows beyond conservative operating requirements to shareholders

Hire a full-time CFO to improve ITEX’s accounting practices

List ITEX’s stock on a NASDAQ exchange

Provide current management with the opportunity to work under new directors, while preparing an executive team to replace existing management if necessary

Over the coming months we will be communicating with you regarding details of our ideas to improve the ITEX Corporation. Our recently launched website, www.enhanceitex.com, will be the primary channel over which we will impart information on vital matters. We encourage shareholders to visit our website regularly and to share their thoughts with us about the ITEX Corporation.

CERTAIN INFORMATION CONCERNING THE PARTICIPANTS

The Committee to Enhance ITEX (the “Committee”), together with the other Participants (as defined below), intends to make a preliminary filing with the Securities and Exchange Commission (“SEC”) of a proxy statement and accompanying proxy card to be used to solicit proxies for the election of its slate of director nominees at the 2010 annual meeting of stockholders of ITEX Corporation (the “Company”).

THE COMMITTEE STRONGLY ADVISES ALL STOCKHOLDERS OF THE COMPANY TO READ THE PROXY STATEMENT WHEN IT IS AVAILABLE BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION. SUCH PROXY STATEMENT WILL BE AVAILABLE AT NO CHARGE ON THE SEC’S WEBSITE AT HTTP://WWW.SEC.GOV. IN ADDITION, THE PARTICIPANTS IN THE SOLICITATION WILL PROVIDE COPIES OF THE PROXY STATEMENT WITHOUT CHARGE UPON REQUEST. REQUESTS FOR COPIES SHOULD BE DIRECTED TO THE PARTICIPANTS’ PROXY SOLICITOR, INVESTORCOM, INC. AT ITS TOLL-FREE NUMBER (877) 972-0090 OR VIA EMAIL AT ENHANCEITEX@INVESTOR-COM.COM.

The Participants in the proxy solicitation are anticipated to be David Polonitza, Wayne Jones, Sidd Pagidipati, Rahul Pagidipati. Sanjeev Parsad, Alnesh Mohan, Pagidipati Family, LP, MPIC Fund I, LP, MPIC Canadian LP, Corner Market Capital, Inc., Corner Market Capital, U.S., Inc., Corner Market Capital Corp., Richard Polonitza, Greta Polonitza, G. Andrew Cooke, Dr. Devaiah Pagidipati, Dr. Rudrama Pagidipati, Kirk Anderson, and Paul W. Kim (collectively, the “Participants”).

Information regarding the Participants and their affiliates, including their direct or indirect interests in the Company, by security holdings or otherwise, is contained in the Schedule 13D initially filed by David Polonitza on September 22, 2009, as amended or may be amended from time to time (the “Schedule 13D”). The Schedule 13D is currently available at no charge on the SEC’s website at http://www.sec.gov. As of the date hereof, the Participants and their affiliates collectively own an aggregate of 473,601 shares of Common Stock of the Company, consisting of the following: (1) 127,635 shares held directly by David Polonitza, (2) 3,000 shares held directly by Rahul Pagidipati, (3) 139,779 shares held directly by the Pagidipati Family, LP, (4) 11,800 shares held directly by Devaiah and Rudrama Pagidipati, (5) 71,395 shares held directly by Kirk Anderson, (6) 6,000 shares held directly by Paul W. Kim, (7) 8,152 shares held directly by Richard and Greta Polonitza, (8) 80,000 shares held in accounts managed by MPIC FUND I, LP, (11) 14,380 shares held in accounts managed by MPIC CANADIAN, LP, (12) 11,460 shares held directly by G. Andrew Cooke. Each of the participants disclaims beneficial ownership of such shares except to the extent of his/its pecuniary interest therein.

DISCLAIMER

Certain factual, financial, and statistical data and other information contained herein was obtained by the Committee to Enhance ITEX from the SEC filings of ITEX Corporation–sources that it deems to be reliable. However, the Committee to Enhance ITEX has not independently verified any of such data or other information, or the reasonableness of the assumptions upon which such data and other information was based, and there can be no assurance as to the accuracy of such data and other information. The Committee to Enhance ITEX recognizes that there may be confidential or otherwise non-public information discussed in this letter that could lead ITEX Corporation or others to disagree with the conclusions reached by the Committee to Enhance ITEX.

The analyses provided may include certain statements, assumptions, estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the ITEX Corporation. Such statements, assumptions, estimates, and projections reflect various assumptions by the Committee to Enhance ITEX concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, assumptions, estimates or projections or with respect to any other materials herein. Actual results may vary materially from the estimates and projected results contained herein. The Committee to Enhance ITEX disclaims any obligation to update this letter.

Some members of the Committee to Enhance ITEX own common stock of the ITEX Corporation. The members of the Committee to Enhance ITEX may, in future, change their stock holding positions in the ITEX Corporation, collectively or individually, and may possibly increase, decrease, dispose of, or change the form of their investment for any or no reason.

This letter should not be considered a recommendation to buy, sell, or hold any investment. In addition, this letter is neither an offer to purchase nor a solicitation of an offer to sell any securities of the ITEX Corporation.

    Contact:

    John Grau
    InvestorCom, Inc.
    (203) 972-9300

    Or

    David Polonitza
    (502) 460-3141
    polonitza@enhanceitex.com

We had a customer of numerous exchanges in Canada submit this complaint:

We are a media company in the wedding / travel marketplace. This is a niche market. We were printing since 1992 and went green (online) in 2007. Stats are in the Advertise with Us section at the bottom of our website. We have connections with the financial media in Toronto who when look at the barter business just see it from rose-colored glasses – they need to be made aware of the down sides too and what to look out for as in a consumer report.

We executed quite well in the third quarter and I’m pleased to recognize gains in revenue and income from operations compared to last year’s third quarter, said Steven White, Chairman and CEO. Revenue growth was primary due to our media and web services initiatives, which also provided the benefit of additional transaction opportunities for our members. Income from operations increased as a result of revenue growth and a reduction in depreciation and amortization expense. Our increased cash position reflected our operational income.

Mr. White continued, Revenue from our core business remains steady and our cash flow strong. With our stable financial footing, we will continue to focus our efforts on organic growth, enhancing our internet and web services platforms and creating more stockholder value. We are pleased to distribute our first ever quarterly dividend on June 30, 2010, to stockholders of record as of close of business on June 15, 2010.

Third Quarter 2010 Highlights

· Income from operations increased to $421,000 from $344,000 in the same period last year;

Revenue increased to $4,158,000 from $3,981,000 in the same period last year;

· Net income increased to $269,000 from $224,000 in the same period last year;

· Earnings per share increased to $0.08 from $0.06 in the same period last year;

· Cash at end of period increased to $4,193,000 from $2,557,000 on July 31, 2009;

· Stockholder equity increased to $14,722,000 from $13,981,000 on July 31, 2009;

· Broker incentive expense of $50,000 was recorded in the quarter for a computer upgrade initiative planned in conjunction with the upcoming launch of Office 2010. $79,000 was expensed for the same incentive in the second quarter of 2010, with a total expense of $129,000 in the nine-months ended 2010;

· Repurchased and retired 4,667 common shares.

Subsequent Events
· Effective as of May 3, 2010 (Effective Date), the Company amended its Articles of Incorporation to effect a one for five reverse stock split of its common stock Every five shares of ITEX’s common stock issued and outstanding immediately prior to the Effective Date were automatically combined into one issued and outstanding share. Stockholders who were entitled to fractional shares received a cash payment in lieu of receiving fractional shares. The number of shares of ITEX’s common stock issued and outstanding was reduced from 18,027,914 shares to approximately 3,605,307 shares.
· On May 11, 2010, the Board of Directors declared a cash dividend in the amount of $0.025 per share, payable on June 30, 2010 to stockholders of record as of the close of business on June 15, 2010.

ITEX Corporation’s report on Form 10-Q can be found at www.sec.gov.