LEGAL PROCEEDINGS

3 Months Ended

Oct. 31, 2011

Commitments and Contingencies Disclosure [Abstract]

Legal Matters and Contingencies [Text Block]

NOTE 7 – LEGAL PROCEEDINGS

In June 2003, a former broker filed a complaint against us for wrongful termination of his brokerage agreement and breach of contract in connection with the termination of plaintiff's brokerage in 1999 (Bruce Kamm v. ITEX Corporation, Supreme Court of the State of New York County of New York, Index No.: 602031/2003). On or about October 12, 2005, we were served with an amended complaint stating claims of breach of contract, wrongful termination of the brokerage agreement and breach of covenant of good faith and fair dealing. In November 2005, we filed a motion to dismiss the action for lack of subject matter jurisdiction pursuant to a forum selection clause in the contract between the parties requiring litigation be filed in Oregon. Our motion to dismiss was granted on December 12, 2005. In June 2006, plaintiff re-filed in the Circuit Court of the State of Oregon, (Bruce Kamm and Invision LTD v. ITEX Corporation, Case No. 0606-05949), stating claims of breach of contract and breach of covenant of good faith and fair dealing and seeking damages in the amount of $30,000 plus attorneys’ fees. In January 2011, we filed a motion for summary judgment on plaintiffs’ claims. In March, the Court granted ITEX’s motion for summary judgment. In November, Plaintiffs filed a notice of appeal.

On September 7, 2011, a lawsuit was filed by a shareholder against our directors, and also ITEX as a nominal defendant, alleging shareholder derivative claims and seeking unspecified damages, costs and attorney’s fees, the rescission of certain transactions, the removal of the directors, and the return of compensation received by the directors from ITEX (David Polonitza v. Steve White, Eric Best and John Wade and ITEX Corporation as a nominal defendant, King County Superior Court for the State of Washington, Case No. 11-2-30760-3).  The complaint generally alleges breaches of fiduciary duties by the Company’s directors (as well as abuse of control, gross mismanagement, corporate waste, and unjust enrichment) in connection with the following actions: 1) adoption of a Shareholders Rights Plan, 2) the amendment of the Company’s Equity Incentive Plan and award of restricted stock grants under the amended plan,  3) a private placement of common stock to our franchisees, and 4) our stock repurchase program.  The defendant directors filed a motion to dismiss in which the Company has joined, on the grounds that the lawsuit is meritless and being used for improper purposes.

We have not established any reserves for any potential liability relating to the foregoing litigation matters as losses have not been determined to be probable or estimable. However, litigation is subject to inherent uncertainties and unfavorable rulings could occur. Although management currently believes resolving the foregoing proceedings will not 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.

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 other 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.