##### Table of Contents

---

SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2002

or

|o | 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: 0-26739

ITXC CORP.(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction ofincorporation or organization) |  | 22-35-31960(I.R.S. EmployerIdentification
No.)
|--------------------------------------------------------------------- |  | ----------------------------------------------

750 College Road East Princeton, New Jersey 08540(Address of principal executive office, including zip code)

(609) 750-3333(Registrants telephone number, including area code)

Indicate by checkmark 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 | o
|--- | - | -- | -

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest
practicable date.

At November 13, 2002, there were 42,779,765 shares of Common Stock, par value $.001 per share, outstanding.

---



---

##### Table of Contents

ITXC CORP.

INDEX

|               |                                                                                                                    | Page
|-------------- | ------------------------------------------------------------------------------------------------------------------ | ----
|               |                                                                                                                    |     
|Part I.        | Financial Information                                                                                              |     
|               |                                                                                                                    |     
|Item 1.        | Financial Statements                                                                                               |     
|               |                                                                                                                    |     
|               | Condensed Consolidated Balance Sheets as of September 30, 2002 (Unaudited) and December 31, 2001                   | 1   
|               |                                                                                                                    |     
|               | Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2002 and 2001 (Unaudited) | 2   
|               |                                                                                                                    |     
|               | Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 2002 and 2001 (Unaudited)  | 3   
|               |                                                                                                                    |     
|               | Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001 (Unaudited)  | 4   
|               |                                                                                                                    |     
|               | Notes to Condensed Consolidated Financial Statements (Unaudited)                                                   | 5   
|               |                                                                                                                    |     
|Item 2.        | Managements Discussion and Analysis of Financial Condition and Results of Operations                              | 11  
|               |                                                                                                                    |     
|Item 3.        | Quantitative and Qualitative Disclosure About Market Risk                                                          | 21  
|               |                                                                                                                    |     
|Item 4.        | Controls and Procedures                                                                                            | 22  
|               |                                                                                                                    |     
|Part II.       | Other Information                                                                                                  |     
|               |                                                                                                                    |     
|Item 1.        | Legal Proceedings                                                                                                  | 22  
|               |                                                                                                                    |     
|Item 2.        | Changes in Securities and Use of Proceeds                                                                          | 23  
|               |                                                                                                                    |     
|Item 6.        | Exhibits and Reports on Form 8-K                                                                                   | 23  
|               |                                                                                                                    |     
|Signatures     | 24                                                                                                                
|               |                                                                                                                   
|Certifications | 25                                                                                                                

-i-



---

##### Table of Contents

PART I -
Financial Information

Item 1.
Financial Statements

ITXC CORP. AND SUBSIDIARIESCondensed Consolidated Balance Sheets

|                                               |                            | September 30,2002(Unaudited) |              | December 31,2001 |  
|---------------------------------------------- | -------------------------- | ---------------------------- | ------------ | ---------------- | -
|                                               |                            |                              |              |                  |  
|Cash and cash equivalents                      |                            | $                            | 21,279,362   |                  | $
|Marketable securities                          |                            |                              | 90,214,208   |                  |  
|Accounts receivable, net                       |                            |                              | 26,389,919   |                  |  
|Prepaid expenses and other current assets      |                            |                              | 4,453,991    |                  |  
|                                               |                            |                              |              |                  |  
|                                               | Total current assets       |                              |              | 142,337,480      |  
|Property and equipment, net                    |                            |                              | 42,203,516   |                  |  
|Restricted cash                                |                            |                              | 2,208,687    |                  |  
|Goodwill                                       |                            |                              | 7,913,319    |                  |  
|Intangible assets, net                         |                            |                              | 2,810,922    |                  |  
|Other assets                                   |                            |                              | 1,411,721    |                  |  
|                                               |                            |                              |              |                  |  
|                                               | Total assets               |                              | $            | 198,885,645      |  
|                                               |                            |                              |              |                  |  
|Accounts payable and accrued liabilities       |                            | $                            | 31,069,971   |                  | $
|Other liabilities                              |                            |                              | 566,432      |                  |  
|Equipment note payable                         |                            |                              |             |                  |  
|Current portion of capital lease obligations   |                            |                              | 2,675,167    |                  |  
|                                               |                            |                              |              |                  |  
|                                               | Total current liabilities  |                              |              | 34,311,570       |  
|Capital lease obligation, less current portion |                            |                              | 503,824      |                  |  
|Common stock                                   |                            |                              | 46,656       |                  |  
|Additional paid in capital                     |                            |                              | 459,826,390  |                  |  
|Deferred employee compensation                 |                            |                              |             |                  |  
|Accumulated other comprehensive income         |                            |                              | 154,871      |                  |  
|Accumulated deficit                            |                            |                              | (295,957,666 | )                |  
|                                               |                            |                              |              |                  |  
|                                               | Total stockholders equity |                              |              | 164,070,251      |  
|                                               |                            |                              |              |                  |  
|Total liabilities and stockholders equity     |                            | $                            | 198,885,645  |                  | $
|                                               |                            |                              |              |                  |  

See accompanying notes.

-1-



---

##### Table of Contents

ITXC CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations  (Unaudited)

|                                                                                                                                                                                                                            |                          | Three Months ended September 30, |           
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------ | -------------------------------- | ----------
|                                                                                                                                                                                                                            |                          |                                  |           
|                                                                                                                                                                                                                            |                          | 2002                             |           
|                                                                                                                                                                                                                            |                          |                                  |           
|Total revenue                                                                                                                                                                                                               |                          | $                                | 70,137,146
|Costs and expenses:                                                                                                                                                                                                         |                          |                                  |           
|Data communications and telecommunications (exclusive of depreciation shown separately below)                                                                                                                               |                          |                                  | 62,495,183
|Network operations (exclusive of depreciation shown separately below and exclusive of $0 and $125,527 of equity related charges included in non-cash employee
compensation in 2002 and 2001, respectively)                  |                          |                                  | 2,112,529 
|Selling, general and administrative (exclusive of depreciation shown separately below and exclusive of $0 and $879,681 of equity related charges
included in non-cash employee compensation in 2002 and 2001, respectively) |                          |                                  | 7,965,521 
|Depreciation                                                                                                                                                                                                                |                          |                                  | 6,551,898 
|Amortization                                                                                                                                                                                                                |                          |                                  | 128,020   
|Impairment of assets                                                                                                                                                                                                        |                          |                                  |          
|Restructuring charges                                                                                                                                                                                                       |                          |                                  | 134,285   
|Non-cash employee compensation                                                                                                                                                                                              |                          |                                  |          
|                                                                                                                                                                                                                            |                          |                                  |           
|                                                                                                                                                                                                                            | Total costs and expenses |                                  |           
|                                                                                                                                                                                                                            |                          |                                  |           
|Loss from operations                                                                                                                                                                                                        |                          |                                  | (9,250,290
|Interest income, net                                                                                                                                                                                                        |                          |                                  | 624,061   
|                                                                                                                                                                                                                            |                          |                                  |           
|Loss before income taxes                                                                                                                                                                                                    |                          |                                  | (8,626,229
|                                                                                                                                                                                                                            |                          |                                  |           
|Income tax expense                                                                                                                                                                                                          |                          |                                  | 150,500   
|                                                                                                                                                                                                                            |                          |                                  |           
|Net loss                                                                                                                                                                                                                    |                          | $                                | (8,776,729
|                                                                                                                                                                                                                            |                          |                                  |           
|Basic and diluted net loss per share                                                                                                                                                                                        |                          | $                                | (0.19     
|                                                                                                                                                                                                                            |                          |                                  |           
|Weighted average shares used in computation of basic and diluted net loss per share                                                                                                                                         |                          |                                  | 46,342,092
|                                                                                                                                                                                                                            |                          |                                  |           

See accompanying notes.

-2-



---

##### Table of Contents

ITXC CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations  (Unaudited)

|                                                                                                                                                                                                                                      |                          | Nine Months ended September 30, |            
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------ | ------------------------------- | -----------
|                                                                                                                                                                                                                                      |                          |                                 |            
|                                                                                                                                                                                                                                      |                          | 2002                            |            
|                                                                                                                                                                                                                                      |                          |                                 |            
|Total revenue                                                                                                                                                                                                                         |                          | $                               | 193,846,103
|Costs and expenses:                                                                                                                                                                                                                   |                          |                                 |            
|Data communications and telecommunications (exclusive of depreciation shown separately below)                                                                                                                                         |                          |                                 | 167,407,742
|Network operations (exclusive of depreciation shown separately below and exclusive of $192,526 and $357,130 of equity related charges included in non-cash employee
compensation in 2002 and 2001, respectively)                      |                          |                                 | 6,000,722  
|Selling, general and administrative (exclusive of depreciation shown separately below and exclusive of $1,202,196 and $2,400,710 of equity related
charges included in non-cash employee compensation in 2002 and 2001, respectively) |                          |                                 | 22,047,292 
|Depreciation                                                                                                                                                                                                                          |                          |                                 | 18,471,555 
|Amortization                                                                                                                                                                                                                          |                          |                                 | 230,726    
|Impairment of assets                                                                                                                                                                                                                  |                          |                                 |           
|Loss associated with investments                                                                                                                                                                                                      |                          |                                 |           
|Restructuring charges                                                                                                                                                                                                                 |                          |                                 | 1,364,372  
|Non-cash employee compensation                                                                                                                                                                                                        |                          |                                 | 1,394,722  
|                                                                                                                                                                                                                                      |                          |                                 |            
|                                                                                                                                                                                                                                      | Total costs and expenses |                                 |            
|                                                                                                                                                                                                                                      |                          |                                 |            
|Loss from operations                                                                                                                                                                                                                  |                          |                                 | (23,071,028
|Interest income, net                                                                                                                                                                                                                  |                          |                                 | 2,188,465  
|                                                                                                                                                                                                                                      |                          |                                 |            
|Loss before income taxes                                                                                                                                                                                                              |                          |                                 | (20,882,563
|                                                                                                                                                                                                                                      |                          |                                 |            
|Income tax expense                                                                                                                                                                                                                    |                          |                                 | 150,500    
|                                                                                                                                                                                                                                      |                          |                                 |            
|Net loss                                                                                                                                                                                                                              |                          | $                               | (21,033,063
|                                                                                                                                                                                                                                      |                          |                                 |            
|Basic and diluted net loss per share                                                                                                                                                                                                  |                          | $                               | (0.46      
|                                                                                                                                                                                                                                      |                          |                                 |            
|Weighted average shares used in computation of basic and diluted net loss per share                                                                                                                                                   |                          |                                 | 46,132,608 
|                                                                                                                                                                                                                                      |                          |                                 |            

See accompanying notes.

-3-



---

##### Table of Contents

ITXC CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)

|                                                                               |                                                         | Nine months ended September 30, |             
|------------------------------------------------------------------------------ | ------------------------------------------------------- | ------------------------------- | ------------
|                                                                               |                                                         |                                 |             
|                                                                               |                                                         | 2002                            |             
|                                                                               |                                                         |                                 |             
|Operating activities                                                           |                                                         |                                 |             
|Net loss                                                                       |                                                         | $                               | (21,033,063 
|Adjustments to reconcile net loss to net cash used in operating activities:    |                                                         |                                 |             
|                                                                               | Depreciation                                            |                                 |             
|                                                                               | Amortization of intangibles                             |                                 |             
|                                                                               | Impairment of assets                                    |                                 |             
|                                                                               | Provision for doubtful accounts                         |                                 |             
|                                                                               | Non-cash restructuring charges                          |                                 |             
|                                                                               | Realized gain on sale of investments                    |                                 |             
|                                                                               | Amortization of non-cash deferred employee compensation |                                 |             
|                                                                               | Amortization of original issue discounts                |                                 |             
|Changes in operating assets and liabilities:                                   |                                                         |                                 |             
|                                                                               | Increase in accounts receivable                         |                                 |             
|                                                                               | Increase in prepaid expenses and other assets           |                                 |             
|                                                                               | Increase in accounts payable and accrued expenses       |                                 |             
|                                                                               | Decrease in other liabilities                           |                                 |             
|                                                                               |                                                         |                                 |             
|Net cash used in operating activities                                          |                                                         |                                 | (4,163,882  
|                                                                               |                                                         |                                 |             
|Investing activities                                                           |                                                         |                                 |             
|Purchase of property and equipment                                             |                                                         |                                 | (17,993,245 
|Restricted cash                                                                |                                                         |                                 | (2,208,687  
|Purchase of Nexcom assets                                                      |                                                         |                                 | (9,051,716  
|Purchase of available for sale securities                                      |                                                         |                                 | (126,815,964
|Sale of available for sale securities                                          |                                                         |                                 | 42,398,023  
|Maturities of available for sale securities                                    |                                                         |                                 | 88,412,167  
|                                                                               |                                                         |                                 |             
|Net cash (used in) provided by investing activities                            |                                                         |                                 | (25,259,422 
|                                                                               |                                                         |                                 |             
|Financing activities                                                           |                                                         |                                 |             
|Repayment of equipment line of credit                                          |                                                         |                                 | (1,196,660  
|Repayment of capital lease obligations                                         |                                                         |                                 | (2,088,666  
|Proceeds from exercise of stock options                                        |                                                         |                                 | 324,235     
|Proceeds from issuance of common stock related to employee stock purchase plan |                                                         |                                 | 735,668     
|                                                                               |                                                         |                                 |             
|Net cash used in financing activities                                          |                                                         |                                 | (2,225,423  
|                                                                               |                                                         |                                 |             
|Effect of exchange rate fluctuations on cash                                   |                                                         |                                 | (265,268    
|                                                                               |                                                         |                                 |             
|Decrease in cash                                                               |                                                         |                                 | (31,913,995 
|Cash and cash equivalents at beginning of period                               |                                                         |                                 | 53,193,357  
|                                                                               |                                                         |                                 |             
|Cash and cash equivalents at end of period                                     |                                                         | $                               | 21,279,362  
|                                                                               |                                                         |                                 |             

See accompanying notes.

-4-



---

##### Table of Contents

ITXC CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

1.  Basis of Presentation

The September 30, 2002 and 2001 financial statements have been prepared by ITXC Corp. (the Company or ITXC) and are unaudited.  In the opinion of the Companys management, all adjustments
(consisting solely of normal recurring adjustments) necessary to present fairly the Companys consolidated financial position, results of operations and cash flows for the interim periods have been made. Certain information and footnote
disclosures required under accounting principles generally accepted in the United States have been condensed or omitted from the consolidated financial statements and notes thereto presented herein pursuant to the rules and regulations of the
Securities and Exchange Commission. The condensed consolidated financial statements and notes thereto presented herein should be read in conjunction with the Companys audited consolidated financial statements for the year ended December 31,
2001 and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission. The results of operations for the three and nine months ended September 30, 2002
are not necessarily indicative of the results to be expected for any other interim period or the entire fiscal year.

The consolidated financial statements include the accounts of ITXC Corp. and
its wholly-owned subsidiaries.  All significant intercompany balances and transactions have been eliminated in consolidation.

2.  Comprehensive Income

The components of comprehensive loss for the three and nine month periods ended September 30, 2002 and 2001 were as follows:

|                                                                           |  | Three Months ended September 30, |            | Nine Months ended September 30, |  
|-------------------------------------------------------------------------- |  | -------------------------------- | ---------- | ------------------------------- | -
|                                                                           |  |                                  |            |                                 |  
|                                                                           |  | 2002                             |            | 2001                            |  
|                                                                           |  |                                  |            |                                 |  
|Net loss                                                                   |  | $                                | (8,776,729 | )                               | $
|Other comprehensive income:                                                |  |                                  |            |                                 |  
|Unrealized holding gains (losses) arising during period (net of tax of $0) |  |                                  | (10,929    | )                               |  
|Foreign currency translation adjustments                                   |  |                                  | 38,206     |                                 |  
|                                                                           |  |                                  |            |                                 |  
|Comprehensive loss                                                         |  | $                                | (8,749,452 | )                               | $

3.  Acquisition

On May
2, 2002 the Company purchased assets which comprised the wholesale call completion business operated by privately-held Nexcom Telecommunications LLC (Nexcom) in 11 countries in Eastern Europe, for total consideration of $11.7 million
which consisted of $9.0 million in cash and 533,701 shares of the Companys common stock. 275,459 of those shares and $1.5 million in cash are subject to an escrow agreement

-5-



---

##### Table of Contents

supporting Nexcoms indemnification obligations to the Company.  Nexcom had previously provided termination services to the Company in most of the countries in
which the assets are located.  In connection with the transaction, the Company recorded goodwill of $7.9 million; and other intangibles of $2.9 million related to vendor agreements, customer lists and licenses, which will be amortized over
periods ranging from three to 80 months.  These values were determined using an independent third party valuation.  Also included in the purchase were $0.8 million of property, plant and equipment.  The acquisition was accounted for
as a purchase in accordance with FASB Statement No. 141, Business Combinations, and accordingly, the net assets and results of operations have been included in the Consolidated Financial Statements from the date of acquisition. The acquisition would
not have had a material impact on the Companys results of operations, had the acquisition been completed at the beginning of the years presented.

4.  Impairment of Long-Lived Assets
and Business Reorganization Charges

In response to then-current market conditions and the consequent slower-than-anticipated growth of the Companys enhanced services, in July 2001 the
Company determined that certain long-lived assets related to the acquisition of eFusion, Inc. (eFusion) on October 12, 2000 had become impaired. During the second quarter of 2001, the Company recognized a $108.0 million impairment
charge, which represented an $86.7 million write-down of goodwill and a $21.3 million write-down of other intangible assets to their fair values.

On October 11, 2001, the Company sold most of the
tangible and intangible assets of its e-commerce business (other than patents) to eStara, Inc., a privately held provider of web-voiced services, in exchange for a 19.9% equity position in eStara. This transaction resulted in a $0.3 million loss
which was included in the third quarter 2001 impairment charge. The Company determined that there was a further impairment of long-lived assets and recorded a $5.7 million impairment charge during the third quarter of 2001 to write-down such assets
to their fair value.

As part of the July and September 2001 business-reorganization plans, the Company recorded an additional charge to earnings in 2001 of approximately $3.7 million of which $2.2
million had been paid through September 30, 2002. The charge relates to headcount reductions of 70 employees world-wide, which approximates $1.5 million, and facility consolidations of approximately $1.5 million as the Company has closed its
Beaverton, Oregon facility. The remaining $0.7 million relates to a write-down of the remaining assets at the Beaverton location.

In January of 2002, the Company entered into an agreement to
sublease approximately 20,000 square feet of its headquarters space. Approximately $1.0 million of restructuring charges was recorded in the first quarter in connection with the sublease. During the third quarter of 2002, the Company also recorded
an additional $0.1 million in restructuring charges associated with the lease for the closed office in Beaverton, Oregon.

5.  Goodwill and Other Intangible Assets

Effective July 1, 2001, the Company adopted SFAS No. 141 Business Combinations and effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No.141
requires business combinations initiated after July 1, 2001 to be accounted for using the purchase method of accounting. It also specifies the types of intangible assets that are required to be recognized and reported separate from goodwill. Under
SFAS No. 142, goodwill and other intangible assets with indefinite lives are no longer amortized but are reviewed for impairment annually, or more frequently if impairment indicators arise.  The Company conducted such review during the third
quarter 2002 and concluded that no impairment existed at that

-6-



---

##### Table of Contents

time.  The Company did not have any goodwill or indefinite life intangible assets at January 1, 2002; accordingly, adoption of SFAS No. 142 did not have an impact on
the Company.

The following table reflects unaudited pro forma results of operations of the Company, giving effect to SFAS No. 142 as if it were adopted on January 1, 2001:

|                                                |  | Three Months ended September 30, |            | Nine Months ended September 30, |  
|----------------------------------------------- |  | -------------------------------- | ---------- | ------------------------------- | -
|                                                |  |                                  |            |                                 |  
|                                                |  | 2002                             |            | 2001                            |  
|                                                |  |                                  |            |                                 |  
|Net loss, as reported                           |  | $                                | (8,776,729 | )                               | $
|Add back: amortization expense, net of tax      |  |                                  |           |                                 |  
|                                                |  |                                  |            |                                 |  
|Pro forma net loss                              |  | $                                | (8,776,729 | )                               | $
|                                                |  |                                  |            |                                 |  
|Basic and diluted loss per common shareholders: |  |                                  |            |                                 |  
|As reported                                     |  | $                                | (0.19      | )                               | $
|                                                |  |                                  |            |                                 |  
|Pro forma                                       |  | $                                | (0.19      | )                               | $
|                                                |  |                                  |            |                                 |  

The following table summarizes the activity in Goodwill for the periods indicated:

|                       |  | Three Months ended September 30, |           | Nine Months ended September 30, |  
|---------------------- |  | -------------------------------- | --------- | ------------------------------- | -
|                       |  |                                  |           |                                 |  
|                       |  | 2002                             |           | 2001                            |  
|                       |  |                                  |           |                                 |  
|Beginning balance, net |  | $                                | 7,913,319 |                                 | $
|Additions              |  |                                  |          |                                 |  
|Amortization           |  |                                  |          |                                 |  
|Write-offs             |  |                                  |          |                                 |  
|                       |  |                                  |           |                                 |  
|Ending balance, net    |  | $                                | 7,913,319 |                                 | $
|                       |  |                                  |           |                                 |  

The following table summarizes the Other Intangibles subject to amortization at the dates
indicated:

|                            |  | September 30, 2002    |           | December 31, 2001        |  
|--------------------------- |  | --------------------- | --------- | ------------------------ | -
|                            |  |                       |           |                          |  
|                            |  | Gross Carrying Amount |           | Accumulated Amortization |  
|                            |  |                       |           |                          |  
|Patents                     |  | $                     | 108,000   |                          | $
|Customer lists and licenses |  |                       | 240,000   |                          |  
|Vendor agreements           |  |                       | 2,700,000 |                          |  
|                            |  |                       |           |                          |  
|Total other intangibles     |  | $                     | 3,048,000 |                          | $
|                            |  |                       |           |                          |  

-7-



---

##### Table of Contents

Amortization expense for Other Intangibles totaled approximately $0.1 million and $0.3 million for the three months ended September 30, 2002 and 2001, respectively, and
$0.2 million and $3.5 million for the nine months ended September 30, 2002 and 2001, respectively. Aggregate amortization expense for intangible assets is estimated to be:

|Three Months Ending December 31, 2002  |  | $ | 125,000 | 
|-------------------------------------- |  | - | ------- | 
|Twelve Months Ending December 31, 2003 |  |   | 500,000 | 
|Twelve Months Ending December 31, 2004 |  |   | 500,000 | 
|Twelve Months Ending December 31, 2005 |  |   | 500,000 | 

6.  Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued SFAS No. 143, Accounting for Asset Retirement Obligations. This Statement is effective for fiscal years beginning after June 15, 2002, with early
adoption permitted. SFAS No. 143 addresses the recognition and measurement of obligations associated with the retirement of tangible long-lived assets resulting from acquisition, construction, development, or the normal operation of a long-lived
asset. SFAS No. 143 requires that the fair value of an asset retirement obligation be recognized as a liability in the period in which it is incurred. The asset retirement obligation is to be capitalized as part of the carrying amount of the
long-lived asset and the expense is to be recognized over the useful life of the long-lived asset. The Company believes that the adoption of this standard will not have a material impact on its consolidated results of operations and financial
position.

In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The effective date for this
statement is January 1, 2002 and supersedes SFAS No. 121. SFAS No. 144 carries forward from SFAS No. 121 the fundamental guidance related to the recognition and measurement of an impairment loss related to assets to be held and used and provides
guidance related to the disposal of long-lived assets to be abandoned or disposal by sale. The adoption of SFAS No. 144 had no material impact on the Companys consolidated results of operations and financial position.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities.SFAS No. 146 requires recording costs associated with exit or disposal activities
at their fair values when a liability has been incurred.  Under previous guidance, certain exit costs were accrued upon managements commitment to an exit plan, which is generally before an actual liability has been incurred. Adoption of
SFAS No. 146 is required beginning January 1, 2003.  The Company believes that the adoption of this standard will not have a material impact on its consolidated results of operations and financial position.

7.   Debt

During the quarter ended June 30, 2002, the Company terminated a credit facility with a bank and paid the remaining $1.1 million of the equipment note
payable.

8.  Restricted Cash

In conjunction with its letter of credit facility for its Princeton, New Jersey lease,
the Company has $2.2 million in restricted cash.  The Company is obligated to maintain the restricted cash until the letter of credit is modified or has expired.

-8-



---

##### Table of Contents

9.  Legal Proceedings

From time to time, the Company is involved in various legal proceedings relating to claims
arising in the ordinary course of business.

On May 23, 2000, Connectel, LLC, filed suit against the Company in the United States District Court for the Eastern District of Pennsylvania. Connectel
alleges in its complaint that the Company is infringing on the claims of a patent owned by Connectel by, acting alone or with others, assembling, offering to sell, selling or using communications networks or switching systems within the United
States and for export worldwide without license from Connectel. The Company believes that the Connectel claims are without merit and intends to defend the lawsuit vigorously. However, should a judge issue an injunction against the Company, such
action could have a material adverse effect on the Companys operations.

The Company and certain of its officers/directors were named as defendants in several purported shareholder class
action lawsuits. The lawsuits allege, among other things, that, in connection with the Companys public offerings of securities, its Prospectus did not disclose certain alleged practices involving its underwriters and their customers. These
actions seek compensatory and other damages, and costs and expenses associated with the litigation. These actions are in the early stages and the Company has not yet determined if there is any potential material impact on its Consolidated Financial
Statements.  ITXC is one of hundreds of companies named in substantially identical lawsuits.  Management believes that ITXC and its officers/directors did not engage in any improper or illegal conduct and intends to defend these actions
vigorously. All of these cases have been consolidated for pretrial purposes before Judge Scheindlin in the Southern District of New York.  Motions to dismiss the cases are now pending.  All of the individual defendants who had been named
as defendants in the Companys case have now been dismissed from the proceeding without prejudice, pursuant to a stipulation with the plaintiffs.  Neither the individual defendants nor the Company nor its insurers paid any consideration
for these dismissals.

In September, 2001, the Company had been served with a complaint filed in Virginia state court on behalf of Hercules Communications Company, LLC in which the plaintiff
demanded damages, including punitive damages, based on the Companys alleged refusal to carry out a purported agreement to purchase certain assets from Hercules. The claims were primarily based on alleged breach of contract, breach of implied
contract, breach of an oral contract, promissory estoppel and fraud. The Court dismissed plaintiffs claim for promissory estoppel and fraud, but did allow the plaintiff to refile its fraud complaint.  Discovery is now underway.  In
June 2002, plaintiff moved to substitute Hercules Satellite Communications, L.L.C. for Hercules Communications, LLC, over the Companys objection.  The Court rejected plaintiffs motion, and thereafter the plaintiff voluntarily
dismissed the case.  A new case was then brought in the name of Hercules  Satellite Communications, L.L.C.  The allegations in the new case are substantially similar to those which had survived in the prior case.   A trial
date is now expected in May 2003, and discovery is underway.  The Company continues to believe the case is not meritorious and intends to vigorously defend its conduct.

10.  Income
Taxes

On July 2, 2002, the State of New Jersey signed into law new corporate business tax legislation, which was retroactive to January 1, 2002.  Corporations are now subject to a gross
receipts and gross profits tax.  The Company has included a provision for income tax expense of $150,500 in its condensed consolidated statement of operations for the cumulative estimated liability for the period January through September
2002.

-9-



---

##### Table of Contents

11.  Subsequent Events

In an unprecedented action, effective November 1, 2002 all official rates to China were
increased to 17 cents per minute.  For some rates this increase was up to 700% by China Telecom and other terminating carriers as a result of a governmental decree issued on very short notice.  China represented almost 10% of minutes
terminated by the Company prior to this action.  It is not yet clear how long the price increase will last or what the full impact will be on ITXCs business.  In the first days after the increase took effect, traffic volume to China
dropped dramatically.  This initial effect meant a significant decline in minutes of use, but traffic which was handled was largely handled at the higher price levels.  At this stage it is too early to determine where and when price levels
will stabilize.  The Company therefore is not able to determine the effect of these changes on the Companys revenues and margins for the fourth quarter of 2002 or beyond.

On October 23,
2002 the Company announced that its Board of Directors had authorized a stock repurchase program for up to $10 million.  Any purchases under this repurchase program may be made from time-to-time either in the open market, through block trades
or otherwise. Depending on market conditions and other factors, these purchases may be commenced or suspended at any time or from time-to-time without prior notice.  As of November 14, 2002, the Company had used $9,775,396 of this authorization
to repurchase a total of 3,866,200 shares.  Included in this total was the negotiated direct purchase of 3,783,000 shares from VocalTec Communications Inc. at $2.53 per share, pursuant to a purchase agreement.

-10-



---

##### Table of Contents

Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements, the related Notes to Consolidated Financial Statements and Managements Discussion and Analysis of Financial Condition and Results of Operations included in the Companys Annual Report on Form 10-K for
the year ended December 31, 2001 (the 10-K) and the Unaudited Condensed Consolidated Financial Statements and related Notes to Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

ITXC has included in this Quarterly Report certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning ITXCs
business, operations and financial condition. Forward-looking statements consist of all non-historical information, and the analysis of historical information, including any references in this Quarterly Report to future revenue growth,
future expense growth, future credit exposure, EBITDA, future profitability, anticipated cash resources, anticipated capital expenditures, capital requirements, and the Companys plans for future periods. In addition, the words
could, expects, anticipates, objective, plan, may affect, may depend, believes, estimates, projects and similar words and phrases
are also intended to identify such forward-looking statements.

Actual results could differ materially from those projected in the Companys forward-looking statements due to numerous known
and unknown risks and uncertainties, including, among other things, unanticipated technological difficulties, the volatile and competitive environment for Internet telephony and telecommunications, changes in domestic and foreign economic, market
and regulatory conditions, the inherent uncertainty of financial estimates and projections, the difficulties of integrating businesses which were previously operated as stand-alone units, the creditworthiness of the Companys customers, the
uncertainties involved in certain legal proceedings, instabilities arising from terrorist actions and responses thereto, and other considerations described as Risk Factors in Exhibit 99.1 to the 10-K (Exhibit 99.1) and in
other filings by the Company with the SEC. Such factors may also cause substantial volatility in the market price of the Companys common stock. All such forward-looking statements are current only as of the date on which such statements were
made. ITXC does not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any such statement is made or to reflect the occurrence of unanticipated events.

Critical Accounting Policies and Estimates

ITXCs discussion and analysis of its financial condition and results of operations are based
upon the Companys Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to
make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those
related to bad debts, investments, intangible assets, restructuring and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed 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 under different assumptions or conditions.

The Company believes the following critical accounting policies apply to and affect significant judgments and estimates used in the preparation of its Condensed Consolidated Financial Statements:

-11-



---

##### Table of Contents

Allowance for Doubtful Accounts. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required
payments. If the financial condition of the Companys customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The Company estimates the amount of the allowance for
doubtful accounts required to reduce accounts receivable to expected net realized value by reviewing the status of significant past-due receivables and analyzing historical bad debt trends and industry and customer specific conditions.

Revenue Recognition. The Company recognizes telecommunications revenue and the related costs at the time the services are rendered. Telecommunications revenue is derived from fees charged to terminate voice
and fax services over the Companys network. Increased competition from other providers of Internet telephony services and traditional telephony services could materially adversely affect revenue in future periods. To date, the Company has
derived a significant portion of its revenue from a small number of customers. The loss of a major customer could have a material adverse effect on the Companys business, financial condition, operating results and future prospects.

Goodwill and Other Intangible Assets.  On January 1, 2002, the Company adopted Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets.  In assessing the
recoverability of its goodwill and other intangibles, the Company must make assumptions regarding estimated future cash flows.  If such assumptions change in the future, the Company may be required to record impairment charges for these assets
not previously recorded.

Property and Equipment.   On January 1, 2002, the Company adopted Statement of Financial Accounting Standard No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets.  If indicators of impairment are present, the Company must determine whether the sum of the estimated undiscounted cash flows attributable to the assets in question is less than its carrying amount. If
less, the Company will be required to recognize an impairment loss based on the excess of the carrying amount of the assets over their respective fair values.  As discussed in the Results of Operations-Amortization and Write-Off of Intangibles;
Impairment Charges, the Company is planning to evaluate existing circuit switch installations to see if these installations can be simplified to benefit customers.  The results of the evaluation may require the Company to write off up to $3
million of existing capital equipment in future quarters. If switches are removed from existing installations, they will not require replacement.

Overview

We are a leading global provider of voice and fax services established in July 1997. We primarily use the Internet for transport of these calls.

In April 1998, we
launched our first service delivered over ITXC.net®-our WWeXchange® service. Our operations since that time have included:

| | increasing our voice traffic, from 2,746 minutes during April 1998 to approximately 838 million minutes carried through our WWeXchange service during the quarter ended September
30, 2002;
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                            
| | refining our monitoring and analysis software in order to achieve BestValue Routing;                                                                                                       
|  |                                                                                                                                                                                            
| | expanding our affiliate network to 206 affiliates at October 31, 2002;                                                                                                                     
|  |                                                                                                                                                                                            
| | increasing the global reach of ITXC.net to 175 countries at October 31, 2002;                                                                                                              

-12-



---

##### Table of Contents

| | applying for and securing patents on key technology;                                                          
|- | --------------------------------------------------------------------------------------------------------------
|  |                                                                                                               
| | increasing our direct connection to customers using ITXC-owned SNARCs® located at the customers premises; and
|  |                                                                                                               
| | increasing our employee headcount, from 29 employees on April 1, 1998 to 255 employees on September 30, 2002. 

To date, our primary sources of revenue have been the fees that we receive from customers for terminating calls that they have originated. Our revenue for terminating calls over ITXC.net has depended primarily upon the
following factors:

| | the volume of voice traffic carried over ITXC.net, which is measured in terms of minutes of voice traffic;                                                                                                                            
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                       
| | the mix of voice traffic carried over ITXC.net, which reflects the fact that calls made over certain routes will generate greater revenues than calls of a similar duration made
over other routes;                                   
|  |                                                                                                                                                                                                                                       
| | pricing pressures resulting from competitive conditions in our markets; and                                                                                                                                                           
|  |                                                                                                                                                                                                                                       
| | our ability to maximize our buy-sell margin, i.e. the difference between what we pay to receive termination service and what we are able to charge our customers. We
generally seek to maximize buy-sell margin rather than revenue.

Competition from other providers of Internet telephony services and traditional telephony services could
materially adversely affect revenue in future periods.

To date, we have derived a significant portion of our revenue from a small number of customers. The loss of a major customer could have a
material adverse effect on our business, financial condition, operating results and future prospects.

Our operating expenses have been primarily:

| | Data Communications and Telecommunications Expenses. Internet-related expenses, consisting primarily of:                                                                                                                                                                                                                                                                                                                                                
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Network Operations Expenses. Expenses associated with operating the network, consisting primarily of the salaries, payroll taxes and benefits that we pay for those
employees directly involved in the operation of ITXC.net and related expenses. During the period (October 2000 through October 2001) that we operated an e-commerce business, network operations expenses also include related expenses incurred to
operate our e-commerce services.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                         

-13-



---

##### Table of Contents

| | Selling, General and Administrative Expenses. There are three components of selling, general and administrative expenses, consisting of the following:
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                       
|  |                                                                                                                                                      
|  |                                                                                                                                                       
|  |                                                                                                                                                      
|  |                                                                                                                                                       
|  |                                                                                                                                                       
|  |                                                                                                                                                       
|  |                                                                                                                                                       
|  |                                                                                                                                                       
|  |                                                                                                                                                       
|  |                                                                                                                                                       
|  |                                                                                                                                                      
|  |                                                                                                                                                       
|  |                                                                                                                                                      

We believe that the services we provide over the Internet are not currently actively regulated in the U.S. Several efforts have been made, however, to enact federal legislation that would regulate certain aspects of
the Internet. In addition, the Federal Communications Commission has been considering various initiatives that could affect the provision of Internet telephony, its regulatory status, and the obligations to make payments to the Universal

-14-



---

##### Table of Contents

Service Fund. An adverse outcome of either regulatory proceedings or legislation could increase our costs significantly and could materially adversely affect our business,
operating results, financial condition and future prospects.

We anticipate that from time to time our operating expenses may increase on a per minute basis as a result of our decisions to route
additional traffic over the traditional telephone network or private data networks in order to maintain quality transmissions as needed.  Higher costs typically affect prices and consequently volumes, margins or both.  In the future other
anticipated or unanticipated operating problems associated with the growth of ITXC.net may develop.

In response to then-current market conditions and the consequent slower-than-anticipated growth
of the Companys enhanced services, during the second quarter of 2001, we recognized a $108.0 million impairment charge, which represented an $86.7 million write-down of goodwill and a $21.3 million write-down of other intangible assets to
their fair values.

On October 11, 2001, we sold most of the tangible and intangible assets of our e-commerce business (other than patents) to eStara, Inc., a privately held provider of web-voiced
services, in exchange for a 19.9% equity position in eStara. We valued this investment at $0.7 million. We determined that there was a further impairment of long-lived assets and recorded a $5.7 million impairment charge during the third quarter of
2001 to write-down such assets to their fair value. In addition, as part of our July and September 2001 business-reorganization plans, we recorded a charge to earnings totaling approximately $3.7 million in the third and fourth quarters of 2001.
This charge is primarily comprised of headcount reductions of 70 employees world-wide (approximately $1.5 million) and facility consolidations (approximately $1.5 million) as we closed the Beaverton, Oregon facility in which eFusion had previously
operated and terminated or transferred to eStara the employees related to our e-commerce business. The remaining $0.7 million relates to a write-down of the remaining assets at the Beaverton location.

On May 2, 2002 the Company purchased assets which comprised the wholesale call completion business operated by Nexcom Telecommunications, LLC in 11 countries in eastern Europe, for total consideration of $11.7 million which
consisted of $9 million in cash and 533,701 shares of the Companys common stock. 275,459 of those shares and $1.5 million in cash are subject to an escrow agreement supporting Nexcoms indemnification obligations to the Company. Nexcom
had previously provided termination services to the Company in most of the countries in which the assets are located. In connection with this acquisition the Company acquired capital assets and hired a small number of Nexcoms employees located
in those countries.

Since our inception in July 1997, we have experienced operating losses in each quarterly and annual period and negative cash flows from operations in each quarter since we
commenced offering services over ITXC.net in April 1998. As of September 30, 2002, we had an accumulated deficit of $296.0 million. The profit potential of our business is unproven, and our limited operating history makes an evaluation of us and our
prospects difficult. We may not achieve profitability or, if we achieve profitability, we might not sustain profitability.

Results of Operations - Comparison of the Three and Nine Months Ended
September 30, 2002 and 2001

Revenues

Telecommunications revenues amounted to $70.1 million during the quarter ended
September 30, 2002 and $193.8 million during the nine months ended September 30, 2002.  Approximately 98.5% of total revenue during the three months and 98.7% of total revenue during the nine months ended September 30, 2002 was derived from our
WWeXchange service, which provides international call completion to our customers and enables them to offer their own customers phone-to-phone global voice service. The remaining revenue was derived principally from our webtalkNOW!SM
service, a PC-to-telephone service which allows Internet portals, Internet service providers and web sites to offer web-to-phone calling to their customers under their own

-15-



---

##### Table of Contents

brands. Revenues during the quarter and nine months ended September 30, 2002 increased 50.9% and 59.7%, respectively from the comparable periods in 2001. These increases
were a result of more calls being carried on our network, ITXC.net.

We carried approximately 825 million minutes of WWeXchange service traffic in the third quarter of 2002 and 2.2 billion minutes
of traffic in the first nine months as compared with 560 million minutes and 1.3 billion minutes, respectively, during the comparable periods of 2001. During the quarter ended September 30, 2002, our average revenues per minute for WWeXchange
service were 8.4 cents per minute, as compared with 8.2 cents per minute during the quarter ended September 30, 2001. The increase in average revenues per minute is primarily attributable to a change in route mix during the third quarter of 2002.

We reduced and/or eliminated WWeXchange service to some customers at the end of the first quarter and during the second quarter of 2001 because their credit situations deteriorated or they could
not, or would not, meet our more stringent credit terms. A number of customers have also experienced severe financial distress, bankruptcy or ceased operations, and this has also affected revenue.

In an unprecedented action, effective November 1, 2002 all official rates to China were increased to 17 cents per minute.  For some rates this increase was up to 700% by China Telecom and other terminating carriers as a
result of a governmental decree issued on very short notice.  China represented almost 10% of minutes terminated by the Company prior to this action.  It is not yet clear how long the price increase will last or what the full impact will
be on ITXCs business.  In the first days after the increase took effect, traffic volume to China dropped dramatically.  This initial effect meant a significant decline in minutes of use, but traffic which was handled was largely
handled at the higher price levels.  At this stage it is too early to determine where and when price levels will stabilize.  The Company therefore is not able to determine the effect of these changes on the Companys revenues and
margins for the fourth quarter of 2002 or beyond.

Operating Expenses

Data Communications and Telecommunications Expenses.
During the three months ended September 30, 2002 and 2001, data communication and telecommunications expenses amounted to $62.5 million and $40.2 million, respectively, or 89.1% and 86.5% of revenues, respectively.  During the nine months ended
September 30, 2002 and 2001, data communication expenses amounted to $167.4 million and $106.3 million, respectively, or 86.4% and 87.5% of revenue, respectively.  The increase in the dollar amount of such costs primarily reflected the
increased traffic during 2002, as well as costs associated with establishing and increasing capacity at our hubs in anticipation of future growth in traffic.  While ARPMs (average rate per minute) stayed basically flat, the Companys
buy-sell margin percentage fell.  This was primarily caused by a decrease in the mix of High ARPM/High margin minutes, that were replaced with High ARPM/Low margin minutes. The majority of the High ARPM/High margin minutes the Company lost were
in parts of Central and South America; the lower margin replacement minutes came from Mexico and parts of Asia.

Network Operations Expenses.  Network operations expenses decreased to $2.1
million during the three months ended September 30, 2002 from $2.3 million during the three months ended September 30, 2001 and to $6.0 million during the nine months ended September 30, 2002 from $6.7 million during the nine months ended September
30, 2001. Such expenses primarily reflected the cost of operating our 24-hours-a-day, 7 days-a-week network operations center, as well as costs associated with the Jersey City, New Jersey, Los Angeles, California

-16-



---

##### Table of Contents

and London hubs. Such costs represented 3.0% and 4.8% of revenues during the three months ended September 30, 2002 and 2001, respectively, and 3.1% and 5.5% of revenue
during the nine months ended September 30, 2002 and 2001, respectively. This improvement in 2002 resulted from a number of factors, including the elimination of a duplicative network operation center in Beaverton, absence of certain start up
expenses associated with hubs brought online or improved in 2001 and an increased revenue base in 2002. We anticipate that we will be able to continue to leverage these costs over a larger revenue base in future quarters, and that they will
therefore decrease as a percentage of revenues.

Selling, General and Administrative Expenses. Selling, general and administrative (SG&A) expenses decreased to $8.0 million during
the three months ended September 30, 2002 from $10.5 million during the three months ended September 30, 2001 and to $22.0 million during the nine months ended September 30, 2002 from $36.7 during the same period in 2001. As a percentage of
revenues, SG&A expenses decreased to 11.4% from 22.6% over the comparable three-month period and to 11.4% from 30.3% over the comparable nine-month period.  This improvement in 2002 was mainly due to favorable experience in bad debt expense
and to savings associated with the closing of the Beaverton, Oregon facility during 2001 and elimination of associated headcount.  During the first nine months of 2001, a reserve of $3.2 million over and above our normal reserves for
receivables was taken because of the bankruptcy filing of a major customer, certain other bankruptcies and the poor financial condition of some of the Tier 2 carriers who are or who had been our customers. Accounts receivable reserves and bad debt
experience have been in large part a function of the financial state of the telecommunications companies who are the Companys customers.  The industry continues to experience bankruptcies of carriers, including large carriers such as
WorldCom and Global Crossing.  In order to minimize accounts receivable reserves and writeoffs, the Company has closely monitored credit exposure to customers, has rejected customers that represented unacceptable credit risks, has limited the
business the Company would accept from customers whom the Company judges to bear credit risk and has made significant efforts to assure that bilateral arrangements permit the offset of accounts receivable against accounts payable.

We had 255 employees at September 30, 2002, as compared with 261 employees at the end of the third quarter of 2001.

As our revenues continue to grow, we
expect SG&A expenses to decrease as a percentage of revenues, although they will likely increase in absolute terms. Such expectation represents a forward-looking statement under the Private Securities Litigation Reform Act of 1995. Actual
results could differ from such expectation as a result of a number of factors, including the rate of revenue growth, if any, the extent to which we incur unanticipated expenses associated with revenue growth and the extent to which our customers
present unanticipated credit problems.

Depreciation

Depreciation expense increased to $6.6 million during the three months
ended September 30, 2002 from $5.1 million during the three months ended September 30, 2001, and to $18.5 million during the nine months ended September 30, 2002 from $14.6 million during the nine months ended September 30, 2001. These increases
reflect the expansion of our network and hubs and the addition of new technologies deployed throughout our network. We added $9.2 million of capital expenditures during the third quarter of 2002 and $18.0 million of capital expenditures during the
nine months ended September 30, 2002.  As a percentage of revenue, depreciation expense for the three-month periods was 9.3% in 2002 and 11.1% in 2001, and for the nine-month periods was 9.5% in 2002 and 12.1% in 2001.

-17-



---

##### Table of Contents

Amortization and Write-Off of Intangibles; Impairment Charges

We recorded $101.5 million of
goodwill and $32.0 million of other intangibles in October 2000 in connection with the Companys acquisition of eFusion that month, which was accounted for as a purchase transaction.  Both goodwill and intangibles were, prior to the
impairment charge described below, being amortized over five years.

Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of  (SFAS No. 121) requires recognition of impairment losses for long-lived assets whenever events or changes in circumstances result in impairment indicators being present and the carrying amount of
an asset exceeds the sum of the expected future cash flows associated with the asset. In response to then-current market conditions and the consequent slower-than-anticipated growth of the Companys enhanced services, at the Companys July
2001 board meeting the Company made a strategic decision to reduce expenditures for the development and marketing of enhanced services and reduced headcount in these areas by about 40 people. As a result, we determined that certain long-lived assets
related to our October 2000 eFusion acquisition had become impaired. During the second quarter of 2001, we recognized a $108.0 million impairment charge which represented a write-down of goodwill and intangible assets to their fair value. During the
third quarter of 2001, we recognized an additional $5.7 million impairment charge which represented an additional write-down of intangible assets to their fair value.

In connection with our May 2,
2002 acquisition of the assets of Nexcom, we recorded $7.9 million of goodwill and $2.9 million of other intangibles.  Accordingly, independent of the impairment charge described above, we amortized $0.1 million and $0.3 million of intangibles
during the three months ended September 30, 2002 and September 30, 2001, respectively, and $0.2 million and $13.7 million of intangibles during the nine months ended September 30, 2002 and September 30, 2001, respectively.

The Company has simplified its network to eliminate the need for circuit-switches in new installations.   The Company is planning to evaluate existing installations to see if these installations can be
similarly simplified to benefit customers.  The results of the evaluation may require the Company to write off up to $3 million of existing capital equipment in future quarters. If switches are removed from existing installations, they will not
require replacement.

Non-Cash Employee Compensation Expenses

We had no non-cash employee compensation expense during the
quarter ended September 30, 2002 as compared with  $1.0 million during the quarter ended September 30, 2001.  Non-cash employee compensation was $1.4 million for the nine months ended September 30, 2002 as compared with $2.8 million for
the nine months period ended September 30, 2001, representing amortization of deferred compensation incurred in connection with the grant of options at exercise prices less than fair value. These costs were fully amortized at the end of the second
quarter of 2002.

Interest Income, Net

Our interest income, net principally represents income from cash and investments
which, in turn, were derived from capital contributions made by our investors.

During the quarters ended September 30, 2002 and 2001, the interest on our marketable securities, including the
interest earned on the proceeds from our initial and follow-on public offerings, exceeded the interest that we paid on our line of credit and capital leases by $0.6 million and $1.9 million, respectively, and during the nine

-18-



---

##### Table of Contents

months ended September 30, 2002 and 2001 by $2.2 million and $7.0 million, respectively. The reduction reflects our usage of cash and yield reductions resulting from a
decline in short-term interest rates.

Restructuring Charges

During the third quarter of 2002, we recorded a $0.1 million
restructuring charge. For the nine-month period ended September 30, 2002, our restructuring charges totaled $1.4 million.  Approximately $1.0 million relates to the sub-lease on our headquarters space effective January 2002 and the balance
relates to charges associated with real estate leases for our closed office in Beaverton, Oregon. We expect to continue to incur approximately $0.2 million of quarterly restructuring charges in connection with the Beaverton lease through the 4th
quarter of 2005 or until we are able to sublease that facility and offset a portion or all of those quarterly charges.

Losses

We have reported net operating losses and net losses since our inception. We believe that we will first report positive net income and cash flow by the first half of 2004. This estimate represents a forward-looking statement
under the Private Securities Litigation Reform Act of 1995.   Due to the risk factors described in the first paragraph of this Managements Discussion and Analysis, the Companys actual results could vary materially
from this estimate.

Liquidity and Capital Resources

Prior to our initial public offering, we financed our operations
primarily through the private placement of our capital stock and, to a lesser extent, through equipment financing. Net proceeds from our initial public offering, including proceeds resulting from the exercise by the underwriters of their
over-allotment option, were $78.4 million. This capital was supplemented by net proceeds of $161.4 million raised upon consummation of our March 2000 follow-on offering of Common Stock.

Net cash
used in financing activities was $2.2 million for the nine months ended September 30, 2002, principally reflecting the repayment of certain capital lease obligations and the repayment of our equipment line of credit.

Net cash used in operating activities amounted to $4.2 million for the nine months ended September 30, 2002, primarily reflecting increased accounts receivable.

Net cash used
in investing activities was $25.3 million for the nine months ended September 30, 2002 and was primarily related to the purchases of property and equipment and the purchase of the Nexcom assets. During the first nine months of 2002 the Company
incurred $18.0 million in capital expenditures.

As of September 30, 2002, our principal commitments consisted of obligations outstanding under operating and capital leases. At that date, future
minimum payments for all non-cancelable leases includes required payments of $5.7 million during 2003 and $18.5 million for years 2004-2007 and thereafter under all leases.   The remaining future minimum payments for 2002 are estimated to
be $2.5 million.  The minimum lease payments have not been reduced by minimum operating sublease rentals of $1.9 million due in the future under noncancelable subleases. We anticipate a substantial increase in capital expenditures and lease
commitments consistent with the anticipated growth in operations, infrastructure and personnel.

On October 23, 2002 the Company announced that its Board of Directors had authorized a stock
repurchase program for up to $10 million.  Any purchases under this repurchase program may be made from time-to-time either in the open market, through block trades or otherwise. Depending on market conditions and other factors,

-19-



---

##### Table of Contents

these purchases may be commenced or suspended at any time or from time-to-time without prior notice.  As of November 14, 2002, the Company had used $9,775,396 of this
authorization to repurchase a total of 3,866,200 shares.  Included in this total was the negotiated direct purchase of 3,783,000 shares from VocalTec Communications Inc. at $2.53 per share, pursuant to a purchase agreement.

During the quarter ended June 30, 2002, the Company terminated a credit facility with a bank and paid the remaining $1.1 million of the equipment note payable.  In conjunction with the Companys letter of
credit facility for its Princeton, New Jersey lease, the Company has $2.2 million of restricted cash.

The primary sources of our short-term funding continue to be the capital that we have
raised.  Our capital requirements depend on numerous factors, including market acceptance of our services, the responses of our competitors, the resources allocated to ITXC.net and the development of future applications of our technology, our
success in marketing and selling our services, and other factors. We have experienced substantial increases in our capital expenditures since our inception, consistent with growth in our operations and staffing, and we anticipate that our capital
expenditures will continue to increase in the future. We will evaluate possible acquisitions of, or investments in, complementary businesses, technologies or services and plan to expand our sales and marketing programs. Any such possible acquisition
may be material and may require us to incur a significant amount of debt or issue a significant number of equity securities. Further, any businesses that we acquire will likely have their own capital needs, which may be significant, which we would
be called upon to satisfy independent of the acquisition price. We currently believe that our available cash and cash equivalents will be sufficient to meet our anticipated needs for working capital and capital expenditures for at least the next 12
months. This statement represents a forward-looking statement under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from our expectations. We may need to raise additional funds in order to fund more rapid
expansion, to develop new or enhance existing services, to respond to competitive pressures or to acquire or invest in complementary business, technologies or services. Additional funding may not be available on favorable terms or at all.

The following summarizes ITXCs contractual obligations at September 30, 2002, and the effect such obligations are expected to have on the Companys liquidity and cash flow in future
periods.

|                                   |  | Payments Due by Period  |           
|---------------------------------- |  | ----------------------- | ----------
|                                   |  |                         |           
|Contractual Obligations            |  | Total                   |           
|                                   |  |                         |           
|Capital lease obligations          |  | $                       | 3,635,543 
|Operating leases                   |  | $                       | 23,112,788
|                                   |  |                         |           
|Total contractual cash obligations |  | $                       | 26,748,331
|                                   |  |                         |           
|                                   |  | Total Amounts Committed |           
|                                   |  |                         |           
|Other Commercial Commitments       |  |                         |           
|Lines of credit                    |  | $                       |          
|Standby letters of credit          |  | $                       | 2,133,923 
|                                   |  |                         |           
|Total commercial commitments       |  | $                       | 2,133,923 
|                                   |  |                         |           

Income Taxes

On July 2,
2002, the State of New Jersey signed into law new corporate business tax legislation.  Corporations will now be subject to a gross receipts and gross profits tax.  The Company has included a provision for tax

-20-



---

##### Table of Contents

expense in its condensed consolidated statement of operations for the cumulative estimate for the period January through September 2002. This may not necessarily be
indicative of the quarterly obligation going forward.

Recent Accounting Pronouncements

Effective July 1, 2001, the Company
adopted SFAS No. 141 Business Combinations and effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires business combinations initiated after July 1, 2001 to be
accounted for using the purchase method of accounting. It also specifies the types of intangible assets that are required to be recognized and reported separate from goodwill. Under SFAS No. 142, goodwill and other intangible assets with indefinite
lives are no longer amortized but are reviewed for impairment annually, or more frequently if impairment indicators arise. The Company conducted such a review during the third quarter of 2002 and concluded that no impairment existed at that
time.

In June 2001, the Financial Accounting Standards Board issued SFAS No. 143, Accounting for Asset Retirement Obligations. This Statement is effective for fiscal years
beginning after June 15, 2002, with early adoption permitted. SFAS No. 143 addresses the recognition and measurement of obligations associated with the retirement of tangible long-lived assets resulting from acquisition, construction, development,
or the normal operation of a long-lived asset. SFAS No. 143 requires that the fair value of an asset retirement obligation be recognized as a liability in the period in which it is incurred. The asset retirement obligation is to be capitalized as
part of the carrying amount of the long-lived asset and the expense is to be recognized over the useful life of the long-lived asset. The Company believes that the adoption of this standard will not have a material impact on its consolidated results
of operations and financial position.

In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The
effective date for this statement is January 1, 2002 and supersedes SFAS No. 121. SFAS No. 144 carries forward from SFAS No. 121 the fundamental guidance related to the recognition and measurement of an impairment loss related to assets to be held
and used and provides guidance related to the disposal of long-lived assets to be abandoned or disposal by sale. The adoption of SFAS No. 144 had no impact on its consolidated results of operations and financial position.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities.SFAS No. 146 requires recording costs associated with exit or disposal activities
at their fair values when a liability has been incurred.  Under previous guidance, certain exit costs were accrued upon managements commitment to an exit plan, which is generally before an actual liability has been incurred. Adoption of
SFAS No. 146 is required with the beginning of fiscal year 2003.  The Company believes that the adoption of this standard will not have a material impact on its consolidated results of operations and financial position.

Item 3.
Quantitative and Qualitative Disclosure About Market Risk

We had investments of $106.0 million as of September 30, 2002 in certain marketable securities, which primarily
consist of short-term fixed income investments. Due to the short-term nature of our investments, we believe that the effects of changes in interest rates are limited and would not have a material impact on our financial condition or operating
results.

-21-



---

##### Table of Contents

Item 4. 
Controls and Procedures

The Company has established and maintains disclosure controls and procedures which are designed to provide reasonable assurance that material
information relating to us, including our consolidated subsidiaries, is made known to senior managers responsible for disclosure by others within those entities, particularly during the period in which this quarterly report is being prepared. We
have established a Disclosure Committee which is made up of several key management employees and reports directly to the Chief Financial Officer and Chief Executive Officer, to monitor and evaluate these disclosure controls and procedures. The Audit
Committee of the Board also has reviewed the report of the Disclosure Committee.  The Chief Financial Officer and Chief Executive Officer have evaluated the effectiveness of our disclosure controls and procedures pursuant to Securities Exchange
Act Rule 13a-14 as of a date within 90 days prior to the filing date of this quarterly report. Based on this evaluation, we have concluded that our disclosure controls and procedures were effective in providing reasonable assurance that our senior
officers are alerted in a timely fashion of material information relating to the Company during the period covered in this quarterly report. There were no significant changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II -
Other Information

Item 1.
Legal Proceedings

From time to time, the Company is involved in various legal proceedings relating to claims arising in the ordinary course of business.

On May 23, 2000, Connectel, LLC, filed suit against the Company in the United States District Court for the Eastern District of Pennsylvania. Connectel alleges in its complaint that the Company is infringing
on the claims of a patent owned by Connectel by, acting alone or with others, assembling, offering to sell, selling or using communications networks or switching systems within the United States and for export worldwide without license from
Connectel. The Company believes that the Connectel claims are without merit and the Company intends to defend the lawsuit vigorously. However, should a judge issue an injunction against the Company, such action could have a material adverse effect
on its operations.

The Company and certain of its officers/directors were named as defendants in several purported shareholder class action lawsuits. The lawsuits allege, among other things, that,
in connection with the Companys public offerings of securities, its Prospectus did not disclose certain alleged practices involving its underwriters and their customers. These actions seek compensatory and other damages, and costs and expenses
associated with the litigation. These actions are in the early stages and the Company has not yet determined if there is any potential material impact on its Consolidated Financial Statements.  ITXC is one of hundreds of companies named in
substantially identical lawsuits.  Management believes that ITXC and its officers/directors did not engage in any improper or illegal conduct and intends to defend these actions vigorously. All of these cases have been consolidated for pretrial
purposes before Judge Scheindlin in the Southern District of New York.  Motions to dismiss the cases are now pending.  All of the individual defendants who had been named as defendants in the Companys case have now been dismissed
from the proceeding without prejudice, pursuant to

-22-



---

##### Table of Contents

a stipulation with the plaintiffs.  Neither the individual defendants nor the Company nor its insurers paid any consideration for these dismissals.

In September, 2001, the Company had been served with a complaint filed in Virginia state court on behalf of Hercules Communications Company, LLC in which the plaintiff demanded damages, including punitive damages,
based on the Companys alleged refusal to carry out a purported agreement to purchase certain assets from Hercules. The claims were primarily based on alleged breach of contract, breach of implied contract, breach of an oral contract,
promissory estoppel and fraud. The Court dismissed plaintiffs claim for promissory estoppel and fraud, but did allow the plaintiff to refile its fraud complaint.  Discovery is now underway.  In June 2002, plaintiff moved to
substitute Hercules Satellite Communications, L.L.C. for Hercules Communications, LLC, over the Companys objection.  The Court rejected plaintiffs motion, and thereafter the plaintiff voluntarily dismissed the case.  A new case
was then brought in the name of Hercules Satellite Communications, L.L.C.  The allegations in the new case are substantially similar to those which had survived in the prior case.   A trial date is now expected in May 2003, and
discovery is underway.  The Company continues to believe the case is not meritorious and intends to vigorously defend its conduct.

Item 2. 
Changes in Securities and Use of Proceeds

On May 2, 2002 the Company purchased assets which comprised the wholesale call completion business operated by privately-held
Nexcom Telecommunications LLC (Nexcom) in 11 countries in Eastern Europe, for total consideration of $11.7 million, which consisted of $9.0 million in cash and 533,701 shares of the Companys common stock.  The 533,701 shares
of common stock were not registered under the Securities Act of 1933 (the Act) for purposes of the initial issuance of the shares to Nexcom, but were registered by the Company for purposes of resale by Nexcom.  For purposes of the
initial issuance, the Company relied upon the exemption from registration afforded by Section 4(2) of the Act.  To support such exemption, Nexcom made various investment representations to the Company and the certificates representing the
shares of common stock bore a restrictive legend.

Item 6.
Exhibits and Reports on Form 8-K

(a) Exhibits:

99.1 Risk Factors (incorporated by reference to Exhibit 99.1 to the
Companys Annual Report on Form 10-K for the year ended December 31, 2001)  99.2  Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. 99.3  Certification
pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

(b) The registrant filed two Current Reports on Form 8-K during the quarter ended September
30, 2002. Information regarding the items reported on is as follows:

| | Date               |  | Matter Reported On (all disclosures under Item 5)          
| | ------------------ |  | -----------------------------------------------------------
| |                    |  |                                                            
| | August 20, 2002    |  | Earnings and Revenue Guidance.                             
| |                    |  |                                                            
| | September 19, 2002 |  | Third Quarter margins and earnings per share press release.

-23-



---

##### Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.

ITXC CORP.

|By: | /s/ EDWARD B. JORDAN                                                                            | 
|--- | ----------------------------------------------------------------------------------------------- | 
|    |                                                                                                 | 
|    | Edward B. Jordan Executive Vice President, Chief Financial Officer and Chief Accounting Officer | 

Dated: November 14, 2002

-24-



---

##### Table of Contents

CERTIFICATION

I, Tom Evslin, certify that:

1. I have reviewed this quarterly report
on Form 10-Q of ITXC Corp.;

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

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

4. The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:

| | a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this quarterly report is being prepared;
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                   
| | b) evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the
Evaluation Date); and                                                                                                  
| |                                                                                                                                                                                                                                                                                                   
| | c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;                                                                                                                        

5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent functions):

| | a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                  
| | b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and                                                                                                                                        

6. The registrants other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:  November 14, 2002

|       | /s/ TOM EVSLIN                        | 
|------ | ------------------------------------- | 
|       |                                       | 
|Name:  | Tom Evslin                            | 
|Title: | Chief Executive Officer of ITXC Corp. | 

-25-



---

##### Table of Contents

CERTIFICATION

I, Edward B. Jordan, certify that:

1. I
have reviewed this quarterly report on Form 10-Q of ITXC Corp.;

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

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

4. The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

| | a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this quarterly report is being prepared;
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                   
| | b) evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the
Evaluation Date); and                                                                                                  
| |                                                                                                                                                                                                                                                                                                   
| | c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;                                                                                                                        

5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent functions):

| | a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                  
| | b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and                                                                                                                                        

6. The registrants other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:  November 14, 2002

|       | /s/    EDWARD B. JORDAN               | 
|------ | ------------------------------------- | 
|       |                                       | 
|Name:  | Edward B. Jordan                      | 
|Title: | Chief Financial Officer of ITXC Corp. | 

-26-



---

##### Table of Contents

EXHIBIT INDEX

99.1  Risk Factors (incorporated by reference to Exhibit 99.1 to the
Companys Annual Report on Form 10-K for the year ended December 31, 2001) 99.1  Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. 99.2  Certification
pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

-27-