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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K/A

(Amendment No. 1)



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|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------



for the fiscal year ended December 31, 2003.



| ̈ | 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



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ITXC CORP.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 22-3531960                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)



750 College Road
East, Princeton, New Jersey 08540

(609) 750-3333

(Address and telephone number, including area code, of registrants principal executive office)



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Securities registered pursuant to
Section 12(b) of the Act: none.



Securities registered
pursuant to Section 12(g) of the Act:



Title of each
class

Common Stock, par value $.001 per share



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



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.) Yes  x    No ̈



The aggregate market value of the voting common equity of the registrant held by non-affiliates (for this purpose, persons
and entities other than executive officers, directors, and 5% or more shareholders) of the registrant, as of the last business day of the registrants most recently completed second fiscal quarter (June 30, 2003), was $83.9 million.



Number of shares of Common Stock outstanding as of January 31, 2004:
43,255,441



Documents incorporated by reference: None.



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EXPLANATORY NOTE



This Amendment No. 1 on Form 10-K/A to the Annual Report on Form 10-K (the Annual Report) of ITXC Corp. (the
Company or ITXC) filed on March 15, 2004 with the Securities & Exchange Commission (the SEC) is filed solely for the purposes of (1) including information that was to be incorporated by reference from the
Registrants definitive proxy statement pursuant to Regulation 14A of the Securities and Exchange Act of 1934 and (2) correcting an error in one sentence of Managements Discussion and Analysis of Results of Operations and Financial
Condition contained in Item 7 of the Annual Report. The error is contained on page 23 of the Annual Report in the Section labeled Additional Metrics Tracked By Management and changes the sentence reading Our average
buy-sell margin per minute in 2003 and 2002 was 8.29 cents and 8.6 cents, respectively, to read Our average buy-sell margin per minute in 2003 and 2002 was $0.0099 (.99 cents) and $0.0134 (1.34 cents),
respectively. The Company will not file its proxy statement within 120 days of its fiscal year ended December 31, 2003 and is therefore amending and restating in their entirety Item 10,11,12,13 and 14 of Part III of the Annual Report. In
addition, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, we are including with this Amendment No. 1 certain currently dated certifications. Except as described above, no other amendments are being made to the Annual Report.
This Form 10-K/A does not reflect events occurring after the March 15 2004 filing of our Annual Report or modify or update the disclosure contained in the Annual Report in any way other than as required to reflect the amendments discussed above and
reflected below.



Part I



Item 7.Managements Discussion and Analysis of Results of Operations and Financial Condition



The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the
related Notes to Consolidated Financial Statements that we have presented elsewhere in this Annual Report.



We have included in this Annual 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 Annual Report
to future revenue growth, future expense growth, future credit exposure, 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, (i) uncertainties relating to executing
the merger, including, but not limited to the risks of delay in consummation of the merger; the risk that either material adverse changes to either entity, or governmental action or litigation may prevent the merger from closing or render it less
desirable than anticipated; and risks relating to delays in closing the merger; uncertainties relating to the combined company after the proposed merger with Teleglobe, including but not limited to, unexpectedly high transaction costs; problems in
the integration effort; Teleglobes anticipated debt level and the inherent lack of flexibility resulting therefrom; inability to retain key employees, customers and suppliers through and after the merger process; inability to capture
anticipated synergies; the ability of Cerberus Capital Management, L.P., Teleglobes current controlling shareholder and majority owner of New Teleglobe after the merger, to exert control over the combined company; the existence of undisclosed
or unanticipated contingent liabilities; the risk stemming from the fact that New Teleglobe is not currently a publicly traded company; and the risk that Teleglobe may not be able to effectively execute its business plan and (ii) other risks
relating to the Company independent of the proposed merger, including 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; uncertainty inherent in litigation; unanticipated technological difficulties; the risk that the Company may not be able to access sufficient capital; the creditworthiness of and relationship with
our customers; future transactions; risks inherent in being subject to significant regulation; and other considerations described as Risk Factors in Exhibit 99.1 to this Annual Report on Form 10-K for the year ended December 31, 2003 and
in other filings made by us with the SEC. Such factors may also cause substantial volatility in the market price of our 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



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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 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 Consolidated Financial Statements:



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. During the fourth quarter of 2003, the Company wrote off the remaining carrying value of an
intangible asset related to an exclusive contract in Lithuania which was acquired in the Nexcom Telecommunications acquisition in May 2002. This write off resulted in a $2.0 million charge.



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. The Company has simplified its network to eliminate the need for circuit switches, to lower costs and improve quality and reliability for its customers, and to reduce further capital costs and operating complexity. As a result, the
Company recognized $7.5 million of impairment charges in 2002 related to this simplification.



From time to time, the Company is required to make other significant estimates such as the carrying value of its investments, restructuring charges, litigation accruals and employee termination benefits. Actual
results could differ from these estimates.



Overview



We are a leading global provider of voice and fax
services. We primarily use the Internet for transport of these calls. From our inception in July 1997 through April 1998, our operating activities were focused primarily on:



| |  | developing monitoring and analysis software to enable us to efficiently and cost effectively route voice over the Internet which we refer to as BestValue Routing;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | developing relationships with affiliates throughout the world to establish the global reach of ITXC.net;
| | - | --------------------------------------------------------------------------------------------------------



| |  | developing additional business strategies to supplement our affiliate network; and
| | - | ----------------------------------------------------------------------------------



| |  | hiring our initial employee group.
| | - | ----------------------------------



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 1.3 billion minutes carried through our call completion service during the quarter ended December
31, 2003;
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| |  | refining our monitoring and analysis software in order to achieve BestValue Routing;
| | - | ------------------------------------------------------------------------------------



| |  | expanding our affiliate network to 281 affiliates February 29, 2004;
| | - | --------------------------------------------------------------------



| |  | increasing the global reach of ITXC.net to offer termination to 232 countries and territories at December 31, 2003;
| | - | -------------------------------------------------------------------------------------------------------------------



| |  | applying for and securing patents on key technology;
| | - | ----------------------------------------------------



| |  | increasing our direct connection to customers using ITXC-owned SNARCs located at the customers premises;
| | - | ---------------------------------------------------------------------------------------------------------



| |  | increasing our employee headcount, from 29 employees on April 1, 1998 to 228 employees on January 31, 2004; and
| | - | ---------------------------------------------------------------------------------------------------------------



| |  | introducing ITXC VoIPLink Service and the VoIPLink Ready program, which makes VoIP internetworking practical for carriers connecting to ITXC on a VoIP-to-VoIP basis.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



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; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | pricing pressures resulting from competitive conditions in our markets.
| | - | -----------------------------------------------------------------------



Our profitability depends in large part on our revenue and our ability to maximize our buy-sell margin, i.e. the difference between what we
pay on a per minute basis to receive termination service from our suppliers and what we are able to charge our customers.



Competition from other providers of Internet telephony services and traditional telephony services, failure of customers to meet payment obligations and
regulatory developments 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:
| | - | --------------------------------------------------------------------------------------------------------



| |  | costs associated with sending voice traffic, primarily fees that we pay to our affiliates to terminate calls, fees that we pay when we find it necessary to utilize the traditional
telephone network or private data networks to terminate calls; these expenses are largely proportional to the volume of voice traffic carried over our network;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | costs associated with buying Internet access at ITXC-operated locations and expenses incurred in connecting our customers to our network (IP and PSTN connectivity
costs); these costs are largely proportional to the bandwidth of access acquired and do not typically vary based upon volume of voice traffic until additional bandwidth needs to be acquired; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | costs associated with the housing of company gateways at SuperPop facilities.
| | - | -----------------------------------------------------------------------------



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| |  | 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.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  | Sales and Marketing Expense. Salaries, payroll taxes, benefits and commissions that we pay for sales personnel and expenses associated with the development and implementation
of our promotion and marketing campaigns that are deployed both domestically and internationally.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Development Expenses. Salary, payroll tax and benefit expenses that we pay for employees and consultants who work on the development of our network management approaches and
future applications of our technology. We believe that investing in the enhancement of our technology is critical to our future success. Development expenses may increase or decrease in future periods, based upon various factors, including:
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the importance to us of improving network operations, reliability and efficiency, including our BestValue Routing software;
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| |  | the pace of technological change in our industry; and
| | - | -----------------------------------------------------



| |  | our goal of expanding the applications of our technology.
| | - | ---------------------------------------------------------



| |  | General and Administrative Expenses. Salary, payroll tax and benefit expenses and related costs for general corporate functions, including executive management, finance,
administration, facilities, legal, information technology and human resources, together with accounts receivable reserves.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Non-Cash Employee Compensation Expenses. Non-cash employee compensation represents compensation expense incurred in connection with the grant of certain stock options to our
employees with exercise prices less than the fair value of our Common Stock at the respective dates of grant. During 1999, but prior to our initial public offering, we granted options to purchase 3,413,500 shares of our Common Stock at exercise
prices equal to or less than fair value, resulting in non-cash charges of approximately $12.4 million. Similarly, in connection with our eFusion acquisition during 2000, we were required to take non-cash charges of approximately $700,000 in
connection with options granted in exchange for options previously granted by eFusion. Our expense of $66,000 in 2003 is associated with the accelerated vesting of stock options related to the resignation of our former CFO in anticipation of the
Teleglobe merger.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 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 decisions to
route additional traffic over the traditional telephone network or private data networks in order to maintain quality transmissions during relatively short periods of time as we transition our network to increased levels of capacity, or to meet peak
demands. During these periods, we occasionally experience reductions in volume from certain customers. Historically, we have satisfactorily resolved these transition issues. However, in the future other anticipated or unanticipated operating
problems associated with the growth of ITXC.net may develop.



On October 12, 2000, we acquired a 100% interest in eFusion, Inc. (eFusion), a provider of voice-enabled applications to service providers, e-commerce companies and call centers, for an aggregate purchase price of approximately
$158.8 million. The purchase price consisted primarily of 5.3 million shares of our Common Stock and options to purchase 575,045 shares of our Common Stock. In connection with this transaction, we recorded goodwill of $101.5 million and other
intangibles of $32.0 million, all of which were (prior to the impairment charge described below) to be amortized over five years. We also purchased $10.5 million of



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tangible net assets. The acquisition was accounted for as a purchase, and accordingly, the net assets and results of operations of the acquired business have
been included in our Consolidated Financial Statements from the date of acquisition.



In connection with the acquisition of eFusion, we immediately expensed the amount allocated to in-process research and development of $14.8 million in accordance with an independent third party valuation, as
technological feasibility had not been established and the technology had no alternative future use as of the date of the acquisition.



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) through December 31, 2001, and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144) subsequent to 2001 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 market conditions and the consequent slower than anticipated
growth of the Companys enhanced services, at its 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, the Company revised its cash flow projections and determined that certain long-lived assets related to its October 2000 eFusion acquisition 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, 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, which position has subsequently been diluted. We valued this investment at $700,000. We granted certain patent licenses to eStara,
while retaining our ownership of such patents. As a result, 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 worldwide (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 $700,000 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 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
were subject to an escrow agreement supporting Nexcoms indemnification obligations to the Company. All escrow shares and cash were distributed to Nexcom in May 2003. 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 3 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. During the fourth quarter of 2003, the
Company wrote off the remaining carrying value of an intangible asset related to an exclusive contract in Lithuania, which was acquired in the Nexcom Telecommunications acquisition. This write off resulted in a $2.0 million charge in the fourth
quarter. The acquisition was accounted for as a purchase in accordance with SFAS 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 periods presented.



During the fourth quarter of 2003, the Company wrote off the remainder of its
South American investment, Telenova, which resulted in a $500,000 charge. See Note 1 of the Notes to our Consolidated Financial Statements presented elsewhere in this Annual Report.



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 December 31, 2003,



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we had an accumulated deficit of $365.7 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.



Additional Metrics Tracked by Management



Our profitability for terminating calls over ITXC.net is a function of our ability to maximize our buy-sell margin, i.e. the difference
between what we pay on a per minute basis to receive termination service from our suppliers and what we are able to charge our customers. For 2003 and 2002, our buy-sell margin was $40.6 million and $41.7 million, respectively. Our
average buy-sell margin per minute in 2003 and 2002 was $0.0099 (.99 cents) and $0.0134 (1.34 cents), respectively. Total minutes for 2003 and 2002 were 4.1 billion and 3.1 billion, respectively. The sum of the cost component of the
buy-sell margin, IP connectivity costs, PSTN connectivity costs and collocation costs comprise the line item reported as Data Communications and Telecommunications Expense in our consolidated statements of operations.



Results of Operations for the Years Ended December 31, 2003, 2002 and 2001



Statistical Presentations



The following table sets forth, for the past three years, the percentage of
telecommunications revenues represented by various line items in our consolidated statements of operations



|                                                                                                                                                                          |  |       |   |  |       |   |  |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----- | - |  | ----- | - |  | ------ | -
|                                                                                                                                                                          |  | 2003  |   |  | 2002  |   |  | 2001   |  
|Revenues:                                                                                                                                                                 |  |       |   |  |       |   |  |        |  
|Telecommunications revenue                                                                                                                                                |  | 100.0 | % |  | 100.0 | % |  | 100.0  | %
|Cost and expenses:                                                                                                                                                        |  |       |   |  |       |   |  |        |  
|Data communications and telecommunications (exclusive of depreciation shown separately below)                                                                             |  | 91.0  |   |  | 87.3  |   |  | 86.6   |  
|Network operations (exclusive of depreciation shown separately below and exclusive of equity related charges included in non-cash employee
compensation)                  |  | 2.7   |   |  | 3.0   |   |  | 5.1    |  
|Selling, general and administrative (exclusive of depreciation shown separately below and exclusive of equity related charges included in
non-cash employee compensation) |  | 14.1  |   |  | 11.7  |   |  | 25.9   |  
|Depreciation                                                                                                                                                              |  | 6.2   |   |  | 9.4   |   |  | 11.4   |  
|Amortization and write-off of intangibles                                                                                                                                 |  | 0.7   |   |  | 0.1   |   |  | 73.6   |  
|Impairment of fixed assets                                                                                                                                                |  | 0.0   |   |  | 2.8   |   |  | 0.0    |  
|Restructuring charges                                                                                                                                                     |  | 0.2   |   |  | 0.7   |   |  | 2.1    |  
|Non-cash employee compensation                                                                                                                                            |  | 0.0   |   |  | 0.5   |   |  | 2.0    |  
|Total cost and expenses                                                                                                                                                   |  | 115.0 |   |  | 115.6 |   |  | 206.8  |  
|Loss associated with investments                                                                                                                                          |  | (0.1  | ) |  | (0.3  | ) |  | (0.1   | )
|Interest income, net                                                                                                                                                      |  | 0.2   |   |  | 1.0   |   |  | 5.0    |  
|Income tax expense                                                                                                                                                        |  | 0.0   |   |  | 0.1   |   |  | 0.0    |  
|Net loss                                                                                                                                                                  |  | (14.9 | ) |  | (15.0 | ) |  | (101.9 | )



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The following table shows the percentage increase or decrease in the above-mentioned line items over the
past three years.



|                                                                                                                                                                          |  |             |   |  |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | - |  | ----------- | -
|                                                                                                                                                                          |  | 2003vs.2002 |   |  | 2002vs.2001 |  
|Revenues:                                                                                                                                                                 |  |             |   |  |             |  
|Telecommunications revenue                                                                                                                                                |  | 26.1        | % |  | 54.9        | %
|Cost and expenses:                                                                                                                                                        |  |             |   |  |             |  
|Data communications and telecommunications (exclusive of depreciation shown separately below)                                                                             |  | 31.4        |   |  | 56.1        |  
|Network operations (exclusive of depreciation shown separately below and exclusive of equity related charges included in non-cash employee
compensation)                  |  | 13.1        |   |  | (7.2        | )
|Selling, general and administrative (exclusive of depreciation shown separately below and exclusive of equity related charges included in
non-cash employee compensation) |  | 52.6        |   |  | (30.0       | )
|Depreciation                                                                                                                                                              |  | (17.1       | ) |  | 27.3        |  
|Amortization and write-off of intangibles                                                                                                                                 |  | 613.0       |   |  | (99.7       | )
|Impairment of fixed assets                                                                                                                                                |  | (100.0      | ) |  |            |  
|Restructuring charges                                                                                                                                                     |  | (64.8       | ) |  | (52.2       | )
|Non-cash employee compensation                                                                                                                                            |  | (95.3       | ) |  | (59.6       | )
|Total cost and expenses                                                                                                                                                   |  | 25.5        |   |  | (13.4       | )
|Loss associated with investments                                                                                                                                          |  | 21.6        |   |  | (77.4       | )
|Interest income, net                                                                                                                                                      |  | (67.6       | ) |  | (70.5       | )
|Income tax expense                                                                                                                                                        |  | (72.9       | ) |  |            |  
|Net loss                                                                                                                                                                  |  | 25.5        |   |  | (77.2       | )



Revenue



Telecommunications revenue for the years ended December
31, 2003, 2002 and 2001 was $338.4 million, $268.4 million and $173.2 million, respectively. The principal aspect of this increase was the increased revenue generated from our call completion service, which provides international call completion to
our customers and enables them to offer their own customers phone-to-phone global voice service. Almost all of our total revenue during 2003 was derived from our call completion service.



We have increased the volume of call completion service traffic over ITXC.net. In terms of minutes of traffic, we increased
our minutes to 4.1 billion in 2003 from 3.1 billion minutes in 2002. Our average revenues per minute for call completion service declined to 8.3 cents per minute in 2003 from 8.6 cents per minute during 2002. The decline in average revenues per
minute is primarily attributable to increased competition and changes in route mix.



Approximately $8.7 million of revenues reported for the first quarter of 2003 relates to amounts from Interactive Marketing Technologies, Inc. (IMT). IMT has now filed for bankruptcy protection and the
Company has written off this receivable.



We increased our
emphasis on margin, rather than revenue, beginning in 2001 and thereafter used buy-sell margin as the major basis for sales compensation.



Operating Expenses



Data Communications and Telecommunications Expenses.    The year to year increases in the dollar amount of data communications
and telecommunications expenses primarily reflects the increased traffic during these years as well as costs associated with establishing and increasing capacity at our hubs in anticipation of future growth in traffic. The increase in the dollar
amount of such costs primarily reflected the increased traffic during 2003, as well as costs associated with establishing an increasing capacity at our hubs in anticipation of future growth in traffic.



Network Operations Expenses.    Network operations
expenses increased to $9.3 million during the year ended December 31, 2003 from $8.2 million during the year ended December 31, 2002 and from $8.8 million during the year ended December 31, 2001. Such expenses primarily reflected the cost of
operating our 24-hours-a-day, 7 days-a-week network operations center, as well as start-



-8-



---

up costs associated with the New Jersey, California, England, Germany and Hong Kong hubs. In the first quarter of 2003 we announced a new network hub in
Germany and in the fourth quarter of 2003 we announced a new network hub in Hong Kong. In general, network operations expenses are not proportional to the volume of our traffic; regardless of our volume, we are required to pay the salaries and
related costs associated with operating our network operations center in Princeton. We closed our New York hub and consolidated its operations with our New Jersey hub in 2001. We anticipate that we will be able to continue to leverage network
operations expenses over a larger revenue base in future periods. 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 extent to which we incur unanticipated expenses associated with the expansion of our hubs and the growth of our network.



Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased to $47.9 million during
the year ended December 31, 2003 from $31.4 million during the year ended December 31, 2002 and from $44.8 million during the year ended December 31, 2001. The increase in SG&A expenses for 2003 was primarily attributable to a specific bad debt
provision of $8.7 million that we made to our accounts receivable reserve in the first quarter of 2003 and higher average headcount levels during the first half of 2003. In addition, during 2003, the Company incurred $2.0 million of increased legal
expenses related to the Hercules litigation, $2.1 million in transaction, integration and employee retention expenses relating to the Teleglobe merger, and $0.3 million of executive recruiting expenses. Selling, general and administrative expenses
during 2003, 2002 and 2001 included charges of $9.9 million, $1.8 million and $7.6 million, respectively, representing bad debt expense which includes the $8.7 million mentioned above. At December 31, 2003, we had 230 employees, as compared with 280
employees one year earlier.



For information regarding customer
concentration and concentration of credit risk, see Note 2 of the Notes to the Companys Consolidated Financial Statements



As our revenues continue to grow, we expect SG&A expenses to decrease as a percentage of revenues. 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 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 decreased to $20.9 million in 2003 from $25.2 million in 2002 and increased from $19.8 million in 2001. The increase in depreciation expense from 2001 to 2003 reflects the expansion of our network and hubs and the
addition of new technologies deployed throughout our network. The decrease in depreciation expense from 2002 to 2003 was a result of the equipment we removed from our network and wrote off during the fourth quarter of 2002. We expect depreciation
expense to decrease in the future due to network simplifications and as we realize greater efficiencies from our installed capital expenditures. 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 extent to which we incur unanticipated expenses associated with the expansion of our hubs and the growth of our network.



Amortization and Write-Off of Intangibles



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. During 2003, upon reviewing the current and future value of an exclusive relationship in Lithuania, we wrote off the full value of the intangible asset. This resulted in a $2.0
million charge in 2003. Approximately $400,000 of intangibles was amortized in 2002. In 2001, we amortized $13.7 million of intangibles and we recognized $113.7 million of impairment charges related to the Companys October 2000 eFusion
acquisition.



Impairment of Fixed Assets



In the fourth quarter of 2002 we began the process of simplifying our
network to eliminate the need for circuit-switches in new installations. There are now no circuit switches active in ITXCs network. Accordingly, we recognized $7.5 million of impairment charges related to the migration to a Cisco-based
architecture and to a switch-less environment. In 2003, we recorded accelerated depreciation of $1.0 million related to our 2002 impairment.



-9-



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Restructuring Charges



During 2003, 2002 and 2001, we incurred $0.6 million, $1.8 million and $3.7 million, respectively, of restructuring charges.
During the second quarter and in the beginning of the third quarter of 2003, the Company reduced headcount by approximately 10%. The reductions were possible because of the network simplification and new technology deployed during the second and
third quarters as well as the elimination of some unprofitable customers and affiliates.



Approximately $1.0 million of restructuring charges in 2002 related to the sub-lease on our headquarters space effective January 2002. In the first quarter of 2003, the Company reached a settlement with the landlord
for the Beaverton, Oregon facility resulting in a cash payment to the landlord of approximately $1.2 million. The Company recorded an additional restructuring charge in the fourth quarter of 2002 related to this settlement. Charges in 2001 relate to
the steps we took to terminate our e-commerce operations in Beaverton, Oregon.



Non-Cash Employee Compensation Expenses



Non-cash employee compensation expense was $66,000 during the year ended December 31, 2003, $1.4 million during the year ended December 31, 2002 and $3.5 million during the year ended December 31, 2001. The charges in
2003 are associated with the accelerated vesting of stock options related to the resignation of our former CFO in anticipation of the Teleglobe merger. The changes in 2002 and 2001 represent amortization of deferred compensation incurred in
connection with the grant of options at exercise prices less than fair value. The decline in this charge during 2002 and 2001 reflects the cancellation of options held by individuals whom we no longer employ, as well as the completion of vesting
periods for certain options.



Interest and Other Income



Our interest income, net principally represents income
from cash and investments which, in turn, were derived from capital contributions made by our investors. In addition to the capital invested near the inception of our business, we raised net proceeds of $9.9 million and $14.9 million from a group of
investors in private transactions completed during April 1998 and February 1999, respectively, we raised net proceeds of $78.4 million from our initial public offering completed in October 1999 and we raised net proceeds of $161.4 million from our
follow-on public offering completed in March 2000. During the years ended December 31, 2003, 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 $0.8 million, $2.6 million and $8.7 million, respectively. The reduction in interest income, net, during 2003 and 2002 reflects a lowering of the rates that we earned on
our cash and investments and the deployment of a portion of these assets into our operating business.



Loss Associated with Investments and Joint Venture



During 2003, we determined that there was an other-than temporary impairment in the value of our South American investment. In the fourth quarter of 2003,
we wrote off the remainder of this investment resulting in a charge of $500,000. During 2002, we determined that there was an other than temporary impairment in the value of our eStara investment which resulted in a $700,000 charge in the fourth
quarter. The $250,000 charge recorded in 2001 related to a strategic investment that we made in a private e-commerce company. Based on the poor financial condition and the remote probability of success, we believed that an other-than temporary
decline in this investment had occurred and accordingly we wrote off the investment in its entirety.



Tax Expense



Tax expense for the twelve months ended December 31, 2003 and December 31, 2002 was $108,000 and $397,000, respectively. During 2003, the Company recorded
a benefit of $198,000 resulting from certain state taxes which the Company now expects will be refunded. This amount had been recorded as an expense in the year ended December 31, 2002. Since we are in a net loss position, we have no provision for
federal taxes.



The Company has a federal and state NOL
carryforward for which a full valuation allowance has been provided. An ownership change (such as the Teleglobe merger) would cause an imposition of an annual limitation on the use of NOL carryforwards attributable to periods before the change. The
Company has not determined the amount of the potential limitation.



-10-



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Quarterly Financial Information



The following table sets forth certain operating data and consolidated statements of operations data for our most recent
eight quarters. The financial information has been derived from our unaudited Consolidated Financial Statements. In our managements opinion, this unaudited financial information has been prepared on the same basis as the annual Consolidated
Financial Statements and includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for the quarters presented. This information should be read in conjunction with our Consolidated
Financial Statements and the related notes included elsewhere in this Annual Report. The operating results for any quarter are not necessarily indicative of results for any future period.



|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------ | ------- | - | ------------- | - | ------- | -------------- |  | - | ------------- | - |  | - | --------- | -
|                                                                                                                                                                          |  | Three Months Ended                   |        
|                                                                                                                                                                          |  | March 31, 2003                       |         |   | June 30, 2003 |   |         | Sept. 30, 2003 |  |   | Dec. 31, 2003 |  
|                                                                                                                                                                          |  | (in thousands except per share data) |        
|Minutes of traffic over ITXC.net                                                                                                                                          |  |                                      | 884,000 |   |               |   | 999,000 |                |  |   | 949,000       |   |  |   | 1,251,000 |  
|Revenues:                                                                                                                                                                 |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|Telecommunications revenues                                                                                                                                               |  | $                                    | 81,708  |   |               | $ | 84,214  |                |  | $ | 74,609        |   |  | $ | 97,895    |  
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|Costs and expenses:                                                                                                                                                       |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|Data communications and telecommunications (exclusive of depreciation shown separately below)                                                                             |  |                                      | 72,620  |   |               |   | 77,000  |                |  |   | 68,647        |   |  |   | 89,701    |  
|Network operations (exclusive of depreciation shown separately below and exclusive of equity related charges included in non-cash employee
compensation)                  |  |                                      | 2,498   |   |               |   | 2,374   |                |  |   | 2,020         |   |  |   | 2,359     |  
|Selling, general and administrative (exclusive of depreciation shown separately below and exclusive of equity related charges included in
non-cash employee compensation) |  |                                      | 18,704  |   |               |   | 10,984  |                |  |   | 8,334         |   |  |   | 9,840     |  
|Depreciation                                                                                                                                                              |  |                                      | 5,636   |   |               |   | 5,372   |                |  |   | 5,174         |   |  |   | 4,732     |  
|Amortization and write-off of intangibles                                                                                                                                 |  |                                      | 121     |   |               |   | 121     |                |  |   | 121           |   |  |   | 2,146     |  
|Restructuring charges                                                                                                                                                     |  |                                      |        |   |               |   | 284     |                |  |   | 341           |   |  |   |          |  
|Non-cash employee compensation                                                                                                                                            |  |                                      |        |   |               |   |        |                |  |   |              |   |  |   | 66        |  
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|Total costs and expenses                                                                                                                                                  |  |                                      | 99,579  |   |               |   | 96,135  |                |  |   | 84,637        |   |  |   | 108,844   |  
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|Loss from operations                                                                                                                                                      |  |                                      | (17,871 | ) |               |   | (11,921 | )              |  |   | (10,028       | ) |  |   | (10,949   | )
|Loss associated with investments                                                                                                                                          |  |                                      |        |   |               |   |        |                |  |   |              |   |  |   | (500      | )
|Interest income, net                                                                                                                                                      |  |                                      | 354     |   |               |   | 249     |                |  |   | 104           |   |  |   | 127       |  
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|Loss before income tax                                                                                                                                                    |  |                                      | (17,517 | ) |               |   | (11,672 | )              |  |   | (9,924        | ) |  |   | (11,322   | )
|Income tax (benefit) expense                                                                                                                                              |  |                                      | 174     |   |               |   | 179     |                |  |   | (28           | ) |  |   | (216      | )
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|Net loss                                                                                                                                                                  |  | $                                    | (17,691 | ) |               | $ | (11,851 | )              |  | $ | (9,896        | ) |  | $ | (11,106   | )
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|Loss per share                                                                                                                                                            |  | $                                    | (0.41   | ) |               | $ | (0.28   | )              |  | $ | (0.23         | ) |  | $ | (0.26     | )
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  



-11-



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|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------ | ------- | - | ------------- | - | ------- | -------------- |  | - | ------------- | - |  | - | ------- | -
|                                                                                                                                                                          |  |                                      |         |  
|                                                                                                                                                                          |  | March 31, 2002                       |         |   | June 30, 2002 |   |         | Sept. 30, 2002 |  |   | Dec. 31, 2002 |  
|                                                                                                                                                                          |  | (in thousands except per share data) |        
|Minutes of traffic over ITXC.net                                                                                                                                          |  |                                      | 658,000 |   |               |   | 778,000 |                |  |   | 838,000       |   |  |   | 847,000 |  
|Revenues:                                                                                                                                                                 |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |         |  
|Telecommunications revenues                                                                                                                                               |  | $                                    | 57,712  |   |               | $ | 65,997  |                |  | $ | 70,137        |   |  | $ | 74,535  |  
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |         |  
|Costs and expenses:                                                                                                                                                       |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |         |  
|Data communications and telecommunications (exclusive of depreciation shown separately below)                                                                             |  |                                      | 48,604  |   |               |   | 56,308  |                |  |   | 62,495        |   |  |   | 66,908  |  
|Network operations (exclusive of depreciation shown separately below and exclusive of equity related charges included in non-cash employee
compensation)                  |  |                                      | 1,951   |   |               |   | 1,938   |                |  |   | 2,113         |   |  |   | 2,177   |  
|Selling, general and administrative (exclusive of depreciation shown separately below and exclusive of equity related charges included in
non-cash employee compensation) |  |                                      | 7,031   |   |               |   | 7,051   |                |  |   | 7,966         |   |  |   | 9,317   |  
|Depreciation                                                                                                                                                              |  |                                      | 5,723   |   |               |   | 6,197   |                |  |   | 6,552         |   |  |   | 6,749   |  
|Amortization and write-off of intangibles                                                                                                                                 |  |                                      | 6       |   |               |   | 96      |                |  |   | 128           |   |  |   | 121     |  
|Impairment of fixed assets                                                                                                                                                |  |                                      |        |   |               |   |        |                |  |   |              |   |  |   | 7,539   |  
|Restructuring charges                                                                                                                                                     |  |                                      | 1,079   |   |               |   | 151     |                |  |   | 134           |   |  |   | 409     |  
|Non-cash employee compensation                                                                                                                                            |  |                                      | 697     |   |               |   | 697     |                |  |   |              |   |  |   |        |  
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |         |  
|Total costs and expenses                                                                                                                                                  |  |                                      | 65,091  |   |               |   | 72,438  |                |  |   | 79,388        |   |  |   | 93,220  |  
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |         |  
|Loss from operations                                                                                                                                                      |  |                                      | (7,379  | ) |               |   | (6,441  | )              |  |   | (9,251        | ) |  |   | (18,685 | )
|Loss associated with investments                                                                                                                                          |  |                                      |        |   |               |   |        |                |  |   |              |   |  |   | (700    | )
|Interest income, net                                                                                                                                                      |  |                                      | 883     |   |               |   | 682     |                |  |   | 624           |   |  |   | 388     |  
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |         |  
|Loss before income tax                                                                                                                                                    |  |                                      | (6,496  | ) |               |   | (5,759  | )              |  |   | (8,627        | ) |  |   | (18,997 | )
|Income tax expense                                                                                                                                                        |  |                                      |        |   |               |   |        |                |  |   | 150           |   |  |   | 247     |  
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |         |  
|Net loss                                                                                                                                                                  |  | $                                    | (6,496  | ) |               | $ | (5,759  | )              |  | $ | (8,777        | ) |  | $ | (19,244 | )
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |         |  
|Loss per share                                                                                                                                                            |  | $                                    | (0.14   | ) |               | $ | (0.12   | )              |  | $ | (0.19         | ) |  | $ | (0.44   | )
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |         |  



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 $2.0 million for the year ended December 31, 2003, $12.9 million for the year
ended December 31, 2002 and $3.3 million for the year ended December 31, 2001, principally reflecting the repayment of capital lease obligations, a $9.8 million stock repurchase in the fourth quarter of 2002, and the repayment of our equipment line
of credit.



Net cash used in operating activities amounted to
$28.5 million, $4.6 million and $25.3 million for the years ended December 31, 2003, 2002 and 2001, respectively. Cash used in operating activities in these periods was primarily the result of net operating losses and increased accounts receivable,
partially offset by increases in accounts payable and accrued expenses.



Net cash provided by investing activities was $13.5 million for the year ended December 31, 2003 and was primarily related to the sale of available-for-sale securities offset in part by the purchases of property and equipment. For 2002, net
cash used in investing activities of $2.4 million was primarily related to the purchase of the Nexcom assets and the purchase of property and equipment, offset by the sale of available-for-sale securities. Net cash provided by investing activities
was $44.8 million for the year ended December 31, 2001 and was primarily related to sale of available-for-sale securities, offset in part by the purchases of property and equipment.



-12-



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As of December 31, 2003, our principal commitments consisted of obligations outstanding under operating
and capital leases. At that date, future minimum payments for non-cancelable leases include required payments of $3.9 million during 2004 and $16.8 million for years 2005-2008 and thereafter under all leases. The minimum lease payments have not been
reduced by minimum operating sublease rentals of $1.2 million due in the future under non-cancelable subleases.



On October 23, 2002 the Company announced that its Board of Directors had authorized a stock repurchase program for up to $10 million. As of December 31,
2002, the Company had used $9.8 million of this authorization to repurchase a total of 3,883,700 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. On March 31, 2003 the Board authorized an additional $5.0 million repurchase. Pursuant to the merger agreement with Teleglobe, the Company no longer has any outstanding buyback authorization. The Company did not purchase any
shares in 2003 under its prior buyback authorizations.



During
the second quarter of 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. In addition, in November 2003, the Company issued a letter of credit to a vendor in the amount of $4.0 million. This instrument was issued as a means of obtaining more beneficial payment terms from
the vendor. In order to secure the facility, the Company was required to deposit $4.0 million in a restricted bank account and maintain such balance as long as the facility remains in place.



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. Our stockholders equity has
decreased from $352.3 million at December 31, 2000 to $84.8 million at December 31, 2003. During the past three years, our cash and cash equivalents have decreased by $20.5 million. If the Teleglobe merger is not consummated, 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 as a result of certain of the risk factors described in Exhibit 99.1 to this Annual Report. If the Teleglobe merger is not consummated, we may
need to raise additional funds in order to fund operations and/or 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. Any such funding may be dilutive to existing stockholders (if in the form of equity) and may result in the imposition of restraints on managements ability to operate the
Companys business.



The following summarizes the
Companys contractual obligations at December 31, 2003, and the effect such obligations are expected to have on its liquidity and cash flow in future periods.



|                                   |  |                                            |            |                  |   |             |  |             |           |               |   |           |  |   |          
|---------------------------------- |  | ------------------------------------------ | ---------- | ---------------- | - | ----------- |  | ----------- | --------- | ------------- | - | --------- |  | - | ---------
|                                   |  | Payments Due by Period                    
|Contractual Obligations            |  | Total                                      |            | Less than 1 year |   | 2  3 years |  | 4  5 years |           | After 5 years
|Capital Lease Obligations          |  | $                                          | 1,902,783  |                  | $ | 1,116,575   |  | $           | 786,208   |               | $ |          |  | $ |         
|Operating Leases                   |  |                                            | 18,844,722 |                  |   | 2,816,773   |  |             | 5,103,988 |               |   | 5,065,332 |  |   | 5,858,629
|                                   |  |                                            |            |                  |   |             |  |             |           |               |   |           |  |   |          
|Total Contractual Cash Obligations |  | $                                          | 20,747,505 |                  | $ | 3,933,348   |  | $           | 5,890,196 |               | $ | 5,065,332 |  | $ | 5,858,629
|                                   |  |                                            |            |                  |   |             |  |             |           |               |   |           |  |   |          
|                                   | 
|                                   |  | Amount of Commitment Expiration Per Period
|Other Commercial Commitments       |  | TotalAmountsCommitted                      |            | Less than 1 year |   | 1  3 years |  | 4  5 years |           | Over 5 years 
|Standby Letters of Credit          |  | $                                          | 6,133,923  |                  | $ | 4,050,000   |  | $           |          |               | $ |          |  | $ | 2,083,923
|                                   |  |                                            |            |                  |   |             |  |             |           |               |   |           |  |   |          
|Total Commercial Commitments       |  | $                                          | 6,133,923  |                  | $ | 4,050,000   |  | $           |          |               | $ |          |  | $ | 2,083,923
|                                   |  |                                            |            |                  |   |             |  |             |           |               |   |           |  |   |          



-13-



---

Certain executive officers of the Company have employment agreements for a limited term that provides to
each such executive officer certain benefits in the event that his employment is terminated without cause. In such event, such individuals would be entitled to receive their salary through the end of the term and certain bonus payments, as well as
related benefits described in the agreement. The potential future obligations under these agreements do not exceed $1.4 million. In addition, Anthony Servidio, who recently became Chief Financial Officer, has an employment agreement providing for a
special retention bonus if he remains in the employ of the Company through a specified transition period.



Pursuant to the announcement of the Teleglobe merger, certain employees of the Company received severance and/or retention agreements. The potential
future obligations under these agreements are not expected to exceed $3.9 million.



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 the 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 adoption of this standard did not have any impact on the Companys consolidated results of operations and financial position during the periods presented herein.



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 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 for the year ended December 31, 2001, giving effect to SFAS No. 142 as if it were adopted on January 1, 2001:



|                                                |  |                              |              |  
|----------------------------------------------- |  | ---------------------------- | ------------ | -
|                                                |  | Year ended December 31, 2001 |             
|Net loss, as reported                           |  | $                            | (176,441,866 | )
|Add back: amortization expense, net of tax      |  |                              | 10,184,795   |  
|                                                |  |                              |              |  
|Pro forma net loss                              |  | $                            | (166,257,071 | )
|                                                |  |                              |              |  
|Basic and diluted loss per common shareholders: |  |                              |              |  
|As reported                                     |  | $                            | (3.89        | )
|                                                |  |                              |              |  
|Pro forma                                       |  | $                            | (3.66        | )
|                                                |  |                              |              |  



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 was adopted beginning January 1, 2003. The adoption
of this standard did not have a material impact on the Companys consolidated results of operations and financial position during the periods presented herein.



In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, Consolidation of Variable Interest
Entities, an Interpretation of Accounting Research Bulletin (ARB) No. 51. The Interpretation introduces a new consolidation model, the variable interests model, based on potential variability in gains and losses of the entity being evaluated for
consolidation. It



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provides guidance for determining whether an entity lacks sufficient equity or the entitys equity holders lack adequate decision-making ability. These
entities, variable interest entities (VIE), are evaluated for consolidation based on their variable interests. Variable interests are contractual, ownership or other interests in an entity that expose their holders to the risks and rewards of the
VIE. The Interpretations provisions are effective currently for variable interests in VIEs created after January 31, 2003, and for variable interests in VIEs created before February 1, 2003, no later than the end of the first
interim or annual reporting period ending after March 15, 2004. Management does not believe that the adoption of this standard will have a material impact on the Companys financial statements.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.SFAS No. 150 requires that certain financial instruments with characteristics of both liabilities and equity, including mandatorily redeemable financial
instruments, be classified as a liability. Any amounts paid or to be paid to holders of these financial instruments in excess of the initial measurement amount shall be reflected in interest cost. SFAS No. 150 is effective at the beginning of the
first interim period beginning after June 15, 2003. The Company adopted SFAS No. 150 on July 1, 2003. The adoption of this standard had no impact on the Companys consolidated results of operations, financial position or cash flows.



PART III



|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
|-------- | --------------------------------------------------



Executive Officers



See Item 4A of the Annual Report for information regarding ITXCs executive officers.



Board of Directors



ITXCs Board of Directors is divided into three classes, with each class serving staggered terms of three years, so that only one class is elected in
any one year. At present there are five directors on the Board. ITXC has not scheduled a date for its annual meeting of stockholders, given the pending nature of the proposed merger (the Merger) of ITXC with a wholly-owned subsidiary of
Teleglobe International Holdings Ltd (formerly Teleglobe Bermuda Holdings Ltd).



We have set forth below a description of the current and past five years business experience, certain directorships and age of each member of ITXCs Board of Directors. The following information is given as
of January 31, 2004.



Directors Serving Until the 2004 Annual Meeting (if
conducted)



Frank Gill: Mr. Gill is a 23-year
veteran of Intel Corporation where he held a variety of positions in sales and marketing, product development, and manufacturing operations. Mr. Gill served as Executive Vice President of Intel Corporation from 1995 through his retirement in June
1998, and as Senior Vice President from 1988 through



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1995. In addition to serving as a director of ITXC, Mr. Gill currently serves on the boards of directors of Tektronix
Inc., Logitech International S.A. and Pixelworks, Inc. Director since 2000. Age: 60.



Leo J. Cyr: Leo J. Cyr is President and Chief Operating Officer and a director of Network Telephone Corp., a CLEC delivering local and long distance telephone, high speed Internet access, Web hosting and Web
site design tools to businesses in the Southeastern U.S. Mr. Cyr joined Network Telephone in October 2003, and has more than 25 years of experience in telecommunications operations and management. Previously, Mr. Cyr served from January 2001 to
October 2003 as President and Chief Operating Officer for Clearwire Technologies, a start-up broadband wireless operator utilizing the MMDS/ITFS spectrum. Prior to this, Mr. Cyr served from October 1999 to December 2000 as President, Chief Operating
Officer and member of the board of directors of CapRock Communications, a regional telecommunications provider in the Southwest U.S., which was sold to McLeod Communications. Director since August 2003. Age:48



Director Serving Until 2005



Edward B. Jordan: Mr. Jordan, a co-founder of the Company, is
currently the chief financial officer of Flarion Technologies, Inc., a developer of air link technology enabling broadband communications in a cellular environment. He joined Flarion in early January 2004, after stepping down from his positions with
ITXC. He served as an Executive Vice President of ITXC from February 1999 until December 31, 2003, and served as the Companys Chief Financial Officer, Secretary and Treasurer from September 1997 until December 31, 2003. From September 1997
until February 1999, Mr. Jordan was the Companys Vice President, Administration. For ten years prior to joining the Company, he was employed by Dialogic Corporation, a manufacturer of computer telephony products, serving first as Controller
and then as Chief Financial Officer, Treasurer and Vice President. Prior to joining Dialogic, Mr. Jordan served in the Audit Department of Deloitte & Touche from 1982 to 1986. He is a certified public accountant. Director since 1998. Age: 43.



Directors Serving Until 2006



Tom I. Evslin: Mr. Evslin, a co-founder of the Company, has been
Chairman of the Board, Chief Executive Officer, and President of ITXC since ITXCs inception in July 1997. From December 1994 until July 1997, he was employed by AT&T, where he designed its Internet strategy and launched and ran its
Internet service provider, AT&T WorldNet Service. From December 1991 until December 1994, Mr. Evslin worked for Microsoft, where he last served as General Manager, Server Applications Division from May 1993. From 1969 to 1991, he was Chairman
and Chief Executive Officer of Solutions, Inc., a communications software development company. He is the Chairman of the Policy Committee and a member of the board of the Voice On The Net Coalition. Director since 1997. Age: 60.



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Mr. Evslin previously announced plans to retire as Chief Executive Officer and President of the Company
as soon as the Company selects a successor. If the Merger were not consummated for any reason, it is anticipated that the Company would appoint a successor and that Mr. Evslin would serve as a non-executive Chairman of the Board.



Frederick R. Wilson: Mr. Wilson is the founder and managing partner of
Union Square Ventures, a venture capital firm which primarily invests in technology-oriented companies. Mr. Wilson is also the Managing Partner of Flatiron Partners, which he founded in 1996. For ten years prior to August 1996, he worked for
Euclid Partners, an early-stage venture capital firm. Mr. Wilson currently serves on the boards of directors of a number of privately held companies. Director since 1998. Age: 42.



The Companys Board of Directors has three standing committees: an Audit Committee, a Compensation Committee, and a CEO
Committee. During 2003, the Board of Directors held 24 meetings, the Audit Committee held five meetings and the Compensation Committee held four meetings. As Mr. Evslin is the sole member of the CEO Committee, that entity does not conduct formal
meetings. During 2003, no director other than Liam Strong attended less than 75 percent of the aggregate number of meetings of the Board of Directors and committees of the Board of which he was a member.



Liam Strong has been affiliated with Teleglobe or its majority shareholder
since 2002 and will be the president and chief executive officer of the combined company upon the consummation of the Merger. From May 9, 2002 until his resignation in May 2003 upon his appointment as an executive of Teleglobe, Mr. Strong was a
member of ITXCs board of directors. Immediately after April 10, 2003, the date on which IDT Corporation issued a press release announcing its plan to make an unsolicited offer for ITXC, Mr. Strong recused himself from all ITXC board meetings
or discussions relating to that offer, any other offer or strategic alternatives or any potential transactions with any party, and was not provided information or material on those matters. Mr. Strong recused himself from consideration of all
potential transactions to avoid any appearance that he was voting upon matters in which he may have had a conflict of interest and to assure that Teleglobe did not obtain any unfair advantage by being aware of terms proposed by competing bidders.
The determination to recuse himself from such matters caused Mr. Strong to attend less than 75 percent of the aggregate number of meetings of the Board of Directors and committees of the Board of which he was a member.



The Audit Committee, established in accordance with Section 3(a)(58)(A) of
the Securities Exchange Act of 1934, consists of Messrs. Wilson, Gill and Cyr, with Mr. Wilson serving as Chairman. The Audit Committee selects the firm to be appointed as independent accountants to audit ITXCs financial statements and to
perform services related to the audit; reviews the scope and results of the audit with the independent accountants; reviews the Companys year-end and quarterly operating results with management and the independent auditors; considers the
adequacy of ITXCs internal accounting and control procedures; reviews the non-audit services to be performed by the



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independent accountants, if any; and evaluates the accountants independence. ITXCs Board of Directors has
determined that Frederick R. Wilson constitutes an audit committee financial expert, as such term is defined by the SEC. Mr. Wilson has also been determined to be independent within the meaning of SEC and Nasdaq regulations.



The Compensation Committee consists of Messrs. Gill, Cyr and
Wilson, with Mr. Gill serving as Chairman. The Compensation Committee reviews, recommends and approves compensation arrangements for executive officers and other senior level employees, and administers certain benefit and compensation plans and
arrangements.



The CEO Committee, composed solely of Mr.
Evslin, grants stock options and determines the basic terms of option grants to certain employees under ITXCs stock incentive plan in accordance with the terms set for that plan by the Compensation Committee. The stock incentive plan grants
the CEO Committee this authority with respect to persons other than directors, specified executive officers, consultants and other individuals identified by the Compensation Committee.



The Board has no nominating committee; the functions of a nominating committee are performed by the entire Board. No
procedures have been developed with respect to obtaining nominations from stockholders.



There are no relationships by blood, marriage, or adoption, not more remote than first cousin, between any director or executive officer of the Company and any other director or executive officer of the Company.



Section 16(a) Beneficial Ownership Reporting Compliance



Section 16(a) of the Securities Exchange Act of 1934 requires the
Companys officers and directors, and persons who own more than ten percent of the Companys common stock, to file reports of ownership and changes in ownership of such securities with the SEC and NASDAQ. Such persons are required by
applicable regulations to provide the Company with copies of all Section 16(a) forms that they file. Based solely upon a review of the copies of the forms furnished to the Company, or written representations from certain reporting persons that no
forms were required, the Company believes that all filing requirements applicable to its officers, directors and known ten percent stockholders were complied with during 2003.



Code of Ethics



ITXC has implemented a code of ethics applicable to its directors, executive officers and other senior financial personnel, a copy of which is set forth
as Exhibit 14.1 to the Annual Report.



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|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------



The following table sets forth the total cash and non-cash compensation that ITXC paid or accrued during the years ended December 31, 2003, 2002 and 2001
with respect to its Chief Executive Officer and the individuals who, during 2003, were the four other most highly compensated executive officers of the Company (the named executive officers). The principal components of these
individuals current cash compensation are the annual base salary and bonus included in the Summary Compensation Table. The Company has also described below other compensation these individuals received under employment agreements and
ITXCs stock incentive plan.



Summary Compensation Table



|                                                                         |  |                     |  |            |                                                   |           |   |                             |                       |  |                  
|------------------------------------------------------------------------ |  | ------------------- |  | ---------- | ------------------------------------------------- | --------- | - | --------------------------- | --------------------- |  | -----------------
|                                                                         |  |                     |  |            |                                                   |           |   |                             | Long TermCompensation
|                                                                         |  | Annual Compensation |  |            | Number ofSecuritiesUnderlying Options/SARs (#)(1)
|Name and Principal Position                                              |  | Year                |  | Salary ($) |                                                   | Bonus ($) |   |                            
|Tom I. EvslinChairman of the Board,President and Chief Executive Officer |  | 200320022001        |  | $          | 300,000301,154295,725                             |           | $ | 135,000(2185,250(2280,125(2 | )))                   |  |   500,000      
|                                                                         |  |                     |  |           
|Edward B. JordanExecutive Vice Presidentand Chief Financial Officer      |  | 200320022001        |  |            | 196,923186,539195,385                             |           |   | 89,243(2122,489(2179,650(2  | )))                   |  | 100,000  150,000
|                                                                         |  |                     |  |           
|Steven J. OttExecutive Vice President ofGlobal Sales                     |  | 200320022001        |  |            | 125,000125,000124,519                             |           |   | 183,757(3173,086(3210,160(3 | )))                   |  | 100,000  125,000
|                                                                         |  |                     |  |           
|Theodore M. WeitzVice President, General Counseland Secretary            |  | 200320022001        |  |            | 180,000176,92370,673                              |           |   | 97,031(284,094(238,719(2    | )))(4)                |  | 50,000  85,000  
|                                                                         |  |                     |  |           
|John Landau Executive Vice President,Product Management                  |  | 20032002            |  |            | 200,000103,846                                    |           |   | 74,250(238,313(2            | ))(4)                 |  |   300,000       



---

|(1) | Includes shares covered by options granted in 2001 to replace canceled options pursuant to ITXCs Option Cancellation Program, as follows: Mr. Evslin: 0 shares; Mr. Jordan:
50,000 shares; Mr. Ott: 0 shares; and Mr. Weitz 0 shares.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Bonuses for 2003 include some bonuses that were earned in 2003 but were not paid until 2004. Bonuses for 2002 include some bonuses that were earned in 2002 but were not paid until
2003. Bonuses for 2001 include some bonuses that were earned in 2001 but were not paid until 2002.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Consists of commissions earned by Mr. Ott.
|--- | ------------------------------------------

|(4) | Mr. Weitz joined ITXC in July 2001 and Mr. Landau joined ITXC in June 2002.
|--- | ---------------------------------------------------------------------------



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Stock Option Information



The following table presents certain information regarding stock options granted to the named executive officers during 2003 under the Companys
stock incentive plan.



|          |  |                                                 |  |                                                                                               |        |                   |         |                 |  |        |  |        
|--------- |  | ----------------------------------------------- |  | --------------------------------------------------------------------------------------------- | ------ | ----------------- | ------- | --------------- |  | ------ |  | -------
|          |  | Individual Grants                               |  | Potential RealizableValue at AssumedAnnual Rates ofStock PriceAppreciation forOption Term (1)
|Name      |  | Number ofSecuritiesUnderlyingOptionsGranted (#) |  | Percentage of Total Options Granted to Employees                                              |        | ExercisePrice ($) |         | Expiration Date | 
|          |  |                                                 |  |                                                                                               | 5% ($) |                   | 10% ($)
|T. Evslin |  |                                                |  |                                                                                              |        |                  |         |                |  |       |  |       
|E. Jordan |  | 100,000                                         |  | 8.23                                                                                          |        | 2.55              |         | 1/8/2013        |  | 60,650 |  | 305,450
|S. Ott    |  | 100,000                                         |  | 8.23                                                                                          |        | 2.55              |         | 1/8/2013        |  | 60,650 |  | 305,450
|T. Weitz  |  | 50,000                                          |  | 4.12                                                                                          |        | 2.55              |         | 1/8/2013        |  | 30,325 |  | 102,725
|J. Landau |  |                                                |  |                                                                                              |        |                  |         |                |  |       |  |       



---

|(1) | Amounts represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. The 5% and 10% assumed annual rates of compounded
stock price appreciation are mandated by rules of the Securities and Exchange Commission and do not represent ITXCs estimate or projection of ITXCs future common stock prices. These amounts represent assumed rates of appreciation in the
value of ITXCs common stock from the fair market value on the date of grant. Actual gains, if any, on stock option exercises are dependent on the future performance of ITXCs common stock. The amounts reflected in the table may not
necessarily be achieved.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following table
presents information regarding the number of stock options held by the named executive officers at December 31, 2003 and the value of in-the-money stock options held by such persons at December 31, 2003. The calculation of the value of unexercised
options is based upon a market price of $4.31 per share, representing the closing sale price of one share of the Companys common stock on December 31, 2003. None of the named executive officers exercised any stock options during 2003.



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|                  |  |                                         |  |                                   |  |             |           |               |   |        
|----------------- |  | --------------------------------------- |  | --------------------------------- |  | ----------- | --------- | ------------- | - | -------
|                  |  | Number of Shares Underlying Unexercised |  | Value of Unexercised In-the-Money
|                  |  | Options at Fiscal Year-end (#)          |  | Options at Fiscal Year-end ($)   
|Name              |  | Exercisable                             |  | Unexercisable                     |  | Exercisable |           | Unexercisable
|Tom I. Evslin     |  | 250,000                                 |  | 250,000                           |  |             |          |               |   |       
|Edward B. Jordan  |  | 900,000                                 |  | 150,000                           |  | $           | 3,448,000 |               | $ | 431,000
|Steven J. Ott     |  | 341,332                                 |  | 172,500                           |  |             | 1,072,465 |               |   | 431,000
|John Landau       |  | 75,000                                  |  | 225,000                           |  |             |          |               |   |       
|Theodore M. Weitz |  | 42,500                                  |  | 92,500                            |  |             |          |               |   | 215,500



Employment Agreements



ITXC has entered into employment agreements with
certain of its current executive officersEric Weiss, Theodore Weitz, Steve Ott and John Landauwhich will extend for a term ending one year after the effective date of a change in control event, assuming that the change in control event
occurs prior to July 1, 2004. Consummation of the proposed Merger would constitute such a change in control event. The agreements assure each such executive of severance if after, or in anticipation of, the consummation of a change in control event,
any of the following were to occur:



| |  | the executives employment is terminated without cause;
| | - | -------------------------------------------------------



| |  | the executive is demoted or there is a material diminution in the executives responsibilities or authority;
| | - | ------------------------------------------------------------------------------------------------------------



| |  | the executive is required to relocate more than 50 miles from his current place of employment;
| | - | ----------------------------------------------------------------------------------------------



| |  | the executives base compensation or total target compensation is reduced; or
| | - | -----------------------------------------------------------------------------



| |  | there is a material breach by ITXC of the executives employment agreement.
| | - | ---------------------------------------------------------------------------



For the executive officers other than Mr. Ott, the severance benefit will consist primarily of payment of the
executives salary through the remainder of the term, subject to offset in certain circumstances, and payment of certain guaranteed bonuses for up to two fiscal quarters. Since Mr. Ott is compensated in part on a commission basis due to his
role in sales, Mr. Otts severance is expressed in part in terms of guaranteed sales incentive payments. Under ITXCs Stock Incentive Plan, these executives stock options will vest upon an involuntary termination of employment, other
than for cause, within 12 months following consummation of the merger and will remain exercisable for a period of one year after such termination. The employment agreements provide that if the merger is consummated prior to July 1, 2004, these
executives options will remain exercisable after such involuntary termination until the second anniversary of the effective time of the merger.



ITXC also entered into an employment agreement with Edward Jordan, its former chief financial officer, who resigned on January 1, 2004 but who has
remained on the ITXC Board. While Mr. Jordan will no longer be entitled to receive any severance payments pursuant to his employment agreement, that agreement provides that his stock



-21-



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options became fully exercisable concurrent with his resignation. Such options will remain exercisable until July 1,
2005, provided that, if the Merger occurs prior to July 1, 2004, Mr. Jordans options will remain exercisable until the second anniversary of the effective time of the merger.



Anthony Servidio replaced Edward Jordan as ITXCs CFO. If the Merger is consummated, Mr. Servidio will not be the CFO
of the combined company, but expects to remain in a transition role for approximately nine months after the closing. If Mr. Servidio remains with the combined company for such nine month period or his employment is terminated without cause during
that period, he will receive severance plus a bonus of up to 50% of his base pay after January 1, 2004. If the Merger is not consummated and Mr. Servidio remains employed by ITXC until July, 2005 or is terminated without cause prior to that date, he
will be entitled to the bonus but not the severance.



Compensation Committee
Interlocks and Insider Participation



During 2003, Messrs.
Gill, Strong, Cyr and Wilson participated on the Companys Compensation Committee. None of the members of ITXCs Compensation Committee served as an officer or employee of ITXC or any of its subsidiaries during 2003. Mr. Strong was a
consultant to Cerberus Partners LP, the principal shareholder of Teleglobe, beginning in June 2002 and an employee of a Cerberus affiliate beginning in February 2003. He will be the president and chief executive officer of the combined company upon
the consummation of the Merger.



1998 Incentive Stock Option Plan



Under the Companys stock incentive plan, incentive
stock options and non-qualified stock options to purchase shares of Common Stock may be granted to directors, officers, employees and consultants. Under the plan, the Company may also issue stock appreciation rights, either alone or in connection
with options, restricted stock awards and performance awards. As of December 31, 2003, the Company had not issued any such stock appreciation rights, restricted stock awards or performance awards.



On January 1 of each year, the number of shares of Common Stock available for
issuance under the plan increases by the least of:



| |  | 2,000,000 shares;
| | - | -----------------



| |  | 3% of the outstanding shares; or
| | - | --------------------------------



| |  | a number of shares determined by the Board of Directors.
| | - | --------------------------------------------------------



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The plan provides that in the event of a change in control, all options outstanding on that date will be
immediately and fully exercisable upon termination of an option holders employment or service for certain specified reasons within twelve months following the change in control. In addition, under certain circumstances, upon such specified
termination, an option holder may be permitted to exchange any unexercised options for a cash payment.



Employee Stock Purchase Plan



The Company has an employee stock purchase plan intended to meet the qualifications for such a plan under applicable federal income tax laws. The plan is administered by the Compensation Committee. The number of shares available for
purchase under the plan increases on January 1 of each year in an amount equal to the least of:



| |  | 600,000 shares of common stock;
| | - | -------------------------------



| |  | 1% of the common stock outstanding on January 1; or
| | - | ---------------------------------------------------



| |  | a number of shares of common stock specified by the Board of Directors.
| | - | -----------------------------------------------------------------------



During periods when employees are permitted to make purchases, the purchase price of the shares of common stock will be equal to 85% of the lesser of:



| |  | the fair market value of the common stock on the employees entry date into the applicable offering period; or
| | - | --------------------------------------------------------------------------------------------------------------



| |  | the fair market value of the common stock on the date of purchase.
| | - | ------------------------------------------------------------------



However, the purchase price for any employee whose entry date is other than the start date of an offering period shall not be less than 85% of the fair
market value of the common stock on the start date of that offering period.



In the event of a change in control, each outstanding purchase right shall automatically be exercised. ITXC will use its best efforts to provide written notice in advance of the occurrence of any of these
transactions. Upon receipt of such notice, employees may terminate their outstanding purchase rights.



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Cash Incentive Plan



The Company maintains a cash incentive plan to encourage and reward its employees for their contributions to ITXCs performance. All employees,
except salespeople, are eligible to participate in this plan. Employees who are eligible receive bonuses calculated according to a formula which takes into account individual performance and Company performance.



Compensation of Directors



Commencing April 1, 2003, all non-employee directors received a retainer of
$5,000 per quarter, meeting fees of $1,500 per meeting and an initial option grant covering 50,000 shares of ITXCs Common Stock. Effective January 1, 2003, Mr. Wilson began to be compensated as a non-employee director. As part of the
transition in compensation, Mr. Wilson received a fee of $3,750 for the first three months of 2003 and an option grant covering 50,000 shares and Messrs. Gill and Strong received option grants covering 20,000 shares as of March 31, 2003, so that
each of their option grants would also be at the 50,000 share level. Upon joining the Board of Directors on August 5, 2003, Mr. Cyr received a fee of $3,333.33 for the months of August and September of 2003 and an option grant covering 50,000
shares.



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|-------- | --------------------------------------------------------------



Pursuant to an Agreement and Plan of Merger, dated as of November 4, 2003, by and among Teleglobe Bermuda Holdings Ltd (formerly Teleglobe International
Holdings Ltd and referred to in this Item 12 as Teleglobe), VEX Merger Subsidiary Corp., a Delaware corporation and a direct or indirect wholly-owned subsidiary of Teleglobe (the Merger Sub), and the Company (the Merger
Agreement), Teleglobe, the Company and certain stockholders of the Company (collectively, the Stockholders) entered into a voting agreement, dated as of November 4, 2003 (the Voting Agreement). As a result of the terms
of the Merger Agreement and the Voting Agreement and as reported by Teleglobe in a filing on Schedule 13D made by Teleglobe on November 14, 2003 with the SEC, Teleglobe may be deemed to be the beneficial owner of 10,884,912 shares of ITXCs
common stock, representing at the time of its filing approximately 23% of ITXCs outstanding common stock. Upon consummation of the Merger described in the Merger Agreement, a change of control of ITXC will occur, as ITXC will become a
wholly-owned subsidiary of an affiliate of Teleglobe. At that time, stockholders of ITXC immediately prior to the effective time of the Merger will own approximately 27.75% of the outstanding common stock of the combined company excluding
outstanding options and warrants, and approximately 31.2% of the combined company on a fully diluted basis.



Pursuant to the Voting Agreement, among other things, Teleglobe, the Company and the Stockholders agreed to terms pursuant to which each Stockholder shall
vote or consent (or cause to be voted or consented) all of the shares subject to the Voting Agreement (a) in favor of the adoption of the Merger Agreement and the approval of other actions contemplated by the Merger Agreement and the Voting
Agreement and any



-24-



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actions required in furtherance thereof, and (b) in opposition of any action or agreement that would result in a breach
in any respect of any covenant, representation or warranty or any other obligation or agreement of the Company under the Merger Agreement or the Voting Agreement, and any action which, in Teleglobes reasonable judgment, is intended to or could
reasonably be expected to impede, interfere with, delay, postpone or materially adversely affect the Merger or the transactions contemplated by the Voting Agreement and the Merger Agreement.



The following table sets forth the beneficial ownership of shares of
ITXCs common stock as of March 31, 2004 by each stockholder of the Company known to beneficially own more than five percent of ITXCs common stock (excluding Teleglobe), by the directors of the Company, by the executive officers named in
the Summary Compensation Table above and by all directors and executive officers of the Company as a group. Information in this table was furnished to the Company by the respective directors and executive officers.



|                                                             |  |                          |        |  |            |  
|------------------------------------------------------------ |  | ------------------------ | ------ |  | ---------- | -
|Name                                                         |  | Shares BeneficiallyOwned |        |  | Percentage |  
|Executive Officers and Directors                             |  |                          |        |  |            |  
|Tom I. Evslin                                                |  | 6,969,362                | (1)(2) |  | 16.04      | %
|Edward B. Jordan                                             |  | 1,617,108                | (1)(3) |  | 3.72       | %
|Steven J. Ott                                                |  | 498,361                  | (1)    |  | 1.15       | %
|John Landau                                                  |  | 75,000                   | (1)    |  | *          |  
|Theodore M. Weitz                                            |  | 62,015                   | (1)(4) |  | *          |  
|                                                             |  |                          |        |  |            |  
|Leo Cyr                                                      |  | 0                        |        |  | *          |  
|Frank Gill                                                   |  | 49,240                   | (1)    |  | *          |  
|Frederick R. Wilson                                          |  | 342,711                  | (1)(5) |  | *          |  
|All executive officers and directors as a group (10 persons) |  | 10,102,535               |        |  | 23.25      | %

---

|* | Represents less than one percent.
|- | ---------------------------------

|(1) | The table above includes the following number of shares which the following persons may acquire under options and warrants held as of March 31, 2004 and exercisable within 60 days
of such date:
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                |  |          
|----------------------------------------------- |  | ---------
|Tom I. Evslin                                   |  | 375,000  
|Edward B. Jordan                                |  | 1,050,000
|Steven J. Ott                                   |  | 378,832  
|John Landau                                     |  | 75,000   
|Theodore M. Weitz                               |  | 55,000   
|Frank Gill                                      |  | 32,500   
|Fred Wilson                                     |  | 12,500   
|All executive officers and directors as a group |  | 2,395,497



|(2) | Includes 1,025,833 shares beneficially owned by Mr. Evslins spouse. Also includes 459,000 shares held by The Evslin Family Foundation, Inc., a charitable foundation for which
Mr. and Mrs. Evslin serve as two of the three trustees. With the exception of shares held with his spouse as joint tenants, Tom I. Evslin disclaims beneficial ownership of the shares owned beneficially by his spouse directly and as trustee, as well
as the shares owned by the charitable foundation. Mr. Evslins principal business address is 750 College Road East, Princeton, New Jersey 08540.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Mr. Jordans shares include 24,700 shares beneficially owned by his children, who are minors. Mr. Jordan disclaims beneficial ownership of the shares beneficially owned by his
children.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes 250 shares held through a 401(k) plan.
|--- | -----------------------------------------------



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|(5) | These shares are held by F.J. Wilson Partners, L.P., of which Mr. Wilson is a general partner. Mr. Wilson disclaims beneficial ownership of these shares, except to the extent of his
pecuniary interest therein.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following table
gives information, as of December 31, 2003, about options, warrants and rights granted under the Companys stock incentive plan, which represents the only equity compensation plan utilized by the Company. Warrants granted to the Companys
Chief Executive Officer and its then Chief Financial Officer as part of a bridge financing effected prior to the time that the Company became a public company are not included in this table.



|                                                       |  |                                                                                             |  |                                                                              |      |                                                                                                                                            |          
|------------------------------------------------------ |  | ------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------- | ---- | ------------------------------------------------------------------------------------------------------------------------------------------ | ---------
|Plan Category                                          |  | (a) Number Of SecuritiesTo Be Issued UponExercise OfOutstanding Options,Warrants and Rights |  | (b) Weighted-AverageExercise Price OfOutstanding Options,Warrants and Rights |      | (c) Number Of SecuritiesRemaining Available ForFuture Issuance Under EquityCompensation Plans(Excluding Securities ReflectedIn Column (a))
|Equity Compensation Plans Approved by Shareholders     |  | 6,681,267                                                                                   |  | $                                                                            | 4.59 |                                                                                                                                            | 4,349,061
|Equity Compensation Plans Not Approved by Shareholders |  |                                                                                            |  |                                                                              |     |                                                                                                                                            |         
|Total                                                  |  | 6,681,267                                                                                   |  | $                                                                            | 4.59 |                                                                                                                                            | 4,349,061



|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|-------- |  | ----------------------------------------------



Reference is made to Item 12, as well as to the registration statement on Form S-4 filed by Teleglobe International Holdings Ltd (formerly Teleglobe
Bermuda Holdings Ltd), for information regarding the Merger. For the year ended December 31, 2003, ITXC had sales to Teleglobe and related entities of $9.7 million; during that period, Teleglobe and related entities had sales to ITXC of $3.8
million.



|ITEM 14. |  | PRINCIPAL ACCOUNTING FEES AND SERVICES
|-------- |  | --------------------------------------



In accordance with the requirements of the Sarbanes-Oxley Act of 2002 and the charter of the Audit Committee of ITXCs Board of Directors, all audit
and audit-related work and all non-audit work performed by the Companys independent auditors, Ernst & Young LLP (E&Y), is approved in advance by the Audit Committee, including the proposed fees for such work. The Audit
Committee is informed of each service actually rendered.



Audit Fees. Audit fees billed or expected to be billed to the Company for the audit of the financial statements included in the Companys Annual Reports on Form 10-K,



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---

reviews of the financial statements included in the Companys Quarterly Reports on Form 10-Q and statutory audits
required internationally, for the years ended December 31, 2003 and 2002 totaled approximately $370,000 and $262,000, respectively.



Audit-Related Fees. Fees for audit-related services totaled approximately $134,000 and $31,000 for the years ended December 31, 2003 and 2002,
respectively. Audit-related services principally include due diligence in connection with the proposed merger in 2003 and acquisitions in 2002, and employee benefit plan audits in both years.



Tax Fees. Fees for tax services, including tax compliance and tax
advice, totaled approximately $170,000 in 2003 and $196,000 in 2002.



All Other Fees. There were no fees for other services in 2003 or 2002.



Applicable law and regulations provide an exemption that permits certain services to be provided by the Companys outside auditors even if they are not pre-approved. The Company has not relied on this exemption
at any time since the Sarbanes-Oxley Act was enacted.



|ITEM 15. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
|-------- |  | ---------------------------------------------------------------



(a) 3. Exhibits.



|     |  |                                                                                                                                                  
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification of the Chief Executive Officer as required by Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|     | 
|31.2 |  | Certification of the Chief Financial Officer as required by Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.



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SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) 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, on the27thday of April, 2004.



ITXC CORP.By:

/s/    Anthony ServidioName:

Anthony ServidioTitle:

Chief Financial Officer




Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the27thday of April, 2004.



|                                                |  |                                                 |  | 
|----------------------------------------------- |  | ----------------------------------------------- |  | 
|Name                                            |  | Title                                          
|                                                | 
|/s/    TOM I. EVSLIN*Tom I. Evslin*             |  | Chairman, President and Chief Executive Officer
|                                                | 
|/s/    EDWARD B. JORDAN*Edward B. Jordan*       |  | Director                                       
|                                                | 
|/s/    FRANK GILL*Frank Gill*                   |  | Director                                       
|                                                | 
|/s/    LEO J. CYR*Leo J. Cyr*                   |  | Director                                       
|                                                | 
|/s/    FREDERICK R.
WILSON*Frederick R. Wilson* |  | Director                                       
|                                                | 
|/s/    ANTHONY SERVIDIOAnthony Servidio         |  | Chief Financial and Accounting Officer         
|                                                |  |                                                
|*By:                                            |  | /s/    ANTHONY SERVIDIO                         |  | 
|                                                |  |                                                 |  | 
|                                                |  | Anthony Servidio Attorney-in-Fact               |  | 





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---

EXHIBIT INDEX



|     |  |                                                                                                                                                  
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification of the Chief Executive Officer as required by Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|     | 
|31.2 |  | Certification of the Chief Financial Officer as required by Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.





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