<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                            ________________________
                                   FORM 10-K

[X]  Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the fiscal year ended December 31,1999.

[ ]  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  333-80411

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

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


       600 College Road East, Princeton, New Jersey 08540 (609) 419-1500
 (Address and telephone number, including area code, of registrant's principal
                               executive office)

       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

     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]

     Aggregate market value of voting stock held by non-affiliates as of January
31, 2000 was approximately $1.6 billion.

     Number of shares of Common Stock outstanding as of January 31, 2000:
37,976,196.

     Documents incorporated by reference:  Definitive proxy statement for the
registrant's 2000 annual meeting of shareholders (Part III).
<PAGE>

                                   ITXC CORP.
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
PART I                                                                                               Page

<S>              <C>                                                                            <C>
Item 1           Business of the Company......................................................          1

Item 2.          Properties...................................................................         22

Item 3           Legal Proceedings............................................................         22

Item 4           Submission of Matters to a Vote of Security Holders..........................         23

Item 4A          Executive Officers of the Registrant.........................................         23

PART II

Item 5           Market for the Registrant's Common Equity and
                 Related Stockholder Matters..................................................         26

Item 6           Selected Financial Data......................................................         28

Item 7           Management's Discussion and Analysis of Results of
                 Operations and Financial  Condition..........................................         29

Item 7A          Quantitative and Qualitative Disclosures About Market Risk...................         38

Item 8           Financial Statements and Supplementary Data..................................         38

Item 9           Changes in and Disagreements with Accountants on
                 Accounting and Financial Disclosure..........................................         39

PART III

Item 10          Directors of the Registrant..................................................         39

Item 11          Executive Compensation.......................................................         39

Item 12          Security Ownership of Certain Beneficial Owners
                 and Management...............................................................         39

Item 13          Certain Relationships and Related Transactions...............................         39

PART IV

Item 14          Exhibits, Financial Statements Schedules and Reports
                 on Form 8-K..................................................................         40

Signatures....................................................................................         42
</TABLE>

                                      -i-
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Item 1.  Business of the Company
         -----------------------

Introduction

  ITXC Corp. was incorporated in Delaware in 1997. On October 1, 1999, we
consummated our initial public offering.   Our principal executive offices are
located at 600 College Road East, Princeton, New Jersey 08540, and our telephone
number is (609) 419-1500.  As used in this Annual Report, the terms "we," "ITXC"
and the "Company" refer to ITXC Corp. and its subsidiaries.

  ITXC, WWeXchange, BestValue Routing and webtalkNOW!, and many of our
product/service names referred to herein, are trademarks or trade names of the
Company or its subsidiaries.  This Annual Report also includes references to
trademarks and trade names of other companies.

  Certain statements under the captions "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and " Business of the Company"
and elsewhere in this Annual Report are forward-looking statements. These
forward-looking statements include, but are not limited to, statements about our
plans, objectives, expectations and intentions and other statements contained in
this annual report that are not historical facts. When used in this Annual
Report, the words "expects," "anticipates," "intends," "plans," "believes,"
"seeks" and "estimates" and similar expressions are generally intended to
identify forward-looking statements under the Securities Litigation Reform Act
of 1995.  Because these forward-looking statements involve risks and
uncertainties, there are important factors that could cause actual results to
differ materially from those expressed or implied by these forward-looking
statements. These factors consist primarily of the risks identified in Exhibit
99.1 to this Annual Report.

Overview

     We are a leading global provider of high quality Internet-based voice and
fax services. Our services allow communications users and service providers,
such as traditional telephone companies, Internet service providers, Internet
portals, web sites and data network providers, to capitalize on the convergence
of the public Internet and the traditional telephone network. We believe that
our scale, reputation for high quality and ability to rapidly implement new
services addresses the substantial opportunities that are resulting from this
convergence.

     We have developed and deployed ITXC.net, an actively-managed network
overlaid on the public Internet, to deliver high quality voice communications
while providing our customers with the cost savings and global reach of the
Internet. We believe that the rapid growth of commercial traffic on ITXC.net
demonstrates that we have successfully used our proprietary BestValue Routing to
address the quality problems which early attempts at Internet telephony have
encountered.

                                      -1-
<PAGE>

  To date, we have concentrated our efforts on rapidly deploying ITXC.net
worldwide. We have established ITXC-owned facilities in the U.S. and have
arranged call termination and origination services with affiliates throughout
the world. We have used our affiliate structure to achieve what we believe is
the broadest global network in the Internet telephony marketplace. As of January
31, 2000, we had affiliates in 112 international cities operating 185 ITXC.net
points of presence. On a typical day, we carry traffic from over 30 countries to
more than 180 countries. By using the Internet for transport and our affiliates'
local infrastructure for terminating voice traffic, we have developed a reliable
network, which we are expanding rapidly, at substantially lower capital expense
than traditional carrier networks.

     In April 1998, we introduced our WWeXchange service, the first application
enabled by ITXC.net. This service provides international call completion to our
customers and enables them to offer their own customers phone-to-phone global
voice service. We have achieved a high network usage growth rate since
commencing our WWeXchange service. The following table sets forth the number of
minutes of traffic carried over ITXC.net during the past seven quarters:

                                                     Minutes
Quarter ended                                     (in millions)
                                                  -------------

June 30, 1998 ....................................     .1
September 30, 1998 ...............................     .6
December 31, 1998 ................................     4.1
March 31, 1999 ...................................     11.1
June 30, 1999 ....................................     24.5
September 30, 1999 ...............................     42.5
December 31, 1999 ................................     72.0

     In April 1999, we introduced a new ITXC-owned proprietary device called a
SNARC, which we believe will facilitate the use of our network by our customers.
In addition, since December 1999 we have been installing ITXC-owned proprietary
devices called CRANS on selected affiliates' premises to connect them directly
to the Internet for the purpose of terminating calls originated by ITXC.net
affiliates. We generally use CRANS to rapidly add incumbent national carriers as
affiliates and extend ITXC.net to their premises. Both of these devices allow
access to our network directly from customer or affiliate premises, avoiding the
costs of dedicated connections to network hubs and improving the economics of
our services to them. We believe that SNARCs and CRANS will strengthen our
customers' and affiliates' relationships with us and position us to deploy
additional enhanced services over ITXC.net.

     In December 1999, we commenced our first service offering as a voice
application service provider. Our webtalkNOW! service allows Internet portals,
Internet service providers and web sites to offer web-to-phone calling to their
customers under their own brands. We believe that we offer an outsourced voice
solution for these customers which capitalizes on the global reach and quality
of ITXC.net as a platform for enhanced Internet-based voice services.
MediaRing.com, our first webtalkNOW! service customer, began using our
webtalkNOW! service to offer web-to-phone calling to its customers in December
1999.

                                      -2-
<PAGE>

     In September 1999, we introduced our Borderless800 service. The first phase
of this service allows our carrier and reseller customers located outside of the
U.S. to offer to their subscribers no-charge or low-charge access to 800, 888
and 877 telephone numbers in the U.S. Such numbers often are not accessible from
outside the U.S. using the traditional telephone network or, if accessible,
often result in charges that cost as much or more than international calls to
U.S. toll numbers.

  In addition to our current services, we intend to introduce more advanced
communications applications enabled by ITXC.net. We expect that these services
will allow our customers to offer additional Internet-based voice products and
services to their customers. Examples of services we may introduce include:

     .  enhanced phone-to-phone services;

     .  phone-to-PC services;

     .  device-to-phone service and phone-to-device service, including devices
 such as personal digital assistants;

     .  voice-enhanced e-commerce;

     .  unified messaging, combining voice, fax and e-mail communications; and

     .  single telephone number service, in which a single billing and reach me
 number follows the subscriber.

Industry Overview

     Convergence of Global Telecommunications and Data Services

     The global telecommunications industry has grown at a rapid rate over the
last decade, driven by domestic and international deregulation, technological
development, network deployment and the globalization of business. The number of
communications service providers has also been increasing as a result of
competition fostered by domestic and international deregulation. These factors
have contributed to a substantial decrease in the cost of telephony services
delivered over the traditional telephone network. This decrease in price,
however, has been offset by an increase in total revenue driven by the growth in
demand that low prices have created. Based on country-by-country information and
other data provided by the International Telecommunications Union, total
telecommunications services revenue was approximately $700 billion in 1997.
According to Insight Research Corporation, an industry research firm, this
market is projected to grow to approximately $1.3 trillion by 2003. According to
TeleGeography, a market research firm, the total market for international long
distance services in 1997 totaled approximately $65.9 billion. TeleGeography
also expects international long distance traffic to grow from 94.1 billion
minutes in 1998 to 143.2 billion minutes in 2001.

                                      -3-
<PAGE>

          In addition, over the last decade, the volume of traffic on data
networks has grown at an even faster rate. According to TeleGeography, in 1998
data surpassed voice as the dominant traffic for the U.S. long distance market.
This growth has been driven by several factors, including technological
innovation, high penetration of personal computers and, in particular, by the
rapid expansion of the Internet as a global medium for communications,
information and commerce. International Data Corporation, a market research
firm, estimates that the number of Internet users worldwide will grow from
approximately 142 million in 1998 to approximately 399 million in 2002. This
increase in data traffic has necessitated additional data network capacity and
quality. As a result, businesses have invested billions of dollars in order to
meet this need.

  We believe that the combination of increasing demand on the traditional
telephone network and the proliferation of data networks, with their enhanced
functionality and efficiency, is driving the convergence of voice traffic and
data networks, including the Internet. We expect this transfer of traffic to
accelerate as corporations and network infrastructure providers attach
increasing value to data networks and as the functionality of computers and
computing devices, such as personal digital assistants, is enhanced by voice
capability.

     Network Infrastructure

     The basic technology of traditional telecommunications is designed for slow
mechanical switches. Communications over the traditional telephone network are
routed through circuits which must dedicate resources to each call until the
call ends, regardless of whether anyone is actually talking on the circuit. This
circuit-switching technology incurs a significant cost per call and does not
efficiently support the integration of voice with data services.

     Data networks, however, were designed for electronic switching. They break
the data stream into small, individually addressed packages of data which are
routed independently of each other from the origin to the destination.
Therefore, they do not require a fixed amount of bandwidth to be reserved
between the origin and destination of each call. This allows multiple voice or
voice and data calls to be pooled, resulting in these networks being able to
carry more calls with an equal amount of bandwidth.

                                      -4-
<PAGE>

     The Emergence of Voice on Data Networks

     Internet telephony consists of both traditional and enhanced voice and fax
services, including the addition of interactive voice capability to web sites,
among others. Internet telephony serves both the extensive market of existing
phone users and the expanding market of computer users. We believe data networks
provide lower cost than the traditional telephone network and are better suited
to deliver future enhanced services to both phone users and computer users.

     Telephony based on Internet protocols emerged in 1995, with the invention
of a personal computer program that allowed the transport of voice
communications over the Internet via a microphone connected to a personal
computer. Initial sound quality was poor and the service required that both
parties to the conversation use personal computers instead of telephones. In
1996, the advent of the gateway for the first time offered anyone with access to
a telephone the ability to complete calls on the Internet. A gateway facilitates
Internet transport of telephone services traditionally carried over the
traditional telephone network.

     The Economics of Internet Telephony

     Long distance telephone calls transported over the Internet are less
expensive than similar calls carried over the traditional telephone network
primarily because the cost of using the Internet is not determined by the
distance those calls need to travel. Also, routing calls over the Internet is
more cost-effective than routing calls over the traditional telephone network
because the technology that enables Internet telephony is more efficient than
traditional telephone network technology. The greater efficiency of data
networks creates cost savings that can be passed on to the consumer in the form
of lower long distance rates.

     Beyond cost benefits, innovation in the provision of enhanced services is
expected to yield increased functionality as well. We believe such enhanced
functionality will expand the addressable market for Internet services to
include anyone with a telephone. We believe this market is potentially larger
than the market for any other existing Internet service which requires a
computer for access. Moreover, computer users will benefit from interactive
voice being an option in web browsing and other computer-based communications.

     Limitations of Existing Internet Telephony Solutions

     The growth of Internet telephony has been limited in the past due to
perceived poor sound quality caused by technical issues such as delays in packet
transmission and bandwidth limitations related to Internet network capacity and
local access constraints. However, the continuing addition of data network
infrastructure, recent improvements in packet-switching and compression
technology, new software algorithms and improved hardware have substantially
reduced delays in packet transmissions and the effect of these delays.
International Data Corporation projects that Internet protocol telephony revenue
will grow rapidly to over $23.4 billion in 2003.

                                      -5-
<PAGE>

     Several large long distance carriers, including AT&T and Sprint, have
announced Internet telephony service offerings. Smaller Internet telephony
service providers have also begun to offer low-cost Internet telephony services
from personal computers to telephones and from telephones to telephones.
Traditional carriers have substantial investments in traditional telephone
network technology, and therefore have been slow to embrace Internet technology.
We believe that these service offerings by large long distance carriers and
smaller providers are generally available in limited geographic areas and can
only complete calls to a limited number of locations.

     We believe that the infrastructure required for a global network is too
expensive for most companies to deploy on their own. This mandates that the
network be a combination of gateways owned by different operators. For a network
to achieve optimal functionality, however, the gateways need to be
interoperable, or able to communicate with one another. As a result, uniform
standards for vendors and manufacturers of Internet telephony equipment and
software need to be developed.

     In recent years, commercial web sites have grown in popularity. Efforts to
enhance these web sites with voice enabled e-commerce features such as click-
and-call contact with a customer service agent have been hampered by the early
quality problems with voice on the Internet described above.

     Increasing Trend Toward Outsourcing Telephony Solutions

     We believe that the global reach and functionality of the Internet makes it
especially suited for enhanced voice services. These services, which may include
web-to-phone, phone-to-PC and unified messaging, could be a significant source
of additional revenues to Internet portals, Internet service providers and web
sites that are seeking to expand their service offerings. Such voice services
require considerable expertise and capital to deploy and may involve execution
risk for any Internet portal, Internet service provider or web site lacking this
expertise. We expect that Internet portals, Internet service providers and web
sites will increasingly outsource their communications services to companies,
like us, that provide the network and expertise necessary to facilitate those
services, rather than incurring the risk and delay of developing and deploying
an array of communications services themselves.

The ITXC Solution

     We believe that the rapid growth of commercial traffic on ITXC.net
demonstrates that we deliver high quality, low cost voice and fax communications
over the Internet and are well positioned to deliver web-to- phone and other
Internet-based enhanced voice services. The key advantages of our solution
include:

                                      -6-
<PAGE>

     .  Quality. We believe that we deliver to our customers high quality voice
 communications over the Internet at competitive pricing. We maintain high
 quality primarily through our proprietary BestValue Routing technology and
 techniques which include ITXC-developed monitoring and analysis software and
 rapid human response from our 24-hours-a-day, 7- days-a-week network operations
 center. In addition, we blend the redundancy of the public Internet with our
 use of multiple termination affiliates in many cities to help assure the
 reliability and quality of our network. We use dedicated data networks and even
 the traditional telephone network when data networks are not available to
 further assure consistent quality.

     .  Lower Costs. By using the public Internet, we are able to reach and
 rapidly deploy many affiliates throughout the world at a substantially lower
 capital expense than building the dedicated connections that a traditional
 telephony carrier would require. Also, as a result of our ability to use the
 public Internet, we believe that we have significantly lower marginal costs
 than the traditional telephone network or a private data network.

     .  Interoperability. We have led an effort called iNOW! resulting in an
 industry standard for interoperability. More than 35 Internet telephony vendors
 have agreed to comply with the iNOW! initiative. The VocalTec and Lucent
 equipment installed on ITXC.net are already interoperable for voice under a
 version of iNOW!. We believe that as a result, we and our affiliates have the
 only multi-vendor interoperable network in the Internet protocol telephony
 industry. Although we have transferred the iNOW! trademark and web site to an
 industry standards body, we intend to continue to provide leadership in
 interoperability of voice over the Internet services.

     .  Global Scale. Our network is overlaid on the public Internet to provide
 a global communications medium to voice service providers. ITXC.net is
 scalable--by using the public Internet and our global network of affiliates, we
 are able to rapidly and easily add capacity when needed. Many of the ITXC-
 supplied components of our network, such as routers and gateways, are
 relatively inexpensive, allowing us to add additional capacity without
 significant capital expenditures. In addition, we believe that we are able to
 connect new affiliates to ITXC.net in significantly less time than it would
 take for a traditional telephony carrier or dedicated data network to establish
 a dedicated connection. For example, we connected 16 cities in China to
 ITXC.net within three weeks after we signed an agreement with China Telecom.
 Moreover, we have a business model of purchasing terminating minutes directly
 from affiliates and selling call completion to customers and affiliates. This
 model eliminates the need for complex settlement between carriers which had
 previously slowed the deployment of a global network.

     .  Easy Access. We offer our customers two ways to connect from their
 switches to ITXC.net: through normal dedicated connections and through SNARCs.
 SNARCs are specially built devices, which we own and install on our customers'
 premises in order to eliminate the cost of dedicated connections from their
 switches to our network hubs. SNARCs allow our customers to benefit from the
 global termination capabilities of ITXC.net by bringing the advantages of voice
 over the Internet to the customer's premises. In addition, our affiliates can
 terminate calls directly from ITXC.net using CRANS equipment that we install on
 their premises.

                                      -7-
<PAGE>

     .  Enhancement of E-commerce Services. Because ITXC.net can deliver high
 quality voice on the Internet globally, we believe it can become a preferred
 network for a variety of voice-enhanced web sites and enable us to offer
 services to e-commerce providers who want to provide their customers with the
 ability to talk over the Internet while browsing a web site.

     .  Attractive Platform for New Services. Because of our leadership position
 in establishing interoperability standards and the breadth of our deployed
 network, developers of new services are bringing products to us for evaluation
 and possible deployment on ITXC.net. We believe that our operation as a voice
 application service provider opens our network to new categories of customers
 including Internet portals and web sites.

Our Strategy

     Our goal is to remain the leading wholesale provider of Internet-based
voice and fax services as measured by revenue and network size. In order to
achieve this goal we intend to:

     .  Exploit Our Early Entrant Status and Worldwide Network

     As of January 31, 2000, we had aggressively deployed ITXC.net in 112
international cities. We believe that with the increasing use of this network,
ITXC has developed a reputation in the communications industry for providing
high quality voice and fax services over the Internet. In addition, we believe
our experience as one of the first providers of Internet-based voice services
has placed us at the forefront of developing the proprietary tools and
techniques which enable us to offer our service. We intend to continue to
enhance and capitalize upon our reputation and experience in the communications
industry as we provide existing and new voice and fax services.

     .  Rapidly Expand ITXC.net by Adding Additional Affiliates Worldwide

     We have used our affiliate structure to quickly achieve a global reach for
ITXC.net. We believe that this approach allows us to quickly expand and develop
a broader network than our competitors. Our acquisition of the contract rights
associated with the operations of the OzEmail Internet telephony business
enabled us to add certain of OzEmail's affiliates to ITXC.net. We intend to
continue to rapidly add new affiliates worldwide in order to provide our
customers with additional termination points.

                                      -8-
<PAGE>

     .  Capitalize on the Cost Advantages of the Internet

     By overlaying ITXC.net on the public Internet, we believe that we are able
to capture significant cost and capital savings. Instead of incurring the
capital expense to deploy a global physical network, we are able to carry a
substantial portion of our customer's traffic using the existing Internet
infrastructure together with our affiliate network. We believe that it would
require significantly more capital for a carrier using traditional methods of
network deployment to implement a network with the same capacity and global
reach as ITXC.net. Additionally, the cost of transporting our traffic over the
Internet is largely not distance sensitive, since we only pay for the bandwidth
we use. We believe these factors enable us to benefit from significant cost
savings that are not available to operators of the traditional telephone network
or private data networks.

     .  Expand Our Role as a Voice Application Service Provider

     With our webtalkNOW! service we have positioned ourselves as a voice
application service provider, capable of providing an outsourced solution for
web-to-phone services for Internet portals, Internet service providers and web
sites. Our first application of the webtalkNOW! service enables MediaRing.com to
provide web-to-phone services to its end-users. We believe that our webtalkNOW!
service extends the benefits of the consistent quality, global reach and cost-
effectiveness of ITXC.net to new categories of customers beyond our original
customer base.

     .  Establish ITXC.net as the Standard for Quality in Our Industry

     By combining our BestValue Routing approach with our knowledge of gateway
and Internet technology, we believe that we have demonstrated that the Internet
can be an effective medium for two-way voice and fax communication. By
continuing to provide reliable high quality voice and fax service with a global
reach, our goal is to be the network of choice for new enhanced services that
incorporate voice.

     .  Provide our Customers and Affiliates with Direct Access to ITXC.net

     We are committed to providing our customers with high quality, low cost
voice service. SNARCs provide our customers with a voice communications solution
that minimizes reliance on the traditional telephone network. By installing
SNARCs on customer premises, we can provide our customers with direct access to
all of the ITXC.net termination points worldwide without the need for a direct,
dedicated connection to one of our network hubs. We believe that, in the future,
an extension of our SNARC program will connect our customers' customers directly
to the Internet. CRANS provide selected affiliates with direct access to voice
traffic sent over ITXC.net for termination without the need for a direct,
dedicated connection to one of our network hubs and improve the economics of our
services to them. We believe that SNARCs and CRANS will strengthen our
customers' and affiliates' relationships with us and position us to deploy
additional Internet-based enhanced voice services over ITXC.net.

                                      -9-
<PAGE>

     .  Continue to Provide Leadership in the Development of Industry Standards

     We are a founder of the iNOW! initiative. This initiative began as a
collaboration with Lucent and VocalTec to establish industry standards for
interoperability among Internet voice products and services. We believe that our
leadership of the iNOW! initiative may further strengthen our position in the
industry.

     We believe that the iNOW! initiative has already set the industry standard
for gateway interoperability. As a result of the iNOW! initiative, Lucent and
VocalTec gateways are already interoperable for voice traffic on ITXC.net. This
provides ITXC and its affiliates with a choice of vendors which other service
providers do not have. More than 35 other vendors of gateways, IP telephony
components and other equipment and software have agreed to comply with the iNOW!
initiative. Such vendors include 3Com, Alcatel, Ascend, Cisco, Intel, through
its subsidiary, Dialogic, ECI Telecom, Motorola, Netrix, Samsung Electronics and
Siemens. By leading these efforts among suppliers, manufacturers, software
vendors and carriers, we believe ITXC.net will be positioned to exploit new
opportunities in Internet voice services.

     .  Deliver Additional Internet Voice Services Over ITXC.net

     We believe that Internet telephony represents only the beginning of the
evolution of the Internet as a medium for voice and fax services and that our
Borderless800 and web-to-phone services are only the early stages of this
evolution. Through enhancements to ITXC.net, we can position ourselves to
provide the network for wide commercial deployment of new voice and fax services
from traditional telephony technology suppliers like Lucent, new entrants like
Cisco, Internet telephony companies like VocalTec and a number of start-ups. We
believe that, in the future, the Internet will serve as a platform for existing
and enhanced voice and fax services that may be accessed from traditional
phones, personal computers and a variety of devices that span the range between
telephones and personal computers.

ITXC.net

     ITXC.net allows us to deliver reliable, high quality voice and fax service
through an actively-managed network overlaid on the public Internet.

     We have implemented a global communications network by using the public
Internet to connect ITXC-owned network hubs in the U.S. with our affiliates
around the world. We use ITXC-developed software and skilled network management
personnel to help assure the reliability and quality of voice transmission over
the Internet. To further enhance the reliability of ITXC.net, we are also able
to route and terminate voice traffic through alternate channels.

                                      -10-
<PAGE>

     The key components of ITXC.net include:

     .  The Public Internet

     ITXC.net routes voice traffic over the public Internet, which allows
traditional telephone users to benefit from its cost savings. By using the
Internet we are able to reach and rapidly deploy many affiliates throughout the
world at what we believe to be significantly lower capital costs than that of
building the dedicated connections that a traditional telephony carrier or
dedicated data network would require.

     .  Global Network of Affiliates

     We have a global network of independent affiliates that own their own
gateways and originate and/or terminate voice traffic over ITXC.net. We have
used our affiliate structure to rapidly achieve what we believe to be the
broadest global network in the Internet telephony marketplace. As of January 31,
2000, we had affiliates in 112 international cities operating 185 ITXC.net
points of presence. Our affiliates range from small Internet service providers
to traditional telephone companies.

     .  Multiple Access Points

     As of January 31, 2000, we had three network hubs, one in New York, one in
New Jersey and one in California, each consisting of a switch and multiple
gateways. We expect to open an additional network hub in London in the first
quarter of 2000. Our customers access ITXC.net through dedicated connections
from their switches to these network hubs or by using SNARCs located on their
premises. SNARCs connect our carrier customers' switches to the Internet and
ITXC.net and thereby avoid costly, distance-based dedicated line charges
associated with connecting customer switches to our network hubs. Selected
affiliates connect directly to the Internet to terminate calls using our CRANS
equipment. As of January 31, 2000, we had installed over 40 SNARCs at 20 carrier
customer sites and CRANS at five affiliate locations.

     .  BestValue Routing

     Our BestValue Routing approach employs ITXC-developed software and
techniques to efficiently and cost-effectively route voice traffic over
ITXC.net. We believe that our ability to develop and deploy intelligent routing
methods represents a significant competitive advantage. We believe that this
approach enables us to provide consistent, reliable quality since we are able to
avoid the majority of Internet congestion points and minimize packet loss and
delay.

                                      -11-
<PAGE>

     We implement our BestValue Routing approach from our 24-hours-a-day, 7-
days-a-week network operations center where we poll our affiliates' gateways
periodically to assure their stability, test the quality of Internet connections
to the gateways and collect call detail records in near real-time to monitor the
quality of calls placed over our network. We use network analysis software to
compare monitoring data to predetermined parameters from our database of call
detail records. This software generates reports on a per route basis when the
measured parameters fail to meet predetermined standards. Frequent analysis of
this information allows us to rapidly correct network problems such as
congestion or inoperative gateways.

     Our monitoring and analysis software helps our staff to manage a routing
scheme across multiple switches and gateways around the world. Our routing
technicians establish predetermined percentages of traffic to be sent to each
provider, based both on price and quality. If a particular Internet route or
termination provider is not meeting our standards, our staff switches to a
better quality route and then resolves the problem. For example, if transport
through the public Internet proves to be unreliable on a particular route, we
can reroute the traffic through dedicated data networks or the traditional
telephone network to terminate the call in a traditional manner. The use of
multiple termination affiliates in many cities in which we operate provides us
with numerous termination possibilities to help ensure completed calls with
consistent quality.

Our Strategic Carrier and Technology Partners

     We believe that our strategic relationships with carrier affiliates are
important because they allow us to extend the geographic reach of ITXC.net. We
believe that these relationships will lead to a broader origination/termination
presence in key areas and allow us to provide service over our own network for
more of our customers. We also expect that these relationships will assist us in
focusing our development of new Internet-based voice services. We currently have
strategic relationships with carriers including:

     .  Bell Atlantic
     .  China Telecom
     .  Interoute
     .  Korea Telecom
     .  Pacific Gateway Exchange
     .  the Ameritech division of SBC

     We do not currently generate significant revenues from most of these
affiliates. They are important to us because they provide expanded global reach
for ITXC.net and termination points in locations which are significant for our
customers.

                                      -12-
<PAGE>

     Because gateways are critical to the infrastructure of ITXC.net, we have
strategic relationships with Cisco, Clarent, Lucent and VocalTec, each of which
is a leading gateway manufacturer. Lucent and Cisco have also provided us with
vendor financing in connection with the purchase of gateways and other
equipment. VocalTec is an equity investor in ITXC. Additionally, we have worked
closely with each of these companies to develop gateway interoperability
standards through our iNOW! initiative.

     We expect our strategic relationships to continue and that our
relationships with these and other technology partners will help drive the
development of new voice, fax and voice-enabled services over ITXC.net.

Our Services

     WWeXchange Service

     In April 1998, we introduced our WWeXchange service, the first application
enabled by ITXC.net. This service provides international call completion to our
customers and enables them to offer their own customers phone-to-phone global
voice and fax service. Our WWeXchange service relies upon Internet telephony
technology. Such technology permits calls originated by a telephone to be
transmitted over the Internet. We believe that Internet telephony is the first
technology that allows non-computer users to access the Internet.

     Our WWeXchange service provides our customers with high quality, low cost
global long distance service without their having to understand or deploy
Internet telephony technology themselves. We believe that the high quality of
calls completed using our WWeXchange service allows our customers to use
ITXC.net as an alternative to traditional voice traffic networks.

     We believe that our affiliates benefit from our WWeXchange service because
they:

     .  rapidly obtain a flow of international traffic without incurring
significant sales or marketing costs;

     .  obtain high quality international long distance for their originated
calls at lower rates than through traditional telephony;

     .   connect directly to other affiliates while having a single billing
   relationship with us; and

     .  have a global reach without incurring the incremental costs of building
and operating multiple facilities.

                                      -13-
<PAGE>

     SNARCs and CRANS

     SNARCs are specially built gateways that we place on selected customer
premises in order to eliminate the cost of backhaul from customer switches to
our switches. Until we launched our SNARC program in April 1999, customers had
to bear the expense of running dedicated circuits from their facilities to their
suppliers. This is known as backhaul. Our customers also typically ran circuits
from their facilities to our network hubs in New York or Los Angeles. However,
the introduction of our SNARC program reduces the expense of backhaul by
transporting traffic directly to the Internet and ITXC.net in whatever city the
customer is located. We believe that this use of Internet capability to
eliminate the expense of backhaul will make us more attractive to customers
located away from major telephony hubs. In addition, since December 1999 we have
been installing equipment similar to SNARCs, called CRANS, on selected
affiliates' premises to connect them directly to the Internet for the purpose of
their terminating calls originated over ITXC.net. As of January 31, 2000, we had
installed over 40 SNARCs at 20 customer sites and CRANS at five locations.

     webtalkNOW! Service

     We believe that ITXC.net has the same advantages of consistent quality,
global coverage and competitive prices for web-to-phone calls as it does for
phone-to-phone calls. We first publicly announced the broad availability of our
webtalkNOW! service in February 2000, although we have been providing web-to-
phone calling on a limited basis since December 1999. Our webtalkNOW! service
provides an outsourced solution to Internet portals, Internet service providers
and web sites allowing them to offer self-branded web-to-phone service to their
users. We can provide our customers with high quality, global call completion
over ITXC.net for their end-users' web-to-phone calling and the dialing software
necessary for their users to actually place calls over ITXC.net from their PCs.
We believe that our webtalkNOW! service will assist our customers in building
their own brands and in retaining their end-users.

     Borderless800

     Our Borderless800 service allows our carrier and reseller customers located
outside the U.S. to offer to their subscribers no-charge or low-charge access to
800, 888 and 877 telephone numbers in the U.S. We believe that our service will
promote the convergence of toll-free numbers and web sites used in e- commerce.
Just as web sites can be accessed over the Internet from anywhere in the world,
companies that advertise U.S.-based national 1-800 numbers can now be accessed
globally. Further, we have enabled our affiliates to offer toll- free calling
into their own countries. As our affiliates make this service available in their
own countries, carriers and resellers on ITXC.net will be able to reach toll-
free numbers in these additional countries as well.

                                      -14-
<PAGE>

     Future Enhanced Voice Services

     We intend to make significant investments to develop and market additional
services for use over ITXC.net. We believe that as a result of the convergence
of the data and communications networks and the capabilities and size of
ITXC.net, we will be able to offer next-generation, enhanced voice services to
both new and existing customers. In addition, we believe that ITXC.net's open
architecture, combined with the strength and size of our customers, affiliates
and strategic relationships, will attract developers of voice services to our
network.

     We may introduce the following enhanced voice services in the future and we
may introduce other services not listed. However, we cannot provide assurances
that we will be able to successfully develop or implement these or other
services in the future.

     .  Enhanced Phone-to-Phone Service: Planned enhancements to our existing
WWeXchange service include:

          .  enhanced 800 and 900 service;

          .  number portability;

          .  subscriber authentication;

          .  conferencing services; and

          .  subscriber identification through voice prints and voice commands.

     .  Phone-to-PC Service: We believe that subscribers will be able to specify
that they want to receive ordinary telephone calls on a PC rather than a
standard telephone and that ITXC.net will be able to complete these calls.

     .  Device-to-Phone Service and Phone-to-Device Service: There are Internet
phone devices available on the market today that allow owners to make calls over
the Internet. While there is no incremental cost for these calls over the cost
of Internet access, calls can only be made to others who have Internet phones.
We may use ITXC.net to enable the completion of inexpensive calls from these
devices to any telephone. In addition, we believe that other devices, such as
personal digital assistants, will become voice-enabled.

     .  Unified Messaging Service: We may be able to offer a service over
ITXC.net that our customers can use to provide their customers with telephone
access to voice messages, e-mail and faxes. In addition, our customers may be
able to provide to their customers access to voice mail from personal computers.

                                      -15-
<PAGE>

     .  Voice-enhanced E-commerce: Internet web sites used both for sales and
for customer service are being enhanced by the addition of click-and- call
services which allow the viewer to talk through his or her personal computer to
an agent, who sees what the user sees, can answer questions and take orders. As
with other Internet telephony applications, voice quality has been an obstacle
to the wide-spread deployment of click-and- call services. We believe that we
can use ITXC.net and its capabilities to add consistent quality to voice-
enhanced e-commerce.

     .  Single Number Service: We believe that ITXC.net will be able to support
a service enabling subscribers to maintain a single, permanent telephone number
for all calls regardless of their location. This single number would serve as a
billing number when the subscriber is placing calls and as a reach-me number for
receiving calls. The number could be reassigned to any phone or personal
computer. This type of call-forwarding would take advantage of Internet-
addressing and ITXC.net to eliminate most of the costs and technical obstacles
which have prevented the widespread deployment of such services on the
traditional telephone network.

Sales, Marketing and Distribution

     Our sales and marketing goals are to:

     .  expand the use of our WWeXchange service by our existing call
origination customers and affiliates and further expand our call origination
customer base;

     .  expand the use of our voice application services by Internet portals,
Internet service providers and web sites;

     .  expand our terminating affiliate base;

     .  increase the number of carriers that are ITXC affiliates; and

     .  maintain and expand our market leadership position among providers of
voice and fax services over the Internet.

     We use the reputations and industry relationships cultivated by our senior
management and our status as an early entrant to attract affiliates to ITXC.net.
We typically meet potential affiliates at Internet voice trade shows and
seminars we conduct on Internet telephony. We often meet potential customers
through directed sales calls by our sales personnel and at telephony trade
shows. We also target strategic affiliates internationally and have made joint
sales calls with Cisco, Clarent, Lucent and VocalTec.

                                      -16-
<PAGE>

     We have a dedicated sales force that is supplemented by members of our
executive management team. Our salespeople are based regionally within the U.S.
and in Singapore and London, as well as in our corporate office. We also have
sales agents located in China and Venezuela. Our senior management focuses on
maintaining and cultivating relationships with our customers. We assign our
sales representatives specific accounts based on their level of experience,
location and the quality of the relationship between the representative and the
customer. We compensate our sales staff based in large part on incentive-based
goals and measurements. In addition to our marketing and sales staff, we rely on
our executive and operations personnel, including the staff of our 24-hours- a-
day, 7-days-a-week network operations center, to identify sales opportunities
within existing customer accounts and to provide quality customer service.

     We also maintain an Internet web site which, among other things, provides
information to prospective customers and affiliates concerning the technical and
other requirements for becoming a part of ITXC.net.

     Our primary marketing and sales support is centralized and directed from
our headquarters office in Princeton, New Jersey. We have a full-time staff
dedicated to our marketing efforts. The marketing and sales support staff are
charged with implementing our marketing strategies, prospecting and producing
sales presentation materials and proposals.

New Services Development and Implementation

     Our development team is dedicated to the improvement and enhancement of the
monitoring and analysis software tools and Internet management systems we use to
achieve BestValue Routing, the enhancement of our management systems, including
our billing and customer care software, and the development and implementation
of new Internet- based voice services, such as our new wholesale web-to-phone
services. Our future success will depend, in part, on our ability to improve
existing technology and develop and/or implement new voice services that
incorporate leading technology.

Competition

     The long distance telephony market and the Internet telephony market are
highly competitive. There are several large and numerous small competitors, and
we expect to face continuing competition for ITXC.net based on price and service
offerings from existing competitors and new market entrants in the future. The
principal competitive factors in our market include price, quality of service,
breadth of geographic presence, customer service, reliability, network size and
capacity and the availability of enhanced communications services. Our
competitors include major and emerging telecommunications carriers in the U.S.
and foreign telecommunications carriers.

                                      -17-
<PAGE>

     .  Internet Protocol and Internet Telephony Service Providers

     During the past several years, a number of companies have introduced
services that make Internet telephony or voice services over the Internet
available to businesses and consumers. AT&T Global Clearinghouse, GRIC
Communications and iBasis and the wholesale divisions of Net2Phone and
deltathree.com route traffic to destinations worldwide and compete directly with
us. Other Internet telephony service providers focus on a retail customer base
and may in the future compete with us. These companies may offer the kinds of
voice services we intend to offer in the future. In addition, companies
currently in related markets have begun to provide voice over the Internet
services or adapt their products to enable voice over the Internet services.
These related companies may potentially migrate into the Internet telephony
market as direct competitors.

     .  Telecommunications Companies and Long Distance Providers

     A number of telecommunications companies, including AT&T, Deutsche Telekom,
Level Three, MCI WorldCom and Qwest Communications, currently maintain, or plan
to maintain, data networks to route the voice traffic of other
telecommunications companies. These companies, which tend to be large entities
with substantial resources, generally have large budgets available for research
and development, and therefore may further enhance the quality and acceptance of
the transmission of voice over the Internet.

     Many of our competitors have substantially greater financial, technical and
marketing resources, larger customer bases, longer operating histories, greater
name recognition and more established relationships in the industry than we
have. As a result, certain of these competitors may be able to adopt more
aggressive pricing policies which could hinder our ability to market our
Internet-based voice services. We believe that our key competitive advantages
are our ability to deliver reliable, high quality voice service over the
Internet in a cost-effective manner and the size and rapid growth of our
network. We cannot provide assurances, however, that this advantage will enable
us to succeed against comparable service offerings from our competitors.

Government Regulation

     Regulation of Internet Telephony

     The use of the Internet to provide telephone service is a recent market
development. At present, we are not aware of any domestic, and are only aware of
a few foreign, laws or regulations that prohibit voice communications over the
Internet.

                                      -18-
<PAGE>

     United States. We believe that, under U.S. law, the Internet-related
services that we provide constitute information services, as opposed to
regulated telecommunications services, and, as such, are not currently actively
regulated by the FCC or any state agencies charged with regulating
telecommunications carriers. Nevertheless, aspects of our operations may be
subject to state or federal regulation, including regulation governing universal
service funding, disclosure of confidential communications, copyright and excise
tax issues. We cannot provide assurances that Internet-related services will not
be actively regulated in the future. Several efforts have been made in the U.S.
to enact federal legislation that would either regulate or exempt from
regulation services provided over the Internet. Increased regulation of the
Internet may slow its growth, particularly if other countries also impose
regulations. Such regulation may negatively impact the cost of doing business
over the Internet and materially adversely affect our business, operating
results, financial condition and future prospects.

     In addition, the FCC is currently considering whether to impose surcharges
or other common carrier regulations upon certain providers of Internet
telephony, primarily those which, unlike us, provide Internet telephony services
to end users located within the U.S. While the FCC has presently decided that
information service providers, including Internet telephony providers, are not
telecommunications carriers, various companies have challenged that decision.
Congressional dissatisfaction with FCC conclusions could result in requirements
that the FCC impose greater or lesser regulation, which in turn could materially
adversely affect our business, financial condition, operating results and future
prospects.

     The FCC has expressed an intention to examine the question of whether
certain forms of phone-to-phone Internet telephony are information services or
telecommunications services. The two are treated differently in several
respects, with certain information services being regulated to a lesser degree.
The FCC has noted that certain forms of phone-to-phone Internet telephony appear
to have the same functionality as non-Internet telecommunications services and
lack the characteristics that would render them information services.

     If the FCC were to determine that certain Internet-related services
including Internet telephony services are subject to FCC regulations as
telecommunications services, the FCC could subject providers of such services to
traditional common carrier regulation, including requirements to make universal
service contributions, and/or pay access charges to local telephone companies.
It is also possible that the FCC may adopt a regulatory framework other than
traditional common carrier regulation which would apply to Internet telephony
providers. Any such determinations could materially adversely affect our
business, financial condition, operating results and future prospects to the
extent that any such determinations negatively affect the cost of doing business
over the Internet or otherwise slow the growth of the Internet.

     State regulatory authorities may also retain jurisdiction to regulate the
provision of intrastate Internet telephony services. Several state regulatory
authorities have initiated proceedings to examine the regulation of such
services. Others could initiate proceedings to do so.

                                      -19-
<PAGE>

     One of our subsidiaries is subject to regulation by the FCC and the New
York Public Service Commission as a result of having been granted authorizations
to provide telecommunications services by these entities. Although the
certificated entity is currently not providing any regulated telecommunications
services, it is possible that the FCC or the New York Public Service Commission
could seek to assert jurisdiction over our unregulated operations.

     International. The regulatory treatment of Internet telephony outside of
the U.S. varies widely from country to country. A number of countries that
currently prohibit competition in the provision of voice telephony also prohibit
Internet telephony. Other countries permit but regulate Internet telephony. Some
countries will evaluate proposed Internet telephony service on a case-by-case
basis and determine whether it should be regulated as a voice service or as
another telecommunications service. Finally, in many countries, Internet
telephony has not yet been addressed by legislation. Increased regulation of the
Internet and/or Internet telephony providers or the prohibition of Internet
telephony in one or more countries could materially adversely affect our
business, financial condition, operating results and future prospects.

     The European Commission regulatory regime, for example, distinguishes
between voice telephony services and other telecommunications services.

     In January 1998, the Commission issued a communication addressing whether
Internet telephony was voice telephony and thus subject to regulation by the
member states of the European Union. Consistent with its earlier directives, the
Commission concluded that no form of Internet telephony currently meets the
definition of voice telephony subject to regulation by the member states of the
European Union. The European Commission stated that only phone-to-phone
communications reasonably could be considered voice telephony and that, at
present, even phone-to-phone Internet telephony does not meet all elements of
its voice telephony definition. Therefore, the European Commission concluded
that, at the present time, voice over Internet services cannot be classified as
voice telephony.

     As a result of the European Commission's conclusion, providers of Internet
telephony should be subjected to no more than a general authorization or
declaration requirement by European Union member countries. However, we cannot
provide assurances that more stringent regulatory requirements will not be
imposed by individual member countries of the European Union, since Commission
communications, unlike directives, are not binding on the member states. The
member countries therefore are not obligated to reach the same conclusions as
the Commission on this subject so long as they adhere to the definition of voice
telephony in the Services Directive. Moreover, in its January 1998 IP Telephony
Communication, the European Commission stated that providers of Internet
telephony whose services satisfy all elements of the voice telephony definition
and whose users can dial out to any telephone number can be considered providers
of voice telephony and may be regulated as such by the member states of the
European Union. We cannot provide assurances that the services provided over
ITXC.net will not be deemed voice telephony subject to heightened regulation by
one or more member states. Moreover, we cannot provide assurances that the
failure of us or any of our customers or affiliates to obtain any necessary
authorizations will not have a material adverse effect on our business,
financial condition, operating results and future prospects.

                                      -20-
<PAGE>

          One of our subsidiaries, ITXC, Ltd., is subject to regulation in the
United Kingdom as a result of having been granted authorization to provide
telecommunications services by the Department of Trade and Industry.  Although
ITXC, Ltd. is currently not providing any regulated telecommunications services,
it is possible that the Department of Trade and Industry could seek to assert
jurisdiction over our unregulated operations.

     We are also providing service in countries where regulation of Internet
telephony is far more restrictive than in the European Union. Specifically, we
have a strategic affiliate relationship with China Telecom to provide Internet
telephony services in the People's Republic of China. See "--Our Strategic
Carrier and Technology Partners." China currently prohibits foreign ownership of
telecommunications companies and strictly limits competition in the
telecommunications sector. However, a recent yet to be implemented trade
agreement between the U.S. and China enables China's entry into the World Trade
Organization and may open up the Chinese Internet market to foreign investment.
In the event this agreement is implemented, U.S. firms would be permitted to
invest in Chinese-based Internet ventures. Internet telephony is now being
provided on an experimental basis in China by China Telecom, Unicom, and Jitong
Communications in three non-competing geographic regions. It remains uncertain
how Internet telephony will be treated in China once the trial period ends and
specifically, whether China Telecom and/or others will be granted more permanent
authorization to provide Internet telephony in China.

     Certain Other Regulation Affecting the Internet

     United States. Congress has recently adopted legislation that regulates
certain aspects of the Internet, including online content, user privacy and
taxation. In addition, Congress and other federal entities are considering other
legislative and regulatory proposals that would further regulate the Internet.
Congress has, for example, considered legislation on a wide range of issues
including Internet spamming, database privacy, gambling, pornography and child
protection, Internet fraud, privacy and digital signatures. Various states have
adopted and are considering Internet-related legislation. Increased U.S.
regulation of the Internet may slow its growth, particularly if other
governments follow suit, which may negatively impact the cost of doing business
over the Internet and materially adversely affect our business, financial
condition, results of operations and future prospects.

     International. The European Union has also enacted several directives
relating to the Internet. The European Union has, for example, adopted a
directive that imposes restrictions on the collection and use of personal data.
Under the directive, citizens of the European Union are guaranteed rights to
access their data, rights to know where the data originated, rights to have
inaccurate data rectified, rights to recourse in the event of unlawful
processing and rights to withhold permission to use their data for direct
marketing. The directive could, among other things, affect U.S. companies that
collect or transmit information over the Internet from individuals in European
Union member states, and will impose restrictions that are more stringent than
current Internet privacy standards in the U.S. In particular, companies with
offices located in European Union countries will not be allowed to send personal
information to countries that do not maintain adequate standards of privacy.
Although we do not engage in the collection of data for purposes other than
routing our services and billing for our services, the directive is quite broad
and the European Union privacy standards are stringent. Accordingly, the
potential effect on ITXC of development in this area is uncertain.

                                      -21-
<PAGE>

Proprietary Rights

     Proprietary rights are important to our success and our competitive
position. As of January 31, 2000, we have registered three trademarks in the
U.S., and have five registered trademarks and eight pending applications for
trademarks in other parts of the world. We have also applied for one patent in
the U.S. for our network monitoring and management techniques. The laws of some
foreign countries do not protect our proprietary rights to the same extent as do
the laws of the U.S., and effective copyright, trademark and trade secret
protection may not be available in such jurisdictions. In general, our efforts
to protect our intellectual property rights through copyright, trademark and
trade secret laws may not be effective to prevent misappropriation of our
content, and our failure to protect our proprietary rights could materially
adversely affect our business, financial condition, operating results and future
prospects. Despite such protection, a third party could, without authorization,
copy or otherwise appropriate our proprietary network information. Our
agreements with employees and others who participate in development activities
could be breached, we may not have adequate remedies for any breach, and our
trade secrets may otherwise become known or independently developed by
competitors.

     We rely upon license agreements with respect to our use of the software and
hardware provided to us by our vendors. Those license agreements may not
continue to be available to us on acceptable terms, or at all.

     We have transferred to an independent entity certain intellectual property
that we have developed for iNOW!.

Employees

     As of January 31, 2000, we employed 129 people. None of our employees is
subject to any collective-bargaining arrangements, and we consider our relations
with our employees to be good.

Item 2.  Properties
         ----------

     Our principal executive office is located in Princeton, New Jersey, where
we lease approximately 27,000 square feet. We have network hubs in New York
City, Jersey City, New Jersey and Los Angeles under co-location arrangements. We
expect to establish a network hub in London in the first quarter of 2000. We
have sales offices in Singapore and London. We believe that our existing
facilities are adequate for our current requirements and that additional space
can be obtained on commercially reasonable terms to meet future requirements.

Item 3.  Legal Proceedings
         -----------------

          From time to time, we are involved in various legal proceedings
relating to claims arising in the ordinary course of business. We are not a
party to any legal proceeding, the adverse outcome of which is expected to have
a material adverse effect on our business, financial condition, operating
results or future prospects.

                                      -22-
<PAGE>

Item 4.  Submission of Matters to a Vote of Security Holders
         ---------------------------------------------------

     Not applicable.

Item 4A.  Executive Officers of the Registrant
          ------------------------------------

     The Company's executive officers, their respective ages and their positions
with the Company are set forth below:

Name                   Age                   Position

Tom I. Evslin          56  Chairman of the Board, Chief Executive Officer and
                           President

Edward B. Jordan       39  Executive Vice President, Chief Financial Officer,
                           Treasurer, Secretary and Director

John G. Musci          43  Executive Vice President, Chief Operating Officer and
                           Director

Thomas J. Shoemaker    43  Executive Vice President, Business Development

Mary A. Evslin         51  Vice President, Marketing and Customer Success

Bradley E. Miller      33  Vice President, Operations

Steven J. Ott          39  Vice President, Global Sales

Eric G. Weiss          33  Vice President and Business Unit Manager, WWeXchange
                           Service

     Tom I. Evslin, our founder, has been Chairman of the Board, Chief Executive
Officer and President since our inception in July 1997. From December 1994 until
July 1997, Mr. Evslin 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, he 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.
Mr. Evslin served on the board of directors of VocalTec from 1997 until his
resignation on June 10, 1999. He is Mary A. Evslin's husband.

                                      -23-
<PAGE>

     Edward B. Jordan has been an Executive Vice President since February 1999,
has served as our Chief Financial Officer, Secretary and Treasurer since he
joined us in September 1997 and has served as a Director since April 1998. From
September 1997 until February 1999, he was our Vice President, Administration.
For ten years prior to joining us, Mr. Jordan 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. Mr. Jordan is a certified public accountant.

     John G. Musci joined us in February 1999 as Executive Vice President and
Chief Operating Officer and as a Director. From June 1998 until February 1999,
Mr. Musci served as Senior Vice President of Wholesale Switched Services at
Qwest Communications International, an Internet communications company. He held
various positions at LCI International, a long distance telecommunications
company, including Senior Vice President--Wholesale Switched Services, from 1985
until June 1998, when LCI was acquired by Qwest. Prior to 1985, Mr. Musci held
various positions at AT&T Information Systems and Ohio Bell.

     Thomas J. Shoemaker joined us in January 2000 as our Executive Vice
President of Business Development, responsible for both new service development
and mergers and acquisitions. Prior to joining us, from August 1998 to December
1999, he was President and Chief Executive Officer of Electric Schoolhouse, an
Internet education company providing application and information services to
parents, teachers, students and schools for use at home and in the classroom.
From August 1997 to August 1998, Mr. Shoemaker was the Vice President
responsible for AT&T's WorldNet Service. Prior to that role, he held a number of
business, technical, and marketing positions in AT&T Business Services, Bell
Laboratories, and Bell Communications Research from September 1979 to August
1997.

     Mary A. Evslin has been our Vice President, Marketing and Customer Success
since July 1997. From 1993 through July 1997, Ms. Evslin served as a volunteer
for The American Red Cross and for various charitable organizations. From 1992
to 1993, Ms. Evslin was employed by Attachmate Corporation, a provider of
mainframe connectivity software to businesses, as Manager of Service Marketing.
From 1986 to 1992, she served as President of Solutions International, a
software marketing company. From 1978 to 1986, Ms. Evslin served as Vice
President of Marketing and Sales at Solutions, Inc., a communications software
development company. She is Tom I. Evslin's wife.

     Bradley E. Miller joined us as our Vice President, Operations in November
1997. From June 1996 to November 1997, Mr. Miller was Director of Operations at
CGX Telecom/CAIS Internet, a tier 1 Internet service provider. From May 1995
until June 1996, Mr. Miller was a Management Information Systems Manager at US
Assist, an international travel assistance company. From June 1987 until May
1995, he was the Director of Operations at Donohoe Constructions Company, a
construction firm.

                                      -24-
<PAGE>

     Steven J. Ott has been our Vice President, Global Sales since January 1998.
From August 1994 to January 1998, Mr. Ott served as Vice President of Global
Sales and Support at Voxware, Inc., a software company providing core audio
compression algorithms and applications to technology companies. Prior to August
1994, Mr. Ott served first as a Director and then as Vice President of Corporate
Development at Legent Corporation, a software development company.

     Eric G. Weiss joined us in October 1997 as our Business Unit Manager,
WWeXchange Service and served in that capacity until May 1998. From May 1998 to
present, Mr. Weiss has served as Vice President and Business Unit Manager,
WWeXchange Service. From May 1995 to October 1997, he was employed by Dialogic
Corporation as a Product Line Manager. From September 1994 until May 1995, Mr.
Weiss was a Manager with BCE Ventures, Bell Canada Enterprises (BCE) Inc., a
telecommunications firm. From 1991 until September 1994, he held various
management positions with Hewlett Packard Company, a manufacturer of electronic
equipment.

     Officers who do not have an employment agreement with us, serve at the
discretion of our board of directors and hold office until their successors are
elected and qualified or until their earlier resignation or removal.

                                      -25-
<PAGE>

                                    PART II

Item 5.  Market for the Registrant's Common Equity and related Stockholder
         -----------------------------------------------------------------
Matters
-------

          Our common stock has traded on the NASDAQ National Market under the
symbol ITXC since September 28, 1999. The following table sets forth the per
share range of high and low closing sales prices of our common stock for the
periods indicated:

                                                         High           Low
Year ended December 31, 1999:
Third quarter (September 28-30 only) ............... $   32.25     $   28.25
Fourth quarter .....................................     49.00         27.00

       The market price for our stock is highly volatile and fluctuates in
response to a wide variety of factors.

     We have never declared or paid any dividends on our common stock.  We do
not anticipate paying any cash dividends in the forseeable future. We currently
intend to retain future earnings, if any, to finance operations and the
expansion of our business.  Any future determination to pay cash dividends will
be at the discretion of our board of directors and will depend upon our
financial condition, operating results, capital requirements and other factors
the board of directors deem relevant.  In addition, our credit agreement
restricts our ability to declare and pay dividends without the consent of our
lender.

     As of March 23, 2000, there were 58 holders of record of the Company's
Common Stock and, as of that date, the Company estimates that there were
approximately 5,500 beneficial owners of the Common Stock.

          During 1999, we issued the following shares pursuant to transactions
that were not registered under the Securities Act of 1933, as amended (the
"Act"):

       .  From inception through December 31, 1999, we granted to certain of our
          officers, directors and employees options to purchase up to an
          aggregate of 6,603,750 shares of common stock. Options to purchase
          613,743 of such shares were exercised during 1999. For the foregoing
          transactions, we relied upon the exemption from registration contained
          in Sections 3(b) and 4(2) of the Securities Act of 1933 and Rule 701
          of the SEC.

       .  On February 24, 1999, we sold an aggregate of 3,229,975 shares of our
          Series C Convertible Preferred Stock for aggregate cash consideration
          of $15.0 million to a total of fourteen accredited investors. These
          shares were converted into our common stock upon consummation of our
          initial public offering.  On June 11, 1999, VocalTec Communications
          exercised all of the warrants that we previously granted to VocalTec.
          As a result, we issued 1,444,000 shares of our common stock upon
          payment to us of $722. On February 14, 2000, we issued an aggregate of
          150,000 shares of our common stock to two affiliates of our South
          American joint venture partner in connection with the termination of
          our South American joint venture agreement. For the foregoing
          transactions, we relied upon the exemption from registration under
          Section 4(2) of the Securities Act of 1933.

                                      -26-
<PAGE>

          Our  initial  public  offering  was  effected  pursuant to a
registration statement on Form S-1 (No. 333-80411) declared effective by the SEC
on September 27, 1999. The offering commenced on September 27, 1999 and
terminated after all securities registered were sold. The managing underwriters
of the initial public offering in the United States were Lehman Brothers, CIBC
World Markets and First Analysis Securities Corporation and the managing
underwriters of the initial public offering outside of the United States were
Lehman Brothers International (Europe), CIBC World Markets International Limited
and First Analysis Securities Corporation .

          The sole class of capital stock registered in the Company's public
offering was the Company's Common Stock.  The total amount of Common Stock
registered was $93,437,500. In the initial public offering, a total of 7,187,500
shares were sold at an offering price of $12 per share, for total gross proceeds
of $86,250,000. All of the shares were sold for the account of the Company.

          The expenses incurred by the Company (for underwriters' discounts and
commissions, finders' fees, expenses paid to or for underwriters, other expenses
and total expenses) during the period from September 27, 1999 through December
31, 1999 (the "Reporting Period") in connection with the initial public offering
were (based on reasonable estimates) as follows:

  Underwriters' discounts and commissions.................  $6,037,500

  Finders' fees...........................................  $        0

  Expenses paid to or for underwriters....................  $        0

  Other expenses..........................................  $1,812,500

  Total expenses..........................................  $7,850,000

None of such amounts represented direct or indirect payments to directors,
officers or general partners of ITXC or their associates, to persons owning 10%
percent or more of any class of equity securities of ITXC or to any affiliates
of ITXC or direct or indirect payments to persons other than the underwriters
and persons indicated in Part II of our registration statement.

          The net offering proceeds to ITXC after deducting total expenses
amounted to $78.4 million. The following table indicates (based on reasonable
estimates) the manner in which such net proceeds have been allocated during the
Reporting Period:

  Construction of plant, building and facilities.....................$         0

  Purchase and installation of machinery and  equipment..............$         0

  Purchase of real estate............................................$         0

  Acquisition of other businesses....................................$         0

  Repayment of indebtedness..........................................$         0

  Working capital (including investments and capital expenditures)...$78,400,000

None of such amounts represented direct or indirect payments to directors,
officers or general partners of ITXC or their associates, to persons owning 10%
percent or more of any class of equity securities of ITXC or to any affiliates
of ITXC or direct or indirect payments to other persons.

                                      -27-
<PAGE>

Item 6.   Selected Financial Data
          -----------------------

          The following selected financial data for the period from July 21,
1997, our date of inception, to December 31, 1997 and for the years ended
December 31, 1998 and 1999 are derived from our audited consolidated financial
statements. The information presented below should be read in conjunction with
our consolidated financial statements, related notes and other financial
information included elsewhere in this Annual Report.

<TABLE>
<CAPTION>
                                                Period from
                                               July 21, 1997
                                                 (date of
                                               inception) to        Year ended
                                                December 31,       December 31,
                                                                 ----------------
                                                    1997         1998        1999
                                                    ----         ----        ----
                                                 (in thousands, except per share data)
<S>                                                <C>        <C>          <C>
Operating Data:
Revenue:
Telecommunications revenue ........................ $ --       $1,238       $24,423
Consulting revenue ................................   59          653           988
                                                     ---        -----        ------

Total revenue .....................................   59        1,891        25,411
Cost and expenses:
Data communications and telecommunications ........  --         2,017        23,095
Cost of consulting revenue ........................  --           192           --
Network operations ................................  --         1,321         3,219
Selling, general and administrative ...............  701        5,120        14,778
Depreciation and amortization .....................    5          345         2,556
Non-cash employee compensation ....................  --           194         2,716
                                                     ---        -----        ------
Total costs and expenses ..........................  706        9,189        46,365
                                                     ---        -----        ------

Loss from operations .............................. (647)      (7,298)      (20,953)
Interest income, net ..............................    1           91         1,289
                                                     ---        -----        ------

Net loss .......................................... (646)      (7,207)      (19,665)
Accretion of redemption value of
   mandatorily redeemable
   convertible preferred stock ....................  --           (14)         (773)
                                                    ---         -----        ------
Net loss applicable to common
   stockholders ................................... $(646)    $(7,222)     $(20,438)
                                                    =====     =======      ========

Basic and diluted net loss per
   share applicable to common
   stockholders ................................... $(0.09)    $(0.88)       $(1.29)
                                                    ======     ======        ======

Weighted average shares used in
   computation of basic and
   diluted net loss per share
   applicable to common stockholders .............. 7,005       8,185        15,886
Pro forma basic and diluted net
   loss per share .................................            $(0.45)       $(0.69)
                                                               ======        ======
Weighted average shares used in
   computation of pro forma basic
   and diluted net loss per share .................            16,155        28,526
</TABLE>
                                      -28-
<PAGE>

                                                         As of December 31,
                                                         ------------------
                                                       1997      1998     1999
                                                       ----      ----     ----
Balance Sheet Data:

Cash, cash equivalents and
   marketable securities ..........................    $498    $4,171    $74,396
Total assets ......................................     795     7,834     99,862
Long-term obligations, including
   current portion ................................      --     1,437      5,493
Working capital ...................................    (227)    2,069     65,810
Redeemable preferred stock ........................      --     9,867       --
Total stockholders' equity (deficit) ..............      52    (6,118)    80,366

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

Overview

       We are a leading global provider of Internet-based voice and fax
services. 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;

       . developing relationships with affiliates throughout the world to
increase 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 72.0 million minutes during the quarter ended December 31, 1999;

       . refining our monitoring and analysis software in order to achieve
BestValue Routing;

       . expanding our affiliate network to 107 affiliates at January 31, 2000
and increasing the global reach of ITXC.net; and

       . increasing our employee headcount, from 29 employees on April 1, 1998
to 129 employees on January 31, 2000.

       Our primary sources of revenue have been the fees that we receive from
customers for terminating calls that they have originated on the Internet.

                                      -29-
<PAGE>

       To date, 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.

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

       We have also received consulting revenue derived from a market trial
agreement that we entered into with a third-party shortly after our inception in
order to generate funds to sustain operations. Under that agreement, we earned a
portion of the revenue ratably over the term of the agreement and the remainder
of the revenue as we met specific milestones. We do not consider it likely that
consulting revenue will continue beyond the year ended December 31, 1999.

       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 over the Internet,
primarily fees that we pay to our affiliates to terminate or assist us in
terminating calls, fees that we pay when we find it necessary to utilize the
traditional telephone network or private data networks to terminate calls and
expenses incurred in connecting our customers to our network; these expenses are
largely proportional to the volume of voice traffic carried over our network;
and

       . costs associated with buying Internet access at ITXC-operated
locations; 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 would need to be acquired.

       . 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.

                                      -30-
<PAGE>

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

              . Sales and Marketing Expenses. Expenses relating to the 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. We anticipate that sales and marketing
       expenses will increase in the future as we expand our internal sales
       force, hire additional marketing personnel and increase expenditures for
       promotion and marketing. We expect that such expenses will also increase
       as telecommunications revenue increases.

              . 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. We expect that our
       development expenses will increase in future periods, based upon various
       factors, including:

              . the importance to us of BestValue Routing;

              . 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, administration, facilities, information
       technology and human resources. We expect that general and administrative
       expenses will increase in the future as we hire additional personnel and
       incur additional costs related to the growth of our business and
       operations. In addition, we expect to expand our facilities and incur
       associated expenses to support our anticipated growth.

       . 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. Such charges will be expensed,
generally over the next three to seven years, in connection with the underlying
vesting periods of the options granted.

       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. If adopted, such legislation could increase our costs significantly
and could materially adversely affect our business, operating results, financial
condition and future prospects. See "Business of the Company--Government
Regulation."

                                      -31-
<PAGE>

    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. During these periods, we
occasionally experience reductions in volume from certain customers.
Historically, we have satisfactorily resolved these transition issues. However,
we anticipate that in the future other anticipated or unanticipated operating
problems associated with the growth of ITXC.net may develop.

    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, 1999, we had an accumulated deficit of $27.5 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.

                                      -32-
<PAGE>

    In February 2000, we recast our relationship with our partner in our South
American joint venture. We issued 150,000 shares of our common stock for: (1)
equity in a private affiliate of our joint venture partner; (2) a termination of
the puts and calls which previously could have required substantial cash or
equity outlays by us; and (3) certain contractual commitments by the parties. As
part of that transaction, we terminated our joint venture agreement and the
license agreement that we previously furnished to the joint venture. However, we
do not anticipate a material change in our service to the carriers in the
territory previously serviced by the joint venture, since the new arrangement
contemplates the continuation of service to those carriers.

    From an accounting perspective, we will be required to expense the
difference between the value of our 150,000 shares and the equity we received.
We anticipate that such charge will be between approximately $7 million and
approximately $10 million. This accounting charge will be reflected in our
statement of operations for the quarter ending March 31, 2000.

Results of Operations

    Revenue

    We did not receive any revenue for terminating calls during our inception
period from July 21, 1997 through December 31, 1997 or during the quarter ended
March 31, 1998. Our telecommunications revenue for the years ended December 31,
1998 and 1999 was $1.2 million and $24.4 million, respectively. We were able to
achieve this increase despite our decision to terminate services to certain
customers. See "--Operating Expenses--Selling, General and Administrative
Expenses."

    Our consulting revenue increased from $59,000 during the inception period to
$653,000 and $988,000 during the years ended December 31, 1998 and 1999,
respectively. Our periodic receipt of consulting revenues reflected the
accomplishment of various performance requirements under our market trial
agreement. We do not expect to earn substantial consulting revenue in subsequent
periods.

    Operating Expenses

     Data Communications and Telecommunications Expenses. We did not incur data
communications and telecommunications expenses until we began providing service
over ITXC.net in April 1998. During the year ended December 31, 1998, such
expenses amounted to $2.0 million, as compared to telecommunications revenue of
$1.2 million during that period. During the initial period of operations, it was
necessary for us to rely upon the traditional telephone network and private data
networks more than we currently do, since we had fewer affiliates at that time.
We also had not reached a point where significant economies of scale could be
realized. During the year ended December 31, 1999, such expenses amounted to
$23.1 million, compared to telecommunications revenue of $24.4 million.

     Cost of Consulting Revenue. We did not incur any expenses under our market
trial agreement during any of the periods described in this Annual Report other
than the year ended December 31, 1998. During that period, the cost of
consulting revenue amounted to $192,000, representing 29% of consulting revenue.
During 1999, we were only required to present an update report.

                                      -33-
<PAGE>

     Network Operations Expenses. We did not incur any network operations
expenses during the inception period. Network operations expenses increased from
$1.3 million during the year ended December 31, 1998 to $3.2 million during the
year ended December 31, 1999. Expenses during the earlier period, representing
107% of our telecommunications revenue, were incurred in preparing for the
implementation of our WWeXchange service in April 1998 and in the initial
delivery of that service. During the latter period, such expenses primarily
reflected the cost of operating our 24-hours-a-day, 7-days- a-week network
operations center and represented 13% of telecommunications revenue. 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.

     Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $701,000 during the inception period to
$5.1 million during the year ended December 31, 1998 and $14.8 million during
the year ended December 31, 1999. The increase from the inception period to the
following year reflected (1) enhanced sales and marketing efforts that we
undertook once our network was operating, (2) growth in our sales and marketing
staffs, (3) commissions paid on the telecommunications revenue that we generated
during the year ended December 31, 1998, (4) our hiring of employees and
engaging of consultants for development tasks during the year ended December 31,
1998 and (5) a substantial increase in the number of general and administrative
personnel hired to support our growth. The 1999 increase reflected further
expansion in our sales and marketing efforts, commissions paid on increased
revenue levels, expanded development efforts and a further increase in general
and administrative staff in response to our continued growth.

     The increase in selling, general and administrative expenses during 1999
also included charges of $2.6 million representing additional accounts
receivable reserves and write-offs. These charges reflect general industry
trends and the discontinuance of service to certain significant customers
because of their failure to meet their payment obligations. We do not expect any
material revenue impact from these actions. 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 are able to attract new customers
to ITXC.net, the extent to which we are able to expand the utilization of
ITXC.net by other existing customers, our capacity constraints and the mix of
traffic that we carry in future periods.

     Non-cash Employee Compensation Expenses. Non-cash employee compensation
expense increased from $194,000 during the year ended December 31, 1998 to $2.7
million during the year ended December 31, 1999, representing amortization of
deferred compensation incurred in connection with the grant of options at
exercise prices less than fair value. There was no non-cash employee
compensation expense during the inception period.

                                      -34-
<PAGE>

     Interest Income, Net

     Our interest income, net principally represents income from cash and
investments which, in turn, were derived from capital contributions made by our
investors. 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, and we raised net proceeds of $78.4 million from our initial
public offering completed on October 1, 1999. During the year ended December 31,
1998, interest generated from capital contributions exceeded by $91,000 the
interest that we paid on our line of credit and non-cash interest related to the
issuance of common stock warrants in connection with bridge financing provided
by two officers. During the year ended December 31, 1999, the interest on our
marketable securities, including the interest earned on the proceeds from our
initial public offering, exceeded the interest that we paid on our line of
credit by $1.3 million. Interest income, net is expected to increase as a result
of our initial public offering and our March 2000 public offering.

     Loss From Operations

     We incurred operating losses of $647,000, $7.3 million and $21.0 million
during the inception period and the years ended December 31, 1998 and 1999,
respectively. We do not consider these amounts to be comparable, since the first
amount reflected operations prior to the introduction of services over our
network, the second amount reflected our active operation of our network during
our initial period of operations and only the third amount represented a full
year of operations. We anticipate that we will incur additional operating and
net losses in the future. The amount of these losses may exceed the amount of
the losses that we have incurred in prior periods.

                                      -35-
<PAGE>

     Quarterly Financial Information

     The following table sets forth certain operating data and consolidated
statements of operations data for our most recent four 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, June 30, Sept. 30,  Dec. 31,
                                          1999      1999     1999      1999
                                                   (in thousands)
Minutes of traffic over ITXC.net ......  11,077   24,493    42,513    72,024
                                         ======   ======    ======    ======
Revenue:
Telecommunications revenue ............  $2,429   $4,335    $6,549   $11,109
Consulting revenue ....................     688      300      --       --
                                          -----    -----     -----    ------
Total revenue .........................   3,118    4,635     6,549    11,109
Costs and expenses:
Data communications and
telecommunications ....................   2,528    4,362     6,242     9,963
Network operations ....................     546      736       882     1,054
Selling, general and administrative ...   2,558    3,117     4,031     5,072
Depreciation and amortization .........     278      421       655     1,203
Non-cash employee compensation ........     217      471     1,066       962
                                          -----    -----     -----     -----

Total costs and expenses ..............   6,128    9,107    12,876   18,254
                                          -----    -----    ------   ------

Loss from operations ..................  (3,010)  (4,472)   (6,327)   (7,145)
Interest income, net ..................      41      114        37     1,096
                                          -----    -----     -----     -----

Net loss .............................. $(2,969) $(4,358)  $(6,289)  $(6,049)
                                        =======  =======   =======   =======

Liquidity and Capital Resources

     Since our inception in July 1997, we have financed our operations primarily
through equity offerings and, to a lesser extent, through equipment financing,
and for the period after June 30, 1999, through capital leases. As of December
31, 1999, we had $74.4 million in cash, cash equivalents and marketable
securities.

                                      -36-
<PAGE>

     Net cash provided by financing activities was $0.5 million for the
inception period in 1997, $11.0 million for the year ended December 31, 1998 and
$93.6 million for the year ended December 31, 1999 and was primarily
attributable to net proceeds from the issuance of our capital stock.

     Net cash provided by operating activities was negligible for the inception
period. Net cash used in operating activities amounted to $5.3 million and $16.2
million for the years ended December 31, 1998 and 1999, respectively. Cash used
in operating activities in both of these periods was primarily the result of net
operating losses and increased accounts receivable, partially offset by
increases in accounts payable and accrued liabilities.

     Net cash used in investing activities was negligible for the inception
period, $2.3 million for the year ended December 31, 1998 and $32.4 million for
the year ended December 31, 1999. Cash used in investing activities was
primarily related to the purchases of property and equipment and purchases of
investments with the proceeds of our initial public offering.

     As of December 31, 1999, our principal commitments consisted of obligations
outstanding under operating and capital leases. At that date, future minimum
payments for non-cancelable leases includes required payments of $2.8 million
during 2000 and $6.1 million for years after 2000 under all leases. We
anticipate a substantial increase in capital expenditures and lease commitments
consistent with the anticipated growth in operations, infrastructure and
personnel.

     We maintain a credit agreement (which has been recently amended and
restated) that provides a committed line of credit from a financial institution
in the aggregate amount of $10.0 million. We are permitted to use any portion of
that commitment under a revolving line of credit for working capital or under an
equipment sub-line for the purchase of certain capital equipment and related
software. This credit agreement is collateralized by substantially all of our
assets. We are permitted to borrow under the credit agreement until February
2001. At that time, we must repay the outstanding working capital loans unless
that revolving line is extended. Loans outstanding under the equipment sub-line
are due and payable 36 months after the final draw under the equipment sub-line.

     Interest accrues at a floating rate per annum equal to the higher of our
lender's published prime rate and the weighted average federal funds rate
available to our lender plus 0.5%.

     The credit agreement contains customary financial and other covenants and
may be terminated by our lender 45 days after the occurrence of certain mergers,
acquisitions and investments. As of December 31, 1999, we were in compliance
with all of the covenants under our credit agreement, except for one covenant
regulating the amount of our vendor financing, which covenant has been amended
and our non-compliance waived. We expect that we will be able to comply with all
existing covenants for at least the next twelve months.

     We have arranged for financing in the ordinary course for gateway
equipment, switching equipment and general office equipment, from vendors such
as Lucent, Excel and Cisco. See note 10 to our consolidated financial statement
contained elsewhere in this Annual Report.

                                      -37-
<PAGE>

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

Recent Accounting Pronouncement

     In June 1998, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging
Activities." SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. As we do not currently
engage in derivatives or hedging transactions, we believe that there will be no
current impact to our results of operations, financial position or cash flows
upon the adoption of SFAS No. 133.

Year 2000 Compliance

     We have not experienced any significant problems associated with year 2000
issues to date. Similarly, to our knowledge, our distributors, suppliers and
other third parties with whom we conduct business have not experienced material
year 2000 problems to date. Expenditures incurred by us to test, repair and
replace equipment did not exceed $1.0 million.

Item 7A.  Quantitative and Qualitative Disclosure About Market Risk
          ---------------------------------------------------------

     We have investments of approximately $73.1 million as of December 31, 1999,
in certain marketable securities, which primarily consist of short-term fixed
income investments. Due to the short-term nature of our investments we believe
that the effects of changes in interest rates are limited and would not have a
material impact on our financial condition or operating results.

Item 8.  Financial Statements and Supplementary Data
         -------------------------------------------

     We have set forth our annual financial statements on the "F" pages that
follow this page.  The index of our financial statements is set forth in Item 14
of this Annual Report.

                                      -38-
<PAGE>

                         Report of Independent Auditors

Board of Directors and Stockholders
ITXC Corp. and subsidiaries

We have audited the accompanying consolidated balance sheets of ITXC Corp. and
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1999 and 1998 and the period from July 21, 1997 (date of
inception) to December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ITXC Corp. and
subsidiaries at December 31, 1999 and 1998, and the results of their operations
and their cash flows for the years ended December 31, 1999 and 1998 and the
period from July 21, 1997 (date of inception) to December 31, 1997 in conformity
with accounting principles generally accepted in the United States.

                                         /s/ Ernst & Young LLP

MetroPark, New Jersey
February 7, 2000, except for
Note 16, as to which the date is
March 15, 2000

                                     -F-1-
<PAGE>

                          ITXC CORP. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                                       December 31,
                                                                                                1998                1999
                                                                                                ----                ----
Assets
Current assets:
<S>                                                                                   <C>                 <C>
     Cash and cash equivalents......................................................        $ 3,971,237         $ 49,017,768
     Marketable securities..........................................................            200,000           25,378,297
     Accounts receivable, net of allowance of $172,000 in 1998 and $1,284,000
        in 1999.....................................................................            500,739            5,738,804
     Prepaid expenses and other current assets......................................            121,459            1,298,102
                                                                                            -----------         ------------

Total current assets................................................................          4,793,435           81,432,971
Property and equipment, net.........................................................          3,015,529           15,411,656
Deposits and other assets...........................................................             24,833               66,232
Service contract rights, net of amortization of $84,000.............................              --               2,950,750
                                                                                            -----------         ------------

Total assets........................................................................        $ 7,833,797         $ 99,861,609
                                                                                            ===========         ============

Liabilities, mandatorily redeemable convertible preferred stock and
   stockholders' equity (deficit)
Current liabilities:
     Accounts payable...............................................................        $   831,275         $ 10,403,227
     Accrued liabilities and other current liabilities..............................            786,043            3,157,229
     Deferred revenue...............................................................            888,232                --
     Customer deposits..............................................................            142,500              442,240
     Current portion of capital lease obligations...................................             76,705            1,620,317
                                                                                            -----------         ------------

Total current liabilities...........................................................          2,724,755           15,623,013
Equipment note payable..............................................................          1,200,000            1,723,191
Capital lease obligations, less current portion.....................................            160,368            2,149,177
Commitments and contingencies.......................................................
Series B Redeemable Convertible Preferred Stock, $.001 par value, issued and
   outstanding, 5,865,104 shares in 1998 and none in 1999...........................          9,866,723                --
Series C Redeemable Convertible Preferred Stock, $.001 par value, issued and
   outstanding, none in 1998 and 1999...............................................              --                   --
Stockholders' equity (deficit):
   Preferred Stock, $.001 par value, authorized 10,000,000 shares in 1998 and
      15,000,000 shares in 1999.....................................................              --                   --
   Common Stock, $.001 par value, authorized 67,500,000 shares; issued and
      outstanding, 8,381,000 shares in 1998; and 35,816,401 shares in 1999                        8,381               35,816
   Additional paid-in capital.......................................................          2,293,516          118,089,750
   Deferred employee compensation...................................................           (566,201)         (10,240,858)
   Accumulated deficit..............................................................         (7,853,745)         (27,518,480)
                                                                                            -----------         ------------

Total stockholders' equity (deficit)................................................         (6,118,049)          80,366,228
                                                                                            -----------         ------------

Total liabilities, mandatorily redeemable convertible preferred stock and
   stockholders' equity (deficit)...................................................        $ 7,833,797         $ 99,861,609
                                                                                            ===========         ============
</TABLE>

                                     -F-2-
<PAGE>

                            See accompanying notes.
                          ITXC CORP. AND SUBSIDIARIES



                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                          Period from
                                                                         July 21, 1997
                                                                           (date of
                                                                         inception) to        Year ended December 31,
                                                                          December 31,        -----------------------
                                                                              1997            1998              1999
                                                                              ----            ----              ----
<S>                                                                       <C>             <C>               <C>
Revenue:
  Telecommunications revenue............................................  $    --         $ 1,238,008       $ 24,423,162
  Consulting revenue....................................................      58,824          652,944            988,232
                                                                          ----------      -----------       ------------

Total revenue...........................................................      58,824        1,890,952         25,411,394

Costs and expenses:
  Data communications and telecommunications............................       --           2,016,757         23,095,225
  Cost of consulting revenue............................................       --             192,203              --
  Network operations....................................................       --           1,320,587          3,219,039
  Selling, general and administrative...................................     700,874        5,120,944         14,778,207
  Depreciation and amortization.........................................       5,000          344,587          2,556,436
  Non-cash employee compensation........................................       --             194,288          2,715,862
                                                                          ----------      -----------       ------------

Total costs and expenses................................................     705,874        9,189,366         46,364,769
                                                                          ----------      -----------       ------------

Loss from operations....................................................    (647,050)      (7,298,414)       (20,953,375)
Interest income.........................................................         756          230,538          1,495,800
Interest expense........................................................       --            (139,575)          (207,160)
                                                                          ----------      -----------       ------------

Net loss................................................................    (646,294)      (7,207,451)       (19,664,735)

Accretion of redemption value of mandatorily redeemable
  convertible preferred stock...........................................       --             (14,217)          (772,795)
                                                                          ----------      -----------       ------------

Net loss applicable to common stockholders..............................  $ (646,294)     $(7,221,668)      $(20,437,530)
                                                                          ==========      ===========       ============

Basic and diluted net loss per share applicable to common
   stockholders.........................................................      $(0.09)          $(0.88)            $(1.29)
                                                                          ==========      ===========       ============

Weighted average shares used in computation of basic and diluted
net loss per share applicable to common stockholders....................   7,004,908        8,184,556         15,885,883

Pro forma basic and diluted net loss per share (unaudited)..............                   $    (0.45)       $     (0.69)
                                                                                           ===========        ===========

Weighted average shares used in computation of pro forma basic
   and diluted net loss per share (unaudited)...........................                   16,154,670         28,525,619
</TABLE>
                            See accompanying notes.

                                     -F-3-
<PAGE>

                          ITXC CORP. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

       Period from July 21, 1997 (date of inception) to December 31, 1999



<TABLE>
<CAPTION>
                                 Series A                                          Software        Deferred
                                Convertible                          Additional    --------        --------
                             Preferred Stock       Common Stock       Paid-In       Credit         Employee    Subscription
                             ---------------       ------------       -------       ------         --------    ------------
                             Shares     Amount    Shares    Amount     Capital    Subscription    Compensation   Receivable
                             ------     ------    ------    ------     -------    ------------    ------------   ----------
Issuance of Common
<S>                           <C>        <C>     <C>        <C>     <C>          <C>               <C>        <C>
  Stock.                         --        --    7,800,000  $7,800  $   23,100   $     --             --          $(900)
Issuance of Series A
  Stock and Preferred
  Warrant                      278,000   $ 278       --        --      424,722         --             --            --
Issuance of Common
  Warrants for software
  credit.                        --        --        --        --    1,000,000    (1,000,000)         --            --
Utilization of software
  credit                         --        --        --        --        --          243,000          --            --
Net loss                         --        --        --        --        --            --             --            --
                              --------   -----   ---------  ------  ----------   -----------       --------       -----

Balance, December 31,
  1997                         278,000     278   7,800,000   7,800   1,447,822      (757,000)         --           (900)
Conversion of Series A
  Stock and Preferred
  Warrant to Common
  Stock.                      (278,000)   (278)    556,000     556        (278)        --             --            --
Repayment of
  subscription
  receivable.                                        --        --         (900)        --             --            900
Issuance of Common
  Stock for services             --                 25,000      25      10,600         --             --            --
Utilization of software
  credit                         --        --        --        --        --          757,000          --            --
Accretion of redemption
  value of mandatorily
  redeemable convertible
  preferred stock                --        --        --        --      (14,217)        --             --            --
Deferred non-cash
  Employee
  compensation.                  --        --        --        --      760,489         --          (760,489)        --
Amortization of non-cash
  deferred employee
  compensation.                  --        --        --        --        --            --           194,288         --
Non cash interest
  expense                        --        --        --        --       90,000         --             --            --
Net loss                         --        --        --        --        --            --             --            --
                              --------   -----   ---------  ------  ----------   -----------       --------       -----

Balance, December 31,
  1998                           --        --    8,381,000   8,381   2,293,516         --          (566,201)        --

                               Accumulated
                                 Deficit          Total
                                 -------          -----

Issuance of Common
  Stock.                       --                30,000
Issuance of Series A
  Stock and Preferred
  Warrant                      --               425,000
Issuance of Common
  Warrants for software                           --
  credit.                      --
Utilization of software
  credit                                        243,000
Net loss                 $  (646,294)       $  (646,294)
                         -----------        -----------

Balance, December 31,
  1997                      (646,294)            51,706
Conversion of Series A
  Stock and Preferred
  Warrant to Common                               --
  Stock.                       --
Repayment of
  subscription                                    --
  receivable.                  --
Issuance of Common
  Stock for services           --                10,625
Utilization of software
  credit                       --               757,000
Accretion of redemption
  value of mandatorily
  redeemable convertible
  preferred stock              --               (14,217)
Deferred non-cash
  Employee
  compensation.                --                 --
Amortization of non-cash
  deferred employee
  compensation.                --               194,288
Non cash interest
  expense                      --                90,000
Net loss                  (7,207,451)        (7,207,451)
                         -----------        -----------

Balance, December 31,
  1998                    (7,853,745)        (6,118,049)
</TABLE>

                                     -F-4-
<PAGE>

<TABLE>
<CAPTION>
Accretion of redemption
value of mandatorily
redeemable convertible
<S>                            <C> <C> <C>         <C>       <C>            <C> <C>            <C> <C>            <C>
  preferred stock              -   -        --        --         (772,795)  -          --      -          --          (772,795)
Deferred non-cash
  employee
  compensation.                             --        --       12,390,519   -    (12,390,519)  -          --             --
   Amortization of non-cash
  deferred employee
  compensation.                -   -        --        --            --      -      2,715,862   -          --         2,715,862
Issuance of common
  stock for exercise of
  warrants.                             1,444,000     1,444          (722)  -          --      -          --               722
Issuance of common
  stock for exercise of
  options                      -   -      613,743       614       219,285   -          --      -          --           219,899
Issuance of common
  stock for initial public
  offering.                    -   -    7,187,500     7,187    78,407,034   -          --      -          --        78,414,221
Conversion of
   mandatorily
   redeemable
   convertible
   preferred stock to
   to common stock                     18,190,158    18,190    25,552,913   -          --      -                    25,571,103
Net loss                       -   -        --        --            --      -          --           (19,664,735)   (19,664,735)
                               --  --  ----------  --------  ------------   --  ------------       ------------   ------------
Balance, December 31
  1999                         -   -   35,816,401   $35,816  $118,089,750   -   $(10,240,858)  -   $(27,518,480)  $ 80,366,228
                               ==  ==  ==========  ========  ============   ==  ============   ==  ============   ============
</TABLE>
                            See accompanying notes.

                                     -F-5-
<PAGE>

                          ITXC CORP. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                              Period from
                                                                             July 21, 1997
                                                                                (date of
                                                                             inception) to
                                                                              December 31,     Year ended December 31,
                                                                                  1997           1998          1999
                                                                             --------------  ------------  -------------
<S>                                                                          <C>             <C>           <C>
Operating activities
Net loss...................................................................      $(646,294)  $(7,207,451)  $(19,664,735)
Adjustments to reconcile net loss to net cash provided by (used in)
  operating activities:
  Depreciation and amortization............................................          5,000       344,587      2,556,436
  Provision for doubtful accounts..........................................           --         172,475      2,600,554
  Amortization of non-cash deferred employee compensation..................           --         194,288      2,715,862
  Issuance of common stock for services....................................           --          10,625           --
  Non-cash interest expense................................................           --          90,000           --
  Amortization of original issue discounts.................................           --            --         (510,582)
  Changes in operating assets and liabilities
     Increase in accounts receivable.......................................           --        (673,214)    (7,838,619)
     Increase in prepaid expenses and other assets.........................        (18,846)     (127,446)    (1,218,042)
     Increase in accounts payable and accrued expenses.....................        302,261     1,315,057      5,801,871
     Increase (decrease) in customer deposits and deferred
       revenue.............................................................        441,176       589,556       (588,492)
                                                                                 ---------   -----------   ------------

Net cash provided by (used in) operating activities........................         83,297    (5,291,523)   (16,145,747)

Investing activities
Purchase of property and equipment.........................................        (40,420)   (2,073,696)    (4,714,757)
Purchase of service contract rights........................................           --            --       (3,035,057)
Purchase of available for sale securities..................................           --        (200,000)   (64,367,815)
Maturities of available for sale securities................................           --            --       39,700,000
                                                                                 ---------   -----------   ------------
Net cash used in investing activities......................................        (40,420)   (2,273,696)   (32,417,629)

Financing activities
Proceeds from equipment line of credit.....................................           --       1,200,000        523,191
Proceeds from stockholder note.............................................           --         750,000           --
Repayment of capital lease obligations.....................................           --         (13,927)      (479,710)
Issuance of common stock...................................................         30,000           900        220,621
Issuance of convertible preferred stock....................................        425,000     9,101,606     14,931,584
Proceeds from initial public offering......................................           --            --       78,414,221
                                                                                 ---------   -----------   ------------
Net cash provided by financing activities..................................        455,000    11,038,579     93,609,907
                                                                                 ---------   -----------   ------------

Increase in cash...........................................................        497,877     3,473,360     45,046,531
Cash and cash equivalents at beginning of period...........................           --         497,877      3,971,237
                                                                                 ---------   -----------   ------------

Cash and cash equivalents at end of period.................................      $ 497,877   $ 3,971,237   $ 49,017,768
                                                                                 =========   ===========   ============

Supplemental disclosures of cash flow information
Cash paid for interest.....................................................           --     $    36,446   $    223,834
                                                                                 =========   ===========   ============
</TABLE>
                            See accompanying notes.

                                     -F-6-
<PAGE>

                          ITXC CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1997, 1998 and 1999

1. Organization and Nature of Business

     ITXC Corp. (the "Company") is a Delaware corporation, incorporated on July
21, 1997. The Company was founded for the purpose of providing Internet voice,
fax and voice-enabled services primarily to traditional telephone companies,
Internet service providers and telecommunications resellers, under the brand
name WWeXchange for which revenues commenced in 1998. During 1997, the Company
was in the development stage and was primarily developing and constructing its
network, and provided consulting services under a market trial agreement with a
company in the telecommunications industry (see Note 11). During 1998 the
Company exited the development stage. The Company operates in one business
segment.

     Initial Public Offering

     On October 1, 1999, the Company completed an initial public offering (IPO)
of 7.2 million shares of common stock at a price of $12.00 per share, generating
net proceeds of approximately $78.4 million. Under the Company's Certificate of
Incorporation, all outstanding shares of Series B Redeemable Convertible
Preferred Stock and Series C Redeemable Convertible Preferred Stock were
converted into shares of Common Stock on a two-for-one basis (reflecting the
stock split described in Note 11), effective upon the closing of the Company's
IPO, resulting in the issuance of an additional 18.2 million shares of common
stock.

     Subsidiaries and Joint Venture

     In March 1998, ITXC Data Transport Services LLC ("Data Transport"), a
wholly owned subsidiary, was formed for the purpose of holding licenses and
agreements with certain carriers and re-sellers and to acquire and operate
switching equipment for the Company.

     In July 1998, ITXC Asia PTE Ltd, a wholly-owned subsidiary (Singapore
company), was formed for the purpose of selling and marketing the Company's
services in Asia.

     In July 1998, the Company obtained a 49% interest in ITXC Comunicacoes Ltda
("ITXC Ltda"), a newly formed Brazilian joint venture, in consideration of
rights to certain technology, which will provide exchange carrier long- distance
services in Brazil. The Company's ownership interest in ITXC Ltda is accounted
for under the equity method of accounting. No investment has been recorded by
the Company as no consideration has been paid.

     The ITXC Ltda joint venture agreement, as amended, provided for an exit
clause triggered by an acquisition of the Company, certain business
combinations, failure of the Company or ITXC Ltda to meet certain performance
thresholds or the occurrence of certain other events. If any of these events
occurred, the clause provided the Company a call option and provided TeleNova
Communicacoes Ltda and its assignee (collectively, "TeleNova") a put option
which required the Company to acquire TeleNova's interest in ITXC Ltda.

     In February 2000, the Company agreed to issue 150,000 shares of its common
stock to affiliates of TeleNova in exchange for: (i) equity in TeleNova, having
a value of at least $6 million, (ii) termination of the call and put options and
(iii) certain contractual commitments by each party. As part of this agreement,
the parties also terminated the joint venture agreement and related license
agreement.

                                     -F-7-
<PAGE>

     In June 1999, the Company formed ITXC, Ltd., a United Kingdom company, to
conduct certain United Kingdom operations.

Basis of Consolidation

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

2. Significant Accounting Policies

Cash Equivalents

     The Company considers all highly-liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

Marketable Securities

     Marketable securities consist of fixed income investments which can be
readily purchased or sold using established markets. In accordance with SFAS
115, Accounting for Certain Investments in Debt and Equity Securities,
management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designations as of each balance sheet
date. Such investments are classified as available-for-sale and, accordingly,
are carried at fair value which approximates amortized cost at December 31, 1998
and 1999. The amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization and
accretion, as well as interest, are included in interest income. Realized gains
and losses and declines in value judged to be other than temporary are included
in investment income. The cost of securities sold is based on the specific
identification method.

Concentration of Credit Risk

     The Company transacts a significant volume of business with several
customers. Four customers represented 35%, 20%, 13% and 11%, respectively, of
1998 total revenue and three customers represented 12%, 12% and 11%,
respectively, of 1999 total revenue. Accounts receivable from these customers
were approximately $417,800 and $3,090,900 at December 31, 1998 and 1999,
respectively. The Company performs a credit evaluation of all new customers and
requires certain customers to provide collateral in the form of a cash deposit.
For the period from July 21, 1997 to December 31, 1997, one customer accounted
for 100% of consulting revenue under the market trial agreement referred to in
the first paragraph of Note 1.

Depreciation and Amortization

     Property and equipment are recorded at cost and are depreciated over the
estimated useful lives and leasehold improvements are depreciated over the term
of the lease or over the estimated useful lives, whichever is shorter, utilizing
the straight-line method as follows:

                                             Estimated
                                            Useful Life
                                            -----------

Network equipment and software............      2-3
Furniture, fixtures and office equipment..      3-7
Leasehold improvements....................        2

                                     -F-8-
<PAGE>

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 Internet based voice and fax services over the
Company's network.

     In 1997, the Company entered into a market trial agreement with a third
party. Under that agreement, the Company conducted a market trial to determine
the market opportunity, operational requirements and business arrangements with
respect to offering wholesale switching, transport, billing and settlement
services relating to Internet protocol telephony services. While the agreement
was in effect, the Company conducted a market trial of its wholesale switching,
transport, billing and settlement services and provided periodic reports
according to an agreed upon schedule. These reports provided marketing analyses,
service descriptions, operations analyses and business structure and competitive
analyses. The Company recognized consulting revenue under the market trial
agreement as certain milestones were attained and cash collections were assured,
as specified in the contract, and in accordance with Statement of Financial
Accounting Standards, No. 68, Research and Development Arrangements. This
agreement required certain research reports to be delivered by the Company and
accepted by the customer, for payments under the contract to become due and
payable. At December 31, 1998, $888,232, of revenue was deferred in connection
with this market trial agreement for payments received in advance of delivery
and acceptance of certain reports, which was fully earned during 1999.

Advertising

     Advertising costs are expensed as incurred. During 1997, 1998 and 1999, the
Company expensed approximately $14,000, $119,000, and $198,000, respectively, of
such costs.

Research and Development

          Development costs are expensed as incurred.  Development costs of
approximately $0, $594,000 and $1,509,000 were expensed in 1997, 1998 and 1999,
respectively, and are included in selling, general and administrative costs.

Income Tax

     Deferred income taxes are determined using the liability method in
accordance with Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities (i.e. temporary differences) and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.

Stock-Based Compensation

     The Company accounts for employee stock-based compensation in accordance
with Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees," using an intrinsic value approach to measure compensation
expense, if any. Appropriate disclosures using a fair value based method, as
provided by Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), are also reflected in the accompanying
notes to the financial statements. Options issued to non- employees are
accounted for in accordance with SFAS 123, using a fair value approach. The
Company has not issued any options to non-employees.

Recent Accounting Pronouncement

     In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivatives
and Hedging Activities (SFAS 133), which

                                     -F-9-
<PAGE>

establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. SFAS 133
is effective for all fiscal quarters of fiscal years beginning after June 15,
2000. As the Company does not currently engage in derivatives or hedging
transactions, there will be no current impact to the Company's results of
operations, financial position or cash flows upon the adoption of SFAS 133.

Use of Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.

3. Available for Sale Investments

     The Company's available for sale investments which are included in cash
equivalents ($47,715,977 at December 31, 1999) and marketable securities are as
follows:

                                                               December 31,
                                                               ------------
                                                            1998         1999
                                                            ----         ----

Money market funds .................................          --     $ 9,409,553
Commercial paper ...................................          --      48,676,937
Certificates of deposits ...........................      $200,000     7,000,296
Asset-backed securities ............................          --       8,007,508
                                                            ------        ------

Total ..............................................      $200,000   $73,094,294
                                                          ========   ===========

     Gross realized gains and losses for the years ended December 31, 1998 and
1999 were immaterial.

     The Company's available for sale securities have the following maturities
at December 31, 1999:

Due in one year or less.............................      $65,086,786
Due after one year through five years...............        8,007,508

4. Accounts Receivable

     The Company estimates the amount of the allowance for doubtful accounts
required to reduce accounts receivable to expected net realizable value by
reviewing the status of significant past-due receivables and analyzing
historical bad debt trends.

     The Company did not write-off any accounts receivable during 1997 and 1998.
The Company wrote-off approximately $1,490,000 of accounts receivable during
1999.

                                     -F-10-
<PAGE>

5. Property and Equipment

     Property and equipment is comprised of the following:

                                                             December 31,
                                                             ------------
                                                           1998         1999
                                                           ----         ----

Network equipment and software .....................    $1,955,887   $13,494,034
Furniture, fixtures and office equipment ...........     1,147,946     4,126,859
Leasehold improvements .............................       261,283       612,479
                                                           -------       -------

                                                         3,365,116    18,233,372
Less accumulated depreciation and amortization .....       349,587     2,821,716
                                                           -------     ---------

                                                        $3,015,529   $15,411,656
                                                        ==========   ===========

     Equipment under capital leases totaled approximately $251,000 and
$4,265,000 at December 31, 1998 and 1999, respectively. Included in accumulated
depreciation is approximately $14,000 and $609,000 related to such assets at
December 31, 1998 and 1999, respectively.

     At December 31, 1998 and 1999, network equipment and software includes $1
million of software which is used in Internet gateways and switches. This
software was purchased from a stockholder, who was paid by issuance of common
stock warrants (see Note 11). By December 31, 1999 all such software was
deployed into operations and is being depreciated over a three-year life.

6. Purchase of Contractual Rights

     On November 30, 1999, the Company purchased the contractual rights to
certain terminator and reseller agreements and intellectual property, for a cash
purchase price of $3 million, which is being amortized over a three year period.

7. Accrued Expenses

     Accrued liabilities and other current liabilities are comprised of the
following:

                                                              December 31,
                                                              ------------
                                                            1998         1999
                                                            ----         ----

Compensation .......................................      $262,807    $1,367,120
Payroll tax withholding liability ..................          --         644,954
Accrued contract costs .............................       300,000          --
Employee relocation costs ..........................       100,000          --
Other ..............................................       123,236     1,145,155
                                                           -------     ---------
                                                          $786,043    $3,157,229
                                                          ========    ==========

     Accrued contract costs represent the remaining minimum payments due under a
contract with a telecommunication vendor, which the Company terminated in
December 1998.

8. Income Taxes

     Due to operating losses, the Company has no income tax liability for 1997,
1998 or 1999.

                                     -F-11-
<PAGE>

     Significant components of the Company's deferred tax assets and liabilities
at December 31, 1998 and 1999 are as follows:

                                                          December 31,
                                                          ------------
                                                       1998          1999
                                                       ----          ----

Deferred tax assets:
Net operating loss carryforward ................... $2,977,041    $9,400,502
Allowance for doubtful accounts ...................     68,990       513,600
Amortization of non-cash employee compensation ....       --       1,085,658
Other .............................................    120,764       207,599
                                                    ----------    ----------

                                                     3,166,795    11,207,359
Less valuation allowance .......................... (3,108,838)  (10,870,050)
                                                   -----------  ------------

Deferred tax asset ................................     57,957       337,309
Deferred tax liabilities:
Fixed assets ......................................    (57,957)     (337,309)
                                                    ----------    ----------

Net deferred tax asset ............................ $     --      $     --
                                                        ======        ======

     A reconciliation setting forth the differences between the effective tax
rate of the Company and the U.S. statutory rate is as follows:

<TABLE>
<CAPTION>
                                                                            December 31,
                                              --------------------------------------------------------------------------
                                                  1997                          1998                          1999
                                                  ----                          ----                          ----
Statutory federal income
<S>                              <C>               <C>         <C>                <C>          <C>                 <C>
tax (benefit) at 34%...........        $(219,740)       34.0%       $(2,450,533)        34.0%        $(6,389,893)         34.0%
State income tax
(benefit), net of
federal benefit................          (38,389)        5.9           (404,338)         5.6          (1,116,352)          5.9
Nondeductible
expenses.......................            --            --              7,750         (0.1)             21,269          (0.1)
Other..........................            1,321        (0.2)            (4,909)         0.1              74,077          (0.4)
Increase in valuation
allowance......................          256,808       (39.7)         2,852,030        (39.6)          7,410,899         (39.4)
                                       ---------       -----        -----------        -----         -----------         -----

Total..........................       $    --            --         $    --              --         $      --              --
                                       ========       ========       ==========       ========        ===========       ========
</TABLE>

     At December 31, 1999, the Company has a federal and state net operating
loss ("NOL") carryforward of approximately $22.5 million. The federal NOL
carryforwards expire from 2012 to 2019. The state NOL carryforwards expire from
2004 to 2006. The Company has not performed a detailed analysis to determine
whether an ownership change under Section 382 of the Internal Revenue Code
occurred, but believes that it is likely that such a change occurred during
either 1998 or 1999. The effect of an ownership change would be the 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, but believes that all of the NOL will be available for use within
the carryforward periods.

                                     -F-12-
<PAGE>

     The Company's existing deferred tax assets at December 31, 1997, 1998 and
1999 have been reduced by a valuation allowance of $256,808, $3,108,838, and
$10,870,050, respectively, due to the uncertainty regarding the realization of
such deferred tax assets. A portion of the deferred tax asset arising during
1999 relates to the exercise of non-qualified stock options by employees.

9. Debt

     The Company has a revolving credit agreement with a bank, which, through
February 1, 2000, provided for maximum borrowings of $5 million, of which $4
million may be borrowed under an equipment line of credit for the purchase of
certain capital equipment. Available borrowings under the revolving line were
determined based on a formula including accounts receivable. Available
borrowings under the equipment line were determined based on a formula including
billable minutes. At December 31, 1999, the maximum available borrowings were
$2.3 million, of which $1.7 million is outstanding.

     The Company is contractually required to make an annual payment based on
the previous years' excess cash flow, as defined.

     The revolving line bore interest at the greater of (i) the bank's prime
rate plus 0.5%, or (ii) the federal funds rate plus 1.5%. The equipment line
bore interest at the greater of (i) the bank's prime rate plus 0.75%, or (ii)
the federal funds rate plus 2.0%. The rate in effect at December 31, 1999 under
the equipment line was 8.75%, representing the bank's prime rate plus 0.75%.

     On February 1, 2000, the credit agreement was amended and restated to
increase the available borrowings to $10 million, which may be used either under
the revolving line or the equipment line. The Company is permitted to make
borrowings through February 1, 2001, with any amount outstanding under the
equipment line to be converted to a term loan due three years from the final
draw down. Each portion of the loan will bear interest at the greater of (i) the
bank's prime rate, or (ii) the federal funds rate plus .5%.

     Borrowings under the credit agreement are collateralized by substantially
all of the Company's assets and the Company was required to maintain a
restricted cash balance of $200,000 through December 31, 1998. In addition, the
Company is required to maintain compliance with certain financial covenants. As
of December 31, 1999 the Company was in violation of one financial covenant and
has obtained a letter from the bank waiving the violation at that date. The
amended and restated agreement made such covenant less restrictive. As a result,
the Company believes that it will maintain compliance with such covenant
throughout 2000.

     The fair value of the Company's debt approximates its carrying value.

10. Commitments and Contingencies

     The Company leases an office facility under a non-cancelable operating
lease which commenced June 15, 1998, has a term of five years and provides for
minimal annual base rental payments of $656,000. The Company may, at its option,
terminate the lease after 18 months or 36 months. The lease contains one five
year renewal option at the then applicable fair market rental rate. In addition,
the lease requires the Company to pay increases in real estate taxes and other
operating costs of the properties above base year amounts. During 1998 and 1999,
the Company also entered into capital lease agreements for furniture and
equipment.

                                     -F-13-
<PAGE>

     Future minimum lease payments for noncancelable operating and capital
leases having initial or remaining terms in excess of one year are as follows:

                                                         Operating     Capital
                                                         ---------     -------

2000 ...............................................    $1,070,000    $1,763,965
2001 ...............................................     1,043,000     1,507,211
2002 ...............................................     1,004,000       675,593
2003 ...............................................       819,000       157,752
2004 ...............................................       819,000        87,357
                                                                      ----------

                                                                       4,191,870
Less amounts representing interest .................                     422,384
                                                                      ----------

Present value of net minimum lease payments ........                  $3,769,494
                                                                      ==========

     Rental expense for all operating leases was approximately $15,000,
$217,000, and $530,000 in 1997, 1998 and 1999, respectively.

     Legal Matters

     The Company is involved in certain claims and legal actions arising in the
normal course of business. Management does not expect that the outcome of these
cases will have a material effect on the Company's financial position or results
of operations.

11. Capital Stock

     On August 25, 1999, the Company's Board of Directors approved a 2 for 1
stock split of its Common Stock which became effective on September 20, 1999.
All Common Stock share amounts and preferred stock conversion ratios included in
the financial statements reflect the stock split for all periods presented.

     On September 20, 1999, the Company's stockholders approved an increase in
the authorized Common Stock to 67,500,000 shares which became effective on
September 20, 1999.

     On July 21, 1997, the Company issued 6,000,000 shares of Common Stock to
its founder and president for $30,000.

     On October 1, 1997, the Company issued 1,800,000 shares of Common Stock to
an investor for $900, which was paid subsequent to December 31, 1997. On October
1, 1997, the Company issued ten warrants to purchase an aggregate of 1,200,000
shares of Common Stock at par value to an investor in exchange for a software
credit in the amount of $1 million to be used within three years against the
purchase of products from the investor. Each warrant became exercisable for each
$100,000 of the software credit utilized by the Company. At December 31, 1998,
$1 million of the software credit had been utilized by the Company for the
purchase of software, and, accordingly, all warrants were exercisable. Also, on
October 1, 1997, the Company sold to the same investor 278,000 shares of Series
A Convertible Preferred Stock (the "Series A Stock"), and a warrant to purchase
an additional 122,000 shares of Series A Stock (the "Preferred Warrant") with an
exercise price of par value, for aggregate proceeds of $500,000.

     On April 27, 1998, in connection with the sale of the Series B Redeemable
Convertible Preferred Stock, all of the outstanding shares of Series A Stock
were converted into 556,000 shares of Common Stock and the Preferred Warrant was
converted into a warrant to purchase 244,000 shares of Common Stock. Such
warrants and the warrant to purchase 1,200,000 shares of common stock were
exercisable at

                                     -F-14-
<PAGE>

any time prior to the earlier of October 1, 2004 or the consummation of an
initial public offering of the Company's common stock. All 1,444,000 warrants
were exercised during 1999 for an aggregate exercise price of $722.

     On November 18, 1997, the Company issued a warrant to purchase up to
3,800,000 shares of Common Stock, with an exercise price of $1.32 per share, to
a customer to whom the Company provided consulting services (see Note 1). The
fair value of the warrant was determined to be de minimis on the date of grant.
The warrant was not exercised, and, on April 6, 1998, was canceled.

     Series B Mandatorily Redeemable Convertible Preferred Stock

     On April 27, 1998, the Company issued 5,865,104 shares of Series B
Mandatorily Redeemable Convertible Preferred Stock ("Series B Stock") to various
investors at a purchase price of $1.705 per share, resulting in net proceeds of
$9,852,000. In this private placement, 439,883 shares were sold to two officers
of the Company and 668,622 shares were sold to the holders of the Series A Stock
and the Preferred Warrant.

     Each share of Series B Stock was convertible into two shares of Common
Stock, subject to anti-dilution provisions, as defined. The Series B Stock
automatically converted into Common Stock upon the completion of the initial
public offering of the Company's Common Stock discussed in Note 1, resulting in
the issuance of an additional 11,730,208 shares of Common Stock.

     In connection with the Series B Stock private placement, the two officers
of the Company who participated in the offering provided the Company with bridge
financing of $750,000 which was converted into Series B Stock. In addition, the
Company issued the two officers warrants to purchase an aggregate of 879,766
shares of Common Stock with an exercise price of $.8525 per share. The warrants
are exercisable at any time prior to April 30, 2008. The fair value of these
warrants was determined to be $90,000 at the date of the grant, which is
included in 1998 interest expense.

     Series C Mandatorily Redeemable Convertible Preferred Stock

     On February 24, 1999, the Company issued 3,229,975 shares of Series C
Mandatorily Redeemable Convertible Preferred Stock (the "Series C Stock") to
various investors at a purchase price of $4.644 per share, resulting in net
proceeds of $14,932,000. The Series C Stock had conversion and redemption
features identical to the Series B Stock, and accordingly, also automatically
converted into Common Stock upon the completion of the initial public offering
of the Company's Common Stock discussed in Note 1, resulting in the issuance of
an additional 6,459,950 shares of Common Stock.

     Also, on February 24, 1999 the Board of Directors increased the total
authorized preferred stock from 10,000,000 shares to 15,000,000 shares.

     Registration Rights

   Certain of the common and preferred stockholders have registration rights
under an agreement which, as amended on February 24, 1999, provides for the
registration of Common Stock held by such stockholders, on or after one year
from the completion of the initial public offering of the Company's Common
Stock.

                                     -F-15-
<PAGE>

   Common Shares Reserved

   As of December 31, 1999, the Company had reserved shares of Common Stock for
issuance as follows:

                                                                 Number of
                                                                  Shares
                                                                  ------

Exercise of common stock options ...........................    7,086,257
Exercise of common stock warrants ..........................      879,766
Employee stock purchase plan ...............................      500,000

Stock Option Plan

   On February 17, 1998, the Company adopted the 1998 Stock Incentive Plan (the
"Plan"). The Plan, as amended, provides for the granting of awards to purchase
up to 7,700,000 shares of common stock, subject to annual increases in the
number of shares covered by the Plan. The Plan provides for award grants in the
form of incentive stock options, non-qualified stock options, stock appreciation
rights, restricted stock, performance units and performance shares.

   Under the terms of the Plan, a committee of the Company's Board of Directors
may grant options to purchase shares of the Company's Common Stock to employees,
directors and consultants of the Company at such prices as may be determined by
the committee, principally equal to or greater than fair value at the date of
grant. Options granted under the Plan generally vest over three years and expire
after ten years.

   The Company's stock option activity is as follows:


<TABLE>
<CAPTION>
                                          1997                    1998                  1999
                                          ----                    ----                  ----
                                                Weighted              Weighted               Weighted
                                                Average                Average                Average
                                     Number Of  Exercise  Number Of   Exercise   Number Of   Exercise
                                      Shares     Price      Shares      Price      Shares      Price
<S>                                  <C>        <C>       <C>         <C>        <C>         <C>
Options outstanding,
beginning of year..................      --          --   1,598,340     $ 0.05   2,641,250     $ 0.21
Options granted....................  1,598,340     $0.05  1,517,910       0.35   3,487,500       2.82
Options exercised..................      --          --       --           --     (613,743)     (0.44)
Options cancelled..................      --          --    (475,000)     (0.15)   (176,083)     (1.95)
                                     ---------  --------  ---------     ------   ---------     ------

Options outstanding,
end of year........................  1,598,340     $0.05  2,641,250     $ 0.21   5,338,924       1.83
                                     =========  ========  =========     ======   =========     ======
</TABLE>

     The weighted-average fair value of options granted in 1997, 1998 and 1999
was $.015, $1.16 and $11.75, respectively.

                                     -F-16-
<PAGE>

     The following table summarizes information about fixed price stock options
outstanding at December 31, 1999:

<TABLE>
<CAPTION>
                                                       Outstanding                                     Exercisable
                                       ------------------------------------------      -----------------------------------------
                                               Weighted-            Weighted-                   Number             Weighted-
       Range of             Number              Average              Average                Exercisable at          Average
       Exercise               of               Remaining            Exercise                 December 31,           Exercise
        Prices              Shares         Contractual Life           Price                      1999                Price
---------------------   ---------------  ---------------------  -----------------        ---------------------  ----------------

<S>                     <C>              <C>                    <C>                      <C>                    <C>
   $0.01 - $ 0.08            833,332           7.7 years              $ 0.03                    449,998             $0.04
    0.26 -   0.43          1,141,592           8.1 years                0.34                    251,949              0.33
    0.63 -   0.81          1,801,250           8.5 years                0.65                      --                 --
    1.16 -   2.50            540,000           9.2 years                1.59                      --                 --
    4.00 -  12.00            949,500           9.5 years                4.69                      --                 --
   27.00 -  49.00             73,250           9.8 years               40.69                      --                 --
                           ---------                                                            -------

   $0.01 - $49.00          5,338,924                                  $ 1.85                    701,947             $0.14
                           =========                                  ======                    =======             =====
</TABLE>

     Had the Company been accounting for its employee stock options under the
fair value method of SFAS No. 123, there would not have been a material impact
on the Company's net loss or basic and diluted net loss per share available to
common stockholders during 1999, 1998 or 1997.

     During 1998 and 1999, prior to the IPO, the Company granted options to
employees to purchase an aggregate of 1,517,910 and 3,319,750 shares,
respectively, of common stock at exercise prices ranging from $.30 to $4.00. The
exercise price of each of these option grants was below the fair value of the
Company's common stock at the respective dates of grant, resulting in aggregate
non-cash compensation of approximately $760,000 and $12.4 million in 1998 and
1999, respectively, which is being amortized to expense over the option vesting
periods, generally three to seven years.

12. Stock Purchase Plan

     During 1999, the Company's Board of Directors adopted the ITXC Corp.
Employee Stock Purchase Plan, intended to qualify under Section 423 of the
Internal Revenue Code. The Purchase Plan enables eligible employees to purchase
shares of the Company's Common Stock through payroll deductions, ranging from 1%
to 10% of gross pay. The purchase price for Common Stock purchased under the
Purchase Plan is 85% of the lesser of the fair market value of the shares on the
first or last day of the offering period. The first offering period commenced on
October 1, 1999. The Company has initially reserved 500,000 shares of common
stock for issuance under the plan, subject to annual increases in the number of
shares covered by the Purchase Plan.

13. Earnings (Loss) Per Share

     The Company computes net loss per share under the provisions of SFAS No.
128, "Earnings per Share" (SFAS 128), and SEC Staff Accounting Bulletin No. 98
(SAB 98).

     Under the provisions of SFAS 128 and SAB 98, basic and diluted net loss per
share is computed by dividing the net loss available to common stockholders for
the period by the weighted average number of shares of Common Stock outstanding
during the period. The calculation of diluted net loss per share excludes
potential common shares if the effect is antidilutive. Basic earnings per share
is computed by dividing income or loss applicable to common stockholders by the
weighted average number of shares of Common Stock outstanding during this
period. The increase in the weighted average shares outstanding from 1998 to
1999 is largely attributable to the completion of the Company's IPO and
conversion of preferred stock to Common Stock, which both occurred on October 1,
1999.

                                     -F-17-
<PAGE>

     Diluted earnings per share is determined in the same manner as basic
earnings per share except that the number of shares is increased assuming
exercise of dilutive stock options and warrants using the treasury stock method.
The diluted earnings per share amount equals basic earnings per share because
the Company had a net loss and the impact of the assumed exercise of the stock
options and warrants is not dilutive.

14. Geographic Data

     During 1999, the Company generated approximately 7% of its revenue from
customers domiciled in countries other than the United States, primarily in
Asia. For the period from inception to December 31, 1997 and the year ended
December 31, 1998, substantially all of the Company's revenue was derived from
domestic operations.

15. Unaudited Pro Forma Information

     The Company's historical capital structure prior to the completion of the
IPO is not indicative of its ongoing structure due to the automatic conversion
of all Series B and Series C Stock upon closing of the IPO on October 1, 1999.

     Accordingly, the unaudited pro forma net loss per share assumes the
conversion of the Series B and Series C Stock to Common Stock as if it had been
converted at the date of issuance, even though the result is antidilutive.

     The following table presents the calculation of basic and diluted net loss
per share and pro forma net loss per share:

                                     -F-18-
<PAGE>

<TABLE>
<CAPTION>
                                                                  December 31, 1998                    December 31, 1999
                                                                  -----------------                    -----------------

                                                                       Denominator                           Denominator
                                                                        (Weighted                             (Weighted
                                                          Numerator      Average       Per      Numerator      Average       Per
                                                          (Net Loss)     Shares)      Share    (Net Loss)      Shares)      Share
                                                         ------------  ------------  -------  -------------  ------------  -------

<S>                                                      <C>           <C>           <C>      <C>            <C>           <C>
Basic and diluted net loss per common share............  $(7,221,668)    8,184,556    $(.88)  $(20,437,530)   15,885,883   $(1.29)
 Accretion of redemption value of mandatorily
 redeemable convertible preferred stock................       14,217         --         --         772,795         --        --
   Assumed conversion of shares of mandatorily
 redeemable convertible preferred stock into
 shares of common stock at issuance....................        --        7,970,114      --           --       12,639,736     --
                                                         -----------   -----------   ------   ------------   -----------   ------
Pro forma basic and diluted net loss per
 common share..........................................  $(7,207,451)   16,154,670    $(.45)  $(19,664,735)   28,525,619   $ (.69)
                                                         ===========   ===========   ======   ============   ===========   ======
</TABLE>

16.  Subsequent Event

  On March 15, 2000, the Company completed a public offering of common stock at
a price of $85 per share.  The Company sold 2 million shares, generating net
proceeds to the Company of approximately $161.3 million, while certain
stockholders sold 2 million previously unregistered shares.

                                     -F-19-
<PAGE>

Item 9.  Changes in and Disagreements with Accountants on Accounting and
         ---------------------------------------------------------------
Financial Disclosure
--------------------

   Not applicable.



                                    PART III

Item 10.  Directors of the Registrant
          ---------------------------

  The registrant incorporates by reference herein information to be set forth in
its definitive proxy statement for its 2000 annual meeting of shareholders that
is responsive to the information required with respect to this Item.

Item 11.  Executive Compensation
          ----------------------

  The registrant incorporates by reference herein information to be set forth in
its definitive proxy statement for its 2000 annual meeting of shareholders that
is responsive to the information required with respect to this Item.

Item 12.  Security Ownership of Certain Beneficial Owners and Management
          --------------------------------------------------------------

  The registrant incorporates by reference herein information to be set forth in
its definitive proxy statement for its 2000 annual meeting of shareholders that
is responsive to the information required with respect to this Item.

Item 13.  Certain Relationships and Related Transactions
          ----------------------------------------------

  The registrant incorporates by reference herein information to be set forth in
its definitive proxy statement for its 2000 annual meeting of shareholders that
is responsive to the information required with respect to this Item.

                                      -39-
<PAGE>

                                    PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K
          ---------------------------------------------------------------

  (a) The following financial statements and related report are set forth in
Item 8 of this Annual Report on Form 10-K (pages follow page 38 of this Annual
Report):

                                                                           Page
                                                                           ----

Report of Independent Auditors............................................ F-1

Consolidated Balance Sheets as of December 31, 1998 and 1999.............. F-2

Consolidated Statements of Operations for the period from July 21, 1997
(date of inception) to December 31, 1997 and the years ended December
31, 1998 and 1999......................................................... F-3

Consolidated Statements of Stockholders' Equity for the period from July
21, 1997 (date of inception) to December 31, 1997 and the years ended
December 31, 1998 and 1999................................................ F-4

Consolidated Statements of Cash Flows for the period from July 21, 1997
(date of inception) to December 31, 1997 and the years ended December 31,
1998 and 1999............................................................. F-6

Notes to Consolidated Financial Statements................................ F-7

       (b) Financial statement schedules have been omitted because they are not
applicable or the required information is included in the financial statements
or notes thereto.

       (c)    The following exhibits are incorporated by reference herein or
              annexed to this Annual Report:

3.1   Third Restated Certificate of Incorporation (1)
3.2   By-laws, as amended
4.1   Form of certificate representing shares of common stock (2)
10.1  Second Amended and Restated Employment Agreement between the Registrant
      and Tom Evslin (3)
10.2  Employment Agreement between the Registrant and John G. Musci (4)
10.3  1998 Stock Incentive Plan, as amended (4)
10.4  Employee Cash Incentive Plan, as amended (3)
10.5  Employee Stock Purchase Plan (5)
10.6  Joint Venture and Quotaholders Agreement, dated as of July 19, 1998, by
      and between TeleNova Comunicacoes Ltda. and ITXC Corp. (4)
10.7  First Amendment to Joint Venture and Quotaholders' Agreement, dated
      August 18, 1998, by and between TeleNova Comunicacoes Ltda. and ITXC Corp.
      (4)
10.8  Memorandum and Amendment to Joint Venture and Quotaholders' Agreement,
      dated as of May 31, 1999, by and among ITXC Corp., TeleNova Comunicacoes
      Ltda. and Telesisa Sistemas emTelecomunicacoes S.A. (4)
10.9  Lease Agreement, dated February 2, 1998 by and between the Registrant
      and Peregrine Investment Partners--I (4)
10.10 First Amendment to Lease dated April 16, 1999, by and between the
      Registrant and Peregrine Investment Partners--I (4)
10.11 Employment Agreement between the Registrant and Thomas Shoemaker (3)

                                      -40-
<PAGE>

10.12 Second Amendment to Lease, dated December 6, 1999, by and between the
      Registrant and Peregrine Investment Partners--I (3)
10.13 Amended and Restated Loan Agreement, dated February 7, 2000, between the
      Registrant and PNC Bank (3)
10.14 Joint Venture Exit Agreement by and among the Registrant, TeleNova
      Comunicacoes Ltda., TeleNova Overseas, Ltd., Telesisa Sistemas em
      Telecomunicacoes S.A., and ITXC Comunicacoes Ltda., dated February 7,
      2000 (3)
21.1  Subsidiaries of the Registrant (3)
23.1  Consent of Ernst & Young LLP
24.1  Powers of Attorney
27.1  Financial Data Schedule
99.1  Risk Factors

     (1) Incorporated by reference to Exhibit 3.2 of the registrant's Form 10-Q
         for the quarter ended September 30, 1999.
     (2) Incorporated by reference to Exhibit 4.2 of the registrant's
         Registration Statement on Form S-1 (No. 333-80411).
     (3) Incorporated by reference to the similarly numbered Exhibit of the
         registrant's Registration Statement on Form S-1 (No. 333-96343).
     (4) Incorporated by reference to the similarly numbered Exhibit of the
         registrant's Registration Statement on Form S-1 (No. 333-80411).
     (5) Incorporated by reference to the similarly numbered Exhibit of the
        registrant's Form 10-Q for the quarter ended September 30, 1999.

  (b) Financial Statement Schedules: Not applicable.

  (c) During the quarter ended December 31, 1999, the Company did not file any
Current Reports on Form 8-K.

                                      -41-
<PAGE>

                                   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, this 28th day of
March, 2000.

                                     ITXC CORP.

                                     By: /s/ Edward B. Jordan
                                         --------------------
                                         Edward B. Jordan, Executive Vice
                                           President and 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 the 28th day of March, 2000.

          Signature                         Title
          ---------                         -----

     /s/ Tom I. Evslin*
     ________________________        Chairman, President and Chief Executive
     Tom I. Evslin                   Officer

     /s/ John G. Musci*
     ________________________        Director
     John G. Musci

     /s/ Edward B. Jordan
     _________________________       Chief Financial and
     Edward B. Jordan                Accounting Officer and Director

     /s/ William P. Collatos*
     __________________________      Director
     William P. Collatos

     __________________________      Director
     Elon A. Ganor

     /s/ Frederick R. Wilson*
     __________________________      Director
     Frederick R. Wilson

*By: /s/ Edward B. Jordan
     _________________________
     Attorney-in-Fact
<PAGE>

                                 EXHIBIT INDEX
3.1   Third Restated Certificate of Incorporation (1)
3.2   By-laws, as amended
4.1   Form of certificate representing shares of common stock (2)
10.1  Second Amended and Restated Employment Agreement between the Registrant
      and Tom Evslin (3)
10.2  Employment Agreement between the Registrant and John G. Musci (4)
10.3  1998 Stock Incentive Plan, as amended (4)
10.4  Employee Cash Incentive Plan, as amended (3)
10.5  Employee Stock Purchase Plan (5)
10.6  Joint Venture and Quotaholders Agreement, dated as of July 19, 1998, by
      and between TeleNova Comunicacoes Ltda. and ITXC Corp. (4)
10.7  First Amendment to Joint Venture and Quotaholders' Agreement, dated
      August 18, 1998, by and between TeleNova Comunicacoes Ltda. and ITXC Corp.
      (4)
10.8  Memorandum and Amendment to Joint Venture and Quotaholders' Agreement,
      dated as of May 31, 1999, by and among ITXC Corp., TeleNova Comunicacoes
      Ltda. and Telesisa Sistemas emTelecomunicacoes S.A. (4)
10.9  Lease Agreement, dated February 2, 1998 by and between the Registrant
      and Peregrine Investment Partners--I (4)
10.10 First Amendment to Lease dated April 16, 1999, by and between the
      Registrant and Peregrine Investment Partners--I (4)
10.11 Employment Agreement between the Registrant and Thomas Shoemaker (3)
10.12 Second Amendment to Lease, dated December 6, 1999, by and between the
      Registrant and Peregrine Investment Partners--I (3)
10.13 Amended and Restated Loan Agreement, dated February 7, 2000, between the
      Registrant and PNC Bank (3)
10.14 Joint Venture Exit Agreement by and among the Registrant, TeleNova
      Comunicacoes Ltda., TeleNova Overseas, Ltd., Telesisa Sistemas em
      Telecomunicacoes S.A., and ITXC Comunicacoes Ltda., dated February 7,
      2000 (3)
21.1  Subsidiaries of the Registrant (3)
23.1  Consent of Ernst & Young LLP
24.1  Powers of Attorney
27.1  Financial Data Schedule
99.1  Risk Factors

     (1) Incorporated by reference to Exhibit 3.2 of the registrant's Form 10-Q
         for the quarter ended September 30, 1999.
     (2) Incorporated by reference to Exhibit 4.2 of the registrant's
         Registration Statement on Form S-1 (No. 333-80411).
     (3)  Incorporated by reference to the similarly numbered Exhibit of the
       registrant's Registration Statement on Form S-1 (No. 333-96343).
     (4) Incorporated by reference to the similarly numbered Exhibit of the
         registrant's Registration Statement on Form S-1 (No. 333-80411).
     (5) Incorporated by reference to the similarly numbered Exhibit of the
       registrant's Form 10-Q for the quarter ended September 30, 1999.