EXHIBIT 99.1





RISK FACTORS



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 under the Private Securities Litigation Reform Act of 1995.
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. 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 below.



As a company
with a limited operating history in a new and rapidly changing industry, it is difficult to predict our future growth and operating results.



Our limited operating history and the rapidly changing marketplace and environment makes predicting our future growth and operating
results difficult. We were incorporated in Delaware in 1997 and began our first commercial service in April 1998. Our management team and other employees have worked at ITXC for a relatively short period of time. Stockholders and potential
stockholders should consider the risks and uncertainties that a company like ours will face in the rapidly evolving and highly competitive global wholesale voice market. Stockholders and potential stockholders should consider that in order to
succeed we must:



| |  |  | maintain our current, and develop new, relationships with the unrelated third parties that complete voice and fax calls over our network, our affiliates, as well as
with our customers;
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| |  |  | respond effectively to competitive pressures;
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| |  |  | continue to develop and upgrade our network and technology; and
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| |  |  | adapt to the rapid changes in the identity and condition of other players in the industry.
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If we cannot accomplish these goals, our business may not succeed.



We have not been profitable and expect future losses.



To date, we have not been profitable. We may never be
profitable or, if we become profitable, we may be unable to sustain profitability. We have incurred significant losses since inception. We reported net losses of $0.6 million for the inception period from July 21, 1997 through December 31, 1997,
$7.2 million for the year ended December 31, 1998, $19.7 million for the year ended December 31, 1999; $71.0 million for the year ended December 31, 2000; $176.4 million for the year ended December 31, 2001; and $40.3 for the year ended December 31,
2002. We expect to continue to incur significant losses for the foreseeable future. As of December 31, 2002, our accumulated deficit was $315.2 million. Our revenue may not continue to grow or may not even continue at the current level. In 2002, we
began to migrate to a Cisco-based architecture and to a switch-less environment. As a result, we recognized a $7.5 million impairment charge. In addition, during 2001, we determined that certain long-lived assets related to our eFusion acquisition
had become impaired. As a result, we recognized a $108.0 million impairment charge, which represented an $86.7 million write-down of goodwill and a $21.3 million write-down of other intangible assets to their fair values. On October 11, 2001, we
sold most of the tangible and intangible assets of our e-commerce business (other than patents) to eStara, Inc., a privately held provider of web-voiced services, in exchange for a 19.9% equity position in eStara. We granted certain patent licenses
to eStara, while retaining our ownership of such patents. An additional $5.7 million impairment charge was recorded in 2001 to write-down such assets to their fair value. In addition, as part of our July and September 2001 business-reorganization
plans, we recorded a charge to earnings of approximately $3.7 million.



The growth of our Company depends upon the growth of the Internet, which may not continue.



The growth of our Company depends on continued growth in the use of the Internet generally and on the growth in the use of the Internet
through telephones and other devices, in addition to personal computers. Growth of the Internet may be inhibited by a number of factors, such as:



| |  |  | quality of infrastructure;
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| |  |  | security concerns;
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| |  |  | technological failures, such as viruses;
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| |  |  | inconsistent quality of service; and
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| |  |  | lack of availability of cost-effective, high-speed service.
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Even if Internet usage grows, the Internet infrastructure may not be able to support the demands placed on it by this growth or its
performance or reliability may decline.



We are growing
rapidly and effectively managing our growth may be difficult.



Our business has grown rapidly in terms of customers, employees and the size of ITXC.net since our inception. This growth has placed a significant strain on our resources and systems which has resulted in fluctuations in our
network expenses. Our business model depends on continued rapid growth which will put a further strain on our resources, systems and management. If we are not able to effectively manage our growth by implementing systems, expanding ITXC.net and
hiring, training and managing employees, our ability to offer our services will be materially harmed.



Our business may be harmed because we rely on a third-party communications infrastructure over which we have little control.



Our service could be disrupted, our reputation could be hurt and we could lose customers, if the quality and
maintenance of the third-party communications infrastructure on which we rely suffers. This infrastructure, including the Internet, is used to carry our voice traffic between our customers and affiliates. We have no control over whether the
infrastructure on which we rely will be adequately maintained by these third parties or whether these third parties are able to upgrade or improve their equipment and prevent it from becoming obsolete. If these third parties fail to maintain,
upgrade or improve this equipment, our business may be materially harmed. We do not control the security of the Internet and our business could be materially harmed by unauthorized activity which results in congestion, failures or deficiencies in
the infrastructure.



If we cannot maintain relationships with
the few vendors of gateway equipment and software upon which ITXC.net depends, our network expenses could rise significantly.



ITXC.net is currently configured to use gateway equipment and software which is primarily manufactured by three vendors, Cisco Systems,
Clarent and VocalTec Communications. A gateway is a computer server that translates voice and voice-related signaling back and forth between a traditional telephone network and a data network. Gateways provided by Clarent are not currently
interoperable with those from Cisco and VocalTec. Future issues may arise relating to the interoperability of Cisco and VocalTec gateways. Clarent has reported serious financial and business issues and we expect to phase out future deployments of
Clarent gateways. We have announced our intention of standardizing on Cisco products for future deployments. If we or our affiliates are unable to maintain current purchasing terms with Cisco, or if those suppliers should be unwilling or unable to
provide new products or support for existing products, we will have to make significant technological modifications to ITXC.net which could raise our network expenses significantly and have a material adverse affect on our business, financial
condition, operating results and future prospects.



Our transition to a switchless architecture may encounter unexpected technical difficulties, which could raise our network expenses significantly and have a material adverse affect on our business, financial condition, operating
results and future prospects.



Our network and equipment may
not be able to handle increased traffic, which could hurt our reputation and result in a loss of customers.



While we seek to take reasonable precautions to protect our systems and infrastructure against unauthorized activities or security
breaches, hackers or others may attack our systems leaving them vulnerable to unauthorized use, fraud, diminished performance or failure, or rendering our back office systems, such as billing, unable to perform properly. The functioning of the
Internet itself may be damaged as a result of terrorism, acts of War, hacking or other unpredictable activities. Any of these activities could damage our reputation, our quality or continuity of service, our ability to collect revenues or our
operations and could therefore have a material adverse affect on our business, financial condition, operating results and future prospects.



Our network relies on hardware and software that we or our affiliates have developed or acquired. We expect that our network traffic and
volume of simultaneous calls will increase significantly. If the hardware and software used in our network cannot accommodate this additional volume, our reputation could be damaged and we could lose customers. Failure to attract and retain
affiliates and customers will harm our business.



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If we are
unable to attract and retain affiliates and customers, the traffic on ITXC.net may not increase and we may not be able to increase our global reach. Our ability to attract and retain affiliates and customers will depend on a number of factors,
including:



| |  |  | our ability to reach agreement with telecommunications companies, telephony resellers and Internet service providers regarding the terms and conditions applicable to
our business relationship;
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| |  |  | our success in marketing our services to potential new and existing affiliates and customers;
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| |  |  | pricing by traditional carriers;
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| |  |  | the rate at which we are able to deploy our network and services;
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| |  |  | our ability to locate qualified foreign affiliates and call termination providers;
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| |  |  | consolidation in the telecommunications industry;
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| |  |  | financial difficulties of other participants in the telecommunications industry; and
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| |  |  | the quality of the customer and technical support we provide.
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Our quarterly operating results may fluctuate and could fall below expectations of investors and industry analysts, resulting in a decline in our stock
price.



Our quarterly operating results have
varied widely in the past and could fluctuate significantly in the future. Therefore, you should not rely on quarter-to-quarter comparisons for indications of future performance. Certain factors may influence our quarterly operating results,
including:



| |  |  | the amount and timing of capital expenditures and other costs relating to the expansion of ITXC.net;
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| |  |  | the introduction of new or enhanced services or changes in pricing policies by us or our competitors; and
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| |  |  | economic conditions specific to the Internet or all or a portion of the technology sector.
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If we cannot successfully address these factors, our operating results may fall below analyst and investor
expectations and the price of our common stock could decline.



Our financial results and our operations could be materially adversely affected if it becomes necessary for us to discontinue relationships with customers who become unable to meet their payment obligations.



From time to time, we have discontinued service to companies
that had originated calls over ITXC.net because of their failure to meet their payment obligations. We have in the past specifically discontinued relationships with a number of companies due to concerns about their credit status and may do so in the
future. Our financial results, including revenues and SG&A, and our operations could be materially adversely affected if other comparably situated customers experience similar difficulties in the future or if we continue to discontinue
relationships due to credit concerns. See Managements Discussion and Analysis of Financial Condition and Results of Operations.



Our efforts to serve the prepaid calling card market may require us to extend credit to companies which may have short operating
histories, limited assets and high concentration of customers which may themselves be subject to credit risks. As reported in Managements Discussion and Analysis of Financial Condition and Results of Operations and in
Subsequent Events we have already discontinued service to one customer and have experienced a substantial potential bad debt loss. Future such events may materially adversely affect our financial results, our cash position and our
ability to grow the business and to maintain a strong balance sheet.



During the first quarter of 2003 the Company stopped doing business with Interactive Marketing Technologies Inc. (IMT), which is past due on over $8.7 million of obligations from services provided by the Company
in the first quarter of 2003. IMT has since sued the Company, and while the Company believes IMTs lawsuit to be without merit, and the Company will take all available steps to collect the debts owed, the collectibility of that debt is not
certain. The results of that litigation and our ability to collect our receivables from IMT are uncertain, and may materially affect our financial results and ability to grow the business in future periods.



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Our marketing efforts could
be adversely affected if we are not successful in achieving development and deployment of new interoperability standards.



Deficiencies in interoperability among hardware produced by different vendors may limit our ability to grow a worldwide, fully
interoperable network.



Unless an
interoperability standard is widely adopted and used by manufacturers of gateways and other hardware, ITXC.nets growth may be limited. Our business model depends on the growth of ITXC.net. Without a widely adopted interoperability standard,
terminators of voice traffic over the Internet may to a considerable degree be limited to only accepting voice traffic which was originated on gateways made by the same manufacturer as their terminating gateway.



Intense price competition and the nature of the calls that we place over
ITXC.net may limit our revenues.



Our
revenues are not solely tied to the number of minutes of calls that are placed over ITXC.net. Intense competition could reduce the prices that we charge for our services. In addition, our revenues are affected by the types of calls placed over
ITXC.net. Calls placed over certain routes or to certain termination points may generate less revenue than calls of a similar duration made over different routes or to different termination points.



Changes in various markets may increase competition and lower
prices in high margin routes for ITXC, which may materially adversely affect our revenues and margins.



Intense price competition could reduce the demand for our service.



We may not be able to compete successfully in the very competitive international wholesale voice market and the developing Internet
telephony market. Many of our competitors are larger than us and have substantially greater financial resources than we do. The market for our services has been extremely competitive and is expected to be so for the foreseeable future. Internet
protocol and Internet telephony service providers such as Concert Global Clearinghouse 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. In addition, major telecommunications companies, such as AT&T, Deutsche Telekom, MCI WorldCom, Sprint and BT, have entered or could plan to enter
the Internet telephony market. See Business of the CompanyCompetition.



If we are unable to keep up with rapid technological change in our industry in a cost-effective manner, our revenues will decrease.



The market we serve, the market for voice services over the Internet and for wholesale international call
completion, is characterized by rapid technological developments, evolving industry standards and customer demands and frequent new services announcements, such as new hardware and software entrants and releases. In order for us to remain
competitive and continue positive growth of our business and increase the use of our services, we must respond to these developments quickly and in a cost-effective manner. If we fail to respond in this manner, our technology could become obsolete,
our customers will choose other alternatives to transmit their traffic and our revenues will decrease.



We may need additional capital in the future to expand ITXC.net and it may not be available on acceptable terms or at all, which could force us to curtail or cease our operations.



The development of our business depends on our ability to
expand the global reach of ITXC.net. The net proceeds from our stock offerings and our cash flow from operations could be insufficient to expand ITXC.net to meet future customer demands. To date, our cash flow from operations has been insufficient
to cover our expenses and capital needs. We may require additional capital in the future which may not be available on terms acceptable to us or at all. If we cannot raise adequate capital on acceptable terms, we may be forced to restrict the growth
of ITXC.net, we may not be able to attract new affiliates and we may have to curtail or cease our operations. See Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital
Resources.



Foreign political and economic instability
could harm our ability to maintain a global presence.



A key component of our business plan is our global network of affiliates. Our ability to maintain and expand our global reach may be harmed by foreign political and economic instability. The following factors may inhibit our ability
to maintain and expand our global presence:



| |  |  | potentially longer payment cycles outside of the U.S.;
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| |  |  | hostility towards United States based companies as a result of world political developments;
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| |  |  | difficulty in collecting accounts receivable from foreign affiliates;
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| |  |  | weaknesses in particular foreign economies;
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| |  |  | changes in diplomatic and trade relationships;
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| |  |  | foreign taxes; and
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| |  |  | the economic and administrative burdens of complying with a variety of foreign laws, trade standards, tariffs and trade barriers.
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Damage to our systems and network could interrupt our service and result in
reduced revenue and harm to our reputation.



Our operations are dependent on our ability to maintain the components of ITXC.net and our other computer and telecommunications systems and equipment in effective working order. Our systems may be damaged by natural disasters,
equipment failure, terrorism or acts of war, or intentional acts of vandalism. If we fail to safeguard our systems and network and experience frequent or long system delays or interruptions, we may not be able to provide our service in a consistent
and cost-effective mannerwhich will result in reduced revenue and harm to our reputation.



Our proprietary rights may be difficult to protect or maintain.



Our efforts to protect our intellectual property rights through patent, copyright, trademark and trade secret laws in the U.S. and in
other countries may not prevent misappropriation, and our failure to protect our proprietary rights could materially adversely affect our business, financial condition, operating results and future prospects.



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.



A
third party could challenge our granted patents or make an infringement claim against the Company seeking a substantial monetary award or to obtain injunctive relief that could effectively block our ability to provide services in the United States
or abroad. Such cases, even if baseless, could divert Company resources and management attention to defend our rights, which could materially adversely affect our ability to operate.



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. See Business of the CompanyProprietary Rights.



Additional acquisitions may disrupt our business, divert the attention of our management and require significant capital
infusions.



Our industry has been
characterized by growth through acquisitions. To compete effectively, we may make investments in complementary companies, technologies or assets and may consider a number of acquisitions, significant and otherwise, at any one time. Acquisitions
could disrupt our ongoing business, distract the attention of our small number of senior managers, make it difficult to maintain our network and operational standards, controls and procedures and subject us to risks that are different, in nature and
magnitude, than the risks we currently face.



We
also may not be able to successfully integrate the services, products and personnel of any acquisition into our operations. We may be required to incur a significant amount of debt or issue a significant number of equity securities, which may dilute
our stockholders equity interest substantially, to pay for acquisitions and may be required to invest a substantial amount of cash to support the further development of any companies that we may acquire. Our acquisitions may not result in any
return, or a sufficient return, on our investment and we may lose all or a substantial portion of our investment.



Our success is dependent on the continued service of our key management and technical personnel.



Tom Evslin has indicated that he intends to retire as Chief
Executive Officer and we have instituted a search for a successor. Uncertainty regarding the future Chief Executive Officer may adversely affect the Companys future direction and Customers and Suppliers willingness to do business
with the Company. The Company may be unable to attract a satisfactory Chief Executive Officer. The search for a new Chief Executive Officer may result in loss of one or more key employees. Any of these factors could materially adversely affect our
business, financial condition, operating results and future prospects.



Our future success depends, in part, on the continued service of our key management and technical personnel. If any of those individuals were unable or unwilling to continue in their present positions, our business,
financial condition, operating results and future prospects could be materially adversely affected. We do not carry key person life insurance on our personnel and most executives do not have an employment agreement.



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We may have difficulty
attracting and retaining the skilled employees we need to execute our growth plan.



We do business in and with entities in many foreign countries and at times use sales agents or other intermediaries to assist in the procurement of business. Although our policies require compliance
with the United States Foreign Corrupt Practices Act and ethical business standards, it is possible that there may be violations of such standards or allegations of such violations, which could adversely affect the business and could also impair the
Companys ability to do business in particular countries.



From time to time we have experienced, and we expect to continue to experience in the future, difficulty in hiring and retaining highly skilled employees. Our future success depends on our ability to attract, retain and motivate
highly skilled employees, particularly engineering and technical personnel. Competition for the most highly qualified employees in our industry is intense. We may not be able to retain our key employees or attract, assimilate or retain other highly
qualified employees in the future.



Future government
regulation and legal uncertainties could affect our ability to provide our services.



Our business, financial condition, operating results and future prospects could be materially adversely affected if Congress, the Federal Communications Commission, state regulatory authorities,
foreign governments or other bodies begin to regulate, tax, or, in the case of certain foreign governments, prohibit Internet telephony.



United States.    Although our services are not currently actively regulated by the FCC, aspects of our
operations may be subject to state or federal regulation in the future. Increased regulation of the Internet may slow its growth, and impact our cost of providing our service over the Internet. In addition, the FCC may in the future impose
surcharges or other regulations upon us which could materially adversely affect our business, financial condition, operating results and future prospects.



The FCC has considered whether to impose surcharges or other common carrier regulations upon certain providers of Internet telephony,
primarily those which, unlike ITXC, provide Internet telephony services directly to end users. While the FCC has presently refrained from such regulation, the regulatory classification of Internet telephony remains unresolved. 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 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 that would apply
to Internet telephony providers. Any such determinations could materially adversely affect ITXCs 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. Specifically, the FCC has expressed an intention to further 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 bear many of the same
characteristics as more traditional voice telecommunications services and lack the characteristics that would render them information services. The FCC has opened a proceeding in response to a petition by AT&T which seeks a declaration that
regulatory forbearance is appropriate for voice over Internet services and to preclude certain activities by local exchange carriers which allegedly adversely affect AT&Ts voice over Internet services. A decision in this proceeding may
well determine the regulatory status of voice over the Internet. In addition, the FCC has opened a docket to reconsider the mechanisms for contributing to the Universal Service Fund, and may reconsider the status of Internet telephony in that
context. Adverse rulings by the FCC or Congressional dissatisfaction with FCC conclusions could result in requirements that the FCC impose greater or lesser regulation, which in turn could materially adversely affect ITXCs business, financial
condition, operating results and future prospects.



State regulatory authorities may also retain jurisdiction to regulate certain aspects of 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.



A wide variety of taxes may be applied to certain aspects of telecommunications services, domestically and internationally. In the event that applicable authorities conclude that taxes apply to aspects of our business that
we have concluded are exempt from tax, or apply taxing methodologies different from those than we have applied, we could be faced with additional costs and potential back tax bills, interest or penalties. Because a wide variety of agencies have
jurisdiction over such taxes, and because the statutory authority and applicable regulations vary significantly, uniform results may be difficult to achieve or predict. Adverse rulings could negatively impact our business, operating results,
financial condition or future prospects.



International.    Increased regulation of the Internet and/or Internet telephony providers or the prohibition of Internet telephony in one or more foreign countries could materially adversely affect our
business, financial condition, operating results and future



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prospects. Our failure to
qualify to do business in a foreign jurisdiction in which we are required to do so or to comply with foreign laws and regulations could harm our ability to conduct international operations.



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 or regulation. 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.



ITXC 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, ITXC cannot provide assurances that the failure of ITXC or any of its customers
or affiliates to obtain any necessary authorizations will not have a material adverse effect on ITXCs business, financial condition, operating results and future prospects.



Our customers and affiliates may also currently be, or in the future may become, subject to requirements to
qualify to do business in a particular foreign country, to otherwise comply with regulations, including requirements to obtain authorization, or to cease from conducting their business as conducted in that foreign country. We cannot be certain that
our customers and affiliates either are currently in compliance with any such requirements, will be able to comply with any such requirements, and/or will continue in compliance with any such requirements. The failure of our customers and affiliates
to comply with such requirements could materially adversely affect our business, financial condition, operating results and future prospects.



Additionally, it is possible that lawsnew or already in existencemay be applied by the U.S. and/or other countries to
transport services provided over the Internet, including laws governing:



| |  |  | sales and other taxes;
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| |  |  | user privacy;
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| |  |  | pricing controls;
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| |  |  | characteristics and quality of products and services;
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| |  |  | consumer protection;
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| |  |  | cross-border commerce, including laws that would impose tariffs, duties and other import restrictions; and
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| |  |  | other claims based on the nature and content of Internet materials, including claims of defamation, negligence and the failure to meet necessary obligations.
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If such laws are applied to our
services, our ability to conduct our business could be materially adversely affected.



We have broad discretion in the use of the proceeds that we have received from the public offering of our common stock.



Our management will have broad discretion in the application of proceeds and the timing of the expenditure of all of the net proceeds that
we have received from the public offering of our common stock. If our management fails to apply those proceeds effectively, we may not be successful in expanding ITXC.net and growing our business and revenues.



Our certificate of incorporation and by-laws and Delaware law contain
provisions that could discourage a takeover.



Provisions of our certificate of incorporation and by-laws and Delaware law may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable. These provisions of our certificate of incorporation and
by-laws:



| |  |  | establish a classified board of directors in which only a portion of the total number of directors will be elected at each annual meeting;
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| |  |  | authorize the board to issue preferred stock;
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| |  |  | prohibit cumulative voting in the election of directors;
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| |  |  | limit the persons who may call special meetings of stockholders;
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| |  |  | prohibit stockholder action by written consent; and
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| |  |  | establish advance notice requirements for nominations for the election of the board of directors or for proposing matters that can be acted on by stockholders at
stockholder meetings.
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Our stockholders will
experience dilution when we issue the additional shares of common stock that we are permitted or required to issue under options, warrants and our employee stock purchase plan.



Stockholders should be aware that we are permitted, and in some cases obligated, to issue shares of common
stock. If and when we issue these shares, the percentage of the common stock that existing stockholders own will be diluted. The following is a summary of additional shares of common stock that we have currently reserved for issuance as of December
31, 2002:



| |  |  | 10,115,708 shares are issuable upon the exercise of options or other benefits under our stock incentive plan, consisting of:
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| |  |  | outstanding options to purchase 6,299,983 shares at a weighted average exercise price of $4.94 per share, of which options covering 3,492,481 shares were exercisable
as of December 31, 2002; and
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| |  |  | 3,815,725 shares available for future awards after December 31, 2002;
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| |  |  | 879,766 shares are issuable upon the exercise of outstanding warrants at a weighted average exercise price of $.85 per share; and
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| |  |  | 1,315,495 shares are issuable under our employee stock purchase plan.
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The stock prices of Internet and telecommunications-related companies such as ours are highly volatile and could change
unexpectedly resulting in costly litigation and harm to our business.



The market price of our common stock is subject to significant fluctuations. Many companies in our industry have been the subject of class action litigation by investors following periods of volatility in the price of their
publicly traded securities. If the market value of our common stock experiences adverse fluctuations, and we become the subject of this type of litigation, regardless of the outcome, we will incur substantial legal costs. In addition, this type of
litigation may strain our resources and divert management attention, causing our business to suffer.



We are now named as a defendant in a securities class action relating to the distribution of shares in our initial public offering and
secondary offering which has been consolidated with many other similar lawsuits involving other companies. We are also a defendant in other litigation described more fully in our Annual Report on Form 10-K. Litigation of such matters may present a
drain on the management and financial resources of the Company and adverse outcomes in such lawsuits could materially adversely affect our financial condition or operating results.