<PAGE>

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                      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, 2001.

    [_] 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          (I.R.S. Employer
                   jurisdiction of
                  incorporation or       Identification Number)
                    organization)

              750 College Road East, Princeton, New Jersey 08540
                                (609) 750-3333
            (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, 2002 was approximately $289 million.

   Number of shares of Common Stock outstanding as of January 31, 2002:
45,837,126

   Documents incorporated by reference: Definitive proxy statement for the
registrant's 2002 annual meeting of shareholders (Part III).

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                                  ITXC CORP.

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                  Page
PART I                                                                                            ----
<C>        <S>                                                                                    <C>
Item 1.    Business of the Company...............................................................   1
Item 2.    Properties............................................................................  16
Item 3.    Legal Proceedings.....................................................................  16
Item 4.    Submission of Matters to a Vote of Security Holders...................................  17
Item 4A.   Executive Officers of the Registrant..................................................  17

PART II
Item 5.    Market for the Registrant's Common Equity and Related Stockholder Matters.............  19
Item 6.    Selected Financial Data...............................................................  20
Item 7.    Management's Discussion and Analysis of Results of Operations and Financial Condition.  21
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk............................  31
Item 8.    Financial Statements and Supplementary Data...........................................  31
Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..  31

  PART III
Item 10.   Directors of the Registrant...........................................................  31
Item 11.   Executive Compensation................................................................  31
Item 12.   Security Ownership of Certain Beneficial Owners and Management........................  31
Item 13.   Certain Relationships and Related Transactions........................................  31

PART IV
Item 14.   Exhibits, Financial Statements Schedules and Reports on Form 8-K......................  32

Signatures                                                                                         34
</TABLE>

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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, on March 15, 2000 we completed a
follow-on offering of shares by ourselves and certain of our shareholders and
on October 12, 2000 we consummated the acquisition of eFusion, Inc.
("eFusion"). On October 11, 2001, we sold most of the tangible and intangible
assets of our e-commerce business (other than patents) to eStara, Inc.
("eStara"), a privately held provider of web-voiced services, in exchange for a
19.9% equity position in eStara. Our principal executive offices are located at
750 College Road East, Princeton, New Jersey 08540, and our telephone number is
(609) 750-3333. 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, service marks 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 Results of Operations and Financial Condition" 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 Private 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. We assume no responsibility
to update these forward-looking statements after the filing of this Annual
Report.

Overview

   We are a leading global provider of high quality wholesale voice and fax
telecommunications services. We primarily use the Internet for transport of
these calls. ITXC estimates that it now ranks in the top 20 carriers in the
world based on minutes of international calling, and carries 2% of all
international calls worldwide. Our services allow carriers and telephony
resellers to benefit from the low capital and operating costs of using the
Internet for transport. We believe that our scale, reputation for high quality
and ability to rapidly implement new services for our carrier customers
addresses the substantial opportunities that arise from the reach and economics
of the Internet.

   We have developed and deployed ITXC.net/SM/, an actively-managed network
overlaid on the public Internet, to deliver high quality voice and fax
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 voice
transport on the Internet encountered.

   To date, we have concentrated our efforts on rapidly deploying ITXC.net
worldwide. We have established ITXC-owned facilities in the U.S. and London and
have arranged call termination and origination services with affiliates
throughout the world. We have used our affiliate structure to achieve broad
worldwide presence. As of January 31, 2002, we had affiliates in 394 cities in
146 countries. On a typical day, we carry traffic to and from well over 100
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.


                                      1

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   In April 1998, we introduced ITXC 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. We have achieved a high network usage growth rate since
commencing ITXC WWeXchange Service. The following table sets forth the number
of minutes of traffic carried over ITXC.net during the past twelve quarters:

<TABLE>
<CAPTION>
                                              Minutes
                        Quarter ended      (in millions)
                        -------------      -------------
                        <S>                <C>
                        March 31, 1999....       11
                        June 30, 1999.....       24
                        September 30, 1999       43
                        December 31, 1999.       72
                        March 31, 2000....      131
                        June 30, 2000.....      201
                        September 30, 2000      270
                        December 31, 2000.      355
                        March 31, 2001....      358
                        June 30, 2001.....      406
                        September 30, 2001      566
                        December 31, 2001.      606
</TABLE>

   In April 1999, we introduced a new ITXC-owned proprietary device called a
SNARC, which facilitates the use of our network by our customers by enabling
them to access our network directly from their own premises to originate calls.
In addition, since December 1999 we have been installing similar devices on
selected affiliates' premises to connect them directly to the Internet for the
purpose of terminating calls originated by ITXC.net affiliates. These devices
avoid the costs of dedicated connections to network hubs and improve the
economics of our services to our customers. We believe that SNARCs 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, providing a service called webtalkNOW! which
allows Internet portals, Internet service providers and web sites to offer
web-to-phone calling to their customers under their own brands.

   In October 2000, we consummated our acquisition of eFusion, Inc., an
Oregon-based provider of Internet voice services that help online businesses
and Internet service providers deliver eSatisfaction to their customers. As a
result of that transaction, e-commerce companies were able to implement ITXC
Push to Talk Service (acquired with eFusion) to facilitate live voice
interaction for browsing consumers or recipients of targeted emails. After
experiencing disappointing revenue growth in this field, in the second and
third quarters of 2001 we wrote-down most of the value of those assets. On
October 11, 2001, we sold most of the tangible and intangible assets of the
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 also granted certain patent licenses to eStara for use in the
e-commerce business. We valued this investment at $700,000. See Note 7 of the
Notes to our Consolidated Financial Statements.

   Our current focus is on wholesale services primarily delivered over the
Internet (known variously as "Voice on the Internet," "Voice over Internet
Protocol" or "VoIP"). However, in the event market conditions change and enable
our profitable entry into enhanced services, our use of the Internet as a
foundation of our services would facilitate the introduction of more advanced
communications applications such as :

  .   enhanced phone-to-phone services;

  .   voice over Internet service directly from and to subscriber premises;

  .   phone-to-PC services;


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

  .   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 internationally 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 trend
of decrease in price, however, has been countered by an increase 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 a report "World VoIP Markets" (2002) by research firm Frost & Sullivan,
revenues from the VoIP marketplace will surpass $171 billion by the end of
2007. Also according to TeleGeography, a market research firm, 2000
international telephone traffic grew by over 15% in 1999, to approximately
107.8 billion minutes (this number does not include PC-to-phone traffic,
traffic routed over end-to-end IP networks, traffic routed on private networks,
or domestic traffic in any country). According to the TeleGeography 2002
report, VoIP (voice over Internet Protocol) was expected to account for 10
billion minutes, or 6% of the world's international traffic in 2001--up from
the 6.2 billion minutes that TeleGeography had projected for 2001 last year.
TeleGeography estimates that worldwide there were over 160 billion minutes of
international calling in 2001, up from over 135 billion minutes in 2000. These
figures only include phone-to-phone calls placed through carriers; PC-to-phone,
PC-to-PC calls and calls on private corporate networks are excluded. ITXC,
carrying nearly 20% of the world's international VoIP minutes, has the largest
global market share of all VoIP players.

   We believe that the combination of increasing demand for voice services 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 was designed for slow
mechanical switches. Communications over the traditional telephone network are
routed through circuits which must dedicate resources to each call from its
inception 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 ("packets")
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 and they do not waste
bandwidth when it is not being used for actual transmission of information.
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. Moreover, they do not require the same complex switching methods
required by traditional voice telephone networks, instead using a multiplicity
of routers to direct each packet in the direction of its destination and they
automatically route packets around blockages, congestion or outages.

   Packet switching is a method of transmitting messages that can be used
within a data network or across networks, including the public Internet. The
Internet itself is not a single data network owned by any single entity, but
rather a loose interconnection of networks belonging to many owners that
communicate using the Internet Protocol (IP).

                                      3

<PAGE>

The Emergence of Voice on Data Networks

   Voice on the Internet consists of both traditional and enhanced voice and
fax services between ordinary phones and the addition of interactive voice
capability to computers, web sites and email. Voice on the Internet 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. Moreover, the Internet is the
most cost-effective data network for transmitting any type of data worldwide,
including voice. According to the International Telecommunications Union the
year 2000 was the first time Internet capacity exceeded international telephone
circuit capacity.

   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 is a device that transfers
calls from the traditional telephone network to a network such as the Internet,
and vice versa.

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 the
Internet creates cost savings that can be passed on to the consumer in the form
of lower long distance rates or retained by the carrier as higher margins.

   By using the public Internet, VoIP providers like ITXC are able to avoid
direct payment for transport of communications, instead paying for large
"pipes" into the public Internet, billed by bandwidth rather than usage, which
transmits calls to a distant gateway. The Internet, which has its origins in
programs devised by the Department of Defense to provide multiple routes and
therefore redundancy which was largely immune from the failure of a single
network element, provides great redundancy and can be "self healing" in the
event of an outage in a particular network element or transmission path.
Moreover, adding an additional entry or exit point (a Point of Presence or
"POP") does not require any expensive or time consuming reconfiguration or
reprogramming of existing network elements. The new element is simply installed
with a specific IP address and it can send or receive information from any
other IP address on the Internet.

Limitations of Existing Internet Telephony Solutions

   The growth of voice on the Internet was limited in the past due to 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. ITXC's BestValue Routing
enables the Company to provide its carrier customers with the consistent
quality they require. In fact, ITXC's carrier customers typically do not tell
their customers that their phone-to-phone calls are being transmitted over the
Internet since these callers are receiving the quality that they expect.
Traffic from Tier 1 carriers has been growing both in absolute terms and as a
percentage of total traffic. For the fourth quarter of 2001 Tier 1 carriers
represented 59.9% of total traffic as compared to 18.5% of our total traffic
during the fourth quarter of 2000.

   A number of large long distance carriers 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.

                                      4

<PAGE>

   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.

The ITXC Solution

   We believe that the rapid growth of commercial traffic on ITXC.net,
particularly from Tier I carriers, demonstrates that we deliver high quality,
low cost voice and fax communications over the Internet. The key advantages of
our solution include:

   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 to address peaks or when we cannot assure
consistent quality on the Internet.

   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. In addition we avoid
the significant costs of network reconfiguration which traditional networks
experience whenever they must add, change or delete a POP. Each POP as well as
any Network Operations Centers must be reconfigured whenever the routing from
that POP is changed. Because ITXC uses the Internet as the intermediary, we are
able to add, change or delete a POP with no reconfiguration required in any
other POP.

   Interoperability.  We have led an effort called iNOW! resulting in an
industry standard for interoperability. More than 45 Internet telephony vendors
have agreed to comply with the iNOW! initiative. The VocalTec and Cisco
equipment installed on ITXC.net is already interoperable to some extent 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. In 2001 we announced that
we were the first in the industry to achieve full interoperability between
Cisco and VocalTec gateways and we intend to continue maximizing our
opportunities for interoperability. Interoperability results in significant
network efficiencies, increases the routing choices of ITXC's customers,
reduces latency (network delay) by reducing the need for protocol conversions,
and increases the redundancy and therefore reliability of the ITXC network.

   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. 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 were able to
rapidly deploy a network in Bolivia for COTAS that was able to transport a
substantial market share of the traffic in the country within weeks of the date
COTAS was able to carry traffic. 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.

                                      5

<PAGE>

   Easy Access.  We offer our customers three ways to connect from their
switches to ITXC.net: through normal dedicated switch-to-switch connections,
through customer-owned gateways, and through SNARCs. SNARCs are specially
configured devices, which we own and install on our carrier 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 similar SNARC equipment that we
install on their premises.

   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 major retailers who do not own telephone facilities themselves.

Our Strategy

   Our goal is to grow our market share as a leading wholesale provider of
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, 2002, we had aggressively deployed ITXC.net in 394 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 services. 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. We intend to continue to rapidly add
new affiliates worldwide in order to provide our customers with additional
termination points.

Focus On Newly Deregulating Markets

   We intend to focus substantial resources on newly deregulating markets to
enable both incumbent carriers and new entrants to rapidly deploy worldwide
capability with minimal capital expenditure. ITXC entered into a relationship
with COTAS, Bolivia's second largest local exchange carrier, and Heilsberg,
S.A., so that on November 28, 2001, the first day on which competition was
legal in Bolivia, COTAS was immediately able to provide world wide access
through ITXC for its customers. Through the first two months of the service
COTAS was able to deliver high quality service to its customers and to achieve
an estimated 36% market share, second only to the PTT. This was true despite
the fact that no network testing was allowed prior to the November 28 opening
of the market. Bolivia was also the first market in which ITXC provided all
domestic long distance service to COTAS customers as well as international
service. It is our intention to try to build on the successful Bolivian model
in additional markets which are deregulating, which in 2002 are expected to
include, among others, India and Brazil.

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 pay

                                      6

<PAGE>

only for Internet access. 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 ITXC's role in the Phone Call Value Chain

   In Bolivia, as described above, we provide a complete outsourced domestic
and international long distance service to our carrier customer. With
webtalkNOW! we provide, PC-to-phone services. In several trials we are
providing authentication and other services to our wholesale customers. We
believe that providing more of the value chain will position us to both earn a
greater share of the consumer dollar and will strengthen our relationships with
our wholesale customers.

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. We continue to undertake major efforts to improve our
quality. A study by Atlantic-ACM of 30 carriers worldwide (paid for by the 14
wholesale carriers that were ranked, including ITXC) rated 14 leading wholesale
providers by a variety of criteria. Included in the survey were two carriers
which primarily use the public Internet and other traditional carriers from
around the world, including the three largest U.S. wholesale carriers. ITXC
ranked above the industry average in voice quality, provisioning, billing and
customer service.

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 also
provide SNARCs to affiliates to terminate calls. In the future, an extension of
our SNARC program will connect our customers' customers directly to the
Internet. We now provide many 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 thus are able to improve the
economics of our services to them. Through year-end 2001 we had exceeded one
billion minutes of use of ITXC.net from our SNARC program. We believe that
SNARCs will strengthen our customers' and affiliates' relationships with us and
position us to deploy additional Internet-based enhanced voice services over
ITXC.net.

Deliver Additional 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
web-to-phone service represents only the early stage 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, a global communications network, allows us to deliver reliable,
high quality voice and fax service through an actively-managed network overlaid
on the public Internet.

                                      7

<PAGE>

   We have implemented ITXC.net by using the public Internet to connect
ITXC-owned network hubs in the U.S. and London 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.

   The key components of ITXC.net include:

The Public Internet

   ITXC.net routes voice traffic over the public Internet; this allows
traditional telephone users to benefit from Internet cost savings while calling
phone-to-phone. 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 which 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, 2002, we had affiliates in 394 cities in 146 countries. Our affiliates
range from small Internet service providers to traditional telephone companies.

Multiple Access Points

   As of January 31, 2002, we had three network hubs, one in New Jersey, one in
California and one in London, each consisting of a switch and multiple
gateways. 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. As of January
31, 2002, we had installed over 140 SNARCs at 54 carrier customer sites and 151
SNARCS at 66 affiliate locations. Some affiliates also connect directly to the
Internet to originate or terminate calls using gateways they have purchased
directly from equipment suppliers and which they manage.

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 have patents pending
in this area and we acquired related granted patents with our eFusion
acquisition. 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.

   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.


                                      8

<PAGE>

   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.

   We have also made considerable progress towards achieving interoperability
between gateways of different manufacturers. At present we have the ability to
exchange traffic between Cisco and VocalTec gateways and are working to
increase the number of vendors' equipment which is interoperable.
Interoperability gives ITXC customers the ability to choose the vendor that
best suits their needs; allows customers to access more routes; gives
terminating affiliates traffic from more carriers; lowers ITXC's capital and
operational costs by simplifying routing and network architecture; increases
redundancy and therefore reliability on ITXC.net; and enables ITXC to exchange
calls with other VoIP networks without the added latency of converting and
reconverting between formats.

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.

   Because gateways are critical to the infrastructure of ITXC.net, we have
strategic relationships with Cisco, Lucent and VocalTec, each of which is a
leading gateway and/or switch manufacturer. Lucent and Cisco have provided us
with vendor financing in connection with the purchase of gateways and other
equipment. VocalTec is an equity investor in ITXC.

   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

ITXC WWeXchange Service

   In April 1998, we introduced ITXC 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. ITXC WWeXchange service relies upon Internet telephony
technology. Such technology permits calls originated by a telephone to be
transmitted over the Internet.

   ITXC 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 ITXC WWeXchange service allows our customers to use
ITXC.net as an alternative to traditional voice traffic networks.

   We believe that our affiliates benefit from ITXC 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;

                                      9

<PAGE>

  .   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.

SNARCs

   SNARCs consist of vendor-supplied gateways and other related equipment
including ITXC-developed software 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, then 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 makes us more attractive to customers located
away from major telephony hubs. In addition, since December 1999 we have been
installing similar equipment 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, 2002, we had installed over 140 SNARCs at 54
customer sites and 151 SNARCS at 66 affiliate 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. 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. The market for this
service has developed slowly, and the failure of many Internet ventures has
further diminished the potential market. If the market opportunity revives, we
believe that our webtalkNOW! service will assist our customers in building
their own brands and in retaining their end-users.

Future Enhanced Voice Services

   We intend to make investments to develop and market additional services for
use over ITXC.net when we perceive that there is a viable market opportunity
for us. 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 when the need arises. 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, and the overall market for enhanced services has
developed far more slowly than we originally anticipated.

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

  .   complete outsourced long distance service for carriers and other
      resellers;

  .   selectable price/quality grades for carriers and other resellers;

                                      10

<PAGE>

  .   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, other devices, such as personal
digital assistants, are becoming 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.
However, demand for this service when offered by others has been very slow to
develop and ITXC would not offer this service unless something changes.

   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 ITXC WWeXchange Service by our existing call
      origination customers and affiliates and further expand our call
      origination customer base;

  .   enable new competitors and ex-monopolies to participate effectively in
      deregulating markets with low capital cost and quick deployment;

  .   expand our terminating affiliate base;

  .   expand our originating affiliate base;

  .   increase the number of carriers that are ITXC affiliates;

  .   increase our penetration of calls originating outside the United States;

  .   maintain and expand our market leadership position among providers of
      voice and fax services;

  .   expand the use of ITXC webtalkNOW! Service by Internet portals, Internet
      service providers and web sites, especially for paid calling; and

  .   emphasize higher margin, rather than simply increasing revenue.

   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 and telephony
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.

                                      11

<PAGE>

   We have a dedicated sales force selling phone-to-phone and PC-to-phone
calling services which is supplemented by members of our executive management
team. This sales force also recruits the affiliates that terminate calls for us
around the world. Our salespeople are based regionally within the U.S. and in
Singapore, London, Dubai, and Athens, as well as in our corporate office. We
also have sales agents located in various countries. 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. Our sales compensation plan is
based primarily on margin, rather than revenue. 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. 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. The financial
difficulties of many telecommunications providers are rapidly altering the
number, identity and competitiveness of the marketplace, and we are unable to
determine with certainty the eventual result of this shakeout.

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. All major telecommunications companies,
including entities like AT&T, Sprint and Worldcom, as well as iBasis, Net2Phone
and deltathree.com either presently or potentially route traffic to
destinations worldwide and compete or can compete directly with us. While not
fully facility based, Arbinet and Band-X provide clearing house functions for
Internet telephony services and compete with us as well. 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.

                                      12

<PAGE>

Telecommunications Companies and Long Distance Providers

   A large number of telecommunications companies, including AT&T, Deutsche
Telekom, Cable & Wireless, WorldCom, Sprint and BT, currently provide wholesale
voice telecommunications service which competes with our business. 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.

General

   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 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, our technology and the patents that protect it, and the
size and rapid growth of our network, as well as our relative financial
strength. We cannot provide assurances, however, that these advantages 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 fairly recent
market development. At present, ITXC is not aware of any domestic, and is only
aware of a few foreign, laws or regulations that prohibit voice communications
over the Internet.

   United States.  ITXC believes that, under U.S. law, the Internet-related
services that ITXC provides 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 ITXC's operations may be
subject to state or federal regulation, including regulation governing
universal service funding, disclosure of confidential communications and excise
tax issues. ITXC 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 ITXC's business, operating
results, financial condition 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.

   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. 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.


                                      13

<PAGE>

   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.
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.

   One of ITXC's 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.

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

   In January 1998, the European 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. More recently, in September 2000, after
requesting comments from interested parties the European Commission issued a
subsequent communication in which it reaffirmed that Internet telephony is not
currently 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, ITXC
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. 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.

                                      14

<PAGE>

   One of ITXC's 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. Given that
ITXC, Ltd. has commenced providing services, it must comply with all applicable
regulations imposed on telecommunications carriers in the U.K.

   ITXC is also providing service in countries where regulation of Internet
telephony is far more restrictive than in the European Union. Specifically,
ITXC has a strategic affiliate relationship with China Telecom to provide
Internet telephony services in the People's Republic of China. See ITXC's
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 that this agreement is implemented, U.S. firms would be permitted
to invest in Chinese-based Internet ventures. Internet telephony is now being
provided in China by China Telecom, Unicom, and Jitong Communications. India
largely prohibits Internet telephony, although pending partial deregulation may
affect this regime.

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 ITXC does not engage in the collection of data for purposes
other than routing its services and billing for its services, the directive is
quite broad and the European Union privacy standards are stringent.
Accordingly, the potential effect on the development of ITXC in this area is
uncertain.

Proprietary Rights

   Proprietary rights are important to our success and our competitive
position. As of January 31, 2002, we had 9 issued patents and had applied for
13 additional patents. As of January 31, 2002, we had 3 registered trademarks
and 8 pending applications for trademarks in the U.S., and had various parallel
registrations or pending applications for trademarks in other parts of the
world. Certain trademarks previously owned by ITXC were assigned to eStara,
Inc. in connection with the sale of assets related to e-commerce business. 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

                                      15

<PAGE>

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 and other proprietary information about our services and
technology. Our agreements with employees, consultants 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.

   Enforcing our patent rights could result in costly litigation. Our patents
could be invalidated in litigation. Should this happen, we will lose a
significant competitive advantage. Additionally, our competitors or others
could be awarded patents on technologies and business processes that could
require us to significantly alter our technology, change our business processes
or pay substantial license and royalty fees. In addition, we have, from time to
time, received notices alleging patent infringement claims and are currently
involved in defending a legal proceeding involving patent infringement claims
(see Legal Proceedings). Claims of infringement, whether successful or not,
could seriously harm our business, financial condition, results of operations
and prospects.

Employees

   As of January 31, 2002, we employed 224 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 70,000 square feet. We have network hubs in Jersey City,
New Jersey; Los Angeles; and London, under co-location arrangements. We have
sales offices in Singapore, Athens and London. In January, 2002 we subleased
21,795 square feet of the Princeton space. We believe that we will be able to
obtain additional space 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.

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

   The Company and certain of its officers/directors have been named as
defendants in several purported shareholder class action lawsuits. The lawsuits
allege, among other things, that, in connection with the Company's public
offerings of securities, its Prospectus did not disclose certain alleged
practices involving its underwriters and their customers. These actions seek
compensatory and other damages, and costs and expenses associated with the
litigation. These actions are in the early stages and the Company has not yet
determined if there is any potential material impact on its Consolidated
Financial Statements. ITXC is one of hundreds of companies named in
substantially identical lawsuits. Management believes that ITXC and its
officers/directors did not engage in any improper or illegal conduct and
intends to defend these actions vigorously.

                                      16

<PAGE>

   The Company has been served with a complaint filed in Virginia state court
on behalf of Hercules Communications Company, LLC in which the plaintiff
demands damages, including punitive damages, based on the Company's alleged
refusal to carry out a purported agreement to purchase certain assets from
Hercules. The claims were primarily based on alleged breach of contract, breach
of implied contract, breach of an oral contract, promissory estoppel and fraud.
The Court dismissed plaintiff's claim for promissory estoppel and fraud, but
did allow the plaintiff to refile its fraud complaint. Discovery is now
underway. A trial date has been set for September of 2002. The Company does not
believe the case to be meritorious and intends to vigorously defend its conduct.

   We are not a party to any other 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.

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:

<TABLE>
<CAPTION>
       Name         Age                                 Position
       ----         ---                                 --------
<C>                 <C> <S>
Tom I. Evslin       58  Chairman of the Board, Chief Executive Officer and President
Edward B. Jordan    41  Executive Vice President, Chief Financial Officer, Treasurer and Director
Steven J. Ott       41  Executive Vice President, Global Sales
Thomas J. Shoemaker 45  Executive Vice President, Business Development
Eric G. Weiss       35  Executive Vice President, ITXC.net
Mary A. Evslin      53  Vice President, Marketing and Customer Success
Bradley E. Miller   35  Vice President of Network Development and Engineering
Theodore M. Weitz   56  Vice President, General Counsel and Secretary
</TABLE>

   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 is Mary A. Evslin's husband.

   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.

   Steven J. Ott was our Vice President, Global Sales from January 1998 until
December 1999, when he was promoted to Executive Vice President and assigned
responsibility for global sales of both ITXC WWeXchange Service and, for the
period from October 2000 through October 2001, e-calling services sold through
portals, carriers and ISPs to subscribers. 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.

                                      17

<PAGE>

   Thomas J. Shoemaker joined us in January 2000 as our Executive Vice
President of Business Development and is now responsible for new service
development. 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.

   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
December 2000, Mr. Weiss served as Vice President and Business Unit Manager,
WWeXchange Service. In December 2000, Mr. Weiss was promoted to Executive Vice
President and assumed responsibility for the operation of ITXC.net. 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.

   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 has been our Vice President of Network Development and
Engineering since May 2000. Prior to that time, he served as our Vice
President, Operations since he joined us 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.

   Theodore M. Weitz has been our Vice President, General Counsel and Secretary
since July 2001. From May 2000 to July 2001 he was Vice President, General
Counsel and Secretary of Tachion, Inc., a privately held manufacturer of
telecommunications equipment. Prior to that he had been Vice President, General
Counsel and Secretary of Dialogic Corporation, a publicly held manufacturer of
computer telephony hardware and software from January 1997 through its
acquisition by Intel Corp. in July of 1999, and then continued at Intel as both
General Counsel of its Dialogic subsidiary and Senior Counsel of Intel's
Communications Products Group. Prior to 1996 he had been counsel at Lucent
Technologies, Inc., and had earlier been with AT&T, Unix System Laboratories
and Novell, as well as in private practice of law.

   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.


                                      18

<PAGE>

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 for the periods indicated:

<TABLE>
<CAPTION>
                              Year ended December 31, 2000
                              ----------------------------
                      Quarter      High           Low
                      -------    -------        ------
                      <S>     <C>            <C>
                      First.. $119.75        $36.93
                      Second. $ 65.93        $25.87
                      Third.. $ 38.31        $14.31
                      Fourth. $ 14.00        $ 6.00

                              Year ended December 31, 2001
                              ----------------------------
                      Quarter      High           Low
                      -------    -------        ------
                      First.. $ 14.00        $ 5.12
                      Second. $  7.00        $ 3.11
                      Third.. $  5.35        $ 2.55
                      Fourth. $  7.78        $ 2.54
</TABLE>

   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 foreseeable 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 February 19, 2002, the Company had approximately 202 shareholders of
record, and approximately 15,000 beneficial shareholders.


                                      19

<PAGE>

Item 6.  Selected Financial Data

   The following selected financial data for the period from July 21, 1997
through December 31, 2001 are derived from our audited Consolidated Financial
Statements. You should read the information that we have presented below in
conjunction with our Consolidated Financial Statements, related notes and other
financial information included elsewhere in this Annual Report. The acquisition
of eFusion, completed on October 12, 2000, was accounted for as a purchase
transaction. Accordingly, eFusion's assets, liabilities and results of
operations are reflected solely for periods on or after October 12, 2000 and
prior to October 11, 2001, when the Company sold most of the tangible and
intangible assets of its e-commerce business (other than patents) to eStara,
Inc., a privately held provider of web-voiced services, in exchange for a 19.9%
equity position in eStara.

<TABLE>
<CAPTION>
                                                                                                                Period from
                                                                                                               July 21, 1997
                                                                                                            (date of inception)
                                                                                 December 31,                   to Dec. 31
                                                                    --------------------------------------  -------------------
                                                                      2001       2000      1999     1998           1997
                                                                    ---------  --------  --------  -------  -------------------
                                                                               (in thousands, except per share data)
<S>                                                                 <C>        <C>       <C>       <C>      <C>
Operating Data
  Revenue:
   Telecommunications revenue...................................... $ 173,220  $ 84,783  $ 24,423  $ 1,238        $   --
   Consulting revenue..............................................        --        --       988      653            59
                                                                    ---------  --------  --------  -------        ------
      Total revenue................................................   173,220    84,783    25,411    1,891            59
  Cost and expenses:
   Data communications and telecommunications......................   150,077    74,859    23,095    2,017            --
   Cost of consulting revenue......................................        --        --        --      192            --
   Network operations..............................................     8,815     5,836     3,219    1,321            --
   Selling, general and administrative.............................    44,787    30,103    14,778    5,120           701
   Depreciation....................................................    19,815    11,091     2,472      345             5
   Amortization of intangibles.....................................    13,734     9,632        84       --            --
   Impairment of assets............................................   113,737        --        --       --            --
   Restructuring charges...........................................     3,713        --        --       --            --
   Purchased in-process research and development...................        --    14,805        --       --            --
   Non-cash employee compensation..................................     3,455     4,873     2,716      194            --
                                                                    ---------  --------  --------  -------        ------
      Total cost and expenses......................................   358,133   151,199    46,364    9,189           706
                                                                    ---------  --------  --------  -------        ------
  Loss from operations.............................................  (184,913)  (66,416)  (20,953)  (7,298)         (647)
  Loss associated with investments.................................      (250)  (15,619)       --       --            --
  Interest income, net.............................................     8,721    11,071     1,289       91             1
                                                                    ---------  --------  --------  -------        ------
      Net loss.....................................................  (176,442)  (70,964)  (19,665)  (7,207)         (646)
  Accretion of redemption value of mandatorily redeemable
   converted preferred stock.......................................        --        --      (773)     (14)           --
      Net loss applicable to common stockholders................... $(176,442) $(70,964) $(20,438) $(7,222)       $ (646)
                                                                    =========  ========  ========  =======        ======
  Basic and diluted net loss per share applicable to common
   stockholders.................................................... $   (3.89) $  (1.81) $  (1.29) $ (0.88)       $ (.09)
                                                                    =========  ========  ========  =======        ======
  Weighted average shares used in computation of basic and diluted
   net loss per share applicable to common stockholders............    45,392    39,292    15,886    8,185         7,005
  Pro forma basic and diluted net loss per share................... $   (3.89) $  (1.81) $  (0.69) $ (0.45)
                                                                    =========  ========  ========  =======
  Weighted average shares used in computation of basic and diluted
   net loss per share..............................................    45,392    39,292    28,526   16,155            --

                                                                      2001       2000      1999     1998           1997
                                                                    ---------  --------  --------  -------  -------------------
Balance Sheet Data:
Cash, cash equivalents and marketable securities................... $ 147,555  $199,437  $ 74,396  $ 4,171        $  498
Total assets.......................................................   215,381   385,677    99,862    7,834           795
Long-term obligations, including current portion...................     6,464    10,082     5,493    1,437            --
Working capital....................................................   138,818   191,360    65,810    2,069          (227)
Redeemable preferred stock.........................................        --        --        --    9,867            --
Total stockholders equity (deficit)................................   180,603   352,284    80,366   (6,118)           52
</TABLE>


                                      20

<PAGE>

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

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

   We have included in this Annual Report certain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995
concerning our business, operations and financial condition. "Forward-looking
statements" consist of all non-historical information, and the analysis of
historical information. The words "could", "expects", "anticipates",
"objective", "plan", "may affect", "may depend", "believes", "estimates",
"projects" and similar words and phrases may identify such forward-looking
statements.

   Actual results could differ materially from those projected in our
forward-looking statements due to numerous known and unknown risks and
uncertainties, including, among other things, unanticipated technological
difficulties, the volatile and competitive environment for Internet telephony,
changes in domestic and foreign economic, market and regulatory conditions, the
inherent uncertainty of financial estimates and projections, the difficulties
of integrating businesses which were previously operated as stand-alone units,
the creditworthiness of our customers, the uncertainties involved in certain
legal proceedings, instabilities arising from terrorist actions and responses
thereto, and other considerations described as "Risk Factors" in Exhibit 99.1
to our Annual Report on Form 10-K for the year ended December 31, 2001 and in
other filings made by us with the SEC. Such factors may also cause substantial
volatility in the market price of our common stock. All such forward-looking
statements are current only as of the date on which such statements were made.
We do not undertake any obligation to publicly update any forward-looking
statement to reflect events or circumstances after the date on which any such
statement is made or to reflect the occurrence of unanticipated events.

  Critical Accounting Policies and Estimates

   ITXC's discussion and analysis of its financial condition and results of
operations are based upon the Company's Consolidated Financial Statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure
of contingent assets and liabilities. On an on-going basis, the Company
evaluates its estimates, including those related to bad debts, investments,
intangible assets, restructuring and litigation. The Company bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.

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

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

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

                                      21

<PAGE>

  Overview

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

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

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

  .   developing additional business strategies to supplement our affiliate
      network; and

  .   hiring our initial employee group.

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

  .   increasing our voice traffic, from 2,746 minutes during April 1998 to
      approximately 606 million minutes carried through our WWeXchange service
      during the quarter ended December 31, 2001;

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

  .   expanding our affiliate network to 215 affiliates at January 31, 2002;

  .   increasing the global reach of ITXC.net to 394 cities and 146 countries
      at January 31, 2002;

  .   increasing our direct connection to customers using ITXC-owned SNARCs
      located at the customers' premises; and

  .   increasing our employee headcount, from 29 employees on April 1, 1998 to
      224 employees on January 31, 2002.

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

  .   the volume of voice traffic carried over ITXC.net, which is measured in
      terms of minutes of voice traffic;

  .   the mix of voice traffic carried over ITXC.net, which reflects the fact
      that calls made over certain routes will generate greater revenues than
      calls of a similar duration made over other routes;

  .   pricing pressures resulting from competitive conditions in our markets;
      and

  .   our ability to maximize our "buy-sell" margin, i.e. the difference
      between what we pay to receive termination service and what we are able
      to charge our customers.

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

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

   Our operating expenses have been primarily:

  .   Data Communications and Telecommunications Expenses.  Internet-related
      expenses, consisting primarily of:

       .  costs associated with sending voice traffic, 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

                                      22

<PAGE>

       .  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 needs 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. During the period (October 2000 through
      October 2001) that we operated an e-commerce business, network operations
      expenses also include related expenses incurred to operate our e-commerce
      services.

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

     .   Sales and Marketing Expenses.  Salaries, payroll taxes, benefits and
         commissions that we pay for sales personnel and expenses associated
         with the development and implementation of our promotion and marketing
         campaigns that are deployed both domestically and internationally. 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 on a global level. 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, finance, administration, facilities, information
         technology and human resources, together with accounts receivable
         reserves. 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. Similarly, in
         connection with our eFusion acquisition during 2000, we were required
         to take non-cash charges of approximately $0.7 million in connection
         with options granted in exchange for options previously granted by
         eFusion. We expect that our non-cash employee compensation charges
         will be fully expensed by the end of the second quarter of 2002.

   We believe that the services we provide over the Internet are not currently
actively regulated in the U.S. Several efforts have been made, however, to
enact federal legislation that would regulate certain aspects of the Internet.
In addition, the Federal Communications Commission has been considering various
initiatives that could affect the provision of Internet telephony, its
regulatory status, and the obligations to make payments to the Universal
Service Fund. An adverse outcome of either regulatory proceedings or
legislation could increase our costs significantly and could materially
adversely affect our business, operating results, financial condition and
future prospects.

                                      23

<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,
in the future other anticipated or unanticipated operating problems associated
with the growth of ITXC.net may develop.

   On October 12, 2000, we acquired a 100% interest in eFusion, Inc.
("eFusion"), a provider of voice-enabled applications to service providers,
e-commerce companies and call centers, for an aggregate purchase price of
approximately $158.8 million. The purchase price consisted primarily of 5.3
million shares of our Common Stock and options to purchase 575,045 shares of
our Common Stock. In connection with this transaction, we recorded goodwill of
$101.5 million and other intangibles of $32.0 million, all of which were (prior
to the impairment charge described below) to be amortized over five years. We
also purchased $10.5 million of tangible net assets. The acquisition was
accounted for as a purchase, and accordingly, the net assets and results of
operations of the acquired business have been included in our Consolidated
Financial Statements from the date of acquisition.

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

   Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of"
("SFAS No. 121"), requires recognition of impairment losses for long-lived
assets whenever events or changes in circumstances result in impairment
indicators being present and the carrying amount of an asset exceeding the sum
of the expected future cash flows associated with the asset. In response to
market conditions and the consequent slower than anticipated growth of our
enhanced services, at our July 2001 board meeting we made a strategic decision
to reduce expenditures for the development and marketing of enhanced services
and reduced headcount in these areas by about 40 people. We also determined
that certain long-lived assets related to our eFusion acquisition have become
impaired. During the second quarter of 2001, we recognized a $108.0 million
impairment charge, which represented an $86.7 million write-down of goodwill
and a $21.3 million write-down of other intangible assets to their fair values.

   On October 11, 2001, we sold most of the tangible and intangible assets of
our e-commerce business (other than patents) to eStara, Inc., a privately held
provider of web-voiced services, in exchange for a 19.9% equity position in
eStara. We valued this investment at $700,000. We granted certain patent
licenses to eStara, while retaining our ownership of such patents. As a result,
we determined that there was a further impairment of long-lived assets and
recorded a $5.7 million impairment charge during the third quarter of 2001 to
write-down such assets to their fair value. In addition, as part of our July
and September 2001 business-reorganization plans, we recorded a charge to
earnings totaling approximately $3.7 million in the third and fourth quarters
of 2001. This charge is primarily comprised of headcount reductions of 70
employees world-wide (approximately $1.5 million) and facility consolidations
(approximately $1.5 million) as we closed the Beaverton, Oregon facility in
which eFusion had previously operated and terminated or transferred to eStara
the employees related to our e-commerce business. The remaining $0.7 million
relates to a write-down of the remaining assets at the Beaverton location.

   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, 2001, we had an accumulated deficit of $275.0 million. The
profit potential of our business is unproven, and our limited operating history
makes an evaluation of us and our prospects difficult. We may not achieve
profitability or, if we achieve profitability, we might not sustain
profitability.


                                      24

<PAGE>

Results of Operations for the Years Ended December 31, 2001, 2000 and 1999

  Revenue

   Our revenue (other than consulting) for the years ended December 31, 2001,
2000 and 1999 was $173.2 million, $84.8 million and $24.4 million,
respectively. We were able to achieve this increase despite our decision to
terminate services to certain customers as a result of credit determinations
that we made. The principal aspect of this increase was the increased revenue
generated from our WWeXchange service, which provides international call
completion to our customers and enables them to offer their own customers
phone-to-phone global voice service. Approximately 99% of our total revenue
during 2001 was derived from our WWeXchange service. The remaining revenue was
derived principally from our webtalkNOW! service, a PC-to-telephone service
which allows Internet portals, Internet service providers and web sites to
offer web-to-phone calling to their customers under their own brands, and the
Push to Talk/(SM) /service that we operated until the sale/license of our
e-commerce assets and liabilities to eStara, Inc. in October 2001.

   We have increased the volume of WWeXchange service traffic over ITXC.net. In
terms of minutes of traffic, we increased our minutes to 1.9 billion in 2001
from 767 million minutes in 2000. Our average revenues per minute for
WWeXchange service declined to 9.0 cents per minute in 2001 from 10.5 cents per
minute during 2000. The decline in average revenues per minute is primarily
attributable to increased competition.

   Our webtalkNOW! traffic declined significantly from 190 million minutes in
2000 to 34 million minutes in 2001 as a result of the significant decline in
the number and financial strength of the Internet-based (so-called "dot.com")
consumer businesses that formed a portion of the potential customer base of our
webtalkNOW! service and the greatly weakened financial condition of the
surviving competitive local exchange carriers (CLECs).

   We reduced and/or eliminated WWeXchange service to some customers at the end
of the first quarter and during the second quarter of 2001 and again in the
fourth quarter of 2001 because their credit situations deteriorated or they
could not, or would not, meet our more stringent credit terms.

   We increased our emphasis on margin, rather than revenue, during 2001 and
used margin as the major basis for sales compensation.

   The necessity to reduce or eliminate service to certain customers, the
weaknesses in the dot.com sector, the decline in webtalkNOW! traffic and the
difficulties we had in expanding the e-commerce business that we acquired in
the eFusion transaction, as well as the increased emphasis on margin, resulted
in our achieving slower revenue growth than we expected for 2001.

Operating Expenses

   Data Communications and Telecommunications Expenses.  During the past three
years, the relationship of data communications and telecommunications expenses
to telecommunications revenue was as follows:

<TABLE>
<CAPTION>
             Year Ended    Data Communications and
            December 31, Telecommunications Expenses    Revenue
            ------------ --------------------------- --------------
            <S>          <C>                         <C>
                2001           $150.1 million        $173.2 million
                2000           $ 74.9 million        $ 84.8 million
                1999           $ 23.1 million        $ 24.4 million
</TABLE>

   The increase in the dollar amount of such costs during 2001 primarily
reflected the increased traffic during 2001 as well as costs associated with
establishing and increasing capacity at our hubs in anticipation of future
growth in traffic. The increase in the dollar amount of such costs during 2000
primarily reflected the increased traffic during 2000 as well as costs
associated with establishing a new network hub in Jersey City, New Jersey
during the first quarter of 2000 and expanding that hub later during the year,
establishing a new network hub in London, England during the second quarter of
2000, and establishing and increasing capacity at other hubs in anticipation of
future growth in traffic.

                                      25

<PAGE>

   The improvement in the relationship of data communications and
telecommunications expenses to telecommunications revenue reflects improvements
in the mix of traffic that we carried. Revenue from the big three US
interexchange carriers, their subsidiaries and the regional Bell operating
companies (RBOCs) increased to $30.0 million in 2001 from $4.8 million in 2000.
Non-US originated traffic increased to 32.3% of total minutes in 2001 from
15.8% of total minutes in 2000.

   Network Operations Expenses.  Network operations expenses increased to $8.8
million during the year ended December 31, 2001 from $5.8 million during the
year ended December 31, 2000 and from $3.2 million during the year ended
December 31, 1999. Such expenses primarily reflected the cost of operating our
24-hours-a-day, 7 days-a-week network operations center, as well as start-up
costs associated with the Jersey City, New Jersey; Los Angeles, California and
London hubs. Such costs represented 5.1%, 6.9% and 13.2%, respectively, of
telecommunications revenues during the years ended December 31, 2001, 2000 and
1999, respectively. In general, network operations expenses are not
proportional to the volume of our traffic; regardless of our volume, we are
required to pay the salaries and related costs associated with operating our
network operations center in Princeton. We subsequently closed our New York hub
and consolidated its operations with our New Jersey hub. We anticipate that we
will be able to continue to leverage network operations expenses over a larger
revenue base in future periods. Such expectation represents a forward-looking
statement under the Private Securities Litigation Reform Act of 1995. Actual
results could differ from such expectation as a result of a number of factors,
including the extent to which we incur unanticipated expenses associated with
the expansion of our hubs and the growth of our network.

   Selling, General and Administrative Expenses.  Selling, general and
administrative expenses increased to $44.8 million during the year ended
December 31, 2001 from $30.1 million during the year ended December 31, 2000
and from $14.8 million during the year ended December 31, 1999. These increases
were due primarily to the hiring of additional personnel, commissions paid on
our increased telecommunications revenue, expanded sales and marketing
campaigns, increased facilities expenses associated with our growth and the
customer credit issues described below. As a percentage of revenues, SG&A
expenses decreased to 25.9% in2001 from 35.5% in 2000 and 58.2% in 1999,
reflecting the leveraging of such expenses over our significantly increased
revenue base. Selling, general and administrative expenses during 2001, 2000
and 1999 included charges of $7.6 million, $3.5 million and $2.6 million,
respectively, representing accounts receivable reserves and write-offs. These
charges reflect general industry trends, the discontinuance of service to
certain significant customers because of their failure to meet their payment
obligations, the bankruptcy filing of a major customer, certain other
bankruptcies and the poor financial condition of some of the Tier 2 carriers
who are or who had been our customers. The increase in SG&A expenses was
limited by a reduction in headcount. At December 31, 2001, we had 222
employees, as compared with 289 employees one year earlier.

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

  Depreciation

   Depreciation expense increased to $19.8 million in 2001 from $11.1 million
in 2000 and $2.6 million in 1999, reflecting the expansion of our network and
hubs and the addition of new technologies deployed throughout our network. As a
percentage of revenue, depreciation expense was 11.4% in 2001, 13.1% in 2000
and 9.7% in 1999. We added capital expenditures of $25.6 million during 2001.

  Amortization and Write-Off of Intangibles

   In 2001, we amortized $13.7 million of intangibles and we recognized $113.7
million of impairment charges related to the Company's October 2000 eFusion
acquisition. In 2000, we amortized $5.1 million of the goodwill associated with
the eFusion acquisition, amortized $1.6 million of intangibles and wrote off
$14.8 million of in-process research and development associated with our
eFusion acquisition.

                                      26

<PAGE>

  Restructuring Charges

   During 2001, we incurred $3.7 million of restructuring charges relating to
the steps we took to terminate our e-commerce operations in Beaverton, Oregon.

  Non-Cash Employee Compensation Expenses

   Non-cash employee compensation expense was $3.5 million during the year
ended December 31, 2001, $4.9 million during the year ended December 31, 2000
and $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. The decline in this charge
during 2001 reflects the cancellation of options held by individuals whom we no
longer employ, as well as the completion of vesting periods for certain options.

  Interest 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, we raised net proceeds of $78.4 million from our initial
public offering completed in October 1999 and we raised net proceeds of $161.4
million from our follow-on public offering completed in March 2000. During the
years ended December 31, 2001, 2000 and 1999, the interest on our marketable
securities, including the interest earned on the proceeds from our initial and
follow-on public offerings, exceeded the interest that we paid on our line of
credit and capital leases by $8.7 million, $11.1 million and $1.3 million,
respectively. The reduction in interest income, net, during 2001 reflects a
lowering of the rates that we earned on our cash and investments and the
deployment of a portion of these assets into our operating business.

  Loss Associated with Investments and Joint Venture

   During 2000, we incurred non-cash charges of $15.6 million relating to the
modifications made in our South American joint venture. Approximately $8.2
million of these charges reflected the difference between the value of our
stock that we issued at the time of such modifications and the value of the
capital stock that we received in exchange for that stock (valued as of the
time of the transaction). The balance of these charges relates to a reduction
in the value of the shares that we received, reflecting an other-than temporary
decline in such investment. See Note 1 of the Notes to our Consolidated
Financial Statements presented elsewhere in this Annual Report. The $250,000
charge recorded in 2001 related to a strategic investment that we made in a
private e-commerce company. Based on the poor financial condition and the
remote probability of success, we believe that an other than temporary decline
in this investment has occurred and accordingly we wrote off the investment in
its entirety.

  Quarterly Financial Information

   The following table sets forth certain operating data and consolidated
statements of operations data for our most recent eight quarters. The financial
information has been derived from our unaudited Consolidated Financial
Statements. In our management's opinion, this unaudited financial information
has been prepared on the same basis as the annual Consolidated Financial
Statements and includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the information for the
quarters presented. This information should be read in conjunction with our
Consolidated Financial Statements and the related notes

                                      27

<PAGE>

included elsewhere in this Annual Report. The operating results for any quarter
are not necessarily indicative of results for any future period.

<TABLE>
<CAPTION>
                                                             Three Months Ended
                                                  ---------------------------------------
                                                  March 31, June 30,   Sept. 30, Dec. 31,
                                                    2001      2001       2001      2001
                                                  --------- ---------  --------- --------
                                                    (in thousands except per share data)
<S>                                               <C>       <C>        <C>       <C>
Minutes of traffic over ITXC.net.................  358,000    406,000   566,000   606,000
Revenue:
   Telecommunications revenue.................... $ 36,143  $  38,801  $ 46,467  $ 51,809
                                                  --------  ---------  --------  --------
Costs and expenses:
   Data communications and telecommunications....   32,024     34,036    40,201    43,816
   Network operations............................    2,168      2,243     2,251     2,153
   Selling, general and administrative...........   15,013     11,204    10,517     8,053
   Depreciation..................................    4,584      4,912     5,149     5,170
   Amortization of intangibles...................    6,673      6,707       348         6
   Impairment of assets..........................       --    108,022     5,715        --
   Restructuring charges.........................       --         --     3,443       270
   Non-cash employee compensation................      876        876     1,005       698
                                                  --------  ---------  --------  --------
       Total costs and expenses..................   61,338    168,000    68,629    60,166
Loss from operations.............................  (25,195)  (129,199)  (22,162)   (8,357)
Loss associated with investments.................     (250)        --        --        --
Interest income, net.............................    2,717      2,428     1,904     1,672
       Net loss.................................. $(22,728) $(126,771) $(20,258) $ (6,685)
       Loss per share............................ $  (0.50) $   (2.80) $  (0.45) $  (0.15)

                                                  March 31, June 30,   Sept. 30, Dec. 31,
                                                    2000      2000       2000      2000
                                                  --------- ---------  --------- --------
                                                    (in thousands except per share data)
Minutes of traffic over ITXC.net.................  131,000    201,000   270,000   355,000
Revenue:
   Telecommunications revenue.................... $ 15,066  $  18,619  $ 23,505  $ 27,593
                                                  --------  ---------  --------  --------
Costs and expenses:
   Data communications and telecommunications....   13,653     16,543    20,688    23,975
   Network operations............................    1,387      1,036     1,313     2,100
   Selling, general and administrative...........    5,932      6,534     6,896    10,741
   Depreciation..................................    1,587      2,266     3,044     4,193
   Amortization of intangibles...................      250        250       250     8,883
   Purchased in process research and development.       --         --        --    14,805
   Non-cash employee compensation................    1,055      1,065       903     1,848
                                                  --------  ---------  --------  --------
       Total costs and expenses..................   23,865     27,694    33,094    66,545
Loss from operations.............................   (8,799)    (9,075)   (9,589)  (38,952)
Loss associated with investments.................   (8,195)        --        --    (7,424)
Interest income, net.............................    1,348      3,246     3,356     3,121
       Net loss.................................. $(15,646) $  (5,829) $ (6,233) $(43,255)
       Loss per share............................ $  (0.43) $   (0.15) $  (0.16) $  (1.00)
</TABLE>

                                      28

<PAGE>

Liquidity and Capital Resources

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

   Net cash used in financing activities was $3.3 million for the year ended
December 31, 2001, principally reflecting the repayment of capital lease
obligations. Net cash provided by financing activities was $161.8 million for
the year ended December 31, 2000 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 used in operating activities amounted to $25.3 million, $23.7
million and $16.2 million for the years ended December 31, 2001, 2000 and 1999,
respectively. Cash used in operating activities in these periods was primarily
the result of net operating losses and increased accounts receivable, partially
offset by increases in accounts payable and accrued expenses.

   Net cash provided by investing activities was $44.8 million for the year
ended December 31, 2001, primarily as the result of the sale of $55.3 million
of available for sale securities. Net cash used in investing activities was
$150.4 million for the year ended December 31, 2000 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 and follow-on offering.

   As of December 31, 2001, our principal commitments consisted of obligations
outstanding under operating and capital leases. At that date, future minimum
payments for non-cancelable leases include required payments of $7.2 million
during 2002 and $23.0 million for years 2003-2006 and thereafter under all
leases. The minimum lease payments have not been reduced by minimum operating
sublease rentals of $2.6 million due in the future under noncancelable
subleases. We anticipate a substantial increase in capital expenditures and
lease commitments consistent with the anticipated growth in operations,
infrastructure and personnel.

   We maintain a credit agreement 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 June 2002. 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, 2001, we were in
compliance with all of the covenants under our credit agreement.

   The sources of our short-term funding continue to be the capital that we
have raised and, to a lesser extent, the credit that has been extended to us.
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

                                      29

<PAGE>

continue to increase in the future. We will evaluate possible acquisitions of,
or investments in, complementary businesses, technologies or services and plan
to expand our sales and marketing programs. Any such possible acquisition may
be material and may require us to incur a significant amount of debt or issue a
significant number of equity securities. Further, any businesses that we
acquire will likely have their own capital needs, which may be significant,
which we would be called upon to satisfy independent of the acquisition price.
We currently believe that our available cash and cash equivalents will be
sufficient to meet our anticipated needs for working capital and capital
expenditures for at least the next 12 months. This statement represents a
forward-looking statement under the Private Securities Litigation Reform Act of
1995. Actual results could differ materially from our expectations. We may need
to raise additional funds in order to fund more rapid expansion, to develop new
or enhance existing services, to respond to competitive pressures or to acquire
or invest in complementary business, technologies or services. Additional
funding may not be available on favorable terms or at all.

   The following summarizes ITXC's contractual obligations at December 31,
2001, and the effect such obligations are expected to have on its liquidity and
cash flow in future periods.

<TABLE>
<CAPTION>
                                                         Payments Due by Period
                                       ----------------------------------------------------------
                                                   Less than                             After
Contractual Obligations                   Total     1 year    1 - 3 years 4 - 5 years   5 years
-----------------------                ----------- ---------- ----------- ----------- -----------
<S>                                    <C>         <C>        <C>         <C>         <C>
Capital Lease Obligations............. $ 5,893,463 $3,767,758 $2,125,705          --           --
Operating Leases......................  24,357,215  3,436,519  5,631,536   2,734,666   12,554,494
                                       ----------- ---------- ----------  ----------  -----------
   Total Contractual Cash Obligations. $30,250,678 $7,204,277 $7,757,241  $2,734,666  $12,554,494
                                       =========== ========== ==========  ==========  ===========

                                               Amount of Commitment Expiration Per Period
                                       ----------------------------------------------------------
                                          Total
                                         Amounts   Less than                             Over
Other Commercial Commitments            Committed   1 year    1 - 3 years 4 - 5 years   5 years
----------------------------           ----------- ---------- ----------- ----------- -----------
Lines of Credit....................... $ 1,196,660 $1,196,660         --          --           --
Standby Letters of Credit.............   2,309,030  2,309,030         --          --           --
                                       ----------- ---------- ----------  ----------  -----------
   Total Commercial Commitments....... $ 3,505,690 $3,505,690         --          --           --
                                       =========== ========== ==========  ==========  ===========
</TABLE>

Recent Accounting Pronouncements

   In June 2001, the Financial Accounting Standards Board issued Statement No.
141, Business Combinations, and Statement No. 142, Goodwill and Other
Intangible Assets, effective for fiscal years beginning after December 15,
2001. Under the new rules, goodwill and intangible assets deemed to have
indefinite lives will no longer be amortized but will be subject to annual
impairment tests. Other intangible assets will continue to be amortized over
their useful lives. The Company believes that the adoption of this standard
will not have a material impact on its consolidated results of operations and
financial position.

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

   In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets". The
effective date for this statement is January 1, 2002 and

                                      30

<PAGE>

supersedes SFAS No. 121. SFAS No. 144 carries forward from SFAS No. 121 the
fundamental guidance related to the recognition and measurement of an
impairment loss related to assets to be held and used and provides guidance
related to the disposal of long-lived assets to be abandoned or disposal by
sale. The Company believes that the adoption of this standard will not have a
material impact on its consolidated results of operations and financial
position.

Item 7A.  Quantitative and Qualitative Disclosure About Market Risk

   We had investments of approximately $140.6 million as of December 31, 2001,
in certain marketable securities, which primarily consisted 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 consolidated 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.

                                      31

<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, 2001 and 2000, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 2001. 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, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2001 in conformity with accounting principles generally accepted in the
United States.

                                          /S/ ERNST & YOUNG LLP

MetroPark, New Jersey
February 8, 2002

                                      F-1

<PAGE>

                          ITXC CORP AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                        December 31,
                                                                                ---------------------------
                                                                                    2001           2000
                                                                                -------------  ------------
<S>                                                                             <C>            <C>
Assets
Current assets:
   Cash and cash equivalents................................................... $  53,193,357  $ 36,768,527
   Marketable securities.......................................................    94,361,251   162,667,823
   Accounts receivable, net of allowance of $3,737,000 in 2001 and
     $2,124,000 in 2000........................................................    21,189,007    17,799,511
   Prepaid expenses and other current assets...................................     2,875,980     3,091,187
                                                                                -------------  ------------
       Total current assets....................................................   171,619,595   220,327,048
Property and equipment, net....................................................    42,359,300    37,957,981
Goodwill, net of amortization of $5,075,599 in 2000............................            --    96,437,788
Other intangibles, net of amortization of $6,353 in 2001 and $1,597,650 in 2000       101,648    30,355,350
Other assets...................................................................     1,300,700       598,339
                                                                                -------------  ------------
       Total assets............................................................ $ 215,381,243  $385,676,506
                                                                                -------------  ------------
Liabilities and stockholders' equity
Current liabilities:
   Accounts payable............................................................ $  21,628,317  $ 15,818,732
   Accrued expenses and other current liabilities..............................     5,951,163     6,597,431
   Customer deposits...........................................................       734,365       894,199
   Equipment line of credit....................................................     1,196,660     1,723,191
   Current portion of capital lease obligations................................     3,290,981     3,933,671
                                                                                -------------  ------------
       Total current liabilities...............................................    32,801,486    28,967,224
Capital lease obligations, less current portion................................     1,976,676     4,425,322

Commitments and contingencies

Stockholders' equity:
   Preferred Stock, $.001 par value, authorized 15,000,000 shares; issued and
     outstanding none in 2001 and 2000.........................................            --            --
   Common Stock, $.001 par value, authorized 400,000,000 shares; issued
     and outstanding, 45,726,102 shares in 2001; and 45,047,143 shares in
     2000......................................................................        45,726        45,046
   Additional paid-in capital..................................................   456,216,326   455,087,203
   Deferred employee compensation..............................................    (1,394,722)   (5,134,356)
   Accumulated other comprehensive income......................................       660,354       768,804
   Accumulated deficit.........................................................  (274,924,603)  (98,482,737)
                                                                                -------------  ------------
       Total stockholders' equity..............................................   180,603,081   352,283,960
                                                                                -------------  ------------
       Total liabilities and stockholders' equity.............................. $ 215,381,243  $385,676,506
                                                                                =============  ============
</TABLE>

                            See accompanying notes.

                                      F-2

<PAGE>

                          ITXC CORP AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                          Year ended December 31,
                                                                 -----------------------------------------
                                                                     2001           2000          1999
                                                                 -------------  ------------  ------------
<S>                                                              <C>            <C>           <C>
Revenue:
   Telecommunications revenue................................... $ 173,220,406  $ 84,783,282  $ 24,423,162
   Consulting revenue...........................................            --            --       988,232
                                                                 -------------  ------------  ------------
Total revenue...................................................   173,220,406    84,783,282    25,411,394
Costs and expenses:
   Data communications and telecommunications...................   150,077,067    74,858,629    23,095,225
   Network operations...........................................     8,814,720     5,836,347     3,219,039
   Selling, general and administrative..........................    44,787,317    30,103,257    14,778,207
   Depreciation.................................................    19,814,876    11,090,548     2,472,128
   Amortization of intangibles..................................    13,734,270     9,632,129        84,308
   Impairment of assets.........................................   113,737,278            --            --
   Restructuring charges........................................     3,712,747            --            --
   Purchased in-process research and development................            --    14,805,000            --
   Non-cash employee compensation...............................     3,455,201     4,873,135     2,715,862
                                                                 -------------  ------------  ------------
Total costs and expenses........................................   358,133,476   151,199,045    46,364,769
                                                                 -------------  ------------  ------------
Loss from operations............................................  (184,913,070)  (66,415,763)  (20,953,375)
Loss associated with investments................................      (250,000)  (15,619,000)           --
Interest and other income.......................................     9,685,037    11,783,418     1,495,800
Interest expense................................................      (963,833)     (712,912)     (207,160)
                                                                 -------------  ------------  ------------
Net loss........................................................  (176,441,866)  (70,964,257)  (19,664,735)
Accretion of redemption value of mandatorily redeemable
  convertible preferred stock...................................            --            --      (772,795)
                                                                 -------------  ------------  ------------
Net loss applicable to common stockholders...................... $(176,441,866) $(70,964,257) $(20,437,530)
                                                                 -------------  ------------  ------------
Basic and diluted net loss per share applicable to common
  Stockholders.................................................. $       (3.89) $      (1.81) $      (1.29)
                                                                 -------------  ------------  ------------
Weighted average shares used in computation of basic and diluted
  net loss per share applicable to common stockholders..........    45,391,764    39,292,353    15,885,883
Pro forma basic and diluted net loss per share (unaudited)...... $       (3.89) $      (1.81) $      (0.69)
                                                                 -------------  ------------  ------------
Weighted average shares used in computation of pro forma
  basic and diluted net loss per share (unaudited)..............    45,391,764    39,292,353    28,525,619
</TABLE>

                            See accompanying notes.

                                      F-3

<PAGE>

                          ITXC CORP AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                    For the years ended 1999, 2000 and 2001

<TABLE>
<CAPTION>
                                                                                                   Accumulated
                                 Common                 Additional     Deferred                       Other
                                 Stock       Common      Paid-in       Employee     Accumulated   Comprehensive
                                 Shares   Stock Amount   Capital     Compensation     Deficit        Income         Total
                               ---------- ------------ ------------  ------------  -------------  ------------- -------------
<S>                            <C>        <C>          <C>           <C>           <C>            <C>           <C>
Balance, December 31, 1998....  8,381,000   $ 8,381    $  2,293,516  $   (566,201) $  (7,853,745)          --   $  (6,118,049)
Accretion of redemption value
 of mandatorily redeemable
 convertible 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 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
Cancellation of options.......         --        --        (966,609)      966,609             --           --              --
Amortization of non-cash
 employee compensation........         --        --              --     4,873,134             --           --       4,873,134
Issuance of common stock for
 exercise of options..........  1,676,722     1,677       1,080,248            --             --           --       1,081,925
Issuance of common stock
 and options for acquisition
 of eFusion...................  5,340,105     5,340     157,521,901      (733,241)            --           --     156,794,000
Issuance of common stock for
 joint venture exit agreement.    150,000       150      16,118,850            --             --           --      16,119,000
Issuance of common stock
 for employee stock purchase
 plan.........................     63,915        63         654,835            --             --           --         654,898
Issuance of common stock
 for secondary public offering  2,000,000     2,000     161,379,450            --             --           --     161,381,450
Adjustment to reflect short
 swing sale...................         --        --       1,208,778            --             --           --       1,208,778
Unrealized gain on available
 for sale securities..........         --        --              --            --             --      768,804         768,804
Net loss......................         --        --              --            --    (70,964,257)          --     (70,964,257)
                               ----------   -------    ------------  ------------  -------------    ---------   -------------
Total comprehensive loss......         --        --              --            --             --           --     (70,195,453)
                               ----------   -------    ------------  ------------  -------------    ---------   -------------
Balance, December 31, 2000.... 45,047,143   $45,046    $455,087,203  $ (5,134,356) $ (98,482,737)   $ 768,804   $ 352,283,960
Cancellation of options.......         --        --        (284,433)      284,433             --           --              --
Amortization of non-cash
 employee compensation........         --        --              --     3,455,201             --           --       3,455,201
Issuance of common stock for
 exercise of options..........    515,463       516         539,899            --             --           --         540,415
Issuance of common stock
 for employee stock purchase
 plan.........................    163,496       164         873,657            --             --           --         873,821
Unrealized gain on available
 for sale securities..........         --        --              --            --             --     (312,408)       (312,408)
Foreign exchange translation
 adjustment...................         --        --              --            --             --      203,958         203,958
Net loss......................         --        --              --            --   (176,441,866)          --    (176,441,866)
                               ----------   -------    ------------  ------------  -------------    ---------   -------------
Total comprehensive loss......         --        --              --            --             --           --    (176,550,316)
                               ----------   -------    ------------  ------------  -------------    ---------   -------------
Balance, December 31, 2001.... 45,726,102   $45,726    $456,216,326  $ (1,394,722) $(274,924,603)   $ 660,354   $ 180,603,081
                               ----------   -------    ------------  ------------  -------------    ---------   -------------
</TABLE>

                            See accompanying notes.

                                      F-4

<PAGE>

                          ITXC CORP AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                         Year ended December 31,
                                                                               ------------------------------------------
                                                                                   2001           2000           1999
                                                                               -------------  -------------  ------------
<S>                                                                            <C>            <C>            <C>
Operating activities
Net loss...................................................................... $(176,441,866) $ (70,964,257) $(19,664,735)
Adjustments to reconcile net loss to net cash used in operating activities:
  Depreciation................................................................    19,814,876     11,090,548     2,472,128
  Amortization................................................................    13,734,270      9,632,129        84,308
  Impairment of assets........................................................   113,737,278             --            --
  Purchased in-process research and development...............................            --     14,805,000            --
  Provision for doubtful accounts.............................................     7,646,180      3,514,259     2,600,554
  Non-cash restructuring charges..............................................       652,871             --            --
  Loss associated with investment.............................................       250,000     15,619,000            --
  Realized gain on sale of investments........................................      (787,188)            --            --
  Amortization of non-cash deferred employee compensation.....................     3,455,201      4,873,135     2,715,862
  Amortization of original issue discounts....................................    (1,366,923)    (2,690,095)     (510,582)
  Changes in operating assets and liabilities:
   Increase in accounts receivable............................................   (11,231,419)   (15,335,902)   (7,838,619)
   Decrease (increase) in prepaid expenses and other assets...................       212,846     (1,384,197)   (1,218,042)
   Increase in accounts payable and accrued expenses..........................     5,163,317      6,711,816     5,801,871
   (Decrease) increase in customer deposits...................................      (159,834)       451,959      (588,492)
                                                                               -------------  -------------  ------------
Net cash used in operating activities.........................................   (25,320,391)   (23,676,605)  (16,145,747)
                                                                               -------------  -------------  ------------
Investing activities
Purchase of property and equipment............................................   (24,544,353)   (24,732,996)   (4,714,757)
Purchase of service contract rights...........................................            --        (14,983)   (3,035,057)
Cash of business acquired for stock, net of acquisition costs.................            --      8,175,745            --
Purchase of available for sale securities.....................................  (140,217,749)  (411,378,601)  (64,367,815)
Sale of available for sale securities.........................................    55,360,866             --            --
Maturities of available for sale securities...................................   154,217,970    277,547,974    39,700,000
                                                                               -------------  -------------  ------------
Net cash (used in) provided by investing activities...........................    44,816,734   (150,402,861)  (32,417,629)
Financing activities
Proceeds from equipment line of credit........................................            --             --       523,191
Repayment of capital lease obligations........................................    (4,163,176)    (2,287,089)     (479,710)
Repayment of equipment line of credit.........................................      (526,531)      (209,737)           --
Proceeds from short swing sale................................................            --      1,208,778            --
Proceeds from exercise of stock options.......................................       540,415      1,081,925       220,621
Proceeds from issuance of common stock related to employee stock purchase plan       873,821        654,898            --
Issuance of convertible preferred stock.......................................            --             --    14,931,584
Proceeds from public offerings................................................            --    161,381,450    78,414,221
                                                                               -------------  -------------  ------------
Net cash (used in) provided by financing activities...........................    (3,275,471)   161,830,225    93,609,907
Effect of exchange rate fluctuation on cash...................................       203,958             --            --
                                                                               -------------  -------------  ------------
Increase (decrease) in cash...................................................    16,424,830    (12,249,241)   45,046,531
Cash and cash equivalents at beginning of year................................    36,768,527     49,017,768     3,971,237
                                                                               -------------  -------------  ------------
Cash and cash equivalents at end of year...................................... $  53,193,357  $  36,768,527  $ 49,017,768
                                                                               -------------  -------------  ------------
Supplemental disclosures of cash flow information
   Cash paid for interest..................................................... $     963,833  $     712,912  $    223,834
                                                                               -------------  -------------  ------------
   Fixed assets financed by capital leases.................................... $   1,071,842  $   6,876,588  $  4,014,000
                                                                               =============  =============  ============
</TABLE>

                            See accompanying notes.

                                      F-5

<PAGE>

                          ITXC CORP AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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. The Company operates in
one business segment.

  Public Offerings

   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 13), effective upon the closing of the
Company's IPO, resulting in the issuance of an additional 18.2 million shares
of Common Stock.

   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 $161.4 million, while certain
stockholders sold 2 million previously unregistered shares. Certain of these
shares were sold by an executive officer of the Company within six months after
his minor children had acquired shares of the Company's Common Stock. In
accordance with SEC rules, the officer remitted $1.2 million to the Company in
April, 2000. Such amount is included in additional paid in capital.

  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. 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)
600,000 shares of TeleNova stock, (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. This resulted in a charge to operations amounting to $8.2
million which reflected the difference between the value of ITXC stock that was
issued at the time of such modifications and the value of the TeleNova capital
stock that the Company received in exchange. In December 2000, the Company
reduced its investment in TeleNova by $7.4 million to approximately $500,000,
which is accounted for on a cost basis, and is included in other assets,
reflecting an other-than temporary decline in the value of such
investment.There was no change in the carrying value of the investment in
TeleNova during 2001.

                                      F-6

<PAGE>

                          ITXC CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   In June 1999, the Company formed ITXC, Ltd., (United Kingdom company), a
wholly owned subsidiary, to conduct certain United Kingdom operations.

   On October 12, 2000, the Company acquired a 100% interest in eFusion, Inc.,
a provider of voice-enabled applications to service providers (see Note 6). On
November 6, 2000, eFusion Inc.'s name was changed to ITXC, Inc. See Note 7 for
information regarding the disposition of this business.

  Basis of Consolidation

   The Consolidated Financial Statements include the accounts of ITXC Corp and
its wholly-owned subsidiaries, Data Transport, ITXC, Ltd., ITXC Asia PTE, Ltd
and ITXC Inc. 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. Fair value is
based on quoted market prices. 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. One customer represented 16% of 2001 total revenue and 18% of
accounts receivable at December 31, 2001. One additional customer represented
16% of accounts receivable at December 31, 2001. No single customer represented
more than 10% of 2000 total revenue.One customer represented 10% of accounts
receivable at December 31, 2000. Three customers represented 12%, 12%, and 11%,
respectively, of 1999 total revenue. Accounts receivable from these customers
were approximately 12%, 14% and 11%, respectively, at December 31, 1999.The
Company performs a credit evaluation of all new customers and requires certain
customers to provide collateral in the form of a cash deposit.

  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:

<TABLE>
<CAPTION>
             Estimated Useful Life
             ---------------------
             <S>                                      <C>
             Network equipment and software.......... 2-3
             Furniture, fixtures and office equipment 3-7
             Leasehold improvements.................. life of lease
</TABLE>


                                      F-7

<PAGE>

                          ITXC CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Revenue Recognition

   The Company recognizes telecommunications revenue and the related costs at
the time the services are rendered. Telecommunications revenue is derived from
fees charged to terminate voice and fax services over the Company's network.

  Advertising

   Advertising costs are expensed as incurred. During 2001, 2000 and 1999, the
Company expensed approximately $339,000, $231,000 and $198,000, respectively,
of such costs.

  Research and Development

   Development costs are expensed as incurred. Development costs of
approximately $7,778,000, $6,121,000 and $1,509,000 were expensed in 2001, 2000
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. The Company has not issued any
options other than to employees and directors.

  Recent Accounting Pronouncements

   In June 2001, the Financial Accounting Standards Board issued Statement No.
141, Business Combinations, and Statement No. 142, Goodwill and Other
Intangible Assets, effective for fiscal years beginning after December 15,
2001. Under the new rules, goodwill and intangible assets deemed to have
indefinite lives will no longer be amortized but will be subject to annual
impairment tests. Other intangible assets will continue to be amortized over
their useful lives. The Company believes that the adoption of this standard
will not have a material impact on its consolidated results of operations and
financial position.

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


                                      F-8

<PAGE>

                          ITXC CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets". The
effective date for this statement is January 1, 2002 and supersedes SFAS No.
121. SFAS No. 144 carries forward from SFAS No. 121 the fundamental guidance
related to the recognition and measurement of an impairment loss related to
assets to be held and used and provides guidance related to the disposal of
long-lived assets to be abandoned or disposal by sale. The Company believes
that the adoption of this standard will not have a material impact on its
consolidated results of operations and financial position.

  Reclassifications

   Certain prior year amounts have been reclassified to conform to the current
year's presentation.

  Fair Value of Financial Instruments

   The Company's financial instruments, including cash and cash equivalents,
accounts receivable, short-term borrowings and accounts payable, are carried at
cost, which approximates their fair value because of the short-term maturity of
these instruments. The fair value of long-term borrowings approximates its
carrying value as it bears interest at a floating rate.

  Use of Estimates

   The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.

  Foreign Currency Translation

   The financial statements of the Company's foreign subsidiary have been
translated into U.S. dollars in accordance with FASB Statement No. 52, "Foreign
Currency Translation". All balance sheet accounts have been translated using
the exchange rates in effect at the balance sheet date. Income statement
amounts have been translated using the average exchange rate for the year. The
gains and losses resulting from the changes in exchange rates have been
reported in other comprehensive income.

  Comprehensive Income

   The components of accumulated other comprehensive income include unrealized
gains (losses) on available-for-sale securities and foreign currency
translation adjustments.

3.  Available for Sale Investments

   The Company's available for sale investments including amounts in cash
equivalents ($46,276,522 and $27,222,914 at December 31, 2001 and 2000,
respectively) and marketable securities are as follows:

<TABLE>
<CAPTION>
                                                       December 31,
                                                 -------------------------
                                                     2001         2000
                                                 ------------ ------------
     <S>                                         <C>          <C>
     Money market funds......................... $ 46,276,522 $ 13,721,472
     Commercial paper...........................    7,967,804   42,134,313
     Certificates of deposit....................    3,032,660   21,626,308
     U.S. Treasury securities and obligations of
       U.S. government corporations and agencies   20,178,557           --
     Corporate bonds............................   27,049,101   45,762,499
     Asset-backed securities....................   36,133,129   66,646,145
                                                 ------------ ------------
     Total...................................... $140,637,773 $189,890,737
                                                 ============ ============
</TABLE>

                                      F-9

<PAGE>

                          ITXC CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Gross realized gains and losses for the year ended December 31, 2001 were
$787,000. The amounts were immaterial in 2000 and 1999.

   The Company's available for sale securities have the following maturities at
December 31, 2001:

<TABLE>
               <S>                                    <C>
               Due in one year or less............... $61,731,876
               Due after one year through five years.  70,863,525
               Due after five years through ten years          --
               Due after ten years...................   8,042,372
</TABLE>

4.  Accounts Receivable

   The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of the Company's customers were to deteriorate, resulting
in an impairment of their ability to make payments, additional allowances may
be required.

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

   The Company wrote-off accounts receivable of approximately $6,034,000,
$2,674,000 and $1,490,000 during 2001, 2000 and 1999, respectively.

5.  Property and Equipment

   Property and equipment is comprised of the following:

<TABLE>
<CAPTION>
                                                         December 31,
                                                    -----------------------
                                                       2001        2000
                                                    ----------- -----------
     <S>                                            <C>         <C>
     Network equipment and software................ $61,720,871 $42,442,904
     Furniture, fixtures and office equipment......  10,621,623   8,742,331
     Leasehold improvements........................   2,023,601     685,010
                                                    ----------- -----------
                                                     74,366,095  51,870,245
     Less accumulated depreciation and amortization  32,006,795  13,912,264
                                                    ----------- -----------
                                                    $42,359,300 $37,957,981
                                                    =========== ===========
</TABLE>

   Equipment under capital leases totaled approximately $12,212,000 and
$11,140,000 at December 31, 2001 and 2000, respectively. Included in
accumulated depreciation is approximately $7,111,000 and $3,321,000 related to
such assets at December 31, 2001 and 2000, respectively.

   During 2001 and 2000, the Company purchased $6.1 million and $7.2 million,
respectively, of network equipment and software from a stockholder of the
Company.

                                     F-10

<PAGE>

                          ITXC CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


6.  Acquisition

   On October 12, 2000, the Company acquired a 100% interest in eFusion, Inc.
("eFusion"), a provider of voice-enabled applications to service providers,
e-commerce companies and call centers, for an aggregate purchase price of
approximately $158.8 million. The purchase price consisted primarily of 5.3
million shares of ITXC Common Stock and options to purchase 575,045 shares of
ITXC Common Stock. In connection with the transaction, the Company recorded
goodwill of $101.5 million and other intangibles of $32.0 million, all of which
were to be amortized over five years. Also included in the purchase was $10.5
million of tangible net assets. The acquisition was accounted for as a
purchase, and accordingly, the net assets and results of operations of the
acquired business have been included in the Consolidated Financial Statements
from the date of acquisition.

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

   The following table presents unaudited pro forma results of operations of
the Company as if the above acquisition had occurred at January 1, 1999:

<TABLE>
<CAPTION>
                                      Year Ended December 31,
                                    --------------------------
                                       2000          1999
                                    ------------  ------------
                                    (unaudited)   (unaudited)
                 <S>                <C>           <C>
                 Revenues.......... $ 85,602,000  $ 28,928,000
                 Net loss..........  (90,266,000)  (56,273,000)
                 Net loss per share $      (2.08) $      (2.65)
</TABLE>

   The unaudited pro forma results of operations are not necessarily indicative
of what the actual results of operations of the Company would have been had the
acquisition occurred at the beginning of fiscal 1999, nor do they purport to be
indicative of the future results of operations of the Company. See Note 7 for
information regarding a disposition of this business.

   The unaudited pro forma amounts reflect the estimated amortization of the
excess of the purchase price over the fair value of net assets acquired, the
exclusion of the in-process research and development write-off and the
approximate number of shares issued to complete the acquisition.

7.  Impairment of Long-Lived Assets and Business Reorganization Changes

   Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of "
("SFAS No. 121") requires recognition of impairment losses for long-lived
assets whenever events or changes in circumstances result in impairment
indicators being present and the carrying amount of an asset to exceed the sum
of the expected future cash flows associated with the asset.

   In response to current market conditions and the consequent slower than
anticipated growth of the Company's enhanced services, at its July 2001 board
meeting the Company made a strategic decision to reduce expenditures for the
development and marketing of enhanced services and reduced headcount in these
areas by about 40 people. As a result, the Company revised its cash flow
projections and determined that certain long-lived assets related to its
October 2000 eFusion acquisition had become impaired. During the second quarter
of 2001, the Company recognized a $108.0 million impairment charge, which
represented an $86.7 million write-down of goodwill and a $21.3 million
write-down of other intangible assets to their fair values.

                                     F-11

<PAGE>

                          ITXC CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   On October 11, 2001, the Company sold most of the tangible and intangible
assets of its e-commerce business (other than patents) to eStara, Inc., a
privately held provider of web-voiced services, in exchange for a 19.9% equity
position in eStara. The Company has valued this investment at $700,000. This
transaction resulted in a $258,000 loss which was included in the third quarter
impairment charge. The Company also granted certain patent licenses to eStara,
while retaining its ownership of such patents. As a result, the Company
determined that there was a further impairment of long-lived assets and
recorded a $5.7 million impairment charge during the third quarter of 2001 to
write-down such assets to their fair value.

   In addition, as part of the July and September 2001 business-reorganization
plans, the Company recorded a total charge to earnings in 2001 of approximately
$3.7 million of which $1.8 million had been paid through December 31, 2001. The
charge relates to headcount reductions of 70 employees world-wide, which
approximates $1.5 million, and facility consolidations of approximately $1.5
million as the Company has closed its Beaverton, Oregon facility. The remaining
$0.7 million relates to a write-down of the remaining assets at the Beaverton
location.

8.  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 $3.0 million, of which $84,000 was amortized in 1999.
The remainder of these costs were fully amortized in 2000 due to the fact that
certain termination relationships had been discontinued.

9.  Accrued Expenses

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

<TABLE>
<CAPTION>
                                            December 31,
                                        ---------------------
                                           2001       2000
                                        ---------- ----------
                  <S>                   <C>        <C>
                  Compensation......... $2,251,882 $4,626,494
                  Restructuring reserve  1,246,545         --
                  Other................  2,452,736  1,970,937
                                        ---------- ----------
                                        $5,951,163 $6,597,431
                                        ========== ==========
</TABLE>


                                     F-12

<PAGE>

                          ITXC CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

10.  Income Taxes

   Due to operating losses, the Company has no income tax liability for 2001,
2000 or 1999.

   Significant components of the Company's deferred tax assets and liabilities
at December 31, 2001 and 2000 are as follows:

<TABLE>
<CAPTION>
                                                         December 31,
                                                  --------------------------
                                                      2001          2000
                                                  ------------  ------------
   <S>                                            <C>           <C>
   Deferred tax assets:
   Net operating loss carryforward............... $ 64,274,828  $ 45,704,961
   Allowance for doubtful accounts...............    1,564,818       849,600
   Amortization of non-cash employee compensation    4,416,993     2,081,855
   Loss on disposition of joint venture..........    2,960,000     8,970,160
   Fixed assets..................................      151,833            --
   Other.........................................    1,996,576       946,842
                                                  ------------  ------------
                                                    75,365,048    58,553,418
   Less valuation allowance......................  (75,365,048)  (43,364,564)
                                                  ------------  ------------
   Deferred tax asset............................            0    15,188,854
   Deferred tax liabilities:
   Fixed and intangible assets...................            0   (15,188,854)
                                                  ------------  ------------
   Net deferred tax asset........................ $          0  $         --
                                                  ============  ============
</TABLE>

   At December 31, 2001, approximately $17.3 million of the deferred tax asset
related to net operating loss ("NOL") carryforwards generated by the exercise
of non-qualified stock options and an equivalent amount of deferred tax asset
valuation allowance represented tax benefits associated with the exercise of
non-qualified stock options. Such benefits, when realized, are credited to
additional paid-in capital.

   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,
                                   ------------------------------------------------------------
                                           2001                 2000                1999
                                   -------------------  -------------------  ------------------
<S>                                <C>           <C>    <C>           <C>    <C>          <C>
Statutory federal income tax
  (benefit) at 34%................ $(59,990,234)  34.0% $(24,127,847)  34.0% $(6,389,893)  34.0%
State income tax (benefit), net of
  federal benefit................. $ (4,759,594)   2.7    (3,556,828)   5.0   (1,116,352)   5.9
Nondeductible expenses............   33,019,204  (18.7)    1,783,366   (2.5)      21,269   (0.1)
Other.............................      229,961   (0.1)      153,075   (0.2)      74,077   (0.4)
Increase in valuation allowance...   31,500,663  (17.9)   25,748,234  (36.3)   7,410,899  (39.4)
                                   ------------  -----  ------------  -----  -----------  -----
Total............................. $         --     --  $         --     --  $        --     --
                                   ============  =====  ============  =====  ===========  =====
</TABLE>

   At December 31, 2001, the Company has a federal and state NOL carryforward
of approximately $161.6 million. The federal NOL carryforwards expire from 2012
to 2021. The state NOL carryforwards expire from 2004 to 2008. 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. 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.

                                     F-13

<PAGE>

                          ITXC CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The Company's existing deferred tax assets at December 31, 2001 and 2000
have been reduced by a valuation allowance of $75,365,048 and $43,364,564,
respectively, due to the uncertainty regarding the realization of such deferred
tax assets.

11.  Debt

   The Company has a revolving credit agreement with a bank, which provides for
maximum borrowings of $10.0 million, which may be used either under a revolving
line of credit or an equipment line. At December 31, 2001, $1.2 million was
outstanding and $2.3 million was applied towards letters of credit. The
agreement expires on June 30, 2002.

   The revolving line bears interest at the greater of (i) the bank's prime
rate or (ii) the federal funds rate plus 0.5%. The equipment line bears
interest at the greater of (i) the bank's prime rate or (ii) the federal funds
rate plus 0.5%. The rate in effect at December 31, 2001 under the equipment
line was 4.75%, representing the bank's prime rate. Interest payments are due
and payable on a monthly basis. Principal payments are due and payable on the
expiration date at which time the Company is permitted to convert the
outstanding amount under the equipment line to a term loan due three years from
the final draw down. In addition, the Company is required to maintain
compliance with certain financial covenants. At December 31, 2001 and 2000, the
Company was in compliance with those covenants.

12.  Commitments and Contingencies

   The Company entered into a new office lease which commenced August 1, 2001,
and has a term of ten years. The agreement provides for minimum monthly base
rental payments of approximately $174,000 for lease years one through five and
payments of $189,000 for lease years six through ten. Under the terms of the
new lease, the landlord assumed all commitments of the Company's previous
lease. The lease contains two five-year renewal options at the then applicable
fair market rental rate. The Company has the right to extend the lease term.
The Company has recorded deferred rent totaling approximately $210,000 as of
December 31, 2001 in order to reflect rent expense on a straight-line basis
over the lease term. In addition, the lease requires the Company to pay
electricity plus increases in real estate taxes and other operating costs of
the properties above base year amounts. The Company has also entered into
capital lease agreements for furniture and equipment.

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

<TABLE>
<CAPTION>
                                                    Operating   Capital
                                                   ----------- ----------
       <S>                                         <C>         <C>
       2002....................................... $ 3,436,519 $3,767,758
       2003.......................................   2,862,114  1,928,899
       2004.......................................   2,769,422    196,806
       2005.......................................   2,734,666         --
       2006 and thereafter........................  12,554,494         --
                                                   ----------- ----------
                                                                5,893,463
       Less amounts representing interest.........                625,806
       Present value of net minimum lease payments             $5,267,657
                                                               ----------
</TABLE>

   Minimum lease payments have not been reduced by minimum operating sublease
rentals of $2,567,000 due in the future under noncancelable subleases which
primarily commenced in 2002 (see Note 19).

   Rental expense for all operating leases was approximately $2,308,000,
$1,340,000, and $530,000 in 2001, 2000 and 1999, respectively.

                                     F-14

<PAGE>

                          ITXC CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  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.

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

   The Company and certain of its officers/directors have been named as
defendants in several purported shareholder class action lawsuits. The lawsuits
allege, among other things, that, in connection with the Company's public
offerings of securities, its Prospectus did not disclose certain alleged
practices involving its underwriters and their customers. These actions seek
compensatory and other damages, and costs and expenses associated with the
litigation. These actions are in the early stages and the Company has not yet
determined if there is any potential material impact on its Consolidated
Financial Statements. ITXC is one of hundreds of companies named in
substantially identical lawsuits. Management believes that ITXC and its
officers/directors did not engage in any improper or illegal conduct and
intends to defend these actions vigorously.

   The Company has been served with a complaint filed in Virginia state court
on behalf of Hercules Communications Company, LLC in which the plaintiff
demands damages, including punitive damages, based on the Company's alleged
refusal to carry out a purported agreement to purchase certain assets from
Hercules. The claims were primarily based on alleged breach of contract, breach
of implied contract, breach of an oral contract, promissory estoppel and fraud.
The Court dismissed plaintiff's claim for promissory estoppel and fraud, but
did allow the plaintiff to refile its fraud complaint. Discovery is now
underway. A trial date has been set for September of 2002. The Company does not
believe the case to be meritorious and intends to vigorously defend its conduct.

   The Company is not a party to any other legal proceeding, the adverse
outcome of which is expected to have a material adverse effect on the business,
financial condition, operating results or future prospects.

13.  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 May 3, 2000, the Company's stockholders approved an
increase in the authorized Common Stock to 400,000,000 shares.

   On October 12, 2000 the Company issued 5,340,000 shares of Common Stock in
connection with the purchase of eFusion, Inc. (see Note 6).


                                     F-15

<PAGE>

                          ITXC CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  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
Company's Series A Convertible Preferred Stock and a previously issued 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.

  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.

  Common Shares Reserved

   As of December 31, 2001, the Company had reserved shares of Common Stock for
issuance as follows:

<TABLE>
<CAPTION>
                  Number of Shares
                  ----------------
                  <S>                               <C>
                  Exercise of common stock options. 8,935,284
                  Exercise of common stock warrants   879,766
                  Employee stock purchase plan..... 1,081,674
</TABLE>

  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. During 2001 and 2000 the annual increase
in the number of shares covered by the Plan were 1,351,414 and 1,074,492,
respectively. 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.

                                     F-16

<PAGE>

                          ITXC CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   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 four
years and expire after ten years.

   On October 12, 2000, pursuant to the eFusion merger agreement the Company
exchanged 575,045 options to purchase the Company's common stock for existing
eFusion options outstanding at that time. These options were exchanged at the
same exchange ratio as that used for eFusion common stock and issued under the
same terms as the original eFusion options.

   During the second quarter of fiscal 2001, the Company approved the
cancellation and reissuance of outstanding options under the Company's stock
option plan. Under this program, all employees of the Company could elect to
exchange their then outstanding employee stock options for new employee stock
options at an excess of six months after the cancellation date.The exercise
price for the new options was equal to the then fair market value on the date
of issuance, with exercisability generally prohibited until June 7, 2002. A
total of 1,459,505 options with exercise prices ranging from $3.70 to $119.75
per share were exchanged under the program. In accordance with Financial
Statement Interpretation No. 44, there was no accounting consequence as a
result of this exchange program. The exchanges of such options are presented in
the succeeding table as cancellations and grants.The Company's stock option
activity is as follows:

<TABLE>
<CAPTION>
                                               2001                  2000                  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  6,325,095   $ 11.12   5,338,924   $ 1.83   2,641,250   $ 0.21
Options granted in connection with
  acquisition.........................         --        --     575,045      6.5          --       --
Options granted.......................  3,600,930      7.01   2,642,133    23.58   3,487,500     2.82
Options exercised.....................   (516,131)    (1.05) (1,676,722)    (0.7)   (613,743)   (0.44)
Options cancelled..................... (2,907,530)   (21.05)   (554,285)   (7.84)   (176,083)   (1.95)
                                       ----------   -------  ----------   ------   ---------   ------
Options outstanding, end of year......  6,502,364   $  5.22   6,325,095   $11.12   5,338,924   $ 1.83
                                       ==========   =======  ==========   ======   =========   ======
</TABLE>

   The weighted-average fair value of options granted in 2001, 2000 and 1999
was $5.84, $21.19, and 11.75, respectively. The fair value for these options
was estimated using the Black-Scholes model with the following weighted average
assumptions:

<TABLE>
<CAPTION>
                                               Stock Options
                                          Year ended December 31,
                                          ----------------------
                                             2001         2000
                                          ----         ----
                 <S>                      <C>          <C>
                 Expected life (in years)   4            4
                 Risk-free interest rate. 4.5%         6.0%
                 Volatility.............. 134%         121%
                 Dividend yield..........   0%           0%
</TABLE>


                                     F-17

<PAGE>

                          ITXC CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   The following table summarizes information about fixed price stock options
outstanding at December 31, 2001:

<TABLE>
<CAPTION>
                              Outstanding                Exercisable
                         --------------------- ------------------------------- ----------------
                                    Weighted-
                                     Average                        Number
                                    Remaining     Weighted-     Exercisable at    Weighted-
                         Number of Contractual Average Exercise  December 31,  Average Exercise
Range of Exercise Prices  Shares      Life          Price            2001           Price
------------------------ --------- ----------- ---------------- -------------- ----------------
<S>                      <C>       <C>         <C>              <C>            <C>
    $ 0.01--  $5.00      2,887,457  6.7 years       $ 1.72        2,218,855         $ 1.24
      5.01--  10.00      3,303,810  9.1 years         7.10          271,056           7.57
     10.01--  15.00        141,289  8.2 years        12.20           51,671          12.09
     15.01-- 107.78        169,808  8.2 years        22.09           50,162          23.03
     ------------        ---------  ---------       ------        ---------         ------
    $ 0.01--$107.78      6,502,364  8.0 years       $ 5.22        2,591,744         $ 2.54
    ==============       =========  =========       ======        =========         ======
</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. The Company's net loss and basic and diluted
net loss per share for 2001 and 2000 would have increased on a pro forma basis
to $181.3 million and $81.6 million, respectively, and $3.99 and $2.08,
respectively.

   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. Additionally, the 575,045 options that the Company
issued in exchange for the eFusion options outstanding at the time of the
eFusion merger generated aggregate non-cash compensation of approximately
$733,000. All non-cash compensation is being amortized to expense over the
option vesting periods, generally three years. The remaining unamortized
balance as of December 31, 2001 is expected to be fully amortized by June 30,
2002.

14.  Stock Purchase Plan

   During 1999, the Company's Board of Directors adopted the ITXC Corp Employee
Stock Purchase Plan (the "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 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. An additional
450,471 and 358,164 shares were reserved respectively in 2001 and 2000 under
the provisions of the plan. 163,496 and 63,915 shares were purchased under the
plan in 2001 and 2000, respectively.

15.  Geographic Data

   During 2001, 2000 and 1999, the Company generated approximately 28%, 13% and
7%, respectively, of its revenue from customers domiciled in countries other
than the United States, primarily in the United Kingdom and Asia. During 2001,
the United Kingdom accounted for approximately 19.0% of total revenue.


                                     F-18

<PAGE>

                          ITXC CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

16.  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.

   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.

17.  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:

<TABLE>
<CAPTION>
                                                                               December 31, 1999
                                                                    --------------------------------------
                                                                                     Denominator
                                                                     Numerator    (Weighted Average  Per
                                                                     (Net Loss)        Shares)      Share
                                                                    ------------  ----------------- ------
<S>                                                                 <C>           <C>               <C>
Basic and diluted net loss per common share........................ $(20,437,530)    15,885,883     $(1.29)
Accretion of redemption value of mandatorily redeemable convertible
  preferred stock..................................................      772,795             --         --
Assumed conversion of shares of mandatorily redeemable convertible
  preferred stock into shares of common stock at issuance..........           --     12,639,736         --
                                                                    ------------     ----------     ------
Pro forma basic and diluted net loss per common share.............. $(19,664,735)    28,525,619     $ (.69)
                                                                    ============     ==========     ======
</TABLE>

18.  Employee Benefit Plan

   The Company maintains a defined contribution plan that is qualified under
Section 401(k) of the Internal Revenue Code, which covers all eligible
employees. Eligible employees can contribute up to 15% of their compensation
not to exceed Internal Revenue Code limits. The Plan provides for matching
contributions to eligible participants in an amount equal to 40% of their
contribution, up to 6% of compensation. Company contributions for the years
ended December 31, 2001 and 2000 were approximately $342,000 and $175,000,
respectively. No Company contributions were made for the year ended December
31, 1999.

                                     F-19

<PAGE>

                          ITXC CORP AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


19.  Subsequent Event

   On January 15, 2002, the Company entered into an agreement to sublease a
portion of its current office space for approximately $610,000 per year. The
noncancelable sublease has a term January 2002 through January 2006. During the
first quarter of 2002, the Company will record an impairment charge of
approximately $900,000 associated with this sublease.

                                     F-20

<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 2002 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 2002 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 2002 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 2002 annual meeting of shareholders
that is responsive to the information required with respect to this Item.

                                    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 31 of this Annual
Report):

<TABLE>
<CAPTION>
                                                                                           Page
                                                                                           ----
<S>                                                                                        <C>
Report of Independent Auditors............................................................ F-1

Consolidated Balance Sheets as of December 31, 2001 and 2000.............................. F-2

Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999 F-3

Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001,
  2000 and 1999........................................................................... F-4

Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999 F-5

Notes to Consolidated Financial Statements................................................ F-6
</TABLE>

   (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:

                                      32

<PAGE>

<TABLE>
<CAPTION>
Exhibit
  No.                                            Description
-------                                          -----------
<C>     <S>

   2.1  Amended and Restated Agreement and Plan of Merger, dated as of July 25, 2000, among the
          registrant, a wholly-owned subsidiary of the Registrant and eFusion, Inc. (1)

   3.1  Third Restated Certificate of Incorporation, as amended (2)

   3.2  By-laws, as amended (3)

   4.1  Form of certificate representing shares of common stock (4)

  10.1  Second Amended and Restated Employment Agreement between the Registrant and Tom Evslin (5)

  10.3  1998 Stock Incentive Plan, as amended (6)

  10.5  Employee Stock Purchase Plan (7)

  10.6  Joint Venture and Quotaholders Agreement, dated as of July 19, 1998, by and between TeleNova
          Comunicacoes Ltda. and ITXC Corp. (6)

  10.7  First Amendment to Joint Venture and Quotaholders' Agreement, dated August 18, 1998, by and
          between TeleNova Comunicacoes Ltda. and ITXC Corp. (6)

  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. (6)

  10.9  Lease Agreement, dated February 2, 1998 by and between the Registrant and Peregrine Investment
          Partners--I (6)

 10.10  First Amendment to Lease dated April 16, 1999, by and between the Registrant and Peregrine
          Investment Partners--I (6)

 10.11  Employment Agreement between the Registrant and Thomas Shoemaker (5)

 10.12  Second Amendment to Lease, dated December 6, 1999, by and between the Registrant and Peregrine
          Investment Partners--I (5)

 10.13  Amended and Restated Loan Agreement, dated February 7, 2000, between the Registrant and PNC
          Bank (5)

 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 (5)

 10.15  Lease Agreement, dated as of June 30, 2000, between the registrant and PNC Associates LP (8)

 10.16  Amended and Restated Loan Agreement, dated July 1, 2001, between ITXC and PNC Bank (9)

 10.17  Amended and Restated Employment Agreement between the Company and Tom Evslin (10)

 10.18  Amendment to Employment Agreement between the Company and Tom Evslin (11)

 10.19  Sublease Agreement, dated January 15, 2002, between ITXC and Deloitte & Touche USA LLP

 10.20  Purchase and Sale Agreement, dated October 20, 2001, between ITXC and eStara, Inc.

  21.1  Subsidiaries of the Registrant (5)

  23.1  Consent of Ernst & Young LLP

  24.1  Powers of Attorney

  99.1  Risk Factors
</TABLE>
--------
(1) Incorporated by reference to Exhibit 2.1 of the registrant's Registration
    Statement on Form S-4 (No. 333-44248).
(2) Incorporated by reference to Exhibit 4.1 of the registrant's Registration
    Statement on Form S-8 (No. 333-47902).

                                      33

<PAGE>

(3)  Incorporated by reference to Exhibit 3.2 of the registrant's Annual Report
     on Form 10-K for they year ended December 31, 1999.

(4)  Incorporated by reference to Exhibit 4.2 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 Registration Statement on Form S-1 (No. 333-96343).

(6)  Incorporated by reference to the similarly numbered Exhibit of the
     registrant's Registration Statement on Form S-1 (No. 333-80411).

(7)  Incorporated by reference to the similarly numbered Exhibit of the
     registrant's Form 10-Q for the quarter ended September 30, 1999.

(8)  Incorporated by reference to Exhibit 10.14 of the registrant's
     Registration Statement on Form S-4 (No. 333-44248).

(9)  Incorporated by reference to Exhibit 10.1 of the registrant's Form 10-Q
     for the quarter ended June 30, 2001.

(10) Incorporated by reference to Exhibit 10.2 of the registrant's Form 10-Q
     for the quarter ended June 30, 2001.

(11) Incorporated by reference to Exhibit 10.1 of the registrant's Form 8-K
     filed on November 1, 2001.

   (b)  Financial Statement Schedules: Not applicable.

   (c)  During the quarter ended December 31, 2001, the Company filed one
Current Report on Form 8-K. That Report, filed on November 1, 2001, described
the amended employment agreement between the registrant and its chairman and
CEO in response to Item 5 of that Form.

                                      34

<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, 2002.

                                                   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, 2002.

            Name                          Title
            ----                          -----

     /s/  TOM I. EVSLIN*      Chairman, President and Chief
-----------------------------   Executive Officer
        Tom I. Evslin

    /s/  EDWARD B. JORDAN     Chief Financial and
-----------------------------   Accounting Officer and
      Edward B. Jordan          Director

  /s/  WILLIAM P. COLLATOS*   Director
-----------------------------
    William P. Collatos*

      /s/  FRANK GILL*        Director
-----------------------------
         Frank Gill*

  /s/  FREDERICK R. WILSON*   Director
-----------------------------
    Frederick R. Wilson*

*By:       /s/  EDWARD B. JORDAN
   ----------------------------------
             Attorney-in-Fact

                                      35

<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<C>   <S>

  2.1 Amended and Restated Agreement and Plan of Merger, dated as of July 25, 2000, among the
        registrant, a wholly-owned subsidiary of the Registrant and eFusion, Inc. (1)

  3.1 Third Restated Certificate of Incorporation, as amended (2)

  3.2 By-laws, as amended (3)

  4.1 Form of certificate representing shares of common stock (4)

 10.1 Second Amended and Restated Employment Agreement between the Registrant and Tom Evslin (5)

 10.3 1998 Stock Incentive Plan, as amended (6)

 10.5 Employee Stock Purchase Plan (7)

 10.6 Joint Venture and Quotaholders Agreement, dated as of July 19, 1998, by and between TeleNova
        Comunicacoes Ltda. and ITXC Corp. (6)

 10.7 First Amendment to Joint Venture and Quotaholders' Agreement, dated August 18, 1998, by and
        between TeleNova Comunicacoes Ltda. and ITXC Corp. (6)

 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. (6)

 10.9 Lease Agreement, dated February 2, 1998 by and between the Registrant and Peregrine Investment
        Partners--I (6)

10.10 First Amendment to Lease dated April 16, 1999, by and between the Registrant and Peregrine
        Investment Partners--I (6)

10.11 Employment Agreement between the Registrant and Thomas Shoemaker (5)

10.12 Second Amendment to Lease, dated December 6, 1999, by and between the Registrant and Peregrine
        Investment Partners--I (5)

10.13 Amended and Restated Loan Agreement, dated February 7, 2000, between the Registrant and PNC
        Bank (5)

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 (5)

10.15 Lease Agreement, dated as of June 30, 2000, between the registrant and PNC Associates LP (8)

10.16 Amended and Restated Loan Agreement, dated July 1, 2001 between ITXC and PNC Bank (9)

10.17 Amended and Restated Employment Agreement between the Company and Tom Evslin (10)

10.18 Amendment to Employment Agreement between the Company and Tom Evslin (11)

10.19 Sublease Agreement dated January 15, 2002, between ITXC and Deloitte & Touche USA LLP

10.20 Purchase and Sale Agreement, dated October 10, 2001, between ITXC and Estara, Inc.

 21.1 Subsidiaries of the Registrant (5)

 23.1 Consent of Ernst & Young LLP

 24.1 Powers of Attorney

 99.1 Risk Factors
</TABLE>

<PAGE>

--------
(1) Incorporated by reference to Exhibit 2.1 of the registrant's Registration
    Statement on Form S-4 (No. 333-44248).
(2) Incorporated by reference to Exhibit 4.1 of the registrant's Registration
    Statement on Form S-8 (No. 333-47902).
(3) Incorporated by reference to Exhibit 3.2 of the registrant's Annual Report
    on Form 10-K for they year ended December 31, 1999.
(4) Incorporated by reference to Exhibit 4.2 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 Registration Statement on Form S-1 (No. 333-96343).
(6) Incorporated by reference to the similarly numbered Exhibit of the
    registrant's Registration Statement on Form S-1 (No. 333-80411).
(7) Incorporated by reference to the similarly numbered Exhibit of the
    registrant's Form 10-Q for the quarter ended September 30, 1999.
(8) Incorporated by reference to Exhibit 10.14 of the registrant's Registration
    Statement on Form S-4 (No. 333-44248).
(9) Incorporated by reference to Exhibit 10.1 of the registrant's Form 10-Q for
    the quarter ended June 30, 2001.
(10) Incorporated by reference to Exhibit 10.2 of the registrant's Form 10-Q
     for the quarter ended June 30, 2001.
(11) Incorporated by reference to Exhibit 10.1 of the registrant's Form 8-K
     filed on November 1, 2001.