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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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|x | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ------------------------------------------------------------------------------------



for the fiscal year ended December 31, 2003.



| ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------



for the transition period from              to
            .



Commission File Number 0-26739



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ITXC CORP.

(Exact name of registrant as specified in its charter)



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



750 College Road
East, Princeton, New Jersey 08540

(609) 750-3333

(Address and telephone number, including area code, of

registrants principal executive
office)



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



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



Title of each class



Common Stock, par value $.001 per share



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



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



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



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



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



Documents incorporated by reference: Definitive proxy statement for the registrants 2004 annual meeting of
shareholders (Part III).



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ITXC CORP.



TABLE OF CONTENTS



|           |  |                                                                                       |  |     
|---------- |  | ------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                       |  | Page
|PART I     |  |                                                                                       |  |     
|Item 1.    |  | Business of the Company                                                               |  | 1   
|           |  |                                                                                      
|Item 2.    |  | Properties                                                                            |  | 14  
|           |  |                                                                                      
|Item 3.    |  | Legal Proceedings                                                                     |  | 14  
|           |  |                                                                                      
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 15  
|           |  |                                                                                      
|Item 4A.   |  | Executive Officers of the Registrant                                                  |  | 15  
|           |  |                                                                                      
|PART II    |  |                                                                                       |  |     
|Item 5.    |  | Market for the Registrants Common Equity and Related Stockholder Matters             |  | 16  
|           |  |                                                                                      
|Item 6.    |  | Selected Financial Data                                                               |  | 18  
|           |  |                                                                                      
|Item 7.    |  | Managements Discussion and Analysis of Results of Operations and Financial Condition |  | 19  
|           |  |                                                                                      
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 30  
|           |  |                                                                                      
|Item 8.    |  | Financial Statements and Supplementary Data                                           |  | 30  
|           |  |                                                                                      
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 31  
|           |  |                                                                                      
|Item 9A.   |  | Controls and Procedures                                                               |  | 31  
|           |  |                                                                                      
|PART III   |  |                                                                                       |  |     
|Item 10.   |  | Directors and Executive Officers 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  
|           |  |                                                                                      
|Item 14.   |  | Principal Accounting Fees and Services                                                |  | 31  
|           |  |                                                                                      
|PART IV    |  |                                                                                       |  |     
|Item 15.   |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  | 32  
|           | 
|Signatures |  | 35                                                                                   



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PART I



Item 1.Business of the Company



Introduction



ITXC Corp. was incorporated in
Delaware in 1997. On October 1, 1999, we made 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 an equity position in eStara. In May 2002, ITXC purchased the wholesale telephony assets of privately-held Nexcom Telecommunications, LLC. The assets include telephony equipment and operating facilities in 11 countries including Lithuania,
Croatia, Bulgaria, and Slovakia. The purchase price paid was $9 million in cash and 533,701 shares of ITXC Common Stock.



On November 4, 2003, Teleglobe International Holdings Ltd (Teleglobe) and ITXC announced that they had signed a definitive merger agreement
for the acquisition of the Company by Teleglobe. Upon consummation of the merger, the outstanding shares of the Companys common stock will be converted into approximately 28% of the capital stock of a newly formed parent company of Teleglobe,
Teleglobe Bermuda Holdings Ltd (New Teleglobe). All outstanding options and warrants of ITXC will be converted into options and warrants of the New Teleglobe. The merger is subject to several conditions, including receipt of governmental
approvals, the meeting of certain financial tests by both companies, registration of the New Teleglobe shares with the Securities and Exchange Commission, and approval of the Companys stockholders. Teleglobe is a privately held Bermuda company
and is one of the worlds leading wholesale providers of voice, data, IP and mobile roaming services. Early termination of the Hart-Scott-Rodino review period has been received and New Teleglobe has filed a registration statement on Form S-4
with the SEC which is available on the SEC website. The Company expects that the SEC will review and provide comments on the filing and changes may be made in the filing as a result of this process. It is impossible for the Company to determine with
certainty or to control the length of the review process. We will not be in a position to mail the proxy statement to our stockholders until after the SEC has completed its review. We expect that the mailing will occur in April or early May. It will
then take 30 days before we can conduct a stockholders meeting seeking approval of the transaction.



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, SNARC, VoIPLink 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 could, expects, anticipates, objective, plans, may affect,
may depend, believes, estimates, projects 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.



Our web site address is www.itxc.com. We make available, free of charge, on our web site, our annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.



Overview



We are a leading global provider of high quality wholesale voice and facsimile (or fax) call termination. We primarily use
the Internet for transport of these calls. ITXC estimates that it now ranks in the top 15 carriers in the world based on minutes of



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international calling, and carries approximately 15% of all such calls transported via Voice over IP. 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
permit ITXC to effectively compete for the substantial opportunities that arise from the reach and economics of the Internet.



We have developed and deployed ITXC.net, an actively-managed network that works in conjunction with 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.



To date, we have concentrated our efforts on rapidly deploying ITXC.net worldwide. We have established ITXC-owned facilities in the United States,
England, Germany and Hong Kong 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 December 31, 2003, ITXC offers
termination to 232 countries and territories. 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 and expandable network, at substantially lower capital expense than traditional carrier networks.



In April 1998, we introduced ITXCs call completion service, then called 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:



|                   |  |                      
|------------------ |  | ---------------------
|Quarter ended      |  | Minutes (in millions)
|March 31, 2001     |  | 358                  
|June 30, 2001      |  | 406                  
|September 30, 2001 |  | 566                  
|December 31, 2001  |  | 606                  
|March 31, 2002     |  | 658                  
|June 30, 2002      |  | 778                  
|September 30, 2002 |  | 838                  
|December 31, 2002  |  | 847                  
|March 31, 2003     |  | 884                  
|June 30, 2003      |  | 999                  
|September 30, 2003 |  | 949                  
|December 31, 2003  |  | 1,251                



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, while having the SNARC managed
directly by ITXC. 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 October 2000,
we consummated our acquisition of eFusion, Inc., an Oregon-based provider of Internet voice services to online businesses and Internet service providers. 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, which has subsequently been diluted. We also granted certain patent licenses to eStara for use in the e-commerce business. We initially valued this investment at $700,000. During the fourth quarter of
2002, we determined that there was an other-than temporary impairment in the value of the eStara investment, which resulted in a $700,000 charge. See Note 7 of the Notes to our Consolidated Financial Statements that we have presented elsewhere in
this Annual Report.



More recently, as other service providers
have increasingly moved towards voice services based on the transmission of packets using the Internet protocol (known as VoIP), we have begun providing additional call completion services aimed at these customers. We have introduced
VoIPLink Services, aimed at providing standardized solutions to make VOIP internetworking practical for both customers who own their own gateways and rely on us for call control and for customers who have their own soft switches and gateways that
provide their own call control. We have also introduced the VoIPLink Ready program in which participating vendors provide standardized solutions preconfigured to work with VoIPLink Services.



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Industry Overview



Convergence of Global Telecommunications and Data Services



The international telecommunications services industry is composed of numerous international carriers whose networks link countries to each other through
satellites and terrestrial and undersea cables to transmit digital or analog information in various forms including voice, data, and video for a variety of products or services. Historically, the international satellite networks linking carriers
were established through international organizations such as the International Telecommunications Satellite Organization. International undersea cables were traditionally jointly owned and operated by a consortia of international carriers, each of
which had an ownership interest to the theoretical mid-point of the cable and usually had operating agreements with the other countries served by the cable. These transmission systems have faced increased competition from private companies that have
launched satellite systems and constructed fiber optic undersea cable systems that have resulted in a substantial increase in available transmission capacity, or bandwidth.



The international telecommunications industry is experiencing significant change, driven by many factors, including:



| |  | the increasing globalization of the worlds economies and the resulting increased need for international communications;
| | - | ------------------------------------------------------------------------------------------------------------------------



| |  | the trend toward deregulation of telecommunications service providers;
| | - | ----------------------------------------------------------------------



| |  | declining prices arising from increased competition generated by deregulation and excess network capacity;
| | - | ----------------------------------------------------------------------------------------------------------



| |  | increased telephone density in both traditional wireline and wireless telephones, particularly in the developing world;
| | - | -----------------------------------------------------------------------------------------------------------------------



| |  | expanded use of electronic forms of communications, such as e-mail and the Internet;
| | - | ------------------------------------------------------------------------------------



| |  | technological improvements that reduce the costs and size and increase the performance of all elements of telecommunications equipment; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| |  | emerging transmission technologies, including VoIP.
| | - | ---------------------------------------------------



As a result of these developments, the international telecommunications competitive landscape has changed dramatically. Throughout the late 1990s,
the number of companies deploying and managing international fiber optic networks for the provision of voice and data transport services increased dramatically, fueled by expectations for substantial increases in demand as well as investor optimism.
The resulting oversupply coupled with competition among suppliers has resulted in transport and capacity prices plummeting. Meanwhile, increased volume has not been sufficient to offset the impact of decreasing prices. For example, with respect to
international voice transport services, industry sources have indicated that between 1999 and year-end 2003 (estimated), international call prices have decreased by about 17% per year, while call volume has increased approximately 12%. Retail
revenues from international voice traffic declined from a peak of $72 billion in 2000 to $53 billion in 2002. The decline in prices for data transport and capacity services has been significantly more dramatic. According to industry sources, long
haul circuit prices in both the U.S. and Europe, as well as for routes across the Atlantic and Pacific oceans, have declined by 80% to 90% over the last three years. At the same time, growth in demand for Internet bandwidth has slowed considerably.
As an example, based on a survey of 20 European cities, Internet backbone utilization growth rates declined from 272% in 2000, to 159% in 2001, and then to 31% in 2002. In addition, there is considerable dark fiber, which is installed
fiber capacity which could be activated quickly by adding electronics without the need for incurring any expense in laying new cable or acquiring rights of way.



While the markets for voice and data transport and capacity services continues to be characterized by fierce price competition, the rate of price
declines has begun to show signs of abatement. For example, an industry survey of retail pricing indicated that prices for the international voice transport and capacity market fell by approximately 17% between 2000 and 2001, by 20% between 2001 and
2002, and by only 5% between 2002 and 2003. According to industry sources, the rate of decline for both terrestrial and sub-sea transport and capacity also appears to be stabilizing, although at historically low price levels.



The impact of these dramatic declines in pricing has caused many industry
participants to fail to achieve their business plans and ultimately file for bankruptcy. While it is possible that some of our business competitors will cease operations or lose business in the future due to economic conditions and other
difficulties that have affected companies throughout the telecommunications industry, it is likely that other competitors may gain competitive advantages by successfully completing their restructurings through bankruptcy reorganizations or
consolidations.



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 service providers are increasingly determining that the most cost effective and efficient way to build out and operate their communications infrastructure is with voice services supported across their data network.
This is reflected in the growth of both acceptance and deployments of IP PBX (private branch exchange) and VoIP over VPN (virtual private network) within enterprise networks.



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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).



The Emergence of Voice on IP Networks



Voice over IP is used for transmitting both traditional
and enhanced voice and fax services between ordinary phones and the addition of interactive voice capability to computers, web sites and email. VoIP serves the extensive markets of both phone users and computer users. We believe IP 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, since 2000 Internet capacity has 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 IP network 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 over IP networks including the Internet. A gateway is a device that transfers calls from the traditional telephone network to
an IP 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 building or leasing dedicated point-to-point capacity, instead paying for large
pipes into the public Internet, usually billed by bandwidth rather than usage and/or distance. 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 by 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.



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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 slower to embrace Internet technology, although, some traditional carriers are initiating VoIP activities.



We believe that the infrastructure required for a global network is too expensive for most carriers 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. Cisco appears to have emerged as a dominant supplier
of such gateways. Other manufacturers often seek to make their equipment interoperable with Cisco.



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 to reach many locations 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
operating 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. 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. We are also able to redeploy PoPs if they are no longer cost effective in their initial location.



Interoperability.In February 2004, ITXC announced the
general availability of ITXC VoIPLink Service. ITXC VoIPLink makes VoIP internetworking more practical for carriers by increasing speed of deployment, lowering the technical burden of establishing and maintaining VoIP-to-VoIP network
interconnections and offering a significantly expanded range of interoperability between otherwise incompatible VoIP gateways, softswitches, and customer-premise equipment. For some time prior to the announcement, ITXC had been accommodating
customers and suppliers with a non-scaleable version of VoIP-to-VoIP internetworking. In the beginning, each VoIP-to-VoIP relationship required time-consuming case-specific implementation and interoperability was limited to the limited number of
networks using H.323 signaling and equipment and software from a small group of VoIP vendors. Building from this early approach, ITXC developed VoIPLink for scaleable, carrier-class VoIP internetworking to networks based on either H.323 or SIP
signaling and on infrastructure from many different vendors. As of February 29, 2004, approximately one third of ITXCs traffic was either originated or terminated with over 160 VoIPLink-enabled carriers or service providers in over 60
countries. These carriers use VoIP infrastructure from over ten different vendors, a list that continues to grow. In addition, also in February 2004, ITXC launched the VoIPLink ReadyTMprogram, a cooperative marketing program with vendors of hardware and software VoIP infrastructure to define, test, and jointly promote VoIPLink-interoperable
configurations.



Global Scale. Our network is overlaid
on the public Internet to provide a global call termination service 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. Moreover, we have
a business model of purchasing terminating minutes directly from affiliates and selling call completion to customers and affiliates. This model eliminates the need for complex settlement between carriers which had previously slowed the deployment of
a global network.



Easy Access. We offer our customers
four ways to connect to ITXC.net:



| |  | For traditional time division multiplex (TDM) circuits, through traditional dedicated switch-to-switch connections at ITXC SuperPoPs in New Jersey, California, England, Germany or
Hong Kong.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | For TDM networks, through ITXC SNARCs, which 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.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | For VOIP networks with customer owned gateways which require call control from ITXC, we provide VoIPLink Service direct from the gateways through session controllers.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | For VoIP networks providing their own call control from either soft switches or gatekeepers we provide VoIPLink Service through session controllers on an interdomain basis.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our Strategy



Our strategy is to merge with Teleglobe as described above. Details of the
combined companies strategy will be provided in the definitive proxy statement to be distributed to stockholders in connection with the merger. The remainder of this section on strategy addresses the Companys standalone strategy in the
event that the merger should not be completed.



Our goals are
to achieve profitability and 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



ITXC.net offers termination to 232 countries and territories and is the
largest network of its kind in depth and breadth of coverage. 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. The deregulation and competitive environment have resulted in major reductions in international rates. For example, following
deregulation, rates to and from India declined by more than 50%. It is our intention to continue to take advantage of our experience in additional markets which are deregulating, such as Brazil and Turkey.



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 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. In addition, we believe that we gained economic and technological advantages by moving towards a switchless network. In the past switches were necessary at our major hubs, where we connected to
traditional carriers through analog lines. We believe our new architecture helps reduce both capital and operating costs.



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.



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. Through year-end 2003 we had over two billion cumulative minutes of use of ITXC.net from our SNARC program. Similarly our
new VoIPLink Service serves customers who either originate traffic in packetized VoIP format, or convert it to that format in



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their own network. We have introduced both VoIPLink Service for customers who either rely on ITXC for call control or
provide their own call control, and this service has shown rapid early growth. ITXC VoIPLink Service has several benefits, including the elimination of the costs of converting TDM calls to VoIP format, substantially increased network efficiency
because of the ability to dynamically allocate traffic through session controllers, reducing dedicated capital investment per minute carried, and more rapid deployment. We are also able to use these same benefits in sending traffic to terminating
carriers who are capable of receiving VoIP calls. In the future, both the SNARC program and VoIPLink will be able to connect our customers customers directly via the Internet. We believe that both SNARCs and VoIPLink services 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. Through
enhancements to ITXC.net, we can position ourselves to provide the network for wide commercial deployment of new voice and fax services as market conditions warrant. 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, although the decline in Internet and telecommunications
companies subsequent to 2001 has probably delayed the development of this market.



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.



We have implemented ITXC.net by using the public Internet to connect ITXC-owned network hubs in the U.S., England, Hong Kong and Germany 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 as well as serving calls originated on IP devices on customer premises. 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, some of which own their
own gateways and all of which 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 December 31,
2003, we had affiliates offering termination to 232 countries and territories. Our affiliates range from small Internet service providers to traditional telephone companies.



Multiple Access Points and Network Hubs



As of January 31, 2004, we had five switchless network hubs, one in New Jersey, one in California, one in London, one in
Germany and one in Hong Kong, each consisting of multiple gateways. Our TDM customers and suppliers can access ITXC.net through dedicated connections from their switches to these network hubs. They can also access ITXC.net 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 (backhaul) associated with connecting customer switches to our network hubs.
ITXC has converted to a switchless architecture, under which we were able to eliminate switches previously located at the network hubs. All of the functionality formerly contained in the switches is provided by other equipment. We anticipate that
this will result in lower future depreciation expense as well as reduced operating expense and increased reliability resulting from network simplification. For the increasing number of customers and suppliers with VoIP network infrastructure of
their own, our new VoIPLink Service uses session controllers to interface directly with customers who either originate or terminate calls in VoIP format. VoIPLink customers and ITXC share multiple benefits, including the elimination of the cost of
conversion of VoIP to TDM format; more efficient use of the network; more rapid deployment; and elimination of backhaul.



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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 received patents in this area and have other patent applications on file or in
preparation. We believe that our Best Value Routing 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 and to automatically generate improved routing.



Our monitoring and analysis software helps our staff to manage a routing
scheme across multiple switches and gateways around the world. Our routing software establishes 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 automatic routing switches to a better quality or different priced provider as appropriate. 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 and low cost.



BestValue Routing delivers IP layer resiliency with automated IP rerouting via redundant IP connections engineered for the highest quality. It continuously monitors and manages the IP pathways for signs of congestion
or other impairments in order to proactively address issues before the voice application layer is impacted. IP traffic characteristics such as latency, jitter, and packet loss are tightly managed, and traffic is distributed or rerouted across an
alternate backbone ISP if voice quality traffic is threatened.



At the voice application layer, each call connection is measured and managed to ensure that capacity, completion rates, call durations, post dial delays, voice/fax quality, and availability each meet or exceed tier 1 carrier-grade
expectations.



BestValue Routing uses current and historical
performance data to generate near real-time predictive and corrective network adjustments. Voice routes that are at risk of impairments are rerouted or supplemented at the voice services and/or underlying IP network level.



Many threats to voice quality are not within ITXC.net and its managed
Internet backbone but are call completion constraints with terminating carriers - typically temporary loss of code coverage or low call completion rate problems.



On such occasions, BestValue Routing will automatically either rebalance traffic using another on-net carrier or, when
necessary, complete the call via an off-net PSTN (Public switched telephone network) carrier.



BestValue Routing assures that the best value combination of quality, reliability, and costs is dynamically managed by routing traffic to an
ever-adapting, optimized blend of on-net and off-net termination carriers, regardless of how carriers are interconnected.



BestValue Routing has been refined over years of carrying billions of minutes of real traffic among hundreds of carriers worldwide.



Our Strategic Carrier and Technology Partners



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. In February 2003, we announced our selection of Ciscos AS5000 Universal Gateway and PGW 2200 Softswitch Voice Over IP (VoIP)
offerings, along with Ciscos Voice Infrastructure and Applications Solution (Cisco VIA) and were recognized by Cisco as a Cisco Powered Network. ITXC is also working with a number of other VoIP infrastructure hardware and software vendors to
make ITXC VoIPLink Service very simply and rapidly available. ITXC has introduced the VoIPLink Ready program of working with these vendors to define, test, and promote



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configurations of these vendors products to provide mutual customers with information that enables seamless
integration into ITXC VoIPLink Service. This program strengthens ITXCs relationship with both vendors and customers. Cisco Systems, Mera Networks, Nextone Communications and Quintum are already among suppliers of VoIPLink Ready products.



Our Services



ITXC Call Completion Service



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



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



We believe that our affiliates benefit from ITXC call completion service
because they:



| |  | rapidly obtain a flow of international traffic without incurring significant sales or marketing costs;
| | - | ------------------------------------------------------------------------------------------------------



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



| |  | connect directly to other affiliates while having a single billing relationship with us;
| | - | ----------------------------------------------------------------------------------------



| |  | have a global reach without incurring the incremental costs of building and operating multiple facilities;
| | - | ----------------------------------------------------------------------------------------------------------



| |  | are able to support calls originated or terminated as VoIP on their customers premises; and
| | - | --------------------------------------------------------------------------------------------



| |  | are able to directly interconnect at the VoIP level for the exchange of traffic.
| | - | --------------------------------------------------------------------------------



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 reduced 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.



VoIPLink Service



In early 2004, ITXC VoIPLink Service became available. A rapidly growing number of carriers with voice over IP networks are
already using an early release of VoIPLink to reach ITXC.net which provides cost effective, high quality connectivity to every traditional and IP phone in the world. In its VoIPLink Ready program, ITXC is working with participating equipment and
software vendors like Cisco Systems to establish and maintain interoperable configurations with ITXC.net so that carriers and service providers using this equipment and software can quickly and reliably use ITXC VoIPLink Service for international
call exchange. VoIPLink Service gives carriers access to ITXC.net.



ITXC.net is the largest international VoIP-based network in the world and one of the largest international networks of any kind based on minutes of traffic carried. ITXC VoIPLink Service provides VoIP-based carriers capital and operating
cost savings for their international calls while also dramatically reducing the time required to add capacity and new destinations. VoIPLink Service also represents a fast and cost-effective way for suppliers to receive traffic from any traditional
or VoIP origination source on ITXC.net.



Replacing the
difficult, custom-engineered VoIP connections of the past, ITXC VoIPLink makes VoIP internetworking practical for carriers by increasing speed of deployment, lowering the technical burden of establishing and maintaining VoIP-to-VoIP network
interconnections and offering a significantly expanded range of interoperability between otherwise incompatible VoIP gateways, softswitches, and customer-premise equipment.



Approximately 160 carriers are already directly connected to ITXC through VoIPLink.



VoIPLink has been in development with increasing amounts of production
traffic for several months; many custom-engineered ITXC connections were rolled into it. ITXC continues to work collaboratively with vendors as they roll out new products. Crucial to ITXCs carrier customers and suppliers is that VoIPLink
provides a clean and safe demarcation between VoIP networks.



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VoIPLink Ready Program



The VoIPLink Ready program includes a commitment from both ITXC and VoIP infrastructure vendors to develop and maintain pre-engineered configurations
for off-the-shelf interoperability with ITXC.net. Replacing the difficult custom-engineered VoIP connections of the past, ITXC VoIPLink service makes VoIP internetworking practical by significantly improving the range of operability, establishing
carrier-class demarcation between networks, and increasing speed of deployment. Today, VoIPLink supports interfaces to VoIP networks using ten different SIP and/or H.323 VoIP infrastructure vendors and numerous equipment, software and network
configurations.



VoIPLink Ready vendors gain the following
benefits:



| |  | increased customer success rates from out-of-the-box VoIP interoperability with one of the largest international networks in the world;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



| |  | higher expected return on investment for their customers by enabling them to quickly extend VoIP benefits from their internal network to their international service;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | extended brand promotion; and
| | - | -----------------------------



| |  | valuable insight into diverse market needs from a market leader in VoIP.
| | - | ------------------------------------------------------------------------



Future Enhanced Voice Services



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, although the decline in Internet and telecommunications companies subsequent to 2001 probably delayed the development of
this market. If and when market conditions warrant, we intend to make investments to develop and market additional services for use over ITXC.net. We believe that as a result of the convergence of the data and communications networks and the
capabilities and size of ITXC.net, we will be able to offer next-generation, enhanced voice services to both new and existing customers 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.



Sales, Marketing and Distribution



Our sales and marketing goals are to:



| |  | expand the use of ITXC call completion 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 services to mobile providers;
| | - | ----------------------------------------



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



| |  | emphasize higher margin, rather than simply increasing revenue.
| | - | ---------------------------------------------------------------



We are now well known in the telecommunications industry, and use industry relationships and a variety of marketing activities to attract affiliates to
ITXC.net. We often meet potential affiliates at Internet and telephony trade shows and seminars and through trade contacts. We also often meet potential customers through directed sales calls by our sales personnel.



We have a dedicated sales force selling 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 worldwide, 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



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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.



Our product management organization is charged with understanding the market
and developing new service concepts and managing them through implementation; then assuring progress towards profitability. They work closely with our development team, which is also 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.



The telecommunications industry has experienced a
great deal of instability during the past several years. During the 1990s, forecasts of very high levels of future demand brought a significant number of new entrants and new capital investments into the industry. New global carriers were joined by
many of the largest traditional carriers and built large global or regional networks to compete with the global wholesalers. However, in the last three years many of the new global carriers and many industry participants have either gone through
bankruptcy or no longer exist. The networks were built primarily to meet the expected explosion in bandwidth demand from data, with specific emphasis upon Internet applications. Those forecasts have not materialized, telecommunications capacity now
far exceeds actual demand, and the resulting marketplace is characterized by fierce price competition as traditional and next generation carriers compete to secure market share. Resulting lower prices have eroded margins and have kept many carriers
from attaining positive cash flow from operations.



Our voice
business competes primarily on the basis of price, service reliability, customer service and support, and transmission quality.



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 MCI, 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 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 include cable television companies and new service providers such as Vonage. While these companies may potentially migrate into the wholesale Internet
telephony market as direct competitors, they are at present focused on retail services and are actual or potential customers.



Telecommunications Companies and Long Distance Providers



A large number of telecommunications companies, including AT&T, Deutsche Telekom, MCI, Sprint and British Telecom, 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.



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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. On March 12, 2004, the FCC issued a Notice of Proposed Rulemaking, generally addressing issues relating to IP-enabled services, which are services and applications relying on the Internet protocol family,
including VOIP. A decision in this proceeding may well determine the regulatory status of VOIP.



Specifically, the FCC has expressed an intention to further examine the question of whether certain forms of phone-to-phone VOIP services 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 VOIP services bear many of the
same characteristics as more traditional voice telecommunications services and lack the characteristics that would render them information services. The FCC has indicated that the mechanisms for contributing to the Universal Service Fund, issues as
to applicability of access charges and other matters will be considered in that context. The FCC had previously opened a proceeding in response to a petition by AT&T which seeks a declaration to preclude local exchange carriers from imposing
access charges on certain AT&T phone-to-phone IP services asserted to be provided over the Internet.



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. A decision
to impose such charges could also have retroactive effect, which could materially adversely affect the Company. 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



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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 that time, even phone-to-phone Internet telephony did not meet all elements of its voice telephony
definition. Therefore, the European Commission concluded that, at that 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.



Several of ITXCs subsidiaries are holders of licenses in various jurisdictions and are subject to regulation by the appropriate governmental authorities. ITXC typically provides by contract that its affiliates
are responsible for securing any necessary regulatory approvals, but it cannot be certain that regulatory authorities will not attribute certain activities to ITXC. In addition, ITXC believes that the placement of SNARCs in locations outside the
United States does not typically require regulatory approval, but there is a risk that a regulatory authority may disagree with this proposition, which could materially adversely affect ITXCs business.



ITXC is also providing service in countries where regulation of Internet
telephony is far more restrictive than in the European Union.



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. Legislation has also been proposed that would clarify the regulatory status
of VoIP service. The Company has no way of knowing whether legislation will pass or what form it might take.



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.



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Proprietary Rights



Proprietary rights are important to our success and our competitive position. As of January 31, 2004, we had 12 issued United States patents and a number
of foreign patents, (most of which were coordinates of the issued United States patents) and had applied for a number of additional patents. As of January 31, 2004, we had a number of registered trademarks and pending applications to register
trademarks in the U.S., and had various parallel registrations or pending applications for trademarks in other parts of the world. We also have developed software and systems protected by a combination of patent, copyright and trade secrets. 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 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, 2004, we employed
228 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. In January 2002 we subleased 21,795 square feet of the Princeton space. We have network hubs in New Jersey, California,
Germany, Hong Kong and England, under co-location arrangements. We have sales offices in Australia, Brazil, Chile, England, Germany, Hong Kong, India, Japan, Russia, Singapore and South Africa. 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 the Company in the United States District Court for the Eastern District of Pennsylvania. Connectel
alleges in its complaint that the Company is infringing on the claims of a patent owned by Connectel by, acting alone or with others, assembling, offering to sell, selling or using communications networks or switching systems within the United
States and for export worldwide without license from Connectel. Connectel also seeks unspecified damages. Discovery has closed and ITXC moved for summary judgment in October 2002. Thereafter, in December 2002, the case was reassigned to a newly
appointed United States District judge, Hon. James Knoll Gardner. Oral argument on the motion for summary judgment and on certain other pretrial issues was held in February 2004. The Company believes that the Connectel claims are without merit.



The Company and certain of its officers/directors were named
as defendants in several purported shareholder class action lawsuits. The lawsuits allege, among other things, that, in connection with the Companys public offerings of securities, its Prospectus did not disclose certain alleged practices
involving its underwriters and their customers. These actions seek compensatory and other damages, and costs and expenses associated with the litigation. No discovery has taken place. ITXC is



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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. All of these cases have been consolidated for pretrial purposes before Judge Scheindlin in the Southern District of New York, who refused to dismiss the cases in an opinion issued
in February 2003. All of the individual defendants who had been named as defendants in the Companys case have now been dismissed from the proceeding without prejudice, pursuant to a stipulation with the plaintiffs. Neither the individual
defendants nor the Company nor its insurers paid any consideration for these dismissals. The parties have negotiated a settlement entirely funded by the directors and officers insurance carriers, and it is anticipated that this proposed settlement
will be submitted to the Court for approval in the near future. Under the terms of the proposed settlement, neither the Company nor individual defendants will have either future liability or expenses in connection with the litigation, except for a
limited obligation to cooperate in discovery in the plaintiffs continuing cases against the underwriters.



In September 2001, the Company was served with a complaint filed in Virginia state court on behalf of Hercules Communications Company, LLC in which the
plaintiff demanded damages, including punitive damages, based on the Companys alleged refusal to carry out a purported agreement to purchase certain assets from Hercules. In June 2002, the original plaintiff voluntarily dismissed the case, and
a new case was brought in the name of Hercules Satellite Communications, L.L.C. A trial commenced in August 2003. At the conclusion of the plaintiffs case, the trial court granted the Companys motion to strike the evidence and dismiss
the case in its entirety. Judgment was entered for the defendants. Plaintiff filed a notice of appeal. The Company had also commenced an action in New Jersey against the principals of Hercules, alleging fraud, malicious prosecution and abuse of
process. The parties have now agreed to settle all of the claims of both sides, including the appeal by Hercules in the Virginia action. The Company will receive a cash payment of $95,000 in connection with the settlement.



Interactive Marketing Technologies, Inc., (IMT) is a
telecommunications service bureau headquartered in Erlanger, Kentucky, to which ITXC had discontinued service on February 20, 2003, and from which ITXC had demanded payment of a multimillion dollar past due balance, after the parties were
unsuccessful in efforts to restructure IMTs obligations to ITXC. IMT then sued ITXC seeking unspecified compensatory and punitive damages in the United States District Court for the Eastern District of Kentucky alleging breach of contract, bad
faith, tortuous[sic] interference with contract and negligent misrepresentation, among other claims. The Company thereafter commenced an arbitration action against IMT seeking to recover the amounts owed by IMT, and on July 8, 2003, the United
States District Court dismissed IMTs case in favor of the arbitration proceeding. IMT asserted its claims in the arbitration, and has now filed for bankruptcy protection. The Company believes IMTs claims are without merit. The
Companys claims against IMT will be pursued, if at all, in the bankruptcy proceeding, which has been converted into a Chapter 7 proceeding.



The Company has received a copy of a complaint filed as a class action suit in New Jersey Superior Court naming the Company and directors Tom Evslin,
Edward Jordan, Frank Gill and Fred Wilson as defendants. As of the date on which this Annual Report was initially filed with the SEC, ITXC had been served but not the individual defendants in the action. Two claims are asserted against the
individual defendants, one for breach of fiduciary duty and the other for breach of the duty of candor. Although the Company was identified as a defendant, no cause of action is asserted against the Company for damages. The action seeks to enjoin a
stockholder meeting to approve ITXCs proposed merger with Teleglobe until certain alleged deficiencies in the proxy statement have been cured and seeks to permanently enjoin the consummation of the merger. ITXC had previously announced that
New Teleglobe filed a registration statement on Form S-4 with the Securities and Exchange Commission in connection with the proposed merger. ITXC believes the complaint contains factual inaccuracies, is premature and is wholly without merit and
intends to vigorously defend the lawsuit.



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:



|                  |  |     |  |                                                             
|----------------- |  | --- |  | ------------------------------------------------------------
|Name              |  | Age |  | Position                                                    
|Tom I. Evslin     |  | 60  |  | Chairman of the Board, Chief Executive Officer and President
|Anthony Servidio  |  | 47  |  | Executive Vice President, Chief Financial Officer, Treasurer
|John Landau       |  | 51  |  | Executive Vice President, Product Management                
|Steven J. Ott     |  | 42  |  | Executive Vice President, Global Sales                      
|Eric G. Weiss     |  | 37  |  | Executive Vice President and Chief Operating Officer        
|Theodore M. Weitz |  | 57  |  | Vice President, General Counsel and Secretary               



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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.



Upon consummation of the pending merger with Teleglobe, Tom Evslin will become non-executive Chairman of the Board of Directors. Cerberus Capital
Management, L.P., Teleglobes current controlling shareholder, will continue to own a majority of Teleglobe. If the merger is consummated, Teleglobe has agreed to pay Mr. Evslin $125,000 per year as compensation for his duties to be performed
as chairman of the New Teleglobe board of directors. Teleglobe has also advised Mr. Evslin that there will be an equity component to his compensation although the specifics of that arrangement have not yet been determined.



Anthony Servidio has been our Chief Financial Officer since January 2004. He
was our Director of Finance from June 2000 until December 2000, when he was promoted to Vice President of Finance and Administration. From October 1996 to May 2000, he was Vice President of Finance and Administration for Call Sciences Inc., an
enhanced service provider servicing the telecommunications industry. Prior to that, Mr. Servidio spent 11 years with PricewaterhouseCoopers, where he was a member of the firms Telecommunications practice.



John Landau has been our Executive Vice President of Product Management since
June 2002 and is responsible for all existing ITXC services as well as the development design and rollout of new services. For nine years prior to joining us, John was employed by Dialogic Corporation. He served as Vice President of Marketing from
1993 to 1999 and then, after Dialogic was acquired by Intel in July 1999, he was Director of Strategic Marketing and later Director of Technology of Intels Communications Group. Prior to joining Dialogic, Mr. Landau was a co-founder of
Benchmarq Microelectronics in Dallas, Texas.



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



Eric G. Weiss was our Executive Vice President and had responsibility for the operation of ITXC.net from December 2000 to March 2003 when he was promoted to Chief Operating Officer. From May 1998 to December 2000, Mr.
Weiss served as Vice President and Business Unit Manager, WWeXchange Service. From May 1995 to October 1997, he was employed by Dialogic Corporation as a Product Line Manager. From September 1994 until May 1995, Mr. Weiss was a Manager with BCE
Ventures, Bell Canada Enterprises (BCE) Inc., a telecommunications firm. From 1991 until September 1994, he held various management positions with Hewlett Packard Company, a manufacturer of electronic equipment.



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 Networks, Inc., a privately held manufacturer of telecommunications equipment. Tachion filed for liquidation under Chapter 7 of the
Bankruptcy Act on December 18, 2002. Prior to May 2000, 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 the 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.



PART II



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



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



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|        |  |                              |      |     |   |     
|------- |  | ---------------------------- | ---- | --- | - | ----
|        |  | Year ended December 31, 2002
|Quarter |  | High                         |      | Low
|First   |  | $                            | 7.55 |     | $ | 4.76
|Second  |  | $                            | 6.60 |     | $ | 4.10
|Third   |  | $                            | 5.70 |     | $ | 2.03
|Fourth  |  | $                            | 3.29 |     | $ | 1.80



|        |  |                              |      |     |   |     
|------- |  | ---------------------------- | ---- | --- | - | ----
|        |  | Year ended December 31, 2003
|Quarter |  | High                         |      | Low
|First   |  | $                            | 2.95 |     | $ | 1.38
|Second  |  | $                            | 2.75 |     | $ | 1.21
|Third   |  | $                            | 4.86 |     | $ | 2.65
|Fourth  |  | $                            | 4.50 |     | $ | 3.00



The market price for
our stock is 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.



On April 10, 2003, the Board of
Directors of the Company adopted a Stockholder Protection Rights Plan and declared a dividend of one Right on each outstanding share of ITXC common stock. Initially the Rights will be evidenced by common stock certificates, will automatically trade
with the Companys common stock, and will not be currently exercisable. The Rights become exercisable when and if an entity (other than Teleglobe) acquires 15% or more of ITXCs common stock and will entitle each stockholder, other than
the acquiring entity, to purchase a number of shares of common stock with a market value of $14 for a payment of $7 at that time. The Board, at its option, may require that each Right be exchanged for one share of common stock. This exchange feature
would not apply to rights held by an entity (other than Teleglobe) which has acquired 15% of the common stock. The Rights may be redeemed by the Board of Directors for $0.001 per Right at any time before they become exercisable.



As of January 8, 2004, the Company had approximately 150 stockholders of
record, and approximately 13,100 beneficial stockholders.



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Item 6.Selected Financial Data



The following selected financial data for the period from January 1, 1999 through December 31, 2003 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.



|                                                                                                                                                                          |  |              |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | ---- |  | - | -------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                                                                                                                          |  | December 31, |        
|                                                                                                                                                                          |  | 2003         |         |   | 2002 |   |         | 2001 |  |   | 2000     |   |  | 1999 |        
|Operating Data (in thousands except per share data)                                                                                                                       |  |              |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Revenues:                                                                                                                                                                 |  |              |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Telecommunications revenue                                                                                                                                                |  | $            | 338,426 |   |      | $ | 268,382 |      |  | $ | 173,220  |   |  | $    | 84,783  |   |  | $ | 24,423  |  
|Consulting revenue                                                                                                                                                        |  |              |        |   |      |   |        |      |  |   |         |   |  |      |        |   |  |   | 988     |  
|                                                                                                                                                                          |  |              |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Total revenues                                                                                                                                                            |  | $            | 338,426 |   |      |   | 268,382 |      |  |   | 173,220  |   |  |      | 84,783  |   |  |   | 25,411  |  
|Cost and expenses:                                                                                                                                                        |  |              |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Data communications and telecommunications (exclusive of depreciation shown separately below)                                                                             |  |              | 307,967 |   |      |   | 234,316 |      |  |   | 150,077  |   |  |      | 74,859  |   |  |   | 23,095  |  
|Network operations (exclusive of depreciation shown separately below and exclusive of equity related charges included in non-cash employee
compensation)                  |  |              | 9,251   |   |      |   | 8,178   |      |  |   | 8,815    |   |  |      | 5,836   |   |  |   | 3,219   |  
|Selling, general and administrative (exclusive of depreciation shown separately below and exclusive of equity related charges included in
non-cash employee compensation) |  |              | 47,862  |   |      |   | 31,363  |      |  |   | 44,787   |   |  |      | 30,103  |   |  |   | 14,778  |  
|Depreciation                                                                                                                                                              |  |              | 20,914  |   |      |   | 25,220  |      |  |   | 19,815   |   |  |      | 11,091  |   |  |   | 2,472   |  
|Amortization and write-off of intangibles                                                                                                                                 |  |              | 2,510   |   |      |   | 352     |      |  |   | 127,471  |   |  |      | 9,632   |   |  |   | 84      |  
|Impairment of fixed assets                                                                                                                                                |  |              |        |   |      |   | 7,539   |      |  |   |         |   |  |      |        |   |  |   |        |  
|Restructuring charges                                                                                                                                                     |  |              | 625     |   |      |   | 1,774   |      |  |   | 3,713    |   |  |      |        |   |  |   |        |  
|Purchased in-process research and development                                                                                                                             |  |              |        |   |      |   |        |      |  |   |         |   |  |      | 14,805  |   |  |   |        |  
|Non-cash employee compensation                                                                                                                                            |  |              | 66      |   |      |   | 1,395   |      |  |   | 3,455    |   |  |      | 4,873   |   |  |   | 2,716   |  
|                                                                                                                                                                          |  |              |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Total cost and expenses                                                                                                                                                   |  |              | 389,195 |   |      |   | 310,137 |      |  |   | 358,133  |   |  |      | 151,199 |   |  |   | 46,364  |  
|                                                                                                                                                                          |  |              |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Loss from operations                                                                                                                                                      |  |              | (50,769 | ) |      |   | (41,755 | )    |  |   | (184,913 | ) |  |      | (66,416 | ) |  |   | (20,953 | )
|Loss associated with investments                                                                                                                                          |  |              | (500    | ) |      |   | (700    | )    |  |   | (250     | ) |  |      | (15,619 | ) |  |   |        |  
|Interest income, net                                                                                                                                                      |  |              | 834     |   |      |   | 2,577   |      |  |   | 8,721    |   |  |      | 11,071  |   |  |   | 1,289   |  
|                                                                                                                                                                          |  |              |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Loss before income taxes                                                                                                                                                  |  |              | (50,435 | ) |      |   | (39,878 | )    |  |   | (176,442 | ) |  |      | (70,964 | ) |  |   | (19,664 | )
|Income tax expense                                                                                                                                                        |  |              | 108     |   |      |   | 397     |      |  |   |         |   |  |      |        |   |  |   |        |  
|                                                                                                                                                                          |  |              |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Net loss                                                                                                                                                                  |  |              | (50,543 | ) |      |   | (40,275 | )    |  |   | (176,442 | ) |  |      | (70,964 | ) |  |   | (19,664 | )
|Accretion of redemption value of mandatorily redeemable converted preferred stock                                                                                         |  |              |        |   |      |   |        |      |  |   |         |   |  |      |        |   |  |   | (773    | )
|Net loss applicable to common stockholders                                                                                                                                |  | $            | (50,543 | ) |      | $ | (40,275 | )    |  | $ | (176,442 | ) |  | $    | (70,964 | ) |  | $ | (20,437 | )
|                                                                                                                                                                          |  |              |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Basic and diluted net loss per share applicable to common stockholders                                                                                                    |  | $            | (1.18   | ) |      | $ | (0.88   | )    |  | $ | (3.89    | ) |  | $    | (1.81   | ) |  | $ | (1.29   | )
|                                                                                                                                                                          |  |              |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Weighted average shares used in computation of basic and diluted net loss per share applicable to common stockholders                                                     |  |              | 43,009  |   |      |   | 45,590  |      |  |   | 45,392   |   |  |      | 39,292  |   |  |   | 15,886  |  
|                                                                                                                                                                          |  |              |         |   |     
|                                                                                                                                                                          |  | 2003         |         |   | 2002 |   |         | 2001 |  |   | 2000     |   |  | 1999 |        
|Balance Sheet Data:                                                                                                                                                       |  |              |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Cash, cash equivalents and marketable securities                                                                                                                          |  | $            | 46,472  |   |      | $ | 93,460  |      |  | $ | 147,555  |   |  | $    | 199,437 |   |  | $ | 74,396  |  
|Total assets                                                                                                                                                              |  |              | 135,539 |   |      |   | 172,570 |      |  |   | 215,381  |   |  |      | 385,677 |   |  |   | 99,862  |  
|Long-term obligations, including current portion                                                                                                                          |  |              | 1,799   |   |      |   | 2,299   |      |  |   | 6,464    |   |  |      | 10,082  |   |  |   | 5,493   |  
|Working capital                                                                                                                                                           |  |              | 49,491  |   |      |   | 88,952  |      |  |   | 138,818  |   |  |      | 191,360 |   |  |   | 65,810  |  
|Total stockholders equity (deficit)                                                                                                                                       |  |              | 84,833  |   |      |   | 134,982 |      |  |   | 180,603  |   |  |      | 352,284 |   |  |   | 80,366  |  



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



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



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



Actual results could differ
materially from those projected in the Companys forward-looking statements due to numerous known and unknown risks and uncertainties, including, among other things, (i) uncertainties relating to executing the merger, including, but not limited
to the risks of delay in consummation of the merger; the risk that either material adverse changes to either entity, or governmental action or litigation may prevent the merger from closing or render it less desirable than anticipated; and risks
relating to delays in closing the merger; uncertainties relating to the combined company after the proposed merger with Teleglobe, including but not limited to, unexpectedly high transaction costs; problems in the integration effort;
Teleglobes anticipated debt level and the inherent lack of flexibility resulting therefrom; inability to retain key employees, customers and suppliers through and after the merger process; inability to capture anticipated synergies; the
ability of Cerberus Capital Management, L.P., Teleglobes current controlling shareholder and majority owner of New Teleglobe after the merger, to exert control over the combined company; the existence of undisclosed or unanticipated contingent
liabilities; the risk stemming from the fact that New Teleglobe is not currently a publicly traded company; and the risk that Teleglobe may not be able to effectively execute its business plan and (ii) other risks relating to the Company independent
of the proposed merger, including the volatile and competitive environment for Internet telephony and telecommunications; changes in domestic and foreign economic, market and regulatory conditions; the inherent uncertainty of financial estimates and
projections; uncertainty inherent in litigation; unanticipated technological difficulties; the risk that the Company may not be able to access sufficient capital; the creditworthiness of and relationship with our customers; future transactions;
risks inherent in being subject to significant regulation; and other considerations described as Risk Factors in Exhibit 99.1 to this Annual Report on Form 10-K for the year ended December 31, 2003 and in other filings made by us with
the SEC. Such factors may also cause substantial volatility in the market price of our Common Stock. All such forward-looking statements are current only as of the date on which such statements were made. ITXC does not undertake any obligation to
publicly update any forward-looking statement to reflect events or circumstances after the date on which any such statement is made or to reflect the occurrence of unanticipated events.



Critical Accounting Policies and Estimates



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



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



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



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



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network. Increased competition from other providers of Internet telephony services and traditional telephony services
could materially adversely affect revenue in future periods. To date, the Company has derived a significant portion of its revenue from a small number of customers. The loss of a major customer could have a material adverse effect on the
Companys business, financial condition, operating results and future prospects.



Goodwill and Other Intangible Assets. On January 1, 2002, the Company adopted Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets. In assessing the
recoverability of its goodwill and other intangibles, the Company must make assumptions regarding estimated future cash flows. If such assumptions change in the future, the Company may be required to record impairment charges for these assets.
During the fourth quarter of 2003, the Company wrote off the remaining carrying value of an intangible asset related to an exclusive contract in Lithuania which was acquired in the Nexcom Telecommunications acquisition in May 2002. This write off
resulted in a $2.0 million charge.



Property and
Equipment. On January 1, 2002, the Company adopted Statement of Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. If indicators of impairment are present, the Company must
determine whether the sum of the estimated undiscounted cash flows attributable to the assets in question is less than its carrying amount. If less, the Company will be required to recognize an impairment loss based on the excess of the carrying
amount of the assets over their respective fair values. The Company has simplified its network to eliminate the need for circuit switches, to lower costs and improve quality and reliability for its customers, and to reduce further capital costs and
operating complexity. As a result, the Company recognized $7.5 million of impairment charges in 2002 related to this simplification.



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



Overview



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



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



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



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



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



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



| |  | increasing our voice traffic, from 2,746 minutes during April 1998 to approximately 1.3 billion minutes carried through our call completion service during the quarter ended December
31, 2003;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | refining our monitoring and analysis software in order to achieve BestValue Routing;
| | - | ------------------------------------------------------------------------------------



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



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



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



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



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



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



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



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



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



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



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



Competition from other providers of Internet telephony services and traditional telephony services, failure of customers to
meet payment obligations and regulatory developments could materially adversely affect revenue in future periods.



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



Our operating expenses have been primarily:



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



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



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



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



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



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



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



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



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



| |  | the pace of technological change in our industry; and
| | - | -----------------------------------------------------



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



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



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



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



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



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



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



Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of (SFAS No. 121) through December 31, 2001, and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144)
subsequent to 2001 requires recognition of impairment losses for long-lived assets whenever events or changes in circumstances result in impairment indicators being present and the carrying amount of an asset exceeds the sum of the expected future
cash flows associated with the asset.



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



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



On May 2, 2002 the Company purchased assets which comprised the wholesale
call completion business operated by privately-held Nexcom Telecommunications LLC (Nexcom) in 11 countries in Eastern Europe, for total consideration of $11.7 million, which consisted of $9.0 million in cash and 533,701 shares of the
Companys common stock. 275,459 of those shares and $1.5 million in cash were subject to an escrow agreement supporting Nexcoms indemnification obligations to the Company. All escrow shares and cash were distributed to Nexcom in May 2003.
Nexcom had previously provided termination services to the Company in most of the countries in which the assets are located.In connection with the transaction, the Company recorded goodwill of $7.9 million; and other intangibles of $2.9
million related to vendor agreements, customer lists and licenses, which will be amortized over periods ranging from 3 to 80 months. These values were determined using an independent third party



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valuation. Also included in the purchase were $0.8 million of property, plant and equipment. During the fourth quarter of
2003, the Company wrote off the remaining carrying value of an intangible asset related to an exclusive contract in Lithuania, which was acquired in the Nexcom Telecommunications acquisition. This write off resulted in a $2.0 million charge in the
fourth quarter. The acquisition was accounted for as a purchase in accordance with SFAS No. 141, Business Combinations, and accordingly, the net assets and results of operations have been included in the Consolidated Financial Statements from the
date of acquisition. The acquisition would not have had a material impact on the Companys results of operations, had the acquisition been completed at the beginning of the periods presented.



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



Since our inception in July 1997, we have experienced operating losses in each quarterly and annual period and negative cash
flows from operations in each quarter since we commenced offering services over ITXC.net in April 1998. As of December 31, 2003, we had an accumulated deficit of $365.7 million. The profit potential of our business is unproven, and our limited
operating history makes an evaluation of us and our prospects difficult. We may not achieve profitability or, if we achieve profitability, we might not sustain profitability.



Additional Metrics Tracked by Management



Our profitability for terminating calls over ITXC.net is a function of our ability to maximize our buy-sell margin, i.e. the difference
between what we pay on a per minute basis to receive termination service from our suppliers and what we are able to charge our customers. For 2003 and 2002, our buy-sell margin was $40.6 million and $41.7 million, respectively. Our
average buy-sell margin per minute in 2003 and 2002 was 8.29 cents and 8.6 cents, respectively. Total minutes for 2003 and 2002 were 4.1 billion and 3.1 billion, respectively. The sum of the cost component of the buy-sell margin, IP
connectivity costs, PSTN connectivity costs and collocation costs comprise the line item reported as Data Communications and Telecommunications Expense in our consolidated statements of operations.



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



Statistical Presentations



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



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



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



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



Revenue



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



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



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



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



Operating Expenses



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



Network Operations Expenses. Network operations expenses increased to $9.3 million during the year ended December 31,
2003 from $8.2 million during the year ended December 31, 2002 and from $8.8 million during the year ended December 31, 2001. Such expenses primarily reflected the cost of operating our 24-hours-a-day, 7 days-a-week network operations center, as
well as start-up costs associated with the New Jersey, California, England, Germany and Hong Kong hubs. In the first quarter of 2003 we announced a new network hub in Germany and in the fourth quarter of 2003 we announced a new network hub in Hong
Kong. In general, network operations expenses are not proportional to the volume of our traffic; regardless of our volume, we are required to pay the salaries and related costs associated with operating our network operations center in Princeton. We
closed our New York hub and consolidated its operations with our New Jersey hub in 2001. We anticipate that we will be able to continue to leverage network operations expenses over a larger revenue base in future periods. Such expectation represents
a forward-looking statement under the Private Securities Litigation Reform Act of 1995. Actual results could differ from such expectation as a result of a number of factors, including the extent to which we incur unanticipated expenses associated
with the expansion of our hubs and the growth of our network.



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



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



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



Depreciation



Depreciation expense decreased to $20.9 million in 2003 from $25.2 million in 2002 and increased from $19.8 million in 2001. The increase in depreciation
expense from 2001 to 2003 reflects the expansion of our network and hubs and the addition of new technologies deployed throughout our network. The decrease in depreciation expense from 2002 to 2003 was a result of the equipment we removed from our
network and wrote off during the fourth quarter of 2002. We expect depreciation expense to decrease in the future due to network simplifications and as we realize greater efficiencies from our installed capital expenditures. Such expectation
represents a forward-looking statement under the Private Securities Litigation Reform Act of 1995. Actual results could differ from such expectation as a result of a number of factors, including the extent to which we incur unanticipated expenses
associated with the expansion of our hubs and the growth of our network.



Amortization and Write-Off of Intangibles



In connection with our May 2, 2002 acquisition of the assets of Nexcom, we recorded $7.9 million of goodwill and $2.9 million of other intangibles. During 2003, upon reviewing the current and future value of an
exclusive relationship in Lithuania, we wrote off the full value of the intangible asset. This resulted in a $2.0 million charge in 2003. Approximately $400,000 of intangibles was amortized in 2002. In 2001, we amortized $13.7 million of intangibles
and we recognized $113.7 million of impairment charges related to the Companys October 2000 eFusion acquisition.



Impairment of Fixed Assets



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



Restructuring Charges



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



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



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Non-Cash Employee Compensation Expenses



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



Interest and Other Income



Our interest income, net principally represents income from cash and investments which, in turn, were derived from capital contributions made by our
investors. In addition to the capital invested near the inception of our business, we raised net proceeds of $9.9 million and $14.9 million from a group of investors in private transactions completed during April 1998 and February 1999,
respectively, we raised net proceeds of $78.4 million from our initial public offering completed in October 1999 and we raised net proceeds of $161.4 million from our follow-on public offering completed in March 2000. During the years ended December
31, 2003, 2002 and 2001, the interest on our marketable securities, including the interest earned on the proceeds from our initial and follow-on public offerings, exceeded the interest that we paid on our line of credit and capital leases by $0.8
million, $2.6 million and $8.7 million, respectively. The reduction in interest income, net, during 2003 and 2002 reflects a lowering of the rates that we earned on our cash and investments and the deployment of a portion of these assets into our
operating business.



Loss Associated with Investments and
Joint Venture



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



Tax Expense



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



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



Quarterly Financial Information



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



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|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------ | ------- | - | ------------- | - | ------- | -------------- |  | - | ------------- | - |  | - | --------- | -
|                                                                                                                                                                          |  | Three Months Ended                   |        
|                                                                                                                                                                          |  | March 31, 2003                       |         |   | June 30, 2003 |   |         | Sept. 30, 2003 |  |   | Dec. 31, 2003 |  
|                                                                                                                                                                          |  | (in thousands except per share data) |        
|Minutes of traffic over ITXC.net                                                                                                                                          |  |                                      | 884,000 |   |               |   | 999,000 |                |  |   | 949,000       |   |  |   | 1,251,000 |  
|Revenues:                                                                                                                                                                 |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|Telecommunications revenues                                                                                                                                               |  | $                                    | 81,708  |   |               | $ | 84,214  |                |  | $ | 74,609        |   |  | $ | 97,895    |  
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|Costs and expenses:                                                                                                                                                       |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|Data communications and telecommunications (exclusive of depreciation shown separately below)                                                                             |  |                                      | 72,620  |   |               |   | 77,000  |                |  |   | 68,647        |   |  |   | 89,701    |  
|Network operations (exclusive of depreciation shown separately below and exclusive of equity related charges included in non-cash employee
compensation)                  |  |                                      | 2,498   |   |               |   | 2,374   |                |  |   | 2,020         |   |  |   | 2,359     |  
|Selling, general and administrative (exclusive of depreciation shown separately below and exclusive of equity related charges included in
non-cash employee compensation) |  |                                      | 18,704  |   |               |   | 10,984  |                |  |   | 8,334         |   |  |   | 9,840     |  
|Depreciation                                                                                                                                                              |  |                                      | 5,636   |   |               |   | 5,372   |                |  |   | 5,174         |   |  |   | 4,732     |  
|Amortization and write-off of intangibles                                                                                                                                 |  |                                      | 121     |   |               |   | 121     |                |  |   | 121           |   |  |   | 2,146     |  
|Restructuring charges                                                                                                                                                     |  |                                      |        |   |               |   | 284     |                |  |   | 341           |   |  |   |          |  
|Non-cash employee compensation                                                                                                                                            |  |                                      |        |   |               |   |        |                |  |   |              |   |  |   | 66        |  
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|Total costs and expenses                                                                                                                                                  |  |                                      | 99,579  |   |               |   | 96,135  |                |  |   | 84,637        |   |  |   | 108,844   |  
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|Loss from operations                                                                                                                                                      |  |                                      | (17,871 | ) |               |   | (11,921 | )              |  |   | (10,028       | ) |  |   | (10,949   | )
|Loss associated with investments                                                                                                                                          |  |                                      |        |   |               |   |        |                |  |   |              |   |  |   | (500      | )
|Interest income, net                                                                                                                                                      |  |                                      | 354     |   |               |   | 249     |                |  |   | 104           |   |  |   | 127       |  
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|Loss before income tax                                                                                                                                                    |  |                                      | (17,517 | ) |               |   | (11,672 | )              |  |   | (9,924        | ) |  |   | (11,322   | )
|Income tax (benefit) expense                                                                                                                                              |  |                                      | 174     |   |               |   | 179     |                |  |   | (28           | ) |  |   | (216      | )
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|Net loss                                                                                                                                                                  |  | $                                    | (17,691 | ) |               | $ | (11,851 | )              |  | $ | (9,896        | ) |  | $ | (11,106   | )
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|Loss per share                                                                                                                                                            |  | $                                    | (0.41   | ) |               | $ | (0.28   | )              |  | $ | (0.23         | ) |  | $ | (0.26     | )
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|                                                                                                                                                                          |  |                                      |         |  
|                                                                                                                                                                          |  | March 31, 2002                       |         |   | June 30, 2002 |   |         | Sept. 30, 2002 |  |   | Dec. 31, 2002 |  
|                                                                                                                                                                          |  | (in thousands except per share data) |        
|Minutes of traffic over ITXC.net                                                                                                                                          |  |                                      | 658,000 |   |               |   | 778,000 |                |  |   | 838,000       |   |  |   | 847,000   |  
|Revenues:                                                                                                                                                                 |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|Telecommunications revenues                                                                                                                                               |  | $                                    | 57,712  |   |               | $ | 65,997  |                |  | $ | 70,137        |   |  | $ | 74,535    |  
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|Costs and expenses:                                                                                                                                                       |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|Data communications and telecommunications (exclusive of depreciation shown separately below)                                                                             |  |                                      | 48,604  |   |               |   | 56,308  |                |  |   | 62,495        |   |  |   | 66,908    |  
|Network operations (exclusive of depreciation shown separately below and exclusive of equity related charges included in non-cash employee
compensation)                  |  |                                      | 1,951   |   |               |   | 1,938   |                |  |   | 2,113         |   |  |   | 2,177     |  
|Selling, general and administrative (exclusive of depreciation shown separately below and exclusive of equity related charges included in
non-cash employee compensation) |  |                                      | 7,031   |   |               |   | 7,051   |                |  |   | 7,966         |   |  |   | 9,317     |  
|Depreciation                                                                                                                                                              |  |                                      | 5,723   |   |               |   | 6,197   |                |  |   | 6,552         |   |  |   | 6,749     |  
|Amortization and write-off of intangibles                                                                                                                                 |  |                                      | 6       |   |               |   | 96      |                |  |   | 128           |   |  |   | 121       |  
|Impairment of fixed assets                                                                                                                                                |  |                                      |        |   |               |   |        |                |  |   |              |   |  |   | 7,539     |  
|Restructuring charges                                                                                                                                                     |  |                                      | 1,079   |   |               |   | 151     |                |  |   | 134           |   |  |   | 409       |  
|Non-cash employee compensation                                                                                                                                            |  |                                      | 697     |   |               |   | 697     |                |  |   |              |   |  |   |          |  
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|Total costs and expenses                                                                                                                                                  |  |                                      | 65,091  |   |               |   | 72,438  |                |  |   | 79,388        |   |  |   | 93,220    |  
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|Loss from operations                                                                                                                                                      |  |                                      | (7,379  | ) |               |   | (6,441  | )              |  |   | (9,251        | ) |  |   | (18,685   | )
|Loss associated with investments                                                                                                                                          |  |                                      |        |   |               |   |        |                |  |   |              |   |  |   | (700      | )
|Interest income, net                                                                                                                                                      |  |                                      | 883     |   |               |   | 682     |                |  |   | 624           |   |  |   | 388       |  
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|Loss before income tax                                                                                                                                                    |  |                                      | (6,496  | ) |               |   | (5,759  | )              |  |   | (8,627        | ) |  |   | (18,997   | )
|Income tax expense                                                                                                                                                        |  |                                      |        |   |               |   |        |                |  |   | 150           |   |  |   | 247       |  
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|Net loss                                                                                                                                                                  |  | $                                    | (6,496  | ) |               | $ | (5,759  | )              |  | $ | (8,777        | ) |  | $ | (19,244   | )
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  
|Loss per share                                                                                                                                                            |  | $                                    | (0.14   | ) |               | $ | (0.12   | )              |  | $ | (0.19         | ) |  | $ | (0.44     | )
|                                                                                                                                                                          |  |                                      |         |   |               |   |         |                |  |   |               |   |  |   |           |  



Liquidity and Capital Resources



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



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



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



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



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



On October 23, 2002 the Company announced that its Board of Directors had
authorized a stock repurchase program for up to $10 million. As of December 31, 2002, the Company had used $9.8 million of this authorization to repurchase a total of 3,883,700 shares. Included in this total was the negotiated direct purchase of
3,783,000 shares from VocalTec Communications Inc. at $2.53 per share, pursuant to a purchase agreement. On March 31, 2003 the Board authorized an additional $5.0 million repurchase. Pursuant to the merger agreement with Teleglobe, the Company no
longer has any outstanding buyback authorization. The Company did not purchase any shares in 2003 under its prior buyback authorizations.



During the second quarter of 2002, the Company terminated a credit facility with a bank and paid the remaining $1.1 million of the equipment note payable.
In conjunction with the Companys letter of credit facility for its Princeton, New Jersey lease, the Company has $2.2 million of restricted cash. In addition, in November 2003, the Company issued a letter of credit to a vendor in the amount of
$4.0 million. This instrument was issued as a means of obtaining more beneficial payment terms from the vendor. In order to secure the facility, the Company was required to deposit $4.0 million in a restricted bank account and maintain such balance
as long as the facility remains in place.



The primary
sources of our short-term funding continue to be the capital that we have raised. Our capital requirements depend on numerous factors, including market acceptance of our services, the responses of our competitors, the resources allocated to ITXC.net
and the development of future applications of our technology, our success in marketing and selling our services, and other factors. We have experienced substantial increases in our capital expenditures since our inception, consistent with growth in
our operations and staffing. Our stockholders equity has decreased from $352.3 million at December 31, 2000 to $84.8 million at December 31, 2003. During the past three years, our cash and cash equivalents have decreased by $20.5 million. If
the Teleglobe merger is not consummated, we currently believe that our available cash and cash equivalents will be sufficient to meet our anticipated needs for working capital and capital expenditures for at least the next 12 months. This statement
represents a forward-looking statement under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from our expectations as a result of certain of the risk factors described in Exhibit 99.1 to this Annual
Report. If the Teleglobe merger is not consummated, we may need to raise additional funds in order to fund operations and/or more rapid expansion, to develop new or enhance existing services, to respond to competitive pressures or to acquire or
invest in complementary business, technologies or services. Additional funding may not be available on favorable terms or at all. Any such funding may be dilutive to existing stockholders (if in the form of equity) and may result in the imposition
of restraints on managements ability to operate the Companys business.



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



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



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



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



Recent Accounting Pronouncements



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



Effective July 1, 2001, the Company adopted SFAS No. 141 Business Combinations and effective January 1, 2002, the Company adopted SFAS No.
142, Goodwill and Other Intangible Assets. SFAS No.141 requires business combinations initiated after July 1, 2001 to be accounted for using the purchase method of accounting. It also specifies the types of intangible assets that are
required to be recognized and reported separate from goodwill. Under SFAS No. 142, goodwill and other intangible assets with indefinite lives are no longer amortized but are reviewed for impairment annually, or more frequently if impairment
indicators arise. The Company did not have any goodwill or indefinite life intangible assets at January 1, 2002; accordingly, adoption of SFAS No. 142 did not have an impact on the Company.



The following table reflects unaudited pro forma results of operations of the
Company for the year ended December 31, 2001, giving effect to SFAS No. 142 as if it were adopted on January 1, 2001:



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



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



In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin (ARB) No. 51. The Interpretation
introduces a new consolidation model, the variable interests model, based on potential variability in gains and losses of the entity being evaluated for consolidation. It provides guidance for determining whether an entity lacks sufficient equity or
the entitys equity holders lack adequate decision-making ability. These entities, variable interest entities (VIE), are evaluated for consolidation based on their variable interests. Variable interests are contractual, ownership or other
interests in an entity that expose their holders to the risks and rewards of the VIE. The Interpretations provisions are effective currently for variable interests in VIEs created after January 31, 2003, and for variable interests in
VIEs created before February 1, 2003, no later than the end of the first interim or annual reporting period ending after March 15, 2004. Management does not believe that the adoption of this standard will have a material impact on the
Companys financial statements.



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



Item 7A.Quantitative and Qualitative Disclosures About Market Risk



We had investments of approximately $30.4 million as of December 31, 2003, 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 15 of this Annual Report.



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##### Table of Contents

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, 2003 and 2002 and the related consolidated
statements of operations, stockholders equity and cash flows for each of the three years in the period ended December 31, 2003. 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, 2003 and 2002 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States.



As discussed in Note 2, in 2002, the Company changed its
method of accounting for goodwill and other intangible assets.



/S/ ERNST & YOUNG LLP



MetroPark, New Jersey

February 11, 2004



F-1



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##### Table of Contents

ITXC CORP. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                                                    |  |              |              |   |      |   |              |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------------ | - | ---- | - | ------------ | -
|                                                                                                                                                                                                    |  | December 31, |             
|                                                                                                                                                                                                    |  | 2003         |              |   | 2002 |  
|Assets                                                                                                                                                                                              |  |              |              |   |      |   |              |  
|Current assets:                                                                                                                                                                                     |  |              |              |   |      |   |              |  
|Cash and cash equivalents                                                                                                                                                                           |  | $            | 16,069,798   |   |      | $ | 33,027,369   |  
|Marketable securities                                                                                                                                                                               |  |              | 30,402,118   |   |      |   | 60,433,091   |  
|Accounts receivable, net of allowance of $2,580,000 in 2003 and $2,440,000 in 2002                                                                                                                  |  |              | 41,265,689   |   |      |   | 25,332,565   |  
|Prepaid expenses and other current assets                                                                                                                                                           |  |              | 5,403,759    |   |      |   | 5,360,291    |  
|Restricted cash                                                                                                                                                                                     |  |              | 6,294,344    |   |      |   | 2,215,073    |  
|                                                                                                                                                                                                    |  |              |              |   |      |   |              |  
|Total current assets                                                                                                                                                                                |  |              | 99,435,708   |   |      |   | 126,368,389  |  
|Property and equipment, net                                                                                                                                                                         |  |              | 27,750,964   |   |      |   | 34,727,391   |  
|Goodwill                                                                                                                                                                                            |  |              | 7,913,319    |   |      |   | 7,913,319    |  
|Other intangibles, net of amortization of $485,000 in 2003 and $352,000 in 2002                                                                                                                     |  |              | 179,157      |   |      |   | 2,689,569    |  
|Other assets                                                                                                                                                                                        |  |              | 259,453      |   |      |   | 871,449      |  
|                                                                                                                                                                                                    |  |              |              |   |      |   |              |  
|Total assets                                                                                                                                                                                        |  | $            | 135,538,601  |   |      | $ | 172,570,117  |  
|                                                                                                                                                                                                    |  |              |              |   |      |   |              |  
|Liabilities and stockholders equity                                                                                                                                                                |  |              |              |   |      |   |              |  
|Current liabilities:                                                                                                                                                                                |  |              |              |   |      |   |              |  
|Accounts payable                                                                                                                                                                                    |  | $            | 38,729,262   |   |      | $ | 26,889,716   |  
|Accrued expenses and other current liabilities                                                                                                                                                      |  |              | 9,408,763    |   |      |   | 7,774,516    |  
|Customer deposits                                                                                                                                                                                   |  |              | 768,426      |   |      |   | 624,567      |  
|Current portion of capital lease obligations                                                                                                                                                        |  |              | 1,038,323    |   |      |   | 2,127,729    |  
|                                                                                                                                                                                                    |  |              |              |   |      |   |              |  
|Total current liabilities                                                                                                                                                                           |  |              | 49,944,774   |   |      |   | 37,416,528   |  
|Capital lease obligations, less current portion                                                                                                                                                     |  |              | 761,129      |   |      |   | 171,503      |  
|Commitments and contingencies                                                                                                                                                                       |  |              |             |   |      |   |             |  
|Stockholders equity:                                                                                                                                                                               |  |              |              |   |      |   |              |  
|Preferred Stock, $.001 par value, authorized 15,000,000 shares; issued and outstanding none in 2003 and 2002                                                                                        |  |              |             |   |      |   |             |  
|Common Stock, $.001 par value, authorized 400,000,000 shares; issued, 47,203,333 shares in 2003 and 46,674,602 shares in 2002; outstanding,
43,319,633 shares in 2003 and 42,790,902 shares in 2002 |  |              | 47,205       |   |      |   | 46,675       |  
|Additional paid-in capital                                                                                                                                                                          |  |              | 460,462,616  |   |      |   | 459,832,135  |  
|Accumulated other comprehensive (loss) income                                                                                                                                                       |  |              | (119,811     | ) |      |   | 117,258      |  
|Accumulated deficit                                                                                                                                                                                 |  |              | (365,743,501 | ) |      |   | (315,200,171 | )
|Treasury stock                                                                                                                                                                                      |  |              | (9,813,811   | ) |      |   | (9,813,811   | )
|                                                                                                                                                                                                    |  |              |              |   |      |   |              |  
|Total stockholders equity                                                                                                                                                                          |  |              | 84,832,698   |   |      |   | 134,982,086  |  
|                                                                                                                                                                                                    |  |              |              |   |      |   |              |  
|Total liabilities and stockholders equity                                                                                                                                                          |  | $            | 135,538,601  |   |      | $ | 172,570,117  |  
|                                                                                                                                                                                                    |  |              |              |   |      |   |              |  



See accompanying notes.



F-2



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##### Table of Contents

ITXC CORP. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                                                                                                                                                                                                     |  |                         |             |   |      |   |             |      |  |   |              |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ----------- | - | ---- | - | ----------- | ---- |  | - | ------------ | -
|                                                                                                                                                                                                                                                     |  | Year ended December 31, |            
|                                                                                                                                                                                                                                                     |  | 2003                    |             |   | 2002 |   |             | 2001 | 
|Total revenues                                                                                                                                                                                                                                       |  | $                       | 338,426,439 |   |      | $ | 268,381,563 |      |  | $ | 173,220,406  |  
|                                                                                                                                                                                                                                                     |  |                         |             |   |      |   |             |      |  |   |              |  
|Costs and expenses:                                                                                                                                                                                                                                  |  |                         |             |   |      |   |             |      |  |   |              |  
|Data communications and telecommunications (exclusive of depreciation shown separately below)                                                                                                                                                        |  |                         | 307,967,299 |   |      |   | 234,316,147 |      |  |   | 150,077,067  |  
|Network operations (exclusive of depreciation shown separately below and exclusive of $192,526, and $466,704 of equity related charges
included in non-cash employee compensation in 2002 and 2001, respectively)                                    |  |                         | 9,251,165   |   |      |   | 8,178,036   |      |  |   | 8,814,720    |  
|Selling, general and administrative (exclusive of depreciation shown separately below and exclusive of $66,000, $1,202,196 and $2,988,497 of
equity related charges included in non-cash employee compensation in 2003, 2002 and 2001, respectively) |  |                         | 47,862,249  |   |      |   | 31,362,984  |      |  |   | 44,787,317   |  
|Depreciation                                                                                                                                                                                                                                         |  |                         | 20,914,363  |   |      |   | 25,220,322  |      |  |   | 19,814,876   |  
|Amortization and write-off of intangibles                                                                                                                                                                                                            |  |                         | 2,510,412   |   |      |   | 352,080     |      |  |   | 127,471,548  |  
|Impairment of fixed assets                                                                                                                                                                                                                           |  |                         |            |   |      |   | 7,538,697   |      |  |   |             |  
|Restructuring charges                                                                                                                                                                                                                                |  |                         | 624,639     |   |      |   | 1,773,657   |      |  |   | 3,712,747    |  
|Non-cash employee compensation                                                                                                                                                                                                                       |  |                         | 66,000      |   |      |   | 1,394,722   |      |  |   | 3,455,201    |  
|                                                                                                                                                                                                                                                     |  |                         |             |   |      |   |             |      |  |   |              |  
|Total costs and expenses                                                                                                                                                                                                                             |  |                         | 389,196,127 |   |      |   | 310,136,645 |      |  |   | 358,133,476  |  
|                                                                                                                                                                                                                                                     |  |                         |             |   |      |   |             |      |  |   |              |  
|Loss from operations                                                                                                                                                                                                                                 |  |                         | (50,769,688 | ) |      |   | (41,755,082 | )    |  |   | (184,913,070 | )
|Loss associated with investments                                                                                                                                                                                                                     |  |                         | (500,000    | ) |      |   | (700,000    | )    |  |   | (250,000     | )
|Interest and other income                                                                                                                                                                                                                            |  |                         | 1,079,260   |   |      |   | 3,104,716   |      |  |   | 9,685,037    |  
|Interest expense                                                                                                                                                                                                                                     |  |                         | (245,186    | ) |      |   | (528,115    | )    |  |   | (963,833     | )
|                                                                                                                                                                                                                                                     |  |                         |             |   |      |   |             |      |  |   |              |  
|Loss before income taxes                                                                                                                                                                                                                             |  |                         | (50,435,614 | ) |      |   | (39,878,481 | )    |  |   | (176,441,866 | )
|Income tax expense                                                                                                                                                                                                                                   |  |                         | 107,716     |   |      |   | 397,087     |      |  |   |             |  
|                                                                                                                                                                                                                                                     |  |                         |             |   |      |   |             |      |  |   |              |  
|Net loss                                                                                                                                                                                                                                             |  |                         | (50,543,330 | ) |      | $ | (40,275,568 | )    |  | $ | (176,441,866 | )
|                                                                                                                                                                                                                                                     |  |                         |             |   |      |   |             |      |  |   |              |  
|Basic and diluted net loss per share applicable to common stockholders                                                                                                                                                                               |  | $                       | (1.18       | ) |      | $ | (0.88       | )    |  | $ | (3.89        | )
|                                                                                                                                                                                                                                                     |  |                         |             |   |      |   |             |      |  |   |              |  
|Weighted average shares used in computation of basic and diluted net loss per share applicable to common stockholders                                                                                                                                |  |                         | 43,009,130  |   |      |   | 45,590,008  |      |  |   | 45,391,764   |  



See accompanying notes.



F-3



---

##### Table of Contents

ITXC CORP. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY



For the years ended December 31, 2001, 2002 and 2003



|                                                          |  |                    |   |  |                   |        |                           |   |             |                              |  |   |                                     |   |  |                    |          |   |               |   |              |       |  |   |            |   |  |   |              |  
|--------------------------------------------------------- |  | ------------------ | - |  | ----------------- | ------ | ------------------------- | - | ----------- | ---------------------------- |  | - | ----------------------------------- | - |  | ------------------ | -------- | - | ------------- | - | ------------ | ----- |  | - | ---------- | - |  | - | ------------ | -
|                                                          |  | CommonStock Shares |   |  | CommonStockAmount |        | AdditionalPaid-in Capital |   |             | DeferredEmployeeCompensation |  |   | AccumulatedOtherComprehensiveIncome |   |  | AccumulatedDeficit |          |   | TreasuryStock |   |              | Total | 
|Balance, December 31, 2000                                |  | 45,047,143         |   |  | $                 | 45,046 |                           | $ | 455,087,203 |                              |  | $ | (5,134,356                          | ) |  | $                  | 768,804  |   |               | $ | (98,482,737  | )     |  |   |           |   |  | $ | 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 loss 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                          | ) |  | $                  | 660,354  |   |               | $ | (274,924,603 | )     |  |   |           |   |  | $ | 180,603,081  |  
|Amortization of non-cash employee compensation            |  |                   |   |  |                   |       |                           |   |            |                              |  |   | 1,394,722                           |   |  |                    |         |   |               |   |             |       |  |   |           |   |  |   | 1,394,722    |  
|Issuance of common stock for exercise of options          |  | 191,359            |   |  |                   | 191    |                           |   | 329,808     |                              |  |   |                                    |   |  |                    |         |   |               |   |             |       |  |   |           |   |  |   | 330,000      |  
|Issuance of common stock for employee stock purchase plan |  | 223,440            |   |  |                   | 224    |                           |   | 735,444     |                              |  |   |                                    |   |  |                    |         |   |               |   |             |       |  |   |           |   |  |   | 735,667      |  
|Purchase of treasury stock                                |  | (3,883,700         | ) |  |                   |       |                           |   |            |                              |  |   |                                    |   |  |                    |         |   |               |   |             |       |  |   | (9,813,811 | ) |  |   | (9,813,811   | )
|Issurance of stock for Nexcom acquisition                 |  | 533,701            |   |  |                   | 534    |                           |   | 2,550,557   |                              |  |   |                                    |   |  |                    |         |   |               |   |             |       |  |   |           |   |  |   | 2,551,091    |  
|Unrealized loss on available for sale securities          |  |                   |   |  |                   |       |                           |   |            |                              |  |   |                                    |   |  |                    | (255,945 | ) |               |   |             |       |  |   |           |   |  |   | (255,945     | )
|Foreign exchange translation adjustment                   |  |                   |   |  |                   |       |                           |   |            |                              |  |   |                                    |   |  |                    | (287,151 | ) |               |   |             |       |  |   |           |   |  |   | (287,151     | )
|Net loss                                                  |  |                   |   |  |                   |       |                           |   |            |                              |  |   |                                    |   |  |                    |         |   |               |   | (40,275,568  | )     |  |   |           |   |  |   | (40,275,568  | )
|                                                          |  |                    |   |  |                   |        |                           |   |             |                              |  |   |                                     |   |  |                    |          |   |               |   |              |       |  |   |            |   |  |   |              |  
|Total comprehensive loss                                  |  |                   |   |  |                   |       |                           |   |            |                              |  |   |                                    |   |  |                    |         |   |               |   |             |       |  |   |           |   |  |   | (40,818,664  | )
|                                                          |  |                    |   |  |                   |        |                           |   |             |                              |  |   |                                     |   |  |                    |          |   |               |   |              |       |  |   |            |   |  |   |              |  
|Balance, December 31, 2002                                |  | 42,790,902         |   |  | $                 | 46,675 |                           | $ | 459,832,135 |                              |  | $ |                                    |   |  | $                  | 117,258  |   |               | $ | (315,200,171 | )     |  | $ | (9,813,811 | ) |  | $ | 134,982,086  |  
|                                                          |  |                    |   |  |                   |        |                           |   |             |                              |  |   |                                     |   |  |                    |          |   |               |   |              |       |  |   |            |   |  |   |              |  
|Amortization of non-cash employee compensation            |  |                   |   |  |                   |       |                           |   | 66,000      |                              |  |   |                                    |   |  |                    |         |   |               |   |             |       |  |   |           |   |  |   | 66,000       |  
|Issuance of common stock for exercise of options          |  | 368,463            |   |  |                   | 369    |                           |   | 196,697     |                              |  |   |                                    |   |  |                    |         |   |               |   |             |       |  |   |           |   |  |   | 197,066      |  
|Issuance of common stock for employee stock purchase plan |  | 160,268            |   |  |                   | 161    |                           |   | 367,784     |                              |  |   |                                    |   |  |                    |         |   |               |   |             |       |  |   |           |   |  |   | 367,945      |  
|Unrealized loss on available for sale securities          |  |                   |   |  |                   |       |                           |   |            |                              |  |   |                                    |   |  |                    | (228,722 | ) |               |   |             |       |  |   |           |   |  |   | (228,722     | )
|Foreign exchange translation adjustment                   |  |                   |   |  |                   |       |                           |   |            |                              |  |   |                                    |   |  |                    | (8,347   | ) |               |   |             |       |  |   |           |   |  |   | (8,347       | )
|                                                          |  |                    |   |  |                   |        |                           |   |             |                              |  |   |                                     |   |  |                    |          |   |               |   |              |       |  |   |            |   |  |   |              |  
|Net loss                                                  |  |                   |   |  |                   |       |                           |   |            |                              |  |   |                                    |   |  |                    |         |   |               |   | (50,543,330  | )     |  |   |           |   |  |   | (50,543,330  | )
|                                                          |  |                    |   |  |                   |        |                           |   |             |                              |  |   |                                     |   |  |                    |          |   |               |   |              |       |  |   |            |   |  |   |              |  
|Total comprehensive loss                                  |  |                   |   |  |                   |       |                           |   |            |                              |  |   |                                    |   |  |                    |         |   |               |   |             |       |  |   |           |   |  |   | (50,780,399  | )
|                                                          |  |                    |   |  |                   |        |                           |   |             |                              |  |   |                                     |   |  |                    |          |   |               |   |              |       |  |   |            |   |  |   |              |  
|Balance, December 31, 2003                                |  | 43,319,633         |   |  | $                 | 47,205 |                           | $ | 460,462,616 |                              |  | $ |                                    |   |  | $                  | (119,811 | ) |               | $ | (365,743,501 | )     |  | $ | (9,813,811 | ) |  | $ | 84,832,698   |  
|                                                          |  |                    |   |  |                   |        |                           |   |             |                              |  |   |                                     |   |  |                    |          |   |               |   |              |       |  |   |            |   |  |   |              |  



See accompanying notes.



F-4



---

##### Table of Contents

ITXC CORP. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                               |  |                         |             |   |      |   |              |      |  |   |              |  
|------------------------------------------------------------------------------ |  | ----------------------- | ----------- | - | ---- | - | ------------ | ---- |  | - | ------------ | -
|                                                                               |  | Year ended December 31, |            
|                                                                               |  | 2003                    |             |   | 2002 |   |              | 2001 | 
|Operating activities                                                           |  |                         |             |   |      |   |              |      |  |   |              |  
|Net loss                                                                       |  | $                       | (50,543,330 | ) |      | $ | (40,275,568  | )    |  | $ | (176,441,866 | )
|Adjustments to reconcile net loss to net cash used in operating activities:    |  |                         |             |   |      |   |              |      |  |   |              |  
|Depreciation                                                                   |  |                         | 20,914,363  |   |      |   | 25,220,322   |      |  |   | 19,814,876   |  
|Amortization and write-off of intangibles                                      |  |                         | 2,510,412   |   |      |   | 352,080      |      |  |   | 127,471,548  |  
|Impairment of fixed assets                                                     |  |                         |            |   |      |   | 7,538,697    |      |  |   |             |  
|Provision for doubtful accounts                                                |  |                         | 9,989,224   |   |      |   | 1,471,123    |      |  |   | 7,646,180    |  
|Non-cash restructuring charges                                                 |  |                         |            |   |      |   | 559,912      |      |  |   | 652,871      |  
|Loss associated with investment                                                |  |                         | 500,000     |   |      |   | 700,000      |      |  |   | 250,000      |  
|Realized loss (gain) on sale of investments                                    |  |                         | 208,802     |   |      |   | 5,194        |      |  |   | (787,188     | )
|Amortization of non-cash deferred employee compensation                        |  |                         | 66,000      |   |      |   | 1,394,722    |      |  |   | 3,455,201    |  
|Amortization of original issue discounts                                       |  |                         | 111,573     |   |      |   | 8,448        |      |  |   | (1,366,923   | )
|Changes in operating assets and liabilities:                                   |  |                         |             |   |      |   |              |      |  |   |              |  
|Increase in accounts receivable                                                |  |                         | (25,922,348 | ) |      |   | (5,614,681   | )    |  |   | (11,231,419  | )
|Decrease (increase) in prepaid expenses and other assets                       |  |                         | 68,528      |   |      |   | (2,829,724   | )    |  |   | 212,846      |  
|Increase in accounts payable and accrued expenses                              |  |                         | 13,473,792  |   |      |   | 7,026,470    |      |  |   | 5,163,317    |  
|Increase (decrease) in customer deposits                                       |  |                         | 143,860     |   |      |   | (109,798     | )    |  |   | (159,834     | )
|                                                                               |  |                         |             |   |      |   |              |      |  |   |              |  
|Net cash used in operating activities                                          |  |                         | (28,479,124 | ) |      |   | (4,552,803   | )    |  |   | (25,320,391  | )
|                                                                               |  |                         |             |   |      |   |              |      |  |   |              |  
|Investing activities                                                           |  |                         |             |   |      |   |              |      |  |   |              |  
|Purchase of property and equipment                                             |  |                         | (11,914,681 | ) |      |   | (24,804,588  | )    |  |   | (24,544,353  | )
|Purchase of Nexcom assets                                                      |  |                         |            |   |      |   | (9,051,716   | )    |  |   |             |  
|Restricted cash                                                                |  |                         | (4,079,271  | ) |      |   | (2,215,073   | )    |  |   |             |  
|Purchase of available for sale securities                                      |  |                         | (42,028,873 | ) |      |   | (127,388,666 | )    |  |   | (140,217,749 | )
|Sale of available for sale securities                                          |  |                         | 59,910,748  |   |      |   | 56,128,656   |      |  |   | 55,360,866   |  
|Maturities of available for sale securities                                    |  |                         | 11,600,000  |   |      |   | 104,918,582  |      |  |   | 154,217,970  |  
|                                                                               |  |                         |             |   |      |   |              |      |  |   |              |  
|Net cash provided by (used in) investing activities                            |  |                         | 13,487,923  |   |      |   | (2,412,805   | )    |  |   | 44,816,734   |  
|Financing activities                                                           |  |                         |             |   |      |   |              |      |  |   |              |  
|Repayment of capital lease obligations                                         |  |                         | (2,523,034  | ) |      |   | (2,968,425   | )    |  |   | (4,163,176   | )
|Repayment of equipment line of credit                                          |  |                         |            |   |      |   | (1,196,660   | )    |  |   | (526,531     | )
|Treasury stock                                                                 |  |                         |            |   |      |   | (9,813,811   | )    |  |   |             |  
|Proceeds from exercise of stock options                                        |  |                         | 197,066     |   |      |   | 330,000      |      |  |   | 540,415      |  
|Proceeds from issuance of common stock related to employee stock purchase plan |  |                         | 367,945     |   |      |   | 735,667      |      |  |   | 873,821      |  
|                                                                               |  |                         |             |   |      |   |              |      |  |   |              |  
|Net cash used in financing activities                                          |  |                         | (1,958,023  | ) |      |   | (12,913,229  | )    |  |   | (3,275,471   | )
|Effect of exchange rate fluctuation on cash                                    |  |                         | (8,347      | ) |      |   | (287,151     | )    |  |   | 203,958      |  
|                                                                               |  |                         |             |   |      |   |              |      |  |   |              |  
|Decrease (increase) in cash                                                    |  |                         | (16,957,571 | ) |      |   | (20,165,988  | )    |  |   | 16,424,830   |  
|Cash and cash equivalents at beginning of year                                 |  |                         | 33,027,369  |   |      |   | 53,193,357   |      |  |   | 36,768,527   |  
|                                                                               |  |                         |             |   |      |   |              |      |  |   |              |  
|Cash and cash equivalents at end of year                                       |  | $                       | 16,069,798  |   |      | $ | 33,027,369   |      |  | $ | 53,193,357   |  
|                                                                               |  |                         |             |   |      |   |              |      |  |   |              |  
|Supplemental disclosures of cash flow information                              |  |                         |             |   |      |   |              |      |  |   |              |  
|Cash paid for interest                                                         |  | $                       | 245,186     |   |      | $ | 528,115      |      |  | $ | 963,833      |  
|                                                                               |  |                         |             |   |      |   |              |      |  |   |              |  
|Fixed assets financed by capital leases                                        |  | $                       | 2,023,255   |   |      | $ | 572,349      |      |  | $ | 1,071,842    |  
|                                                                               |  |                         |             |   |      |   |              |      |  |   |              |  



See accompanying notes.



F-5



---

##### Table of Contents

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, originally under the brand name WWeXchange, for which revenues commenced in 1998. The Company operates in one business segment.



Subsidiaries and Joint Venture



The Company conducts operations using a number of subsidiaries, domestically and internationally. Several of these
subsidiaries hold forms of operating licenses from regulatory authorities. All such subsidiaries are wholly owned.



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 was formed to provide exchange carrier long-distance services in Brazil. The Companys ownership interest in ITXC Ltda was 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. During the fourth quarter of 2003, the Company wrote off the remainder of
the investment in TeleNova.



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.



Proposed Teleglobe Merger



On November 4, 2003, the Company and Teleglobe International Holdings Ltd
(Teleglobe) announced that they had signed a definitive merger agreement for the acquisition of the Company by Teleglobe. Upon consummation of the merger, the outstanding shares of the Companys common stock will be converted into
approximately 28% of the capital stock of a newly formed parent company of Teleglobe, Teleglobe Bermuda Holdings Ltd. (New Teleglobe). All outstanding options and warrants of ITXC will be converted into options and warrants of the New
Teleglobe. The merger is subject to several conditions, including receipt of governmental approvals, the meeting of certain financial tests by both companies, registration of the New Teleglobe shares with the Securities and Exchange Commission, and
approval of the Companys stockholders. Teleglobe is a privately held Bermuda company and is one of the worlds leading wholesale providers of voice, data, IP and mobile roaming services. Early termination of the Hart-Scott-Rodino review
period has been received and New Teleglobe has filed a registration statement on Form S-4 with the SEC which is available on the SEC website. The Company expects that the SEC will review and provide comments on the filing and changes may be made in
the filing as a result of this process. It is impossible for the Company to determine with certainty or to control the length of the review process. We will not be in a position to mail the proxy statement to our stockholders until after the SEC has
completed its review. We expect that the mailing will occur in April or early May. It will then take 30 days before we can conduct a stockholders meeting seeking approval of the transaction.



Basis of Consolidation



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



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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s financial instruments that are exposed to concentration of credit risk consist primarily of accounts receivable.



The following table summarizes the customers representing over 10% of revenue for the years ended December 31, 2003, 2002 and 2001 or accounts receivable
for the years ended December 31, 2003 and December 31, 2002:



|           |  |         |   |  |                     |   |  |      |   |  |      |  |      |  
|---------- |  | ------- | - |  | ------------------- | - |  | ---- | - |  | ---- |  | ---- | -
|           |  | Revenue |   |  | Accounts Receivable |  
|           |  | 2003    |   |  | 2002                |   |  | 2001 |   |  | 2003 |  | 2002 |  
|Customer A |  |        |   |  | 13                  | % |  | 16   | % |  |     |  |     |  
|Customer B |  |        |   |  |                    |   |  |     |   |  |     |  | 17   | %
|Customer C |  |        |   |  |                    |   |  |     |   |  |     |  | 14   | %
|Customer D |  | 11      | % |  |                    |   |  |     |   |  |     |  |     |  



The Company performs a
credit evaluation of all new customers and requires certain customers to provide collateral in the form of a cash deposit. Where the Company both originates and terminates traffic with the same customer, where practical the Company provides for a
right to offset and netting provisions in its bilateral agreements. These are intended to reduce credit exposure by permitting the Company to offset amounts it owes the customer with amounts that the customer owes the Company. However, in the event
of customer bankruptcy, the courts do not always enforce such offsetting provisions.



During the latter part of 2002 and into the early part of 2003, the Company made a strategic business decision to be the sole provider of international termination services for a prepaid calling card platform company
named Interactive Marketing Technologies, Inc. (IMT). In February 2003, the Company announced that it was unsuccessful in its efforts to restructure the obligations of IMT that were due to the Company. As a result, the Company
discontinued services and recorded a charge to earnings of $ 8.7 million due to the uncertainty of the collectibility of such accounts receivable. In August 2003, IMT filed for bankruptcy protection. The Company subsequently wrote-off this balance
in the third quarter of 2003.



Depreciation and Amortization



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



|                                         |  |              
|---------------------------------------- |  | -------------
|Estimated Useful Life                    |  |              
|Network equipment and software           |  | 2-3 years    
|Furniture, fixtures and office equipment |  | 3-7 years    
|Leasehold improvements                   |  | life of lease



Other Intangibles



Other intangibles relate to vendor agreements, customer
lists and licenses recorded in association with the Nexcom purchase in May 2002. They are being amortized over periods ranging from 3 to 80 months. During the fourth quarter of 2003, the Company wrote off the remaining carrying value of an
intangible asset related to an exclusive contract in Lithuania, which was acquired in the Nexcom Telecommunications acquisition in May 2002. This write off resulted in a $2.0 million charge in the fourth quarter.



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##### Table of Contents

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 2003, 2002 and 2001, the Company expensed approximately $32,000, $209,000 and $339,000, respectively,
of such costs.



Research and Development



Development costs are expensed as incurred. Development costs of
approximately $5,800,000, $5,299,000 and $7,778,000 were expensed in 2003, 2002 and 2001, 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. Valuation allowances are established, if necessary, to reduce deferred tax assets to an amount that will more likely than not be realized in future periods.
Income tax expense is comprised of the current tax payable or refundable for the period plus or minus the net change in deferred tax assets and liabilities.



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), as amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based CompensationTransition and Disclosure, are also reflected in these notes to the
financial statements. The Company has not issued any options other than to employees and directors and certain consultants who are occupied full time in the Companys activities.



The following table summarizes relevant information as to reported results
under the Companys intrinsic value method of accounting for stock options, with supplemental information as if the fair value recognition provisions of SFAS No. 123 had been applied for the twelve month periods ended December 31, 2003, 2002
and 2001:



|                                                                                                |  |      |             |   |      |   |             |      |  |   |              |  
|----------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  | - | ------------ | -
|                                                                                                |  | 2003 |             |   | 2002 |   |             | 2001 | 
|Net loss applicable to common stockholders                                                      |  | $    | (50,543,330 | ) |      | $ | (40,275,568 | )    |  | $ | (176,441,866 | )
|Add back: stock-based compensation, as reported pursuant to APB 25                              |  |      | 66,000      |   |      |   | 1,394,722   |      |  |   | 3,455,201    |  
|Deduct: total stock-based compensation determined under fair value based methods for all awards |  |      | (12,941,923 | ) |      |   | (14,653,150 | )    |  |   | (8,294,501   | )
|                                                                                                |  |      |             |   |      |   |             |      |  |   |              |  
|Adjusted net loss, fair value method for all stock-based awards                                 |  | $    | (63,419,253 | ) |      | $ | (53,533,996 | )    |  | $ | (181,281,166 | )
|                                                                                                |  |      |             |   |      |   |             |      |  |   |              |  
|Basic and diluted net loss per share, as reported                                               |  | $    | (1.18       | ) |      | $ | (0.88       | )    |  | $ | (3.89        | )
|                                                                                                |  |      |             |   |      |   |             |      |  |   |              |  
|Basic and diluted net loss per share, SFAS 123 adjusted                                         |  | $    | (1.47       | ) |      | $ | (1.17       | )    |  | $ | (3.99        | )
|                                                                                                |  |      |             |   |      |   |             |      |  |   |              |  



Recent Accounting
Pronouncements



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



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##### Table of Contents

Effective July 1, 2001, the Company adopted SFAS No. 141 Business Combinations and effective
January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No.141 requires business combinations initiated after July 1, 2001 to be accounted for using the purchase method of accounting. It also
specifies the types of intangible assets that are required to be recognized and reported separate from goodwill. Under SFAS No. 142, goodwill and other intangible assets with indefinite lives are no longer amortized but are reviewed for impairment
annually, or more frequently if impairment indicators arise. The Company did not have any goodwill or indefinite life intangible assets at January 1, 2002; accordingly, adoption of SFAS No. 142 did not have an impact on the Company.



The following table reflects unaudited pro forma results of operations of the
Company for the year ended December 31, 2001, giving effect to SFAS No. 142 as if it were adopted on January 1, 2001:



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



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



In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, Consolidation of Variable Interest
Entities, an Interpretation of Accounting Research Bulletin (ARB) No. 51. The Interpretation introduces a new consolidation model, the variable interests model, based on potential variability in gains and losses of the entity being evaluated for
consolidation. It provides guidance for determining whether an entity lacks sufficient equity or the entitys equity holders lack adequate decision-making ability. These entities, variable interest entities (VIE), are evaluated for
consolidation based on their variable interests. Variable interests are contractual, ownership or other interests in an entity that expose their holders to the risks and rewards of the VIE. The Interpretations provisions are effective
currently for variable interests in VIEs created after January 31, 2003, and for variable interests in VIEs created before February 1, 2003, no later than the end of the first interim or annual reporting period ending after March 15,
2004. The Company does not believe that adoption of this standard will have a material impact on the Companys financial statements.



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



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. Significant estimates include bad debts, investments, intangible assets, restructuring, litigation and employee termination benefits. Actual results could
differ from those estimates.



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##### Table of Contents

Foreign Currency Translation



The financial statements of the Companys foreign subsidiaries 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 ($4,956,200 and $28,210,923 at December 31, 2003 and 2002, respectively) and marketable securities, are as follows:



|                                                                                      |  |              |            |      |   |           
|------------------------------------------------------------------------------------- |  | ------------ | ---------- | ---- | - | ----------
|                                                                                      |  | December 31,
|                                                                                      |  | 2003         |            | 2002
|Money market funds                                                                    |  | $            | 4,956,200  |      | $ | 28,210,923
|Certificates of deposit                                                               |  |              | 500,000    |      |   |          
|U.S. Treasury securities and obligations of U.S. government corporations and agencies |  |              | 7,076,973  |      |   | 12,883,147
|Corporate bonds                                                                       |  |              | 13,188,039 |      |   | 21,517,413
|Asset-backed securities                                                               |  |              | 9,637,106  |      |   | 26,032,531
|                                                                                      |  |              |            |      |   |           
|Total                                                                                 |  | $            | 35,358,318 |      | $ | 88,644,014
|                                                                                      |  |              |            |      |   |           



Gross realized
(losses) gains for the years ended December 31, 2003,2002 and 2001 were $(209,000), $(5,000) and $787,000 respectively.



The Companys available for sale securities have the following maturities at December 31, 2003:



|                                       |  |      |            |        |   |           
|-------------------------------------- |  | ---- | ---------- | ------ | - | ----------
|                                       |  | Cost |            | Market
|Due in one year or less                |  | $    | 10,275,513 |        | $ | 10,282,534
|Due after one year through five years  |  |      | 17,438,115 |        |   | 17,456,572
|Due after five years through ten years |  |      | 1,483,849  |        |   | 1,485,254 
|Due after ten years                    |  |      | 6,189,113  |        |   | 6,133,958 
|                                       |  |      |            |        |   |           
|                                       |  | $    | 35,386,590 |        | $ | 35,358,318
|                                       |  |      |            |        |   |           



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 $9,847,000,
$2,800,000 and $6,034,000 during 2003, 2002 and 2001, respectively.



5.
Property and Equipment



Property and equipment is
comprised of the following:



|                                               |  |              |            |      |   |           
|---------------------------------------------- |  | ------------ | ---------- | ---- | - | ----------
|                                               |  | December 31,
|                                               |  | 2003         |            | 2002
|Network equipment and software                 |  | $            | 67,362,839 |      | $ | 63,124,568
|Furniture, fixtures and office equipment       |  |              | 14,953,953 |      |   | 13,053,300
|Leasehold improvements                         |  |              | 2,329,761  |      |   | 2,314,134 
|                                               |  |              |            |      |   |           
|                                               |  |              | 84,646,553 |      |   | 78,492,002
|Less accumulated depreciation and amortization |  |              | 56,895,589 |      |   | 43,764,611
|                                               |  |              |            |      |   |           
|                                               |  | $            | 27,750,964 |      | $ | 34,727,391
|                                               |  |              |            |      |   |           



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Equipment under capital leases totaled approximately $14,807,000 and $12,784,000 at December 31, 2003 and
2002, respectively. Included in accumulated depreciation is approximately $11,300,000 and $11,000,000 related to such assets at December 31, 2003 and 2002, respectively.



During 2002, the Company recognized $7.5 million of impairment charges on network equipment and software, related to the
migration to a Cisco-based architecture and to a switch-less environment. See Note 7  Impairment of Long-Lived Assets and Business Reorganization Changes.



During 2002 and 2001, the Company purchased $2,200,000 and $6,100,000, respectively, of network equipment and software from a former stockholder of the
Company. See Note 15  Capital Stock regarding a transaction with such former stockholder.



6. Acquisitions



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



All escrow shares and cash were distributed to Nexcom in May
2003. Nexcom had previously provided termination services to the Company in most of the countries in which the assets are located.In connection with the transaction, the Company recorded goodwill of $7.9 million; and other intangibles of
$2.9 million related to vendor agreements, customer lists and licenses, which will be amortized over periods ranging from 3 to 80 months. These values were determined using an independent third party valuation. During the fourth quarter of 2003, the
Company wrote off the remaining carrying value of an intangible asset related to an exclusive contract in Lithuania, which was acquired in the Nexcom Telecommunications acquisition in May 2002. This write off resulted in a $2.0 million charge in the
fourth quarter. Also included in the purchase were $0.8 million of property, plant and equipment. The acquisition was accounted for as a purchase in accordance with SFAS No. 141, Business Combinations, and accordingly, the net assets and results of
operations have been included in the Consolidated Financial Statements from the date of acquisition. The acquisition would not have had a material impact on the Companys results of operations, had the acquisition been completed at the
beginning of the periods presented.



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.



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) through December 31, 2001, and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144) subsequent to 2001 requires recognition of impairment losses for
long-lived assets whenever events or changes in circumstances result in impairment indicators being present and the carrying amount of an asset exceeds the sum of the expected future cash flows associated with the asset.



In response to 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.



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 an equity position in eStara. The Company has valued this investment at approximately $700,000. This transaction resulted in a $258,000 loss which was
included in the third quarter 2001 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. During 2002, the Company determined that there was an other-than temporary impairment in the value of its eStara
investment which resulted in an approximate $700,000 charge in the fourth quarter.



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##### Table of Contents

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 $2.4 million had been paid through December 31, 2002 and there no longer is a balance as of December 31, 2003. The charge relates to headcount reductions of 70 employees
worldwide, which approximates $1.5 million, and facility consolidations of approximately $1.5 million as the Company has closed its Beaverton, Oregon facility. The remaining charge of approximately $700,000 related to a write-down of the remaining
assets at the Beaverton location. All severance related costs had been paid as of December 31, 2002.



In January of 2002, the Company entered into an agreement to sublease approximately 20,000 square feet of its headquarters space. Approximately $1.0
million of restructuring charges was recorded in the first quarter in connection with the sublease. During 2002, the Company recorded additional restructuring charges of approximately $800,000 associated with the lease for the closed office in
Beaverton, Oregon. In the first quarter of 2003, the Company reached a settlement with the landlord for the Beaverton, Oregon facility resulting in a cash payment to the landlord of approximately $1.2 million, and thus eliminating all future charges
related to this lease.



In the fourth quarter of 2002 the
Company began the process of simplifying its network to eliminate the need for circuit-switches in new installations and migrate to a single gateway platform. Accordingly, the Company recognized $7.5 million of impairment charges related to the
migration to a Cisco-based architecture and to a switch-less environment. The fair value of the assets being phased-out was determined based on the future cash flow expected to be generated by such assets over their remaining lives. All circuit
switches have now been removed from the Companys network.



During the second quarter and in the beginning of the third quarter of 2003, the Company reduced headcount by approximately 10%. The reductions were possible because of the network simplification and new technology deployed during the
second and third quarters as well as the elimination of some unprofitable customers and affiliates. Approximately $0.3 million of related restructuring charges were recorded in the second quarter associated with a reduction of nine employees. An
additional charge of approximately $0.3 million was recorded in the third quarter related to headcount reductions of twenty-two employees that took place in the third quarter.



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



8. Goodwill and Other Intangible Assets



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



|                       |  |                         |           |      |   |           |  |   |             |  
|---------------------- |  | ----------------------- | --------- | ---- | - | --------- |  | - | ----------- | -
|                       |  | Year ended December 31, |          
|                       |  | 2003                    |           | 2002 |   | 2001      | 
|Beginning balance, net |  | $                       | 7,913,319 |      | $ |          |  | $ | 96,437,789  |  
|Additions              |  |                         |          |      |   | 7,913,319 |  |   | 522,206     |  
|Amortization           |  |                         |          |      |   |          |  |   | (10,184,795 | )
|Write-offs             |  |                         |          |      |   |          |  |   | (86,775,200 | )
|                       |  |                         |           |      |   |           |  |   |             |  
|Ending balance, net    |  | $                       | 7,913,319 |      | $ | 7,913,319 |  | $ |            |  
|                       |  |                         |           |      |   |           |  |   |             |  



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



|                            |  |                       |         |                          |   |         |  |                       |         |                          |   |           |  |   |         |  |   |          
|--------------------------- |  | --------------------- | ------- | ------------------------ | - | ------- |  | --------------------- | ------- | ------------------------ | - | --------- |  | - | ------- |  | - | ---------
|                            |  | December 31, 2003     |         | December 31, 2002       
|                            |  | Gross Carrying Amount |         | Accumulated Amortization |   | Net     |  | Gross Carrying Amount |         | Accumulated Amortization |   | Net      
|Patents                     |  | $                     | 108,000 |                          | $ | 57,176  |  | $                     | 50,824  |                          | $ | 108,000   |  | $ | 31,765  |  | $ | 76,235   
|Customer lists and licenses |  |                       | 240,000 |                          |   | 111,667 |  |                       | 128,333 |                          |   | 240,000   |  |   | 56,666  |  |   | 183,334  
|Vendor agreements           |  |                       |        |                          |   |        |  |                       |        |                          |   | 2,700,000 |  |   | 270,000 |  |   | 2,430,000
|                            |  |                       |         |                          |   |         |  |                       |         |                          |   |           |  |   |         |  |   |          
|Total other intangibles     |  | $                     | 348,000 |                          | $ | 168,843 |  | $                     | 179,157 |                          | $ | 3,048,000 |  | $ | 358,431 |  | $ | 2,689,569
|                            |  |                       |         |                          |   |         |  |                       |         |                          |   |           |  |   |         |  |   |          



Amortization expense
for Other Intangibles totaled approximately $485,000 and $352,000 for the years ended December 31, 2003 and 2002, respectively. Vendor agreements above exclude approximately $2.0 million associated with the write-off of an



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exclusive relationship in Lithuania that was part of our Nexcom acquisition. Aggregate amortization expense for
intangible assets is estimated to be:



|                                              |  |       
|--------------------------------------------- |  | ------
|Year Ending December 31, 2004                 |  | 80,000
|Year Ending December 31, 2005                 |  | 80,000
|Year Ending December 31, 2006                 |  | 19,000
|Year Ending December 31, 2007                 |  |      
|Years Ending December 31, 2008 and thereafter |  |      



9. Prepaid Expenses and Accrued
Expenses



Prepaid expenses and other current assets are
comprised of the following:



|                        |  |              |           |      |   |          
|----------------------- |  | ------------ | --------- | ---- | - | ---------
|                        |  | December 31,
|                        |  | 2003         |           | 2002
|Deposits                |  | $            | 1,312,779 |      | $ | 1,847,646
|Insurance               |  |              | 917,224   |      |   | 986,405  
|Software maintenance    |  |              | 222,428   |      |   | 363,626  
|Interest receivable     |  |              | 214,940   |      |   | 391,874  
|Taxes (principally VAT) |  |              | 1,108,766 |      |   | 397,928  
|Other                   |  |              | 1,627,622 |      |   | 1,372,812
|                        |  |              |           |      |   |          
|                        |  | $            | 5,403,759 |      | $ | 5,360,291
|                        |  |              |           |      |   |          



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



|                                           |  |              |           |      |   |          
|------------------------------------------ |  | ------------ | --------- | ---- | - | ---------
|                                           |  | December 31,
|                                           |  | 2003         |           | 2002
|Compensation                               |  | $            | 3,140,485 |      | $ | 2,794,180
|Restructuring reserve                      |  |              |          |      |   | 1,344,652
|Data communications and telecommunications |  |              | 1,206,957 |      |   | 703,631  
|Rent and utilities                         |  |              | 590,299   |      |   | 657,783  
|Taxes                                      |  |              | 906,213   |      |   | 385,521  
|Professional fees                          |  |              | 934,086   |      |   | 438,738  
|Other                                      |  |              | 2,630,723 |      |   | 1,450,011
|                                           |  |              |           |      |   |          
|                                           |  | $            | 9,408,763 |      | $ | 7,774,516
|                                           |  |              |           |      |   |          



10. Income Taxes



Due to operating losses, the Company has no income tax liability for 2003,
2002 or 2001, with the exception of $108,000 and $397,000 and $0 of state and foreign taxes in 2003, 2002 and 2001, respectively. The provision for income taxes consists of the following:



|                                 |  |      |          |   |      |   |         |  |   |  
|-------------------------------- |  | ---- | -------- | - | ---- | - | ------- |  | - | -
|                                 |  | 2003 |          |   | 2002 |   | 2001   
|Current:                         |  |      |          |   |      |   |         |  |   |  
|Foreign                          |  | $    | 299,916  |   |      | $ | 196,587 |  | $ | 0
|State and local                  |  |      | (192,200 | ) |      |   | 200,500 |  |   | 0
|                                 |  |      |          |   |      |   |         |  |   |  
|Total provision for income taxes |  | $    | 107,716  |   |      | $ | 397,087 |  | $ | 0
|                                 |  |      |          |   |      |   |         |  |   |  



The Company has not
recorded deferred income taxes applicable to undistributed earnings of foreign subsidiaries that are indefinitely reinvested in foreign operations. The Company currently intends to reinvest indefinitely these undistributed earnings of its foreign
subsidiaries.



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##### Table of Contents

Significant components of the Companys deferred tax assets and liabilities at December 31, 2003 and
2002 are as follows:



|                                               |  |              |              |   |      |   |             |  
|---------------------------------------------- |  | ------------ | ------------ | - | ---- | - | ----------- | -
|                                               |  | December 31, |             
|                                               |  | 2003         |              |   | 2002 |  
|Deferred tax assets:                           |  |              |              |   |      |   |             |  
|Net operating loss carryforward                |  | $            | 92,504,736   |   |      | $ | 76,174,806  |  
|Allowance for doubtful accounts                |  |              | 889,666      |   |      |   | 762,800     |  
|Amortization of non-cash employee compensation |  |              | 4,974,882    |   |      |   | 4,974,882   |  
|Loss on disposition of joint venture           |  |              | 3,440,000    |   |      |   | 2,960,000   |  
|Fixed assets                                   |  |              | 3,903,925    |   |      |   | 3,358,310   |  
|Other                                          |  |              | 2,131,310    |   |      |   | 2,563,636   |  
|                                               |  |              |              |   |      |   |             |  
|                                               |  |              | 107,844,519  |   |      |   | 90,794,434  |  
|Less valuation allowance                       |  |              | (107,844,519 | ) |      |   | (90,794,434 | )
|                                               |  |              |              |   |      |   |             |  
|Net deferred tax asset                         |  | $            |             |   |      | $ |            |  
|                                               |  |              |              |   |      |   |             |  



At December 31, 2003,
approximately $17.5 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 and if 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:



|                                                   |  |              |             |   |      |       |   |      |   |             |   |  |       |   |  |   |             |   |  |       |  
|-------------------------------------------------- |  | ------------ | ----------- | - | ---- | ----- | - | ---- | - | ----------- | - |  | ----- | - |  | - | ----------- | - |  | ----- | -
|                                                   |  | December 31, |            
|                                                   |  | 2003         |             |   | 2002 |       |   | 2001 |  
|Statutory federal income tax (benefit) at 34%      |  | $            | (17,148,109 | ) |      | 34.0  | % |      | $ | (13,558,064 | ) |  | 34.0  | % |  | $ | (59,990,234 | ) |  | 34.0  | %
|State income tax (benefit), net of federal benefit |  |              | (126,852    | ) |      | 0.2   |   |      |   | (2,382,893  | ) |  | 6.0   |   |  |   | (4,759,594  | ) |  | 2.7   |  
|Nondeductible expenses                             |  |              | 63,186      |   |      | (0.1  | ) |      |   | 768,993     |   |  | (2.0  | ) |  |   | 33,019,204  |   |  | (18.7 | )
|Foreign taxes booked at different rates            |  |              | (51,374     | ) |      | 0.1   |   |      |   | (33,894     | ) |  | 0.1   |   |  |   |             |   |  |       |  
|Other                                              |  |              | 320,780     |   |      | (0.6  | ) |      |   | 173,559     |   |  | (0.4  | ) |  |   | 229,961     |   |  | (0.1  | )
|Increase in valuation allowance                    |  |              | 17,050,085  |   |      | (33.8 | ) |      |   | 15,429,386  |   |  | (38.7 | ) |  |   | 31,500,663  |   |  | (17.9 | )
|                                                   |  |              |             |   |      |       |   |      |   |             |   |  |       |   |  |   |             |   |  |       |  
|Total                                              |  | $            | 107,716     |   |      | (0.2  | ) |      | $ | 397,087     |   |  | (1.0  | ) |  | $ |            |   |  |      |  
|                                                   |  |              |             |   |      |       |   |      |   |             |   |  |       |   |  |   |             |   |  |       |  



At December 31, 2003,
the Company has a federal and state NOL carryforward of approximately $233.0 million. The federal NOL carryforwards expire from 2012 to 2023. The state NOL carryforwards expire from 2004 to 2010. 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.



The Companys existing deferred tax assets at December 31, 2003 and 2002 have been reduced by a valuation allowance of $107,844,519 and $90,794,434,
respectively, as we believe that it is more likely than not that the related tax benefits will not be realized.



11. Debt



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



12. Restricted Cash



In conjunction with its letter of credit facility for its Princeton, New
Jersey lease, the Company has $2.3 million in restricted cash as of December 31, 2003 that represents the collateral supporting the letter of credit. The Company is obligated to maintain the letter of credit for the term of the lease, which expires
on July 31, 2011. As a result, the Company will be required to either maintain the restricted cash or provide an alternative means of collateral. In addition, in November 2003, the Company issued a letter of credit to a vendor in the amount of $4.0
million. This instrument was issued as a means of obtaining more beneficial payment terms from the vendor. In order to secure the facility, the Company was required to deposit $4.0 million in a restricted bank account and maintain such balance as
long as the facility remains in place.



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13. Commitments and Contingencies



The Company entered into a new office lease which commenced August 1, 2001, and has a term of ten years. 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. 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 non-cancelable operating and capital leases
having initial or remaining terms in excess of one year are as follows:



|                                            |  |           |            |         |   |           |  
|------------------------------------------- |  | --------- | ---------- | ------- | - | --------- | -
|                                            |  | Operating |            | Capital |  
|2004                                        |  | $         | 2,816,773  |         | $ | 1,116,575 |  
|2005                                        |  |           | 2,520,139  |         |   | 665,655   |  
|2006                                        |  |           | 2,583,849  |         |   | 120,553   |  
|2007                                        |  |           | 2,691,552  |         |   |          |  
|2008 and thereafter                         |  |           | 8,232,409  |         |   |          |  
|                                            |  |           |            |         |   |           |  
|                                            |  | $         | 18,844,722 |         |   | 1,902,783 |  
|                                            |  |           |            |         |   |           |  
|Less amounts representing interest          |  |           |            |         |   | (103,331  | )
|Present value of net minimum lease payments |  |           |            |         | $ | 1,799,452 |  
|                                            |  |           |            |         |   |           |  



Minimum lease payments
have not been reduced by minimum operating sublease rentals of $1,221,000 due in the future under non-cancelable subleases which primarily commenced in 2002.



Rental expense for all operating leases was approximately $3,800,000, $3,500,000 and $2,308,000 in 2003, 2002 and 2001, respectively.



14. Legal Matters



The Company is involved in certain claims and legal actions arising in the ordinary 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 District Court for the Eastern District of Pennsylvania. Connectel
alleges in its complaint that the Company is infringing on the claims of a patent owned by Connectel by, acting alone or with others, assembling, offering to sell, selling or using communications networks or switching systems within the United
States and for export worldwide without license from Connectel. Connectel also seeks unspecified damages. Discovery has closed and ITXC moved for summary judgment in October 2002. Thereafter, in December 2002, the case was reassigned to a newly
appointed United States District judge, Hon. James Knoll Gardner. Oral argument on the motion for summary judgment and on certain other pretrial issues was heard in February 2004. The Company believes that the Connectel claims are without merit.



The Company and certain of its officers/directors were named
as defendants in several purported shareholder class action lawsuits. The lawsuits allege, among other things, that, in connection with the Companys public offerings of securities, its Prospectus did not disclose certain alleged practices
involving its underwriters and their customers. These actions seek compensatory and other damages, and costs and expenses associated with the litigation. No discovery has taken place. 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. All of these cases have been consolidated for pretrial purposes before Judge Scheindlin in the Southern District of New
York, who refused to dismiss the cases in an opinion issued in February 2003. All of the individual defendants who had been named as defendants in the Companys case have now been dismissed from the proceeding without prejudice, pursuant to a
stipulation with the plaintiffs. Neither the individual defendants nor the Company nor its insurers paid any consideration for these dismissals. The parties have negotiated a settlement entirely funded by the directors and officers insurance
carriers, and it is anticipated that this proposed settlement will be submitted to the Court for approval in the near future. Under the terms of the proposed settlement, neither the Company nor individual defendants will have either future liability
or expenses in connection with the litigation, except for a limited obligation to cooperate in discovery in the plaintiffs continuing cases against the underwriters.



In September 2001, the Company was served with a complaint filed in Virginia state court on behalf of Hercules
Communications Company, LLC in which the plaintiff demanded damages, including punitive damages, based on the Companys alleged refusal to carry out a purported agreement to purchase certain assets from Hercules. In June 2002 the original
plaintiff voluntarily dismissed the case, and a new case was brought in the name of Hercules Satellite Communications, L.L.C. A trial commenced in August 2003. At the conclusion of the plaintiffs case, the trial court granted the
Companys motion to strike the evidence and dismiss the case in its entirety. Judgment was entered for the defendants. Plaintiff has filed a notice of appeal. The



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##### Table of Contents

Company had also commenced an action in New Jersey against the principals of Hercules, alleging fraud, malicious
prosecution and abuse of process. The parties have now agreed in principle to settle all of the claims of both sides, including appeal by Hercules in the Virginia action. The Company will receive a cash payment of $95,000 in connection with the
settlement.



The Company has received a copy of a complaint as
a class action suit in New Jersey Superior Court naming the Company and directors Tom Evslin, Edward Jordan, Frank Gill and Fred Wilson as defendants. As of the date on which this Annual Report was initially filed with the SEC, ITXC had been served
but not the individual defendants in the action. Two claims are asserted against the individual defendants, one for breach of fiduciary duty and the other for breach of the duty of candor. Although the Company was identified as a defendant, no cause
of action is asserted against the Company for damages. The action seeks to enjoin a stockholder meeting to approve ITXCs proposed merger with Teleglobe International Holdings Ltd until certain alleged deficiencies in the proxy statement have
been cured and seeks to permanently enjoin the consummation of the merger. ITXC had previously announced that Teleglobe Bermuda Holdings Ltd filed a registration statement on Form S-4 with the Securities and Exchange Commission in connection with
the proposed merger. ITXC believes the complaint contains factual inaccuracies, is premature and is wholly without merit and intends to vigorously defend the lawsuit if served.



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 its business, financial condition, operating results or future prospects.



15. Capital Stock



Warrants



In connection with the Series B
Stock private placement completed on April 27, 1998, 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
warrants to a current officer/director and to a former officer/current director to purchase an aggregate of 879,766 shares of Common Stock with an exercise price of $0.8525 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. 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.



Registration Rights



Certain of the common 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. Certain of those
shareholders have waived their rights under that agreement to induce Teleglobe International Holdings Ltd to enter into the merger agreement with the Company.



Common Shares Reserved



As of December 31, 2003, the Company had reserved shares of Common Stock for issuance as follows:



|                                  |  |           
|--------------------------------- |  | ----------
|Number of Shares                  |  |           
|Exercise of common stock options  |  | 11,030,328
|Exercise of common stock warrants |  | 879,766   
|Employee stock purchase plan      |  | 1,582,921 



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 2003, 2002 and 2001
the annual increase in the number of shares covered by the Plan were 1,283,083, 1,371,783 and 1,351,414, 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.



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.



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##### Table of Contents

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 to be granted on a date in 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:



|                                       |  |                  |   |      |                                  |      |                  |           |   |                                  |   |       |                  |  |            |                                  |  |   |        |  
|-------------------------------------- |  | ---------------- | - | ---- | -------------------------------- | ---- | ---------------- | --------- | - | -------------------------------- | - | ----- | ---------------- |  | ---------- | -------------------------------- |  | - | ------ | -
|                                       |  | 2003             |   | 2002 |                                  |      | 2001             |          
|                                       |  | Number of Shares |   |      | Weighted- Average Exercise Price |      | Number of Shares |           |   | Weighted- Average Exercise Price |   |       | Number of Shares |  |            | Weighted- Average Exercise Price | 
|Options outstanding, beginning of year |  | 6,299,983        |   |      | $                                | 4.94 |                  | 6,502,364 |   |                                  | $ | 5.22  |                  |  | 6,325,095  |                                  |  | $ | 11.12  |  
|Options granted                        |  | 1,503,700        |   |      |                                  | 2.42 |                  | 908,250   |   |                                  |   | 4.81  |                  |  | 3,600,930  |                                  |  |   | 7.01   |  
|Options exercised                      |  | (368,463         | ) |      |                                  | 0.53 |                  | (191,359  | ) |                                  |   | (1.72 | )                |  | (516,131   | )                                |  |   | (1.05  | )
|Options cancelled                      |  | (753,953         | ) |      |                                  | 5.13 |                  | (919,272  | ) |                                  |   | (7.45 | )                |  | (2,907,530 | )                                |  |   | (21.05 | )
|                                       |  |                  |   |      |                                  |      |                  |           |   |                                  |   |       |                  |  |            |                                  |  |   |        |  
|Options outstanding, end of year       |  | 6,681,267        |   |      | $                                | 4.59 |                  | 6,299,983 |   |                                  | $ | 4.94  |                  |  | 6,502,364  |                                  |  | $ | 5.22   |  
|                                       |  |                  |   |      |                                  |      |                  |           |   |                                  |   |       |                  |  |            |                                  |  |   |        |  



The weighted-average
fair value of options granted in 2003, 2002 and 2001 was $2.05, $3.77 and $5.84, respectively. The fair value for these options was estimated using the Black-Scholes model with the following weighted average assumptions:



|                         |  |                                       |   |  |      |   |  |      |  
|------------------------ |  | ------------------------------------- | - |  | ---- | - |  | ---- | -
|                         |  | Stock Options Year ended December 31, |  
|                         |  | 2003                                  |   |  | 2002 |   |  | 2001 |  
|Expected life (in years) |  | 4                                     |   |  | 5    |   |  | 4    |  
|Risk-free interest rate  |  | 2.79                                  | % |  | 2.75 | % |  | 4.5  | %
|Volatility               |  | 120                                   | % |  | 120  | % |  | 134  | %
|Dividend yield           |  | 0                                     | % |  | 0    | % |  | 0    | %



The following table
summarizes information about fixed price stock options outstanding at December 31, 2003:



|                         |  |                  |  |                                             |  |                                  |  |                                         |  |                                 
|------------------------ |  | ---------------- |  | ------------------------------------------- |  | -------------------------------- |  | --------------------------------------- |  | --------------------------------
|                         |  |                  |  | Outstanding                                 |  | Exercisable                     
|Range of Exercise Prices |  | Number of Shares |  | Weighted- Average RemainingContractual Life |  | Weighted- Average Exercise Price |  | Number Exercisable at December 31, 2003 |  | Weighted- Average Exercise Price
|$  0.00$      5.00      |  | 3,832,475        |  | 5.6                                         |  | $2.16                            |  | 2,223,970                               |  | $1.82                           
|5.01      10.00         |  | 2,594,994        |  | 7.2                                         |  | 6.89                             |  | 1,440,164                               |  | 6.98                            
|10.01      15.00        |  | 112,248          |  | 6.3                                         |  | 12.24                            |  | 95,028                                  |  | 12.24                           
|15.01      25.00        |  | 118,200          |  | 6.4                                         |  | 18.27                            |  | 88,899                                  |  | 18.27                           
|25.01    119.75         |  | 23,350           |  | 5.7                                         |  | 42.76                            |  | 20,415                                  |  | 43.81                           
|                         |  |                  |  |                                             |  |                                  |  |                                         |  |                                 
|$  0.00$  119.75        |  | 6,681,267        |  | 6.2                                         |  | $4.59                            |  | 3,868,476                               |  | $4.60                           
|                         |  |                  |  |                                             |  |                                  |  |                                         |  |                                 



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 $0.30 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 was amortized to expense over the option vesting
periods, generally three years.



Treasury Stock



During the fourth quarter of 2002, the Company
repurchased 3,883,700 shares of its stock, valued at $9,813,811, as part of a buy-back authorized by the Board of Directors in October 2002. Included in this total was the negotiated direct purchase of 3,783,000 shares from VocalTec Communications
Inc. at $2.53 per share, pursuant to a purchase agreement. Pursuant to the merger agreement with Teleglobe, the Company no longer has any outstanding buyback authorization. The Company did not purchase any shares in 2003 under its prior buyback
authorizations.



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##### Table of Contents

16. 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 427,694 and 457,261 shares were reserved in 2003 and 2002, respectively, under the provisions of the
Plan. 160,268 and 223,440 shares were purchased under the Plan in 2003 and 2002, respectively.



17. Geographic Data



During 2003, 2002 and 2001, the Company generated approximately 38%, 24% and 28%, respectively, of its revenue from customers domiciled in countries other than the United States, primarily in the United Kingdom and Asia. During 2003 and
2002, the United Kingdom accounted for approximately 13.0% and 14.0%, respectively, of total revenue.



18. Earnings (Loss) Per Share



The Company computes net loss per share under the provisions of SFAS No. 128, Earnings per Share (SFAS 128).



Under the provisions of SFAS 128, 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 the applicable period.



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.



19. 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, 2003, 2002 and 2001 were approximately $292,000, $263,000 and $342,000, respectively.



F-18



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##### Table of Contents

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



Not applicable.



Item 9A.Controls and Procedures



a) Disclosure Controls and Procedures. The Company has established and maintains disclosure controls and procedures which are designed to provide reasonable assurance that material information relating to us,
including our consolidated subsidiaries, is made known to senior managers responsible for disclosure by others within those entities, particularly during the period in which this quarterly report is being prepared. We have established a Disclosure
Committee which is made up of several key management employees and reports directly to the Chief Executive Officer and Chief Financial Officer, to monitor and evaluate these disclosure controls and procedures. The Audit Committee of the Board also
has reviewed the report of the Disclosure Committee. As of the end of the Companys most recently completed fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) covered by this report, the Company carried
out an evaluation, with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Companys disclosure controls and procedures pursuant to
Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures are effective in ensuring that information
required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms. The Company has
established a reporting procedure under which any employee can report concerns about questionable accounting, auditing or disclosure matters or other employee misconduct or illegality, and can make such report anonymously if the employee prefers.
Reports automatically go to the General Counsel and the Chairman of the Audit Committee, unless the employee requests that the report not go to the General Counsel, in which case they are sent to outside counsel and the Chairman of the Audit
Committee only.



b) Changes in internal controls over financial
reporting. There have been no changes in the Companys internal controls over financial reporting that occurred during the Companys last fiscal quarter to which this report relates that have materially affected, or are reasonably likely
to materially affect, the Companys internal control over financial reporting.



PART III



Item 10.Directors and Executive Officers of the Registrant



The registrant incorporates by reference herein information to be set forth in its definitive proxy statement for its 2004 annual meeting of stockholders
that is responsive to the information required with respect to this Item.



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



Item 11.Executive Compensation



The registrant incorporates by reference herein information to be set forth in its definitive proxy statement for its 2004 annual meeting of stockholders 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 2004 annual meeting of stockholders
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 2004 annual meeting of stockholders
that is responsive to the information required with respect to this Item.



Item 14.Principal Accounting Fees and Services



The registrant incorporates by reference herein information to be set forth in its definitive proxy statement for its 2004 annual meeting of stockholders
that is responsive to the information required with respect to this Item.



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##### Table of Contents

PART IV



Item 15.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 26 of this Annual
Report):



|                                                                                                     |  |     
|---------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                     |  | Page
|                                                                                                     | 
|Report of Independent Auditors                                                                       |  | F-1 
|                                                                                                     | 
|Consolidated Balance Sheets as of December 31, 2003 and 2002                                         |  | F-2 
|                                                                                                     | 
|Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001           |  | F-3 
|                                                                                                     | 
|Consolidated Statements of Stockholders Equity for the years ended December 31, 2003, 2002 and 2001 |  | F-4 
|                                                                                                     | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001           |  | F-5 
|                                                                                                     | 
|Notes to Consolidated Financial Statements                                                           |  | F-6 



(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:



|           |  |                                                                                                                                                                                                                                                                                        
|---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Description                                                                                                                                                                                                                                                                            
|           | 
|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)                                                                                                                                                                                                                            
|           | 
|4.2        |  | Shareholder Protection Rights Plan, dated as of April 10, 2003, between ITXC Corp. and American Stock & Transfer Company, as Rights
Agent, is incorporated by reference to Exhibit 4.1 to the Registrants Current Report on Form 8-K filed with the SEC on April 14, 2003             
|           | 
|10.1       |  | Agreement and Plan of Merger among Teleglobe International Holders Ltd, a subsidiary of that entity and the registrant, dated as of
November 4, 2004, is incorporated by reference to Exhibit 2.1 to the Registrants Current Report on Form 8-K filed with the SEC on November 4, 2003
|           | 
|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      |  | Intentionally omitted                                                                                                                                                                                                                                                                  
|           | 
|10.12      |  | Second Amendment to Lease, dated December 6, 1999, by and between the Registrant and Peregrine Investment PartnersI
(5)                                                                                                                                                               



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##### Table of Contents

|      |  |                                                                                                                                                                                                                  
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.13 |  | Intentionally omitted                                                                                                                                                                                            
|      | 
|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 |  | Intentionally omitted                                                                                                                                                                                            
|      | 
|10.16 |  | Intentionally omitted                                                                                                                                                                                            
|      | 
|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 (12)                                                                                                                      
|      | 
|10.20 |  | Purchase and Sale Agreement, dated October 20, 2001, between ITXC and eStara, Inc. (12)                                                                                                                          
|      | 
|10.21 |  | Form of Executive Employment Agreement executed by the Company with each of Edward B. Jordan, Theodore M. Weitz, John E. Landau and Eric Weiss (13)                                                              
|      | 
|10.22 |  | Executive Employment Agreement by and between the Company and Steven J. Ott (14)                                                                                                                                 
|      | 
|10.23 |  | Amendment to Mr. Jordans Executive Employment Agreement                                                                                                                                                         
|      | 
|10.24 |  | Employment Agreement with Anthony Servidio                                                                                                                                                                       
|      | 
|14.1  |  | Code of Ethics                                                                                                                                                                                                   
|      | 
|21.1  |  | Subsidiaries of the Registrant (5)                                                                                                                                                                               
|      | 
|23.1  |  | Consent of Ernst & Young LLP                                                                                                                                                                                     
|      | 
|24.1  |  | Powers of Attorney                                                                                                                                                                                               
|      | 
|31.1  |  | Certification of the Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                          
|      | 
|31.2  |  | Certification of the Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                          
|      | 
|32.1  |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.                                                           
|      | 
|32.2  |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.                                                           
|      | 
|99.1  |  | Risk Factors                                                                                                                                                                                                     

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##### Table of Contents

|     |  |                                                                                                                                                 
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------
|(1)  |  | Intentionally omitted.                                                                                                                          
|     | 
|(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 the 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)  |  | Intentionally omitted.                                                                                                                          
|     | 
|(9)  |  | Intentionally omitted.                                                                                                                          
|     | 
|(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.                                               
|     | 
|(12) |  | Incorporated by reference to the similarly numbered Exhibit of the registrants Annual Report on Form 10-K for the year ended December 31, 2001.
|     | 
|(13) |  | Incorporated by reference to Exhibit 10.1 of the registrants Form 10-Q for the quarter ended June 30, 2003.                                    
|     | 
|(14) |  | Incorporated by reference to Exhibit 10.2 of the registrants Form 10-Q for the quarter ended June 30, 2003.                                    



The registrant filed or submitted five
current Reports on Form 8-K during the quarter ended December 31, 2003. Information regarding the items reported on is as follows:



|                  |  |                                                                                                                                    
|----------------- |  | -----------------------------------------------------------------------------------------------------------------------------------
|Date              |  | Matter Reported On                                                                                                                 
|November 4, 2003  |  | Definitive agreement and plan of merger providing for the acquisition of the Company by Teleglobe (disclosure under items 5 and 7).
|November 4, 2003  |  | Disseminated press releases dated November 4, 2003 (disclosure under items 5, 7 and 12).                                           
|December 5, 2003  |  | The Companys CEO testified as a Federal Communications Commission hearing held on December 1, 2003 (disclosure under item 9).     
|December 10, 2003 |  | Disseminated a press release dated December 8, 2003 (disclosure under items 5 and 7).                                              
|December 17, 2003 |  | Disseminated a press release dated December 16, 2003 (disclosure under item 9).                                                    





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##### Table of Contents

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 15th day of March, 2004.



ITXC CORP.By:

/s/ ANTHONY SERVIDIOAnthony Servidio,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 15th day of March, 2004.



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



|     |  |                     
|---- |  | --------------------
|*By: |  | /s/ ANTHONY SERVIDIO
|     |  | Attorney-in-Fact    



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##### Table of Contents

EXHIBIT INDEX



|      |  |                                                                                                                                                                                                                                                                                         
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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)                                                                                                                                                                                                                             
|      | 
|4.2   |  | Shareholder Protection Rights Plan, dated as of April 10, 2003, between ITXC Corp. and American Stock & Transfer Company, as Rights
Agent, is incorporated by reference to Exhibit 4.1 to the Registrants Current Report on Form 8-K filed with the SEC on April 14, 2003              
|      | 
|10.1  |  | Agreement and Plan of Merger among Teleglobe International Holdings Ltd, a subsidiary of that entity and the registrant, dated as of
November 4, 2004, is incorporated by reference to Exhibit 2.1 to the Registrants Current Report on Form 8-K filed with the SEC on November 4, 2003
|      | 
|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 |  | Intentionally omitted                                                                                                                                                                                                                                                                   
|      | 
|10.12 |  | Second Amendment to Lease, dated December 6, 1999, by and between the Registrant and Peregrine Investment PartnersI
(5)                                                                                                                                                                
|      | 
|10.13 |  | Intentionally omitted                                                                                                                                                                                                                                                                   
|      | 
|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 |  | Intentionally omitted                                                                                                                                                                                                                                                                   
|      | 
|10.16 |  | Intentionally omitted                                                                                                                                                                                                                                                                   
|      | 
|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 (12)                                                                                                                                                                                              
|      | 
|10.20 |  | Purchase and Sale Agreement, dated October 10, 2001, between ITXC and Estara, Inc. (12)                                                                                                                                                                                                 
|      | 
|10.21 |  | Form of Executive Employment Agreement executed by the Company with each of Edward B. Jordan, Theodore M. Weitz, John E. Landau and Eric
Weiss (13)                                                                                                                                     
|      | 
|10.22 |  | Executive Employment Agreement by and between the Company and Steven J. Ott (14)                                                                                                                                                                                                        
|      | 
|10.23 |  | Amendment to Mr. Jordans Executive Employment Agreement                                                                                                                                                                                                                                
|      | 
|10.24 |  | Employment Agreement with Anthony Servidio                                                                                                                                                                                                                                              
|      | 
|14.1  |  | Code of Ethics                                                                                                                                                                                                                                                                          
|      | 
|21.1  |  | Subsidiaries of the Registrant (5)                                                                                                                                                                                                                                                      
|      | 
|23.1  |  | Consent of Ernst & Young LLP                                                                                                                                                                                                                                                            
|      | 
|24.1  |  | Powers of Attorney                                                                                                                                                                                                                                                                      
|      | 
|31.1  |  | Certification of the Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                  



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##### Table of Contents

|     |  |                                                                                                                                                      
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|31.2 |  | Certification of the Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002                                               
|     | 
|32.1 |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002
|     | 
|32.2 |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002
|     | 
|99.1 |  | Risk Factors                                                                                                                                         



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##### Table of Contents

---

|(1) | Intentionally omitted.
|--- | ----------------------

|(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 the 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) | Intentionally omitted.
|--- | ----------------------

|(9) | Intentionally omitted.
|--- | ----------------------

|(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.
|---- | -------------------------------------------------------------------------------------------------

|(12) | Incorporated by reference to the similarly numbered Exhibit of the registrants Annual Report on Form 10-K for the year ended December 31, 2001.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------

|(13) | Incorporated by reference to Exhibit 10.1 of the registrants Form 10-Q for the quarter ended June 30, 2003.
|---- | ------------------------------------------------------------------------------------------------------------

|(14) | Incorporated by reference to Exhibit 10.2 of the registrants Form 10-Q for the quarter ended June 30, 2003.
|---- | ------------------------------------------------------------------------------------------------------------