UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

(Mark One)

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

For the fiscal year ended December 31, 2002

OR

|o | 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: 000-27127

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iBasis, Inc.

(Exact name of registrant as specified in its charter)

Delaware

04-3332534(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)


20 Second Avenue, Burlington, MA 01803(Address of principal executive offices, including zip code)

(781) 505-7500(Registrant's telephone number, including area code)

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

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

Common Stock, $0.001 par value per share

(Title of Class)

---

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 ý    No o

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-X is not contained herein, and will not be contained, to the best of 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. o

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

The
aggregate market value of the registrant's common stock, $0.001 par value per share ("Common Stock"), held by non-affiliates of the registrant as of June 28, 2002 was
approximately $14,383,123 based on 38,873,307 shares held by such non-affiliates at the closing price of a share of Common Stock of $0.37 as reported on the Nasdaq National Market on such
date. Affiliates of the Company (defined as officers, directors and owners of 10 percent or more of the outstanding share of Common Stock) owned 6,788,601 shares of Common Stock outstanding on
such date. The number of outstanding shares of Common Stock of the Company on March 18, 2003 was 44,649,942.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on
May 29, 2003, are incorporated by reference into Part III hereof. With the exception of the portions of such Proxy Statement expressly incorporated into this Annual Report on
Form 10-K by reference, such Proxy Statement shall not be deemed filed as part of this Annual Report on Form 10-K.

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iBASIS, INC.

FORM 10-K  For the Year Ended December 31, 2002

|           |  | Table of Contents                                                                              |  | Page
|---------- |  | ---------------------------------------------------------------------------------------------- |  | ----
|           |  | PART I                                                                                         |  |     
|Item 1.    |  | Business                                                                                       |  | 3   
|Item 2.    |  | Properties                                                                                     |  | 10  
|Item 3.    |  | Legal Proceedings                                                                              |  | 11  
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                            |  | 11  
|           |  | PART II                                                                                        |  |     
|Item 5.    |  | Market for the Registrant's Common Equity and Related Stockholder Matters                      |  | 12  
|Item 6.    |  | Selected Financial Data                                                                        |  | 13  
|Item 7.    |  | Management's Discussion and Analysis of Financial Condition and Results of Operations          |  | 15  
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                                     |  | 39  
|Item 8.    |  | Financial Statements and Supplementary Data                                                    |  | 40  
|Item 9.    |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure           |  | 74  
|           |  | PART III                                                                                       |  |     
|Item 10.   |  | Directors and Executive Officers of the Registrant                                             |  | 75  
|Item 11.   |  | Executive Compensation                                                                         |  | 75  
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |  | 75  
|Item 13.   |  | Certain Relationships and Related Transactions                                                 |  | 75  
|Item 14.   |  | Controls and Procedures                                                                        |  | 75  
|           |  | PART IV                                                                                        |  |     
|Item 15.   |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                               |  | 76  
|Signatures |  | 81                                                                                            

This annual report on Form 10-K and the documents incorporated by reference contain forward-looking statements based on current expectations, estimates and
projections about iBasis' industry and management's beliefs and assumptions. In some cases you can identify these statements by forward-looking words such as "anticipate," "believe," "could,"
"estimate," "expect," "intend," "may," "should," "will," and "would" or similar words. You should read statements that contain these words carefully because they discuss future expectations, contain
projections of future results of operations or of financial position or state other "forward-looking" information. The important factors listed in the section captioned "Risk Factors," as well as any
cautionary language in this annual report, provide examples of risks, uncertainties and events
that may cause the actual results to differ materially from the expectations described in these forward-looking statements. You should be aware that the occurrence of the events described in these
risk factors and elsewhere in this annual report could have an adverse effect on the business, results of operations and financial position of iBasis.

Any forward-looking statements in this annual report are not guarantees of future performance, and actual results, developments and business decisions may differ from those
envisaged by these forward-looking statements, possibly materially. iBasis disclaims any duty to update any forward-looking statements, even if new information becomes available or other events occur
in the future.

2

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PART I

Item 1.Business

Company Overview

iBasis is a leading provider of advanced Internet-based communications services that enable retail-level telecoms to offer international voice, fax and other services. Our
business joins the flexibility and power of the Internet with the explosive growth in international communications. By outsourcing the delivery of international communications services to iBasis, our
customers are able to lower costs and to generate new revenue while maintaining service quality comparable to that of traditional voice networks.

In
2002, iBasis refocused on its core wholesale international business and sold two enhanced services business units that provided messaging and speech solution services.

Industry Overview

Market Overview.The international voice and fax traffic market is estimated to be worth more than US$60 billion. We believe that
this market will continue to grow as countries around the world continue to deregulate their telecommunication markets, prices fall and underlying trends in migration and economic integration drive
fundamental demand.

Global
deregulation combined with rapid technological advances has enabled the emergence of many new communications service providers in dozens of local markets. In their efforts to remain
competitive, national carriers are focusing their capital spending on 'last-mile' services such as fixed-line, wireless, and cable that account for the most of their revenues.
Consequently, communications service providers are looking for ways to expand their ability to serve all of their customers' telecoms needs, while simultaneously reducing the cost of providing
international services. Increasingly, the world's carriers are seeking to outsource international voice traffic to efficient Voice over Internet Protocol or VoIP networks, such as The iBasis
Network, whose inherently lower infrastructure and transport costs improve a carrier's competitiveness and bottom line, without compromising service quality.

Emergence of Internet Telephony.Although it has been possible to transmit VoIP since 1995, only recently has the technology improved such
that phone-to-phone calls can be transmitted over data networks with quality nearly indistinguishable from that of traditional voice networks. International VoIP traffic has
grown rapidly; according to industry analyst, TeleGeography, traffic grew from 1.6 billion minutes in 1999 to 5.3 billion in 2000, to 9.9 billion in 2001, and was forecast to
reach 18 billion in 2002.

Internet
telephony's principal benefits are:



3

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Outsourcing Internet Telephony services.Given the advantages, many carriers have begun to carry some portion of their voice traffic over
IP networks. Despite the move by some large carriers to develop their own international VoIP infrastructures, carriers have been more interested in outsourcing international traffic to providers such
as iBasis. The reasons for the preference to outsource international traffic include:



iBasis Services and Solutions

iBasis wholesale international Internet telephony enables carriers and other communications service providers to outsource international voice and fax traffic, substantially
lowering their transport and service support costs, without compromising quality. We provide our carrier customers access to The iBasis Network, our international Internet telephony network, through
"Internet Central Offices" or
"ICOs" and "Internet Branch Offices" or "IBOs" as described below under the section captioned "The iBasis Network". ICOs are strategically located in major telecommunications hubs in the U.S., Asia,
and Europe. Our services provide the following key benefits to our customers:

High Quality Call Completion.Our network, monitoring and management technologies enable us to complete international voice and fax calls
with quality comparable to that of traditional circuit-switched voice networks. This high quality is reflected in the fact that carriers choose to provide our Internet telephony services to their
retail customers undifferentiated from their traditional services. We achieve high quality over the Internet through a variety of controls and technologies. At our 24x7, expert-staffed global Network
Operations Centers (NOCs) in Burlington, Massachusetts, USA and Hong Kong, we are able to monitor our carrier customers' voice traffic and add/remove routing choices according to real time
performance. Using our patent-pending Assured Quality Routing® technology,

4

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we dynamically route customers' traffic over multiple Internet backbones, completing calls on our partners' phone networks in destination countries.

Cost Effective Solutions.Our call transport costs are lower because packet switching is more efficient than traditional circuit-switching.
Because we use the Internet, rather than a private IP network, to deliver international voice traffic, we have greater infrastructure flexibility and lower costs than service providers that employ
dedicated point-to-point connections. VoIP equipment is less costly and has lower facilities costs (due to its smaller physical footprint) than equivalent capacity
circuit-switched equipment. We offer an open, scalable architecture that enables carriers and communications service providers to connect within a short period of time and without investment or
special expertise. An additional advantage derives from our ability to bypass many of the international tariffs or settlement rates associated with some international traffic carried over
circuit-switched voice networks, which produces additional cost savings. Our enhanced servicesIP Call Card, ConnectPoint® Global Accessall build upon the
underlying network to create cost effective value-added solutions for our customers.

Simple Value Propositions that Reduce Complexity and Solve Current Customer Problems.In the current global telecom environment, carriers
are spending money only on what is necessary for their immediate business plans. The iBasis service portfolio does not rely on expectations that customers will choose to begin and will be successful
with new services. While some customers buy our routes individually, some customers give to iBasis all of their international traffic which they pick-up as a "byproduct" of their
locally-focused operations. We help them do the 'small but essential' job of terminating their international trafficconveniently and effectively. Likewise, our customers find themselves
with rapidly growing demand for prepay and audio-conferencing services where outsourcing to iBasis enables them to eliminate an old-technology audio-conferencing platform or to quickly
create an option for customers to prepay while the market window still exists, all without expenditure of generally scarce capital. ConnectPoint Global Access provides customers local access numbers
in countries around the world, delivering traffic across our network to a central point(s). The service enables our customers' customers to easily access resources (such as an
out-of-country call center) that would otherwise require an international long distance direct dial or an international toll free call. ConnectPoint saves our customers the
time and cost of developing their own global arrangements for local access and transport to the central point(s).

The iBasis Network

The iBasis Network is the company's growing international network, over which it delivers large volumes of high quality international voice, fax and enhanced services at
significant cost savings to its customers. iBasis transported almost 2.6 billion minutes of traffic over its network in 2002, a traffic volume that would position iBasis among the fifteen
largest carriers of international traffic in the world, based on global traffic statistics contained in the industry analyst publication TeleGeography 2003. At year-end 2002 there were 771
Points of Presencegenerally referred to as POPsin 85 countries. POPs designate points where the iBasis network connects to local telephone networks for call origination or
termination.

In
2002, we completed the deployment of our next generation switchless architecture, leveraging our existing Cisco AS5000 gateways and SC 2200 SS7 technology, as well as new patent-pending iBasis
technology for quality management and advanced routing. Our Assured Quality Routing® and PathEngine technology enable ongoing monitoring of network quality and automatic
selection of best quality routes based on near real-time performance data. The new architecture provides iBasis significant savings in operational costs and capital expense by eliminating
the need for costly telecommunications switches and other equipment and connectivity in central offices. It also has enabled iBasis to simplify provisioning, real-time route monitoring,
and network management by decreasing the number of network components involved in carrying a call. The result for iBasis customers is higher voice quality, call completion and call duration.

5

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The
iBasis Network consists of four principal elements:



Internet Central Offices and Internet Branch Offices.Our customers can interconnect with our network by connecting dedicated voice
circuits from their facilities to one of our ICOs, which are strategically located in Amsterdam, Frankfurt, Hong Kong, London, Los Angeles, New York, Paris, and Tokyo. Alternatively, our customers may
elect to install an iBasis IBO at their facilities. ICOs and IBOs receive calls directly from a local carrier's switched network. VoIP gateways in each ICO or IBO digitize, compress and packetize
voice and fax calls and then transmit them over the Internet. At the destination, another ICO or IBO reverses the process and the call is switched back from the Internet to a local carrier's
circuit-switched network in the destination country. Some of our customers and termination partners have their own VoIP gateway equipmentwe generally interconnect with these customers and
partners via the Internet. As this trend progresses, our already asset-effective business model gains further strength, as iBasis no longer bears all the cost of converting calls between traditional
voice network and the Internet and dedicated physical circuit-switched interconnects are eliminated altogether.

The Internet.We use the Internet to transmit the substantial majority of our voice and fax traffic because of its global coverage, low
cost and flexible connectivity. As a result, we have avoided the expense and delay of deploying and maintaining a private, dedicated network of fiber and cable connections. In addition, because we do
not have fixed, point-to-point connections, we can adapt to changes in international traffic flows rapidly and at minimal cost. We effectively address the challenges of using
the Internet for high quality, real-time voice communications by:



In
certain infrequent circumstances we use private leased lines or traditional circuit-based voice networks to terminate traffic to destinations where there is insufficient Internet bandwidth
available to meet our quality standards.

Assured Quality Routing.We have deployed a proprietary patent-pending system of tools  collectively known as, Assured Quality
Routing to maintain high quality service over the Internet. AQR optimizes the quality of calls placed over The iBasis Network by integrating quality parameters into routing decisions. These parameters
include measures of quality that are of direct importance to carriers including call duration, call completion and post-dial delay as well as underlying determinants of successful data
transmission, namely packet loss, jitter and latency. AQR automatically reroutes traffic in anticipation of quality dropping below specific thresholds, sending subsequent calls through another
Internet path, to an alternative terminating IP partner or to a circuit-switched backup vendor if necessary.

Global Network Operations Centers.We manage our network and implement AQR through our network operations centers (NOCs). iBasis NOCs use
leading network management tools from Hewlett-

6

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Packard and a number of other vendors, which are integrated with our AQR systems to enable us to monitor, test and diagnose all components of The iBasis Network. NOCs in Burlington, Massachusetts and
Hong Kong are staffed by network and traffic engineers to provide expert coverage 7 days a week, 24 hours a day, 365 days of the year, and are equipped with:



Markets and Customers

Our customer base can be segregated by size into Tier 1, Tier 2 and Tier 3 carriers.Generally, Tier 1 carriers are large
domestic and international carriers, such as AT&T, WorldCom, Sprint, Cable & Wireless, and certain government-affiliated or privatized dominant carriers, such as the Japanese telecommunications
carrier KDD.Tier 1 carriers generally have annual revenues in excess of $2 billion. Tier 2 carriers have revenues generally in the range of
$750 million to $2 billion, but have fewer direct operating agreements with other carriers and fewer international facilities. Tier 3 carriers are typically switch-based resellers with
revenues of less than $750 million.

The
majority of traffic carried over The iBasis Network is from Tier 1 carriers. In the fourth quarter of 2002, Tier 1 carriers, the world's largest and most demanding carriers, accounted for
72 percent of our traffic. The ability to provide quality call completion consistently acceptable to Tier 1 carriers is of vital importance because these carriers control the vast majority of
the world's retail traffic. Tier 1 carriers will continue to be a main area of focus for our sales force.

During
2002, the proportion of our traffic origination from outside of the United States continued to grow to 49% of total revenue and 41% of total traffic in the fourth quarter. Non-U.S. origination
generally produces higher margins than US-originated traffic. As of December 31, 2002, iBasis provided services to more than 170 carriers worldwide and only one carrier, Qwest
Communications, accounted for more than 10 percent of our sales revenues for the year. No carrier represented greater than 10% of
our sales in the fourth quarter of 2002. For further discussion of our revenues related to customers in other countries and other geographic information, please refer to Note 9 to our
consolidated financial statements.

In
countries where we terminate our traffic, we have established relationships with local service providers that have strong local market expertise and relationships. Some of our overseas partners are
very large, well-established national carriers. Others are emerging carriers or Internet Service Providers (ISPs) who are able to provide the interconnection necessary to terminate minutes
for us in their country.

Increasingly,
traffic flows are becoming reciprocalformerly distinct customers and suppliers are becoming "trading-partners"as deregulation and competition erode the
distinction between the business models of our customers and suppliers. iBasis expects continued growth in both size and profitability as this trend progresses and we further consolidate our position
as a leading carrier that interconnects the world's local service providers.

Sales and Marketing

Sales Strategy.Our sales efforts for Internet telephony target leading telecommunications carriers globally. Our sales force is composed
of experienced personnel with well-established relationships in the telecommunications industry, based in key markets worldwide and typically responsible for business development in a
small number of countries regionally. Our sales process often involves a test by our

7

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potential customers of our services in which they route traffic over our network to a particular country. Our experience to date has been that once a carrier has begun to use our network for a single
country and finds our quality to be acceptable, the sales process for increasing the volume of traffic they send to us and growing the number of destinations for which they use our network becomes
incrementally easier.

We
also seek to establish and grow relationships with service providers that can terminate the local leg of international calls. We believe that our ability to deliver a high volume of minutes makes
us an attractive potential partner for local service providers.

As
deregulation and competition push all local service providers to both originate and terminate as much traffic as possible on their local networks, iBasis will increasingly enjoy "reciprocal"
relationships with the providers with which we do business, further improving sales productivity.

We
have offices providing sales coverage in Europe, Africa, the Middle East, Latin America, the Caribbean, the Asia-Pacific region, and North America.

Marketing Strategy.iBasis seeks to attract termination partners as well as customers and consequently addresses its marketing efforts to
both. Most retail origination is controlled by the largest (Tier 1) retail carriers. iBasis believes that we have largely achieved our primary marketing objectives of awareness and acceptance
among much of this customer segment, as evidenced by our penetration of these carriers, particularly in the United States, Western Europe and China. We will continue to reinforce our brand presence
with this segment in 2003 to help increase our share of their international traffic. Also, we will concentrate on state-owned carriers, known as PTTsin Asia and in developing economies
generallywhom we view as natural customers. While we increasingly expect our customers to also be our termination partners, local circumstances in many countries still are such that
iBasis looks to partner with ISPs, new Competitive Local Exchange Carriers (CLECs) and specialist termination providers. Unlike marketing to the well-known Tier 1 carriers, iBasis actively
identifies and attracts smaller termination partners in many countries, many of which are start-ups formed specifically to terminate international traffic. Our marketing plan includes
public relations activity, outreach with industry analysts and the trade press, participation in industry trade shows and conferences, targeted mailings and a comprehensive Website. We expect our
Web-based marketing efforts to continue to increase in prominence in attracting and qualifying leads.

Strategic Technology Relationships

Strategic technology relationships are important because they give us early access to new technologies, a voice in vendors' development direction and because strategic partners
engage with us in support of our sales and marketing programs.

Cisco Systems

Since its founding in 1996, iBasis has maintained a strong, strategic technology and business relationship with Cisco Systems. The iBasis Network is the largest international
Cisco Powered Network for Internet telephony. This designation means that The iBasis Network is built end-to-end with Cisco products and technologies, and meets a
high standard of reliability and performance. As a Cisco Powered Network, we have enhanced access to Cisco technical resources and are able to more quickly deliver new capabilities and service
features. We have regularly engaged in numerous early field trials of Cisco VoIP technologies, during which we gain experience with new features before they are available to the marketplace. We have
also conducted joint sales and marketing activities with Cisco. Our management team regularly meets with Cisco executives at Cisco's Executive Briefing Center. iBasis is a founding member of Cisco's
Service Carrier Community, a program that helps connect us to potential business development opportunities with other VoIP carriers.

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Competition

As described more completely in the section captioned "Risk Factors," the market for international voice and fax call completion services is highly competitive. We face
competition from a variety of sources including large internationally-oriented service providers with more resources, longer operating histories and more established positions in the
telecommunications marketplace, some of whom have begun to develop Internet telephony capabilities. We also compete with smaller companies, including those that may be specialists in just one or two
routes. We also compete against our customers' ability to carry traffic themselves, whereby either retail carriers develop their own international networks or interconnect with one another and
exchange international traffic by "meeting" in a major telecoms hub, such as London. We compete principally on quality of service and price. Although the market for wholesale international traffic is
highly competitive and will almost certainly remain so, we believe that our brand-strength, customer base, established global distribution and patented ability to manage traffic across the
(low-cost) Internet, while maintaining required quality, collectively represent a competitive advantage that will allow us to continue expanding both volumes and margins.

Government Regulation

As more fully described in the "Risk Factors", our business is subject to U.S. and foreign laws, which may include those relating to telecommunications.

We
believe that under United States law, the Internet-related services that we provide constitute information services, rather than telecommunications services. As such, our services are generally not
regulated by the U.S. Federal Communications Commission or state agencies responsible for regulating telecommunications carriers. However, aspects of our operations not wholly related to the Internet
may be subject to state or federal regulation such as regulations governing, among other things, licensing, universal service funding, confidentiality of communications, copyright and excise taxes.

The
regulatory treatment of Internet telephony and other iBasis services varies widely among other countries and is subject to constant change. Until recently, most countries did not have regulations
addressing Internet telephony or other VoIP services such as calling cards, in some cases classifying these services as unregulated enhanced services. As the Internet telephony market has grown and
matured, increasing numbers of regulators have begun to reconsider whether to regulate Internet telephony and other VoIP services. Some countries currently impose little or no regulation on Internet
telephony or VoIP services. Conversely, other countries that prohibit or limit competition for traditional voice telephony services generally do not permit Internet telephony or VoIP services or
strictly limit the terms under which such services may be provided. Still other countries regulate Internet telephony and VoIP services like traditional voice telephony services, requiring Internet
telephony companies to obtain licenses, incorporate local subsidiaries, make universal service contributions and pay other taxes.

We
have advocated and supported deregulation for free and open market competition in a variety of countries.

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Intellectual Property

We regard our copyrights, service marks, trademarks, trade dress, trade secrets, patents, patent applications and similar intellectual property as critical to our success and
we rely on trademark and copyright law, trade secret protection and confidentiality and/or license agreements with our employees, customers, partners and others to protect our proprietary rights. We
intend to rely on patent law and confidentiality and/or license agreements with our employees, customers, partners and others to protect our proprietary rights in such patents and patent applications.
We have filed several patents for The iBasis Network and other inventions related to our business. We pursue the registration of our trademarks and service marks in the United States and overseas. We
have been granted trademark registration for the marks iBasis, Assured Quality Routing, and ConnectPoint in the United States, and iBasis in the European community and have pending registration
applications for other service marks.

Employees

As of December 31, 2002, we employed 209 people. Our employees are not represented by a labor union and we consider our relations with our employees to be good.

Geographic Areas

For financial information about geographic areas, including information about revenues and long-lived assets, see Note 9. "Segment and Geographic Information" to our
Consolidated Financial Statements.

Item 2.Properties

We lease the following facilities:

|Location         |  | Square Footage |  | Expiration of Lease |  | Facility Use                                       
|---------------- |  | -------------- |  | ------------------- |  | ---------------------------------------------------
|Burlington, MA   |  | 59,734         |  | Various, 2003-2005  |  | Office space and a global network operations center
|New York, NY     |  | 11,654         |  | Various, 2008-2010  |  | House telecommunications equipment                 
|Miami, FL        |  | 10,500         |  | February 2010       |  | Vacant                                             
|Hong Kong, China |  | 6,446          |  | October 2003        |  | Office space and a global network operations center
|Los Angeles, CA  |  | 3,156          |  | April 2008          |  | House telecommunications equipment                 

In
addition to the facilities listed above, we have obtained collocation space in special facilities around the world that are dedicated to housing equipment of multiple competitive telephony
carriers. We lease these smaller spaces to house Internet routing and related equipment. We lease collocation space in Amsterdam, Frankfurt, Hong Kong, London, Paris, and Tokyo. We also rent smaller
office space in London and Beijing. We believe that our existing facilities are adequate for our current needs and that suitable additional or alternative space will be available in the future on
commercially reasonable terms.

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Item 3.Legal Proceedings

In addition to litigation that we have initiated or responded to in the ordinary course of business, we are currently party to the following potentially material legal
proceedings:

Beginning
August 1, 2001, we were served with several class action complaints that were filed in the United States District Court for the Southern District of New York against us and several of
our officers, directors, and former officers and directors, as well as against the investment banking firms that underwrote our November 11, 1999 initial public offering of common stock and our
March 9, 2000 secondary offering of common stock. The complaints were filed on behalf of persons who purchased our common stock during different time periods, all beginning on or after
November 10, 1999 and ending on or before December 6, 2000. The complaints are similar to each other and to hundreds of other complaints filed recently against other issuers and their
underwriters, and allege violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 primarily based on the assertion that there was undisclosed compensation received by our
underwriters in connection with our public offerings. The plaintiffs are seeking an as-yet undetermined amount of monetary damages in relation to these claims. On September 4, 2001,
the cases against iBasis were consolidated. On October 9, 2002, the individual defendants were dismissed from the litigation by stipulation and without prejudice. Although iBasis has not filed
an answer in any of these matters, iBasis believes that it and the individual defendants have meritorious defenses to the claims made in the complaints and intends to contest the lawsuits vigorously.
In doing so or deciding whether to pursue a settlement, we will consider, among other factors, the substantial costs and the diversion of our management's attention and resources that would be
required by litigation. We cannot assure you that we will be successful should we decide to litigate. In addition, even though we have insurance and contractual protections that could cover some or
all of the potential damages in these cases, or amounts that we might have to pay in settlement of these cases, an adverse resolution of one or more of these lawsuits could have a material adverse
affect on our financial position and results of operations in the period in which the lawsuits are resolved. We are not presently able to estimate potential losses, if any, related to the lawsuits.

We
have also received claims including lawsuits from estates of bankrupt companies alleging that we received preferential payments from such companies prior to their bankruptcy filings. We intend to
employ all available defenses in contesting such claims. The results of any suit may have a material adverse affect on our business.

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

None.

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PART II

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

Market Information

Our common stock began trading publicly on the Nasdaq National Market on November 10, 1999 and was traded under the symbol "IBAS." On November 13, 2002, we
received a determination from Nasdaq that shares of our common stock would no longer trade on the Nasdaq National Market because we failed to meet certain minimum listing requirements. Our common
stock began trading on the Nasdaq operated Over-the-Counter Bulletin Board on November 14, 2002 under the same symbol "IBAS." The following table shows the range of the high and low
per share prices of our common stock, as reported by the Nasdaq National Market and the Over-the-Counter Bulletin Board for the period indicated. Over-the-Counter market quotations reflect
interdealer prices, without retail mark-up, mark-down or commission and may not necessarily reflect actual transactions.

High

LowFiscal 2002:First Quarter

$
1.78

$
0.71Second Quarter


1.10


0.31Third Quarter


0.65


0.22Fourth Quarter


0.55


0.20Fiscal 2001:First Quarter

$
9.81

$
2.53Second Quarter


5.36


2.12Third Quarter


4.24


0.41Fourth Quarter


1.86


0.36


Holders

As of March 18, 2002, there were 250 stockholders of record. This does not reflect persons or entities who hold their stock in nominee or "street" name through various
brokerage firms. We estimate that there are approximately 11,500 holders of iBasis stock.

Dividends

iBasis has never declared or paid cash dividends on its common stock. Our existing financing arrangements place restrictions on the Company's ability to pay cash dividends.
iBasis intends to retain all future earnings to finance future growth, and, therefore, does not anticipate paying any cash dividends in the foreseeable future.

Securities Authorized for Issuance Under Equity Compensation Plans

As of the year ended December 31, 2002, the following securities were authorized for issuance under our equity compensation plans:

|Plan category                                              |       | Number of securities to be issued upon exercise of outstanding options |           | Weighted average exercise price of outstanding options |      | Number of options remaining available for future issuance under equity compensation plans (excluding options reflected in column (a))
|---------------------------------------------------------- | ----- | ---------------------------------------------------------------------- | --------- | ------------------------------------------------------ | ---- | -------------------------------------------------------------------------------------------------------------------------------------
|
|Equity compensation plans approved by security holders     |       | 2,555,641                                                              |           | $                                                      | 2.67 |                                                                                                                                      
|Equity compensation plans not approved by security holders |       | None                                                                   |           |                                                        | N/A  |                                                                                                                                      
|                                                           |       |                                                                        |           |                                                        |      |                                                                                                                                      
|                                                           | Total |                                                                        | 2,555,641 |                                                        | $    | 2.67                                                                                                                                 
|                                                           |       |                                                                        |           |                                                        |      |                                                                                                                                      

12

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Item 6.Selected Financial Data

The
following historical selected financial information of iBasis is qualified by reference to, and should be read in conjunction with, the consolidated financial statements and related notes included
elsewhere in this document.

During
July 2002, the Company sold its Speech Solutions Business. Accordingly, the Consolidated Statements of Operations have been reclassified to present the results of the Speech Solutions Business
separately from continuing operations as discontinued operations. Furthermore, the assets and liabilities of the Speech Solutions Business are classified separately on the Consolidated Balance Sheet
as of December 31, 2001.

|                                                                                                                                                    |  | Year Ended December 31, |         
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | --------
|
|
|Consolidated Statements of Operations Data:                                                                                                         |  |                         |         
|Net revenue                                                                                                                                         |  | $                       | 164,942 
|Cost and operating expenses:                                                                                                                        |  |                         |         
|Data communications and telecommunications                                                                                                          |  |                         | 142,847 
|Research and development                                                                                                                            |  |                         | 17,781  
|Selling and marketing                                                                                                                               |  |                         | 11,279  
|General and administrative                                                                                                                          |  |                         | 24,185  
|Depreciation and amortization                                                                                                                       |  |                         | 31,871  
|Non-cash stock-based compensation                                                                                                                   |  |                         | 967     
|Loss on sale of messaging business                                                                                                                  |  |                         | 2,066   
|Restructuring costs                                                                                                                                 |  |                         | 5,536   
|(Gain) loss on disposal of property and equipment                                                                                                   |  |                         |        
|                                                                                                                                                    |  |                         |         
|Total cost and operating expenses                                                                                                                   |  |                         | 236,532 
|Operating loss                                                                                                                                      |  |                         | (71,591 
|Interest income                                                                                                                                     |  |                         | 1,290   
|Interest expense                                                                                                                                    |  |                         | (11,608 
|Other (expense), income net                                                                                                                         |  |                         | (383    
|Minority interest in loss of joint venture                                                                                                          |  |                         |        
|                                                                                                                                                    |  |                         |         
|Loss from continuing operations before extraordinary gain on repurchase of Convertible Subordinated Notes                                           |  |                         | (82,291 
|Loss from discontinued operations                                                                                                                   |  |                         | (65,222 
|                                                                                                                                                    |  |                         |         
|Loss before extraordinary gain on repurchase of Convertible Subordinated Notes and accretion of dividends on redeemable convertible preferred stock |  |                         | (147,513
|Extraordinary gain on repurchase of Convertible Subordinated Notes                                                                                  |  |                         | 25,790  
|                                                                                                                                                    |  |                         |         
|Net loss                                                                                                                                            |  |                         | (121,723
|Accretion of dividends on redeemable convertible preferred stock                                                                                    |  |                         |        
|                                                                                                                                                    |  |                         |         
|Net loss applicable to common stockholders                                                                                                          |  | $                       | (121,723
|                                                                                                                                                    |  |                         |         
|Pro forma net loss applicable to common stockholders                                                                                                |  |                         |         
|                                                                                                                                                    |  |                         |         
|Basic and diluted net loss per share:                                                                                                               |  |                         |         
|Loss applicable to common stockholders from continuing operations before extraordinary gain on repurchase of Convertible Subordinated Notes         |  | $                       | (1.82   
|Loss from discontinued operations                                                                                                                   |  |                         | (1.45   
|                                                                                                                                                    |  |                         |         
|Loss before extraordinary gain on repurchase of Convertible Subordinated Notes                                                                      |  |                         | (3.27   
|Extraordinary gain on repurchase of Convertible Subordinated Notes                                                                                  |  |                         | 0.57    
|                                                                                                                                                    |  |                         |         
|Basic and diluted net loss per share                                                                                                                |  | $                       | (2.70   
|                                                                                                                                                    |  |                         |         
|Basic and diluted weighted average common shares outstanding (1)                                                                                    |  |                         | 45,164  
|                                                                                                                                                    |  |                         |         
|Pro forma basic and diluted net loss per share (1)(2)                                                                                               |  |                         |         
|                                                                                                                                                    |  |                         |         
|Pro forma basic and diluted weighted average common shares outstanding (1)(2)                                                                       |  |                         |         
|                                                                                                                                                    |  |                         |         

13

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|                                                                     |  | December 31, |        
|-------------------------------------------------------------------- |  | ------------ | -------
|
|
|Consolidated Balance Sheet Data:                                     |  |              |        
|Cash and cash equivalents, restricted cash and marketable securities |  | $            | 32,317 
|Working capital                                                      |  |              | 19,638 
|Total assets                                                         |  |              | 98,524 
|Long term debt, net of current portion                               |  |              | 93,590 
|Total stockholders' (deficit) equity                                 |  |              | (33,972

---

14

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

Forward-Looking Statements

This annual report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This Act provides a
"safe harbor" for forward-looking statements to encourage companies to provide prospective information about themselves so long as they identify these statements as forward looking and provide
meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results. All statements other than statements of historical fact made in
this annual report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements.
Forward-looking statements reflect management's current expectations and are inherently uncertain. iBasis's actual results may differ significantly from management's expectations. We disclaim any duty
to update any forward-looking statements, all of which should be read in conjunction with the "Risk Factors" section of this annual report.

Overview

We are an international telecommunications carrier that utilizes the Internet to provide economical international telecommunications services to carriers and telephony
resellers around the world. Our continuing operations consists of our VoIP business including incorporated subsidiaries around the world designed to enhance our global operations. We currently operate
through various service agreements with local service providers in the United States, Europe, Asia, the Middle East, Latin America, Africa and Australia.

During
July 2002, we sold our Speech Solutions Business. Accordingly, the Consolidated Statements of Operations have been reclassified to present the results of the Speech Solutions Business
separately from continuing operations as discontinued operations. Furthermore, the assets and liabilities of the Speech Solutions Business are classified separately on the Consolidated Balance Sheet
as of December 31, 2001.

Performance Highlights:



15

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Critical Accounting Policies

Revenue Recognition.Net revenue, which is derived from fees charged to terminate voice and fax services over our network, is recognized,
net of reserves, when services are rendered and future collection of such amounts is reasonably assured. We reserve for potential billing disputes at the time revenue is recognized. This is a standard
practice in the industry. Such disputes can result from disagreements with customers regarding the duration, destination or rates charged for each call.

Increased
competition from other providers of telephony services could materially adversely affect revenue in future periods. The loss of a major customer could have a material adverse affect on our
business, financial condition, operating results and future prospects.

Accounts Receivable.We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the
customer's current credit worthiness, as determined by our review of their current credit information. We continuously monitor collections and payments from our customers and maintain a provision for
estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. We have been able to mitigate our credit risk by using reciprocal
arrangements with customers, who are also iBasis' suppliers, to offset our outstanding receivables. A majority of our accounts receivable are from international carriers. A significant change in the
liquidity or financial position of our customers, or a change in the telecommunications industry, could have a material adverse impact on the collectability of our accounts receivables and our future
operating results.

Impairment of Long Lived Assets.Our long lived assets consist primarily of property and equipment. We have assessed the realizability of
these assets and determined that there was no asset impairment as of December 31, 2002 for these assets. We do not anticipate impairment losses related to the assets in the future. As described
in Note 3 to our Consolidated Financial Statements, during 2002, we sold our Speech Solutions Business. In connection with that sale, we recorded an impairment loss of approximately
$57 million.

Restructuring Charges.During 2002 and 2001, we recorded significant charges to operations in connection with our restructuring programs.
The related reserves reflect estimates, including those pertaining to severance costs and facility exit costs. We reassess the reserve requirements to complete each restructuring program at the end of
each reporting period. Actual experience may be different from these estimates.

16

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Results from Continuing Operations

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Net revenue.Our primary source of revenue is the fees that we charge customers for completing voice and fax calls over our network.
Revenue is dependent on the volume of voice and fax traffic carried over the network, which is measured in minutes. We charge our customers fees, per minute of traffic, that are dependent on the
length and destination of the call and recognize this revenue in the period in which the call is completed.

Our
net revenue increased by approximately $54.7 million to $164.9 million for 2002 from $110.2 million for 2001. The increase in revenue from 2001 was the result of an increase
in traffic carried over our network to 2.6 billion minutes for 2002 from 1.4 billion minutes for 2001, offset by the decline in the average rate per minute. We do not expect our average
rate per minute to significantly decline in the future.

Data communications and telecommunications expenses.Data communications and telecommunications expenses are composed primarily of
termination and circuit costs. Termination costs are paid to local service providers to terminate voice and fax calls received from our network. Terminating costs are negotiated with the local service
provider. Should competition cause a decrease in the prices we charge our customers and, as a result, a decrease in our profit margins, our contracts provide us with the flexibility to renegotiate the
per-minute termination fees. Circuit costs include charges for Internet access at our Internet Central Offices, fees for the connections between our Internet Central Offices and our
customers and/or service provider partners, facilities charges for overseas Internet access and phone lines to the primary telecommunications carriers in particular countries, and charges for the
limited number of dedicated international private line circuits we use.

Data
communications and telecommunications expenses increased by $40.5 million to $142.8 million for 2002 from $102.3 million for 2001. The increase in data communications and
telecommunications expense was primarily driven by the increase in traffic described above, offset by the decline in the average rate per minute. The largest component of the expense, termination
costs, increased to $131.8 million for 2002 from $87.3 million for 2001. Circuit and other costs decreased to $11.0 million for 2002 from $15.0 million for 2001. The
decrease in these circuit costs was due to our efforts to further improve our network operations and make it more cost efficient. We achieved cost savings by renegotiating prices with vendors and
service provider partners, entering into more variable rather than fixed cost arrangements, reducing the number of service providers, conducting extensive studies of our circuit needs and eliminating
under-utilized circuits by re-engineering more cost-effective solutions. As a percentage of net revenue, data communications and telecommunications expenses decreased to 87% for 2002 from 93% for
2001. We expect data communications and telecommunications expenses to continue to decrease as a percentage of net revenue as we further increase utilization and efficiency of our network and achieve
economies of scale.

Research and development expenses.Research and development expenses include the expenses associated with developing, operating, supporting
and expanding our international and domestic network, expenses for improving and operating our global network operations centers, salaries, and payroll taxes and benefits paid for employees directly
involved in the development and operation of our global network operations centers and the rest of our network. Also included in this category are research and development expenses that consist
primarily of expenses incurred in enhancing, developing, updating and supporting our network and our proprietary software applications.

Research
and development expenses decreased by $6.1 million to $17.8 million for 2002 from $23.9 million for 2001. This decrease in research and development expenses is due to the
decreased expenditures related to the support of The iBasis Network, as well as a reduction in personnel costs due to workforce reductions in the first and second quarter of 2002. As a percentage of
net revenue,

17

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research and development expenses decreased to 11% for 2002 from 22% for 2001. We expect that research and development expenses will remain constant and continue to decrease as a percentage of net
revenue.

Selling and marketing expenses.Selling and marketing expenses include expenses relating to the salaries, payroll taxes, benefits and
commissions that we pay for sales personnel and the expenses associated with the development and implementation of our promotion and marketing campaigns. Selling and marketing expenses decreased by
$9.0 million to $11.3 million for 2002 from $20.3 million for 2001. This decrease is primarily attributable to decreasing expenditures for selling, promotional and marketing
activities, as well as workforce reductions in the first and second quarter of 2002. As a percentage of net revenue, selling and marketing expenses decreased to 7% for 2002 from 18% for 2001. We
anticipate that selling and marketing expenses will remain relatively level in 2003 and will continue to decrease as a percentage of net revenue.

General and administrative expenses.General and administrative expenses include salary, payroll tax and benefit expenses and related costs
for general corporate functions, including executive management, finance and administration, legal and regulatory, facilities, information technology and human resources. General and administrative
expenses decreased by $1.4 million to $24.2 million for 2002 from $25.6 million for 2001. During 2002, our cost reduction measures for general and administrative expenses included
workforce reductions in the first and second quarter of 2002. These 2002 cost reductions were partially offset by a $0.9 million increase in bad debt expense primarily recorded in second
quarter of 2002 to cover at risk accounts. As a percentage of net revenue, general and administrative expenses decreased to 15% for 2002 from 23% for 2001. We expect general and administrative
expenses to decrease as a percentage of revenues as we leverage our current employee base through automation and other efficiency improvement projects.

Depreciation and amortization expenses.Depreciation and amortization expenses decreased by $0.5 million to $31.9 million for
2002 from $32.4 million for 2001. This decrease was due to the reduction in historical cost value of our network equipment due to our agreement to settle the majority of our capital lease
obligations with our primary equipment vendor (see Note 6) as well as the write-off of property and equipment as a part of our restructuring plans (see Note 11). As a percentage of net
revenue, depreciation and amortization expenses decreased to 19% for 2002 from 29% for 2001. We expect depreciation and amortization expenses to decrease as a percentage of net revenues due to an
expected increase in revenues, a decrease in future capital expenditures, an increase in fully depreciated assets and the decrease in the historical value of the underlying assets as a result of the
reduction in capital lease obligations with our primary equipment vendor.

Non-cash stock-based compensation.Non-cash stock-based compensation represents compensation expense incurred in
connection with the grant of stock options to our employees with exercise prices less than the fair value of our common stock at the respective dates of grant. Such grants were either made prior to
our initial public stock offering or were assumed in connection with our acquisition of PriceInteractive, Inc., and are being expensed over the vesting periods of the options granted. For 2002 and
2001, we recorded $1.0 million and $1.4 million, respectively, in non-cash stock-based compensation expense.

Loss on sale of messaging business.In March 2002, we sold our messaging line of business to Call Sciences, an enhanced
communications service provider. The sale included all of our messaging business, including, among other items, our Santa Clara, California data center, our customers, revenue streams, and customer
prospects in exchange for $168,000 and a future royalty stream. During 2002, we recognized a loss on the sale of $2.1 million, net of the royalty stream.

Restructuring costs.During 2002, we restructured to better align the organization and resources with our corporate strategy and recorded a
net charge of totalling approximately $5.5 million. Included in

18

---

the charges are the write-off of property and equipment, the termination of contractual obligations and, in Q2, employee severance.

The
components of the restructuring and other non-recurring costs were as follows:

Write off of fixed assets and facilities costs

$
2,427,162Termination of contractual lease obligations


2,793,831Employee severance costs


750,000Less: Change in estimate of 2001 restructuring costs


(434,512
)Total restructuring and other non-recurring costs

$
5,536,481


The
fixed asset write-off is primarily related to the closure and abandonment of our Miami and Singapore internet central offices. The costs include the write-off of leasehold improvements
as well as an estimated provision for termination costs for the facility space and telecommunication circuits. As we continue to focus on serving the largest international carriers, Tier One carriers,
who tend to maintain greater geographic footprints, management approved a plan to close our Miami and Singapore Internet Central Offices and route traffic through our other central facilities. In
addition, we wrote-off certain assets relating to our transitioning to a new switchless architecture in its VoIP network.

The
employee severance costs resulted from a reduction in the workforce as the Company terminated 44 employees on June 28, 2002. Of these 44 people, 19 were within research and development, 10
were from sales and marketing and 15 were from general and administrative departments.

In
addition our 2002 restructuring expense was reduced by a change in estimated restructuring costs relating to our 2001 restructuring and specifically related to a reduction in the estimated cost of
terminating contractual lease obligations.

These
cost reduction measures will be completed in the first quarter of 2003 and had a minimal impact on business operations during 2002.

Interest income.Interest income is primarily composed of income earned on our cash and cash equivalents, restricted cash and marketable
securities. Interest income decreased by $7.9 million to $1.3 million in 2002 and $9.2 million in 2001. This decrease was primarily attributable to a decrease in our cash and cash
equivalents, restricted cash and marketable securities as well as a decline in interest rates.

Interest expense.Interest expense is primarily composed of interest paid on the Convertible Subordinated Notes and various capital lease
agreements established to finance a substantial majority of the hardware and software components of our network. Interest expense decreased by $4.9 million to $11.6 million in 2002 from
$16.5 million in 2001. This decrease was attributable to reduced interest paid on capital equipment financing, the early extinguishment of $40.6 million of our Convertible Subordinated
Notes and the early extinguishment of $50.8 million of our capital lease obligations (see Note 6). We expect interest expense to decrease in 2003 as current capital lease obligations
mature and due to complete fiscal year impact of the early extinguishment of our convertible subordinated notes and capital lease obligations in 2003.

Loss from discontinued operations.On July 15, 2002 we sold our Speech Solutions Business for $18.5 million in cash
($1.5 million of this amount is in escrow). Additionally, $8 million in earn-out payments may be earned upon the achievement of certain revenue milestones by the Speech
Solutions Business in 2003, when the earn-out agreement terminates. The Company cannot be certain that any amounts will be earned in 2003 related to the earn-out. No earn-out payments were earned
during 2002.

19

---

The
operating loss and the loss on the disposal of the business totalled $65.2 million in 2002. The loss on the disposal of the discontinued operation of $58.9 million included the
write-off of goodwill and other purchased intangibles of $57.3 million and costs to sell the operation of $1.6 million.

Extraordinary gain on repurchase of Convertible Subordinated Notes.During 2002 and 2001, we recognized an extraordinary gain of
$25.8 million and $14.5 million, respectively, in connection with the early extinguishment of $40.6 million and $20.8 million, respectively, of our Convertible Subordinated
Notes. As described in Note 6 to our consolidated financial statements, we will record an additional gain on exchanges of our convertible subordinated notes during 2003.

Income Taxes.We have not recorded an income tax benefit for the losses associated with its operating losses as it is more likely than not
that those benefits will not be realized.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Net revenue.Our net revenue increased by $49.0 million to $110.2 million for 2001 from $61.2 million for 2000. The
increase in revenue from 2000 was the result of an increase in traffic carried over our network to 1.3 billion minutes for 2001 from 600 million minutes for 2000, offset by the decline
in the average rate per minute.

Data communications and telecommunications expenses.Data communications and telecommunications expenses increased by $41.7 million
to $102.3 million for 2001 from $60.6 million for 2000. The increase in data communications and telecommunications expense was primarily driven by the increase in traffic described
above, offset by the decline in the average rate per minute. Termination costs, the largest component of the expense, increased to $87.3 million in 2001 from $49.6 million in 2000.
Circuit and other costs increased to $15.0 million for 2001 from $11.0 million for 2000. The decrease in these circuit costs was due to our efforts to further increase the efficiency of
our network operations. As a percentage of net revenue, data communications and telecommunications expenses decreased to 93% for 2001 from 99% in 2000.

Research and development expenses.Research and development expenses increased by $8.7 million to $23.9 million in 2001 from
$15.2 million in 2000. This increase in research and development expenses is due principally to the expansion of The iBasis Network. As a percentage of net revenue, research and development
expenses decreased to 22% for 2001 from 25% in 2000.

Selling and marketing expenses.Selling and marketing expenses increased by $0.9 million to $20.3 million in 2001 from
$19.4 million in 2000. This increase is primarily attributed to increased activity within our public relations program and to correspond with the expansion of the iBasis Network. As a
percentage of net revenue, selling and marketing expenses decreased to 18% in 2001 from 32% in 2000.

General and administrative expenses.General and administrative expenses increased by $7.0 million to $25.6 million in 2001
from $18.6 million in 2000. General and administrative expenses increased primarily due to charges for bad debt expense to build reserves that we believe will be sufficient to cover potential
credit risk. As a percentage of net revenue, general and administrative expenses decreased to 23% in 2001 from 30% in 2000. We expect general and administrative expenses to decrease as a percentage of
revenues as we leverage our current employee base through automation and other efficiency improvement projects.

Depreciation and amortization expenses.Depreciation and amortization expenses increased by $16.7 million to $32.4 million in
2001 from $15.7 million in 2000. This increase resulted from additional purchases of capital equipment and software that were needed to support our expanded network. As a
percentage of net revenue, depreciation and amortization expenses increased to 29% in 2001 from 26% in 2000.

20

---

Non-cash stock-based compensation.Non-cash stock-based compensation represents compensation expense incurred in
connection with the grant of stock options to our employees with exercise prices less than the fair value of our common stock at the respective dates of grant. Such grants were either made prior to
our initial public stock offering or were assumed in connection with our acquisition of PriceInteractive, Inc. and are being expensed over the vesting periods of the options granted. For 2001 and
2000, we recorded $1.4 million and $1.1 million, respectively in non-cash stock-based compensation expense. The increase in non-cash stock-based compensation from 2000 to
2001 was due to our acquisition of PriceInteractive, Inc. in February 2001.

Restructuring costs.During 2001, we announced a restructuring plan to better align the organization with our corporate strategy and
recorded a charge of approximately $51.8 million in accordance with management plans as approved by the Board of Directors.

The
components of the restructuring charge were as follows:

Write-off of property and equipment

$
42,629,436Termination of contractual obligations


7,441,837Employee severance costs


1,763,045Total

$
51,834,318


The
fixed asset write-off relates primarily to the abandonment of particular equipment in a number of network data centers and ICOs. As a result of adopting the Openwave platform for
our unified messaging business, certain equipment, which was previously deployed in our New York City and Cambridge, Massachusetts data centers, was no longer required. In addition, the
write-down of equipment at ICOs is related to our increasing focus within our wholesale VoIP business on serving the largest international, Tier 1 carriers. Large international carriers
tend to maintain greater geographic
footprints and the ability to cost efficiently connect their networks to our network. As a result, the equipment located in some of our ICOs is no longer required and has therefore been written down
to its estimated net realizable value.

The
termination of contractual obligations is the anticipated cost of negotiated settlements with providers of facility space and telecommunications circuits related to the network data centers and
ICOs which are no longer in operation.

The
employee severance costs relate to a reduction in the workforce of 136 full-time employees on a worldwide basis, 71 of which were in research and development, 39 of which were in sales
and marketing and the remaining 26 in general and administrative functions.

These
cost reduction measures were completed during 2002 and did not affect business operations during either 2002 or 2001. The total cash impact of the restructuring was approximately
$9.2 million, of which, $5.7 million was paid during 2001 while the remaining $3.5 million was paid by the end of the second quarter of 2002. Management believes that these
measures have better positioned the organization to meet its strategic goals.

Interest income.Interest income is primarily composed of income earned on our cash, cash equivalents and marketable securities. Interest
income decreased by $10.7 million to $9.2 in 2001 from $19.8 million in 2000. This decrease was primarily attributable to a decrease in our cash, cash equivalents and marketable
securities as well as a decline in interest rates.

Interest expense.Interest expense is primarily composed of interest paid on the Convertible Subordinated Notes and various capital lease
agreements established to finance a substantial majority of the hardware and software components of our network. Interest expense increased to $16.5 million for 2001 from $12.9 million
for 2000. This increase was attributable to interest paid on Convertible

21

---

Subordinated Notes, which were issued in March 2000 as well as interest paid on capital equipment financing.

Loss from discontinued operations.Loss on discontinued operations represents the operations of the Company's Speech Solutions Business
which was sold during July, 2002. Approximately $24.4 million of the $49.8 million represents the write-off of in-process research and development acquired in the acquisition
of the Speech Solutions Business. Further, approximately $27.5 million of the loss represents depreciation related to fixed assets and amortization of intangible assets of the Speech Solutions
Business.

Extraordinary gain on repurchase of Convertible Subordinated Notes.During the fourth quarter of 2001, we recognized an extraordinary
after-tax gain of $14.5 million in connection with the early extinguishment of $20.8 million of our Convertible Subordinated Notes.

Income Taxes.We have not recorded an income tax benefit for the losses associated with its operating losses as it is more likely than not
that those benefits will not be realized.

Liquidity and Capital Resources

Our principal capital and liquidity needs historically have related to the development of our network infrastructure, our sales and marketing activities, research and
development expenses, and general capital needs. Our capital needs have been met, in large part, from the net proceeds from public offerings of common stock and Convertible Subordinated Notes. In
addition, we have also met our capital needs through vendor capital leases and other equipment financings. We expect to continue to utilize equipment financing in the future to partially fund our
capital equipment needs.

Net
cash used in continuing operating activities was $43.0 million and $68.4 million for 2002 and 2001, respectively. Cash used in continuing operating activities for both years was
principally related to the cash necessary to fund our operating losses.

Net
cash used in discontinued operating activities was $1.9 million and $13.3 million for 2002 and 2001, respectively.

Net
cash provided by investing activities was $46.6 million for 2002, which was primarily related to the sale and maturity of marketable securities, which generated $34.0 million in
cash, and the $17.0 million in proceeds received from the sale of the Speech Solutions Business. The Company expended $5.6 million in cash for capital expenditures. Net cash provided by
investing activities was $15.1 million for 2001. This primarily reflected $38.1 million in cash paid for the acquisition of PriceInteractive, and $35.1 million used to purchase
capital equipment, which partially offset the sale and maturity of marketable securities, which generated $58.1 million in cash.

Net
cash used in financing activities was $45.2 million for 2002. This primarily reflects $14.0 million in cash utilized to repurchase $40.6 million face value of the our
Convertible Subordinated Notes, and $38.9 million used for payments of our capital lease and other debt obligations including the early extinguishment of certain capital lease obligations,
which utilized $28.5 million in cash. In the fourth quarter, we borrowed $2.3 million under a revised credit agreement. This credit agreement did not require cash collateral and,
therefore, $8.9 million of previously restricted cash is reported as a cash inflow due to the termination of this collateral requirement.

On
November 13, 2002, we received a determination from Nasdaq that shares of our common stock would no longer trade on the Nasdaq National Market because we failed to meet certain minimum
listing requirements. Our common stock began trading on the Nasdaq operated Over-the-Counter Bulletin Board on November 14, 2002 under the symbol "IBAS." This transition may have an
impact on our ability to obtain future equity financing.

22

---

Throughout
2001 and 2002, management has taken a series of actions to reduce operating expenses and to restructure operations, which consisted primarily of reductions in workforce, the consolidation
of internet central offices, the sale of the messaging business the sale of the Speech Solutions Business and the settlement of certain capital lease agreements. Moreover, management continues to
control operating expenses and capital expenditures as well as to monitor and manage accounts payable and accounts receivable in order to fund us until we reach profitability.

Management's
plans include the:



On
August 5, 2002 we completed an agreement with our primary equipment vendor to reduce our capital lease obligations and related future cash commitments. Under the terms of the agreement, we
paid our vendor $28.5 million in exchange for the elimination of $50.8 million in existing vendor debt, $9.0 million in future interest obligations (assuming the debt was held to
maturity) and $4.0 million in tax and other obligations for a total of $63.8 million of future obligations. The difference between the cash paid and the recorded outstanding obligation
on that date was accounted for as a reduction in the carrying value of the underlying capital assets. This transaction reduced interest expense by $2.5 million and depreciation and amortization
by $3.3 million in the months subsequent to the transaction from the amounts that would have otherwise been recognized in 2002.

We
lease equipment from various vendors under master agreements and multiple sublease agreements. Each of the multiple equipment leases specifies its own term, rate and payment schedule, depending
upon the value and amount of equipment leased. Based upon existing lease agreements, we anticipate cash payments of approximately $8.8 million as repayment of these obligations with
$6.1 million to be paid in 2003.

On
December 30, 2002, we entered into two secured line of credit agreements (the "2002 Credit Lines") with the Silicon Valley Bank (the "Bank") providing a total available line of credit of
$15 million which replaced our previous credit facilities and $4.0 million term loan. The maximum aggregate borrowings outstanding at any one time is limited to the lesser of
$15.0 million or the specified borrowing base. The borrowing base is equal to 75% or 70% of eligible receivables, as defined in the agreements. Letters of credit drawn under this agreement will
reduce the maximum borrowings available to us. Borrowings under these lines of credit bear interest at the Bank's prime rate plus 1% and are collateralized by substantially all of our assets. The
credit lines require us to comply with various financial and non-financial covenants, including the maintenance of certain minimum financial ratios and restrictions on the payment of cash
dividends. These agreements mature on December 29, 2004. At December 31, 2002, under the 2002 credit lines we borrowed $2.3 million, had issued and outstanding under these credit
lines letters of credit totaling $3.3 million and $6.5 million was available for borrowings based upon our estimate of eligible receivables as defined by the 2002 credit lines
agreements. On December 30, 2002, in conjunction with these agreements, we issued a five-year

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warrant to the Bank for the purchase of 337,500 shares of our common stock at an exercise price of $0.337 per share.

Subsequent EventsDuring the first quarter of 2003 we entered into agreements with principal holders of the Company's 5.75% Convertible
Subordinated Notes which resulted in the retirement of $38.2 million of the notes in exchange for a new debt instrument at 50% of the face value of the retired notes.

Under
the terms of the agreements, the bond holders surrendered an aggregate principal amount of $38.2 million of iBasis' outstanding 5.75% Convertible Subordinated Notes in exchange for
$19.1 million aggregate principal amount of newly issued 11.5% senior secured notes and warrants for 3,798,811
shares of our common stock. Each warrant will have an initial exercise price of $0.65 per share of Common Stock and a term of five years.

The
new Notes, which mature on January 15, 2005, share in a second priority lien on our assets and are subordinated to our senior bank debt.

We
will record a gain on these exchanges of approximately $12.9 million in the first quarter of 2003.

We
anticipate that the December 31, 2002 balance of $32.3 million in cash, cash equivalents and marketable securities will be sufficient to fund operations for the next twelve months.
However, in the event we fail to execute on our plan, we experience events described in "Risk Factors" below, or that circumstances currently unknown or unforeseen by us arise, we cannot be certain
that we will not require additional financings within this time frame or that any additional financings, if needed, will be available to us on terms acceptable to us, if at all.

Under
accounting principles generally accepted in the U.S., certain obligations and commitments are not required to be included in the consolidated balance sheets and statements of operations. These
obligations and commitments, while entered into in the normal course of business, may have a material impact on liquidity. The following commitments as of December 31, 2002 have not been
included in the consolidated balance sheets and statements of operations included under Item 8. Financial Statements and Supplemental Data, however, they have been disclosed in the following
table in order to provide a more accurate picture of our financial position and liquidity. We do not have any relationships with unconsolidated entities or financial partnerships, such as entities
often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

|                  |  | Payments Due by Period
|----------------- |  | ----------------------
|
|
|Operating leases  |  | $                     
|                  |  |                       
|Total commitments |  | $                     
|                  |  |                       

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The following table summarizes our future contractual obligations as of December 31, 2002 and includes obligations both reported with our consolidated balance sheet and
future commitments not included within our consolidated balance sheet at December 31, 2002:

|                                     |  | Total |       | Less than
1 year |   | 1-3
Years |  | 4-5
Years |      | After 5
Years
|------------------------------------ |  | ----- | ----- | ---------------- | - | --------- |  | --------- | ---- | -------------
|5.75% Convertible Subordinated Notes |  | $     | 88.5  |                  | $ |          |  | $         | 88.5 |              
|Capital Lease Obligations            |  |       | 8.1   |                  |   | 5.3       |  |           | 2.8  |              
|2002 Credit Lines                    |  |       | 2.3   |                  |   |          |  |           | 2.3  |              
|Operating Leases                     |  |       | 16.4  |                  |   | 4.0       |  |           | 5.7  |              
|                                     |  |       |       |                  |   |           |  |           |      |              
|                                     |  | $     | 115.3 |                  | $ | 9.3       |  | $         | 99.3 |              
|                                     |  |       |       |                  |   |           |  |           |      |              

The
following table summarizes our future contractual obligations as of March 1, 2003 and displays our future contractual obligations subsequent to the issuance of our 11.5% Senior Secured
Notes in exchange for our 5.75% Convertible Subordinated Notes and represents a prepayment of our revolving line of credit.

|                                     |  | Total |      | Less than
1 year |   | 1-3
Years |  | 4-5
Years |      | After 5
Years
|------------------------------------ |  | ----- | ---- | ---------------- | - | --------- |  | --------- | ---- | -------------
|5.75% Convertible Subordinated Notes |  | $     | 50.3 |                  | $ |          |  | $         | 50.3 |              
|11.5% Senior Secured Notes           |  |       | 19.1 |                  |   |          |  |           | 19.1 |              
|Capital Lease Obligations            |  |       | 7.2  |                  |   | 4.7       |  |           | 2.6  |              
|2002 Credit Lines                    |  |       |     |                  |   |          |  |           |     |              
|Operating Leases                     |  |       | 15.7 |                  |   | 3.9       |  |           | 5.6  |              
|                                     |  |       |      |                  |   |           |  |           |      |              
|                                     |  | $     | 92.3 |                  | $ | 8.6       |  | $         | 77.6 |              
|                                     |  |       |      |                  |   |           |  |           |      |              

Recently Adopted Accounting Pronouncements

Effective January 1, 2002, we adopted the provisions of Statement on Financial Accounting Standards No.142, "Goodwill and Other Intangible Assets" ("SFAS 142").
Under the provisions of SFAS 142, if an intangible asset is determined to have an indefinite useful life, it shall not be amortized until its useful life is determined to be no longer
indefinite. An intangible asset that is not subject to amortization shall be tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be
impaired. Goodwill is not amortized but is tested for impairment, for each reporting unit, on an annual basis and between annual tests in certain circumstances. Upon adoption of SFAS 142, we
performed an impairment review and concluded that there were no necessary adjustments.

In
August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement supercedes FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30,
Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. Under this statement it
is required that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and it broadens the presentation of
discontinued operations to include more disposal transactions. The provisions of this statement are effective for financial statements issued for fiscal years beginning after December 15, 2001,
and interim periods within those fiscal years, with early adoption permitted. We have evaluated the ultimate impact of this statement, and the adoption of FAS 144 did not materially effect our
results of operations or financial position.

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In
November 2002, the FASB issued FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." FIN No. 45 clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee.
The initial recognition and initial measurement provisions of FIN No. 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure
requirements of FIN No. 45 are applicable for financial statements of interim or annual periods ending after December 15, 2002. We will adopt the recognition and measurement requirements
of FIN No. 45 in the first quarter of fiscal year 2003 and have included the new disclosure requirements in the Notes to the Consolidated Financial Statements.

In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based CompensationTransition and Disclosure," which amends SFAS No. 123, "Accounting for
Stock-Based Compensation," to provide alternative methods of transition to the fair value method of accounting for stock-based employee compensation, and also amends the disclosure provision of SFAS
No. 123 to require disclosure in the summary of significant accounting policies the effects of an entity's accounting
policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. The disclosure provision is required for all
companies with stock-based employee compensation, regardless of whether the company utilizes the fair value method of accounting described in SFAS No. 123 or the intrinsic value method
described in APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 148's amendment of the transition and annual disclosure provisions of SFAS No. 123 are
effective for fiscal years ending after December 15, 2002. The disclosure requirements for interim financial statements containing condensed consolidated financial statements are effective for
interim periods beginning after December 15, 2002. We currently account for stock based compensation utilizing the intrinsic value method of accounting for stock-based employee compensation
described by APB Opinion No. 25.

Future Adoption of Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of leases.
This statement applies to all entities and is effective for financial statements issued for fiscal years beginning after June 15, 2002. We are currently evaluating the impact of this statement
on our results of operations or financial position until such time as its provisions are applied.

In
April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This
statement amends, among others, the classification on the statement of operations for gains and losses from the extinguishment of debt. Currently such gains and losses are reported as extraordinary
items, however the adoption of SFAS No. 145 may require the classification of the gains and losses from the extinguishment of debt within income or loss from continuing operations unless the
transactions meet the criteria for extraordinary treatment as infrequent and unusual as described in Accounting Principles Board Opinion No. 30, "Reporting the Results of
OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." The extraordinary gain resulting
from the early extinguishment of the convertible Subordinated Notes (see Note 3) will be reclassified to a component of operating loss within the Consolidated Statements of Operations upon
adoption on January 1, 2003.

In
June 2002, the FASB issues SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement supersedes Emerging Issues Task Force (EITF)
No. 94-3, "Liability

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Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." Under this statement, a liability for a cost associated with a disposal or exit activity is recognized at
fair value when the liability is incurred rather than at the date of an entity's commitment to an exit plan as required under EITF 94-3. The provisions of this statement are effective for
exit or disposal activities that are initiated after December 31, 2002, with early adoption permitted. All restructuring activity undertaken prior to this date has been and will be accounted
for under the provisions of EITF 94-3.

We
do not expect the adoption of the above mentioned pronouncements to have a material impact on our consolidated financial statements.

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Factors That May Affect Future Results and Financial Condition

RISK FACTORS

Any investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, which we
believe are all the material risks to our business, together with the information contained elsewhere in this report, before you make a decision to invest in our company.

Risks Related to Our Company

A failure to obtain necessary additional capital in the future on acceptable terms could prevent us from executing our business plan.

We may need additional capital in the future to fund our operations, finance investments in equipment and corporate infrastructure, expand our network, increase the range of
services we offer and respond to competitive pressures and perceived opportunities. Cash flow from operations, and cash on hand may not be sufficient to cover our operating expenses, working capital
and capital investment needs. We cannot assure you that additional financing will be available on terms acceptable to us, if at all. A failure to obtain additional funding could prevent us from making
expenditures that are needed to allow us to grow or maintain our operations.

If
we raise additional funds by selling equity securities, the relative equity ownership of our existing investors could be diluted or the new investors could obtain terms more favorable than previous
investors. If we raise additional funds through debt financing, we could incur significant borrowing costs. The failure to obtain additional financing when required could result in us being unable to
grow as required to attain profitable operations.

Our financial condition, and the restrictive covenants contained in our credit facility may limit our ability to borrow additional funds or raise additional equity as may be
required to fund our future operations.

We incurred significant losses from continuing operations before extraordinary gain on repurchase of Convertible Subordinated Notes of $82.3 million, or 50% of net
revenue for the year ended December 31, 2002; $155.5 million, or 141% of revenues, for the year ended December 31, 2001; and $62.3 million, or 102% of revenues, for the
year ended December 31, 2000. Our accumulated deficit, and stockholders' deficit was approximately $403 million and $34 million, respectively, as of December 31, 2002.
Moreover, the terms of our $15 million revolving credit facility limit our ability to, among other things:



Although
we expect that our available cash, and the remaining borrowing capacity under our credit facility will be sufficient to fund our operating and capital expenditure requirements in the
foreseeable future, there can be no assurance that this will be the case. Our ability to borrow additional funds or raise additional equity is limited by the terms of our outstanding debt and/or our
financial condition.

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Additionally, events such as our inability to continue to reduce our loss from continuing operations, could adversely affect our liquidity and are ability to attract additional funding as required.

The market value and liquidity of our stock may be affected by our transition to the Over-the-Counter Bulletin Board.

On November 13, 2002, we received a determination from Nasdaq that shares of our common stock would no longer trade on the Nasdaq National Market because we failed to
meet certain minimum listing requirements. Our stock began trading on the NASD-operated Over-the-Counter Bulletin Board on November 14, 2002. It is unclear
what affect this transition will have on our stock; among other things, the market value and liquidity of our common stock could be materially and adversely affected.

We may not be able to pay our debt and other obligations.

We may not generate the cash flow required to pay our liabilities as they become due. As of March 15, 2003, we had approximately $50.4 million of 5.75% Convertible
Subordinated Notes and $19.1 million of 11.5% Senior Secured Notes. We must pay interest on these notes twice a year. All notes are due in 2005. We cannot assure you that we will be able to pay
interest and other amounts, including the principal amount, due on the notes as and when they become due and payable. If our cash flow is inadequate to meet our obligations, we will default on the
notes. Any default of the Convertible Subordinated Notes and Senior Secured Notes could have a material adverse effect on our business, prospects, financial condition and operating results and our
ability to raise future capital.

Additionally,
as of March 15, 2003, we had no outstanding balance on our Lines of Credit from Silicon Valley Bank totalling $15 million, although we did have approximately
$3.0 million of outstanding letters of credit issued under these agreements. If we fail to pay our liabilities under these Lines of Credit, Silicon Valley Bank may enforce all available
remedies and seize our assets or receivable, to satisfy any amounts owed.

We may be required to repurchase our Convertible Subordinated Notes upon a repurchase event.

The holders of the Convertible Subordinated Notes may require us to repurchase all or any portion of the outstanding notes upon a "repurchase event." A repurchase event
includes a change in control of iBasis, or if our shares of common stock are no longer approved for trading on an established automated over-the-counter trading market. We may
not have sufficient cash reserves to repurchase the notes, which would cause an event of default under the existing indenture and under our other debt obligations.

The market price of our shares may experience extreme price and volume fluctuations for reasons over which we have little control.

The stock market has, from time to time, experienced, and is likely to continue to experience, extreme price and volume fluctuations. Prices of securities of Internet-related
companies have been especially volatile and have often fluctuated for reasons that are unrelated to the operating performance of the affected companies. The market price of shares of our common stock
has fluctuated greatly since our initial public offering and could continue to fluctuate due to a variety of factors, some of which we cannot reliably identify. In the past, companies that have
experienced volatility in the market price of their stock have been the objects of securities class action litigation.

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Provisions of our governing documents and Delaware law could discourage acquisition proposals or delay a change in control.

Our certificate of incorporation and by-laws contain anti-takeover provisions, including those listed below, that could make it more difficult for a
third party to acquire control of our company, even if that change in control would be beneficial to stockholders:



In
addition, provisions of Delaware law and our stock option plan may also discourage, delay or prevent a change of control of our company or unsolicited acquisition proposals.

International governmental regulation and legal uncertainties could limit our ability to provide our services or make them more expensive.

A number of countries currently prohibit or limit competition in the provision of traditional voice telephony services. In some of those countries, licensed telephony carriers
as well as government regulators have questioned our legal authority and/or the legal authority of our service partners or affiliated entities to offer our services. We may face similar questions in
additional countries.

Some
countries have indicated they will evaluate proposed Internet telephony service on a case-by-case basis and determine whether to regulate it as a voice service or as
another telecommunications service, and in doing so potentially impose subsidies or other costs on Internet telephony providers. In addition, many countries have not yet addressed Internet telephony
in their legislation or regulations. Increased regulation of the Internet and/or Internet telephony providers, or the prohibition of Internet telephony or related services, in one or more countries,
could limit our ability or the ability of our service partners or affiliates to provide our services. Finally, international organizations such as the International Telecommunications Union and the
European Commission are continuing to examine whether Internet telephony should continue to be subject to light regulation. Adverse recommendations by these bodies could also limit our ability to
provide services profitably.

It
is also possible that countries may apply to our activities laws otherwise relating to services provided over the Internet, including laws governing:



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If
foreign governments or other bodies begin to impose related restrictions on Internet telephony or our other services or otherwise enforce criminal or other laws against us, our affiliates or
employees, such activities could have a material adverse effect on our ability to attain and maintain profitability.

As
we continue to operate abroad and expand into additional foreign countries, such countries may assert that we are required to qualify to do business in the particular foreign country, that we are
otherwise subject to regulation, or that we are prohibited from conducting our business in that country. Our failure to qualify as a foreign corporation in a jurisdiction in which we are required to
do so, or to comply with foreign laws and regulations, would materially adversely affect our business, financial condition and results of operations, including subjecting us to taxes and criminal or
other penalties and/or by precluding us from, or limiting us in, enforcing contracts in such jurisdictions. We cannot be certain that our customers, service partners, or other affiliates are currently
in compliance with regulatory or other legal requirements in their respective countries, that they or we will be able to comply with existing or future requirements, and/or that they or we will
continue in compliance with any requirements. Our failure or the failure of those with whom we transact business to comply with these requirements could materially adversely affect our business,
financial conditions and results of operations.

The telecommunications industry is subject to domestic governmental regulation and legal uncertainties and other laws that could prevent us from executing our business plan.

While the FCC has tentatively decided that information service providers, including Internet telephony providers, are not telecommunications carriers for regulatory purposes,
various entities have challenged that decision. In addition, some members of Congress are dissatisfied with the conclusions of the FCC, which could result in the imposition of greater or lesser
regulation on our industry. State government agencies may also increasingly regulate Internet-related services. These types of regulation may negatively impact the cost of doing business over the
Internet and materially adversely affect our ability to attain or maintain profitability.

We
are not licensed to offer traditional telecommunications services in any U.S. state and we have not filed tariffs for any service at the Federal Communications Commission or at any state regulatory
commission. Nonetheless, aspects of our operations may currently be, or become, subject to state or federal regulations governing licensing, universal service funding, disclosure of confidential
communications or other information, excise taxes, transactions restricted by U.S. embargo and other reporting or compliance requirements.

Our
prepaid international calling card services are offered on a wholesale basis to international carrier customers, and others, some of which provide these services to end-user customers, enabling
them to call internationally over The iBasis Network from the U.S. Although we do not market the calling cards for domestic interstate or intrastate use, we have not blocked the ability to place such
calls or required our wholesale customers to show evidence of their compliance with U.S. and state regulations. As a result, there may be incidental domestic use of the cards. Domestic calling may
employ transport and switching that is not connected to the Internet and, therefore, may not enjoy the lighter regulation to which our Internet-based services are subject. Because we provide wholesale
international services, we do not believe that we are subject to federal or state regulation for the possible uses of these services described here and, accordingly, we have not obtained state
licenses, filed state or federal tariffs, posted

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bonds, or undertaken other possible compliance steps. There can be no assurance that the FCC and state regulatory authorities will agree with our position. If they do not, we could become subject to
regulation at the federal and state level for these services, and could become subject to licensing and bonding requirements, and federal and state fees and taxes, including universal service
contributions and other subsidies, all of which could materially affect our business.

The
FCC also requires all calling card service providers that enable users to place toll-free calls from payphones in the United States to compensate the payphone operator for each call placed from a
payphone. Future change in FCC payphone compensation rules and/or the failure of a company that provides toll-free numbers to us to compensate payphone companies could affect our revenues.

In
addition to specific telecommunications regulation, we are subject to other laws. As an example, the Office of Foreign Asset Control of the U.S. Department of the Treasury, or OFAC, administers the
United States' sanctions against certain countries. OFAC rules restrict many business transactions with such countries and, in some cases, require that licenses be obtained for such transactions. We
may currently, or in the future, transmit telecommunications between the U.S. and countries subject to U.S. sanctions regulations and undertake other transactions related to those services. We have
undertaken such activities via our network or through various reciprocal traffic exchange agreements to which we are a party. We have received licenses from OFAC to send traffic to some countries and,
if necessary, will remain in contact with OFAC with regard to other transactions.

Risks Related to Our Operations

We have a limited operating history upon which to base your investment decision, and you may inaccurately assess our prospects for success.

We were incorporated in August 1996, and first began to offer commercial services in May 1997. Due to our limited operating history, it is difficult for us to
predict future results of operations for our core business. Moreover, we cannot be sure that we have accurately identified all of the risks to our business, especially because we use new, and in many
cases, unproven technologies and provide new services. The technical implementation of such technologies and services on a commercial scale and subsequent widespread commercial acceptance, is yet
unproven. As a result, our past results and rates of growth may not be meaningful indicators of our future results of operations. Also, your assessment of the prospects for our success may prove
inaccurate.

We have a history of operating losses and may never become profitable.

We have incurred and expect to continue to incur operating losses and negative cash flows as we incur operating expenses and make capital investments in our business. Our
future profitability will depend on our being able to deliver calls over our network at a cost to us that is less than what we are able to charge for our calls, collect payments from customers, and
otherwise utilize our network on a profitable basis.

Our
costs to deliver calls are dependent on a number of factors, including the countries to which we direct calls and whether we are able to use the Internet, rather than another component of our
network or more expensive back-up networks. The prices that we are able to charge to deliver calls over our network vary, based primarily on the prices currently prevailing in the
international long distance carrier market to specific countries. While we are currently able to terminate a substantial number of the calls carried over our network, we have been unable to operate
our entire network profitably on an operating basis for sustained periods.

We
may not ever generate sufficient revenues or reduce costs to the extent necessary, to permit us to achieve profitability or pay our liabilities as they become due. Even if we do become profitable,
we may not sustain or increase profitability on a quarterly or annual basis.

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Fluctuations in our quarterly results of operations that result from various factors inherent in our business may cause the market price of our common stock to fall.

Our revenue and results of operations have fluctuated and may continue to fluctuate significantly from quarter to quarter in the future due to a number of factors, many of
which are not in our control, including, among others:



Because
of these factors, you should not rely on quarter-to-quarter comparisons of our results of operations as an indication of our future performance. It is possible that, in
future periods, our results of operations will be significantly lower than the estimates of public market analysts, investors or our own estimates. Such a discrepancy could cause the price of our
common stock to decline significantly.

We may never generate sufficient revenue to attain profitability if telecommunications carriers and other communications service providers are reluctant to use our services or
do not use our services, including any new services, in sufficient volume.

If the market for Internet telephony and new services does not develop as we expect, or develops more slowly than expected, our business, financial condition and results of
operations will be materially and adversely affected.

Our
customers may be reluctant to use our Internet telephony services for a number of reasons, including:



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The
growth of our core business depends on carriers and other communications service providers generating an increased volume of international voice and fax traffic and selecting our network to carry
at least some of this traffic. If the volume of international voice and fax traffic fails to increase, or decreases, and these third parties do not employ our network, our ability to become profitable
will be materially and adversely affected.

We may not be able to collect amounts due to us from our customers and we may have to disgorge amounts already paid.

Some of our customers have filed for bankruptcy owing us money for services we have provided to them in the past. Despite our efforts to collect these overdue funds, we may
never be paid. Certain customers have filed for bankruptcy protection owing us amounts we have not yet received. The bankruptcy court may require us to continue to provide services to these companies
during their reorganizations. Other customers may discontinue their use of our services at any time and without notice, or delay payments that are owed to us. Additionally, we may have difficulty in
collecting amounts from them. Although we have internal credit risk policies to identify companies with poor credit histories, we may not effectively manage these policies and provide services to
companies that refuse to pay. The risk is even greater in foreign countries, where the legal and collection systems available may not be adequate or impartial for us to enforce the payment provisions
of our contracts. Our cash reserves will be reduced and our results of operations will be materially adversely affected if we are unable to collect amounts from our customers.

We
have received claims including lawsuits from estates of bankrupt companies alleging that we received preferential payments prior to bankruptcy filing. We intend to employ all available defenses in
contesting such claims or, in the alternative settle such claims. The results of any suit or settlement may have a material adverse affect on our business.

We may face technical problems or increased costs in our business by relying on third parties.

Vendors.We rely upon third-party vendors to provide us with the equipment, software, circuits, and other facilities that we use to provide
our services. For example, we purchase substantially all of our Internet telephony equipment from Cisco Systems. We cannot assure you that we will be able to continue purchasing such equipment,
software, network elements and other components from our
vendors. We may be forced to try to renegotiate terms with vendors for products or services that have become obsolete. Some vendors may be unwilling to renegotiate such contracts. If we become unable
to purchase the software and equipment needed to maintain and expand our network or customer service applications, we may not be able to continue to provide services and we may consequently be unable
to generate the revenues to become profitable.

Parties that Maintain Phone and Data Lines.Our business model depends on the availability of the Internet and traditional telephone
networks to transmit voice and fax calls. Third parties maintain and own these networks and other components that comprise the Internet. Some of these third parties are telephone companies. They may
increase their charges for using these lines at any time and decrease our profitability. They may also fail to maintain their lines properly or otherwise disrupt our ability to provide service to our
customers. Any failure by these third parties to maintain these lines and networks that leads to a material disruption of our ability to complete calls or provide other services could discourage our
customers from using our network, which could have the effect of delaying or preventing our ability to become profitable.

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Local Communications Service Providers.We maintain relationships with local communications service providers in many countries, some of
whom own the equipment that translates calls from traditional voice networks to the Internet, and vice versa. We rely upon these third parties both to provide lines over which we complete calls and to
increase their capacity when necessary as the volume of our traffic increases. There is a risk that these third parties may be slow, or fail, to provide lines, which would affect our ability to
complete calls to those destinations. We cannot assure you that we will be able to continue our relationships with these local service providers on acceptable terms, if at all. Because we rely upon
entering into relationships with local service providers to expand into additional countries, we cannot assure you that we will be able to increase the number of countries to which we provide service.
We also may not be able to enter into relationships with enough overseas local service providers to handle increases in the volume of calls that we receive from our customers. Finally, any technical
difficulties that these providers suffer could affect our ability to transmit calls to the countries that those providers help serve.

Strategic Relationships.We depend in part on our strategic relationships to expand our distribution channels and develop and market our
services. In particular, we depend in large part on our joint marketing and product development efforts with Cisco Systems to achieve market acceptance and brand recognition in certain markets.
Strategic relationship partners may choose not to renew existing arrangements on commercially acceptable terms, if at all. In general, if we lose these key strategic relationships, or if we fail to
maintain or develop new relationships in the future, our ability to expand the scope and capacity of our network and services provided, and to maintain
state-of-the-art technology, would be materially adversely affected.

We may not be able to succeed in the intensely competitive market for our various services.

The market for Internet voice and fax is extremely competitive and will likely become more competitive. Internet protocol and other Internet telephony service providers route
traffic to destinations worldwide and compete directly with us. Also, Internet telephony service providers that presently focus on retail customers may in the future enter our market and compete with
us. Such retail-oriented carriers also provide PC-to-PC services at very low prices or for free. Perceived competition with this market segment could drive our prices down. In
addition, major telecommunications carriers, such as AT&T, British Telecom, Deutsche Telekom, MCI WorldCom and Qwest Communications all compete with our services.

We are subject to downward pricing pressures on our wholesale international Internet telephony services and a continuing need to renegotiate overseas rates, which could delay
or prevent our profitability.

As a result of numerous factors, including increased competition and global deregulation of telecommunications services, prices for international long distance calls have been
decreasing. This downward trend of prices to end-users has caused us to lower the prices we charge communications service providers for call completion on our network. If this downward
pricing pressure continues, we cannot assure you that we will be able to offer Internet telephony services at costs lower than, or competitive with, the traditional voice network services with which
we compete. Moreover, in order for us to lower our prices, we have to renegotiate rates with our overseas local service providers who complete calls for us. We may not be able to renegotiate these
terms favorably enough, or fast enough, to allow us to continue to offer services in a particular country on a cost-effective basis. The continued downward pressure on prices and our
failure to renegotiate favorable terms in a particular country would have a material adverse effect on our ability to operate our network and Internet telephony business profitably.

35

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A variety of risks associated with our international operations could materially adversely affect our business.

Because we provide many of our services internationally, we are subject to additional risks related to operating in foreign countries. In particular, in order to provide
services and operate facilities in some countries, we have established subsidiaries or other legal entities or have forged relationships with service partners or entities set up by our employees.
Associated risks include:



Delivering
calls outside of the United States generates a significant portion of our revenue. Many countries in these geographic regions have experienced political and economic instability over the
past decade. Repeated political or economic instability in countries to which we deliver substantial volumes of traffic could lead to difficulties in completing calls through our regional service
providers or decreased call volume to such countries. These and other risks associated with our international operations may materially adversely affect our ability to attain or maintain profitable
operations.

If we are not able to keep up with rapid technological change in a cost-effective way, the relative quality of our services could suffer.

The technology upon which our services depends is changing rapidly. Significant technological changes could render the hardware and software which we use obsolete, and
competitors may begin to offer new services that we are unable to offer. We must adapt to our rapidly changing market by continually improving the responsiveness, reliability, services and features of
our network and by developing new features and applications to meet customer needs. If we are unable to respond successfully to these developments or do not respond in a cost-effective
way, we may not be able to offer competitive services.

We may not be able to expand and upgrade our network adequately and cost-effectively to accommodate any future growth.

Our Internet telephony business requires that we handle a large number of international calls simultaneously. As we expand our operations, we expect to handle significantly
more calls. We will need to expand and upgrade our hardware and software to accommodate such increased traffic. If we

36

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do not expand and upgrade quickly enough, we will not have sufficient capacity to handle the increased traffic and growth in our operating performance would suffer as a result. Even with such
expansion, we may be unable to manage new deployments or utilize them in a cost-effective manner. In addition to lost growth opportunities, any such failure could adversely affect customer
confidence in The iBasis Network and could result in us losing business outright.

We depend on our key personnel and may have difficulty attracting and retaining the skilled employees we need to execute our growth plans.

We depend heavily on our key management.Our future success will depend, in large part, on the continued service of our key management and
technical personnel, including Ofer Gneezy, our President and Chief Executive Officer, Gordon VanderBrug, our Executive Vice President, Richard Tennant, our Chief Financial Officer, Paul Floyd, our
Senior Vice President of Research & Development, Engineering, and Operations, Dan Powdermaker, our Senior Vice President of Worldwide Sales, and Sean O'Leary, Senior Vice President of
Marketing. If any of these individuals or others at the Company are unable or unwilling to continue in their present positions, our business, financial condition and results of operations could
suffer. We do not carry key person life insurance on our personnel. While each of the individuals named above has entered into an employment agreement with us, these agreements do not ensure their
continued employment with us.

We will need to retain skilled personnel to execute our plans.Our future success will depend, in large part, on our ability to attract,
retain and motivate highly skilled employees, particularly engineering and technical personnel. Recent workforce reductions have resulted in reallocations of employee duties that could result in
employee and contractor uncertainty. Reductions in our workforce or restrictions on salary increases or payment of bonuses may make it difficult to motivate and retain employees and contractors, which
could affect our ability to deliver our services in a timely fashion and otherwise negatively affect our business.

If we are unable to protect our intellectual property, our competitive position would be adversely affected.

We rely on patent, trademark and copyright law, trade secret protection and confidentiality and/or license agreements with our employees, customers, partners and others to
protect our intellectual property. Unauthorized third parties may copy our services or reverse engineer or obtain and use information that we regard as proprietary. End-user license
provisions protecting against unauthorized use, copying, transfer and disclosure of any licensed program may be unenforceable under the laws of certain jurisdictions and foreign countries. We may seek
to patent certain processes or equipment in the future. We do not know if any of our patent applications will be issued with the scope of the claims we seek, if at all. In addition, the laws of some
foreign countries do not protect proprietary rights to the same extent as do the laws of the United States. Our means of protecting our proprietary rights in the United States or abroad may not be
adequate and third parties may infringe or misappropriate our copyrights, trademarks and similar proprietary rights. If we fail to protect our intellectual property and proprietary rights, our
business, financial condition and results of operations would suffer.

We
believe that we do not infringe upon the proprietary rights of any third party. It is possible, however, that such a claim might be asserted successfully against us in the future. Our ability to
provide our services depends on our freedom to operate. That is, we must ensure that we do not infringe upon
the proprietary rights of others or have licensed all such rights. A party making an infringement claim could secure a substantial monetary award or obtain injunctive relief that could effectively
block our ability to provide services in the United States or abroad.

We
have received letters and other notices claiming that certain of our products and services may infringe patents or other intellectual property of other parties. To date, none of these has resulted
in a

37

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material restriction on any use of our intellectual property or has had a material adverse impact on our business. We may be unaware of intellectual property rights of others that may, or may be
claimed, to cover our technology. Current or future claims could result in costly litigation and divert the attention of management and key personnel from other business issues. The complexity of the
technology involved and the uncertainty of intellectual property litigation increase these risks. Claims of intellectual property infringement also might require us to enter into costly royalty or
license agreements to the extent necessary for the conduct of our business. However, we may be unable to obtain royalty or license agreements on terms acceptable to us or at all. We also may be
subject to significant damages or an injunction against use of our proprietary or licenses systems. A successful claim of patent or other intellectual property infringement against us could materially
adversely affect our business and profitability.

We rely on a variety of technologies, primarily software, which is licensed from third parties.

Continued use of this technology by us requires that we purchase new or additional licenses from third parties. We cannot assure you that we can obtain those third-party
licenses needed for our business or that the third party technology licenses that we do have will continue to be available to us on commercially reasonable terms or at all. The loss or inability to
maintain or obtain upgrades to any of these technology licenses could result in delays or breakdowns in our ability to continue developing and providing our services or to enhance and upgrade our
services.

We may undertake strategic acquisitions or dispositions that could damage our ability to attain or maintain profitability.

We may acquire additional businesses and technologies that complement or augment our existing businesses, services and technologies. We may need to raise additional funds
through public or private debt or equity financing to acquire any businesses, which may result in dilution for stockholders and the incurrence of indebtedness. We may not be able to operate acquired
businesses profitably or otherwise implement our growth strategy successfully.

We
may need to sell existing assets or businesses in the future to generate cash or focus our efforts in making our core business, Internet telephony, profitable. As with many companies in the
telecommunications sector that experienced rapid growth in recent years, we may need to reach
profitability in one market before entering another. In the future, we may need to sell assets to cut costs or generate liquidity.

Risks Related to the Internet and Internet Telephony Industry

If the Internet does not continue to grow as a medium for voice and fax communications, our business will suffer.

Historically, the sound quality of calls placed over the Internet was poor. As the Internet telephony industry has grown, sound quality has improved, but the technology may
require further refinement. Additionally, as a result of the Internet's capacity constraints, callers could experience delays, errors in transmissions or other interruptions in service. Transmitting
telephone calls over the Internet, and other uses of the Internet, must also be accepted by customers as an alternative to traditional services. Because the Internet telephony market is new and
evolving, predicting the size of these markets and their growth rate is difficult. If our market fails to develop, then we will be unable to grow our customer base and our results of operations will
be materially adversely affected.

38

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If the Internet infrastructure is not adequately maintained, we may be unable to maintain the quality of our services and provide them in a timely and consistent manner.

Our future success will depend upon the maintenance of the Internet infrastructure, including a reliable network backbone with the necessary speed, data capacity and security
for providing reliability and timely Internet access and services. To the extent that the Internet continues to experience increased numbers of users, frequency of use or bandwidth requirements, the
Internet may become congested and be unable to support the demands placed on it and its performance or reliability may decline thereby impairing our ability to complete calls and provide other
services using the Internet at consistently high quality. The Internet has experienced a variety of outages and other delays as a result of failures of portions of its infrastructure or otherwise.
Future outages or delays could adversely affect our ability to complete calls and provide other services. Moreover, critical issues concerning the commercial use of the Internet, including security,
cost, ease of use and access, intellectual property ownership and other legal liability issues, remain unresolved and could materially and adversely affect both the growth of Internet usage generally
and our business in particular. Finally, important opportunities to increase traffic on The iBasis Network will not be realized if the underlying infrastructure of the Internet does not continue to be
expanded to more locations worldwide.

We cannot be certain that our ability to provide our services using the Internet will not be adversely affected by computer vandalism.

If the overall performance of the Internet is seriously downgraded by website attacks or other acts of computer vandalism or virus infection, our ability to deliver our
communication services over the Internet could be adversely impacted, which could cause us to have to increase the amount of traffic we have to carry over alternative networks, including the more
costly public-switched telephone network. In addition, traditional business interruption insurance may not cover losses we could incur because of any such disruption of the Internet. While some
insurers are beginning to offer products purporting to cover these losses, we do not have any of this insurance at this time.

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

Our primary market risk exposure is related to interest rates and foreign currency exchange rates. To date, we have not engaged in trading market risk sensitive instruments or
purchasing hedging instruments, whether interest rate, foreign currency exchange, commodity price or equity price risk. We have not purchased options or entered into swaps or forward or futures
contracts.

Our
investments in commercial paper and debt instruments are subject to interest rate risk, but due to the short-term nature of these investments, interest rates would not have a material impact on
their value at December 31, 2002. Our primary interest rate risk is the risk on borrowings under our line of credit agreements, which are subject to interest rates based on the bank's prime
rate. A change in the applicable interest rates would also affect the rate at which we could borrow funds or finance equipment purchases. All other debt, including capital lease obligations, are fixed
rate debt.

We
conduct our business in various regions of the world, but most of our revenues are denominated in U.S. dollars with the remaining being generally denominated in Euros or British pounds. Although
most of our costs are U.S. dollar denominated, some of our costs are in Euros or British pounds which partially offsets our risk from revenues denominated in these currencies.

39

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Item 8.Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

|                                   |                                                                                                                | Page
|---------------------------------- | -------------------------------------------------------------------------------------------------------------- | ----
|Consolidated Financial Statements: |                                                                                                                |     
|                                   | Independent Auditors' Report                                                                                   |     
|                                   | Consolidated Balance Sheets as of December 31, 2002 and 2001                                                   |     
|                                   | Consolidated Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000                     |     
|                                   | Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 2002, 2001 and 2000 |     
|                                   | Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000                     |     
|                                   | Notes to Consolidated Financial Statements                                                                     |     

40

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Independent Auditors' Report

To
iBasis, Inc.:

We
have audited the accompanying consolidated balance sheets of iBasis, Inc. and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the years then ended. 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. The financial statements of iBasis, Inc. for the year ended December 31, 2000 were audited by other auditors whose report, dated
February 1, 2002, expressed an unqualified opinion on those statements.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of iBasis, Inc. and subsidiaries as of
December 31, 2002 and 2001, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of
America.

As
discussed in Note 2 to the consolidated financial statements, in 2002 the Company changed its method of accounting for goodwill and other intangible assets to conform to Statement of
Financial Accounting Standards No. 142.

/s/
Deloitte & Touche LLP

Boston,
Massachusetts
March 7, 2003

41

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This is a copy of the audit report previously issued by Arthur Andersen LLP in connection with iBasis, Inc.'s filing on Form 10-K for the year ended
December 31, 2001. This audit report has not been reissued by Arthur Andersen LLP in connection with this filing on Form 10-K. The consolidated financial statements as of and
for the year ended December 31, 2001 have been reaudited by Deloitte & Touche LLP and, accordingly, the report of Deloitte & Touche LLP supercedes that of Arthur Andersen LLP as
it pertains to that period. The consolidated balance sheet as of December 31, 2000 referred to in this report and the consolidated statements of operations, redeemable convertible preferred
stock and stockholders' equity (deficit) and cash flows for the year ended December 31, 1999 included in the three year period ended December 31, 2001 have not been included in the
accompanying financial statements.

Report of Independent Public Accountants

To
iBasis, Inc.:

We
have audited the accompanying consolidated balance sheets of iBasis, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2001 and 2000 and the related consolidated
statements of operations, redeemable convertible preferred stock and stockholders' equity (deficit) and cash flows for the three years ended December 31, 2001. These consolidated financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of iBasis, Inc. and subsidiaries as of
December 31, 2001 and 2000, and the results of its operations and its cash flows for the three years ended December 31, 2001 in conformity with accounting principles generally accepted
in the United States.

|                                       |  | ARTHUR ANDERSEN LLP
|-------------------------------------- |  | -------------------
|Boston, Massachusetts
February 1, 2002 |  |                    

42

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iBasis, Inc.        Consolidated Balance Sheets

|                                                |                                                                                                                          | December 31, |                                     
|----------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------ | ------------ | ------------------------------------
|
|Assets                                          |                                                                                                                         
|Current assets:                                 |                                                                                                                          |              |                                     
|                                                | Cash and cash equivalents                                                                                                |              | $                                   
|                                                | Restricted cash                                                                                                          |              |                                     
|                                                | Marketable securities                                                                                                    |              |                                     
|                                                | Accounts receivable, net of allowance for doubtful accounts of approximately $7.8 million and $5.9 million, respectively |              |                                     
|                                                | Prepaid expenses and other current assets                                                                                |              |                                     
|                                                | Assets of discontinued operation                                                                                         |              |                                     
|                                                |                                                                                                                          |              |                                     
|                                                |                                                                                                                          |              | Total current assets                
|                                                |                                                                                                                          |              |                                     
|Property and equipment, at cost:                |                                                                                                                          |              |                                     
|                                                | Network equipment                                                                                                        |              |                                     
|                                                | Equipment under capital lease                                                                                            |              |                                     
|                                                | Computer software                                                                                                        |              |                                     
|                                                | Construction in process                                                                                                  |              |                                     
|                                                | Leasehold improvements                                                                                                   |              |                                     
|                                                | Furniture and fixtures                                                                                                   |              |                                     
|                                                |                                                                                                                          |              |                                     
|                                                |                                                                                                                          |              | 89,909,200                          
|                                                | Less  Accumulated depreciation and amortization                                                                         |              |                                     
|                                                |                                                                                                                          |              |                                     
|                                                |                                                                                                                          |              | 32,357,491                          
|                                                |                                                                                                                          |              |                                     
|Deferred debt financing costs, net              |                                                                                                                          |              | 1,381,927                           
|Long-term investments in marketable securities  |                                                                                                                          |              |                                    
|Long-term investment in non-marketable security |                                                                                                                          |              | 5,000,000                           
|Other assets                                    |                                                                                                                          |              | 1,240,321                           
|                                                |                                                                                                                          |              |                                     
|                                                |                                                                                                                          | $            | 98,524,311                          
|                                                |                                                                                                                          |              |                                     
|Liabilities and Stockholders' Equity (Deficit)  |                                                                                                                         
|Current liabilities:                            |                                                                                                                          |              |                                     
|                                                | Accounts payable                                                                                                         |              | $                                   
|                                                | Accrued expenses                                                                                                         |              |                                     
|                                                | Liabilities of discontinued operation                                                                                    |              |                                     
|                                                | Current portion of long-term debt                                                                                        |              |                                     
|                                                |                                                                                                                          |              |                                     
|                                                |                                                                                                                          |              | Total current liabilities           
|Long-term debt, net of current portion          |                                                                                                                          |              | 93,589,694                          
|Commitments and contingencies                   |                                                                                                                          |              |                                     
|Stockholders' equity (deficit):                 |                                                                                                                          |              |                                     
|                                                | Common stock, $0.001 par value, authorized85,000,000 shares; issued45,785,055 and 45,271,318 shares, respectively;     |              |                                     
|                                                | Preferred stock, $.001 par value, authorized 15,000,000 shares; issued and outstanding; none                             |              |                                     
|                                                | Treasury stock, 1,135,113 shares at cost                                                                                 |              |                                     
|                                                | Additional paid-in capital                                                                                               |              |                                     
|                                                | Deferred compensation                                                                                                    |              |                                     
|                                                | Accumulated deficit                                                                                                      |              |                                     
|                                                |                                                                                                                          |              |                                     
|                                                |                                                                                                                          |              | Total stockholders' equity (deficit)
|                                                |                                                                                                                          |              |                                     
|                                                |                                                                                                                          | $            | 98,524,311                          
|                                                |                                                                                                                          |              |                                     

The accompanying notes are an integral part of these consolidated financial statements.

43

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iBasis, Inc.        Consolidated Statements of Operations

|                                                                                                          |                                   | Years Ended December 31, |             
|--------------------------------------------------------------------------------------------------------- | --------------------------------- | ------------------------ | ------------
|
|Net revenue                                                                                               |                                   | $                        | 164,941,789 
|Cost and operating expenses:                                                                              |                                   |                          |             
|Data communications and telecommunications                                                                |                                   |                          | 142,846,999 
|Research and development                                                                                  |                                   |                          | 17,781,195  
|Selling and marketing                                                                                     |                                   |                          | 11,278,629  
|General and administrative                                                                                |                                   |                          | 24,185,648  
|Depreciation and amortization                                                                             |                                   |                          | 31,870,800  
|Non-cash stock-based compensation                                                                         |                                   |                          | 966,574     
|Loss on sale of messaging business                                                                        |                                   |                          | 2,066,080   
|Restructuring costs                                                                                       |                                   |                          | 5,536,481   
|                                                                                                          |                                   |                          |             
|                                                                                                          | Total cost and operating expenses |                          |             
|                                                                                                          |                                   |                          |             
|Operating loss                                                                                            |                                   |                          | (71,590,617 
|Interest income                                                                                           |                                   |                          | 1,290,066   
|Interest expense                                                                                          |                                   |                          | (11,607,853 
|Other expenses, net                                                                                       |                                   |                          | (382,621    
|                                                                                                          |                                   |                          |             
|Loss from continuing operations before extraordinary gain on repurchase of Convertible Subordinated Notes |                                   |                          | (82,291,025 
|Loss from discontinued operations                                                                         |                                   |                          | (65,222,320 
|                                                                                                          |                                   |                          |             
|Loss before extraordinary gain on repurchase of Convertible Subordinated Notes                            |                                   |                          | (147,513,345
|Extraordinary gain on repurchase of Convertible Subordinated Notes                                        |                                   |                          | 25,790,029  
|                                                                                                          |                                   |                          |             
|Net loss                                                                                                  |                                   | $                        | (121,723,316
|                                                                                                          |                                   |                          |             
|Basic and diluted net loss per share:                                                                     |                                   |                          |             
|Loss from continuing operations before extraordinary gain on repurchase of Convertible Subordinated Notes |                                   | $                        | (1.82       
|Loss from discontinued operations                                                                         |                                   |                          | (1.45       
|                                                                                                          |                                   |                          |             
|Loss before extraordinary gain on repurchase of Convertible Subordinated Notes                            |                                   |                          | (3.27       
|Extraordinary gain on repurchase of Convertible Subordinated Notes                                        |                                   |                          | 0.57        
|                                                                                                          |                                   |                          |             
|Net loss                                                                                                  |                                   | $                        | (2.70       
|                                                                                                          |                                   |                          |             
|Basic and diluted weighted average common shares outstanding                                              |                                   |                          | 45,163,945  
|                                                                                                          |                                   |                          |             

The accompanying notes are an integral part of these consolidated financial statements.

44

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iBasis, Inc.        Consolidated Statements of Stockholders' Equity (Deficit)

|                           |                                                                                                                | Common Stock |           | Treasury Stock |        |       |   |   |  |   |   |   |            
|-------------------------- | -------------------------------------------------------------------------------------------------------------- | ------------ | --------- | -------------- | ------ | ----- | - | - |  | - | - | - | -----------
|
|
|Balance, January 1, 2000   |                                                                                                                | 31,642,728   |           | $              | 31,642 |       |  |   |  |  |   | $ | 156,887,447
|                           | Sale of common stock under secondary public offering, net of issuance costs of approximately $949,000          |              | 2,026,637 |                |        | 2,027 |   |  |  |   |  |   |            
|                           | Exercise of common stock options and warrants                                                                  |              | 525,959   |                |        | 526   |   |  |  |   |  |   |            
|                           | Sale of common stock related to employee stock purchase plan                                                   |              | 7,759     |                |        | 8     |   |  |  |   |  |   |            
|                           | Amortization of deferred compensation                                                                          |              |          |                |        |      |   |  |  |   |  |   |            
|                           | Compensation expense related to acceleration of option vesting                                                 |              |          |                |        |      |   |  |  |   |  |   |            
|                           | Net loss                                                                                                       |              |          |                |        |      |   |  |  |   |  |   |            
|                           |                                                                                                                |              |           |                |        |       |   |   |  |   |   |   |            
|Balance, December 31, 2000 |                                                                                                                | 34,203,083   |           |                | 34,203 |       |  |   |  |  |   |   | 298,572,842
|                           | Issuance of common stock related to the purchase of PriceInteractive, Inc., net of filing fees of $6,905       |              | 9,281,645 |                |        | 9,282 |   |  |  |   |  |   |            
|                           | Issuance of restricted common stock related to the purchase of PriceInteractive, Inc., net of forfeited shares |              | 948,543   |                |        | 948   |   |  |  |   |  |   |            
|                           | Issuance of options to buy common stock related to the purchase of PriceInteractive                            |              |          |                |        |      |   |  |  |   |  |   |            
|                           | Exercise of common stock options and warrants                                                                  |              | 706,440   |                |        | 706   |   |  |  |   |  |   |            
|                           | Sale of common stock related to employee stock purchase plan                                                   |              | 131,607   |                |        | 132   |   |  |  |   |  |   |            
|                           | Amortization of deferred compensation                                                                          |              |          |                |        |      |   |  |  |   |  |   |            
|                           | Compensation expense related to acceleration of option vesting                                                 |              |          |                |        |      |   |  |  |   |  |   |            
|                           | Net loss                                                                                                       |              |          |                |        |      |   |  |  |   |  |   |            
|                           |                                                                                                                |              |           |                |        |       |   |   |  |   |   |   |            
|Balance, December 31, 2001 |                                                                                                                | 45,271,318   |           |                | 45,271 |       |  |   |  |  |   |   | 369,692,193

45

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|                           | Acquisition of treasury shares from escrow settlement with PriceInteractive, Inc. |            |        |   |        |    |            | (1,135,113 | ) |          | (340,534 | ) |             |           |   |         |          |   |              |             |   |             | (340,534     | )
|-------------------------- | --------------------------------------------------------------------------------- | ---------- | ------- | - | ------ | --- | ---------- | ---------- | - | -------- | -------- | - | ----------- | ---------- | - | ------- | --------- | - | ------------ | ------------ | - | ----------- | ------------ | -
|                           | Exercise of common stock options                                                  |            | 149,206 |   |        | 149 |            |           |   |          |         |   |             | 122,599    |   |         |          |   |              |             |   |             | 122,748      |  
|                           | Sale of common stock related to employee stock purchase plan                      |            | 364,531 |   |        | 365 |            |           |   |          |         |   |             | 285,116    |   |         |          |   |              |             |   |             | 285,481      |  
|                           | Reduction in deferred compensation                                                |            |        |   |        |    |            |           |   |          |         |   |             | (1,172,744 | ) |         | 1,172,744 |   |              |             |   |             |             |  
|                           | Amortization of deferred compensation                                             |            |        |   |        |    |            |           |   |          |         |   |             |           |   |         | 966,574   |   |              |             |   |             | 966,574      |  
|                           | Net loss                                                                          |            |        |   |        |    |            |           |   |          |         |   |             |           |   |         |          |   |              | (121,723,316 | ) |             | (121,723,316 | )
|                           |                                                                                   |            |         |   |        |     |            |            |   |          |          |   |             |            |   |         |          
|Balance, December 31, 2002 |                                                                                   | 45,785,055 |         | $ | 45,785 |     | (1,135,113 | )          | $ | (340,534 | )        | $ | 368,927,164 |            | $ | (85,756 | )         | $ | (402,519,084 | )            | $ | (33,972,425 | )           
|                           |                                                                                   |            |         |   |        |     |            |            |   |          |          |   |             |            |   |         |          

The accompanying notes are an integral part of these consolidated financial statements.

46

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iBasis, Inc.        Consolidated Statements of Cash Flows

|                                                     |                                                                                                   | Years ended December 31,                               |                                          
|---------------------------------------------------- | ------------------------------------------------------------------------------------------------- | ------------------------------------------------------ | -----------------------------------------
|
|Cash flows from operating activities:                |                                                                                                   |                                                        |                                          
|                                                     | Loss from continuing operations                                                                   |                                                        | $                                        
|                                                     | Adjustments to reconcile loss from continuing operations to net cash used in operating activities |                                                        |                                          
|                                                     |                                                                                                   | Restructuring costs                                    |                                          
|                                                     |                                                                                                   | Depreciation and amortization                          |                                          
|                                                     |                                                                                                   | Loss on sale of messaging business                     |                                          
|                                                     |                                                                                                   | Amortization of deferred debt financing costs          |                                          
|                                                     |                                                                                                   | Amortization of deferred compensation                  |                                          
|                                                     |                                                                                                   | Non cash compensation expense related to stock options |                                          
|                                                     |                                                                                                   | Changes in current assets and liabilities              |                                          
|                                                     |                                                                                                   |                                                        | Accounts receivable, net                 
|                                                     |                                                                                                   |                                                        | Prepaid expenses and other current assets
|                                                     |                                                                                                   |                                                        | Decrease in other assets                 
|                                                     |                                                                                                   |                                                        | Accounts payable                         
|                                                     |                                                                                                   |                                                        | Accrued expenses                         
|                                                     |                                                                                                   |                                                        |                                          
|                                                     |                                                                                                   |                                                        |                                          
|                                                     |                                                                                                   |                                                        |                                          
|                                                     |                                                                                                   |                                                        |                                          
|                                                     |                                                                                                   |                                                        |                                          
|                                                     |                                                                                                   |                                                        |                                          
|Cash flows from investing activities:                |                                                                                                   |                                                        |                                          
|                                                     | Purchase of PriceInteractive, Inc., net of cash acquired                                          |                                                        |                                          
|                                                     | Increase in other assets                                                                          |                                                        |                                          
|                                                     | Purchases of property and equipment                                                               |                                                        |                                          
|                                                     | Due from PriceInteractive, Inc.                                                                   |                                                        |                                          
|                                                     | Decrease (increase) in marketable securities                                                      |                                                        |                                          
|                                                     | Decrease (increase) in long-term marketable securities                                            |                                                        |                                          
|                                                     | Increase in long-term investment in non-marketable security                                       |                                                        |                                          
|                                                     | Proceeds from sale of messaging business                                                          |                                                        |                                          
|                                                     | Proceeds from sale of Speech Solutions business                                                   |                                                        |                                          
|                                                     |                                                                                                   |                                                        |                                          
|                                                     |                                                                                                   |                                                        |                                          
|                                                     |                                                                                                   |                                                        |                                          
|Cash flows from financing activities:                |                                                                                                   |                                                        |                                          
|                                                     | Decrease (increase) in restricted cash                                                            |                                                        |                                          
|                                                     | Bank borrowings                                                                                   |                                                        |                                          
|                                                     | Payments of principal of long-term debt                                                           |                                                        |                                          
|                                                     | Payments of principal on capital lease obligations                                                |                                                        |                                          
|                                                     | Repurchase of Convertible Subordinated Notes                                                      |                                                        |                                          
|                                                     | Proceeds from issuance of shares related to employee stock purchase plan                          |                                                        |                                          
|                                                     | Proceeds from exercise of warrants and common stock options                                       |                                                        |                                          
|                                                     | Proceeds from secondary public offering                                                           |                                                        |                                          
|                                                     | Proceeds from issuance of Convertible Subordinated Notes                                          |                                                        |                                          
|                                                     |                                                                                                   |                                                        |                                          
|                                                     |                                                                                                   |                                                        |                                          
|                                                     |                                                                                                   |                                                        |                                          
|Net (decrease) increase in cash and cash equivalents |                                                                                                   |                                                        | (43,482,326                              
|Cash and cash equivalents, beginning of year         |                                                                                                   |                                                        | 75,798,935                               
|                                                     |                                                                                                   |                                                        |                                          
|Cash and cash equivalents, end of year               |                                                                                                   | $                                                      | 32,316,609                               
|                                                     |                                                                                                   |                                                        |                                          

47

---

|Supplemental disclosure of cash flow information:                       |                                                                                                                          |   |           |            |   |   |            |   |   |           
|----------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------ | - | --------- | ---------- | - | - | ---------- | - | - | ----------
|                                                                        | Cash paid during the year for interest                                                                                   |   | $         | 10,738,432 |   | $ | 15,144,369 |   | $ | 9,211,824 
|                                                                        |                                                                                                                          |   |           |            |   |   |           
|                                                                        | Acquisition of PriceInteractive, Inc.:                                                                                   |   |           |            |   |   |            |   |   |           
|                                                                        | Fair value of common stock issued                                                                                        |   | $         |           |   | $ | 64,345,512 |   | $ |          
|                                                                        |                                                                                                                          |   |           |            |   |   |           
|                                                                        | Fair value of options issued                                                                                             |   | $         |           |   |   | 3,366,698  |   | $ |          
|                                                                        |                                                                                                                          |   |           |            |   |   |           
|                                                                        | Liabilities assumed                                                                                                      |   | $         |           |   | $ | 21,784,821 |   | $ |          
|                                                                        |                                                                                                                          |   |           |            |   |   |           
|                                                                        | Treasury stock-settlement of escrow                                                                                      |   | $         | 340,534    |   | $ |           |   | $ |          
|                                                                        |                                                                                                                          |   |           |            |   |   |           
|Supplemental disclosure of non-cash investing and financing activities: |                                                                                                                          |   |           |            |   |   |            |   |   |           
|                                                                        | Equipment acquired under capital lease obligations                                                                       |   | $         | 3,247,032  |   | $ | 23,963,884 |   | $ | 60,822,136
|                                                                        |                                                                                                                          |   |           |            |   |   |           
|                                                                        | Reduction in carrying value certain of property and equipment as a result of the settlement of capital lease obligations |   | $         | 23,905,916 |   | $ |           |   | $ |          
|                                                                        |                                                                                                                          |   |           |            |   |   |           
|Escrow receivable related to sale of Speech Solutions Business          |                                                                                                                          | $ | 1,500,000 |            | $ |  |            | $ |  |           
|                                                                        |                                                                                                                          |   |           |            |   |   |           
|Conversion of accrued interest to capital lease obligations             |                                                                                                                          | $ | 2,096,351 |            | $ |  |            | $ |  |           
|                                                                        |                                                                                                                          |   |           |            |   |   |           

The accompanying notes are an integral part of these consolidated financial statements.

48

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iBasis, Inc.        Notes to Consolidated Financial Statements

(1)    Business and Management Plans

BusinessiBasis, Inc. (the "Company") is an international telecommunications carrier that utilizes the
Internet to provide economical international telecommunications services to carriers and telephony resellers around the world. The Company's continuing operations consists of its
Voice-Over-Internet-Protocol ("VoIP") business. The Company currently operates through various service agreements with local service providers in the United States, Europe,
Asia, the Middle East, Latin America, Africa and Australia.

Management PlansAs shown in the consolidated financial statements, the Company has incurred cumulative net losses
of $402.5 million since inception and used $43.0 of cash in continuing operations during 2002. These results are primarily attributable to the expenditures necessary to develop and expand our
market.

Throughout
2001 and 2002, management has taken a series of actions to reduce operating expenses and to restructure operations, which consisted primarily of reductions in workforce, the consolidation
of internet central offices, the sale of the messaging business, the sale of the assets associated with the Speech Solutions business, the settlement of certain capital lease agreements and the
repurchase of a portion of the Company's 5.75% Convertible Subordinated Notes. Moreover, management continues to
implement plans to control operating expenses and capital expenditures, as well as, to monitor and manage accounts payable and accounts receivable and restructure existing debt to enhance cash flow in
order to fund the Company until we reach profitability.

Management's
plans include the:



In
order to further assure that adequate cash balances are available, the Company has entered into, and will continue to explore, alternative financing arrangements to partially replace or supplement
those currently in place in order to provide the Company with long-term financing to support its funding needs.

On
December 30, 2002, the Company entered into two secured line of credit agreements (the "2002 Credit Lines") with Silicon Valley Bank (the "Bank") providing a total available line of credit
of $15 million which replaced both the 2001 Revolver and 2001 Term Loan. The maximum aggregate borrowings outstanding at any one time is limited to the lesser of $15 million or the
specified borrowing base. The borrowing base is equal to 75% or 70% of eligible receivables, as defined in the agreements. Outstanding Letters of Credit drawn by the Company will reduce the maximum
borrowings under this agreement at any time. Borrowings under these lines of credit bear interest at the Bank's prime rate plus 1% and are collateralized by substantially all assets of the Company.
The credit lines

49

---

require the Company to comply with various financial and non-financial covenants, including the maintenance of certain minimum financial ratios and restrictions on the payment of cash
dividends. These agreements mature on December 29, 2004. On December 30, 2002, in conjunction with these agreements, the Company issued a five-year warrant to the Bank for
the purchase of 337,500 shares of its common stock at an exercise price of $0.337 per share.

During
the first quarter of 2003 the Company entered into agreements with principal holders of the Company's 5.75% Convertible Subordinated Notes which resulted in the retirement of
$38.2 million of the notes in exchange for a new debt instrument at 50% of the face value of the retired notes.

Under
the terms of the agreements, the bond holders surrendered an aggregate principal amount of $38.2 million of iBasis' outstanding 5.75% Convertible Subordinated Notes in exchange for
$19.1 million aggregate principal amount of new 11.5% Senior Secured Notes issued by iBasis and warrants for 3,798,811 shares of iBasis common stock. Each warrant will have an initial exercise
price of $0.65 per share of Common Stock and an exercisable term of five years.

The
new Notes, which mature on January 15, 2005, share in a second priority lien on the Company's assets and are subordinated to iBasis' senior bank debt.

The
Company will record a gain on this exchange of approximately $12.9 million in 2003.

Management
anticipates that the December 31, 2002 balance of $32.3 million in cash, cash equivalents and marketable securities will be sufficient to fund operations for the next twelve months.
However, in the event that management fails to execute its plan, or that circumstances currently unknown or unforeseen arise, the Company may require additional financings. If any additional
financings are needed, they may not be available on terms acceptable to the Company, if at all.

(2)    Summary of Significant Accounting Policies

Principles of ConsolidationThe accompanying consolidated financial statements include the accounts of
iBasis, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Basis of PresentationDuring July 2002, the Company sold its Speech Solutions Business. Accordingly, the
Consolidated Statements of Operations have been reclassified to present the results of the Speech Solutions Business separately from continuing operations as discontinued operations. Furthermore, the
assets and liabilities of the Speech Solutions Business are classified separately on the Consolidated Balance Sheet as of December 31, 2001.

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 and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Revenue RecognitionSubstantially all of the Company's sales transactions are derived from the resale of
international minutes of calling time. Revenue from the resale of minutes is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred
or services have been rendered, the seller's price to the buyer is fixed or determinable and collectibility is

50

---

reasonably assured. The Company recognizes revenue in the period the service is provided, net of revenue reserves for potential billing credits.

Net Loss Per ShareBasic and diluted net loss per common share are determined by dividing net loss by the weighted
average common shares outstanding during the period. Basic net loss per share and diluted net loss per share are the same, as the outstanding common stock options and convertible subordinated notes
are antidilutive since the Company has recorded a net loss for all periods presented.

The
following have been excluded from the computation of diluted weighted average common shares for the periods presented:

|                                                                              |  | Years Ended December 31,
|----------------------------------------------------------------------------- |  | ------------------------
|
|Options to purchase common shares                                             |  | 2,256,518               
|Common shares related to the conversion of the Convertible Subordinated Notes |  | 1,027,746               
|                                                                              |  |                         
|Total common shares excluded                                                  |  | 3,284,264               
|                                                                              |  |                         

The
following table reconciles the weighted average common shares outstanding to the shares used in the computation of basic and diluted weighted average common shares outstanding:

|                                                                         |  | Years Ended December 31,
|------------------------------------------------------------------------ |  | ------------------------
|
|Weighted average common shares outstanding                               |  | 45,387,450              
|Less: Weighted average unvested common shares outstanding                |  |                        
|Weighted average unvested restricted common shares
          outstanding |  | 223,505                 
|                                                                         |  |                         
|Basic and diluted weighted average common shares outstanding             |  | 45,163,945              
|                                                                         |  |                         

Cash, Cash Equivalents and Restricted CashThe Company considers highly liquid investments purchased with an
original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash equivalents include money market accounts and commercial paper that are readily convertible into cash.
During 2001, and as part of a financing arrangement with a bank, the Company was required to restrict approximately $8.9 million with that bank as collateral. The Company classified this amount
as restricted cash on the accompanying consolidated balance sheet as of December 31, 2001. During 2002, the Company entered into a new financing arrangement with the bank which did not require
any restrictions on the Company's cash (see Note 6).

Property and EquipmentProperty and equipment are stated at cost. Assets under capital leases are recorded at the
present value of minimum lease payments. These assets are depreciated over the lesser of the lease term or the estimated useful lives of the assets using the straight-line method.
Significant improvements and betterments are capitalized if they extend the useful life of the asset. Routine repairs and maintenance are expensed when incurred.

51

---

Construction
in process represents those assets that were acquired by the Company, but were not placed in service as of the balance sheet date. For assets that have been placed in service, the Company
provides for depreciation and amortization using the straight-line method over the useful life of the asset, as follows:

Asset Classification

Estimated Useful LifeNetwork equipment

3 yearsEquipment under capital lease

Life of leaseComputer software

3 yearsLeasehold improvements

Life of leaseFurniture and fixtures

5 years


The
Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to
be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. Total depreciation expense included in the consolidated statements of operations was approximately $26.3 million, $14.6 million, and
$6.6 million for the years ended December 31, 2002, 2001 and 2000, respectively. Total amortization of equipment under lease included in the consolidated statements of operations was
approximately $5.5 million, $17.8 million, and $9.1 million for the years ended December 31, 2002, 2001, and 2000, respectively.

Deferred Debt Financing CostsIn March 2000, the Company sold $150.0 million of 5.75% Convertible
Subordinated Notes (the "Notes") which mature in March 2005. Underwriter discounts of $4.5 million and other costs of approximately $700,000 incurred in connection with the sale are
being amortized to interest expense using the straight-line method which is not materially different than the effective interest rate method over the term of the Notes. During 2001 and
2002, the Company repurchased a portion of these Notes and netted the applicable portion of the net book value of the deferred debt financing costs against the extraordinary gain recorded on those
repurchases. In early 2003, the Company entered into agreements to exchange a portion of the Notes for new debt instruments. In connection with the exchange, a ratable portion of deferred debt
financing costs will be netted against the gain in the transaction (see Note 6). The Company will continue to amortize the remaining deferred debt financing costs, using the
straight-line method, until March 2005, when the Notes mature.

Investments in Short-Term and Long-Term Marketable and Non-marketable
SecuritiesInvestments purchased with an original maturity of greater than 90 days but less than one year are classified on the accompanying balance sheet as
short-term investments. Investments held as of December 31, 2001 that were scheduled to mature after December 31, 2002 were considered long term investments. In accordance
with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities," and based on the Company's intentions regarding these
instruments, the Company classified all marketable debt securities and long-term debt investments as held-to-maturity and accounted for these investments at
amortized cost. During 2002, the Company utilized the proceeds from these investments for working capital and debt service purposes.

52

---

At
December 31, 2001, the amortized cost basis, aggregate fair value and gross unrealized holding gains and losses by major security type were as follows:

UnrealizedAmortized Cost

Gain

Loss

Market ValueCommercial paper

$
14,006,722

$
77,106

$


$
14,083,828Corporate bonds


98,912








98,912Government bonds


11,507,896


46,880





11,554,776Total short-term marketable securities

$
25,613,530

$
123,986

$


$
25,737,516Corporate bonds

$
6,181,162

$
95,175

$


$
6,276,337Government bonds


2,230,200





(6,384
)

2,223,816Total long-term marketable securities

$
8,411,362

$
95,175

$
(6,384
)
$
8,500,153Total marketable securities

$
34,024,892

$
219,161

$
(6,384
)
$
34,237,669


The
long-term investment in non-marketable security represents an equity investment in a privately held telecommunications company that is not readily convertible into cash.
The investment has been recorded at cost in the accompanying consolidated balance sheet. Management believes that there has been no impairment in value of this investment as of December 31,
2002.

Other AssetsOther assets at December 31, 2002 and 2001 consist primarily of deposits for call termination
services and leased facilities.

Research and Development ExpensesThe Company charges research and development expenses to operations as incurred

Concentration of Credit Risk/Significant CustomersFinancial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash investments and accounts receivable. The Company places its cash investments with a high quality financial institution and limits
the amount of credit exposure. The Company's management has established certain credit requirements that its customers must meet before sales credit is extended. The Company monitors the financial
condition of its customers to help ensure collections and to minimize losses.

The
following table represents customers that accounted for greater than 10% of accounts receivable at December 31:

2002

2001Customer A

17
%
9
%Customer B

5
%
11
%Customer C



11
%


The
Company had one customer account for 12%, 14%, and 7% of net revenue for the years ended December 31, 2002, 2001, and 2000, respectively.

53

---

Fair Value of Financial InstrumentsFinancial instruments consist principally of cash and cash equivalents, accounts
receivable, long-term investments in marketable securities and long-term investments in non-marketable securities, long-term debt and accounts payable. The
estimated fair value of these instruments, except for the Convertible Subordinated Notes, approximates their carrying value. The fair value of the Convertible Subordinated Notes at December 31,
2002 is approximately $28.6 million.

Stock-Based CompensationThe Company accounts for stock-based compensation in accordance with Accounting Principles Board ("APB") Opinion
No. 25 using the intrinsic-value method as permitted by SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 encourages, but does not require, the recognition of
compensation expense for the fair value of stock options and other equity instruments issued to employees and nonemployee directors.

At
December 31, 2002, the Company had two stock-based employee compensation plans, which are described more fully in Note 7. The following table illustrates the effect on net loss and net loss
per share if the Company had applied the fair value recognition provisions of SFAS No. 123.

|                                      |                                                                                                              | December 31, |  
|------------------------------------- | ------------------------------------------------------------------------------------------------------------ | ------------ | -
|
|Net loss:                             |                                                                                                              |              |  
|                                      | As reported                                                                                                  |              | $
|                                      | Deduct: Stock-based employee compensation expense included in reported net loss                              |              |  
|                                      | Add: Total stock-based employee compensation expense determined under fair value based method for all awards |              |  
|                                      |                                                                                                              |              |  
|                                      | Pro forma                                                                                                    |              | $
|                                      |                                                                                                              |              |  
|Basic and diluted net loss per share: |                                                                                                              |              |  
|                                      | As reported                                                                                                  |              | $
|                                      |                                                                                                              |              |  
|                                      | Pro forma                                                                                                    |              | $
|                                      |                                                                                                              |              |  

Income TaxesThe Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income
Taxes." This statement requires an asset and liability approach to accounting for income taxes based upon the future expected values of the related assets and liabilities. Deferred income taxes are
provided for basis differences between assets and liabilities for financial reporting and tax purposes.

Recently Adopted Accounting Pronouncements

Effective January 1, 2002, the Company adopted the provisions of Statement on Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"). Under the provisions of SFAS 142, if an intangible asset is determined to have an indefinite useful life, it shall not be amortized until its useful life is
determined to be no longer indefinite. An intangible asset that is not subject to amortization shall be tested for impairment annually, or more frequently if events or changes in circumstances
indicate that the asset might be impaired. Goodwill is not amortized but is tested for impairment, for each reporting unit, on an annual basis and between annual tests in certain

54

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circumstances. Upon adoption of SFAS 142, the Company performed an impairment review and concluded that there were no necessary adjustments.

In
August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement supercedes SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." Under this statement it is required
that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and it broadens the presentation of discontinued
operations to include more disposal transactions. The Company adopted SFAS No. 144 on January 1, 2002 and such adoption did not materially effect our results of operations or financial
position.

In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based CompensationTransition and Disclosure," which amends SFAS No. 123, "Accounting for
Stock-Based Compensation," to provide alternative methods of transition to the fair value method of accounting for stock-based employee compensation, and also amends the disclosure provision of SFAS
No. 123 to require disclosure in the summary of significant accounting policies the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net
income and earnings per share in annual and interim financial statements. The disclosure provision is required for all companies with stock-based employee compensation, regardless of whether the
company utilizes the fair value
method of accounting described in SFAS No. 123 or the intrinsic value method described in APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 148's amendment
of the transition and annual disclosure provisions of SFAS No. 123 are effective for fiscal years ending after December 15, 2002. The disclosure requirements for interim financial
statements containing condensed consolidated financial statements are effective for interim periods beginning after December 15, 2002. We currently account for stock based compensation
utilizing the intrinsic value method of accounting for stock-based employee compensation described by APB Opinion No. 25.

Future Adoption of Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset, except for certain lease
obligations. This statement applies to all entities and is effective for financial statements issued for fiscal years beginning after June 15, 2002. We are currently evaluating the impact of
this statement on our results of operations or financial position until such time as its provisions are applied.

In
April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This
statement amends, among others, the classification on the statement of operations for gains and losses from the extinguishment of debt. Currently such gains and losses are reported as extraordinary
items, however the adoption of SFAS No. 145 will require the classification of the gains and losses from the extinguishment of debt within income or loss from continuing operations unless the
transactions meet the criteria for

55

---

extraordinary treatment as infrequent and unusual as described in Accounting Principles Board Opinion No. 30 "Reporting the Results of OperationsReporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." The extraordinary gain resulting from the early extinguishment of the convertible
Subordinated Notes (see Note 6) will be reclassified to other expense, net within the consolidated statements of operations upon adoption on January 1, 2003.

In
June 2002, the FASB issues SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement supersedes Emerging Issues Task Force ("EITF")
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." Under this statement, a liability for a cost associated with a
disposal or exit activity is recognized at fair value when the liability is incurred rather than at the date of an entity's commitment to an exit plan as required under EITF 94-3.
The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002. All restructuring activity undertaken prior to that date has been
accounted for under the provision of EITF 94-3.

In
November 2002, the FASB issued FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." FIN No. 45 clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee.
The initial recognition and initial measurement provisions of FIN No. 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Company will
adopt these requirements on January 1, 2003. The disclosure requirements of FIN No. 45 are applicable for financial statements of interim or annual periods ending after
December 15, 2002 and, therefore, have been adopted for these Consolidated Financial Statements.

We
do not expect the adoption of the above mentioned pronouncements to have a material impact on our consolidated financial statements.

(3)    Acquisition of PriceInteractive, Inc. and Discontinued Operations

AcquisitionOn February 27, 2001, the Company completed its acquisition of all of the outstanding capital stock and options to
purchase common stock of PriceInteractive Inc., a leading provider of speech application services ("PriceInteractive"). The acquisition was accounted for using the purchase method of accounting
in accordance with APB Opinion No. 16, "Business Combinations," and, accordingly, the results of operations for PriceInteractive have been included in the consolidated results of the Company
since the acquisition date. The aggregate purchase price, which was comprised of cash of $45.3 million, approximately 9.3 million shares of common stock (including 2.1 million
shares placed in escrow), approximately 1.0 million shares of restricted common stock and options to purchase approximately 1.0 million shares of common stock, was allocated to the
tangible and intangible assets of PriceInteractive based upon the fair value of such assets acquired. Fair value of intangible assets was determined by an independent appraisal. The restricted common
stock, issued in the acquisition, vested 50% on December 31, 2001 while the remaining 50% was scheduled to vest on January 1, 2003, subject to acceleration upon certain events. In
addition, the Company also recorded $1,834,178 of deferred stock-based compensation, relating to the options issued in connection with the acquisition, which was being amortized over two to four
years, the vesting periods of the options granted.

56

---

Subsequent
to the acquisition, the Company changed the name of the acquired entity to iBasis Speech Solutions, Inc.

A
summary of the total consideration and the allocation of the aggregate purchase price was as follows:

Purchase Price:Cash paid

$
45,250,917Professional fees and other acquisition costs


6,258,679Fair value of common stock issued


64,338,607Fair value of common stock options issued


3,366,698Total purchase price

$
119,214,901Allocation of Purchase Price:Cash and cash equivalents

$
13,384,425Other current assets


6,940,155Property and equipment


9,203,412Developed technology and know-how


15,447,698Installed customer base


7,559,512Assembled workforce


1,424,256Goodwill


62,570,521Other assets


38,277Current liabilities


(8,800,717
)Long term debt


(12,984,104
)In-process research and development


24,431,466Total allocation of purchase price

$
119,214,901


The
$24.4 million allocated to purchased in-process research and development ("in-process R&D") represented the appraised fair value of a project that did not have
future alternative uses. This
allocation represented the estimated fair value based on risk-adjusted cash flows related to the in-process research and development project. The development of the project had
not yet reached technological feasibility and the research and development in process had no alternative uses. Accordingly, these costs were expensed as of the acquisition date.

In-process
research and development value was comprised of one primary research and development project. This project included the introduction of certain new technologies. At the
acquisition date, this project was approximately 70% to 80% complete based on cost data and technological progress. The research and development investment in this project made by the Company from the
date of acquisition through December 31, 2001 was $6.0 million.

The
value assigned to purchased in-process technology was determined by estimating the costs to develop the purchased in-process technology into commercially viable products,
estimating the resulting net cash flows from the project and discounting the net cash flows to their present value. The revenue projection used to value the in-process research and
development is based on the expected timing of new products, management's estimate of the product life cycle and expected revenue contribution. The rates utilized to discount the net cash flows to
their present value are based on the Company's

57

---

weighted average cost of capital. This discount rate was commensurate with the Company's corporate maturity and the uncertainties in the economic estimates described above.

Discontinued OperationOn July 15, 2002 the Company completed the sale of substantially all of the assets of its Speech Solutions
Business for $18.5 million in cash of which $1.5 million of this amount was placed in escrow until December 31, 2003, and up to $8 million in earn-out payments
that may be earned upon the achievement of certain revenue milestones of the Speech Solutions Business in 2003. No earnout payments were earned in 2002.

The
Company has reported its Speech Solutions Business as a discontinued operation under the provisions of SFAS No. 144 "Accounting for the Impairment or Disposal of Long Lived Assets." The
Consolidated Financial Statements have been reclassified to segregate the net assets and operating results of this discontinued operation for all periods presented.

The
loss on the disposal of the discontinued operation of $58,943,734 included the write-off of goodwill and other purchased intangibles of $57,272,765 and the costs to sell the operation
of $1,670,969. The amount of the loss will be adjusted in the future to reflect any contingent consideration received, and the settlement of the $1.5 million held in escrow.

Summary
operating results of the discontinued operation for 2002 and 2001 were as follows:

Years Ended December 31,2002

2001Revenue

$
12,306,262

$
23,589,920Operating loss


(5,905,772
)

(49,262,850
)Pre-tax loss from discontinued operations


(65,222,320
)

(49,770,957
)


The
operating losses for 2002 and 2001 include depreciation of $2,608,907 and $3,561,121 and amortization of intangibles of $3,314,133 and $23,908,202 respectively. Also included in 2001 is a
write-off of in-process research and development costs of $24,431,466 in connection with the acquisition of PriceInteractive.

Assets
and liabilities of the discontinued operation related to the Company's Speech Solutions Business at December 31, 2001 are as follows:

Accounts receivable, net

$
6,899,134Property and equipment, net


13,417,644Goodwill and other purchased intangibles, net


63,093,785Other current assets


843,216Assets of discontinued operation

$
84,253,779Liabilities of discontinued operation

$
4,949,313


58

---

(4)    Accrued Expenses

Accrued expenses at December 31, consist of the following:

2002

2001Termination fees and circuit costs

$
8,603,948

$
9,619,326Restructuring and other non-recurring costs


3,194,455


3,883,578Interest


1,484,722


3,384,308Acquisition related costs


2,884,000


4,495,960Costs relating to repurchase of convertible subordinated notes





1,578,418Professional services


794,412


1,281,456Payroll and related costs


787,203


675,946Equipment purchases


323,034


469,200Customer deposits


348,576


107,165Accrued other


1,995,560


3,351,723$
20,415,910

$
28,847,080


(5)    Income Taxes

No provision for federal or state income taxes has been recorded, as the Company incurred net operating losses for all periods presented. As of
December 31, 2002, the Company has net operating loss carryforwards of approximately $282.7 million available to reduce future federal and state income taxes, if any. If not utilized, these
carryforwards expire at various dates through 2022. If substantial changes in the Company's ownership should occur, as defined by Section 382 of the Internal Revenue Code (the "Code"), there
could be annual limitations on the amount of carryforwards which can be realized in future periods. The Company has completed several financings since its inception and believes that it may have
incurred an ownership change as defined under the Code.

The
approximate income tax effects of temporary differences and carryforwards are as follows:

December 31,2002

2001Net operating loss carryforwards

$
103,534,600

$
76,479,100Accruals


20,816,800


39,073,800Depreciation


8,224,800


(1,270,500
)Accounts receivable


4,508,900


3,482,900Other


(356,300
)

(1,893,000
)Valuation allowance


(136,728,800
)

(115,872,300
)$


$



The
Company has recorded a 100% valuation allowance against the net deferred tax asset as of December 31, 2002 and 2001, as management has determined that it is more likely than not that such
assets will not be realized. The increase in the valuation allowance during the year primarily relates to the increase in the net operating loss carryforward.

59

---

The
major components of the Company's income tax expense (benefit) for the years ended December 31 are:

2002

2001

2000Net operation loss carryforwards

$
27,055,500

$
46,945,100

$
19,271,000Deferred tax items


(6,199,000
)

37,879,200


936,000Valuation Allowance


(20,856,500
)

(84,824,300
)
$
(20,207,000
)$


$


$



(6)    Long-Term Debt

Long-term debt consists of the following as of December 31:

2002

20015.75% Convertible Subordinated Notes

$
88,530,000

$
129,118,000Capital lease obligations


8,108,546


64,668,260Revolving line of credit


2,300,000


Term loan





3,866,66798,938,546


197,652,927Less: Current portion


5,348,852


26,309,611$
93,589,694

$
171,343,316


5.75% Convertible Subordinated NotesIn March of 2000, the Company issued $150.0 million aggregate principal amount of Notes,
resulting in net proceeds to the Company of approximately $144.8 million. The Notes bear interest at the annual rate of 5.75% with interest payable on each March 15th and
September 15th, beginning September 15, 2000. The Notes have no required principal payments prior to maturity on March 15, 2005 ("Maturity"). The Notes are unsecured
and subordinated to the Company's capital lease obligations. Prior to Maturity, the Notes are convertible into common stock at a conversion price of $86.14 per share, subject to adjustment upon
certain events as defined in the Note agreement. The Company may redeem some or all of the Notes at any time prior to March 20, 2003 if the price of the Company's common stock has exceeded 150%
of the conversion price for at least 20 out of 30 consecutive trading days prior to redemption. If some or all of the Notes are redeemed prior to March 20, 2003, the Company is required to make
an additional payment on the redeemed Notes equal to $152.54 per $1,000 note, less the amount of interest actually paid on the Note. The Company may redeem some or all of the Notes after
March 20, 2003 at the following redemption prices for the three 12-month periods beginning March 20, 2003, expressed as a percentage of principal amount: 102.3%, 101.15% and
100%, respectively. In each case, the Company will also pay accrued but unpaid interest up to, but excluding the redemption date. Management has represented that the Company has no intention to redeem
any of the Notes.

Upon
a repurchase event, as defined in the Note Agreement, the holder can require the Company to repurchase the Notes in cash, or at the Company's option upon satisfaction of certain conditions as
defined in the Note Agreement, in common stock, at 105% of the principal amount of the Notes, plus accrued and unpaid interest.

60

---

A
repurchase event is defined as being either:



As
of December 31, 2002, management believes that a repurchase event had not occurred.

Extraordinary Gain on Repurchase of Convertible Subordinated NotesDuring 2002 and 2001, the Company repurchased (as opposed to "redeemed")
a portion of its outstanding 5.75% Convertible Subordinated Notes and recorded an extraordinary gain. The gain was calculated as follows:

2002

2001Carrying value of repurchased Notes

$
40,588,000

$
20,882,000Less: Cost of repurchase of Notes


(13,992,740
)

(5,862,550
)Write-off of deferred debt financing costs


(805,231
)

(470,477
)Gain

$
25,790,029

$
14,548,973


Subsequent EventsDuring the first quarter of 2003 the Company entered into agreements with principal holders of the Company's 5.75%
Convertible Subordinated Notes which resulted in the retirement of $38.2 million of the Notes in exchange for a new debt instrument at 50% of the face value of the retired Notes.

Under
the terms of the agreements, the bond holders surrendered an aggregate principal amount of $38.2 million of iBasis' outstanding 5.75% Convertible Subordinated Notes in exchange for
$19.1 million aggregate principal amount of new 11.5% senior secured notes issued by iBasis and warrants for 3,798,811 shares of iBasis common stock. Each warrant will have an initial exercise
price of $0.65 per share of Common Stock and an exercisable term of five years.

The
new notes, which mature on January 15, 2005, share in a second priority lien on the Company's assets and are subordinated to iBasis' senior bank debt.

The
Company will record a gain on this exchange of approximately $12.9 million in the first quarter of 2003. As discussed in Note 2, with the adoption of SFAS 145 on
January 1, 2003, the Company will report gains on the extinguishment of debt as a component of other expense, net in the consolidated statements of operations.

Capital LeasesDuring 2002 the Company completed an agreement with its primary equipment vendor to reduce its capital lease obligations and
related future cash commitments. Under the terms of the agreement, the Company paid its vendor $28.5 million to purchase the leased assets. In exchange the vendor eliminated
$63.8 million in existing debt, future interest obligations and other fees ($50.8 million in principal, $9.0 million in interest assuming the vendor debt was held to maturity, and
$4.0 million in tax obligations). The difference between the cash paid and the recorded outstanding obligation on that date was accounted for as a reduction in the carrying value of the
underlying capital assets.

61

---

Credit Facilities and Term LoanThe Company had borrowed approximately $500,000 from a bank (the "Equipment Note") during 1999 for purposes
of equipment purchases. Borrowings under the Equipment Note were bearing interest at the bank's prime rate plus 1.5% and were payable in 36 equal monthly installments of principal and interest through
August 2002. This note was repaid and canceled in full during October 2001.

During
February 2001, in connection with the acquisition of PriceInteractive, the Company assumed a credit facility consisting of two term loans and two lines of credit. The original maturity
dates of the term loans were November 2001 and July 2002 with interest rates of 6.85% and 8.81%, respectively. The original maturity dates of the lines of credit were June 2003
and May 2004 and with interest rate of LIBOR plus 2.5%. These notes and lines of credit were repaid and canceled in full during October 2001.

In
October 2001, the Company entered into a $5.0 million revolving line of credit with a bank (the "2001 Revolver"). The 2001 Revolver was to mature in October 2002 and was
bearing interest at the bank's prime rate. In October 2002, the maturity date of the 2001 Revolver was extended until December 2002, when it was replaced by two secured lines of credit
agreements with Silicon Valley Bank.

In
October 2001, the Company entered into a $4.0 million term loan (the "2001 Term Loan") which was to mature in April 2003, was bearing interest at the bank's prime rate plus
0.5%, and required equal monthly repayments of principal of $133,000 plus accrued interest until maturity. As collateral, the Company deposited cash with the bank of approximately $8.9 million
as of December 31, 2001 and had
been classified the amount as restricted cash in the accompanying balance sheet. In December 2002, the 2001 Term Loan was paid-off and the related cash collateral was released.

On
December 30, 2002, the Company entered into two secured line of credit agreements (the "2002 Credit Lines") with Silicon Valley Bank (the "Bank") providing a total available line of credit
of $15 million which replaced both the 2001 Revolver and 2001 Term Loan. The maximum aggregate borrowings outstanding at any one time is limited to the lesser of $15 million or the
specified borrowing base. The borrowing base is equal to 75% or 70% of eligible receivables, as defined in the agreements. Outstanding Letters of Credit drawn by the Company will reduce the maximum
borrowings under this agreement at any time. Borrowings under these lines of credit bear interest at the Bank's prime rate plus 1% and are collateralized by substantially all assets of the Company.
The credit lines require the Company to comply with various financial and non-financial covenants, including the maintenance of certain minimum financial ratios and restrictions on the
payment of cash dividends. These agreements mature on December 29, 2004. At December 31, 2002, $2,300,000 was borrowed under the 2002 Credit Lines and $6,230,000 was available for
borrowings. On December 30, 2002, in conjunction with these agreements, the Company issued a five-year warrant to the Bank for the purchase of 337,500 shares of its common stock at
an exercise price of $0.337 per share.

At
December 31, 2002, the Company had outstanding letters of credit aggregating $3.3 million.

62

---

Repayments of debtScheduled maturities of long-term debt as of December 31, 2002 are as follows:

Year

Capital Leases

Convertible
Subordinated Notes

2002
Credit Lines

Total2003

$
6,075,817

$


$


$
6,075,8172004


2,072,165





2,300,000


4,372,1652005


624,174


88,530,000





89,154,1742006











2007











Thereafter











Total future minimum payments


8,772,156


88,530,000


2,300,000


99,602,156Less: Amounts representing interest


663,610








663,610Present value of minimum repayments


8,108,546


88,530,000


2,300,000


98,938,546Less: Current portion of long-term debt


5,348,852








5,348,852Long-term debt, net of current portion

$
2,759,694

$
88,530,000

$
2,300,000

$
93,589,694


63

---



(7) Stockholders' Equity

(a) Authorized Capital Stock

The Company has authorized for issuance 85,000,000 shares of common stock, $0.001 par value per share ("Common Stock") and 15,000,000 shares of preferred stock, $0.001 par
value per share ("Preferred Stock").

(b) Treasury Stock

During 2002, the Company negotiated a settlement of the 2,070,225 shares of common stock that the Company placed into escrow in connection with the acquisition of
PriceInteractive, Inc. in 2001. As a part of this settlement, 1,135,113 shares were returned to the Company and have been accounted for on the accompanying balance sheet as treasury stock,
stated at the fair value of the shares on the date of the settlement.

(c) Stock Incentive Plan

The Company's 1997 Stock Incentive Plan (the "Plan") provides for the granting of restricted stock awards and incentive stock options ("ISOs") and nonqualified options to
purchase shares of Common Stock to key employees, directors and consultants. Under the terms of the Plan, the exercise price of options granted shall be determined by the Board of Directors and for
ISOs shall not be less than fair market value of the Common Stock on the date of grant. Options vest quarterly in equal installments over two to four years, provided that no options shall vest during
the employees' first year of employment. The expiration date of each stock option shall be determined by the Board of Directors, but shall not exceed 10 years from the date of grant.

As
a result of a special meeting of the Company's stockholders, held in February 2001, the maximum number of shares of Common Stock that could be purchased under the Plan increased from
5.7 million to 9.0 million. In addition, as a result of that meeting, the Company assumed the PriceInteractive Stock Option Plan (the "PriceInteractive Plan") and all of the outstanding
options to purchase the common stock of PriceInteractive, Inc. and converted such assumed options into options to purchase 1,021,434 shares of the Company's Common Stock.

64

---

The
following table summarizes the option activity for the years ended December 31, 2002, 2001 and 2000:

|                               |                                                                             | Number of
Shares |            | Exercise
Price Per
Share |            | Weighted
Average
Exercise Price
|------------------------------ | --------------------------------------------------------------------------- | ---------------- | ---------- | ------------------------ | ---------- | -------------------------------
|Outstanding, January 1, 2000   |                                                                             | 2,947,725        |            | $                        | 0.03-37.94 |                                
|                               | Granted                                                                     |                  | 2,175,000  |                          |            | 4.13-74.63                     
|                               | Exercised                                                                   |                  | (511,702   | )                        |            | 0.03-13.50                     
|                               | Forfeited                                                                   |                  | (371,940   | )                        |            | 0.50-74.63                     
|                               |                                                                             |                  |            |                          |            |                                
|Outstanding, December 31, 2000 |                                                                             | 4,239,083        |            |                          | 0.03-74.63 |                                
|                               | Granted                                                                     |                  | 4,523,110  |                          |            | 0.43-3.71                      
|                               | Options assumed in connection with the acquisition of PriceInteractive, Inc |                  | 1,021,434  |                          |            | 0.85-5.89                      
|                               | Exercised                                                                   |                  | (706,440   | )                        |            | 0.41-7.00                      
|                               | Forfeited                                                                   |                  | (1,308,864 | )                        |            | 0.03-74.63                     
|                               |                                                                             |                  |            |                          |            |                                
|Outstanding, December 31, 2001 |                                                                             | 7,768,323        |            |                          | 0.43-74.63 |                                
|                               | Granted                                                                     |                  | 312,200    |                          |            | 0.25-0.97                      
|                               | Exercised                                                                   |                  | (149,206   | )                        |            | 0.50-2.13                      
|                               | Forfeited                                                                   |                  | (5,674,799 | )                        |            | 0.37-74.63                     
|                               |                                                                             |                  |            |                          |            |                                
|Outstanding, December 31, 2002 |                                                                             | 2,256,518        |            | $                        | 0.25-28.75 |                                
|                               |                                                                             |                  |            |                          |            |                                
|Exercisable, December 31, 2002 |                                                                             | 1,159,910        |            | $                        | 0.43-28.75 |                                
|                               |                                                                             |                  |            |                          |            |                                
|Exercisable, December 31, 2001 |                                                                             | 1,693,899        |            | $                        | 0.43-74.63 |                                
|                               |                                                                             |                  |            |                          |            |                                
|Exercisable, December 31, 2000 |                                                                             | 854,528          |            | $                        | 0.03-37.94 |                                
|                               |                                                                             |                  |            |                          |            |                                

The
following table summarizes information relating to currently outstanding and exercisable stock options as of December 31, 2002:

|  |             | Outstanding |           |  |      | 
|- | ----------- | ----------- | --------- |  | ---- | 
|
|
|
|$ | 0.25-$0.69  |             | 304,962   |  | 8.83 | 
|  | 0.72        |             | 1,124,000 |  | 8.87 | 
|  | 0.97-1.10   |             | 258,106   |  | 5.18 | 
|  | 1.50-3.71   |             | 234,050   |  | 8.12 | 
|  | 4.00-5.00   |             | 225,350   |  | 7.00 | 
|  | 11.00-13.50 |             | 54,550    |  | 7.38 | 
|  | 14.81       |             | 14,000    |  | 7.74 | 
|  | 14.85       |             | 40,000    |  | 7.40 | 
|  | 28.75       |             | 1,500     |  | 7.00 | 
|  |             |             |           |  |      | 
|  |             |             | 2,256,518 |  |      | 
|  |             |             |           |  |      | 

65

---

At
December 31, 2002, options to purchase 5,286,107 shares of Common Stock were available for future grants under the Plan.

The
Company applies the accounting provisions prescribed in APB No. 25 and related Interpretations. During September 1999, the Company issued stock options with an exercise price less
than the fair market value of the Common Stock as determined for accounting purposes. Deferred compensation related to these stock options of approximately $2,384,000 was recorded during the year
ended December 31, 1999 and is being amortized over four years, the vesting period of those options. In connection with the 2001 acquisition of PriceInteractive, Inc., the Company
assumed vested options with
exercise prices that were less than the fair market value of the Company's Common Stock as determined for accounting purposes. As such, the Company recorded approximately $1,834,000 of deferred
compensation which was being amortized over the remaining life of those options of up to four years. Deferred compensation was reduced in 2002 due to the settlement with the former shareholders of
PriceInteractive and due to the forfeit of options by Company employees.

During
2001 and 2000, the Company accelerated vesting on 92,500 and 118,750 options, respectively, to purchase common stock in relation to severance agreements with employees. Accordingly, the Company
recorded non-cash compensation expense of approximately $154,000 and $352,000, respectively, which is included in general and administrative expenses in the accompanying consolidated
statements of operations for the years then ended.

Total
compensation cost recognized in the statements of operations as a result of stock-based employee compensation awards was $966,574, $1,367,991 and $948,403 for the years ended December 31,
2002, 2001, and 2000, respectively.

(d) Stock Option Exchange Program

In December 2002 the Company announced an offer to exchange outstanding employee stock options in return for new stock options to be granted by the Company. In exchange
for existing options, each option holder received a commitment to receive new options to be issued exercisable for the same number of shares of common stock tendered by the option holder and accepted
for exchange. A total of 1,786,950 options were accepted for exchange under the exchange offers and, accordingly, were canceled in 2002. The new option grants are expected to be granted in the second
quarter of 2003, no sooner than six months and one day from the date on which each exchange offer terminated. The new options granted to the Company's employees will vest quarterly over a two year
period.

(e) Employee Stock Purchase Plan

On September 9, 1999, the Company's Board of Directors and stockholders approved the 1999 iBasis, Inc. Employee Stock Purchase Plan (the "ESPP"), which enables
eligible employees to acquire shares of the Company's common stock through payroll deductions. The ESPP is intended to qualify as an employee stock purchase plan under Section 423 of the
Internal Revenue Code. The offering periods under the ESPP start on January 1 and July 1 of each year and end on June 30 and December 31 of each year, unless otherwise
determined by the Board of Directors. During each offering period, an eligible employee may select a rate of payroll deduction from 1% to 10% of compensation, up to an aggregate of $12,500 in any
offering period. 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
Company issued 364,531, 131,607 and 7,759 shares

66

---

under the ESPP during 2002, 2001 and 2000 respectively. At December 31, 2002, all shares authorized under the ESPP have been issued.

(f) Stock-Based Compensation

The Company uses the intrinsic value method to account for stock-based awards to employees. The Company estimated the fair value of its stock-based awards to employees using
the Black-Scholes option pricing model. The Black-Scholes model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In
addition, the Black-Scholes model requires the input of highly subjective assumptions including the expected stock price volatility. Because stock-based awards to employees have characteristics
significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of stock-based awards to employees. The fair value of stock-based awards to employees was estimated assuming no expected
dividends and the following weighted-average assumptions:

|                                               |  | December 31, |  
|---------------------------------------------- |  | ------------ | -
|
|Risk-free interest rate                        |  | 3.000        | %
|Expected life                                  |  | 5 years      |  
|Expected volatility                            |  | 146          | %
|Weighted average remaining contractual life    |  | 8.00 years   |  
|Weighted average fair value of options granted |  | $0.61        |  

See
"Stock-Based Compensation" in Note 2, "Summary of Significant Accounting Policies", for the pro forma disclosures of net loss and loss per share required under SFAS No. 123.

(g) Reserved Shares

At December 31, 2002, the Company has 7,841,748 shares reserved for issuance under the Company's Stock Incentive Plan and 337,500 shares reserved for exercise of certain stock
warrants.

67

---

(8)    Commitments and Contingencies

Operating LeasesThe Company leases its administrative and operating facilities and certain equipment
under non-cancelable operating leases, which expire at various dates through 2009. The future approximate minimum lease payments under such operating leases consist of the following:

Year2003

$
4,032,0002004


3,394,0002005


2,233,0002006


1,709,0002007


1,709,000Thereafter


3,300,000Total future minimum lease payments

$
16,377,000


Total
rent expense included in the consolidated statements of operations was approximately $3,918,000, $4,384,000, and $3,742,000 for the years ended December 31, 2002, 2001, and 2000,
respectively.

LitigationFrom time to time, the Company is subject to various legal proceedings and claims, either asserted or unasserted, which arise in
the ordinary course of business. While the outcome of these claims cannot be predicted with certainty, management is not aware of any current legal matters that would have a material adverse effect on
the Company's consolidated financial position, results of operations, or cash flows.

68

---

(9)    Segment and Geographic Information

SFAS No. 131,Disclosures about Segments of an Enterprise and Related Information, establishes standards
for reporting information about operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services, and geographic areas.
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-
making group, in deciding how to allocate resources and in assessing performance. The Company's chief operating decision-making group is composed of the chief executive officer, members of senior
management and the Board of Directors. The Company has viewed its operations and manages its business principally as one operating segment

The
following table represents percentage revenue derived from individual countries:

Year Ended
December 31,2002

2001

2000United States

55
%
58
%
89
%United Kingdom

11

13

1China

10

13

7Hong Kong

3

2

2Other

21

14

1100
%
100
%
100
%


The
net book value of long-lived tangible assets by geographic area was as follows:

Geographic Location

2002

2001North America

$
29,197,727

$
74,836,554Europe


1,628,457


4,839,578Asia


922,673


4,127,119Other


608,634


475,820$
32,357,491

$
84,279,071


(10)    Valuation and Qualifying Accounts

The allowance for doubtful accounts reflects management's best estimate of probable losses inherent in the account receivable balance. Management determines the
allowance based on known troubled accounts, historical experience, and other currently available evidence. Activity in the allowance for doubtful accounts is as follows:

Year Ended
December 31,

Balance at
Beginning of
Year

Charged to costs
and expenses

Write-offs
and other

Balance at
End of Year2000

$
633,121

1,944,560

(398,313
)
$
2,179,3682001

$
2,179,368

9,160,500

(5,473,112
)
$
5,866,7562002

$
5,866,756

10,026,500

(8,059,919
)
$
7,833,337


69

---

(11)    Restructuring and Other Non-Recurring Costs

2001 RestructuringDuring 2001, the Company announced a restructuring plan to better align the
organization with its corporate strategy and recorded a charge of approximately $51.8 million in accordance with the criteria set forth in EITF 94-3 and SEC Staff Accounting
Bulletin 100. The restructuring included the write-off of property and equipment, the termination of certain contractual obligations and the reduction in the Company's workforce resulting in employee
benefit costs.

The
write-off of property and equipment related primarily to the abandonment and related costs of certain equipment in a limited number of network data centers and internet central offices. As a
result of adopting the Openwave platform for the Company's former unified messaging business, certain equipment, which was previously deployed in its New York City and Cambridge, Massachusetts data
centers, were no longer required. In addition, the write-down of equipment at internet central offices
was related to the Company's increasing focus within its wholesale VoIP business on serving the largest international carriers (Tier One). Large Tier One carriers tend to maintain greater geographic
footprints and the ability to cost efficiently connect their networks to the Company's network. As a result, the equipment located in some of the Company's internet central offices was no longer
required and has therefore been written down to its estimated net realizable value.

The
termination of contractual obligations represented the anticipated cost of negotiated settlements with providers of facility space and telecommunications circuits related to the network data
centers and internet central offices which are no longer in operation.

The
employee severance costs related to a reduction in the workforce of 136 full time employees on a worldwide basis, 71 of which were in research and development, 39 of which were in sales and
marketing and the remaining 26 in general and administrative functions.

The
components of the restructuring charge were as follows:

Write-off of property and equipment

$
42,629,436Termination of contractual obligations


7,441,837Employee severance costs


1,763,045Total

$
51,834,318


At
December 31, 2001, accrued restructuring costs were approximately $3.9 million. A summary of the accrual is as follows:

Restructuring and other non-recurring costs

$
51,834,318Less: Write off of property and equipment


(42,258,232
)Payment of termination and contractual obligations


(4,232,258
)Payment of employee severance costs


(1,460,250
)Accrual as of December 31, 2001

$
3,883,578


These
cost reduction measures were completed by the end of the second quarter of 2002 and did not have a material impact on business operations during 2001. The total cash impact of the restructuring
was approximately $9.2 million, of which $5.7 million was paid in 2001 while the remaining $3.5 million was paid during 2002.

70

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2002 RestructuringDuring 2002, the Company announced cost reduction measures and recorded a charge of approximately $5.5 million in
the accompanying consolidated statement of operations:

The
components of the restructuring and other non-recurring costs were as follows:

Write off of fixed assets and facilities costs

$
2,427,162Termination of contractual lease obligations


2,793,831Employee severance costs


750,000Less: Change in estimate of 2001 restructuring costs


(434,512
)Total restructuring and other non-recurring costs

$
5,536,481


The
write-off of fixed assets relates primarily to the closure and abandonment of the Company's Miami and Singapore internet central offices. The costs include the write-off of leasehold
improvements as well as a provision for termination costs for the facility space and telecommunication circuits. As the Company continues to focus on serving the largest international,
Tier-One carriers who tend to maintain greater geographic footprints, management approved a plan to close the Miami and Singapore internet central offices and route traffic through our
other central facilities. In addition, the Company wrote off certain assets which were considered to be impaired due to the Company's plan to move to a new switchless architecture in its VoIP network.

The
employee severance costs relate to a reduction in the workforce as the Company terminated 44 employees on June 28, 2002. Of these 44 people, 19 were within research and development, 10 were
from sales and marketing and 15 were from general and administrative departments.

In
addition the 2002 restructuring expense was reduced by a change in estimated restructuring costs related to the 2001 restructuring and specifically related to a reduction in the estimated cost of
terminating contractual lease obligations.

At
December 31, 2002, accrued restructuring costs were approximately $3.2 million. A summary of the restructuring accrual is as follows:

Accrual as of December 31, 2001

$
3,883,5782002 net restructuring and other non-recurring costs


5,536,481Less: Write off of property and equipment


(2,427,162
)Payment of termination and contractual obligations


(2,770,647
)Payment of employee severance costs


(1,027,795
)Accrual as of December 31, 2002

$
3,194,455


At
December 31, 2002, the accrued restructuring costs consist of accrued costs for the termination of contractual lease obligations of which approximately $1,949,455 relates to amounts originally
accrued in 2002 and approximately $1,245,000 relates to amounts originally accrued in 2001.

71

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(12)    Summary of Quarterly Information (Unaudited)

Quarterly financial information for 2002 and 2001 is as follows:

|2002                                                      |                                                           | First
Quarter(1) |             | Second
Quarter |   | Third
Quarter |       | Fourth
Quarter(2) |             | Total
Year |  
|--------------------------------------------------------- | --------------------------------------------------------- | ---------------- | ----------- | -------------- | - | ------------- | ----- | ----------------- | ----------- | ---------- | -
|Net revenue                                               |                                                           | $                | 41,726,210  |                | $ | 41,922,786    |       | $                 | 38,358,442  |            | $
|Total cost and operating expenses                         |                                                           |                  | 62,609,245  |                |   | 71,150,861    |       |                   | 50,261,259  |            |  
|Loss from continuing operations before extraordinary item |                                                           |                  | (24,518,598 | )              |   | (32,614,990   | )     |                   | (13,629,459 | )          |  
|Income (loss) from discontinued operations                |                                                           |                  | (3,838,512  | )              |   | (61,531,424   | )     |                   | (531,664    | )          |  
|                                                          |                                                           |                  |             |                |   |               |       |                   |             |            |  
|Loss before extraordinary gain                            |                                                           |                  | (28,357,110 | )              |   | (94,146,414   | )     |                   | (14,161,123 | )          |  
|Extraordinary gain                                        |                                                           |                  | 10,394,431  |                |   | 12,960,120    |       |                   | 2,435,478   |            |  
|                                                          |                                                           |                  |             |                |   |               |       |                   |             |            |  
|Net loss                                                  |                                                           | $                | (17,962,679 | )              | $ | (81,186,294   | )     | $                 | (11,725,645 | )          | $
|                                                          |                                                           |                  |             |                |   |               |       |                   |             |            |  
|Basic and diluted net loss per share:                     |                                                           |                  |             |                |   |               |       |                   |             |            |  
|                                                          | Loss from continuing operations before extraordinary item |                  | $           | (0.54          | ) | $             | (0.72 | )                 | $           | (0.30      | )
|                                                          | Income (loss) from discontinued operations                |                  |             | (0.10          | ) |               | (1.36 | )                 |             | (0.01      | )
|                                                          |                                                           |                  |             |                |   |               |       |                   |             |            |  
|                                                          | Loss before extraordinary gain                            |                  |             | (0.64          | ) |               | (2.08 | )                 |             | (0.31      | )
|                                                          | Extraordinary gain                                        |                  |             | 0.24           |   |               | 0.28  |                   |             | 0.05       |  
|                                                          |                                                           |                  |             |                |   |               |       |                   |             |            |  
|                                                          | Net loss                                                  |                  | $           | (0.40          | ) | $             | (1.80 | )                 | $           | (0.26      | )
|                                                          |                                                           |                  |             |                |   |               |       |                   |             |            |  

---

72

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|2001                                                      |                                                           | First
Quarter(1) |             | Second
Quarter |   | Third
Quarter |       | Fourth
Quarter |             | Total
Year |  
|--------------------------------------------------------- | --------------------------------------------------------- | ---------------- | ----------- | -------------- | - | ------------- | ----- | -------------- | ----------- | ---------- | -
|Net revenue                                               |                                                           | $                | 24,547,030  |                | $ | 27,900,017    |       | $              | 26,022,997  |            | $
|Total cost and operating expenses                         |                                                           |                  | 50,809,320  |                |   | 85,121,830    |       |                | 53,229,225  |            |  
|Loss from continuing operations before extraordinary item |                                                           |                  | (26,373,892 | )              |   | (59,030,390   | )     |                | (29,786,439 | )          |  
|Loss from discontinued operations                         |                                                           |                  | (26,772,797 | )              |   | (7,764,821    | )     |                | (7,317,193  | )          |  
|                                                          |                                                           |                  |             |                |   |               |       |                |             |            |  
|Loss before extraordinary gain                            |                                                           |                  | (53,146,689 | )              |   | (66,795,211   | )     |                | (37,103,632 | )          |  
|Extraordinary gain                                        |                                                           |                  |            |                |   |              |       |                |            |            |  
|                                                          |                                                           |                  |             |                |   |               |       |                |             |            |  
|Net loss                                                  |                                                           | $                | (53,146,689 | )              | $ | (66,795,211   | )     | $              | (37,103,632 | )          | $
|                                                          |                                                           |                  |             |                |   |               |       |                |             |            |  
|Basic and diluted net loss per share:                     |                                                           |                  |             |                |   |               |       |                |             |            |  
|                                                          | Loss from continuing operations before extraordinary item |                  | $           | (0.70          | ) | $             | (1.34 | )              | $           | (0.67      | )
|                                                          | Loss from discontinued operations                         |                  |             | (0.65          | ) |               | (0.18 | )              |             | (0.17      | )
|                                                          |                                                           |                  |             |                |   |               |       |                |             |            |  
|                                                          | Loss before extraordinary gain                            |                  |             | (1.35          | ) |               | (1.52 | )              |             | (0.84      | )
|                                                          | Extraordinary gain                                        |                  |             |               |   |               |      |                |             |           |  
|                                                          |                                                           |                  |             |                |   |               |       |                |             |            |  
|                                                          | Net loss                                                  |                  | $           | (1.35          | ) | $             | (1.52 | )              | $           | (0.84      | )
|                                                          |                                                           |                  |             |                |   |               |       |                |             |            |  

---

73

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

iBasis, Inc. ("iBasis") dismissed Arthur Andersen LLP ("Andersen"), as its independent accountants and appointed Deloitte & Touche LLP ("D&T") as its new
independent accountants, effective May 14, 2002. This determination followed iBasis' decision to seek proposals from independent accountants to audit iBasis' financial statements for fiscal
year ending December 31, 2002. The decision to dismiss Andersen and to retain D&T was approved by iBasis' Board of Directors upon the recommendation of its Audit Committee.

During
iBasis' two most recent fiscal years ended December 31, 2001 and 2000, and the subsequent interim period through May 14, 2002, there were no disagreements between iBasis and
Andersen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to Andersen's satisfaction would have
caused them to make reference to the subject matter of the disagreement in connection with their reports.

None
of the reportable events described under Item 304(a)(1)(v) of Regulations S-K occurred within iBasis' two most recent fiscal years and the subsequent interim period through
May 14, 2002.

The
audit reports of Andersen on the consolidated financial statements of iBasis and its subsidiaries as of and for the fiscal years ended December 31, 2001 and 2000 did not contain any adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles.

iBasis
provided Andersen with a copy of these disclosures filed by incorporation as Exhibit 16.1 is a copy of Andersen's letter, dated May 20, 2002 stating its agreement with these
disclosure statements.

During
iBasis' two most recent fiscal years ended December 31, 2001 and 2000, and the subsequent interim period through May 14, 2002, iBasis did not consult with D&T with respect to the
application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on iBasis' consolidated financial statements, or any
other matters or reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.

74

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PART III

Item 10.Directors and Executive Officers of the Registrant

Information required by Part III, Item 10, regarding iBasis' directors may be found in iBasis' Proxy Statement relating to iBasis' annual meeting of stockholders to be
held on May 29, 2003, and is incorporated herein by reference. Information relating to compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, may be found in
the Proxy Statement and is incorporated herein by reference.

Item 11.Executive Compensation

Information required by Part III, Item 11, may be found in iBasis' Proxy Statement relating to iBasis' annual meeting of stockholders to be held on May 29, 2003,
and is incorporated herein by reference.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information required by Part III, Item 12, may be found in iBasis' Proxy Statement relating to iBasis' annual meeting of stockholders to be held on May 29, 2003,
and is incorporated herein by reference.

Item 13.Certain Relationships and Related Transactions

Information required by Part III, Item 13, may be found in iBasis' Proxy Statement relating to iBasis' annual meeting of stockholders to be held on May 29, 2003,
and is incorporated herein by reference.

Item 14.Controls and Procedures

(a) Evaluation of disclosure controls and procedures.Based on their evaluation of iBasis' disclosure controls and procedures (as defined in
Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) as of a date within 90 days of the filing date of this Annual Report on
Form 10-K, iBasis' chief executive officer and chief financial officer have concluded that iBasis' disclosure controls and procedures are designed to ensure that information
required to be disclosed by iBasis in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules
and forms and are operating in an effective manner.

(b) Changes in internal controls.There were no significant changes in iBasis' internal controls or in other factors that could significantly affect
these controls subsequent to the date of their most recent evaluation.

75

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PART IV

Item 15.Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(A) List of Documents Filed as a Part of This Annual Report:





|Exhibit
Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                   
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1            |  | Asset Purchase Agreement, dated as of July 12, 2002, by and among iBasis, ISS and Purchaser (incorporated by reference from Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated July 15,
2002 (file no. 000-27127)).                                                                                                                                                                             
|3.1            |  | Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference from Exhibit 3.1 to the Registrant's Registration Statement on Form S-1 (file no. 333-96535)).                                                                                                                                                                                                                 
|3.2            |  | Amended and Restated By-Laws of the Registrant (incorporated by reference from Exhibit 3.2 to the Registrant's Registration Statement on Form S-1 (file no. 333-96535)).                                                                                                                                                                                                                                      
|4.1            |  | Specimen Certificate for shares of the Registrant's common stock (incorporated by reference from Exhibit 4.1 to the Registrant's Registration Statement on Form S-1 (file no. 333-85545)).                                                                                                                                                                                                                    
|10.1           |  | Lease, dated January 8, 1999, as amended, between the Registrant and Rodger P. Nordblum and Peter C. Nordblum as Trustees of Northwest Associates under Declaration of Trust dated December 9, 1971 with respect to
property located at 20 Second Avenue, Burlington, Massachusetts (incorporated by reference from Exhibit 10.1 to the Registrant's Registration Statement on Form S-1 (file no. 333-85545)).
|10.2           |  | Reserved.                                                                                                                                                                                                                                                                                                                                                                                                     
|10.3           |  | Lease, dated as of August 7, 1998, between the Registrant and 111 Eighth Avenue LLC, relating to property located at 111 Eighth Avenue, New York, New York (incorporated by reference from Exhibit 10.3 to the
Registrant's Registration Statement on Form S-1 (file no. 333-85545)).                                                                                                                         
|10.4           |  | Lease, dated December 11, 1998 between the Registrant and Downtown Properties L.L.C., with respect to property located at 611 Wilshire Boulevard, Los Angeles, California (incorporated by reference from Exhibit 10.4
to the Registrant's Registration Statement on Form S-1 (file no. 333-85545)).                                                                                                          
|10.5           |  | Warrant, dated as of September 10, 1997, for the purchase of shares of preferred stock of the Company issued to TLP Leasing Programs, Inc. (incorporated by reference from Exhibit 10.5 to the Registrant's Registration
Statement on Form S-1 (file no. 333-85545)).                                                                                                                                         

76

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|10.6  |   | Warrant, dated as of June 8, 1998, for the purchase of shares of preferred stock of the Company issued to TLP Leasing Programs, Inc. (incorporated by reference from Exhibit 10.6 to the Registrant's Registration
Statement on Form S-1 (file no. 333-85545)).                                                        
|----- | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.7  |   | Master Agreement of Terms and Conditions for Lease between the Registrant and Cisco Systems Capital Corporation, dated as of November 3, 1998, as amended incorporated by reference from Exhibit 10.7 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 2001 file no. 000-27127)          
|10.8  |  | 1997 Stock Incentive Plan of the Registrant (incorporated by reference from Exhibit 10.8 to the Registrant's Registration Statement on Form S-1 (file no. 333-85545)).                                                                                                                                                 
|10.9  |  | Employment Agreement between the Registrant and Ofer Gneezy, dated as of August 11, 1997 (incorporated by reference from Exhibit 10.9 to the Registrant's Registration Statement on Form S-1 (file
no. 333-85545)).                                                                                                    
|10.10 |  | Employment Agreement between the Registrant and Gordon J. VanderBrug, dated as of August 11, 1997. (incorporated by reference from Exhibit 10.10 to the Registrant's Registration Statement on Form S-1 (file
no. 333-85545)).                                                                                         
|10.11 |   | Reserved.                                                                                                                                                                                                                                                                                                              
|10.12 |   | Reserved.                                                                                                                                                                                                                                                                                                              
|10.13 |   | Series B Convertible Preferred Stock Purchase Agreement, dated as of August 26, 1998, between the Registrant and the "Purchaser" parties thereto (incorporated by reference from Exhibit 10.14 to the Registrant's
Registration Statement on Form S-1 (file no. 333-85545)).                                           
|10.14 |   | Series C Convertible Purchase Agreement, dated as of July 12, 1999, between the Registrant and the "Purchaser" parties thereto (incorporated by reference from Exhibit 10.15 to the Registrant's Registration
Statement on Form S-1 (file no. 333-85545)).                                                             
|10.15 |   | Second Amended and Restated Shareholders' Agreement, dated as of July 12, 1999, among the Registrant and the holders of the capital stock of the Registrant who become parties thereto (incorporated by reference from
Exhibit 10.16 to the Registrant's Registration Statement on Form S-1 (file no. 333-85545).      
|10.16 |   | First Amended and Restated Registration Rights Agreement, dated as of July 12, 1999, among the Registrant and the holders of the capital stock of the Registrant who become parties thereto (incorporated by reference
from Exhibit 10.17 to the Registrant's Registration Statement on Form S-1 (file no. 333-85545)).
|10.17 |   | Shareholders Agreement, dated as of March 28, 1998, relating to VIP Calling (Hong Kong) Limited (incorporated by reference from Exhibit 10.18 to the Registrant's Registration Statement on Form S-1 (file
no. 333-85545)).                                                                                            
|10.18 |   | Amendment No. 1 to the Shareholders Agreement, dated as of March 28, 1998, relating to VIP Calling (Hong Kong) Limited (incorporated by reference from Exhibit 10.19 to the Registrant's Registration Statement on
Form S-1 (file no. 333-85545)).                                                                     
|10.19 |   | Amendment No. 2 to the Shareholders Agreement, dated as of March 28, 1998, relating to VIP Calling (Hong Kong) Limited (incorporated by reference from Exhibit 10.20 to the Registrant's Registration
Statement on Form S-1 (file no. 333-85545)).                                                                     
|10.20 |   | Reserved.                                                                                                                                                                                                                                                                                                              
|10.21 |   | Stock Restriction Agreement, dated as of August 26, 1998, between the Registrant and Ofer Gneezy and Gordon VanderBrug (incorporated by reference from Exhibit 10.22 to the Registrant's Registration Statement on
Form S-1 (file no. 333-85545)).                                                                     
|10.22 |   | Alliance Agreement, dated January 4, 1999, between the Registrant and Cisco Systems, Inc. (incorporated by reference from Exhibit 10.23 to the Registrant's Registration Statement on Form S-1 (file
no. 33-85545)).                                                                                                   
|10.23 |   | Reserved.                                                                                                                                                                                                                                                                                                              
|10.24 |   | Reserved.                                                                                                                                                                                                                                                                                                              

77

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|10.25 |  | 1999 Employee Stock Purchase Plan of the Registrant, as amended (incorporated by reference from Exhibit 10.26 to the Registrant's Registration Statement on Form S-1 (file no. 333-96535)).                                                                                                                                                                                                                                                                                                                 
|----- | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.26 |   | Lease, dated October 22, 1999, between the Registrant and Roger P. Nordblom and Peter C. Nordblom, as Trustees of N.W. Building 1 Associates under Declaration of Trust dated November 11, 1984 and filed with the
Middlesex South Registry District of the Land Court as Document Number 674807 with respect to property located at 10 Second Avenue, Burlington, Massachusetts (incorporated by reference from Exhibit 10.28 to the Registrant's Registration
Statement on Form S-1 (file no. 333-96535)).
|10.27 |   | Supply Contract, dated as of December 30, 1999, between the Registrant and Belle Systems A/S (incorporated by reference from Exhibit 10.30 to the Registrant's Registration Statement on Form S-1 (file
no. 333-96535)).                                                                                                                                                                                                                                                                                    
|10.28 |   | Offer Letter between the Registrant and Richard Tennant, dated as of September 17, 2001 and Employment Agreement, dated as of September 20, 2001 (incorporated by reference from Exhibit 10.30 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 2001 (file no. 000-27127)).                                                                                                                                                                                                   
|10.29 |   | Offer Letter between the Registrant and Paul Floyd, dated as of April 2, 2001 and Proprietary Information and Inventions Agreement dated April 12, 2001 (incorporated by reference from Exhibit 10.31 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 2001 (file no. 000-27127)).                                                                                                                                                                                            
|10.30 |   | Loan and Security Agreement between the Registrant and Silicon Valley Bank, dated as of October 9, 2001 (incorporated by reference from Exhibit 10.32 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 2001 (file no. 000-27127)).                                                                                                                                                                                                                                            
|10.31 |   | Securities Exchange Agreement, dated January 30, 2003, by and among iBasis, Inc., iBasis Global, Inc., iBasis Securities Corporation, the Symphony Funds signatories thereto and U.S. Bank National Association, as
Collateral Agent (incorporated by reference from Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated January 30, 2003 (file no. 000-27127)).                                                                                                                               
|10.32 |   | Global Note dated January 30, 2003 (incorporated by reference from Exhibit 4.2 to the Registrant's Current Report on Form 8-K dated January 30, 2003 (file no. 000-27127)).                                                                                                                                                                                                                                                                                                                                 
|10.33 |   | Warrant and Registration Rights Agreement, dated January 29, 2003, by and among iBasis, Inc. and U.S. Bank National Association, as Collateral Agent (incorporated by reference from Exhibit 4.3 to the
Registrant's Current Report on Form 8-K dated January 30, 2003 (file no. 000-27127)).                                                                                                                                                                                                               
|10.34 |   | Global Warrant Certificate dated January 30, 2003 (incorporated by reference from Exhibit 4.4 to the Registrant's Current Report on Form 8-K dated January 30, 2003 (file no. 000-27127)
).                                                                                                                                                                                                                                                                                                                 
|10.35 |   | Security Exchange Agreement, dated January 30, 2003, by and among iBasis, Inc., iBasis Global, Inc., iBasis Securities Corporation, and U.S. Bank National Association, as Collateral Agent (incorporated by reference from
Exhibit 4.5 to the Registrant's Current Report on Form 8-K dated January 30, 2003 (file no. 000-27127)).                                                                                                                                                                        
|10.36 |   | Subordination Agreement, dated January 30, 2003, by and among iBasis, Inc., iBasis Global, Inc., iBasis Securities Corporation, Silicon Valley Bank, the Creditors party thereto, U.S. Bank National Association, as
Collateral Agent and Fiscal Agent (incorporated by reference from Exhibit 4.6 to the Registrant's Current Report on Form 8-K dated January 30, 2003 (file no. 000-27127)).                                                                                                             
|10.37 |   | Fiscal Agency Agreement, dated January 30, 2003, by and among iBasis, Inc., iBasis Global, Inc., iBasis Securities Corporation, and U.S. Bank National Association, as Fiscal Agent (incorporated by reference from
Exhibit 4.7 to the Registrant's Current Report on Form 8-K dated January 30, 2003 (file no. 000-27127)).                                                                                                                                                                                

78

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|10.38 |  | Guarantee, dated January 30, 2003, by and between iBasis Securities Corporation and U.S. Bank National Association, as Collateral Agent (incorporated by reference from Exhibit 4.7 to the Registrant's Current
Report on Form 8-K dated January 30, 2003 (file no. 000-27127)).                                       
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.39 |  | Security Exchange Agreement, dated February 21, 2003, by and among iBasis, Inc., iBasis Global, Inc., iBasis Securities Corporation, and U.S. Bank National Association, as Collateral Agent.                                                                                                                          
|10.40 |  | Global Note, dated February 21, 2003.                                                                                                                                                                                                                                                                                  
|10.41 |  | Global Warrant Certificate, dated February 21, 2003.                                                                                                                                                                                                                                                                   
|10.42 |  | Amendment 1 to Securities Exchange Agreement, dated February 21, 2003, by and among iBasis, Inc., iBasis Global, Inc., iBasis Securities Corporation, JMG Triton Offshore Fund Limited CITCO signatories thereto
and U.S. Bank National Association, as Collateral Agent.                                              
|10.43 |  | Amendment No. 1 to Fiscal Agency Agreement, dated February 21, 2003, by and among iBasis, Inc., iBasis Global, Inc., iBasis Securities Corporation, and U.S. Bank National Association, as Fiscal
Agent.                                                                                                               
|10.44 |  | Amended and Restated Warrant and Registration Rights Agreement dated February 21, 2003, by and among iBasis, Inc. and U.S. Bank National Association, as Warrant Agent.                                                                                                                                                
|10.45 |  | Collateral Agency and Intercreditor Agreement as of February 21, 2003, by and among U.S. Bank National Association, as Collateral Agent, the Exchanging Holders (as defined therein), iBasis Inc., iBasis Global,
 Inc. and iBasis Securities Corporation.                                                             
|10.46 |  | Guarantee, dated February 21, 2003, by and between iBasis Securities Corporation and U.S. Bank National Association, as Collateral Agent.                                                                                                                                                                              
|10.47 |  | Security Agreement dated as of February 21, 2003, by and among iBasis, Inc., iBasis Global, Inc., iBasis Securities Corporation and U.S. Bank National Association, as Collateral Agent.                                                                                                                               
|10.48 |  | Master Agreement to Lease Equipment (incorporated by reference from Exhibit 99.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 (file no. 000-27127)).                                                                                                                     
|10.49 |  | Settlement Agreement made as of August 2, 2002 among Cisco Systems Capital Corporation, Cisco Systems, Inc and iBasis, Inc.(incorporated by reference from Exhibit 99.4 to the Registrant's Annual Report on
Form 10-Q for the quarter ended September 30, 2002 (file no. 000-27127)).                                 
|10.50 |  | Bill of Sale pursuant to the Settlement Agreement made as of August 2, 2002 among Cisco Systems Capital Corporation, Cisco Systems, Inc and iBasis, Inc. (incorporated by reference from Exhibit 99.5 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 (file no. 000-27127)).
|10.51 |  | Silicon Valley Bank Loan and Security Agreement, dated December 30, 2002, by and among Silicon Valley Bank, the Registrant and iBasis Global, Inc. (incorporated by reference from Exhibit 99.2 to the
Registrant's Current Report on Form 8-K dated December 31, 2002 (file no. 000-27127)).                          
|10.52 |  | Export-Import Bank Loan and Security Agreement, dated December 30, 2002, by and among Silicon Valley Bank, the Registrant and iBasis Global, Inc. (incorporated by reference from Exhibit 99.3 to the
Registrant's Current Report on Form 8-K dated December 31, 2002 (file no. 000-27127)).                           
|10.53 |  | Side Letter, dated February 5, 2003, by and among iBasis, Inc. and the Symphony Funds signatories thereto (incorporated by reference from Exhibit 99.2 to the Registrant's Current Report on Form 8-K dated
December 31, 2002 (file no. 000-27127)).                                                                   
|16.1  |  | Amended letter of Arthur Andersen LLP regarding change in certifying accountant (incorporated by reference from Exhibit 16.1 to the Registrant's Current Report on Form 8-K dated May 20, 2002 (file
no .000-27127)).                                                                                                  

79

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|21.1 |  | Significant Subsidiaries of the Registrant.                                                                  
|---- |  | -------------------------------------------------------------------------------------------------------------
|23.1 |  | Consent of Deloitte & Touche LLP.                                                                            
|99.1 |  | Certificate of iBasis, Inc Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|99.2 |  | Certificate of iBasis, Inc Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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(B) Reports on Form 8-K during the fourth quarter of fiscal 2002:

None.

80

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SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.

| |  | IBASIS, INC.
| |  | ------------
| |  | By:         

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.

|Name                                        |  | Title                                                                                            |  | Date          
|------------------------------------------- |  | ------------------------------------------------------------------------------------------------ |  | --------------
|                                            |  |                                                                                                  |  |               
|/s/OFER GNEEZYOfer Gneezy                   |  | President and Chief Executive Officer and Director (Principal Executive Officer)                 |  | March 26, 2003
|/s/GORDON J. VANDERBRUGGordon J. VanderBrug |  | Executive Vice President and Director                                                            |  | March 26, 2003
|/s/RICHARD TENNANTRichard Tennant           |  | Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer) |  | March 26, 2003
|/s/CHARLES N. CORFIELDCharles N. Corfield   |  | Director                                                                                         |  | March 26, 2003
|/s/W. FRANK KINGW. Frank King               |  | Director                                                                                         |  | March 26, 2003
|/s/DAVID LEEDavid Lee                       |  | Director                                                                                         |  | March 26, 2003
|/s/CHARLES SKIBOCharles Skibo               |  | Director                                                                                         |  | March 26, 2003

81

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CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

Annual Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I,
Ofer Gneezy, President and CEO of iBasis, Inc., a Delaware corporation, doing business in Burlington, Massachusetts, certify that:

1.    I
have reviewed this annual report of Form 10-K of iBasis, Inc.;

2.    Based
on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.    Based
on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.    The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



5.    The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation to the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):



6.    The
registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

|March 26, 2003
(Date) |  | /s/OFER GNEEZYOfer Gneezy
Chief Executive Officer
(Principal Executive Officer)
|--------------------- |  | -------------------------------------------------------------------------------

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CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

Annual Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I,
Richard Tennant, Chief Financial Officer of iBasis, Inc., a Delaware corporation, doing business in Burlington, Massachusetts, certify that:

1.    I
have reviewed this annual report of Form 10-K of iBasis, Inc.;

2.    Based
on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.    Based
on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.    The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



5.    The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation to the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):



6.    The
registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

|March 26, 2003
(Date) |  | /s/RICHARD TENNANTRichard Tennant
Chief Financial Officer
(Principal Financial Officer)
|--------------------- |  | ---------------------------------------------------------------------------------------

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iBasis Corporate Information

Directors:

Ofer
Gneezy
Gordon J. VanderBrug
Charles N. Corfield
W. Frank King
David Lee
Charles M. Skibo

Executive Officers:

Ofer
Gneezy
President, Chief Executive Officer and Treasurer

Gordon
J. VanderBrug
Executive Vice President and Assistant Secretary

Richard
Tennant
Vice President, Finance and Administration, Chief Financial Officer

Dan
Powdermaker
Senior Vice President, Worldwide Sales

Paul
H. Floyd
Senior Vice President, R&D, Engineering and Operations

Sean
O'Leary
Senior Vice President, Marketing

Transfer Agent and Registrar:

Equiserve
150 Royall Street
Canton, MA 02021

Annual Meeting Date:

iBasis, Inc.
will conduct its annual meeting of stockholders on Thursday, May 29, 2003, 10:00 am at the Corporate Headquarters.

Corporate Headquarters:

iBasis, Inc.
20 Second Avenue
Burlington, MA 01803
www.ibasis.com

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