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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

for the fiscal year ended December 31, 2003.

for the transition period from              to             .

Commission File Number 0-26739

ITXC CORP.

(Exact name of registrant as specified in its charter)

750 College Road East, Princeton, New Jersey 08540

(609) 750-3333

(Address and telephone number, including area code, of

registrant’s principal executive office)

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

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

Title of each class

Common Stock, par value $.001 per share

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

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

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

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

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

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

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ITXC CORP.

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PART I

Item 1. Business of the Company

Introduction

ITXC Corp. was incorporated in Delaware in 1997. On October 1, 1999, we made our initial public offering; on March 15, 2000 we completed a follow-on offering of shares by ourselves and certain of our shareholders; and on October 12, 2000 we consummated the acquisition of eFusion, Inc. (“eFusion”). On October 11, 2001, we sold most of the tangible and intangible assets of our e-commerce business (other than patents) to eStara, Inc. (“eStara”), a privately held provider of web-voiced services, in exchange for an equity position in eStara. In May 2002, ITXC purchased the wholesale telephony assets of privately-held Nexcom Telecommunications, LLC. The assets include telephony equipment and operating facilities in 11 countries including Lithuania, Croatia, Bulgaria, and Slovakia. The purchase price paid was $9 million in cash and 533,701 shares of ITXC Common Stock.

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

Our principal executive offices are located at 750 College Road East, Princeton, New Jersey 08540, and our telephone number is (609) 750-3333. As used in this Annual Report, the terms we, ITXC and the Company refer to ITXC Corp. and its subsidiaries.

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

Certain statements under the captions “Management’s Discussion and Analysis of Results of Operations and Financial Condition” and “Business of the Company” and elsewhere in this Annual Report are forward-looking statements. These forward-looking statements include, but are not limited to, statements about our plans, objectives, expectations and intentions and other statements contained in this Annual Report that are not historical facts. When used in this Annual Report, the words “could”, “expects”, “anticipates”, “objective”, “plans”, “may affect”, “may depend”, “believes”, “estimates”, “projects” and similar expressions are generally intended to identify forward-looking statements under the Private Securities Litigation Reform Act of 1995. Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. These factors consist primarily of the risks identified in Exhibit 99.1 to this Annual Report. We assume no responsibility to update these forward-looking statements after the filing of this Annual Report.

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

Overview

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

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international calling, and carries approximately 15% of all such calls transported via Voice over IP. Our services allow carriers and telephony resellers to benefit from the low capital and operating costs of using the Internet for transport. We believe that our scale, reputation for high quality and ability to rapidly implement new services for our carrier customers permit ITXC to effectively compete for the substantial opportunities that arise from the reach and economics of the Internet.

We have developed and deployed ITXC.net, an actively-managed network that works in conjunction with the public Internet, to deliver high quality voice and fax communications while providing our customers with the cost savings and global reach of the Internet.

To date, we have concentrated our efforts on rapidly deploying ITXC.net worldwide. We have established ITXC-owned facilities in the United States, England, Germany and Hong Kong and have arranged call termination and origination services with affiliates throughout the world. We have used our affiliate structure to achieve broad worldwide presence. As of December 31, 2003, ITXC offers termination to 232 countries and territories. On a typical day, we carry traffic to and from well over 100 countries. By using the Internet for transport and our affiliates’ local infrastructure for terminating voice traffic, we have developed a reliable and expandable network, at substantially lower capital expense than traditional carrier networks.

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

In April 1999, we introduced a new ITXC-owned proprietary device called a SNARC, which facilitates the use of our network by our customers by enabling them to access our network directly from their own premises to originate calls, while having the SNARC managed directly by ITXC. In addition, since December 1999 we have been installing similar devices on selected affiliates’ premises to connect them directly to the Internet for the purpose of terminating calls originated by ITXC.net affiliates. These devices avoid the costs of dedicated connections to network hubs and improve the economics of our services to our customers. We believe that SNARCs strengthen our customers’ and affiliates’ relationships with us and position us to deploy additional enhanced services over ITXC.net.

In October 2000, we consummated our acquisition of eFusion, Inc., an Oregon-based provider of Internet voice services to online businesses and Internet service providers. After experiencing disappointing revenue growth in this field, in the second and third quarters of 2001 we wrote-down most of the value of those assets. On October 11, 2001, we sold most of the tangible and intangible assets of the e-commerce business (other than patents) to eStara, Inc., a privately held provider of web-voiced services, in exchange for a 19.9% equity position in eStara, which has subsequently been diluted. We also granted certain patent licenses to eStara for use in the e-commerce business. We initially valued this investment at $700,000. During the fourth quarter of 2002, we determined that there was an other-than temporary impairment in the value of the eStara investment, which resulted in a $700,000 charge. See Note 7 of the Notes to our Consolidated Financial Statements that we have presented elsewhere in this Annual Report.

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

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Industry Overview

Convergence of Global Telecommunications and Data Services

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

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

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

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

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

We believe that the combination of increasing demand for voice services and the proliferation of data networks, with their enhanced functionality and efficiency, is driving the convergence of voice traffic and data networks, including the Internet. We expect this transfer of traffic to accelerate as corporations and service providers are increasingly determining that the most cost effective and efficient way to build out and operate their communications infrastructure is with voice services supported across their data network. This is reflected in the growth of both acceptance and deployments of IP PBX (private branch exchange) and VoIP over VPN (virtual private network) within enterprise networks.

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Network Infrastructure

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

Data networks, however, were designed for electronic switching. They break the data stream into small, individually addressed packages of data (“packets”) which are routed independently of each other from the origin to the destination. Therefore, they do not require a fixed amount of bandwidth to be reserved between the origin and destination of each call and they do not waste bandwidth when it is not being used for actual transmission of information. This allows multiple voice or voice and data calls to be pooled, resulting in these networks being able to carry more calls with an equal amount of bandwidth. Moreover, they do not require the same complex switching methods required by traditional voice telephone networks, instead using a multiplicity of routers to direct each packet in the direction of its destination and they automatically route packets around blockages, congestion or outages.

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

The Emergence of Voice on IP Networks

Voice over IP is used for transmitting both traditional and enhanced voice and fax services between ordinary phones and the addition of interactive voice capability to computers, web sites and email. VoIP serves the extensive markets of both phone users and computer users. We believe IP networks provide lower cost than the traditional telephone network and are better suited to deliver future enhanced services to both phone users and computer users. Moreover, the Internet is the most cost-effective data network for transmitting any type of data worldwide, including voice. According to the International Telecommunications Union, since 2000 Internet capacity has exceeded international telephone circuit capacity.

Telephony based on Internet protocols emerged in 1995, with the invention of a personal computer program that allowed the transport of voice communications over the IP network via a microphone connected to a personal computer. Initial sound quality was poor and the service required that both parties to the conversation use personal computers instead of telephones. In 1996, the advent of the gateway for the first time offered anyone with access to a telephone the ability to complete calls over IP networks including the Internet. A gateway is a device that transfers calls from the traditional telephone network to an IP network such as the Internet, and vice versa.

The Economics of Internet Telephony

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

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

Limitations of Existing Internet Telephony Solutions

The growth of voice on the Internet was limited in the past due to poor sound quality caused by technical issues such as delays in packet transmission and by bandwidth limitations related to Internet network capacity and local access constraints. However, the continuing addition of data network infrastructure, recent improvements in packet-switching and compression technology, new software algorithms and improved hardware have substantially reduced delays in packet transmissions and the effect of these delays. ITXC’s BestValue Routing enables the Company to provide its carrier customers with the consistent quality they require. In fact, ITXC’s carrier customers typically do not tell their customers that their phone-to-phone calls are being transmitted over the Internet since these callers are receiving the quality that they expect.

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A number of large long distance carriers have announced Internet telephony service offerings. Smaller Internet telephony service providers have also begun to offer low-cost Internet telephony services from personal computers to telephones and from telephones to telephones. Traditional carriers have substantial investments in traditional telephone network technology, and therefore have been slower to embrace Internet technology, although, some traditional carriers are initiating VoIP activities.

We believe that the infrastructure required for a global network is too expensive for most carriers to deploy on their own. This mandates that the network be a combination of gateways owned by different operators. For a network to achieve optimal functionality, however, the gateways need to be interoperable, or able to communicate with one another. Cisco appears to have emerged as a dominant supplier of such gateways. Other manufacturers often seek to make their equipment interoperable with Cisco.

The ITXC Solution

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

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

Lower Costs. By using the public Internet, we are able to reach and rapidly deploy many affiliates throughout the world at a substantially lower capital expense than building the dedicated connections that a traditional telephony carrier would require. Also, as a result of our ability to use the public Internet, we believe that we have significantly lower operating costs than the traditional telephone network or a private data network. In addition we avoid the significant costs of network reconfiguration which traditional networks experience whenever they must add, change or delete a PoP. Because ITXC uses the Internet as the intermediary, we are able to add, change or delete a PoP with no reconfiguration required in any other PoP. We are also able to redeploy PoPs if they are no longer cost effective in their initial location.

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

Global Scale. Our network is overlaid on the public Internet to provide a global call termination service to voice service providers. ITXC.net is scalable—by using the public Internet and our global network of affiliates, we are able to rapidly and easily add capacity when needed. In addition, we believe that we are able to connect new affiliates to ITXC.net in significantly less time than it would take for a traditional telephony carrier or dedicated data network to establish a dedicated connection. Moreover, we have a business model of purchasing terminating minutes directly from affiliates and selling call completion to customers and affiliates. This model eliminates the need for complex settlement between carriers which had previously slowed the deployment of a global network.

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

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Our Strategy

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

Our goals are to achieve profitability and to grow our market share as a leading wholesale provider of voice and fax services as measured by revenue and network size. In order to achieve this goal we intend to:

Exploit Our Early Entrant Status and Worldwide Network

ITXC.net offers termination to 232 countries and territories and is the largest network of its kind in depth and breadth of coverage. We believe that with the increasing use of this network, ITXC has developed a reputation in the communications industry for providing high quality voice and fax services over the Internet. In addition, we believe our experience as one of the first providers of Internet-based voice services has placed us at the forefront of developing the proprietary tools and techniques which enable us to offer our services. We intend to continue to enhance and capitalize upon our reputation and experience in the communications industry as we provide existing and new voice and fax services.

Rapidly Expand ITXC.net by Adding Additional Affiliates Worldwide

We have used our affiliate structure to quickly achieve a global reach for ITXC.net. We believe that this approach allows us to quickly expand and develop a broader network than our competitors. We intend to continue to rapidly add new affiliates worldwide in order to provide our customers with additional termination points.

Focus On Newly Deregulating Markets

We intend to focus substantial resources on newly deregulating markets to enable both incumbent carriers and new entrants to rapidly deploy worldwide capability with minimal capital expenditure. The deregulation and competitive environment have resulted in major reductions in international rates. For example, following deregulation, rates to and from India declined by more than 50%. It is our intention to continue to take advantage of our experience in additional markets which are deregulating, such as Brazil and Turkey.

Capitalize on the Cost Advantages of the Internet

By overlaying ITXC.net on the public Internet, we believe that we are able to capture significant cost and capital savings. Instead of incurring the capital expense to deploy a global physical network, we are able to carry a substantial portion of our customer’s traffic using the existing Internet infrastructure together with our affiliate network. We believe that it would require significantly more capital for a carrier using traditional methods of network deployment to implement a network with the same capacity and global reach as ITXC.net. Additionally, the cost of transporting our traffic over the Internet is largely not distance sensitive, since we pay only for Internet access. We believe these factors enable us to benefit from significant cost savings that are not available to operators of the traditional telephone network or private data networks. In addition, we believe that we gained economic and technological advantages by moving towards a switchless network. In the past switches were necessary at our major hubs, where we connected to traditional carriers through analog lines. We believe our new architecture helps reduce both capital and operating costs.

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

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

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

We are committed to providing our customers with high quality, low cost voice service. SNARCs provide our customers with a voice communications solution that minimizes reliance on the traditional telephone network. By installing SNARCs on customer premises, we can provide our customers with direct access to all of the ITXC.net termination points worldwide without the need for a direct, dedicated connection to one of our network hubs. We also provide SNARCs to affiliates to terminate calls. Through year-end 2003 we had over two billion cumulative minutes of use of ITXC.net from our SNARC program. Similarly our new VoIPLink Service serves customers who either originate traffic in packetized VoIP format, or convert it to that format in

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their own network. We have introduced both VoIPLink Service for customers who either rely on ITXC for call control or provide their own call control, and this service has shown rapid early growth. ITXC VoIPLink Service has several benefits, including the elimination of the costs of converting TDM calls to VoIP format, substantially increased network efficiency because of the ability to dynamically allocate traffic through session controllers, reducing dedicated capital investment per minute carried, and more rapid deployment. We are also able to use these same benefits in sending traffic to terminating carriers who are capable of receiving VoIP calls. In the future, both the SNARC program and VoIPLink will be able to connect our customers’ customers directly via the Internet. We believe that both SNARCs and VoIPLink services will strengthen our customers’ and affiliates’ relationships with us and position us to deploy additional Internet-based enhanced voice services over ITXC.net.

Deliver Additional Voice Services Over ITXC.net

We believe that Internet telephony represents only the beginning of the evolution of the Internet as a medium for voice and fax services. Through enhancements to ITXC.net, we can position ourselves to provide the network for wide commercial deployment of new voice and fax services as market conditions warrant. We believe that, in the future, the Internet will serve as a platform for existing and enhanced voice and fax services that may be accessed from traditional phones, personal computers and a variety of devices that span the range between telephones and personal computers, although the decline in Internet and telecommunications companies subsequent to 2001 has probably delayed the development of this market.

ITXC.net

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

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

The key components of ITXC.net include:

The Public Internet

ITXC.net routes voice traffic over the public Internet; this allows traditional telephone users to benefit from Internet cost savings while calling phone-to-phone as well as serving calls originated on IP devices on customer premises. By using the Internet, we are able to reach and rapidly deploy many affiliates throughout the world at what we believe to be significantly lower capital costs than that of building the dedicated connections that a traditional telephony carrier or dedicated data network would require.

Global Network of Affiliates

We have a global network of independent affiliates, some of which own their own gateways and all of which originate and/or terminate voice traffic over ITXC.net. We have used our affiliate structure to rapidly achieve what we believe to be the broadest global network in the Internet telephony marketplace. As of December 31, 2003, we had affiliates offering termination to 232 countries and territories. Our affiliates range from small Internet service providers to traditional telephone companies.

Multiple Access Points and Network Hubs

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

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BestValue Routing

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

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

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

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

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

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

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

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

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

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

Our Strategic Carrier and Technology Partners

Our strategic relationships with carrier affiliates are important because they allow us to extend the geographic reach of ITXC.net. We believe that these relationships will lead to a broader origination/termination presence in key areas and allow us to provide service over our own network for more of our customers. We also expect that these relationships will assist us in focusing our development of new Internet-based voice services. In February 2003, we announced our selection of Cisco’s AS5000 Universal Gateway and PGW 2200 Softswitch Voice Over IP (VoIP) offerings, along with Cisco’s Voice Infrastructure and Applications Solution (Cisco VIA) and were recognized by Cisco as a Cisco Powered Network. ITXC is also working with a number of other VoIP infrastructure hardware and software vendors to make ITXC VoIPLink Service very simply and rapidly available. ITXC has introduced the VoIPLink Ready program of working with these vendors to define, test, and promote

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

Our Services

ITXC Call Completion Service

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

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

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

SNARCs

SNARCs consist of vendor-supplied gateways and other related equipment including ITXC-developed software that we place on selected customer premises in order to eliminate the cost of backhaul from customer switches to our switches. Until we launched our SNARC program in April 1999, customers had to bear the expense of running dedicated circuits from their facilities to their suppliers. This is known as backhaul. Our customers also typically ran circuits from their facilities to our network hubs, then in New York or Los Angeles. However, the introduction of our SNARC program reduced the expense of backhaul by transporting traffic directly to the Internet and ITXC.net in whatever city the customer is located. We believe that this use of Internet capability to eliminate the expense of backhaul makes us more attractive to customers located away from major telephony hubs. In addition, since December 1999 we have been installing similar equipment on selected affiliates’ premises to connect them directly to the Internet for the purpose of their terminating calls originated over ITXC.net.

VoIPLink Service

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

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

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

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

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

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VoIPLink Ready Program

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

VoIPLink Ready vendors gain the following benefits:

Future Enhanced Voice Services

We believe that, in the future, the Internet will serve as a platform for existing and enhanced voice and fax services that may be accessed from traditional phones, personal computers and a variety of devices that span the range between telephones and personal computers, although the decline in Internet and telecommunications companies subsequent to 2001 probably delayed the development of this market. If and when market conditions warrant, we intend to make investments to develop and market additional services for use over ITXC.net. We believe that as a result of the convergence of the data and communications networks and the capabilities and size of ITXC.net, we will be able to offer next-generation, enhanced voice services to both new and existing customers when the need arises. In addition, we believe that ITXC.net’s open architecture, combined with the strength and size of our customers, affiliates and strategic relationships, will attract developers of voice services to our network.

Sales, Marketing and Distribution

Our sales and marketing goals are to:

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

We have a dedicated sales force selling services which is supplemented by members of our executive management team. This sales force also recruits the affiliates that terminate calls for us around the world. Our salespeople are based regionally within the U.S. and worldwide, as well as in our corporate office. We also have sales agents located in various countries. Our senior management focuses on maintaining and cultivating relationships with our customers. We assign our sales representatives specific accounts based on their level of experience, location and the quality of the relationship between the representative and the customer. We compensate our sales staff based in large part on incentive-based goals and measurements. Our sales compensation

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plan is based primarily on margin, rather than revenue. In addition to our marketing and sales staff, we rely on our executive and operations personnel, including the staff of our 24-hours-a-day, 7-days-a-week network operations center, to identify sales opportunities within existing customer accounts and to provide quality customer service.

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

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

Our product management organization is charged with understanding the market and developing new service concepts and managing them through implementation; then assuring progress towards profitability. They work closely with our development team, which is also dedicated to the improvement and enhancement of the monitoring and analysis software tools and Internet management systems we use to achieve BestValue Routing, the enhancement of our management systems, including our billing and customer care software, and the development and implementation of new Internet-based voice services. Our future success will depend, in part, on our ability to improve existing technology and develop and/or implement new voice services that incorporate leading technology.

Competition

The long distance telephony market and the Internet telephony market are highly competitive. There are several large and numerous small competitors, and we expect to face continuing competition for ITXC.net based on price and service offerings from existing competitors and new market entrants in the future. The principal competitive factors in our market include price, quality of service, breadth of geographic presence, customer service, reliability, network size and capacity, and the availability of enhanced communications services. Our competitors include major and emerging telecommunications carriers in the U.S. and foreign telecommunications carriers. The financial difficulties of many telecommunications providers are rapidly altering the number, identity and competitiveness of the marketplace, and we are unable to determine with certainty the eventual result of this shakeout.

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

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

Internet Protocol and Internet Telephony Service Providers

During the past several years, a number of companies have introduced services that make Internet telephony or voice services over the Internet available to businesses and consumers. All major telecommunications companies, including entities like AT&T, Sprint and MCI, as well as iBasis, Net2Phone and deltathree.com, either presently or potentially route traffic to destinations worldwide and compete or can compete directly with us. While not fully facility based, Arbinet and Band-X provide clearing house functions for telephony services and compete with us as well. Other Internet telephony service providers focus on a retail customer base and may in the future compete with us. These companies may offer the kinds of voice services we intend to offer in the future. In addition, companies currently in related markets have begun to provide voice over the Internet services or adapt their products to enable voice over the Internet services. These include cable television companies and new service providers such as Vonage. While these companies may potentially migrate into the wholesale Internet telephony market as direct competitors, they are at present focused on retail services and are actual or potential customers.

Telecommunications Companies and Long Distance Providers

A large number of telecommunications companies, including AT&T, Deutsche Telekom, MCI, Sprint and British Telecom, currently provide wholesale voice telecommunications service which competes with our business. These companies, which tend to be large entities with substantial resources, generally have large budgets available for research and development, and therefore may further enhance the quality and acceptance of the transmission of voice over the Internet.

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General

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

Government Regulation

Regulation of Internet Telephony

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

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

The FCC has considered whether to impose surcharges or other common carrier regulations upon certain providers of Internet telephony, primarily those which, unlike ITXC, provide Internet telephony services directly to end users. While the FCC has presently refrained from such regulation, the regulatory classification of Internet telephony remains unresolved. On March 12, 2004, the FCC issued a Notice of Proposed Rulemaking, generally addressing issues relating to IP-enabled services, which are services and applications relying on the Internet protocol family, including VOIP. A decision in this proceeding may well determine the regulatory status of VOIP.

Specifically, the FCC has expressed an intention to further examine the question of whether certain forms of phone-to-phone VOIP services are information services or telecommunications services. The two are treated differently in several respects, with certain information services being regulated to a lesser degree. The FCC has noted that certain forms of phone-to-phone VOIP services bear many of the same characteristics as more traditional voice telecommunications services and lack the characteristics that would render them information services. The FCC