Prospectus Summary
This summary highlights selected information about us. It is not complete and may not contain all of the information that you should consider before investing in our common stock. You should carefully read this entire document, including the "Risk Factors" section beginning on page 5 and the consolidated financial statements and their related notes beginning on page F-1.
Our Company
We are a leading global provider of high quality Internet-based voice, fax and voice-enabled services. Our network and proprietary software allow our customers to capitalize on the convergence of traditional circuit- switched voice networks with both private and public packet-based data networks including the Internet. We have developed and deployed ITXC.net, an actively managed overlay network designed to deliver high quality voice communications over the Internet and other data networks. As part of ITXC.net, we have established ITXC-owned facilities in the U.S. and arranged call termination and origination with affiliates throughout the world. We believe that ITXC.net enables us to provide our customers with the cost savings of data networks and the global reach of the Internet, while providing a platform for additional value-added services. We believe that the proliferation of high capacity data networks provides the necessary infrastructure to rapidly deploy ITXC.net on a global basis.
In April 1998, we introduced our WWeXchangeSM service, our first application using ITXC.net. This service provides international call completion over the Internet to our carrier and communications service provider customers and enables them to offer their own customers phone-to-phone global voice services. We have achieved significant growth in the use of our network since commencing this service, increasing from 47,000 minutes of traffic during the quarter ended June 30, 1998, to over 11.0 million minutes of traffic during the quarter ended March 31, 1999, and more than 12.6 million minutes of traffic during the two month period ended May 31, 1999. We believe that the rapid growth of traffic on ITXC.net demonstrates that our proprietary technology and techniques, which we refer to as BestValue RoutingSM, are effective in enhancing the quality of voice, fax and voice-enabled services delivered over the Internet. We actively manage ITXC.net with BestValue Routing to avoid congestion and select optimal routes.
We have developed a reliable, scalable network by using the Internet for transport and our affiliates' local infrastructure for terminating traffic. Our early entrant status has resulted in what we believe to be the broadest global network for Internet telephony. We believe that the scale of our network provides us with a significant advantage in increasing market share and introducing value-added services. We have established ITXC-owned facilities in the U.S. and have arranged call origination and termination services with affiliates in more than 75 international cities operating more then 110 ITXC.net points of presence. Our affiliates include Bell Atlantic, China Telecom and Korea Telecom. On a typical day, we originate voice or fax traffic from over 30 countries and deliver it to more than 140 countries.
In addition, we have recently introduced a new proprietary device called a SNARCTM, which we believe will facilitate the use of our network by our customers. These devices allow our customers to access our network directly from their premises, avoiding the costs of dedicated connections to network hubs and improving the economics of our services to them. We believe that SNARCs will strengthen our customers' relationships with us and position us to deploy enhanced services.
We believe that data networks offer superior functionality to circuit- switched networks and, when actively managed, that the Internet will usually be the network of choice for voice, fax and voice-enabled services. We believe that our early entrant status and our experience in providing high quality voice communication over ITXC.net since April 1998 positions us to take advantage of the convergence of voice-enabled services and data networks, including the Internet.
Our Strategy
Our goal is to be the leading provider of Internet-based voice, fax and voice-enabled services. In order to achieve this goal we intend to:
. Exploit Our Network Scale and Early Entrant Status . Rapidly Expand ITXC.net by Adding Additional Affiliates Worldwide . Capitalize on the Attributes of the Internet . Establish ITXC.net as the Standard for Quality in Our Industry . Bring Internet Voice Capability to Our Customers' Premises . Continue to Provide Leadership in Interoperability Initiatives . Deliver Additional Voice-Enabled Services Over ITXC.net Principal Executive Offices Our principal executive offices are located at 600 College Road East, Princeton, New Jersey 08540, and our telephone number is (609) 419-1500. The address of our Web site is http://www.itxc.com. Information contained on our Web site shall not be deemed to be a part of this prospectus.
The Offerings
Common stock offered by ITXC:
U.S. offering............... shares International offering...... shares Total................... shares Common stock outstanding after the offerings................. shares Use of proceeds................ We estimate that we will receive net proceeds from the offerings of approximately $ million, or $ million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $ per share and after deducting the estimated underwriting discounts and offering expenses. We intend to use the net proceeds to repay approximately $1.7 million of debt under our line of credit, expand the number of network hubs and customer-installed gateways, further develop our technology and BestValue Routing approach, develop additional applications for our technology and for general corporate purposes. We may also use a portion of the net proceeds to acquire complementary businesses or technologies. We cannot specify with certainty all of the particular uses for the net proceeds we will have upon completion of the offerings. See "Use of Proceeds." Nasdaq National Market symbol.. "ITXC" You should be aware that we are permitted, and in some cases obligated, to issue shares of common stock in addition to the common stock that will be outstanding after the offerings. If and when we issue these shares, the percentage of the common stock you own will be diluted. The following is a summary of additional shares of common stock that we have currently approved for issuance as of June 10, 1999:
. 3,120,997 shares are issuable upon the exercise of options under our 1998 Stock Incentive Plan, consisting of:
. outstanding options to purchase 2,574,872 shares at a weighted average exercise price of $1.97 per share, of which options covering 158,091 shares were exercisable as of June 10, 1999; and . options covering 546,125 shares available for future awards after the offerings; and . 439,883 shares are issuable upon the exercise of outstanding warrants at a weighted average exercise price of $1.71 per share.
For a description of our 1998 Stock Incentive Plan, see "Executive Compensation--1998 Incentive Stock Option Plan."
Summary Consolidated Financial Data The following summary financial data for the period from July 21, 1997 (date of inception) to December 31, 1997 and for the year ended December 31, 1998 are derived from our audited consolidated financial statements. The following summary financial data for the quarters ended March 31, 1998 and 1999 are derived from our unaudited financial statements. You should read the information that we have presented below in conjunction with our consolidated financial statements, related notes and other financial information included elsewhere in this prospectus. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Use of Proceeds" and "Capitalization."
Period From
July 21, 1997
(date of inception) Quarter
to Year ended ended March 31,
December 31, December 31, ----------------
1997 1998 1998 1999
(in thousands, except per share data)
Statement of Operations Data: Revenue..................... $ 500 $ 1,538 $ 300 $ 3,029 Total costs and expenses.... 706 8,995 931 6,014 Net loss.................... (205) (7,276) (631) (2,944) Basic and diluted net loss per share applicable to common stockholders........ (0.06) (1.78) (0.16) (0.73) Weighted average shares used in computation of basic and diluted net loss per share applicable to common stockholders............... 3,502 4,092 3,900 4,191 Pro forma basic and diluted net loss per share......... (0.83) (0.24) Weighted average shares used in computation of pro forma basic and diluted net loss per share.................. 8,799 12,034 As of March 31, 1999 Actual Pro Forma As Adjusted (in thousands)
Balance Sheet Data: Cash, cash equivalents and short-term investments................................... $16,709 $16,710 Total assets................................... 22,015 22,016 Long-term obligations, including current portion....................................... 1,936 1,936 213 Working capital................................ 13,518 13,519 Total stockholders' equity (deficit)........... (8,983) 15,929
The pro forma line items in the operating statement data presented above and the "pro forma" column in the balance sheet data presented above give effect to the conversion of all outstanding shares of our Series B and Series C convertible preferred stock into common stock upon the closing of the offerings and the assumed exercise of warrants covering 722,000 shares of our common stock by a principal stockholder as if such conversion and exercise had occurred at the dates of issuance. The "as adjusted" column in the balance sheet data presented above also reflects the sale of shares of common stock in the offerings at an assumed initial public offering price of $ per share after deducting the estimated underwriting discounts and offering expenses payable by us and the use of $1.7 million of the net proceeds of the offerings to repay all outstanding indebtedness on our line of credit.