IDT CORP, S-1, 1996-12-27

IDT CORP
S-1, 1996-12-27
COMPUTER INTEGRATED SYSTEMS DESIGN

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 27, 1996

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
IDT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 7373 22-3415036
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER
INCORPORATION OR
ORGANIZATION)
----------------
294 STATE STREET
HACKENSACK, NEW JERSEY 07601
(201) 928-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
HOWARD S. JONAS
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
IDT CORPORATION
294 STATE STREET
HACKENSACK, NEW JERSEY 07601
(201) 928-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
JOYCE J. MASON, ESQ.
SECRETARY
IDT CORPORATION
294 STATE STREET
HACKENSACK, NJ 07601
(201) 928-1000
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF NUMBER OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE SHARES TO OFFERING PRICE OFFERING REGISTRATION
REGISTERED BE REGISTERED PER SHARE PRICE(1) FEE
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<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share......... 400,000 $11.375 $4,550,000 $1,379
</TABLE>
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(1) Calculated pursuant to Rule 457(c) under the Securities Act on the basis
of the average of the high and low prices of the Company's Common Stock on
the Nasdaq National Market on December 26, 1996.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DECEMBER 27, 1996

400,000 SHARES

IDT CORPORATION

COMMON STOCK

-----------

This Prospectus, as appropriately amended or supplemented, relates to the
offer and sale from time to time of a total of 400,000 shares (the "Shares") of
common stock, $0.01 par value per share (the "Common Stock"), of IDT
Corporation, a Delaware corporation ("IDT" of the "Company"), by Alan M.
Grayson (the "Selling Stockholder"), pursuant to the grant by the Company to
the Selling Stockholder of certain registration rights with respect to shares
of Common Stock issuable upon exercise of the Warrant (as defined herein)
granted to the Selling Stockholder on January 2, 1996. See "Selling
Stockholder." The Company will not receive any of the proceeds from the sale of
the Shares offered hereby.

The Selling Stockholder, in market transactions effected through brokers, may
sell the Shares from time to time on terms to be determined at the time of
sale, at the prevailing market price on the date of sale or at negotiated
prices then available. To the extent required, the specific number of Shares to
be sold, the purchase price, the names of any agent, dealer or underwriter, and
the terms and amount of any applicable commission or discount with respect to a
particular offer will be set forth in a Prospectus Supplement and/or post-
effective amendment to the Registration Statement of which this Prospectus
forms a part. The Selling Stockholder reserves the right to accept, and
together with its agents reject, in whole or in part any proposed purchase of
the Shares made directly or through agents. See "Plan of Distribution."

The Selling Stockholder and any broker-dealers, agents or underwriters that
participate with the Selling Stockholder in the distribution of the Shares may
be deemed to be "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), and any commissions received by them
and any profit on the resale of the shares purchased by them may be deemed to
be underwriting discounts or commission under the Securities Act.

The Company has agreed to bear all costs and expenses of the Registration
Statement under federal and state securities laws. The Selling Stockholder will
be responsible for brokerage fees and any underwriting discounts or commission,
transfer taxes and his own legal fees. See "Plan of Distribution."

The Shares are included for trading on the NASDAQ National Market ("NASDAQ")
under the symbol "IDTC." The closing price of the Common Stock on NASDAQ on
December 26, 1996 was $11.75.

THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 7 HEREOF.

-----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

-----------

THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, is required to file reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information may be inspected and copied at the
public reference facilities maintained by the Commission at Judiciary Plaza,
Room 1024, 450 Fifth Street N.W., Washington, D.C. 20549, and at the regional
offices of the Commission: Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661; and at Seven World Trade Center, Suite 1300,
New York, New York 10048, and the Commission web site at (http://www.sec.gov).
Copies of such materials can also be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549. The Common Stock of the Company is
quoted on the Nasdaq National Market, and such material may also be inspected
at the offices of Nasdaq Operations, 1735 "K" Street, N.W., Washington, D.C.
20006.

The Company has filed with the Commission a Registration Statement on Form
S-1 of which this Prospectus forms a part (together with any amendments
thereto, the "Registration Statement") under the Securities Act with respect
to the shares of Common Stock offered hereby. As permitted by the rules and
regulations of the Commission, this Prospectus omits certain information,
exhibits and undertakings contained in the Registration Statement. Statements
contained in this Prospectus concerning the provisions of documents are
necessarily summaries of such documents and each such statement is qualified
in its entirety by reference to the copy of the applicable document filed with
the Commission. For further information regarding the Company and the Common
Stock offered hereby, reference is hereby made to the Registration Statement
and the exhibits and schedules thereto. Copies of all or any portion of the
Registration Statement may be inspected, without charge at the offices of the
Commission, or obtained at prescribed rates from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in "Risk Factors." The
Company's fiscal year ends on July 31. All references to fiscal years in this
Prospectus refer to the fiscal years ending in the calendar years indicated
(e.g., Fiscal 1996 refers to the fiscal year ended July 31, 1996). Industry
data used in this Prospectus were obtained from industry publications and have
not been independently verified by the Company. As used in this Prospectus,
unless the context otherwise requires, the terms the "Company" and "IDT" refer
to IDT Corporation, a Delaware corporation, its predecessor, International
Discount Telecommunications, Corp., a New York corporation, and their
subsidiaries, collectively. This Prospectus makes reference to trademarks of
other companies, which marks are the property of such companies.

THE COMPANY

IDT is a rapidly growing international telecommunications company which
offers a broad range of competitively priced long-distance telephone and
Internet access services in the U.S. and overseas, and recently began offering
Internet telephony services. The Company commenced operations in 1990 as a
pioneer in the international call reorigination business and continues as an
innovator in the international telecommunications industry with its August 1996
introduction of Net2Phone--the first commercial telephone service to bridge
live calls between personal computers and telephones via the Internet. As of
October 31, 1996, IDT provided international and domestic long-distance
telephone services to over 51,000 individuals, businesses, and other telephone
carriers in more than 130 countries, as compared with approximately 12,500
customers as of July 31, 1995. As of October 31, 1996, the Company provided
dial-up and dedicated Internet access and on-line services to over 153,100
individual and business customers, a significant increase over the Company's
approximately 11,000 customers as of July 31, 1995. The Company's revenues also
have grown considerably in recent years, increasing to $28.3 million for the
three months ended October 31, 1996 from $6.6 million for the three months
ended October 31, 1995 and to $57.7 million for Fiscal 1996 from $11.7 million
for Fiscal 1995.

The Company operates a growing telecommunications network of Company-owned
switches and dedicated leased fiber optic lines in the United States, resold
switched services and leased capacity between the United States and London, and
existing and in-process leased interconnections with interexchange carriers
("IXCs"), local exchange carriers ("LECs") and foreign carriers. As a result of
continuing industry deregulation, increasing traffic volume, and a base of
international customers sufficient to cost-justify network expansion, the
Company is planning to build-out a telephone switching infrastructure, in
selected international locations. The Company also operates a national Internet
network of leased lines connecting over 480 points of presence ("POPs"),
including 89 Company-owned POPs supplemented by third-party POPs through the
Company's alliances with other Internet service providers (the "alliance
partners"), including PSINet Inc. ("PSI").

The Company's telecommunications services include: (i) international long-
distance call reorigination (call-back) services, which allow callers outside
the United States to place U.S.-originated international calls at significant
cost savings; (ii) international long-distance direct-dial services for
individuals and businesses, currently offered in the United Kingdom;
(iii) resale of long-distance minutes to other carriers ("carrier sales"); and
(iv) resale of domestic long-distance services provided by WorldCom, Inc.
("WorldCom") to individuals and businesses. IDT's Internet services
include dial-up Internet access for individuals and businesses and direct-
connect dedicated Internet services for corporate customers.

3
<PAGE>

The Company's strategic objective is to become an international carrier's
carrier and a leading provider of integrated telecommunications services in the
U.S. and abroad, offering international long-distance, Internet, and Internet
telephony services. The Company intends to exploit the expected deregulation in
the international telecommunications marketplace, and to benefit from the
continuing convergence of voice and data technologies. The key elements of the
Company's strategy are as follows:

. CONTINUE TO FOCUS ON CORE TELECOMMUNICATIONS SERVICES. The Company will
continue to focus on its call reorigination and other international long-
distance services and seek to identify and enter new markets which offer
high growth and profit potential. The Company believes that by continuing to
develop and expand its business in call reorigination and other
international long-distance services it will be able to (i) enhance its
reputation as an alternative, competitively priced long-distance service
provider, (ii) establish comprehensive distribution channels, and (iii)
capture an increased customer base, all of which should position the Company
to more rapidly and cost-effectively build-out its own network of switches
and leased lines when and where regulations permit.

. EXPAND AND LEVERAGE ITS NETWORK. The Company plans to build-out an
international telecommunications network initially in selected countries, to
enable the Company to broaden the range of services it offers and to improve
operating efficiencies. The Company plans to install Company-owned switching
equipment in the United Kingdom, France, Italy and Germany. In addition, the
Company plans to deploy certain technologies which the Company believes can
enable its existing national Internet backbone to carry domestic telephone
traffic. The Company expects that this use of its Internet backbone will
lower its operating costs for domestic telephone services and increase its
ability to terminate international voice traffic in the United States at
competitive rates.

. EXPAND AND IMPROVE EFFICIENCIES OF INTERNET BUSINESS. The Company, through
increasingly integrating its sales, marketing and promotional efforts to
offer bundled telephone, Internet and Internet telephony services, seeks to
realize marketing and distribution efficiencies in its Internet access
business and to further differentiate itself from competitors who do not
offer the same breadth of telecommunications services. In addition, the
Company seeks to decrease its Internet subscriber acquisition costs by (i)
entering into third party original equipment manufacturers ("OEM") and
software distribution agreements such as those recently entered into with GT
Interactive Software Corp. ("GTI") and Macromedia Inc. ("Macromedia"), and
(ii) offering its Internet network on a private branding basis to national
and regional telephone companies seeking to enter the Internet access
services market.

. ESTABLISH THE COMPANY AS A CARRIER'S CARRIER. The Company has a presence in
the carrier sales market. The Company seeks to become a carrier's carrier,
offering high quality, cost-competitive services to other carriers, through
obtaining transit and operating agreements with international providers. The
Company believes that the full breadth of the Company's telecommunications,
Internet, and Internet telephony services will enhance its ability to enter
into such agreements. The Company believes that these agreements can enable
it to become a primary carrier in the subject countries and, together with
the Company's carrier sales, they can strengthen IDT's position as an
international "clearinghouse" for competitively priced telephone rates.

. DEVELOP NET2PHONE AND EXPLOIT OPPORTUNITIES FROM PACKET SWITCHING
TECHNOLOGY. By continuing to exploit its new Net2Phone Internet-to-telephone
calling technology and develop the associated Net2Phone Direct technology,
which is being developed to enable international telephone-to-telephone
calling via the Internet, the Company believes it can (i) become a leader in
the emerging Internet telephony marketplace, (ii) expand the market for
competitively priced international communications, and (iii) position itself
to exploit the opportunities and economic efficiencies in international
communications believed to be offered by the use of the packet switch
technologies common in Internet applications, rather than traditional
telephone circuit switch technologies.

4
<PAGE>

THE OFFERING

On January 2, 1996, the Company issued a warrant (the "Warrant") to the
Selling Stockholder exercisable for 575,000 shares of Common Stock, pursuant to
which the Company granted the Selling Stockholder certain demand registration
rights with respect to the shares of Common Stock issuable upon the exercise of
the Warrant. Pursuant to the Warrant, the Company agreed to file the
Registration Statement of which this Prospectus forms a part with the
Commission, and to keep the Registration Statement effective until the earlier
of (i) the date all the shares registered hereunder have been sold and (ii)
January 2, 1998 plus a period equal to any Suspension Period (as defined in the
Warrant).

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Prospectus, in the sections captioned
"Risk Factors," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business" and elsewhere, including statements
regarding the Company's strategy and the anticipated development and expansion
of the Company's business, the markets in which the Company's services are
offered, anticipated capital expenditures and regulatory reform, the intent,
belief or current expectations of the Company, its directors or its officers,
primarily with respect to the future operating performance of the Company and
other statements contained herein regarding matters that are not historical
facts, are "forward-looking" statements (as such term is defined in the Private
Securities Litigation Reform Act of 1995). Because such statements include
risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements. Factors that could
cause actual results to differ materially from those expressed or implied by
such forward-looking statements include, but are not limited to, the factors
set forth in "Risk Factors" and "Business."

5
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND OTHER OPERATING DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JULY 31, OCTOBER 31,
------------------------------- ---------------------
1994 1995 1996 1995 1996
------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Telecommunications.. $ 3,169 $ 10,789 $ 35,708 $ 4,808 $ 18,102
Internet............ -- 875 21,986 1,793 10,137
Net2Phone........... -- -- -- -- 79
------- ---------- ---------- --------- ----------
Total revenues.... 3,169 11,664 57,694 6,601 28,318
Income (loss) from op-
erations............. (329) (2,175) (15,755) (1,656) (3,256)
Net income (loss)..... (298) (2,145) (15,643) (1,653) (3,107)
Net income (loss) per
share................ (.02) (.13) (.86) $ (.10) $ (.15)
Weighted average num-
ber of shares used in
calculation of net
income (loss) per
share................ 16,569 16,569 18,180 16,569 20,841
OTHER OPERATING DATA:
Telecommunications:
EBITDA(1)............. (223) 947 3,014 885 829
International call
reorigination serv-
ices
(at Period End):
Customers........... 1,420 6,358 19,582 9,150 26,466
Countries marketed
in................. 60 110 120 110 130
Minutes of use during
period(2)............ 308,000 11,000,000 88,300,000 6,715,000 38,300,000
Internet:
EBITDA(1)............. -- (2,818) (16,921) (2,410) (2,513)
Dial up subscribers
(at Period End):
Company............. 600 10,759 90,249 19,626 94,900
Alliance partners
and PSI Network.... -- 80 52,451 13,956 58,200
------- ---------- ---------- --------- ----------
Total............. 600 10,839 142,700(3) 33,582 153,100
POPs (at Period End):
Company............. 1 15 75 18 89
Alliance partners
and PSI Network.... -- 91 412 194 398
------- ---------- ---------- --------- ----------
Total............. 1 106 487 212 487
</TABLE>

<TABLE>
<CAPTION>
JULY 31, 1996 OCTOBER 31, 1996
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... $14,894 $9,191
Working capital................................ 13,547 6,366
Total assets................................... 43,797 48,642
Total stockholders' equity..................... 26,843 23,736
</TABLE>
- --------
(1) Represents earnings (loss) before depreciation and amortization, interest
expense and income tax expense. The Company understands that such
information is used by certain investors as one measure of an issuer's
historical ability to service debt. EBITDA should not be considered an
alternative to, or more meaningful than, income (loss) from operations, net
income (loss) or cash flow as defined by generally accepted accounting
principles.
(2) Represents the approximate number of minutes of use through the Company's
least cost routing ("LCR") telecommunications platform by customers using
the international call reorigination services marketed by the Company, and
the international long-distance telecommunications services marketed by the
Company through carrier sales to other telecommunications carriers.
(3) The July 31, 1996 subscriber members include subscribers of entities
acquired after July 31, 1996. The revenue amounts are not presented on a
pro forma basis for such acquisitions.

6
<PAGE>

RISK FACTORS

An investment in the shares being offered hereby involves a high degree of
risk. Prospective investors should carefully consider the following risk
factors, in addition to the other information contained in this Prospectus,
before purchasing the shares of Common Stock offered hereby. This Prospectus
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed in these
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in the following
"Risk Factors" section.

LIMITED OPERATING HISTORY; OPERATING LOSSES; FLUCTUATIONS IN OPERATING RESULTS

The Company commenced operations in August 1990 as one of the first
providers of international call reorigination services and entered the
Internet access business in February 1994. Accordingly, the Company has only a
limited operating history upon which an evaluation of it and its prospects can
be based. Although the Company has experienced substantial revenue growth
since its incorporation, it has incurred losses of approximately $300,000,
$2.1 million, $15.6 million and $3.1 million in Fiscal 1994, 1995, 1996 and
the three months ended October 31, 1996, respectively. As of October 31, 1996,
the Company had an accumulated deficit of approximately $21.2 million. The
Company's current focus is on expanding its network and establishing an
infrastructure to achieve economies of scale, improve network performance, and
enable the Company to expand its geographic reach for potential
telecommunications and Internet subscribers. Consequently, the Company
continues to make capital expenditures and incur substantial operating costs
to hire additional personnel and increase its expenses, including but not
limited to those related to product development, marketing, network
infrastructure, technical resources and customer support. The pursuit of such
objectives can be expected to have an adverse impact on the Company's profit
margins for at least the near-term and until the Company can increase its
customer bases sufficiently to recover the costs of such expansions. In
addition, an acceleration in the growth of the Company's subscriber bases or
changes in usage patterns among subscribers may also increase costs as a
percentage of revenues. As a result, the Company expects that it will continue
to incur net losses at least through Fiscal 1997. There can be no assurance
that revenue growth will continue or that the Company will be profitable in
Fiscal 1998 or will at any time in the future achieve or sustain
profitability.

The Company's quarterly operating results have fluctuated in the past as the
Company's business has evolved and may fluctuate significantly in the future
as a result of a variety of factors, some of which are outside of the
Company's control. These factors include, but are not limited to, general
economic conditions, acceptance and use of the Internet, user demand for long-
distance telecommunications services, capital expenditures and other costs
relating to the expansion of operations, the timing and costs of any
acquisitions of technologies or businesses, government regulation, the timing
of new product announcements by the Company or its competitors, changes in
pricing strategies by the Company or its competitors, changes in the mix of
services sold by the Company, market availability and acceptance of new and
enhanced versions of the Company's or its competitors' products and services
and the rates of new subscriber acquisition and retention. Any of these
factors could have a material adverse effect on the Company's business,
financial condition or results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Quarterly Results
of Operations."

NEED FOR ADDITIONAL CAPITAL TO FINANCE GROWTH AND CAPITAL REQUIREMENTS

The Company believes that it must continue to enhance and expand its network
and build out its telecommunications network infrastructure in order to
maintain its competitive position and continue to meet the increasing demands
for service quality, availability and competitive pricing. The Company's
ability to grow depends, in part, on its ability to expand its operations
through the establishment of new installed POPs, each of which requires
significant advance capital equipment expenditures, as well as advance
expenditures and commitments for owned and leased telephone facilities and
circuits and advertising. The Company believes that, based upon its present
business plan, its existing cash resources and expected cash flow from
operating activities will be sufficient to meet its currently anticipated
working capital and capital expenditure requirements for at

7
<PAGE>

least the next twelve months. If the Company's growth exceeds current
expectations or the Company expedites or expands its network expansion or if
the Company's cash flow from operations is insufficient to meet its working
capital and capital expenditure requirements, the Company will need to raise
additional capital from equity or debt sources. There can be no assurance that
the Company will be able to raise such capital on favorable terms or at all.
In October 1996, the Company announced its intention to conduct an
underwritten public offering of Common Stock, which would have provided
additional capital for the Company. On November 21, 1996 the Company announced
that it was not proceeding with such offering. If the Company is unable to
obtain additional capital, the Company may be required to reduce the scope of
its presently anticipated expansion, which could adversely affect the
Company's business, financial condition and results of operations and its
ability to compete.

RISKS OF EXPANSION AND IMPLEMENTATION OF GROWTH STRATEGY

The Company's rapid growth and expansion into new businesses have placed,
and may continue to place, a strain on the Company's management,
administrative, operational, financial and technical resources and increased
demands on its systems and controls. Demands on the Company's network
resources and technical staff and resources have grown rapidly with the
Company's expanding customer bases, and the Company has in the past
experienced difficulties satisfying the demand for its services and problems
in billing its customers. The Company has experienced delays in shipping the
Company's software, resulting in billing subscribers in advance of software
receipt and, from time to time, subscribers have experienced significant
delays both in accessing the Internet through the Company's modems and in
contacting, and in receiving responses from, the Company's customer and
technical support personnel. Certain of these problems have been the subject
of an investigation by state attorneys general. See "Business--Legal
Proceedings." In certain situations, these events have created customer
relations issues for the Company and resulted in cancellations of
subscriptions. There can be no assurance that the Company will not experience
similar or additional problems in the future, that additional inquiries or
investigations by governmental authorities will not occur or that the
Company's attempts to improve its technical staff will be adequate to
facilitate the Company's growth. A failure to effectively provide customer and
technical support services will adversely affect the Company's ability to
attract and maintain its customer base. The Company expects to experience
continued strain on its operational systems as it develops, operates and
maintains its network. Expected increases in the Company's telecommunications
customer base and Internet subscriber base will produce increased demands on
its sales, marketing and administrative resources, its engineering and
technical resources, and its customer and technical support resources, as well
as on its switching and routing capabilities and network infrastructure. As of
July 31, 1995 and 1996, and October 31, 1996 the Company had 96, 485 and 481
employees, respectively. The Company believes that it will need, both in the
short-term and the long-term, to hire additional sales and marketing and
technical personnel as well as qualified administrative and management
personnel in the accounting and finance areas to manage its financial control
systems. In addition, the Company will need to hire or retrain managerial and
support personnel for its new Net2Phone services. Although the Company has
hired additional personnel and upgraded certain of its systems, there can be
no assurance that the Company's administrative, operating and financial
control systems, infrastructure, personnel and facilities will be adequate to
support the Company's future operations or maintain and effectively adapt to
future growth.

There can be no assurance that the Company will be able to build-out its
telecommunications infrastructure, install additional POPs, add services,
expand its customer bases and geographical markets or implement the other
features of its business strategy at the rate or to the extent presently
planned, or that IDT's business strategy will be successful. The Company's
ability to continue to grow may be affected by various factors, many of which
are not within the Company's control, including U.S. and foreign regulation of
the telecommunications and Internet industries, competition and technological
developments. Part of the Company's growth strategy is dependent upon the
continued deregulation of foreign telecommunications markets. There can be no
assurance that such deregulation will occur when or to the extent anticipated.
The effect of foreign deregulation on the Company is also uncertain. While the
Company expects that deregulation will give rise to new opportunities, the
increase in competition expected to result from deregulation could cause the
Company's call reorigination business to suffer and could have other material
adverse effects on the business, financial condition or results of operations
of the

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Company. The inability to continue to upgrade the networking systems or the
operating and financial control systems, the inability to recruit and hire
necessary personnel or the emergence of unexpected expansion difficulties
could have a material adverse effect on the Company's business, financial
condition or results of operations.

INCREASING COMPETITION

The markets in which the Company operates are extremely competitive and can
be significantly influenced by the marketing and pricing decisions of the
larger industry participants. There are no substantial barriers to entry in
either the Internet access or any of the telecommunications markets in which
the Company competes. The Company expects competition in these markets to
intensify in the future.

Telecommunications. Currently, the Company competes with (i) IXCs engaged in
the provision of long-distance access and other long-distance resellers and
providers, including large carriers such as AT&T Corporation ("AT&T"), MCI
Communications Corp. ("MCI"), Sprint Corp. ("Sprint") and WorldCom, (ii)
foreign government-owned postal, telegraph and telephone monopolies ("PTTs"),
(iii) other marketers of international long-distance and call reorigination
services, (iv) wholesale providers of international long-distance services,
(v) alliances for providing carrier services such as "Global One" (Sprint,
Deutsche Telekom, and France Telecom), "Concert" (British Telecom Plc ("BT")
and MCI) and "Uniworld" (AT&T and "Unisource"--Telecom Netherlands, Telia AB,
Swiss Telecom PTT and Telefonica de Espana S.A.), (vi) new entrants to the
domestic long-distance market, such as the regional telephone operating
companies ("RBOCs") in the United States, who have entered or have announced
plans to enter the U.S. interstate long-distance market pursuant to recent
legislation authorizing such entry, and new or expected entrants to the
international long-distance market such as RWE AG ("RWE") in Germany, and
(vii) small resellers and facility-based IXCs. Moreover, some of the Company's
competitors have announced business plans similar to the Company's regarding
the expansion of telecommunications networks into Europe. Many of the
Company's competitors are significantly larger and have substantially greater
market presence and financial, technical, operational, marketing and other
resources and experience than the Company. See "Business--Competition."

Foreign government-owned PTTs, newly-privatized former PTTs and other home
country competitors are positioned to pressure the Company directly in their
home countries by influencing regulatory authorities to outlaw the provision
of call reorigination services or by blocking access to the Company's call
reorigination services. Although the Company has not suffered a material
adverse effect due to anti-competitive behavior on the part of the PTTs (or
former PTTs) to date, there can be no assurance that such behavior will not in
the future cause a material adverse effect on the Company's business,
financial condition or results of operations. With the increasing
privatization and deregulation of international telecommunications in foreign
countries, PTTs may increasingly become free to compete more effectively with
the Company at competitive rates. Deregulation in foreign countries also could
result in competition from other service providers with large, established
customer bases and close ties to governmental authorities in their home
countries, and in decreased prices for direct-dial international calls such
that customers are no longer willing to use the Company's international call
reorigination services. The ability of a deregulated PTT or another home
country service provider to compete on the basis of greater size and
resources, pricing flexibility and long-standing relationships with customers
in its own country could have a material adverse effect on the Company's
business, financial condition or results of operations.

In addition, the FCC recently adopted rules granting greater flexibility for
U.S. carriers when they negotiate agreements with foreign PTTs for terminating
international calls. Agreements negotiated under the new rules may reduce the
costs and price of international direct-dial services and reduce or eliminate
the disparity between inbound and outbound rates upon which the profitability
of call reorigination services depends.

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countries could have a material adverse effect on the Company's business,
financial condition or results of operations. Also, the Federal Communications
Commission's (the "FCC") approval of call reorigination services where no
foreign country prohibits it is likely to stimulate additional entry by small
carriers who might target the same customer base as the Company does, which
could have a material adverse effect on the Company's business, financial
condition or results of operations.

The entity to be created by the proposed acquisition of MCI by BT is
expected to be a well-financed, formidable competitor, offering a wide range
of integrated telecommunications and Internet services with a global reach.
The new entity can be expected to offer international rates significantly
below those currently offered by other providers, particularly between the
U.S. and the U.K. Such competitive rates may force other carriers to lower
their rates significantly, thereby increasing competitive pressure on the
Company. Moreover, the expected price reductions may lead to the elimination
of the tariffs which currently apply to many international calls and which
create spreads between various international telecommunications markets. Any
such price reductions or elimination of tariffs and spreads may constrict the
Company's margins or significantly affect its ability to execute its business
plan successfully. See "Risk Factors-- Dependence on Others" and "Business--
Competition."

Internet Access. The Company's current and prospective competitors include
many large companies that have substantially greater market presence and
financial, technical, operational, marketing and other resources and
experience than the Company. The Company's Internet access business competes
or expects to compete directly or indirectly with the following categories of
companies: (i) other national and regional commercial Internet service
providers ("ISPs"), such as NETCOM On-Line Communication Services, Inc.
("NETCOM") and PSI; (ii) established on-line services companies that currently
offer Internet access, such as America Online, Inc. ("AOL"), CompuServe Corp.
("CompuServe"), and Prodigy Services Company ("Prodigy"); (iii) computer
hardware and software and other technology companies, such as Microsoft
Corporation ("Microsoft"); (iv) national long-distance telecommunications
carriers, such as AT&T (with AT&T WorldNet), MCI (MCI Internet), and Sprint
(SprintNet); (v) RBOCs; (vi) cable television system operators, such as
Comcast Corporation ("Comcast"), Tele-Communications, Inc. ("TCI"), and Time
Warner Inc. ("Time Warner"); (vii) nonprofit or educational ISPs; and (viii)
newly-licensed providers of spectrum-based wireless data services. See
"Business--Competition."

Many of the established on-line services companies and telecommunications
companies, such as AT&T and the RBOCs, have begun to offer or announced plans
to offer expanded Internet access services. The Company expects that all of
the major on-line services companies will eventually compete fully in the
Internet access market. AOL recently began to offer unlimited Internet access
at a competitively-priced flat monthly rate. The Company expects that AOL's
new service will compete directly and significantly with IDT's dial-up
Internet access services. In addition, the Company believes that new
competitors, including large computer hardware and software, cable, media,
wireless, and wireline telecommunications companies, will enter the Internet
access market, resulting in even greater competition for the Company. The
ability of these competitors or others to bundle with Internet access services
other services and products not offered by the Company could place the Company
at a significant competitive disadvantage. In addition, certain of the
Company's competitors that are telecommunications companies may be able to
provide customers with reduced communications costs in connection with their
Internet access services or other incentives, reducing the overall cost of
their Internet access

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<PAGE>

solution and significantly increasing price pressures on the Company. This
price competition could result in significant reductions in the average
selling price of the Company's services. In addition, increased competition
for new subscribers could result in increased sales and marketing expenses and
related subscriber acquisition costs, which could materially adversely affect
the Company's profitability. There can be no assurance that the Company will
be able to offset the effects of any such price reductions or incentives with
an increase in the number of its customers, higher revenue from enhanced
services, cost reductions or otherwise.

Moreover, the Company uses LEC networks to connect its Internet customers to
its POPs. Under current federal and state regulations, the Company and its
Internet customers pay no charges for this use of the LECs' networks other
than the flat-rated, monthly service charges that apply to basic telephone
service. LECs have asked the FCC to change its rules and require ISPs to pay
additional, per minute charges for their use of local networks. The Company
currently offers Internet access for a flat monthly fee. Per minute access
charges could significantly increase the Company's costs of doing business and
could, therefore, have a material adverse effect on the Company's competitive
position and on its business, financial condition or results of operations.
The FCC has begun a rulemaking to consider changes to federal access charges
which may produce new or different charges for Internet services.

Competition is also expected to focus increasingly on overseas markets,
where Internet access services are just beginning to be introduced. The
Company does not currently plan to increase its Internet access services
outside the United States. To the extent the ability to provide access to
locations and services overseas becomes a competitive advantage in the
Internet access industry, failure of the Company to penetrate overseas markets
or to increase its presence in the few overseas markets it presently serves
may result in the Company being at a competitive disadvantage relative to
other Internet access providers.

The Company believes that its ability to compete successfully in the
Internet access market depends upon a number of factors, including: market
presence; the adequacy of the Company's customer support services; the
capacity, reliability and security of its network infrastructure; the ease of
access to and navigation of the Internet; the pricing policies of its
competitors and suppliers; regulatory price requirements for interconnection
to and use of existing LEC networks by Internet services; the timing of
introductions of new products and services and pricing policies by the Company
and its competitors; the Company's ability to support existing and emerging
industry standards; and trends within the industry as well as the general
economy. There can be no assurance that the Company will have the financial
resources, technical expertise or marketing and support capabilities to
continue to compete successfully in the Internet access market.

Internet Telephony. Numerous companies have entered the Internet telephony
market in the past year and a half and have established their Internet
telephony products in the marketplace before the Company's August 1996
introduction of its Net2Phone service. Net2Phone is the first commercial
telephone service to bridge live calls between personal computers and regular
telephones via the Internet, with no requirement of specialized equipment at
the receiving telephone and with service charges on a per minute basis. Most
of the current Internet telephony products enable voice communications over
the Internet between two parties simultaneously connected to the Internet via
multimedia-equipped personal computers, where both parties are using identical
Internet telephony software products. These products include Internet Phone
from VocalTec Ltd. ("VocalTec"), WebPhone from Quarterdeck Corporation
("Quarterdeck") and NetMeeting from Microsoft. Recently, Intel Corporation
announced a new technology aimed at standardizing and improving the
compatibility of the various Internet telephony software products, enabling
customers using different Internet telephony software products to communicate
with one another over the Internet. Furthermore, a number of companies
including Northern Telecom Limited ("Northern Telecom") and Dialogic Corp.
("Dialogic") have announced server-based products and switches which are
expected to allow communications over the Internet between parties using a
personal computer and regular telephone and between two parties using
telephones where both parties have these specialized servers at both ends of
the call. VocalTec recently introduced computer-to-telephone and telephone-to-
telephone systems based on Dialogic's technology utilizing the Internet and
requiring the customer to install or have access to specialized gateway
servers. There can be no assurance that additional companies will not enter
the market as suppliers of Internet telephony services or equipment. There can
be no assurance that the Company

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<PAGE>

will be able to successfully compete in the developing Internet telephony
market or that others will not offer Internet telephony products and services
competitive with or superior to those offered by the Company. Although
Internet telephony continues to be an area of intense focus of various
Internet software providers, traditional telephone service companies and
telephone equipment manufacturers, there can be no assurance that Internet
telephony will gain market acceptance or prove to be a viable alternative to
traditional telephone service. Many international telephone callers,
accustomed to the convenience and quality of phone-to-phone international
calling, may not switch to Internet telephony services notwithstanding the
potential cost savings. See "Business--Competition."

DEPENDENCE ON OTHERS

The Company is dependent on third-party suppliers of telecommunications and
Internet network transmission services for many of its services and generally
does not have long-term contracts with its suppliers. The Company's ability to
provide quality and reliable telecommunications and local dial-up Internet
access services and its ability to expand its network through the timely
provisioning of new voice and data lines is dependent upon the services of
LECs such as Bell Atlantic, NYNEX and Ameritech. Certain of these LECs and
other third party suppliers are or may become competitors of the Company, and
such suppliers generally are not subject to restrictions upon their ability to
compete with the Company. To the extent that any of these suppliers raise
their rates or change their pricing structure, the Company may be materially
adversely affected. Also, the Company faces the risk that there will be a
disruption in the service provided by these suppliers, and can give no
assurance that there will not be a significant disruption in such service in
the future, thereby causing a disruption in the services provided by the
Company to its customers. The Company is dependent upon WorldCom and MFS
Communications Company, Inc. ("MFS"), which are the primary providers to the
Company of leased-line network capacity and data communications facilities,
and lease to the Company physical space for switches, modems and other
equipment. If these suppliers are unable to expand their networks or unwilling
to provide or expand their current level of service to the Company in the
future, the Company's operations could be materially adversely affected. The
Company is also dependent upon the LECs and MFS to provide telecommunications
services to the Company's customers. Although certain leased data
communications services are currently available from several alternative
suppliers, including, for example, AT&T, MCI, and Sprint, there can be no
assurance that the Company could obtain substitute services from other
suppliers at reasonable or comparable terms and prices or in a timely fashion.

The Company's ability to compete in the long-distance telecommunications
market depends, in part, on its ability to procure advantageous rates from
other IXCs, and on the ability of such IXCs to carry the calls the Company
routes to their networks. If the Company, as a result of a termination of its
relationship with an IXC or an IXC's inability to carry traffic routed to it,
routed the traffic to another IXC providing service at a less advantageous
rate, or with lesser quality, there could be an adverse effect on the
Company's profit margins and network service quality. Such harm to the
Company's profit margins and service quality could in turn have an adverse
effect on the Company's results of operations and its ability to prevent
subscription cancellation. Similarly, if the facility-based providers whose
services the Company resells were unable to sell such services to the Company,
there could be a material adverse effect on the Company's business, financial
condition, or results of operations.

IDT also depends on other companies to provide Internet access in areas not
serviced by the Company's POPs. The Company depends upon the continued
viability and financial stability of PSI, other alliance partners and other
suppliers as well as on the performance of their networks. If such networks
servicing a material number of customers were to suffer operational problems
or failure, or were unable to expand to satisfy customer demand, there could
be a material adverse effect on the business, financial condition or results
of operations of the Company. The Company has from time to time experienced
delays in the timely connection of customer accounts to the Internet by
alliance partners other than PSI. If PSI or a material number of alliance
partners other than PSI fail to serve accounts on a timely basis or are unable
to serve accounts generated by the Company's growth, there could be a loss of
customers which may have a material adverse effect on the Company's business,
financial condition or results of operations.

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The Company is dependent upon its ability to establish and maintain peering
relationships with other Internet service providers (ISPs) at peering points
to exchange its Internet traffic with the other ISPs who are part of the
Internet, and to enable its customers to access Web sites hosted by such ISPs.
Currently, even the large ISPs, such as AT&T, MCI and Sprint, enter into
peering arrangements on a no-fee basis, agreeing to route the peering traffic
over their networks in exchange for a reciprocal accommodation. There is no
assurance that these agreements will continue to be on a no-fee basis, and
many of the ISPs with which the Company currently has peering arrangements are
significantly larger than the Company. The imposition of a fee or other
restrictions on the Company's ability to enter into peering agreements could
significantly increase the Company's costs of doing business and could,
therefore, have a material adverse effect on the Company's competitive
position and on its business, financial condition or results of operations.

The Company currently is dependent on software licensed from Netscape
Communications Corp. ("Netscape") for the front end software for its Internet
access services. Under its non-exclusive agreement with Netscape (the
"Netscape Agreement"), the Company can use and reproduce certain Netscape
products, and distribute such products to distributors and end users in
conjunction with IDT configuration software. The Company has experienced
difficulty in integrating third party software into the Company's Internet
software. The occurrence of operating difficulties in connection with Netscape
software could deter customers from using the Company's Internet services. If
Netscape's market position is challenged by software offered by other
companies and the Company is unable to provide such software to its customers
or the Company continues to experience difficulty integrating Netscape
software into the Company's Internet services, there could be a material
adverse effect on the Company's business, financial condition or results of
operations.

The Company is dependent on certain third-party suppliers of equipment and
hardware components, including, for example, Northern Telecom, Excel, Inc.,
and Ascend Communications, Inc. A failure by a supplier to deliver quality
services or products on a timely basis, or the inability to develop
alternative sources if and as required, could result in delays which could
have a material adverse effect on the Company.

In Fiscal 1996, sales to Interexchange Inc. ("Interexchange"), a carrier
sales customer of the Company, exceeded 10% of the Company's consolidated
revenues. Loss of the sales of the minutes of use to Interexchange or other
large customers could hinder the Company's ability to negotiate favorable
rates for its telecommunications services and could have a material adverse
effect on the Company's business, financial condition or results of
operations.

In addition, the Company is dependent on its independent sales
representatives, particularly in key foreign markets. Most of the Company's
independent sales representatives also sell services or products of other
companies. There can be no assurance that the Company's sales representatives
will devote sufficient efforts to promoting and selling the Company's
services.

DEPENDENCE ON KEY PERSONNEL

The Company is highly dependent on the technical and management skills of
its key employees, including technical, sales, marketing, financial and
executive personnel, and on its ability to identify, hire and retain qualified
personnel. Competition for such personnel is intense and there can be no
assurance that the Company will be able to retain existing personnel or
identify or hire additional personnel. In particular, the Company is highly
dependent on the services of Howard S. Jonas, its Chief Executive Officer,
Chairman of the Board and founder, and Howard S. Balter, its Chief Operating
Officer and Vice Chairman of the Board. The loss of either Mr. Jonas's or Mr.
Balter's services could have a material adverse effect on the Company's
business, financial condition or results of operations.

RAPID TECHNOLOGICAL DEVELOPMENT; PROPRIETARY RIGHTS

The markets the Company services are characterized by rapidly changing
technology, evolving industry standards, emerging competition and the frequent
introduction of new services, software and other products. The

13
<PAGE>

Company's success is dependent in part upon its ability to enhance existing
products, software and services and to develop new products, software and
services that meet changing customer requirements on a timely and cost-
effective basis. There can be no assurance that the Company can successfully
identify new opportunities and develop and bring new products, software and
services to market in a timely and cost-effective manner, or that products,
software, services or technologies developed by others will not render the
Company's products, software, services or technologies noncompetitive or
obsolete. In addition, there can be no assurance that any products, software
or services developments or enhancements introduced by the Company will
achieve or sustain market acceptance or be able to effectively address the
compatibility and inoperability issues raised by technological changes or new
industry standards.

There can be no assurance that the Company's patent application relating to
the systems and methodology comprising the technologies underlying Net2Phone
will result in any patent being issued or that, if issued, any patent will
provide adequate protection against competitive technology or will be held
valid and enforceable if challenged, or that the Company's competitors would
not be able to design around any such patent; nor can there be any assurance
that others will not obtain patents that the Company would need to license or
circumvent in order to exploit the Company's patent or otherwise conduct its
businesses.

The Company is also at risk to fundamental changes in the technologies for
delivering telephone, Internet telephony and Internet access and content
services. For example, although Internet services currently are accessed
primarily by computers through telephone lines, several companies have
recently introduced, on an experimental basis, delivery of Internet access
services through cable television lines. If the Internet becomes accessible by
other methods or if there are advancements in the delivery of telephone
services, the Company will need to develop new technology or modify its
existing technology to accommodate these developments. The Company's pursuit
of these technological advances may require substantial time and expense, and
there can be no assurance that the Company will succeed in adapting its
businesses to alternate access devices, conduits or other technological
developments.

The Company relies and expects to continue to rely on a combination of
patent, copyright, trademark and trade secret laws and contractual
restrictions to establish and protect its technology. The Company does not
currently have any issued patents or registered copyrights, although it has
registered trademarks in connection with the Genie services and other pending
applications for certain trademarks. The Company has a policy to require
employees and consultants to execute confidentiality and technology ownership
agreements upon the commencement of their relationships with the Company.
There can be no assurance that the steps taken by the Company will be adequate
to prevent misappropriation of its technology or other proprietary rights, or
that the Company's competitors will not independently develop technologies
that are substantially equivalent or superior to the Company's technology.
There can be no assurance that the Company's trademark applications will
result in any trademark registrations, or that, if registered, any registered
trademark will be held valid and enforceable if challenged. In addition, there
can be no assurance that licenses for any intellectual property that might be
required for the Company's services or products would be available on
reasonable terms if at all. See "Business--Intellectual Property."

Although the Company does not believe that its products infringe the
proprietary rights of any third parties, and no third parties have asserted
patent infringement or other such claims against the Company, there can be no
assurance that third parties will not assert such claims against the Company
in the future or that any such claims will not be successful. The Company is
aware that patents have been granted recently to others on fundamental
technologies in the communications, multimedia and Internet telephony areas,
and patents may issue which relate to fundamental technologies incorporated in
the Company's services and products. Since patent applications in the United
States are not publicly disclosed until the patent issues, applications may
have been filed which, if issued as patents, could relate to the Company's
services. The Company could incur substantial costs and diversion of
management resources in defending or pursuing any claims relating to
proprietary rights, which could have a material adverse effect on the
Company's business, financial condition or results of operations. Furthermore,
parties making such claims could secure a judgment awarding substantial
damages, as well as injunctive or other equitable relief which could
effectively block the Company's ability to provide services in

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<PAGE>

the United States or abroad. Such a judgment could have a material adverse
effect on the Company's business, financial condition or results of
operations.

RISKS OF NETWORK FAILURE

The success of the Company is largely dependent on its ability to deliver
high quality, uninterrupted access to the Internet and low-cost, uninterrupted
domestic and international long-distance telephone services. Any system or
network failure that causes interruptions in the Company's operations could
have a material adverse effect on the business, financial condition or results
of operations of the Company. From time to time, the Company has experienced
failures relating to individual POPs and the Company's subscribers have
experienced difficulties in accessing, and maintaining connection to, the
Internet. The Company at times has experienced failures of its call
reorigination switching equipment, which temporarily prevented customers from
using IDT's call reorigination services. The Company's operations are
dependent on its ability to successfully expand its network and integrate new
and emerging technologies and equipment into its network, which are likely to
increase the risk of system failure and cause unforeseen strain upon the
network. The Company's operations also are dependent on the Company's
protection of its hardware and other equipment from damage from natural
disasters such as fires, floods, hurricanes, and earthquakes, or other sources
of power loss, telecommunications failures or similar occurrences. The Company
maintains a substantial portion of its Internet accounts, electronic mail
services, and other equipment and systems essential to the Company's service
offerings at its primary operational facilities in Hackensack, New Jersey.
Significant or prolonged system failures, such as were experienced in 1996 by
AOL and NETCOM, or difficulties for subscribers in accessing, and maintaining
connection with the Internet could damage the reputation of the Company and
result in the loss of subscribers. Similarly, significant or prolonged
telephone network failures, or difficulties for customers in completing long-
distance telephone calls could damage the reputation of the Company and result
in the loss of customers. Such damage or losses could have a material adverse
effect on the Company's ability to obtain new subscribers and customers, and
on the Company's business, financial condition or results of operation.

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

In Fiscal 1994, 1995 and 1996, international customers accounted for
approximately 59%, 56%, and 23%, respectively, of the Company's total
revenues. The Company anticipates that revenues from international customers
will continue to account for a significant percentage of its total revenues.
In addition, part of the Company's growth strategy is to develop a network
switching infrastructure in foreign countries. Therefore, a significant
portion of the Company's total revenues as well as a portion of its equipment
and other property will be subject to risks associated with international
operations, including unexpected changes in legal and regulatory requirements,
changes in tariffs, exchange rates and other barriers, political and economic
instability, difficulties in accounts receivable collection, longer payment
cycles, difficulties in establishing, maintaining and managing independent
foreign sales organizations, difficulties in staffing and managing
international operations, difficulties in maintaining and repairing equipment
abroad, difficulties in protecting the Company's intellectual property
overseas, possible confiscation of property and equipment, potentially adverse
tax consequences and the regulation of Internet access providers and
telecommunications companies by foreign jurisdictions. Although the Company's
sales to date have generally been denominated in U.S. dollars, the value of
the U.S. dollar in relation to foreign currencies may also adversely affect
the Company's marketing and sales to international customers as well as the
cost of procuring, installing and maintaining equipment abroad. To the extent
the Company expands its international operations or changes its pricing
practices to denominate prices in foreign currencies, the Company will be
exposed to increased risks of currency fluctuation as the Company does not,
and has no plans to, engage in hedging activities designed to manage currency
fluctuations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Sales and Marketing."

NEW AND UNCERTAIN MARKETS

Many of the overseas markets in which the Company currently markets long-
distance telephone services are undergoing dramatic changes as a result of
privatization and deregulation. The European Union ("EU") has mandated
competitive markets for the European telecommunications industry by January
1998 and the various

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<PAGE>

European countries are at different stages of opening their telecommunications
markets. As a result of privatization and deregulation, a new competitive
environment is emerging in which major European telephone companies, media
companies and utilities are entering the telecommunications market and forming
new alliances which are radically changing the landscape for domestic and
international telephone services. Open markets for telecommunications services
are expected to evolve in other parts of the world as well. While the Company
is focused on exploiting the imbalances that may be brought about by the often
fragmented nature of deregulation, the Company is entering new and often
unknown markets and, therefore, is unable to predict how such deregulating
markets will evolve and there can be no assurance that changes in the
marketplace and new strategic alliances among companies with greater resources
and experience than the Company will not adversely affect the Company's
ability to continue to offer and sell call reorigination services, its efforts
to increase its overseas telecommunications customer base or its ability to
recover the cost of building out its international telecommunications
switching infrastructure.

The markets for Internet connectivity, telephony and content services and
related software products are relatively new and current and future
competitors are likely to introduce competing Internet connectivity and/or on-
line services and products. Therefore, it is difficult to predict either the
rates at which the markets will grow (if at all) or at which new or increased
competition will result in market saturation, or the direction of development
of the Internet and online services. If demand for Internet services fails to
grow, grows more slowly than anticipated, or becomes saturated with
competitors, the Company's business, financial condition or results of
operations could be materially adversely affected. If the development of the
Internet as a commercial medium does not continue on its current course, or if
alternate systems supplant all or part of the currently anticipated
functionality of the Internet and the Company is not able to react in a cost-
effective and timely manner, then such changes could have a material adverse
effect on the Company's business, financial condition or results of
operations. Although the Company intends to support emerging standards in the
market for Internet connectivity, there can be no assurance that industry
standards will emerge or if they become established, that the Company will be
able to conform to these new standards in a timely fashion and maintain a
competitive position in the market. See "Business--Research and Development."

SECURITY RISKS

Despite the implementation of network security measures by the Company, such
as limiting physical and network access to its routers, its Internet access
systems and Genie entertainment and information services are vulnerable to
computer viruses, break-ins and similar disruptive problems caused by its
customers or other Internet users. Such problems caused by third parties could
lead to interruption, delays or cessation in service to the Company's Internet
customers. Furthermore, such inappropriate use of the Internet by third
parties could also potentially jeopardize the security of confidential
information stored in the computer systems of the Company's customers and
other parties connected to the Internet, which may deter potential
subscribers. Persistent security problems continue to plague public and
private data networks. Recent break-ins reported in the press and otherwise
have reached computers connected to the Internet at major corporations and
Internet access providers and have involved the theft of information,
including incidents in which hackers bypassed firewalls by posing as trusted
computers. Alleviating problems caused by computer viruses, break-ins or other
problems caused by third parties may require significant expenditures of
capital and resources by the Company, which could have a material adverse
effect on the Company. Until more comprehensive security technologies are
developed, the security and privacy concerns of existing and potential
customers may inhibit the growth of the Internet service industry in general
and the Company's customer base and revenues in particular. Moreover, if the
Company experiences a breach of network security or privacy, there can be no
assurance that the Company's customers will not assert or threaten claims
against the Company based on or arising out of such breach, or that any such
claims will not be upheld, which could have a material adverse effect on the
Company's business, financial condition or results of operations.

POTENTIAL LIABILITY FOR INFORMATION DISSEMINATED THROUGH NETWORK

Internet access and content providers face potential liability of uncertain
scope for the actions of subscribers and others using their systems, including
liability for infringement of intellectual property rights, rights of

16
<PAGE>

publicity, defamation, libel and criminal activity under the laws of the U.S.
and foreign jurisdictions. For example, an action against Prodigy alleging
libel and negligence in connection with an electronic message posted by a
Prodigy subscriber through Prodigy's Internet access system attempted to
impose liability upon Internet service providers for information, messages and
other materials disseminated across and through their systems. Prodigy lost a
summary judgment motion related to the scope of its potential liability
exposure. While the parties subsequently settled their dispute, the court
refused to vacate its opinion on the summary judgment motion, which still
stands as precedent. Another action is currently pending against NETCOM
relating to NETCOM's potential liability for vicarious copyright infringement
arising out of electronic messages posted by a subscriber. NETCOM lost a
summary judgment motion related to the scope of its potential vicarious
copyright liability exposure, but this case has yet to come to trial.
Recently, a Hong Kong court permitted a local company to sue a California
Internet access provider for copyright violation based on content included by
a subscriber on a Web site.

The Company carries a limited amount of errors and omissions insurance.
However, such insurance may not be adequate to compensate the Company for all
liability that may be imposed. Any imposition of liability in excess of the
Company's coverage could have a material adverse effect on the Company. In
addition, recent legislative enactments and pending legislative proposals
aimed at limiting the use of the Internet to transmit indecent or pornographic
materials could, depending upon their interpretation and application, result
in significant potential liability to Internet access and service providers
including the Company, as well as additional costs and technological
challenges in complying with any statutory or regulatory requirements imposed
by such legislation. For example, the Communications Decency Act of 1996
(amending 47 U.S.C. 223), which is part of the Telecommunications Act of 1996
(the "1996 Telecommunications Act"), became effective on February 8, 1996. The
1996 Telecommunications Act would impose criminal liability on persons sending
or displaying in a manner available to minors indecent material on an
interactive computer service such as the Internet, and on an entity knowingly
permitting facilities under its control to be used for such activities. While
the constitutionality of these provisions has been successfully challenged in
federal appellate court, the U.S. Department of Justice has appealed to the
U.S. Supreme Court and there can be no assurance as to the final result
regarding the constitutionality of the 1996 Telecommunications Act, or as to
the scope and content of any substitute legislation or other legislation in
the U.S. or foreign jurisdictions restricting the type of content being
provided over the Internet. If these provisions or related legislation are
upheld, the effect on the Internet industry could have a material adverse
effect on the Company's business, financial condition or results of operation.
In addition, CompuServe faced action by German authorities in response to
which CompuServe temporarily restricted the scope of the Internet access it
provides to all subscribers, both in the U.S. and internationally. A number of
countries are considering content restrictions based on such factors as
political or religious views expressed, and pornography or indecency. The
recent acquisition of the Genie on-line service and the launch of Genie
Interactive service has increased the Company's exposure to such legislation,
and to libel and defamation suits, primarily because of the increased level of
content being provided by or through the Company.

GOVERNMENT REGULATORY POLICY RISKS

Telecommunications. United States domestic interstate long-distance
telecommunications services are subject to limited regulation by the FCC.
Intrastate long-distance services are regulated by state commissions, which
have varying requirements. International call reorigination services are
subject to regulation by both U.S. and foreign regulators. The FCC requires
international call reorigination providers such as the Company to provide
service without violating the laws of the countries in which they operate.
Local laws and regulations differ among the jurisdictions in which the Company
operates, and the interpretation and enforcement of such laws and regulations
vary and are often based on the informal views of the local government
ministries which, in some cases, are subject to influence by the local PTTs.
In certain of the Company's principal existing and target markets, there are
laws and regulations that either prohibit or limit, or could be used to
prohibit or limit, certain of the Company's services. There can be no
assurance that the Company has accurately predicted or will accurately predict
the interpretation or enforcement of foreign laws and regulations or
regulatory and enforcement trends or will be found to be in compliance with
all such laws and regulations. Accordingly, the

17
<PAGE>

Company could lose, or be unable to obtain, regulatory approvals necessary for
it to provide services in such jurisdictions and monetary penalties imposed
against the Company could be significant. Moreover, if the FCC finds that the
Company has not provided services "in a manner that is consistent with the
laws of the countries in which [it] operates," the FCC could impose a variety
of sanctions, including fines or the revocation of the Company's license (the
"Section 214 License") under Section 214 of the Communications Act of 1934
("Section 214") to provide international service to U.S. points. There can be
no assurance that the Company's international services will continue to be
permitted in its current and proposed markets. Depending upon the countries
involved, there could be a material adverse effect on the Company's business,
financial condition or results of operations if the Company's services are
prohibited. Furthermore, if the FCC or state regulators found that the Company
was engaging in activities that required certain licenses which the Company
currently does not hold, or that required compliance with tariffing or other
regulatory requirements which the Company has not satisfied, the FCC or state
regulators could impose financial penalties or prohibit service, which could
have a material adverse effect on the Company's business, financial condition
or results of operations. See "Business--Regulation." In addition, the FCC
recently announced a change in its policy regarding the charges that facility-
based carriers pay to interconnect with foreign networks. The new policy could
allow the Company's facility-based competitors to negotiate interconnection
agreements that reduce or eliminate the rate disparity between inbound and
outbound calls. Reduction or elimination of that disparity could allow
competitors to compete more effectively with the Company and could eliminate
the pricing advantage of call reorigination services.

The 1996 Telecommunications Act substantially altered the regulatory
framework for the telecommunications industry for domestic and U.S.
international telecommunications services. The 1996 Telecommunications Act
directs the FCC to conduct a variety of rulemakings to implement the Act's
requirements. The Company cannot predict the ultimate effects of this
legislation or the outcome of the FCC rulemakings required by this Act. The
legislation does not impose substantial regulatory burdens on the Company's
international call reorigination, Internet access or domestic
telecommunications operations. However, the rulemakings required by the 1996
Telecommunications Act could produce additional regulatory requirements,
including a requirement that the Company contribute some portion of its
revenues to subsidy mechanisms for universal service. In addition, the
legislation could increase competition and affect interconnections and costs.
If the Company cannot provide the services it is presently providing or
intends to provide, due to existing or future regulations that affect such
services, or due to its inability to receive or retain formal or informal
approvals for such services, or for whatever other reason related to
regulatory compliance or the lack thereof, the Company's business, financial
condition or results of operations could be materially adversely affected.

Internet. Data network access providers are generally not regulated under
the laws and regulations governing common carrier providers of
telecommunications. Accordingly, except for general laws governing consumer
protection and regulations governing the ability of the Company to disclose
the contents of communications by its customers, no state or federal
regulations exist currently pertaining to the pricing, service characteristics
or capabilities, geographic distribution or quality control features of
Internet access services. The Company cannot predict the impact that future
regulation or regulatory changes, if any, may have on its Internet access
business.

The 1996 Telecommunications Act would impose criminal liability on persons
sending or displaying in a manner available to minors indecent material on an
interactive computer service such as the Internet, and on an entity knowingly
permitting facilities under its control to be used for such activities.
Entities solely providing access to facilities not under their control are
exempted from liability, as are service providers that take good faith,
reasonable, effective and appropriate actions to restrict access by minors to
the prohibited communications. However, the Genie on-line service and Genie
Interactive are not likely to fall within such exception. The
constitutionality of these provisions has been successfully challenged in
federal appellate court, and the interpretation and enforcement of them are
uncertain. This legislation, as well as lawsuits against Internet service
providers, may decrease demand for Internet access, chill the development of
Internet content, or have other adverse effects on Internet access and content
providers such as the Company. In addition, in light of the uncertainty
attached to interpretation and application of this law, there can be no
assurance that the Company

18
<PAGE>

would not have to modify its operations to comply with the statute, including
prohibiting users from maintaining home pages on the Web, and increasing its
control over the Genie Interactive content. See "Risk Factors--Potential
Liability for Information Disseminated Through Network."

Internet Telephony. The FCC and State regulatory commissions have not made
any formal determinations regarding the regulatory status of voice telephony
services provided through use of the Internet. However, America's Carriers
Telecommunications Association, an association of domestic phone carriers,
filed a petition (the "Petition") on March 4, 1996 with the FCC alleging that
providers of Internet telephone software are operating as telecommunications
carriers and, as such, should be subject to the FCC regulatory framework
applicable to traditional telecommunications companies. The Petition seeks a
declaratory ruling establishing the FCC's authority over interstate and
international communications using the Internet and an order directing that
persons providing Internet phone software comply with the regulatory
requirements of the Communication Act of 1934. Finally, the Petition urges the
FCC to initiate a rulemaking proceeding to consider rules governing the use of
the Internet for the provision of telecommunication services.The FCC has not
yet taken any action in response. The Act authorizes the FCC to forebear from
regulating any provider of telecommunications services and the FCC has
proposed doing so, but has not taken final action. If the FCC or one or more
state commissions decide to regulate Internet telephony, there can be no
assurance that any such regulation will not adversely affect the Company's
business, financial condition or results of operations.

CONTROL BY PRINCIPAL STOCKHOLDER

Howard S. Jonas, the Company's Chief Executive Officer, Chairman of the
Board and founder, owns beneficially all of the Company's outstanding shares
of Class A Stock and thereby holds 77.6% of the combined voting power of the
Company's outstanding capital stock. As a result, Mr. Jonas is able to control
matters requiring approval by the stockholders of the Company, including the
election of all of the directors and the approval of significant corporate
matters, including any merger, consolidation or sale of all or substantially
all of the Company's assets. See "Management," "Security Ownership of Certain
Beneficial Owners and Management" and "Description of Capital Stock."

VOLATILITY OF STOCK PRICE

Since the initial public offering of the Company's Common Stock in March
1996, the market price of the Company's Common Stock has fluctuated
significantly, and it is likely that the price of the Company's Common Stock
will fluctuate in the future. Factors such as variations in the Company's
revenue, earnings and cash flow from quarter-to-quarter and announcements of
new service offerings, technological innovations or price reductions by the
Company, its competitors or providers of alternative services could cause the
market price of the Common Stock to fluctuate substantially. In addition, the
stock markets recently have experienced significant price and volume
fluctuations that particularly have affected companies in the technology
sector and resulted in changes in the market price of the stocks of many
companies, which have not been directly related to the operating performance
of those companies. Such broad market fluctuations may adversely affect the
market price of the Common Stock in the future.

ANTITAKEOVER PROVISIONS

The Company's restated certificate of incorporation (the "Certificate of
Incorporation") contains certain provisions that may discourage bids for the
Company, including disparate voting rights and a provision providing for
classification of the Company's Board of Directors. This could limit the price
that certain investors might be willing to pay in the future for shares of
Common Stock. See "Description of Capital Stock."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of (or the availability for sale of) a substantial number of shares of
Common Stock in the public market during or following this offering could
adversely affect the market price for the Common Stock. See "Shares Eligible
For Future Sale."

19
<PAGE>

USE OF PROCEEDS

All of the shares offered hereby are being registered for resale for the
account of the Selling Stockholder and, accordingly, the Company will not
receive any of the proceeds from the sale of the shares offered hereby.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock is traded publicly on the Nasdaq National Market under the
symbol "IDTC." The table below sets forth for the periods indicated commencing
on March 15, 1996, the date that the Common Stock was first offered to the
public, the high and low sales prices for the Common Stock as reported by the
Nasdaq National Market.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR ENDED JULY 31, 1996
Third Quarter (from March 15, 1996)............................ $11.75 $ 6.75
Fourth Quarter................................................. 16.00 8.50
FISCAL YEAR ENDING JULY 31, 1997
First Quarter.................................................. 17.50 10.25
Second Quarter (through December 26, 1996)..................... 15.75 11.00
</TABLE>

On December 26, 1996, the last sale price reported on the Nasdaq National
Market for the Common Stock was $11.75 per share. On the same date, there were
approximately 77 holders of record of the Common Stock.

The Company has never declared or paid any dividends on its Common Stock.
The Company intends to retain any earnings for use in the operation and
expansion of its business and, therefore, does not anticipate declaring or
paying any cash dividends in the foreseeable future.

20
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below for each of the
four years in the period ended July 31, 1996 have been derived from the
Company's consolidated financial statements, which have been audited by Ernst
& Young LLP, independent auditors. The selected consolidated financial data
presented below for the year ended July 31, 1992 have been derived from the
Company's unaudited consolidated financial statements. The selected
consolidated financial data for the three months ended October 31, 1995 and
October 31, 1996 are derived from the unaudited financial statements of the
Company for such periods and, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results for the unaudited interim periods. Results for
the three months ended October 31, 1996 are not necessarily indicative of
results for Fiscal 1997 or for any other period. The selected consolidated
financial data should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto and other financial information appearing
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED OCTOBER
YEAR ENDED JULY 31, 31,
------------------------------------------- -----------------
1992 1993 1994 1995 1996 1995 1996
------ ------- ------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Telecommunications.. $ 270 $ 1,675 $ 3,169 $10,789 $ 35,708 $ 4,808 $ 18,102
Internet............ -- -- -- 875 21,986 1,793 10,137
Net2Phone........... -- -- -- -- -- -- 79
------ ------- ------- ------- -------- ------- --------
Total revenues.... 270 1,675 3,169 11,664 57,694 6,601 28,318
Costs and expenses:
Direct cost of
revenues........... 254 272 990 7,544 36,438 4,173 18,013
Selling, general and
administrative..... 277 1,019 2,402 5,992 35,799 3,953 12,598
Depreciation and
amortization....... 62 79 106 303 1,212 131 963
------ ------- ------- ------- -------- ------- --------
Total costs and
expenses......... 593 1,370 3,498 13,839 73,449 8,257 31,574
------ ------- ------- ------- -------- ------- --------
Income (loss) from
operations........... (323) 305 (329) (2,175) (15,755) (1,656) (3,256)
------ ------- ------- ------- -------- ------- --------
Other, net (1)........ (16) (3) 31 30 112 3 149
------ ------- ------- ------- -------- ------- --------
Net income
(loss)........... $ (339) $ 302 $ (298) $(2,145) $(15,643) $(1,653) $ (3,107)
====== ======= ======= ======= ======== ======= ========
Net income (loss) per
share................ $ (.02) $ .02 $ (.02) $ (.13) $ (.86) $ (.10) $ (.15)
====== ======= ======= ======= ======== ======= ========
Weighted average
number of shares used
in calculation of net
income (loss) per
share................ 16,569 16,569 16,569 16,569 18,180 16,569 20,841
====== ======= ======= ======= ======== ======= ========
</TABLE>

<TABLE>
<CAPTION>
JULY 31,
--------------------------------- OCTOBER 31,
1992 1993 1994 1995 1996 1996
----- ----- ----- ----- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents....... $ 331 $ 302 $ 754 $ 232 $14,894 $ 9,191
Working capital (deficit)....... (151) 826 1,289 (884) 13,547 6,366
Total assets.................... 671 1,302 2,795 4,197 43,797 48,642
Total stockholders' equity...... 109 1,045 2,062 911 26,843 23,736
</TABLE>
- --------
(1) For the year ended July 31, 1996, includes an extraordinary loss on
retirement of debt of $234.

21
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following "Management's Discussion and Analysis of Financial Condition
and Results of Operations" section contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in "Risk
Factors."

OVERVIEW

IDT is a rapidly growing international telecommunications company offering a
broad range of competitively priced long-distance telephone and Internet
access services in the U.S. and overseas, and recently began offering Internet
telephony services.

The Company entered the international call reorigination business in 1990 to
capitalize on the opportunity created by the differential between U.S. and
foreign-originated international long-distance telephone rates. IDT leveraged
the expertise derived from, and calling volume generated by, its call
reorigination business to enter the domestic long-distance business in late
1993, by reselling long-distance telecommunications services of other
carriers. As a value-added service for its domestic long-distance customers,
the Company began offering Internet access in early 1994, eventually offering
dial-up and dedicated Internet access to individuals and businesses as stand-
alone services. In 1995, IDT began reselling long-distance minutes to other
long-distance carriers, making available the favorable telephone rates and
special tariffs the Company receives because of the calling volume generated
by its call reorigination customers. In August 1996, IDT entered the Internet
telephony market with its introduction of Net2Phone.

Revenues from the Company's telecommunications operations are derived
primarily from the following activities: (i) international long-distance call
reorigination services; (ii) international long-distance direct-dial services
for individuals and businesses; (iii) resale of long-distance minutes to other
carriers ("carrier sales"); and (iv) resale of domestic long-distance services
provided by WorldCom to individuals and businesses. Revenues from the
Company's Internet operations are derived primarily from providing Internet
access services to individuals and businesses.

Initially, the Company relied on the third party carriers to route the
Company's customers' international call reorigination traffic, bear the cost
of providing services, and bill the customers directly. Under these
arrangements, the Company derived substantially all its revenues from line
fees paid by customers and commissions paid to the Company by third party
carriers. In early 1994, the Company began to migrate existing customers to,
as well as provision new customers on, its least cost routing ("LCR")
platform. Accordingly, the Company provided the underlying transmission and
switching services to its customers and began to direct bill its customers for
minutes of use. For customers billed by the Company on a minutes of use basis,
the Company recognizes all revenues and direct costs associated with their
calls. This fundamental change in the operating structure of the Company has
resulted in significant increases in IDT's revenues as well as direct costs in
Fiscal 1995 and 1996. In January 1995, the Company began utilizing its LCR
platform for the resale of telecommunications services to other
telecommunications carriers. The Company expects that its revenues and
earnings from these telecommunications operations will depend primarily upon
the number of subscribers using these services, the number of minutes of use,
and the revenue per minute charged by the Company. The following table
illustrates the growth in the number of call reorigination and carrier
customers and the total number of minutes routed through the Company's LCR
platform:

<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED JULY 31, ENDED
----------------------------- OCTOBER 31,
1994 1995 1996 1996
------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Number of call reorigination
customers (at end of period)... 1,420 6,358 19,582 26,466
Minutes trafficked............ 308,000 8,500,000 24,800,000 15,300,000
Number of carrier sales
customers (at end of period)... 0 2 15 23
Minutes trafficked............ 0 2,500,000 63,500,000 23,000,000
Total minutes trafficked........ 308,000 11,000,000 88,300,000 38,300,000
</TABLE>

22
<PAGE>

In late 1993, the Company began to resell the domestic long-distance
services of facilities-based carriers. Currently, the Company resells to
individuals and businesses the domestic long-distance services provided by
WorldCom. WorldCom bills the Company's customers at a competitive per minute
rate and is responsible for processing receipts from customers. The Company
receives a net check from WorldCom based on total collections less costs of
services provided. The Company is responsible for all bad debts. IDT had more
than 9,000 domestic long-distance customers as of July 31, 1995, more than
13,000 customers as of July 31, 1996, and more than 24,500 as of October 31,
1996.

Revenues from the Company's Internet access services depend primarily on the
number of subscribers to the Company's services and the types of accounts
subscribed for. Revenues from monthly subscribers have substantially increased
over the last year as a result of significant increases in the Company's
subscriber base. The Company believes this growth has resulted from greater
public awareness and acceptance of the Internet in general, an increase in the
number of POPs servicing the Company's clients, increased marketing and
advertising and an attractive Internet access package offered by the Company.
The Company's alliance partners program has facilitated its rapid POP
expansion, which allows the Company to offer local access in more geographic
areas, thereby enhancing its ability to expand its subscriber base.

The Company also has a direct-connect Internet access service that is
marketed to businesses that typically require high-speed dedicated circuits
from customer premises to a Company-owned or alliance partner POP. The Company
charges subscribers using 56Kbps lines approximately $350 per month and
subscribers utilizing full T1 lines approximately $1,400 per month for direct
connect service. As of October 31, 1996, the Company had 267 direct connect
subscribers.

The Company began offering premium Internet access services to its
subscribers in April 1996, and has experienced a trend towards an increase in
the percentage of new customers subscribing for premium accounts. However,
there can be no assurance that this trend will continue. As the Company has
expanded and continues to expand its nationwide network of POPs and leased
lines, it expects to maintain an increasingly greater percentage of its
customer base on Company-owned POPs, while reducing its dependence on alliance
partners. However, there can be no assurance that this trend will continue.

The Company's ability to achieve revenue growth and profitability is
dependent upon its ability to acquire and retain customers. To continue to
realize subscriber growth, the Company must continue to attract additional
subscribers and replace terminating subscribers. The sales and marketing
expenses and subscriber acquisition costs associated with attracting new
subscribers, however, are substantial. Accordingly, the Company's ability to
improve operating margins will depend in part on its ability to retain its
subscribers and there can be no assurances that the Company's investments in
telecommunications infrastructure, customer support capabilities and software
releases will improve subscriber retention. The Company has expanded both the
personnel and operating hours of technical support and customer service
staffs, hired experienced managers and has made additional expenditures to
enhance customer and technical support systems. These strategies and
commitments have required substantial up-front expenditures for additional
personnel, marketing, facilities, infrastructure, product development and
capital equipment and have and may continue to adversely affect short-term
operating results. There can be no assurance that revenue growth will continue
or that the Company will in the future achieve or sustain profitability or
positive cash flow from operations on either a quarterly or annual basis.

23
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth the percentage of revenues represented by
certain items in the Company's statement of operations:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED JULY 31, ENDED OCTOBER 31,
------------------------ ----------------------
1994 1995 1996 1995 1996
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Telecommunications.... 100.0 % 92.5 % 61.9 % 72.8 % 63.9 %
Internet.............. -- 7.5 38.1 27.2 35.8
Net2Phone............. -- -- -- -- 0.3
------ ------ ------ ------ ------
Total revenues...... 100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Direct cost of
revenues............. 31.2 64.7 63.2 63.2 63.6
Selling, general and
administrative....... 75.8 51.4 62.0 59.9 44.5
Depreciation and
amortization......... 3.4 2.5 2.1 2.0 3.4
------ ------ ------ ------ ------
Total costs and
expenses........... 110.4 118.6 127.3 125.1 111.5
------ ------ ------ ------ ------
Income (loss) from
operations............. (10.4) (18.6) (27.3) (25.1) (11.5)
------ ------ ------ ------ ------
Other (net)(1).......... 1.0 0.2 0.2 0.1 0.5
------ ------ ------ ------ ------
Net income (loss)... (9.4)% (18.4)% (27.1)% (25.0)% (11.0)%
====== ====== ====== ====== ======
</TABLE>
- --------
(1) For the year ended July 31, 1996, includes an extraordinary loss on
retirement of debt of $234,000

THREE MONTHS ENDED OCTOBER 31, 1996 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
1995

RESULTS OF OPERATIONS

Revenues. Revenues increased 329% from approximately $6.6 million for the
three months ended October 31, 1995 to approximately $28.3 million for the
three months ended October 31, 1996. Revenues from the Company's
telecommunications operations increased 277% from approximately $4.8 million
for the three months ended October 31, 1995 to approximately $18.1 million for
the three months ended October 31, 1996. Revenues from the Company's Internet
operations increased 461% from approximately $1.8 million for the three months
ended October 31, 1995 to approximately $10.1 million for the three months
ended October 31, 1996. The increase in telecommunications revenues was due
primarily to a 472% increase in rebilled long-distance minutes from 6.7
million minutes to approximately 38.3 million minutes. The increase in
rebilled long-distance minutes was due to a substantial increase in
international call reorigination customers, and the addition of wholesale
carrier sales clients. The number of international call reorigination
customers increased from approximately 9,150 at October 31, 1995 to 26,500
customers at October 31, 1996. The addition of wholesale carrier sales clients
resulted in an increase in long-distance arbitrage revenues of 592% from
approximately $1.4 million for the three months ended October 31, 1995 to
approximately $9.7 million for the three months ended October 31, 1996. As a
percentage of telecommunications revenues and overall revenues, long-distance
arbitrage revenues increased from approximately 29.7% to 53.6% and 21.6% to
34.3%, respectively. As a percentage of total revenues, Internet revenues
increased from approximately 27.3% for the three months ended October 31, 1995
to approximately 35.8% for the three months ended October 31, 1996. The
increase in Internet revenues both in dollar terms and as a percentage of
revenues was due primarily to an increase in dial-up subscribers from
approximately 33,600 as of October 31, 1995 to approximately 153,100 as of
October 31, 1996. Internet revenues also included approximately $1.3 million
of online service revenues for the three months ended October 31, 1996 and no
such revenues for the three months ended October 31, 1995. Net2Phone revenues
for the three months ended October 31, 1996 were approximately $79,000,
compared to no such revenues for the three months ended October 31, 1995.

24
<PAGE>

Direct Cost of Revenues. Direct cost of revenues consists primarily of the
costs paid to carriers for the transmission and termination of switched
minutes through IDT's facilities, and to a lesser extent, fees paid to
alliance partners, leased circuits and network processing costs. The Company's
direct cost of revenues increased by 327% from approximately $4.2 million in
the three months ended October 31, 1995 to approximately $18.0 million in the
three months ended October 31, 1996. As a percentage of revenues, these costs
increased from 63.2% to 63.6% in the three months ended October 31, 1995 and
1996, respectively. The increase in absolute dollars is primarily due to
increases in underlying carrier costs as the Company's telecommunications
minutes of use, and associated revenue, grew substantially. To a lesser
extent, the increase is due to the increase in fees paid to alliance partners,
the costs of leased circuits and networks and of access lines and network
connectivity to support subscriber growth in both Internet access and
international call reorigination and the Online network processing costs. The
Company expects that direct cost of revenues will continue to increase in
absolute dollar terms as the Company expects to expand its telecommunications
and Internet subscriber bases by implementing its growth strategy.

Selling, General and Administrative. Selling, general and administrative
costs increased 223% from approximately $3.9 million in the three months ended
October 31, 1995 to approximately $12.6 million in the three months ended
October 31, 1996. As a percentage of revenues, these costs decreased from
59.8% to 44.5% in Fiscal 1995 and 1996, respectively. The increase in these
costs in dollar terms was due primarily to the addition of sales, marketing
and technical and customer support personnel hired to support the growth of
the Company's Internet access business, the increased advertising to attract
Internet dial-up subscribers and costs incurred in developing and marketing
Net2Phone. The Company anticipates selling, general and administrative costs
in dollar terms will continue to increase as the Company implements its growth
strategy.

Depreciation and Amortization. Depreciation and amortization costs increased
635% from approximately $131,000 in the three months ended October 31, 1995 to
approximately $963,000 in the three months ended October 31, 1996. As a
percentage of revenues, these costs increased from 2.0% to 3.4% in the three
months ended October 31, 1995 and 1996, respectively. These costs increased in
absolute terms primarily as a result of the Company's higher fixed asset base
during Fiscal 1996 as compared with Fiscal 1995 due to the Company's efforts
to install additional Company-owned POPs, enhance its network infrastructure
and expand its facilities. The Company anticipates depreciation and
amortization costs will continue to increase as the Company implements its
growth strategy.

Income (loss) from Operations. Income from operations for the
telecommunications business decreased to approximately $621,000 in the three
months ended October 31, 1996 from $849,000 in the three months ended October
31, 1995 and as a percentage of telecommunications revenues to 3.4% from
17.8%. The decrease in dollars resulted principally from increased selling,
general and administrative expenses generated by the expansion of operations.
The decrease as a percentage of telecommunications revenues resulted from
increased selling, general and administrative expenses as well as the
increased percentage of long-distance arbitrage revenues which typically carry
lower margins. Loss from operations for the Internet access business increased
to $3.2 million in the three months ended October 31, 1996 from approximately
$2.5 million in the three months ended October 31, 1995. The loss from
operations from the Internet access business was principally due to the
initial costs of acquiring customers, increased personnel and facilities costs
to sustain growth and substantial marketing expenses to create customer
awareness. The increased loss of the Internet access business is largely due
to the growth in Internet customer base as the initial costs of acquiring
customers exceeds the initial revenue received from such customers. The loss
generated from the development and marketing of Net2Phone was approximately
$632,000 for the three months ended October 31, 1996, compared to no income on
loss for the three months ended October 31, 1995.

25
<PAGE>

FISCAL 1996 COMPARED TO FISCAL 1995

Revenues. Revenues increased 390% from approximately $11.7 million in Fiscal
1995 to approximately $57.7 million in Fiscal 1996. Revenues from the
Company's telecommunications operations increased 230% from approximately
$10.8 million in Fiscal 1995 to approximately $35.7 million in Fiscal 1996.
Revenues from Internet operations increased from $875,000 in Fiscal 1995 to
approximately $22 million in Fiscal 1996. The increase in telecommunications
revenues was due primarily to an increase in rebilled long-distance minutes of
use from approximately 11 million minutes of use to approximately 88 million
minutes of use. The increase in rebilled long-distance minutes of use was due
to a substantial increase in international call reorigination customers,
migration of existing customers to the Company's own LCR platform and the
addition of carrier sales clients. During this period, the number of
international call reorigination customers increased 208% from approximately
6,358 at July 31, 1995 to approximately 19,582 customers at July 31, 1996. As
a percentage of telecommunications revenues and overall revenues in Fiscal
1995 and 1996, call reorigination revenues decreased from approximately 55.8%
to 36.5% and from 51.6% to 22.2%, respectively. The addition of carrier sales
clients resulted in an increase in carrier sales revenues from approximately
$1.1 million in Fiscal 1995 to approximately $18.6 million in Fiscal 1996. As
a percentage of telecommunications revenues and overall revenues, carrier
sales revenues increased from approximately 10.3% to 52.1% and from 12.1% to
31.8%, respectively. As a percentage of total revenues, Internet revenues
increased from approximately 7.5% in Fiscal 1995 to approximately 38.1% in
Fiscal 1996. The increase in Internet revenues both in dollar terms and as a
percentage of revenues was due primarily to an increase in dial-up subscribers
from 10,839 as of July 31, 1995 to approximately 142,700 as of July 31, 1996.

Direct Cost of Revenues. Direct cost of revenues consists primarily of the
costs paid to carriers for the transmission and termination of switched
minutes through IDT's facilities and, to a lesser extent, fees paid to
alliance partners, leased circuit and local access costs, and switch
maintenance fees. The Company's direct cost of revenues increased by 383% from
approximately $7.5 million in Fiscal 1995 to approximately $36.4 million in
Fiscal 1996. As a percentage of revenues, these costs decreased from 64.7% to
63.2% in Fiscal 1995 and 1996, respectively. The increase in absolute dollars
is primarily due to increases in underlying switched carrier costs as the
Company's telecommunications minutes of use, and associated revenue, grew
substantially. To a lesser extent, the increase is due to the increase in fees
paid to alliance partners and leased circuit and local access costs to support
subscriber growth in both Internet access and international call
reorigination.

Selling, General and Administrative. Selling, general and administrative
costs increased 497% from approximately $6.0 million in Fiscal 1995 to
approximately $35.8 million in Fiscal 1996. As a percentage of revenues, these
costs increased from 51.4% to 62.0% in Fiscal 1995 and 1996, respectively. The
increase in these costs both in dollar terms and as a percentage of revenues
was due primarily to the addition of sales, marketing and technical and
customer support personnel hired to support the growth of the Company's
Internet access business, the increased advertising to attract Internet dial-
up subscribers, the license fees paid to Netscape under the Netscape
Agreement, and costs incurred in developing and marketing Net2Phone. During
Fiscal 1995, the Company recorded a non-cash compensation expense of
approximately $1.0 million as compared to $70,000 in Fiscal 1996 due to the
grant of options to employees and consultants.

Depreciation and Amortization. Depreciation and amortization costs increased
299% from approximately $304,000 in Fiscal 1995 to approximately $1.2 million
in Fiscal 1996. As a percentage of revenues, these costs decreased from 2.5%
to 2.1% in Fiscal 1995 and Fiscal 1996, respectively. These costs increased in
absolute terms primarily as a result of the Company's higher fixed asset base
during Fiscal 1996 as compared with Fiscal 1995 due to the Company's
aggressive efforts to install additional Company-owned POPs, enhance its
network infrastructure and expand its facilities.

Income (loss) from Operations. Income from operations for the
telecommunications segment increased to approximately $2.8 million in Fiscal
1996 from $830,000 in Fiscal 1995 and as a percentage of telecommunications
revenues to 7.72% from 7.69%. The increase resulted principally from increased
volume. Loss from operations for the Internet access segment increased to
$17.9 million in Fiscal 1996 from approximately $3.0 million in Fiscal 1995
and as a percentage of Internet revenues to 81.2% from 343%. The

26
<PAGE>

loss from operations from the Internet access segment was principally due to
the initial costs of acquiring customers, increased personnel and facilities
costs to sustain growth and substantial marketing expenses to create customer
awareness. The increased loss of the Internet access segment is largely due to
the growth in Internet customer base as the initial costs of acquiring
customers exceeds the initial revenue received from such customers. The
customer base increased from 10,839 to 142,700 customers during Fiscal 1996.
The loss generated from the development and marketing of Net2Phone was
approximately $660,000 for the year ended July 31, 1996.

Income Taxes. The Company records income taxes in accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). The Company did not record an income tax benefit in the periods
ended July 31, 1995 or 1996, as the realization of available tax losses was
not probable. As of July 31, 1996, the Company had Federal net operating loss
carryforwards of approximately $18.4 million. The amount of these
carryforwards that can be used in any given year may be limited in the event
of certain changes in the ownership of the Company. The Company believes that
neither the prior ownership changes nor the change in ownership of the Company
that may result from the Offerings will significantly limit the Company's
ability to use its net operating loss carryforwards.

FISCAL 1995 COMPARED TO FISCAL 1994

Revenues. Revenues increased 268.1% from $3.2 million in Fiscal 1994 to
$11.7 million in Fiscal 1995. This increase was primarily due to an increase
in the number of international call reorigination customers and the minutes of
use and the migration of these customers onto the Company's own billing
system. In addition, the Company began marketing long-distance
telecommunications services through carrier sales in Fiscal 1995, which
resulted in $1.4 million of additional revenues. The number of international
call reorigination customers increased 347.7% from 1,420 customers to 6,358
customers from July 31, 1994 to July 31, 1995. Minutes of use on the Company's
LCR platform increased from approximately 308,000 minutes of use in Fiscal
1994 to approximately 11 million minutes in Fiscal 1995. In addition, revenues
from carrier sales increased from approximately $22,000 to approximately $2.4
million from Fiscal 1994 to Fiscal 1995. Revenues from Internet access
services increased from approximately $57,000 in Fiscal 1994 to approximately
$875,000 in Fiscal 1995 primarily as the result of an increase in the
Company's Internet subscriber base from approximately 600 subscribers at the
end of Fiscal 1994 to approximately 10,800 subscribers at the end of Fiscal
1995.

Direct Cost of Revenues. Direct cost of revenues increased 662.1% from $1.0
million in Fiscal 1994 to $7.5 million in Fiscal 1995 and as a percentage of
revenues from 31.2% to 64.7%. These increases resulted primarily from the
migration of clients onto IDT's own LCR platform and the resultant revenue
shift from line fees and commissions, which involve little or no direct costs,
to rebilled minutes of use. In addition, the Company invested in leased
circuits, local access lines and additional connectivity to accommodate growth
in customer demand for its services.

Selling, General and Administrative. Selling, general and administrative
costs increased 149.4%, from $2.4 million in Fiscal 1994 to $6.0 million in
Fiscal 1995. This increase was due primarily to an increase in advertising to
attract individual Internet subscribers and the hiring of additional sales,
customer support, technical support and administrative personnel to support
the Company's expanding Internet customer base. During Fiscal 1995, the
Company recorded a non-cash compensation expense of approximately $1.0 million
due to the grant of fully vested options to employees and consultants. As a
percentage of revenues, selling, general and administrative costs decreased
from 75.8% to 51.4% from Fiscal 1994 to Fiscal 1995, primarily due to revenues
increasing without commensurate increases in these costs.

Depreciation and Amortization. Depreciation and amortization expenses
increased 186.8% from approximately $106,000 in Fiscal 1994 to approximately
$304,000 in Fiscal 1995. These expenses increased primarily as a result of the
Company's higher fixed asset base in Fiscal 1995 which was due principally to
Company-owned POP expansion, investments in telecommunications switches and
infrastructure and facility expansion.

27
<PAGE>

Income (loss) from Operations. Loss from operations increased to $2.2
million in Fiscal 1995 from $329,000 in Fiscal 1994. In Fiscal 1994, the
Company operated principally in one segment, telecommunications, and in Fiscal
1995, the Company operated in both the telecommunications and Internet access
businesses. In Fiscal 1995, the telecommunications segment had income from
operations of approximately $830,000 while the Internet access segment had a
loss from operations of approximately $3.0 million. The increase in the income
from telecommunications operations resulted principally from increased volume.
The loss from operations from the Internet access segment was principally due
to the initial costs of acquiring customers, increased personnel and
facilities costs to sustain growth and substantial marketing expenses to
create customer awareness. General corporate expenses of $1.6 million for the
year ended July 31, 1995 was allocated to the two segments in the above
analysis.

Income Taxes. The Company did not record an income tax benefit in either
Fiscal 1994 or 1995, as the realization of available tax losses was not
probable.

28
<PAGE>

QUARTERLY RESULTS OF OPERATIONS

The following tables set forth certain quarterly financial data for the nine
quarters ended October 31, 1996. This quarterly information is unaudited, has
been prepared on the same basis as the annual financial statements and, in the
opinion of the Company's management, reflects all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of the
information for periods presented. Operating results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------------------
OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31,
1994 1995 1995 1995 1995 1996 1996 1996 1996
----------- ----------- --------- -------- ----------- ----------- --------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Telecommunications... $1,601 $1,985 $3,003 $4,200 $ 4,808 $ 5,852 $11,338 $13,710 $18,102
Internet............. 47 76 252 500 1,793 3,862 6,888 9,443 10,137
Net2Phone............ -- -- -- -- -- -- -- -- 79
------ ------ ------ ------ ------- ------- ------- ------- -------
Total revenues....... 1,648 2,061 3,255 4,700 6,601 9,714 18,226 23,153 28,318
Costs and expenses:
Direct cost of
revenues............ 703 1,167 2,136 3,538 4,173 5,926 12,289 14,050 18,013
Selling, general and
administrative...... 1,757 930 1,407 1,898 3,953 8,506 10,135 13,205 12,598
Depreciation and
amortization........ 49 57 78 119 131 175 264 642 963
------ ------ ------ ------ ------- ------- ------- ------- -------
Total costs and
expenses............ 2,509 2,154 3,621 5,555 8,257 14,607 22,688 27,897 31,574
------ ------ ------ ------ ------- ------- ------- ------- -------
Income (loss) from
operations.......... (861) (93) (366) (855) (1,656) (4,893) (4,462) (4,744) (3,256)
Other (net)(1)....... 5 4 18 3 3 (32) (175) 316 149
------ ------ ------ ------ ------- ------- ------- ------- -------
Net income (loss).... $ (856) $ (89) $ (348) $ (852) $(1,653) $(4,925) $(4,637) $(4,428) $(3,107)
====== ====== ====== ====== ======= ======= ======= ======= =======
Net income (loss) per
share............... $ (.05) $(0.01) $(0.02) $(0.05) $ (0.10) $ (0.30) $ (0.25) $ (0.21) $ (0.15)
====== ====== ====== ====== ======= ======= ======= ======= =======
<CAPTION>
PERCENTAGE OF TOTAL REVENUES FOR THREE MONTHS ENDED
------------------------------------------------------------------------------------------------------
OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31,
1994 1995 1995 1995 1995 1996 1996 1996 1996
----------- ----------- --------- -------- ----------- ----------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Telecommunications... 97.2% 96.3% 92.3% 89.3% 72.8% 60.2% 62.2% 59.2% 63.9%
Internet............. 2.8 3.7 7.7 10.7 27.2 39.8 37.8 40.8 35.8
Net2Phone............ -- -- -- -- -- -- -- -- .3
------ ------ ------ ------ ------- ------- ------- ------- -------
Total revenues....... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Direct cost of
revenues............ 42.7 56.6 65.6 75.3 63.2 61.0 67.4 60.7 63.6
Selling, general and
administrative...... 106.6 45.1 43.2 40.4 59.9 87.6 55.6 57.0 44.5
Depreciation and
amortization........ 3.0 2.8 2.4 2.5 2.0 1.8 1.5 2.8 3.4
------ ------ ------ ------ ------- ------- ------- ------- -------
Total costs and
expenses............ 152.3 104.5 111.2 118.2 125.1 150.4 124.5 120.5 111.5
------ ------ ------ ------ ------- ------- ------- ------- -------
Income (loss) from
operations.......... (52.3) (4.5) (11.2) (18.2) (25.1) (50.4) (24.5) (20.5) (11.5)
Other, net (1)....... 0.4 0.2 0.5 0.1 0.1 (0.3) (1.0) 1.4 .5
------ ------ ------ ------ ------- ------- ------- ------- -------
Net income (loss).... (51.9)% (4.3)% (10.7)% (18.1)% (25.0)% (50.7)% (25.5)% (19.1)% (11.0)%
====== ====== ====== ====== ======= ======= ======= ======= =======
</TABLE>
- -------
(1) For the three months ended April 30, 1996, includes an extraordinary loss
on retirement of debt of $234 or 1.3%.

The Company's quarterly operating results have fluctuated in the past and
may fluctuate significantly in the future as a result of a variety of factors,
some of which are outside of the Company's control. These factors include
general economic conditions, user demand for long-distance telecommunications
services, acceptance and use of the Internet, capital expenditures and other
costs relating to the expansion of operations, the timing of new product
introductions by the Company or its competitors, changes in pricing strategies
by the Company or its competitors, market availability and acceptance of new
and enhanced versions of the Company's or its competitors' products and
services, and the rates of new subscriber acquisition and retention.

29
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Historically, the Company has satisfied its cash requirements principally
through a combination of cash flow from operations, sales of equity securities
and borrowings from third parties (including its stockholders). During Fiscal
1994, the Company issued capital stock for an aggregate of $1.3 million.
During the first three quarters of Fiscal 1996, the Company raised $3,477,000
through the issuance of notes. The proceeds from the issuance of the notes
were used for general corporate purposes, including working capital. In March
1996, the Company completed an initial public offering of 4,600,000 shares of
Common Stock for $10 per share. The Company realized approximately $41.5
million of net proceeds from this offering. A portion of the proceeds were
used to repay the $3,477,000, the principal amount of short-term notes
previously issued during Fiscal 1996. In connection with the repayment of such
notes the Company incurred a prepayment penalty of $233,500. Such prepayment
penalty has been classified as an extraordinary loss on retirement of debt in
the accompanying statement of operations. The Company used the remaining net
proceeds from the offering for general corporate purposes, capital
expenditures and working capital, including to (i) expand and improve the
Company's Internet network infrastructure, (ii) increase the Company's sales
and marketing efforts, (iii) expand and improve the Company's customer support
and fulfillment capabilities, (iv) intensify the Company's research and
development activities, (v) develop new Internet applications and content, and
(vi) expand the Company's telecommunications operations. At October 31, 1996,
the Company had cash and cash equivalents of approximately $9.2 million and
working capital of approximately $6.4 million.

The Company generated negative cash flow from operating activities of
approximately $4.8 million during the three months ended October 31, 1996,
compared to a positive cash flow from operating activities of approximately
$240,000 during the three months ended October 31, 1995. The changes in
operating cash flows from the three months ended October 31, 1996 to the three
months ended October 31, 1995 were primarily due to increases in accounts
receivable and prepaid and other assets in relation to accounts payable and
other current liabilities. Cash flow from operations varied significantly from
quarter to quarter, depending upon the timing of operating cash receipts and
payments, especially accounts receivable and accounts payable. Accounts and
commissions receivable (net of allowances) were approximately $2.2 million and
$12.6 million at October 31, 1995 and 1996, respectively. Accounts receivable,
accounts payable and accrued expenses have increased period to period as the
Company's businesses have grown. Because of the nature of the Company's
Internet access business and the rapid increase in the number of subscribers,
allowance for doubtful accounts has also grown from period to period.

The Company generated negative cash flow from operating activities of
approximately $15.0 million during Fiscal 1996, compared to positive cash flow
from operating activities of approximately $521,000 during Fiscal 1995,
compared to negative cash flow from operating activities of approximately
$235,000 during Fiscal 1994. The changes in operating cash flows from Fiscal
1995 to Fiscal 1996 and from Fiscal 1994 to Fiscal 1995 were primarily due to
increases in accounts payable and deferred revenues in relation to accounts
receivable. Cash flow from operations varied significantly from quarter to
quarter, depending upon the timing of operating cash receipts and payments,
especially accounts receivable and accounts payable. Accounts receivable (net
of allowances) were approximately $925,000, $2.0 million and $11.5 million at
July 31, 1994, 1995 and 1996, respectively. Accounts receivable, accounts
payable and accrued expenses have increased period-to-period as the Company's
businesses have grown. Because of the nature of the Company's Internet access
business and the rapid increase in the number of subscribers, allowance for
doubtful accounts has also grown from period to period.

Purchases of fixed assets increased from approximately $835,000 in three
months ended October 31, 1995 to approximately $4.1 million in three months
ended October 31, 1996. Purchases of fixed assets increased from approximately
$717,000 in Fiscal 1994 to approximately $1.3 million in Fiscal 1995 and
approximately $11.9 million in Fiscal 1996. The purchases were primarily as a
result of purchases of equipment to support expansion of the Company's network
infrastructure, and expansion of the Company's facilities. The Company is
upgrading and expanding its existing network infrastructure by building a new,
higher capacity, frame-relay based network backbone and by adding Company
owned POPs. See "Business--Network Infrastructure."

30
<PAGE>

The Company experiences intense competition in both its telecommunications
and Internet access businesses. See "Risk Factors--Competition." If additional
competition were to lead to significant price reductions or loss of customers,
especially in the Company's expanding Internet services, cash flows from
operations would be materially adversely affected.

The Company intends to, where appropriate, make strategic acquisitions to
increase its telecommunications customer base. The Company may also make
strategic acquisitions related to its Internet business. From time to time,
the Company evaluates potential acquisitions of companies, technologies,
products and customer accounts that complement the Company's businesses. In
the three months ended October 31, 1996, the Company purchased the equipment
and networks of two of its alliance partners for approximately $4.4 million.
The purchase price includes cash of $2,250,000, which was financed by a four
year note, assumption of trade liabilities of approximately $280,000,
(excluding $429,000 due to the Company) and the issuance of promissory notes
totaling approximately $1,440,000 of which $690,000 is a two year note at
8.25% interest per annum, and $750,000 is a four year note at 10% per annum.
No additional acquisitions are currently contemplated.

The Company believes that, based upon its present business plan, its
existing cash resources and expected cash flow from operating activities will
be sufficient to meet its currently anticipated working capital and capital
expenditure requirements for at least the next twelve months. If the Company's
growth exceeds current expectations or the Company expedites or expands its
network expansion or if the Company's cash flow from operations is
insufficient to meet its working capital and capital expenditure requirements,
the Company will need to raise additional capital from equity or debt sources.
There can be no assurance that the Company will be able to raise such capital
on favorable terms or at all. If the Company is unable to obtain such
additional capital, the Company may be required to reduce the scope of its
presently anticipated expansion, which could adversely affect the Company's
business and results of operations and its ability to compete.

31
<PAGE>

BUSINESS

The following "Business" section contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences, include, but are not limited to, those discussed in "Risk
Factors."

BACKGROUND

IDT is a rapidly growing international telecommunications company which
offers a broad range of competitively priced long-distance telephone and
Internet access services in the U.S. and overseas, and recently began offering
Internet telephony services. The Company commenced operations in 1990 as a
pioneer in the international call reorigination business and continues as an
innovator in the international telecommunications industry with its August
1996 introduction of Net2Phone--the first commercial telephone service to
bridge live calls between personal computers and telephones via the Internet.
As of October 31, 1996, IDT provided international and domestic long-distance
telephone services to over 51,000 individuals, businesses, and other telephone
carriers in more than 130 countries, as compared with approximately 12,500
customers as of July 31, 1995. As of October 31, 1996, the Company provided
dial-up and dedicated Internet access and on-line services to an estimate of
over 153,100 individual and business customers, an increase over the Company's
almost 11,000 customers as of July 31, 1995. The Company's revenues also have
grown considerably in recent years, increasing to $57.7 million for Fiscal
1996 from $11.7 million for Fiscal 1995.

The Company operates a growing telecommunications network of Company-owned
switches and dedicated leased fiber optic lines in the United States, resold
switched services and leased capacity between the United States and London,
and existing and in-process leased interconnections with interexchange
carriers ("IXCs"), local exchange carriers ("LECs") and foreign carriers. As a
result of continuing industry deregulation, increasing traffic volume, and a
base of international customers sufficient to cost-justify network expansion,
the Company is planning to build-out a telephone switching infrastructure, in
selected international locations. The Company also operates a national
Internet network of leased lines connecting over 480 points of presence
("POPs"), including 89 Company-owned POPs supplemented by third-party POPs
through the Company's alliances with other Internet service providers (the
"alliance partners"), including PSINet Inc. ("PSI").

The Company entered the international call reorigination business in 1990 to
capitalize on the opportunity created by the differential between U.S. and
foreign-originated international long-distance telephone rates. IDT leveraged
the expertise derived from, and calling volume generated by, its call
reorigination business to enter the domestic long-distance business in late
1993, by reselling long-distance telecommunications services of other carriers
to IDT's domestic customers. As a value-added service for its domestic long-
distance customers, the Company began offering Internet access in early 1994,
eventually offering dial-up and dedicated Internet access to individuals and
businesses as stand-alone services. Throughout 1994, the Company focused on
developing and marketing its Internet services and offerings. In 1995, IDT
began reselling to other long-distance carriers access to the favorable
international and domestic long-distance telephone rates the Company obtains
as a result of the calling volume generated by its call reorigination
customers. In August 1996, IDT entered the Internet telephony market with its
introduction of Net2Phone.

The Company was founded in August 1990 and originally incorporated in New
York as International Discount Telecommunications Corp. The Company was
renamed IDT Corporation and incorporated in the State of Delaware in December
1995. The Company's principal executive offices are located at 294 State
Street, Hackensack, New Jersey 07601, its main telephone number is (201) 928-
1000 and its electronic mail address is [email protected].

INDUSTRY OVERVIEW

Telecommunications

The telecommunications industry is undergoing changes both domestically and
overseas. The Company believes the growth in international telephone traffic
is being driven by increased capacity and lower operating

32
<PAGE>

costs resulting from technological improvements, but more importantly, by
continuing government deregulation of telecommunications markets around the
world and the privatization of government-owned postal, telegraph and
telephone monopolies ("PTTs"). Historically, PTTs have had monopolies on the
provision of telephone services in their respective countries and
international callers have had no choice of service provider and paid the
generally higher prices charged by their local PTTs. As a result, the cost of
making international telephone calls from outside the United States has
generally been higher than making similar calls originating within the United
States. The high rates charged by many overseas carriers result in a pricing
imbalance between U.S.-originated and foreign-originated international
telephone calls and have created significant market opportunities for
providers of competitively priced communications alternatives such as call
reorigination services.

Today, one of the driving forces of change in international
telecommunications is the current mandate by the European Union to liberalize
and deregulate the European telephone industry by January 1998. As a result,
several European nations have taken, or are in the process of taking,
significant steps towards liberalization of their national telecommunications
industries. The breaking down of competitive barriers is resulting in new
opportunities for telephone companies capable of establishing direct-dial and
enhanced dialing services in these newly liberalized markets. Furthermore, as
deregulation and privatization within Europe leads to increased competition
among the PTTs and other newly formed competitive carriers, the Company
believes that the fragmented deregulatory environment can create increased
opportunities to provide carrier sales.

The U.S. domestic telecommunications market has also experienced significant
changes as a result of the 1996 Telecommunications Act. Long-distance
providers will be permitted to provide local phone services and the regional
telephone operating companies ("RBOCs") will be permitted to provide long-
distance phone services. The 1996 Telecommunications Act has also created
significant opportunities for second and third-tier phone companies to compete
with the larger telephone companies. As more of these companies enter the
marketplace and look for advantageous rates to terminate traffic overseas,
opportunities are being created to offer carrier services to new market
entrants who do not have established overseas telephone traffic flow nor the
ability to procure beneficial rates through quantity commitments.

Privatization, deregulation, and evolving price competition have coincided
with technological innovation in the telephone industry, including new
technologies such as fiber optic cable and improvements in computer software
and processing technology. The improved quality, capacity, speed and
flexibility of these new telephone lines have resulted in new companies
entering the market, facilitated the development of global voicemail and
faxmail, and enhanced data communication. In addition, international debiting
and charge networks now allow customers to pay for long-distance calls made
from any telephone using a single home account, and callers can now access
national phone systems in order to benefit from lower long-distance tariffs.

As various countries deregulate and/or privatize their respective telephone
industries, IDT has positioned itself to reinforce and expand its overseas
presence in certain of these newly liberalized countries to provide a broad
range of international long-distance telephone services. The Company believes
that because of its continued focus on and ability to (i) exploit telephone
pricing imbalances, (ii) increase the efficient use of network capacity within
the framework of a cost-justified, expanding infrastructure and (iii) leverage
existing relationships with carriers, clients and sales organizations around
the world, it is well positioned to take advantage of the opportunities
expected to emerge in the dynamic international telecommunications arena.

Internet

The Internet is a global network of computer networks cooperating to enable
public and private organizations, educational institutions, government
agencies and individuals to communicate electronically, access and share
information and conduct business. Unlike other public and private
telecommunications networks that are managed by businesses, government
agencies and other entities, the Internet is currently a cooperative
interconnection of many such public and private networks. Industry sources
estimate that the number of Internet users was 38 million at the end of 1994,
over 56 million at the end of 1995, and is projected to be approximately 200
million by the end of 1999. The rapid growth in the popularity of the Internet
is due primarily to the

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increasing use of personal computers and modems by individuals as well as the
growth of entertainment, information and commercial resources available on the
Internet.

While undergoing a gradual but noticeable consolidation, the Internet access
market remains highly fragmented. A number of the major on-line service
providers, such as AOL and Prodigy, currently offer access to the Internet
through a host computer controlled by the service provider. Under this type of
architecture, the on-line service provider determines which Internet
applications are available to its customers. Recent studies indicate that
personal computer users are increasingly accessing the Internet directly,
rather than through on-line service providers offering such an architecture,
thus enabling users to access a full range of Internet resources. With the
growth and increasing commercialization of the Internet, a number of
companies, including IDT, have emerged to provide a variety of Internet access
services to individual and business subscribers.

In recent months, the competitive landscape for Internet services has
changed as the RBOCs and other long-distance companies have entered the
Internet access market in order to provide their customers a full range of
communications services. While the entry of providers such as the RBOCs
increases the competition for new customer acquisitions, the Company believes
that it also creates new opportunities for private-branded Internet services
as the new entrants to the marketplace may seek out established national
networks for provisioning their dial-up customers.

Finally, the Internet is increasingly being used as an alternative medium
for voice communications. While still in its infancy, Internet telephony
applications are being used more frequently by individuals and businesses in
order to reduce the costs of traditional long-distance communications.

The Company believes that its status as one of the country's leading
Internet service providers ("ISPs") should position it to develop strategic
ties with telephone companies seeking to offer complete communications
services to their regional and national customer bases. The Company also
believes that, with its expertise and infrastructure in both the
telecommunications and Internet arenas, and with its innovative Net2Phone
technology, it is well positioned to exploit the expected continuing
convergence of voice and data technologies, earn recurring revenues via
application of a traditional telephone company service model, and become an
industry leader in the growing Internet telephony marketplace.

IDT STRATEGY

The Company's strategic objective is to become an international carrier's
carrier and a leading provider of integrated telecommunications services in
the U.S. and abroad, offering international long-distance, Internet, and
Internet telephony services. The Company intends to exploit the ongoing
deregulation in the international telecommunications marketplace, and to
benefit from the convergence of voice and data technologies. The key elements
of the Company's strategy are as follows:

. CONTINUE TO FOCUS ON CORE TELECOMMUNICATIONS SERVICES. The Company will
continue to focus on its call reorigination and other international long-
distance services and seek to identify and enter new markets which offer
high growth and profit potential. The Company believes that by continuing
to develop and expand its business in call reorigination and other
international long-distance services it will be able to (i) enhance its
reputation as an alternative, competitively priced long-distance service
provider, (ii) establish comprehensive distribution channels, and (iii)
capture an increased customer base, all of which should position the
Company to more rapidly and cost-effectively build-out its own network of
switches and leased lines when and where regulations permit.

. EXPAND AND LEVERAGE ITS NETWORK. The Company plans to build-out an
international telecommunications network initially in selected countries to
enable the Company to broaden the range of services it offers and to
improve operating efficiencies. The Company plans to install Company-owned
switching equipment in the United Kingdom, France, Italy and Germany. In
addition, the Company plans to deploy certain technologies which the
Company believes can enable its existing national Internet backbone to
carry domestic telephone traffic. The Company expects that this use of its
Internet backbone will lower its

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operating costs for domestic telephone services and increase its ability to
terminate international voice traffic in the United States at competitive
rates.

. EXPAND AND IMPROVE EFFICIENCIES OF INTERNET BUSINESS. The Company, through
increasingly integrating its sales, marketing and promotional efforts to
offer bundled telephone, Internet and Internet telephony services, seeks (i)
to realize marketing and distribution efficiencies in its Internet access
business, and (ii) further to differentiate itself from competitors who do
not offer the same breadth of telecommunications services. In addition, the
Company seeks to decrease its Internet subscriber acquisition costs by (i)
entering into third party original equipment manufacturers ("OEM") and
software distribution agreements such as those recently entered into with
GTI and Macromedia, and (ii) offering its Internet network on a private
branding basis to national and regional telephone companies seeking to enter
the Internet access services market.

. ESTABLISH THE COMPANY AS A CARRIER'S CARRIER. The Company has a presence in
the carrier sales market. The Company seeks to become a carrier's carrier
offering quality, cost-competitive services to other carriers, through
obtaining transit and operating agreements with international providers. The
Company believes that the full breadth of the Company's telecommunications,
Internet, and Internet telephony services will enhance its ability to enter
into such agreements. The Company believes that these agreements can enable
it to become a primary carrier in the subject countries and, together with
the Company's carrier sales, they can strengthen IDT's position as an
international "clearinghouse" for competitively priced telephone rates.

. DEVELOP NET2PHONE AND EXPLOIT OPPORTUNITIES FROM PACKET SWITCHING
TECHNOLOGY. By continuing to exploit its new Net2Phone Internet-to-telephone
technology and develop the associated Net2Phone Direct technology, which is
being developed to enable international telephone-to-telephone calling via
the Internet, the Company believes it can (i) become a leader in the
emerging Internet telephony marketplace, (ii) expand the market for
competitively priced international communications, and (iii) position itself
to exploit the opportunities and economic efficiencies in international
communications believed to be offered by the use of the packet switch
technologies common in Internet applications, rather than traditional
telephone circuit switch technologies.

There can be no assurance that the Company will successfully implement its
growth strategy.

SERVICES

IDT offers its customers a wide array of domestic and international
telecommunications and Internet services.

TELECOMMUNICATIONS SERVICES

The Company's three primary telecommunications services are: (i)
international long-distance services for individuals and businesses via call
reorigination services and international long-distance direct-dial services;
(ii) resale of long-distance minutes to other carriers ("carrier sales"); and
(iii) resale of domestic long-distance services provided by WorldCom to
individuals and businesses. As of October 31, 1996, IDT provided international
and domestic long-distance telephone service to over 51,000 customers in 130
countries worldwide.

International Long-Distance Services

Call Reorigination. The Company offers customers outside of the United States
international call reorigination services. Through this service, the Company
enables customers to access a U.S. dial tone from overseas and place
international calls reoriginated in the U.S., thereby benefiting from
attractive U.S. outbound international long-distance rates, transmission
quality, and enhanced services. In a typical call reorigination scenario, an
overseas customer dials a U.S. phone number and, after one ring, contact is
made and the customer hangs up, with no charge for the inbound call. The
Company's switch then calls back a pre-set number and provides a U.S. dial tone
for the customer to connect and complete the call.

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The Company also provides its call reorigination customers with access to
enhanced U.S. telecommunications service options at U.S. long-distance rates.
These options include: voicemail; itemized billing; speed dial codes that
allow customers convenient access to the call reorigination service;
personalized voice prompts that allow customers to be called back at
extensions where the party being dialed must be requested by name; remote
programmable service that allows customers the flexibility of selecting the
number called back instead of receiving the call at a pre-programmed number;
access to U.S. toll-free 888 and 800 numbers; and one-leg billing that
combines the cost of the call back to the customer and the cost of the
customer's outbound call from the United States in one item for convenience
and orderly presentation. The Company primarily markets its call reorigination
service to overseas businesses and individuals for use from their permanent
locations. As of October 31, 1996, the Company had more than 26,000
international call reorigination customers in 130 countries.

International Direct-Dial. As an alternative service, the Company provides
international long-distance services to customers in the United Kingdom
through standard international direct-dial network services. Through this
service, the Company offers an overseas customer the ability to place a direct
call to an international destination over the Company's leased network at
competitive rates without the need for a call reorigination. The Company also
offers enhanced calling services to its international direct-dial customers,
to allow them, for example to access the Company's network services and
beneficial rates through its debit card platform. Where the Company offers
both call reorigination and international direct-dial and where the operating
environment warrants, the Company's strategy over time is to migrate its call
reorigination customers to international direct-dial service. The Company
intends to deploy its own switches on a country-by-country basis in a phased
roll-out of direct-dial services. The timing for the provision of services in
any country is dependent upon the Company either obtaining switched services
from a third party or deploying a Company-owned switch and obtaining a
connection to the local telephone system. The Company expects to offer
international direct-dial services in France, Italy and Germany by July 31,
1997. However, there can be no assurance that the Company will be able to
offer this service in these countries, or continue to offer this service in
the United Kingdom on favorable terms. See "Risk Factors--Competition."

Carrier Sales

The Company resells its competitive long-distance domestic and international
rates to third party IXCs. In offering this service, the Company leverages the
rates that it is able to obtain through (i) its high volume of minutes of use,
which enables the Company to negotiate for favorable rates, and (ii) the
Company's relationships within and increasing international exposure and
recognition throughout the long-distance industry. The Company enhances its
ability to resell such rates by using its least cost routing ("LCR") platform
to minimize the per-minute resale cost to the third party IXC. Service is
provided by routing the IXC customer's minutes of use through the Company's
LCR switching platform, enabling the carrier customer to benefit from the
competitive rates offered by the Company. In some instances, rather than route
a call directly between two overseas points, the Company may "back-haul" an
overseas carrier's minutes of use using resold switched services to the
Company's U.S.-based switch in order to terminate the traffic in a third
country while taking advantage of the Company's competitive U.S.-based
international long-distance rates.

The Company has increased significantly the amount of telephone traffic
routed by other domestic and international carriers through IDT's
telecommunications switching infrastructure, routing over 23 million minutes
of use in the quarter ended October 31, 1996 compared to over 63 million
minutes of use in the year ended July 31, 1996, as compared with approximately
2.5 million minutes of use in the year ended July 31, 1995. As of October 31,
1996, the Company was reselling long-distance minutes of use to 23 domestic
and international carriers.

Domestic Long-Distance Services

The Company markets certain long-distance services directly to customers in
the United States. Under its agreement with WorldCom, a facilities-based U.S.
long-distance carrier, the Company markets WorldCom's

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domestic and international long-distance services directly to U.S. retail
customers at competitive rates. The Company markets the long-distance service
as a value-added bundled service with its dial-up Internet access, and offers
customers who maintain minimum monthly long-distance billing levels of $40, a
savings, on average, of 10%-50% off the rates for domestic long-distance
service generally charged by the major facilities-based carriers and savings
of approximately 20% off the rates for dial-up Internet access generally
charged by the major national Internet service providers. In addition, the
Company provides long-distance services to a small number of domestic
customers through direct connections between the customer location and the
Company's telephone switches. As of October 31, 1996, the Company had over
24,500 domestic long-distance customers.

INTERNET AND ON-LINE SERVICES

The Company's two primary Internet services are dial-up Internet access for
individuals and businesses and direct-connect dedicated Internet services for
corporate customers IDT has become one of the nation's largest Internet access
providers, providing local dial-up access to an estimate of over 153,100
customers and providing dedicated access to over 267 corporate customers as of
October 31, 1996. Through the build-out of its own infrastructure and the
recent agreement to utilize the PSI network as well the local networks of its
alliance partners, IDT as of October 31, 1996, operates one of the nation's
largest networks providing local dial-up Internet access through over 480
POPs, of which the Company owns approximately 89 POPs.

Dial-Up Access Services

The Company markets a dial-up service that allows individuals to obtain
unrestricted Internet access with an easy-to-use point-and-click graphical
user interface for a fixed monthly fee. IDT provides its customers with access
to a full range of Internet applications, including electronic mail functions,
Web sites, USENET news groups, databases and public domain software, as well
as a full graphics package and either Netscape or Microsoft browser software.

The Company provides its individual customer base with various pricing
options. Currently, the Company offers basic accounts for $19.95 per month,
and premium accounts for $29.95 per month. Each is a fully graphical account
bundled with an Internet browser, unlimited dial-up Internet access, an
electronic mail ("e-mail") account, and customer service. Premium account
customers are entitled to the Reuters news service, a second e-mail address,
8MB of personal Web space storage, and special customer support services. The
Company also offers basic Internet access accounts for $15.95 per month for
those customers who sign up for IDT's long-distance telephone service and
maintain their monthly telephone billings at or above $40 per month. The
Company offers free basic accounts for those customers who sign up for IDT's
long-distance telephone service and maintain their monthly telephone billings
at or above $150 per month.

The Company provides local access to its dial-up Internet access subscribers
through a network of its own installed POPs and the POPs of 72 alliance
partners. With its installed POPs, IDT acquires and installs the equipment and
access lines and is responsible for all one-time and recurring costs
associated with operating the POP. Under the alliance program, the alliance
partner is responsible for installing, operating and maintaining the POP, in
exchange for a monthly fee of approximately $10.00 per subscriber. Of the
total subscribers, as of October 31, 1996, approximately 62% are maintained on
Company-owned POPs, with the remaining approximately 38% on those of alliance
partners. As the customer base reaches an appropriate level in an alliance
partner region, the Company expects to consider the feasibility of installing
its own POP and migrating its customers onto its own network.

Direct-Connect Dedicated Services

The Company offers a variety of Internet access options and applications
specifically designed to address the unique needs of corporations, as well as
business professionals. These direct-connect clients typically require high-
speed dedicated circuits because (i) they desire to put up a Web site, (ii)
the nature of their business requires the transfer of large data files, or
(iii) it is more economically efficient and provides an improved quality of

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service than would be obtained from maintaining separate dial-up accounts for
all their employees who require Internet access. IDT employs both frame relay
technology and dedicated connections to connect its clients' computers to the
Internet through local area networks ("LANs") and both 56Kbps and T1 lines.
Currently, the Company maintains a corporate client base comprised principally
of medium-sized to large businesses. The Company currently charges clients
using 56Kbps lines approximately $350 per month for direct-connect service and
clients utilizing full T1s approximately $1,400 per month for direct connect
service. As of October 31, 1996, the Company had approximately 267 direct
connect subscribers.

Internet Telephony

In August 1996, the Company began offering the first commercial telephone
service to bridge live calls between personal computers and regular telephones
via the Internet, and to charge on a per minute basis. Through the Company's
Net2Phone service, customers can place calls from sound-equipped computers and
have the calls terminate at regular telephones, with no requirement of
specialized equipment at the receiving telephone. The Company distributes the
necessary software by making it available from the Company's Net2Phone Web
site for consumers to download free of charge. All telephone calls made with
Net2Phone are routed over the Company's switches. The Company takes advantage
of its existing LCR routing to increase the savings realized by international
callers using Net2Phone. For calls originating overseas, the cost of placing
and terminating the call with Net2Phone can be as much as 95% below the rates
often charged by traditional foreign carriers to place and terminate standard
international telephone calls.

The Company has announced its intention to develop, and is in the process of
developing, Net2Phone Direct, a commercial telephone service that will allow
for international phone-to-phone calling via the Internet. Net2Phone Direct is
expected to enable phone-to-phone calling between two parties using regular
telephones while using the Internet to transport the long-haul component of
the call. Through such use of the Internet, the Company expects to reduce
significantly the cost of international calling while extending the benefits
of placing Internet telephone calls to customers with access to a regular
telephone without requiring the use of personal computers or individual
Internet access. To begin providing Net2Phone Direct Services, the Company
must deploy switches and servers in each local calling area to which the
Company wishes to provide local access to Net2Phone Direct. Once the switches
and servers are deployed in a single location, any customer in any area could
access Net2Phone Direct through a toll call. Accordingly, the Company has
announced its intention ultimately to develop a global network of switches and
servers, which will expand the Company's reach for providing competitively
priced Internet telephony solutions.

Any delays in the development of Net2Phone Direct or in the deployment of
Net2Phone and Net2Phone Direct switches and servers could delay final product
introduction. There can be no assurance that Net2Phone or Net2Phone Direct
technology or call quality will gain market acceptance. The Company believes
that Internet telephony applications are an important emerging niche in the
Internet industry and that other companies will enter the market to offer
additional Internet telephony products. However, because of the Company's
extensive experience in both the Internet access and telecommunications
industries, the Company believes that it is well-positioned to gain a
competitive advantage in offering personal computer-to-telephone and
telephone-to-telephone Internet telephony solutions.

NETWORK INFRASTRUCTURE

The Company maintains an international telecommunications switching
infrastructure and U.S. domestic network of leased lines that enable it to
provide an array of telecommunications and Internet services to its customers.
IDT believes it may enjoy competitive advantages by utilizing this network to
carry both voice and Internet traffic, resulting in the more efficient use of
its network capacity and associated capital.

Telecommunications Network

The Company operates a growing telephone network of Company-owned switches
and dedicated leased fiber optic lines in the United States, resold switched
services and leased capacity between the United States and

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London, and existing and in-process interconnections with IXCs, LECs, and
foreign carriers. IDT's major switching facilities are located in Piscataway,
New Jersey, Westfield, New Jersey and New York, New York. All of these
locations are linked with the dominant LEC as well as at least one of the
competitive LECs, allowing the Company to interconnect with all major IXCs to
switch traffic via the Company's leased private line DS3 network. Furthermore,
all of the Company's locations are interconnected via leased lines to enhance
network reliability and redundancy as each location interconnects with the
various carriers from diverse POPs.

In addition, the Company obtains switched services to connect its U.S.
facilities and London. These services are used for the origination of traffic
from IDT's customer base in the United Kingdom and to terminate existing
carrier and call reorigination traffic to the United Kingdom. The Company has
recently entered into negotiations with foreign carriers in Italy and the
Dominican Republic and plans to obtain leased lines and/or acquire facilities
to these destinations which will result in reduced costs for termination to
these countries. The Company has also targeted countries such as France,
Italy, and Germany for network expansion due to the large number of minutes
the Company presently terminates to these countries and the Company's existing
base of telecommunications customers within these countries.

The Company utilizes two major switching platforms for different tasks. The
Excel LNX is a smart switch which the Company uses for its application-based
products such as call reorigination, direct dial, debit cards, and value added
services such as voice prompts, speed dialing, voice mail, and conferencing.
The other platform is the Nortel DMS250-300, which serves as an international
gateway and generic carrier switch.

The Company's Excel LNX switch incorporates Company-developed software which
performs all the applications the Company requires to provide value added
services as well as billing functions and traffic analysis. The software
enables the Excel to route all calls via the Company's LCR platform. LCR is a
process by which the Company optimizes the routing of calls over the least
cost route on its switch for over 230 countries. In the event that traffic
cannot be handled over the least cost route due to overflow, the LCR system is
designed to transmit the traffic over the next least cost route. The LCR
system analyzes the following variables that may effect the cost of a long-
distance call: different suppliers, different time zones, and multiple choices
of terminating carrier per country. The LCR system is continually reviewed in
light of rates available from different suppliers to different countries to
determine whether the Company should add new suppliers to its switch to
further reduce the cost of routing traffic to a specific country and to
maintain redundancy, diversity, and quality within the switching network. The
Excel is flexible and programmable, designed to implement network based
intelligence quickly and efficiently. All the Company's switches are modular,
scaleable, and equipped to signal in such protocols as ISDN or SS7 so as to be
compatible with either domestic or foreign networks.

Internet Network

IDT operates a national Internet network comprised of a leased DS3 45 mbps
backbone of high speed fiber optic lines connecting 8 major cities across the
United States, and leased dedicated T1 fiber optic lines connecting smaller
cities to the network. The network backbone uses state-of-the-art routing
platforms including Cisco series 7000 routers and Northern Telecom ERS
Magellan switches. The DS3 backbone drains traffic at four major Internet
"meet" points where the Company maintains switching and routing equipment and
has peering arrangements to exchange Internet traffic with over twenty other
Internet backbone providers. To minimize the potential detrimental effects of
single points of failure, the Company deploys a minimum of two dedicated
leased data lines to each backbone node and remotely positions secondary
servers for all configuration and authentication hosts. Multiple data segments
are used in high traffic areas to minimize packet loss and collision. Also,
major IDT backbone nodes employ routing switches for directing network
traffic. To further enhance network performance, the "Open Shortest Path
First" protocol is employed to optimize the configuration of Internet routing
tables and to allow data traffic to be routed more efficiently.

The Company utilizes the local dial-up network of 72 alliance partners
across the country to supplement the Company's owned and operated local dial-
up infrastructure. The alliance partners, which are independently owned ISPs,
employ routing and modem equipment which meet the Company's standards for
providing dial-up

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access services. The Company offers the alliance partners a monthly fee for
each customer account funneled through their local access networks. The
Company also provides the billing, advertising, marketing and customer
acquisition services, in exchange for which the alliance partners provide
local Internet access. The agreements with alliance partners generally have
one year terms and do not prohibit the Company from constructing its own local
installed POP where warranted.The Company entered into an agreement with PSI
in June 1996 to use PSI as the primary alliance partner for the Company's
dial-up Internet access customers in areas where PSI has POPs and where there
are no pre-existing alliance partners. The Company leases and operates a
dedicated T3 connection to the PSI network in order to maintain control of the
Company's provisioning of customers and to provide customers with access to
electronic mail and newsfeeds. The Company's Internet network includes
approximately 400 POPs owned by PSI and the alliance partners and 89 Company
owned POPs.

IDT's network is monitored on a continuous basis, 24 hours a day, 7 days a
week, 365 days a year basis by its Network Operations Center. The entire
network is centrally managed from IDT's control center through the use of a
standardized communications protocol. In addition, two proprietary monitoring
systems are used to manage modem pools.

Network Strategy

Having achieved a sufficient critical mass of international telephone
customers to cost-justify network expansion, the Company plans to build-out
its global telephone infrastructure in order to reduce its operating costs,
widen its potential customer base, and broaden the range of services offered.
The Company is currently in the process of deploying overseas switching
equipment in the United Kingdom, France and Italy and plans to connect the
overseas switches to the Company's U.S.-based switching facilities through
dedicated, leased fiber optic lines. By deploying switches in key markets and
expanding its international network of dedicated leased lines, the Company
expects to be able to (i) lower its costs for providing international call
reorigination services, (ii) increase its ability to offer direct-dial network
and value-added services to end-users and (iii) migrate more of its call
reorigination customer base to the Company's own network. The Company believes
it can enjoy certain competitive advantages in building out its network
infrastructure because the cost of the build-out can be justified by the
transfer of the Company's existing customer base and international traffic on
to the IDT facilities-based network.

The Company also plans to use certain technologies, such as Northern Telecom
ERS switches, which allow for the dynamic allocation of voice and data
traffic, to enable the Company's Internet network to be used for the
transmission of traditional voice traffic. If successfully developed, this
leveraging of IDT's Internet network could provide considerable economic
efficiencies for transporting much of the Company's domestic voice traffic.

Application of Technology

The Company believes it may enjoy certain competitive advantages because of
its focus on developing innovative applications for existing and emerging
technologies. As evidenced by its application of certain telephone
technologies to pioneer the offering of international call reorigination
services in 1990, and as evidenced by the Company's recent use of certain
Internet, voice compression, and voice signal conversion technologies in order
to introduce its Net2Phone service, the Company believes that its focus on the
innovative applications of technology will help position it as an innovative
provider in the international telecommunications industry.

Furthermore, the Company is committed to the application of technologies as
a means to grow the telecommunications marketplace and expand the reach of
low-cost communications solutions to people with access to computers and/or
standard telephone technology. By focusing on the emergence of packet-switch
technology as a viable alternative to traditional circuit-switch technology
and by applying a traditional telephone company service model to the
transmission of voice over the Internet, the Company believes it can enjoy
certain competitive advantages over other Internet telephony and traditional
telephone service providers while using a new transport medium for the
economically efficient transportation of voice communications.

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RESEARCH AND DEVELOPMENT

The Company deploys its research and development personnel in three primary
teams, one for each of telecommunications, Internet telephony, and general
Internet services. The Company has recently introduced Net2Phone and announced
its intentions to introduce Net2Phone Direct. Net2Phone is an Internet service
based on proprietary technology which allows persons using sound-equipped
personal computers to initiate telephone calls from a sound-equipped computer,
transmit the calls over the Internet to a gateway switch, which in turn routes
the call over voice telecommunications lines to a second party using a
traditional telephone. Net2Phone Direct is being developed to allow phone-to-
phone communications over the Internet where both parties are using regular
telephones connected to the public switch telephone networks and where the
call is being transmitted over the Internet by Company-owned switch servers in
the countries in which each party is connected. By allowing long-distance
calling over the Internet, Net2Phone and Net2Phone Direct both expand the role
of the Internet as a communications medium and allow substantial long-distance
telecommunications savings.

The Company employs a technical staff that is devoted to the improvement and
enhancement of the Company's existing Internet and telecommunications products
and services, including switching technologies and the development of new
technologies and products, such as Net2Phone and Net2Phone Direct. The Company
believes that the ability to improve existing technology and to develop new
technologies in response to, and in anticipation of, customers' changing
demands is necessary to compete in the rapidly changing Internet and
telecommunications industries. There can be no assurance that the Company will
be able to successfully develop new technologies or effectively respond to
technological changes or new industry standards or developments on a timely
basis, if at all. See "Risk Factors--Rapid Technological Development;
Proprietary Rights."

SALES, MARKETING AND DISTRIBUTION

The Company's overall marketing strategy is to leverage its promotional and
advertising resources to sell the Company's full range of telecommunications
and Internet services. By marketing its telephone and Internet services as
bundled and integrated solutions, the Company believes it can gain a
competitive advantage while enhancing its recognition as a comprehensive
provider of competitively priced communications services.

Telecommunications

The Company primarily markets its international call reorigination services
through its overseas network of independent sales representatives. The foreign
sales representatives, who are overseen by the Company's U.S.-based sales
managers, provide the Company with access to local business clientele and
residential customers and emerging opportunities in the local markets they
serve. The Company pays its foreign sales representatives on a commission
basis. As of October 31, 1996, the Company was represented by over 300 foreign
sales representatives in 130 countries. In recent months, the Company also has
commenced direct sales efforts, primarily through overseas advertising in
international print media, to penetrate particular market segments not
currently served.

The Company's internal international carrier sales staff obtains and
remarkets competitive rates to other IXCs. The staff primarily relies on, and
benefits from, (i) the Company's high volume of minutes of use, which enables
the Company to negotiate for favorable rates, and (ii) the Company's
relationships within and increasing international exposure and recognition
throughout the long-distance industry for marketing its carrier services.

In Fiscal 1996, sales to Interexchange, a carrier sales customer of the
Company, exceeded 10% of the Company's consolidated revenues. Loss of the
sales of the minutes of use to Interexchange or other larger customers could
hinder the Company's ability to negotiate favorable rates.

Internet

The Company established itself as a leading national provider of Internet
access services primarily through extensive broadcast print advertising to the
consumer market. In recent months, the Company has refocused the

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marketing efforts of its Internet operations. While the Company intends to
continue various means of broadcast advertising in select markets, the
Company's sales and marketing efforts now are focused increasingly on building
its Internet customer base through (i) third party original equipment
manufacturer ("OEM") transactions, including hardware, software and operating
system bundling, which bring the Company's services into additional channels
of trade, (ii) retail channel distribution agreements and (iii) bundling
Internet access with long-distance telephone service. By applying the above
strategies, the Company believes it will increase its exposure to the millions
of computer users who are potential customers of the Company's Internet access
services, while reducing its customer acquisition costs as compared to
traditional broadcast and print advertising. The Company has entered into
third-party bundling agreements with companies such as Macromedia Inc., a
leading developer of multimedia software, which is distributing the Company's
Internet access software as part of its Showcase CD product. Also, GT
Interactive Software Corporation, a leading retail software distributor, is
marketing the Company's Internet access software in retail outlets under the
brand name "Easy Surf." The Company intends to market its Genie Interactive
service through on-line and Internet-based advertising venues and use print
media focused on interactive computer gaming and entertainment. The Company
also will continue to market the existing Genie on-line service, and cross-
sell its Internet access service to the Genie customer base. As of October 31,
1996, the Internet sales force consisted of approximately 70 salespersons. The
Company's Internet sales staff is closely supervised and undergoes customized
and ongoing training.

Internet/Long-Distance Bundling

The Company bundles its Internet access services with its domestic long-
distance telephone services to realize marketing and distribution efficiencies
in its Internet access business, while allowing for the acquisition of
telephone customers. By bundling its long-distance phone service with its
$15.95 per month discounted dial-up Internet access, the Company is currently
able to compete with many major national providers of Internet access by
offering rates that are, on average 20% lower, and at the same time
differentiate itself from its competitors in the Internet access market who do
not offer the same breadth of telecommunications services, and do not offer
their customers significant savings on their monthly long-distance bills. The
Company leverages its existing Internet telecommunications sales group for the
sale of its bundled long-distance and Internet access service.

Internet Telephony

The Company is currently marketing its Net2Phone Internet telephony service
by distributing its Net2Phone software for free via the Internet and acquiring
commercial Net2Phone customers through its pre-paid, virtual debit-card
system, in which the customers pre-pay for units of usage in a manner similar
to that used for pre-paid calling cards. IDT currently promotes its Net2Phone
service through on-line and Internet-based advertising venues, traditional
print advertising in international publications, and electronic media. The
Company is currently seeking to bundle the Net2Phone software as a value-added
component with leading OEMs and software developers. The Company is also
seeking to sell its Net2Phone Direct switch servers to third parties in
strategic markets world-wide by using its existing international network of
independent sales representatives.

CUSTOMER SUPPORT AND BILLING

The Company provides customer support for its call reorigination customers
to deal with both technical problems and billing issues. The customer support
staff focuses on responding swiftly to customers and is generally capable of
activating call reorigination service for new customers in 24 to 48 hours from
the time of subscription.

The Company believes that, in order to successfully compete in the
international call reorigination business, effective billing and collection
procedures and policies are necessary because the geographic dispersal of call
reorigination clients creates the potential for billing and collection
difficulties. Call reorigination customers have the option of either providing
the Company with a credit card or giving a security deposit or advance
payment. The Company reviews all account usage on a daily basis, regardless of
the payment mechanism. The Company charges credit card customers throughout
the month, whenever accumulated usage equals $250, and provides

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detailed billing statements once a month. For cash customers, the Company
generally accepts either a two-month deposit or a prepayment. Via the daily
monitoring system, the Company attempts to prevent such customers from
exceeding their balance on hand at the Company. If a charge or credit card is
declined or if the customer has inadequate funds on deposit, the Company
suspends the account to minimize the Company's exposure to unauthorized usage.
In addition, the Company is developing a real-time billing platform for its
call reorigination customers. The Company expects this service to both provide
more efficient customer service and allow the Company to further limit its
exposure to bad debt.

The Company's Internet customer support division has grown from three
persons in May 1995 to 129 at October 31, 1996. The Company believes that its
ability to provide adequate customer support services is a crucial component
of its ability to retain customers. While the Company has experienced
difficulty in the provision of support services in the past, it has focused on
improving such service through measures including the addition of support
personnel and the monitoring of customer waiting time. The customer support
staff provides 24-hour technical assistance in addition to general service
assistance. Customer support personnel communicate with subscribers via
telephone, e-mail and fax. The Company requires that each customer support
staff member field a minimum number of calls and e-mails each day. The Company
also employs liaisons between the customer support and technical staffs to
ensure maximum responsiveness to changing customer demands.

COMPETITION

Telecommunications

Currently, the Company competes with (i) IXCs engaged in the provision of
long-distance access and other long-distance resellers and providers including
large carriers such as AT&T, MCI, Sprint, and WorldCom, (ii) foreign PTTs,
(iii) other marketers of international long-distance and call reorigination
services, (iv) wholesale providers of international long-distance services,
(v) alliances for providing carrier services such as "Global One" (Sprint,
Deutsche Telekom AG, and France Telecom S.A.) and "Concert" (BT and MCI), and
Uniworld (AT&T and Unisource -- Telecom Netherlands, Telia AB, Swiss Telecom
PTT and Telefonica de Espana S.A.), (vi) new entrants to the domestic long-
distance market, such as the RBOCs in the United States, who have entered or
have announced plans to enter the U.S. interstate long-distance market
pursuant to recent legislation authorizing such entry, and new or expected
entrants to the international long-distance market such as RWE Germany, and
(vii) small resellers and facility-based IXCs. Moreover, some of the Company's
competitors have announced business plans similar to the Company's regarding
the expansion of telecommunications networks into Europe. Many of the
Company's competitors are significantly larger and have substantially greater
market presence and financial, technical, operational, marketing and other
resources and experience than the Company.

Because of their close ties to their national regulatory authorities,
foreign PTTs and newly-privatized versions thereof can directly pressure the
Company in their home countries by influencing regulatory authorities to
outlaw the provision of call reorigination services or by blocking access to
the call reorigination services the Company markets. There can be no assurance
that such behavior will not have a material adverse effect on the Company's
business, financial condition or results of operations. With the increasing
privatization of international telecommunications in foreign countries, it is
also possible that new foreign service providers, with close ties to their
national regulatory authorities and customer bases, will enter the call
reorigination services market in competition with the Company, or that PTTs
will become deregulated and gain the pricing flexibility to compete more
effectively with the Company. The ability of a deregulated PTT to compete on
the basis of

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greater size and resources, pricing flexibility, and long-standing
relationships with customers in its own country could have a material adverse
effect on the Company's business, financial condition or results of
operations.

There can be no assurance that large carriers will not enter the call
reorigination industry or seek to offer direct-dial long-distance services to
customers in deregulated overseas markets. Because of their ability to compete
on the basis of superior financial and technical resources, the entry of AT&T
or any other large U.S. long-distance carrier into the international call
reorigination business or the direct-dial business in foreign countries could
have a material adverse effect on the Company's business, financial condition
or results of operations. Also, the FCC's approval of call reorigination
services where no foreign country prohibits it is likely to stimulate
additional entry by small carriers who might target the same customer base as
the Company does, which could have a material adverse effect on the Company's
business, financial condition or results of operations. The FCC has also
authorized U.S. carriers to negotiate alternative interconnection agreements
with foreign PTTs that may reduce or eliminate the disparity between U.S. and
foreign countries' rates for international service, upon which the
profitability of reorigination service depends.

Competition for customers in the telecommunication markets the Company
competes in is primarily on the basis of price and, to a lesser extent, on the
basis of the type and quality of service offered. Increased competition could
force the Company to reduce its prices and profit margins if the Company's
competitors are able to procure rates or enter into service agreements
comparable to or better than those the Company obtains, or to offer other
incentives to existing and potential customers. Similarly, the Company has no
control over the prices set by its competitors in the long-distance resale
carrier-to-carrier market. The Company could also face significant pricing
pressure if it experiences a decrease in its market share of international
long-distance traffic, as the Company's ability to obtain favorable rates and
tariffs depends, in large part, on the volume of international long-distance
call traffic the Company can generate for third-party IXCs. There can be no
assurance that the Company will be able to maintain the volume of domestic and
international long-distance traffic necessary to obtain favorable rates and
tariffs. Although the Company has no reason to believe that its competitors
will pursue directly aggressive pricing policies that could adversely affect
the Company, there can be no assurance that such price competition will not
occur or that the Company will be able to compete successfully in the future.
In addition, the Company is aware that its ability to market its carrier
services depends upon the existence of spreads between the rates offered by
the Company and those offered by the IXCs with whom it competes as well as
those from whom it obtains service. A decrease in such spreads could have a
material adverse effect on the Company's business, financial condition or
results of operations.

Internet Access

The Company's current and prospective competitors include many large
companies that have substantially greater market presence and financial,
technical, operational, marketing and other resources and experience than the
Company. The Company's Internet access business competes or expects to compete
directly or indirectly with the following categories of companies: (i) other
national and regional commercial ISPs, such as NETCOM, and PSI; (ii)
established on-line services companies that currently offer Internet access,
such as AOL, CompuServe, and Prodigy; (iii) computer hardware and software and
other technology companies such as Microsoft; (iv) national long-distance
telecommunications carriers, such as AT&T (with AT&T WorldNet), MCI (MCI
Internet), and Sprint (SprintNet); (v) RBOCs; (vi) cable television operators,
such as Comcast, TCI, and

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Time Warner; (vii) nonprofit or educational ISPs; and (viii) newly licensed
providers of spectrum-based wireless data services.

Many of the established on-line services companies and telecommunications
companies, such as AT&T and RBOCs, have begun to offer or announced plans to
offer expanded Internet access services. The Company expects that all of the
major on-line services companies will eventually compete fully in the Internet
access market. AOL recently began to offer unlimited Internet access at a
competitively-priced flat monthly rate. The Company expects that AOL's new
service will compete directly with IDT's dial-up Internet access services
currently offered for a flat monthly fee. In addition, the Company believes
that new competitors, including large computer hardware and software, cable,
media, wireless, and wireline telecommunications companies such as the RBOCs,
will enter the Internet access market, resulting in even greater competition
for the Company. The ability of these competitors or others to bundle services
and products not offered by the Company with Internet access services could
place the Company at a significant competitive disadvantage. In addition,
certain of the Company's competitors that are telecommunications companies may
be able to offer customers reduced communications charges in connection with
their Internet access services or other incentives, reducing the overall cost
of their Internet access solution and increasing price pressures on the
Company. This price competition could reduce the average selling price of the
Company's services. In addition, increased competition for new subscribers
could result in increased sales and marketing expenses and related subscriber
acquisition costs, which could materially adversely affect the Company's
profitability. There can be no assurance that the Company will be able to
offset the effects of any such price reductions or incentives with an increase
in the number of its customers, higher revenue from enhanced services, cost
reductions or otherwise.

Competition is also expected to increase in overseas markets, where Internet
access services are just beginning to be introduced. There can be no assurance
that the Company will be able to increase its presence in the overseas markets
it presently serves, or to enter other overseas markets. There can be no
assurance that the Company will be able to obtain the capital required to
finance such continued expansion. In addition, there can be no assurance that
the Company will be able to obtain the permits and operating licenses required
for it to operate, hire and train employees or market, sell and deliver
services in foreign countries. Further, entry into foreign markets will result
in competition from companies that may have long-standing relationships with
or possess a better understanding of their local markets, regulatory
authorities, customers and suppliers. There can be no assurance that the
Company can obtain similar levels of local knowledge, and failure to obtain
that knowledge could place the Company at a serious competitive disadvantage.
To the extent the ability to provide access to locations and services overseas
becomes a competitive advantage in the Internet access industry, failure of
the Company to penetrate overseas markets or to increase its presence in the
overseas markets it presently serves may result in the Company being at a
competitive disadvantage relative to other Internet access providers.

The Company believes that its ability to compete successfully in the
Internet access market depends upon a number of factors, including: market
presence; the adequacy of the Company's customer support services; the
capacity, reliability and security of its network infrastructure; the ease of
access to and navigation of the Internet; the pricing policies of its
competitors and suppliers; regulatory price requirements for interconnection
to and use of existing LEC networks by Internet services; the timing of
introductions of new products and services by the Company and its competitors;
the Company's ability to support existing and emerging industry standards; and
trends within the industry as well as the general economy. There can be no
assurance that the Company will have the financial resources, technical
expertise or marketing and support capabilities to continue to compete
successfully in the Internet access market.

INTERNET TELEPHONY

Numerous companies have entered the Internet telephony market in the past
year and a half and have established their Internet telephony products in the
marketplace before the Company's August 1996 introduction of its Net2Phone
service and imminent release of Net2Phone Direct. Most of the current Internet
telephony products enable voice communications over the Internet between two
parties simultaneously connected to the Internet via multimedia-equipped
personal computers, where both parties are using identical Internet telephony

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software products. These products include Internet Phone form VocalTec,
WebPhone from Quarterdeck and NetMeeting from Microsoft. Recently, Intel
Corporation announced a new technology aimed at standardizing and improving
the compatibility of the various Internet telephony software products,
enabling customers of different Internet telephony software products to
communicate with one another over the Internet. Furthermore, a number of
companies including Northern Telecom Limited ("Northern Telecom") and Dialogic
Corp. ("Dialogic") have announced server-based products and switches which are
expected to allow communications over the Internet between parties using a
personal computer and regular telephone and between two parties using
telephones where both parties have these specialized servers at both ends of
the call. There can be no assurance that additional large companies will not
enter the market as suppliers of Internet telephony services or equipment.
There can be no assurance that the Company will be able to successfully
compete in the developing Internet telephony market or that others will not
offer Internet telephony products and services competitive with or superior to
those offered by the Company. VocalTec recently introduced computer-to-
telephone and telephone-to-telephone systems utilizing the Internet and
requiring the customer to install or have access to specialized gateway
servers. Although Internet telephony continues to be an area of intense focus
of various Internet software providers, traditional telephone service
companies and telephone equipment manufacturers, there can be no assurance
that Internet telephony will gain market acceptance or prove to be a viable
alternative to traditional telephone service. Many international telephone
callers, accustomed to the convenience and quality of phone-to-phone
international calling, may not switch to Internet telephony services
notwithstanding the potential cost savings.

REGULATION

Telecommunications

While the domestic interstate long-distance business is generally not
subject to substantial regulation, domestic intrastate service is subject to
regulation that varies by state and can be substantial. The call reorigination
business, by virtue of its international nature, is subject to the
jurisdiction of foreign governments, some of which limit or prohibit the
Company's services. The FCC has imposed certain restrictions on international
call reorigination providers such as IDT, including the requirement that
licensees provide service in a manner consistent with the laws of the
countries in which they operate. Local laws and regulations differ
significantly among the foreign jurisdictions in which the Company operates,
and the interpretation and enforcement of such laws and regulations vary and
are often based on the informal views of the local government ministries
which, in some cases, are subject to influence by the local PTTs. Accordingly,
in certain of the Company's principal existing and target markets, there are
laws and regulations that either prohibit or limit, or could be used to
prohibit or limit, certain services the Company markets. The Company provides
its services to the maximum extent it believes permissible under applicable
local laws and regulations. Where such services are found to be not in
compliance with local laws and regulations, the Company seeks to comply with
such laws and regulations or ceases to market such services.

There can be no assurance that a portion of the services the Company markets
and provides will not be or will not continue to be prohibited in certain
jurisdictions. There can be no assurance that the Company has accurately
predicted or will accurately predict the interpretation of applicable laws and
regulations or regulatory and enforcement trends in state, federal and foreign
jurisdictions or will be found to be in compliance with all such laws and
regulations. Failure to predict accurately the enforcement of applicable laws
and regulations in particular jurisdictions, or incorrect interpretation of
applicable laws and regulations, could cause IDT to lose, or be unable to
obtain, regulatory approvals necessary for it to be able to provide certain of
its services in such jurisdictions or to use certain of its transmission
methods and could have monetary penalties imposed against the Company that
could be significant. In addition, IDT's Section 214 License requires the
Company to comply with the laws of the countries in which it operates. If the
Company is found to have violated the laws of a country in which it operates,
the FCC may impose monetary fines and penalties, including the rescission of
the Company's Section 214 License. Although FCC rescission of IDT's grant of
authority is unlikely, such action would have a material adverse effect on the
Company's business.

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The 1996 Telecommunications Act substantially alters the regulatory
framework for the telecommunications industry for domestic and U.S.
international telecommunications services. The Company cannot predict the
ultimate effects of this legislation or the outcome of the FCC rulemakings
required by the 1996 Telecommunications Act. The legislation does not impose
substantial regulatory burdens on the Company's international call
reorigination, Internet access or domestic interstate telecommunications
operations. However, depending on the outcome of FCC rulemakings required by
the 1996 Telecommunications Act, the Company could be subjected to additional
regulatory requirements, including that it contribute some portion of its
telecommunications revenues to subsidy mechanisms for universal service. In
addition, the legislation could result in increased competition and affect
interconnections and costs. If the Company cannot provide the services it is
presently providing or intends to provide due to existing or future
regulations that affect such services or due to its inability to receive or
retain formal or informal approvals for such services or for whatever other
reason related to regulatory compliance or the lack thereof, the Company's
business, financial condition or results of operation could be materially
adversely affected. There can be no assurance that any number of the services
or transmission methods the Company markets and supports will not be
prohibited in its current and proposed markets. Depending upon the countries
in which such prohibition occurs, there could be a material adverse effect on
the Company's business, financial condition or results of operations.

The regulatory framework in certain geographic regions in which the Company
operates is briefly discussed below.

EUROPE.

In June 1990, the European Commission issued a Directive on Competition in
the Markets for Telecommunications Services (the "Directive") which required
EU Member States by 1991 to open their markets for all telecommunications
services with the exception of mobile, satellite, telex and "voice telephony"
services. The effect of the Directive was to permit competitive entry into
markets for the value-added services and voice services to closed user groups
that fall outside the Directive's definition of "voice telephony." Differing
interpretations of the Directive and the delayed enactment of implementation
legislation in Italy and Greece have created regulatory uncertainty regarding
entry into these markets.

In July 1993, the Council of Telecommunications Ministers of the EU (the
"Council") adopted a resolution supporting open markets for all public voice
telephony services in the EU by January 1, 1998. Extensions of up to five
years beyond that date are available for Spain, Ireland, Greece and Portugal.
Spain has since confirmed its commitment to the 1998 timetable. In December
1994, the Council adopted a second resolution expanding the principle of
general liberalization by January 1, 1998 to cover infrastructure. These two
resolutions have no legally binding effect without country-specific
legislation to liberalize voice telephone services within the deadlines
envisioned.

The European Commission (the "Commission") issued a report on April 4, 1995
concerning the status and implementation of the Directive and taking a narrow
view of the services which can remain closed to competition. In the report,
the Commission states that where negotiation with a member state does not lead
to implementation of the Directive within a reasonable period, the Commission
is obliged to resort to the use of formal procedures under the Treaty of Rome
to compel implementation. At present, the Commission has brought formal
procedures against Italy and Greece for failing to notify details of all
necessary national legislation to implement the Directive, and Germany and
Spain for failing to correctly apply the requirements of the Directive.

UNITED STATES.

The U.S. telecommunications industry is subject to regulation by the FCC and
various state regulatory agencies. Pursuant to Section 214 of the
Communications Act ("Section 214"), the FCC requires a company to make
application to, and receive authorization from, the FCC to provide
international service to U.S. points. The FCC requires a 214 licensee to
provide services "in a manner that is consistent with the laws of countries in
which [it] operates." If the FCC finds that the Company has violated the terms
of its Section 214 License, it

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<PAGE>

could impose a variety of sanctions on the Company, including fines or the
revocation of its Section 214 License, the latter of which is usually imposed
only in the case of serious violations. Such sanctions could have a material
adverse effect on the Company's business, financial condition or results of
operations.

IDT's ability to provide international switched service to points in the
U.S. is limited by the terms of the Section 214 License granted to the company
by the FCC. The Company's current authorization is limited to (i) the
provision of international switched service via the resale of other carriers'
international switched service; (ii) the provision of international private
line service via the resale of other carriers' international private line
services; and (iii) the provision of international switched service via the
resale of international private line services, but only to countries which the
FCC finds offer "equivalent" resale opportunities to U.S. carriers. Currently
the FCC has approved only the United Kingdom, Canada and Sweden as
"equivalent." The Company can use its international leased lines to provide
call reorigination or other switched international services to countries other
than the UK, Canada and Sweden only when the FCC finds other countries
"equivalent" or if customers in other countries are members of closed user
groups. There can be no assurance that the FCC will find equivalence in other
countries or when such determinations will be made, nor can there be any
assurance that the FCC or foreign governments will find that the Company's
user groups meet the relevant standard to qualify as closed user groups.

The Company's services between U.S. points are regulated by the FCC and
state commissions. If the FCC or state regulators find that the Company was
engaging in activities that required authorizations which the Company
currently does not hold or violated the regulatory requirements established by
the relevant commissions, the FCC or state regulators could impose financial
penalties and order the Company to comply with the applicable regulations or
cease doing business. Such penalties or action could have a material adverse
effect on the Company's business, financial condition or results of
operations.

Moreover, the Company uses LEC networks to connect its Internet customers to
its POPs. Under current federal and state regulations, the Company and its
Internet customers pay no charges for this use of the LECs' networks other
than the flat-rate, monthly service charges that apply to basic telephone
service. The LECs have asked the FCC to change its rules and require Internet
access providers to pay additional, per minute charges for their use of local
networks. Per minute access charges could significantly increase the Company's
costs of doing business and could, therefore, have a material adverse effect
on the Company's business, financial condition or results of operations. The
FCC is considering whether to propose such rule changes in a formal rulemaking
proceeding scheduled to begin November 26, 1996.

OTHER OVERSEAS MARKETS.

The Company is subject to the regulatory regimes in each of the countries in
which it conducts business. Local regulations range from permissive to
restrictive, depending upon the country. In the past, the Company has
experienced problems in certain countries and has, in certain instances,
modified or terminated its services to comply with local regulatory
requirements.

Internet

Data network access providers are generally not regulated under the laws and
regulations governing the telecommunications industry. Accordingly, except for
regulations governing the ability of the Company to disclose the contents of
communications by its customers, no state or federal regulations currently
exists pertaining to the pricing, service characteristics or capabilities,
geographic distribution or quality control features of Internet access
services. The Company cannot predict the impact that future regulation or
regulatory changes, if any, may have on its Internet access business.

The 1996 Telecommunications Act imposes criminal liability on persons
sending or displaying in a manner available to minors indecent material on an
interactive computer service such as the Internet. The 1996 Telecommunications
Act also imposes criminal liability on an entity knowingly permitting
facilities under its

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control to be used for such activities. Entities solely providing access to
facilities not under their control are exempted from liability, as are service
providers that take good faith, reasonable, effective and appropriate actions
to restrict access by minors to the prohibited communications. The
constitutionality of these provisions has been successfully challenged in
federal appellate court, and the interpretation and enforcement of them is
uncertain. The Act may decrease demand for Internet access, chill the
development of Internet content, or have other adverse effects on Internet
access providers such as the Company. In addition, in light of the uncertainty
attached to interpretation and application of this law, there can be no
assurances that the Company would not have to modify its operations to comply
with the statute, including prohibiting users from maintaining home pages on
the WWW, and increasing its control over the Genie Interactive content.

Internet Telephony

The Company knows of no U.S. or foreign laws or regulations specifically
regulating voice communications over the Internet. However, America's Carriers
Telecommunications Association (ACTA), an association of domestic phone
carriers filed a petition (the "Petition") on March 4, 1996 with the FCC
alleging that providers of Internet telephone software are operating as
telecommunications carriers and, as such, should be subject to the FCC
regulatory framework applicable to traditional telecommunications companies.
The Petition seeks a declaratory ruling establishing the FCC's authority over
interstate and international communications using the Internet and an order
directing that persons providing Internet phone software comply with the
regulatory requirements of The Communications Act of 1934. Finally, the
Petition urges the FCC to initiate a rulemaking proceeding to consider rules
governing the use of the Internet for the provision of telecommunications
services. The FCC has not yet taken any action in response. However, the State
Commissions and the FCC could conclude that Internet telephony providers are
subject to the same regulatory requirements as telephony providers who use
more traditional network services. If the FCC or one or more state commissions
decide to regulate Internet telephony, there can be no assurance that any such
regulation will not adversely affect the Company's business, financial
condition or results of operations.

INTELLECTUAL PROPERTY

The Company's success and ability to compete is dependent in part upon its
technology, although the Company believes that its success is more dependent
upon its technical expertise than its proprietary rights. The Company relies
on a combination of patent, copyright, trademark and trade secret laws and
contractual restrictions to establish and protect its technology. The Company
does not have any issued patents or registered copyrights, although it has
registered trademarks in connection with the Genie services and other pending
applications for a patent and certain trademarks. The Company requires
employees and consultants to execute confidentiality agreements upon the
commencement of their relationships with the Company. These agreements provide
that confidential information developed or made known during the course of a
relationship with the Company is to be kept confidential and not disclosed to
third parties except in specific circumstances. There can be no assurance that
the steps taken by the Company will be adequate to prevent misappropriation of
its technology or other proprietary rights or that the Company's competitors
will not independently develop technologies that are substantially equivalent
or superior to the Company's technology. In addition, there can be no
assurance that licenses for any intellectual property that might be required
by the Company for it to provide its services or products would be available
on reasonable terms, if at all.

The Company owns trademark registrations in the United States and certain
other jurisdictions for the mark GENIE. In addition, the Company has
applications pending with respect to the registration of the service marks
IDT, IDT together with the Company's logo, INTERNET NEWS NETWORK, PHONE BACK,
NET2PHONE, N2P, KIDZWEB, BIZWEB and SUPERWEB. In addition, the Company has
applied for a patent in connection with its development of the systems and
methodology comprising the technologies underlying Net2Phone. In addition,
there can be no assurance that the Company's patent application relating to
the systems and methodology comprising the technologies underlying Net2Phone
will result in any patent being issued or that, if issued, any patent will
provide protection against competitive technology or will be held valid and
enforceable if challenged, or that the Company's competitors would not be able
to design around such patent; nor can there be

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any assurance that others will not obtain patents that the Company would need
to license or circumvent to practice its patent. See "Risk Factors-Dependence
on Technological Development."

EMPLOYEES

As of October 31, 1996, the Company had 481 full-time employees, including
approximately 129 in technical support and customer service, 122 in sales and
marketing, 57 on the technical staff, 118 in general operations and 55 in
management and finance. The Company believes that its relations with its
employees are good. None of the Company's employees is represented by a labor
union or covered by a collective bargaining agreement and the Company has
never experienced a work stoppage.

PROPERTIES

The Company's principal facilities total approximately 35,300 square feet of
leased space located in three buildings in Hackensack, New Jersey. The Company
also leases space (typically less than 500 square feet) in various geographic
locations to house the telecommunications equipment for each of its POPs. The
Company occupies one building under a lease which expires on June 30, 1997,
with a renewal option for the Company. The Company leases this facility from
an entity in which Howard S. Jonas, the Company's Chairman and Chief Executive
Officer, is the sole stockholder. See "Certain Transactions." The Company
occupies facilities in a second building pursuant to a lease which expires on
September 30, 1998 and facilities in a third building pursuant to two leases,
both of which expired on September 30, 1996, but which allow the Company to
renew such leases for two six month terms.

LEGAL PROCEEDINGS

In October 1995, an investigation was instituted by the Attorneys General of
Iowa, New Jersey, New York, Tennessee and Texas (collectively, the "A.G.")
into certain business practices of the Company as a result of complaints by
residents of those states. Michigan thereafter entered the investigation in
September 1996. The focus of the A.G.'s investigation concerns advertising
practices that the Company voluntarily terminated prior to the notice of
investigation from the A.G. The majority of the advertising in question
concerns the sale of a service that the Company now sells only in limited
circumstances. The A.G. has indicated its desire to settle the matter with a
consent order, the content of which is being presently negotiated with the
Company.

On December 29, 1995, DRTV, Inc. a/k/a Surfers Unlimited, L.L.C. ("Surfers")
filed a breach of contract action in the New Jersey Superior Court, Bergen
County. The suit names the Company as defendant and seeks restitutional and
consequential damages in an unspecified amount for licensing the sale of a
product in the retail market to a third party allegedly in violation of the
agreement between the Company and Surfers. The Company has filed a
counterclaim. The Company and Surfers have had settlement discussions;
however, the Company does not believe that a settlement of this matter is
imminent. There can be no assurances to the outcome of this matter.

On June 19, 1996, the Business Software Alliance ("BSA") in correspondence
with the Company alleged that the Company has made unlincensed internal use of
certain third party software. The Company has agreed to conduct an internal
software audit and is in negotiations with BSA to settle this matter. Although
there can be no assurance, the Company believes that the outcome will not have
a material adverse effect on the ongoing business of the Company.

The Company recently has been served with a third party complaint in a
pending action between The New York Times Company and Independent Media
Services, Inc. ("IMS"). In the third party complaint, IMS alleges non-payment
of media services fees and print advertisement fees. The claim against the
Company is for approximately $300,000. An answer has not yet been filed and an
assessment of potential liability is not possible at this time.

The Company has received correspondence from the Selling Stockholder
concerning his right to require the Company to register his shares for sale in
a public offering. The Company had asserted its right to delay or

50
<PAGE>

suspend such registration for a limited time under specified circumstances.
The stockholder has stated his belief that the Company has no such right and
that the Company and Howard Jonas, its Chairman and Chief Executive Officer,
will be held responsible for any loss suffered by such stockholder from a
decline in the market price of the stock or other losses resulting from the
delay in registering his shares. The Company has filed this registration
statement to register 400,000 of the Selling Stockholder's 575,000 shares, as
he has requested. Although the Company believes it has valid defenses to the
Selling Stockholder's claims, there can be no assurance as to the outcome of
this matter.

The Company is (and expects to continue to be) subject to other legal
proceedings and claims which have arisen (or may arise) in the ordinary course
of its business and have not been finally adjudicated. Although there can be
no assurance, the opinion of management is that settlement of these pending
actions, when ultimately concluded, will not have a material adverse effect on
results of operations, cash flows or the financial condition of the Company.

51
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Howard S. Jonas............. 40 Chief Executive Officer, Chairman of the
Board and Treasurer
Howard S. Balter............ 35 Chief Operating Officer and Vice Chairman of
the Board
James Courter............... 55 President and Director
Stephen R. Brown............ 40 Chief Financial Officer
Eric L. Raab................ 36 Chief Technical Officer
Kenneth Scharf.............. 46 Chief Information Officer
Joyce J. Mason.............. 37 Secretary and Director
Marc E. Knoller............. 36 Vice President and Director
Meyer A. Berman............. 62 Director
J. Warren Blaker............ 62 Director
David S. Steiner............ 67 Director
Bert W. Wasserman........... 63 Director
</TABLE>

HOWARD S. JONAS founded IDT in August 1990 and has served as Chairman of the
Board and Treasurer since its inception and as Chief Executive Officer since
December 1991. He served as President of the Company from December 1991
through September 1996. Mr. Jonas is also the founder and has been President
of Jonas Publishing Corp. ("Jonas Publishing"), a publisher of trade
directories, since its inception in 1979. Mr. Jonas received a B.A. in
Economics from Harvard University.

HOWARD S. BALTER has served as Chief Operating Officer of the Company since
1993 and served as the Company's Chief Financial Officer from 1993 to May
1995. Mr. Balter has been a director of the Company since December 1995 and
became Vice Chairman of the Board in October 1996. From 1985 to 1993, Mr.
Balter operated his own real estate development firm. Mr. Balter holds a B.A.
in Mathematics and Computers from Yeshiva University and attended New York
University School of Business.

JAMES COURTER joined the Company as President in October 1996 and has been a
director of the Company since March 1996. Mr. Courter has been a senior
partner in the New Jersey law firm of Courter, Kobert, Laufer & Cohen since
1972. He was also a partner in the Washington, D.C. law firm of Verner,
Liipfert, Bernhard, McPherson & Hand from January 1994 to September 1996. Mr.
Courter was a member of the U.S. House of Representatives for 12 years,
retiring in January 1991. From 1991 to 1994, Mr. Courter was Chairman of the
President's Defense Base Closure and Realignment Commission. Mr. Courter also
serves on the Board of Directors of Envirogen, Inc. He received a B.A. from
Colgate University and a J.D. from Duke University Law School.

STEPHEN R. BROWN joined the Company as its Chief Financial Officer in May
1995. From 1985 to May 1995, Mr. Brown operated his own public accounting
practice servicing medium-sized corporations as well as high net worth
individuals. Mr. Brown received a B.A. in Economics from Yeshiva University
and a B.B.A. in Business and Accounting from Baruch College.

ERIC L. RAAB joined the Company as its Chief Technical Officer in April
1995. From March 1988 to March 1995, Mr. Raab worked for AT&T Bell Labs in
their semiconductor research division, most recently as a member of the
technical staff developing new technologies for integrated circuit production.
Mr. Raab received a Ph.D. in Physics from the Massachusetts Institute of
Technology and an A.B. in Physics and Mathematics from Columbia College.

KENNETH SCHARF joined the Company as its Chief Information Officer in
December 1995. From February 1995 to August 1995, Mr. Scharf served as a
senior manager in Ernst & Young LLP's consulting practice. From

52
<PAGE>

1983 to 1994, Mr. Scharf was the Senior Vice President of Information Systems
for Nine West Group, Inc. Mr. Scharf received a B.B.A. from Pace University
and an M.B.A. from Fordham University.

JOYCE J. MASON has been a director of the Company since March 1996. Ms.
Mason has served as Secretary of the Company since its inception and as a
director of the Company's predecessor since its inception to March 1996. Ms.
Mason has been in private legal practice since August 1990. Ms. Mason received
a B.A. from the City University of New York and a J.D. from New York Law
School. Ms. Mason is Mr. Jonas's sister.

MARC E. KNOLLER has been a director of the Company since March 1996. Mr.
Knoller joined the Company as its Vice President in March 1991 and also served
as a director of its predecessor since such time. From 1988 until March 1991,
Mr. Knoller was director of national sales for Jonas Publishing. Mr. Knoller
received a B.B.A. from Baruch College.

MEYER A. BERMAN has been a director of the Company since March 1996. Mr.
Berman founded M.A. Berman Co. in 1981, a broker-dealer that services high net
worth individuals and institutions, and has served as its President from its
inception. Prior to such time Mr. Berman held various positions in the stock
brokerage business.

J. WARREN BLAKER has been a director of the Company since March 1996. Dr.
Blaker has been Professor of Physics and Director of the Center for Lightwave
Science and Technology at Fairleigh Dickinson University since 1987. Prior to
such time he worked in various capacities in the optics industry, including
serving as Chief Executive Officer of University Optical Products, Inc., a
wholly-owned subsidiary of University Patents, Inc., from 1982 to 1985. Dr.
Blaker received a B.S. from Wilkes University and a Ph.D. from the
Massachusetts Institute of Technology.

DAVID S. STEINER has been a director of the Company since March 1996. Mr.
Steiner served as a director of the Company's predecessor since 1992. Mr.
Steiner has also been Chairman and Manager at the Steiner Equities Group,
developers of industrial and office parks and commercial facilities, since May
1996. Prior to such time, Mr. Steiner served as President and Chief Executive
Officer of The Sudler Companies, developers of industrial and office parks and
commercial facilities, since 1955. Mr. Steiner received a B.S. from the
Carnegie Institute of Technology.

BERT W. WASSERMAN has been a director of the Company since March 1996. Mr.
Wasserman was Executive Vice President and Chief Financial Officer of Time
Warner from January 1990 to December 1994 and was also a director of Time
Warner from January 1990 to March 1993. Mr. Wasserman was a member of the
Office of the President and was also a director of Warner Communications, Inc.
("Warner Communications") from 1981 to 1990, when that company merged to form
Time Warner, and had served Warner Communications in various capacities
beginning in 1966. Mr. Wasserman serves as a member of various boards,
including: several investment companies in the Dreyfus Family of Funds;
Lillian Vernon Corp., a catalog seller of home products; Winstar
Communications, Inc., a wireless communications company; Mountasia
Entertainment International, Inc., an operator of family recreation centers;
and The New German Fund, a New York Stock Exchange listed mutual fund operated
by Deutsche Bank AG. Mr. Wasserman is a graduate of Baruch College and
Brooklyn Law School.

Each director holds office until that director's successor has been duly
elected and qualified. The Company's Board of Directors is divided into three
classes with Messrs. Blaker, Courter and Knoller constituting Class I, Messrs.
Balter, Berman and Wasserman constituting Class II and Messrs. Jonas and
Steiner and Ms. Mason constituting Class III. Upon the expiration of the term
of each class of directors, directors comprising such class of directors will
be elected for a three-year term at the next succeeding annual meeting of
stockholders. Executive officers of the Company are elected by the Board of
Directors on an annual basis and serve until their successors are duly elected
and qualified.

53
<PAGE>

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors has established a Compensation Committee consisting
of Messrs. Berman, Blaker and Steiner and an Audit Committee consisting of
Messrs. Berman, Blaker and Wasserman. The Compensation Committee will make
recommendations concerning the salaries and incentive compensation of
employees of and consultants to the Company and will administer the Company's
Plan (as defined below). The Audit Committee is responsible for reviewing the
results and scope of audits and other services provided by the Company's
independent auditors.

COMPENSATION OF DIRECTORS

Commencing January 1, 1997, directors will receive compensation of $15,000
per year. Options to purchase 25,000 shares of Common Stock for $10.00 per
share were granted to Bert W. Wasserman in March 1996. Such options were
immediately exercisable and have a term of ten years. In addition, each non-
employee director (including Mr. Wasserman) received as of March 15, 1996
grants exercisable for 10,000 shares of Common Stock at an exercise price of
$10.00 per share, and will annually receive grants of options exercisable for
10,000 shares of Common Stock on the date of the Annual Meeting of
Stockholders under the Company's Plan. See "Management--1996 Stock Option and
Incentive Plan."

EXECUTIVE COMPENSATION

The following table sets forth certain information for the Company's last
completed fiscal year concerning the compensation of the Company's Chief
Executive Officer and the Company's most highly compensated executive officers
(whose salary and bonus exceeded $100,000), other than the Chief Executive
Officer, who were serving as executive officers as of July 31, 1996 (the
"Named Executive Officers").

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS(2)
-------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR(1) SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) COMPENSATION ($)
- --------------------------- ------- ---------- --------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Howard S. Jonas(3)...... 1996 65,000 0 0 0 0
Chairman of The Board
and Chief Executive
Officer
Howard S. Balter(3)..... 1996 175,000 64,000 0 0 0
Chief Operating Officer
and Vice Chairman
</TABLE>
- --------
(1) Information with respect to prior fiscal years is not presented because
the Company was not a reporting Company pursuant to the Securities
Exchange Act of 1934, as amended, prior to Fiscal 1996.
(2) The Company does not have executive long-term compensation plans.
(3) The Company has entered into employment agreements with Mr. Jonas and Mr.
Balter. See "Management--Employment Agreements."

STOCK OPTIONS GRANTED IN LAST FISCAL YEAR

There were no grants of options to purchase shares of Common Stock made
during Fiscal 1996 to the Named Executive Officers.

OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES

The following table provides certain information concerning the number of
shares of Common Stock underlying unexercised stock options held by each of
the Named Executive Officers and the value of such

54
<PAGE>

officers' unexercised stock options at July 31, 1996. No stock options were
exercised by the Named Executive Officers during Fiscal 1996.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED FISCAL YEAR-END(#) FISCAL YEAR-END ($) (1)
ON VALUE ------------------------- -------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Howard S. Jonas......... 0 0 0 0 0 0
Howard S. Balter........ 0 0 552,920 0 6,115,786 0
</TABLE>
- --------
(1) The closing price of the Common Stock on July 31, 1996, as reported by the
Nasdaq National Market, was $11.50 per share.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with Messrs. Jonas,
Balter, Scharf, Raab and Courter. Mr. Jonas's employment agreement, dated as
of January 1, 1996, provides for a base salary of a minimum of $200,000 which
may be increased, but not decreased, during the term of the agreement. Such
salary began upon the Company's initial public offering. The Company may
terminate Mr. Jonas's employment only for cause (as defined in the agreement).
If the agreement is terminated without cause, the Company is obligated to pay
to Mr. Jonas an amount equal to twice his base salary as then in effect. The
agreement has a three year term but is automatically extendable for one year
periods unless the Board of Directors or Mr. Jonas notifies the other, within
ninety days of the anniversary of such period, that the agreement will not be
extended. Pursuant to the agreement, Mr. Jonas has agreed to not compete with
the Company for a period of one year following termination of the agreement.

Mr. Balter's employment agreement, dated as of January 1, 1996, provides for
a base salary of a minimum of $175,000 which may be increased, but not
decreased, during the term of the agreement. The Company may terminate Mr.
Balter's employment only for cause (as defined in the agreement). If the
agreement is terminated without cause, the Company is obligated to pay to Mr.
Balter an amount equal to twice his base salary as then in effect. The
agreement has a three year term but is automatically extendable for one year
periods unless the Board of Directors or Mr. Balter notifies the other, within
90 days of the anniversary of such period, that the agreement will not be
extended. Pursuant to the agreement, Mr. Balter has agreed to not compete with
the Company for a period of one year following termination of the agreement.

The Company entered into an employment agreement with Kenneth Scharf, its
Chief Information Officer, dated as of September 1, 1996. The agreement
provides for an annual base salary of $200,000. In the event of termination,
Mr. Scharf will receive six months severance in the amount of $100,000 from
the Company.

The Company entered into an employment agreement with Eric L. Raab, its
Chief Technology Officer, dated as of April 3, 1995, which agreement was
amended on December 28, 1995. Mr. Raab's employment agreement has a term of
three years from the date of his original agreement and automatically extends
for terms of one year thereafter, unless Mr. Raab provides written notice of
his decision to not renew the agreement. The agreement also provides for
termination for cause (as defined in the agreement) upon six months' written
notice. The agreement provides for a base salary of $75,000 for the first year
of the agreement and for increases in such amount for each additional year the
agreement is in effect. In addition, pursuant to the agreement, Mr. Raab was
granted options to purchase 184,000 shares of Common Stock at an exercise
price of $10 per share, to vest on a pro rata basis annually over six years.
Pursuant to the agreement, Mr. Raab may continue his involvement with certain
business opportunities he had become involved with prior to joining the
Company.

Mr. Courter's employment agreement, dated as of October 28, 1996, is
effective as of October 1, 1996, and provides for a base salary of a minimum
of $200,000 which may be increased, but not decreased, during the term of the
agreement. The agreement also provides for a grant of options to purchase
100,000 shares of Common Stock at an exercise price of $10 per share, to vest
on a pro rata basis quarterly for the first quarter and then monthly for the
remainder of the first year of his employment. In addition, the agreement
provides for

55
<PAGE>

grants of options to purchase 100,000 shares of Common Stock on or about each
of the dates of October 1, 1997 and October 1, 1998 vesting on a pro rata
basis quarterly in the year of each such grant at a purchase price of
approximately $2 per share below the market price. The Company may terminate
Mr. Courter's employment only for cause (as defined in the agreement). If the
agreement is terminated without cause, the Company is obligated to pay to Mr.
Courter an amount equal to twice his base salary as then in effect. The
agreement has a three year term but is automatically extendable for one year
periods unless the Board of Directors or Mr. Courter notifies the other,
within ninety days of the anniversary of such period, that the agreement will
not be extended. Pursuant to the agreement, Mr. Courter has agreed to not
compete with the Company for a period of one year following termination of the
agreement.

EMPLOYEE STOCK OPTION PROGRAM

The Company had an informal stock option program whereby selected key
employees were granted options to purchase shares of Common Stock. The primary
purpose of this program was to provide long-term incentives to the Company's
key employees and to further align their interests with those of the Company.
Options granted under such program have a term of ten years and are subject to
all other reasonable terms and conditions as the Company deems necessary and
appropriate. The selection of the participants and the determination of the
number of options to be granted to each participant were made by the Company's
Board of Directors. Under such program, options to purchase an aggregate of
2,158,770 shares of Common Stock have been granted as of October 31, 1996. See
"Certain Transactions."

1996 STOCK OPTION AND INCENTIVE PLAN

The Company has adopted the IDT Corporation 1996 Stock Option and Incentive
Plan (the "Plan"). The description in this Registration Statement of the
principal terms of the Plan is a summary, does not purport to be complete, and
is qualified in its entirety by the full text of the Plan which is
incorporated by reference as an exhibit to the Registration Statement of which
this Prospectus forms a part.

Pursuant to the Plan, key employees, directors and consultants of the
Company are eligible to receive awards of stock options, stock appreciation
rights, limited stock appreciation rights and restricted stock. Options
granted under the Plan may be "incentive stock options" ("ISOs"), within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or nonqualified stock options ("NQSOs"). Stock appreciation rights
("SARs") and limited stock appreciation rights ("LSARs") may be granted
simultaneously with the grant of an option or (in the case of NQSOs), at any
time during the term of the Plan. Restricted stock may be granted in addition
to or in lieu of any other award granted under the Plan. The Company has
authorized 2,300,000 shares of Common Stock for issuance of awards under the
Plan (subject to antidilution and similar adjustments).

The Plan is administered by the Compensation Committee (the "Committee")
appointed by the Board of Directors of the Company (the "Board"). Subject to
the provisions of the Plan, the Committee will determine the type of award,
when and to whom awards will be granted, the number of shares covered by each
award and the terms, provisions and kind of consideration payable (if any),
with respect to awards. The Committee may interpret the Plan and may at any
time adopt such rules and regulations for the Plan as it deems advisable. In
determining the persons to whom awards shall be granted and the number of
shares covered by each award, the Committee shall take into account the duties
of the respective persons, their present and potential contribution to the
success of the Company and such other factors as the Committee shall deem
relevant.

An option may be granted on such terms and conditions as the Committee may
approve, and generally may be exercised for a period of up to 10 years from
the date of grant. Generally, ISOs will be granted with an exercise price
equal to the "Fair Market Value" (as defined in the Plan) on the date of
grant. In the case of ISOs, certain limitations will apply with respect to the
aggregate value of option shares which can become exercisable for the first
time during any one calendar year, and certain additional limitations will
apply to ISOs granted to "Ten Percent Stockholders" (as defined in the Plan)
of the Company. The Committee may provide for the payment of the option price
in cash, by delivery of Common Stock or Class A Stock having a Fair Market
Value equal to such option price, by a combination thereof or by any other
method. Options granted under the

56
<PAGE>

Plan will become exercisable at such times and under such conditions as the
Committee shall determine, subject to acceleration of the exercisability of
options in the event of, among other things, a "Change in Control" (as defined
in the Plan).

The Plan provides for automatic formula option grants to eligible non-
employee directors of the Company. Options to purchase 10,000 shares of Common
Stock were granted to each non-employee director upon the consummation of the
Company's initial public offering in March 1996 and options to purchase 10,000
shares of Common Stock will be granted to each new non-employee director upon
such director's initial election and qualification for the Board. In addition,
options to purchase 10,000 shares of Common Stock will be granted annually to
each non-employee director on the day of each annual stockholder meeting. Each
option will have an exercise price equal to the Fair Market Value of a share
of Common Stock on the date of grant. All such options granted to non-employee
directors will be immediately exercisable. All options held by non-employee
directors, to the extent not exercised, expire on the earliest of (i) the
tenth anniversary of the date of grant, (ii) one year following the optionee's
termination of his directorship on account of death or disability or (iii)
three months following the optionee's termination of his directorship with the
Company for any other reason.

The Plan also permits the Committee to grant SARs and/or LSARs with respect
to all or any portion of the shares of Common Stock covered by options.
Generally, SARs may be exercised only at such time as the related option is
exercisable and LSARs may be exercised only during the 90 days immediately
following an "Acceleration Date" (as defined in the Plan) except that, in the
case of an "Insider" (as defined in the Plan), (i) an SAR and an LSAR must be
held for at least six months before it becomes exercisable and (ii) an LSAR
must automatically be paid out in cash. LSARs will be exercisable only if, and
to the extent, that the option to which the LSARs relate is then exercisable,
and if such option is an ISO, only to the extent the Fair Market Value per
share of Common Stock exceeds the option price.

Upon exercise of an SAR, a grantee will receive for each share for which an
SAR is exercised, an amount in cash or Common Stock, as determined by the
Committee, equal to the excess, if any, of (i) the Fair Market Value of a
share of Common Stock on the date the SAR is exercised over (ii) the exercise
price per share of the option to which the SAR relates.

Upon exercise of an LSAR, a grantee will receive for each share for which an
LSAR is exercised, an amount in cash equal to the excess, if any, of (i) the
greater of (x) the highest Fair Market Value of a share of Common Stock during
the 90-day period ending on the date the LSAR is exercised, and (y) whichever
of the following is applicable: (1) the highest per share price paid in any
tender or exchange offer which is in effect at any time during the 90 days
ending on the date of exercise of the LSAR; (2) the fixed or formula price for
the acquisition of shares of Common Stock in a merger in which the Company
will not continue as the surviving corporation, or upon a consolidation, or a
sale, exchange or disposition of all or substantially all of the Company's
assets, approved by the Company's stockholders (if such price is determinable
on the date of exercise); and (3) the highest price per share of Common Stock
shown on Schedule 13D, or any amendment thereto, filed by the holder of the
specified percentage of Common Stock, the acquisition of which gives rise to
the exercisability of the LSAR over (ii) the exercise price per share of the
option to which the LSAR relates. In no event, however, may the holder of an
LSAR granted in connection with an ISO receive an amount in excess of the
maximum amount which will enable the option to continue to qualify as an ISO.

When an SAR or LSAR is exercised, the option to which it relates will cease
to be exercisable to the extent of the number of shares with respect to which
the SAR or LSAR is exercised, but will be deemed to have been exercised for
purposes of determining the number of shares available for the future grant of
awards under the Plan.

The Plan further provides for the granting of restricted stock awards, which
are awards of Common Stock which may not be disposed of, except by will or the
laws of descent and distribution, for such period as the Committee determines
(the "restricted period"). The Committee may also impose such other conditions
and restrictions, if any, on the shares as it deems appropriate, including the
satisfaction of performance criteria. All restrictions affecting the awarded
shares lapse in the event of a Change in Control.

57
<PAGE>

During the restricted period, the grantee will be entitled to receive
dividends with respect to, and to vote the shares awarded to him. If, during
the restricted period, the grantee's service with the Company terminates for
any reason, any shares remaining subject to restrictions will be forfeited.
The Committee has the authority to cancel any or all outstanding restrictions
prior to the end of the restricted period, including cancellation of
restrictions in connection with certain types of termination of service.

The Board may at any time and from time to time suspend, amend, modify or
terminate the Plan; provided however, that, to the extent required by Rule
16b-3 ("Rule 16b-3") promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any other law, regulation or stock exchange
rule, no such change shall be effective without the requisite approval of the
Company's stockholders. In addition, no such change may adversely affect any
award previously granted, except with the written consent of the grantee.

No awards may be granted under the Plan after ten years after its adoption.

401(K) PLAN

The Company has established a plan, effective September 1, 1996, pursuant to
Section 401(k) of the Internal Revenue Code of 1986, as amended (the "401(k)
Plan"), for non-union employees. The non-union employees of the Company and
its subsidiaries are eligible to participate in the 401(k) Plan after
completion of one year of employment with the Company. Under the 401(k) Plan,
eligible employees may elect to defer a portion of their salary each year
(subject to limits imposed by the Internal Revenue Service). The portion
deferred will be paid by the Company to the trustee under the 401(k) Plan. The
Company makes a matching contribution to the 401(k) Plan each month on behalf
of each participant in an amount equal to 20% of such participant's salary
deferral contribution. Matching contributions become vested under the 401(k)
Plan at a rate of 20% for each full year of employment. Matching contributions
do not begin vesting until the second year of employment.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During Fiscal 1996, the Compensation committee was comprised of Messrs.
Berman, Blaker and Courter and the Audit committee was comprised of Messrs.
Berman, Blaker and Wasserman. Each of the members of the Compensation
Committee and the Audit Committee were not employees of the Company during
such period. During Fiscal 1995, the Company did not have a Compensation
Committee or an Audit Committee. Messrs. Jonas and Balter each participated in
the determination of officers' compensation during Fiscal 1995.

CERTAIN TRANSACTIONS

Simon L. Lermer, who served as a director of the Company from December 1992
to December 1995, is the sole stockholder of Lermer Overseas
Telecommunications, Inc. ("Lermer"). Mr. Lermer and Marc Knoller, a director
of the Company, are the two directors of Lermer. Under an agreement between
Lermer and the Company in effect from April 1994 until May 1996, Lermer
provided long-distance telecommunications services to the Company's customers
and the Company marketed Lermer's long-distance services and also provided
Lermer with marketing, technical support, billing and collection and rate
procurement services. Payments made to Lermer by the Company in Fiscal 1994
(from the inception of Lermer in April 1994 until July 31, 1994), Fiscal 1995
and Fiscal 1996 were $181,160, $2,416,534 and $2,142,718, respectively.

The Company currently leases one of its three headquarters facilities in
Hackensack, New Jersey from a corporation which is wholly-owned by Howard
Jonas, the Company's Chief Executive Officer and Chairman of the Board of
Directors. Aggregate lease payments under such lease were $24,000 for each of
Fiscal 1994, 1995 and 1996.

In September 1995, the Company borrowed $75,000 at 12% per annum from Meyer
A. Berman, a stockholder and, as of March 1996, a director, of the Company.
The principal amount of, and accrued interest

58
<PAGE>

on, this loan was payable in September 1996. In October 1995, the Company
issued promissory notes in the principal amount of $100,000 to each of David
S. Steiner, a stockholder and, as of March 1996, a director of the Company,
and Peter D. Sudler, a stockholder and former director of the Company. These
notes bore interest, due in monthly installments, at the rate of 12% per annum
and matured one year from issuance. The Company issued promissory notes in the
principal amount of $250,000 in January 1996 and in February 1996 to
Mr. Steiner. Such notes also bore interest, due in monthly installments, at
the rate of 12% per annum and matured one year from issuance. In November
1995, the Company issued a promissory note in the principal amount $100,000 to
Mr. Lermer, which note bore interest at the rate of 12% per annum and was due
in November 1996. This note required the Company to redeem the note for an
amount equal to its principal amount plus accrued interest and a redemption
premium in the amount of 10% of the principal amount of the note upon
completion of an initial public offering by the Company. All such loans and
notes were repaid in full in March 1996 with proceeds from the Company's
initial public offering. In the first three quarters of Fiscal 1996, the
Company also borrowed an aggregate of $760,000 from Jonas Publishing Corp., a
corporation which is wholly-owned by Mr. Jonas. Such borrowings did not bear
interest. Of such borrowings, $400,000 was repaid before the initial public
offering and $360,000 was repaid with the proceeds of the initial public
offering.

In August 1994, the Company granted options to purchase 552,920 shares of
Common Stock to Howard S. Balter, the Chief Operating Officer and a director
of the Company, at a weighted average exercise price of approximately $0.44
per share, options to purchase 46,000 shares of Common Stock to Joyce J.
Mason, its Secretary and, as of March 1996, a director of the Company, at an
exercise price of approximately $0.21 per share and options to purchase
230,000 shares of Common Stock to Mr. Knoller, the Vice President and, as of
March 1996, a director of the Company, at an exercise price of approximately
$0.21 per share. In April 1995, the Company granted options to purchase 69,920
shares of Common Stock to Stephen R. Brown, the Chief Financial Officer of the
Company, at an exercise price of $0.372 per share and options to purchase
124,440 shares of Common Stock to Eric L. Raab, the Chief Technical Officer of
the Company, at a weighted average exercise price of $1.09 per share. Such
options have terms of ten years, are subject to all other reasonable terms and
conditions and became exercisable as of July 31, 1995. In addition, the
Company granted as of March 15, 1996 options to purchase 184,000 shares of
Common Stock at an exercise price of $10.00 per share to Mr. Raab pursuant to
the Plan. In March 1996, the Company granted options to purchase 25,000 shares
of Common Stock to Bert W. Wasserman, a director of the Company, at an
exercise price of $10.00 per share and have a term of ten years. The Company
also granted options to purchase 10,000 shares of Common Stock at an exercise
price of $10.00 per share to each of the non-employee directors as of March
15, 1996. See "Executive Compensation--Compensation of Directors."

In January 1996, Howard S. Jonas, the Company's Chief Executive Officer and
Chairman of the Board of Directors, loaned $500,000 to Yovelle Renaissance
Corporation ("Yovelle"), the owner of the Genie on-line service. In
consideration for such loan, Yovelle issued a promissory note in the principal
amount of $500,000 to Mr. Jonas. Such note bore interest at a rate of 12% per
annum and was due in June 1996. The Company acquired all of the stock of
Yovelle in August 1996. Prior to such acquisition, Mr. Jonas's loan was repaid
in full by Yovelle. During Fiscal 1996, revenue to the Company under a
consulting agreement between the Company and Yovelle amounted to $1,200,000.

The Company has not and will not extend or guarantee loans to officers or
directors of the Company, unless such loans are approved by a majority of the
directors and a majority of the independent, disinterested, outside directors
of the Company, are for bona fide business purposes and may be reasonably
expected to benefit the Company.

James Courter, the President and a Director of the Company, was a partner of
the law firm of Verner, Liipfert, Bernhard, McPherson & Hand until September
1996. The firm has served as counsel to the Company since January 1996. Mr.
Courter is a partner of the law firm Courter, Kobert, Laufer & Cohen which has
served as counsel to the Company since July 1996. Fees paid to each of the
firms by the Company were less than 5% of the firms' gross revenues for each
fiscal year in which they represented the Company. In addition, in connection
with his employment by the Company, Mr. Courter received grants of options to
purchase shares of the Company's Common Stock. See "Management--Employment
Agreements."

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial
ownership of Common Stock (and Class A Stock, assuming conversion of all
shares of Class A Stock into Common Stock) as of October 31, 1996, by (i) all
persons known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock (and Class A Stock, on an as-converted
basis), (ii) each of the Company's directors and the Named Executive Officers
and (iii) all directors and officers of the Company as a group. Unless
otherwise noted in the footnotes to the table, the persons named in the table
have sole voting and investing power with respect to all shares of Common
Stock (or Class A Stock) indicated as being beneficially owned by them.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING
NAE AND ADDRESS OFM ------------------------------
BNEFICIAL OWNER+E NUMBER PERCENTAGE
- ------------------- --------------- --------------
<S> <C> <C>
FIVE PERCENT STOCKHOLDERS
Howard S. Jonas(1)............................... 11,174,330 53.6%
294 State Street
Hackensack, NJ 97068
David S. Steiner(2) ............................. 1,252,000 6.0
c/o Steiner Equities Group, L.L.C.
75 Eisenhower Parkway
Roseland, NJ 07068
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Howard S. Balter(3).............................. 552,920 2.6
James Courter(4)................................. 247,000 1.2
Joyce J. Mason(3)................................ 46,000 *
Meyer A. Berman(4)............................... 113,500 *
J. Warren Blaker(3).............................. 10,000 *
Bert W. Wasserman(3)............................. 35,000 *
All directors and officers as a group
(12 persons).................................... 13,885,110 66.6
</TABLE>

- --------
+Address provided for beneficial owners of more than 5% of Common Stock.
* Less than 1%.
(1) Shares of Class A Stock which are convertible on a share-for-share basis
into Common Stock at the option of the holder. Class A Stock has different
rights than Common Stock. See "Description of Capital Stock."
(2) Served as a director of the Company's predecessor between 1992 and 1996
and is a director of the Company. Includes 621,000 shares of Common Stock
transferred by Mr. Steiner to irrevocable trusts over which Mr. Steiner
shares voting power with one individual and 10,000 shares of Common Stock
issuable upon exercise of stock options exercisable within 60 days of the
date of this offering.
(3) Common Stock beneficially owned pursuant to stock options exercisable
within 60 days of the date of this offering.
(4) Includes 10,000 shares beneficially owned pursuant to stock options
exercisable within 60 days of the date of this offering.

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<PAGE>

SELLING STOCKHOLDER

Alan M. Grayson, the Selling Stockholder hereunder, owns 575,000 shares of
Common Stock, including the 400,000 Shares being offered pursuant to this
Prospectus. Because the Selling Stockholder may offer all or some part of the
Shares which he holds from time to time pursuant to the offering contemplated
by this Prospectus, and because this offering is not being underwritten on a
firm commitment basis, no estimate can be given as to the number of shares
that will be held by the Selling Stockholder upon termination of this
offering. See "Plan of Distribution."

The Shares are being registered for resale solely for the account of the
Selling Stockholder. The Selling Stockholder has not had any material
relationships with the Company within the past three years. The Selling
Stockholder has threatened to hold the Company liable for losses resulting
from delays in registering the Shares for sale hereunder. See "Business--Legal
Proceedings."

It is anticipated that the Selling Stockholder will offer and sell the
Shares hereunder from time to time in ordinary transactions through one or
more brokers or dealers on NASDAQ, in the over-the-counter market or in
private transactions at such prices as may be obtainable at any such time.

DESCRIPTION OF CAPITAL STOCK

The following brief description of the Company's capital stock does not
purport to be complete and is subject in all respects to applicable Delaware
law and to the provisions of the Company's Certificate of Incorporation and
by-laws (the "By-Laws").

The Company's authorized capital stock consists of 100,000,000 shares of
Common Stock, $.01 par value, 35,000,000 shares of Class A Stock, $.01 par
value, and 10,000,000 shares of Preferred Stock, $.01 par value (the
"Preferred Stock").

COMMON STOCK AND CLASS A STOCK

General

The rights of holders of Common Stock and holders of Class A Stock are
identical except for voting and conversion rights and restrictions on
transferability. As of October 31, 1996, there were 9,666,900 shares of Common
Stock outstanding held of record by 77 stockholders and 11,174,330 shares of
Class A Stock outstanding held of record by one stockholder.

Voting Rights

The holders of Class A Stock are entitled to three votes per share and the
holders of Common Stock are entitled to one vote per share. Except as
otherwise required by law or as described below, holders of Class A Stock and
Common Stock will vote together as a single class on all matters presented to
the stockholders for their vote or approval, including the election of
directors. Stockholders are not entitled to vote cumulatively for the election
of directors, and no class of outstanding common stock acting alone is
entitled to elect any directors. Howard S. Jonas, the Chairman of the Board
and Chief Executive Officer of the Company, holds the 11,174,330 outstanding
shares of Class A Stock and will retain effective control of the Company
through holding approximately 77.6% of the combined voting power of the
Company's outstanding capital stock. Therefore, Mr. Jonas has the ability to
elect all of the directors of the Company and to effect or prevent certain
corporate transactions which require majority approval of the combined
classes, including mergers and other business combinations.

Transfer Restrictions

Class A Stock is subject to certain limitations on transferability that do
not apply to the Common Stock. The Certificate of Incorporation provides that
shares of Class A Stock automatically convert into an equal number of shares
of Common Stock if there is a Transfer (as defined therein) of shares of Class
A Stock to a

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<PAGE>

person other than a Permitted Transferee (as hereinafter defined), other than
when such shares are pledged to a person other than a Permitted Transferee (in
which instance such shares convert to Common Stock on the 30th day after
receipt of notice given by the Company to the transferor, unless the shares
are reconveyed to the transferor or any other Permitted Transferee prior to
the expiration of such 30-day period). Thereafter, such shares of Common Stock
may be freely transferred, subject to restrictions imposed under applicable
securities laws. "Permitted Transferee" means, (A) with respect to each holder
of shares of Class A Stock, the Company, and (B) with respect to each holder
who is a natural person, (i) a Family Member (as defined therein), (ii) the
trustee of a trust exclusively for the benefit of such holder, any Family
Member, or certain charitable organizations, (iii) a charitable organization
established solely by one or more of such holders or Family Members, (iv) any
IRA or 401(k) employee benefit plan of such holder, (v) the estate or any
appointed guardian or custodian of such holder, and (vi) any corporation or
partnership controlled by such holder. Shares of Class A Stock acquired by the
Company will be canceled and may not be reissued. This provision may not be
amended without the affirmative vote of holders of the majority of the shares
of Class A Stock and the affirmative vote of holders of a majority of the
shares of Common Stock, each voting separately as a class.

Dividends and Liquidation

Holders of Class A Stock and holders of Common Stock have an equal right to
receive dividends when and if declared by the Company's Board of Directors out
of funds legally available therefor. If a dividend or distribution payable in
Class A Stock is made on the Class A Stock, the Company must also make a pro
rata and simultaneous dividend or distribution on the Common Stock payable in
shares of Common Stock. Conversely, if a dividend or distribution payable in
Common Stock is made on the Common Stock, the Company must also make a pro
rata and simultaneous dividend or distribution on the Class A Stock payable in
shares of Class A Stock. In the event of the liquidation, dissolution, or
winding up of the Company, holders of the shares of Class A Stock and Common
Stock are entitled to share equally, share-for-share, in the assets available
for distribution after payment of all creditors and the liquidation
preferences of the Preferred Stock of the Company.

Optional Conversion Rights

Each share of Class A Stock may, at any time and at the option of the
holder, be converted into one fully paid and non-assessable share of Common
Stock. Upon conversion, such shares of Common Stock would not be subject to
restrictions on transfer that applied to the shares of Class A Stock prior to
conversion except to the extent such restrictions are imposed under applicable
securities laws.

The shares of Common Stock are not convertible into or exchangeable for
shares of Class A Stock or any other shares or securities of the Company.

Other Provisions

Holders of Class A Stock and Common Stock have no preemptive rights to
subscribe to any additional securities of any class which the Company may
issue and there are no redemption provisions or sinking fund provisions
applicable to either such class, nor is the Class A Stock or the Common Stock
subject to calls or assessments by the Company. The rights, preferences, and
privileges of the holders of Common Stock and Class A Stock are subject to and
may be adversely affected by, the rights of the holders of any series of
Preferred Stock which the Company may designate and issue in the future. As of
the date of this Prospectus, there are no shares of Preferred Stock
outstanding.

PREFERRED STOCK

The Company's Certificate of Incorporation provides that the Company may
issue up to 10,000,000 shares of Preferred Stock in one or more series and as
may be determined by the Company's Board of Directors who may establish from
time to time the number of shares to be included in each such series, to fix
the designation, powers, preference and rights of the shares of each such
series and any qualifications, limitations, or restrictions thereof, and to
increase or decrease the number of shares of any such series without any
further vote or action by the stockholders. The Board of Directors of the
Company may authorize, without stockholder approval, the issuance of Preferred
Stock with voting and conversion rights that could adversely affect the voting
power and other rights of holders of Common Stock. Preferred Stock could thus
be issued quickly with terms designed to

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<PAGE>

delay or prevent a change in control of the Company or to make the removal of
management more difficult. In certain circumstances, this could have the
effect of decreasing the market price of the Common Stock.

CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS

The Certificate of Incorporation and the By-Laws contain certain provisions
that could make more difficult the acquisition of the Company by means of a
tender offer, a proxy contest or otherwise.

Classified Board of Directors and Related Provisions

The Certificate of Incorporation provides for the Board of Directors to be
divided into three classes, designated Class I, Class II, and Class III, which
shall be as nearly equal in number as possible. Class I directors, who will
serve for a term ending with the annual meeting of stockholders to be held in
1996, consists of three directors, Class II directors, who will serve for a
term ending with the annual meeting of stockholders to be held in 1997,
consists of three directors and Class III directors, who will serve for a term
ending with the annual meeting of stockholders to be held in 1998, also
consists of three directors. A director may be removed by the stockholders,
but only for cause, and only by the affirmative vote of the holders, voting as
a single class of a majority of the total number of votes entitled to be cast
by all holders of the voting stock (the "Voting Stock") which shall include
the Common Stock, the Class A Stock and any class outstanding or series of
Preferred Stock, which by its terms may be voted on all matters submitted to
stockholders of the Company generally.

The purpose of a classified board is to promote conditions of continuity and
stability in the composition of the Board of Directors and in the policies
formulated by the Board of Directors, by guaranteeing that in the ordinary
course at least two-thirds of the directors will at all times have had at
least one year's experience as directors of the Company. However, for similar
reasons, a classified board may deter certain mergers, tender offers or other
takeover attempts which some or a majority of the holders of the Company's
stock may deem to be in their best interest, since it would take two annual
meetings of stockholders to elect a majority of the Board of Directors.
Similarly, a classified board structure would delay stockholders who do not
like the policies of the Board of Directors, from removing a majority of the
Board of Directors at a single annual meeting.

Statutory Provisions

Section 203 of the Delaware General Corporation Law (the "DGCL") prohibits
certain transactions between a Delaware corporation and an "interested
stockholder," which is defined as a person who, together with any affiliate
and/or associates of such person, beneficially owns, directly or indirectly,
15% or more of the outstanding voting shares of a Delaware corporation. This
provision prohibits certain business combinations (defined broadly to include
mergers, consolidations, sales or other dispositions of assets having an
aggregate value in excess of 10% of the consolidated assets of the corporation
or the aggregate value of all of the outstanding capital stock of the
corporation, and certain transactions that would increase the interested
stockholder's proportionate share ownership in the corporation) between an
interested stockholder and a corporation for a period of three years after the
date the interested stockholder acquired its stock, unless (i) the business
combination is approved by the corporation's board of directors prior to the
date the interested stockholder acquired shares, (ii) the interested
stockholder acquired at least 85% of the voting stock of the corporation in
the transaction in which it became an interested stockholder or (iii) the
business combination is approved by a majority of the board of directors and
by the affirmative vote of two-thirds of the votes entitled to be cast by
disinterested stockholders at an annual or special meeting. A Delaware
corporation, pursuant to a provision in its original certificate of
incorporation, may elect not to be governed by Section 203 of the DGCL. In its
original certificate of incorporation the Company elected not to be governed
by Section 203 of the DGCL.

Limitations on Directors' Liability

The Company's Certificate of Incorporation provides that, to the fullest
extent permitted by the DGCL, directors of the Company shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director. Section 102(7) of the DGCL, however, states that
such a provision

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<PAGE>

may not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the DGCL, relating to
unlawful dividends, distributions or the repurchase or redemption of stock or
(iv) for any transaction from which the director derives an improper personal
benefit.

The Company's By-Laws provide that the Company shall indemnify and hold
harmless, to the fullest extent permitted by the DGCL, any person against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, actually and reasonably incurred in connection with any
threatened, pending or completed legal proceedings in which such person is
involved by reason of the fact that he is or was a director or officer if he
acted in good faith and in a manner that he reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, if he had no reasonable cause to believe that
his conduct was unlawful. If the legal proceeding, however, is by or in the
right of the Company, such director or officer may not be indemnified in
respect of any claim, issue or matter as to which he shall have been adjudged
to be liable to the Company unless a court determines otherwise.

The Company may enter into agreements to indemnify its directors and
officers in addition to the indemnification provided for in the Certificate of
Incorporation. Such agreements, among other things, would indemnify the
Company's directors and officers for certain expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by such person in any
action or proceeding, including any action by or in the rights of the Company,
on account of services as a director or officer of the Company or as a
director or officer of any subsidiary of the Company, or as a director or
officer of any other company or enterprise to which the person provides
services at the request of the Company.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer and Trust Company.

SHARES ELIGIBLE FOR FUTURE SALE

Based on the number of shares of Common Stock outstanding as of October 31,
1996, and assuming no exercise of the options to purchase 3,745,814 shares of
Common Stock outstanding on such date, the Company has outstanding 9,666,900
shares of Common Stock and 11,174,330 shares of Class A Stock. The Class A
Stock is convertible into Common Stock at any time on a share for share basis.
Of the shares of Common Stock, the 400,000 shares which may be sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act, except that any shares purchased by "affiliates" of
the Company, as that term is defined in Rule 144 ("Rule 144") under the
Securities Act ("Affiliates"), may generally only be sold in compliance with
the limitations of Rule 144 described below.

SALES OF RESTRICTED SHARES

The 4,491,900 shares of Common Stock issued prior to the Company's initial
public offering in March 1996 and 11,174,300 shares of Class A Stock are
deemed "restricted securities" (the "Restricted Securities") under Rule 144.
Of the Restricted Securities, up to 2,484,000 are currently eligible for sale
in the public market pursuant to Rule 144(k) under the Securities Act. Of the
remaining 2,007,900 outstanding Restricted Securities and the 11,174,300
shares of Class A Stock, all of such shares are currently eligible for resale
in the public market, subject to the volume, manner of sale and other
restrictions of Rule 144 described below. All of the shares of the Class A
Stock are subject to a lock-up agreement described below (the "Lock-Up
Agreement"). In addition, 5,066,900 of the Restricted Shares are entitled to
registration rights as described below.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially
owned Restricted Securities for at least two years is entitled to sell,

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<PAGE>

within any three-month period, a number of such shares that does not exceed
the greater of (i) one percent of the then outstanding shares of Common Stock
(approximately 97,000) or (ii) the average weekly trading volume in the Common
Stock in the over-the-counter market during the four calendar weeks preceding
the date on which notice of such sale is filed, provided certain requirements
concerning availability of public information, manner of sale and notice of
sale are satisfied. In addition, Affiliates must comply with the restrictions
and requirements of Rule 144, other than the two-year holding period
requirement, in order to sell shares of Common Stock which are not Restricted
Securities. Also, under Rule 144(k), a person who is not an Affiliate and has
not been an Affiliate for at least three months prior to the sale and who has
beneficially owned Restricted Securities for at least three years may resell
such shares without compliance with the foregoing requirements. In meeting the
two and three year holding periods described above, a holder of Restricted
Securities can include the holding periods of a prior owner who was not an
Affiliate. The Commission has proposed an amendment to Rule 144 which would
reduce the holding period required for shares subject to Rule 144 to become
eligible for sale in the public market from two years to one year, and from
three years to two years in the case of Rule 144(k). If this proposal is
adopted, an additional 1,076,400 shares would become eligible for sale to the
public.

OPTIONS

As of October 31, 1996, options to purchase a total of 3,745,814 shares of
Common Stock (of which options to purchase 2,523,906 shares were then
exercisable) were outstanding. An additional 712,956 shares of Common Stock
are available for future grants under the Company's stock plans. See
"Management--1996 Stock Option and Incentive Plan." The Company intends to
file one or more registration statements on Form S-8 under the Securities Act
to register all shares of Common Stock subject to outstanding stock options
and Common Stock issuable pursuant to the Company's stock plans. Shares
covered by these registration statements will thereupon be eligible for sale
in the public market, subject to Rule 144 limitations applicable to
Affiliates.

REGISTRATION RIGHTS

Pursuant to Registration Rights Agreements, among the Company and certain
stockholders, the Company has granted stockholders "piggyback" registration
rights with respect to 5,066,900 shares of Common Stock. In addition, the
Company has granted certain demand and "piggyback" registration rights with
respect to 575,000 shares of Common Stock issued to the Selling Stockholder
upon the exercise of the Warrant. Pursuant to a Registration Rights Agreement
between the Company and Howard S. Jonas, the Company's Chairman and Chief
Executive Officer, the Company has granted demand and registration rights with
respect to Common Stock held by Mr. Jonas or any of his Permitted Transferees
(as defined in the Certificate of Incorporation) as a result of the conversion
of Class A Stock or as a result of the purchase of Common Stock while Mr.
Jonas remains an Affiliate of the Company.

LOCK-UP AGREEMENT

Howard Jonas, the holder of the 11,174,330 shares of issued and outstanding
Class A Stock, entered into a lock-up agreement with Cowen & Company in
connection with the initial public offering which prohibits the sale or
disposition of such shares until March 15, 1997 without the consent of Cowen &
Company.

No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the
prevailing market price for the Common Stock. Sales of substantial amounts of
Common Stock, or the perception that such sales could occur, could adversely
affect prevailing market prices for the Common Stock and could impair the
Company's future ability to obtain capital through an offering of equity
securities.

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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF
COMMON STOCK

General. The following discussion concerns the material United States
federal income and estate tax consequences of the ownership and disposition of
shares of Common Stock applicable to Non-U.S. holders of such shares of Common
Stock. In general, a "Non-U.S. Holder" is any holder other than (i) a citizen
or resident, as specifically defined for U.S. federal income and estate tax
purposes, of the United States, (ii) a corporation, partnership or any entity
treated as a corporation or partnership for U.S. federal income tax purposes
created or organized in the United States or under the laws of the United
States or of any State thereof, or (iii) an estate or trust whose income is
includible in gross income for United States federal income tax purposes
regardless of its source. The discussion is based on current law, which is
subject to change retroactively or prospectively, and is for general
information only. The discussion does not address all aspects of United States
federal income and estate taxation and does not address any aspects of state,
local or foreign tax laws. The discussion does not consider any specific facts
or circumstances that may apply to a particular Non-U.S. Holder. Accordingly,
prospective investors are urged to consult their tax advisors regarding the
current and possible future United States federal, state and non-U.S. income
and other tax consequences of holding and disposing of shares of Common Stock.

Dividends. In general, dividends paid to a Non-U.S. Holder will be subject
to United States withholding tax at a 30% rate (or a lower rate as may be
specified by an applicable tax treaty) unless the dividends are
(i) effectively connected with a trade or business carried on by the Non-U.S.
Holder within the United States, or (ii), if a tax treaty applies,
attributable to a United States permanent establishment or, in the case of an
individual, a fixed base in the United States, maintained by the Non-U.S.
Holder. Dividends effectively connected with such a trade or business or, if a
tax treaty applies, attributable to such permanent establishment or a fixed
base will generally not be subject to withholding (if the Non-U.S. Holder
files certain forms annually with the payor of the dividend) but will
generally be subject to United States federal income tax on a net income basis
at regular graduated individual or corporate rates. In the case of a Non-U.S.
Holder that is a corporation, such effectively connected income also may be
subject to the branch profits tax (which is generally imposed on a foreign
corporation on the deemed repatriation from the United States of effectively
connected earnings and profits) at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty. The branch profits tax may not
apply if the recipient is a qualified resident of certain countries with which
the United States has an income tax treaty.

To determine the applicability of a tax treaty providing for a lower rate of
withholding, dividends paid to an address in a foreign country are presumed
under current Treasury Regulations to be paid to a resident of that country,
unless the payor has definite knowledge that such presumption is not warranted
or an applicable tax treaty (or United States Treasury Regulations thereunder)
requires some other method for determining a Non-U.S. Holder's residence.
However, under proposed regulations, in the case of dividends (paid after
December 31, 1997 or December 31, 1999 in the case of dividends paid to
accounts in existence on or before the date that is 60 days after the proposed
regulations are published as final regulations), a Non-U.S. Holder generally
would be subject to United States withholding tax at a 31-percent rate under
the backup withholding rules described below, rather than at a 30-percent rate
or at a reduced rate under an income tax treaty, unless certain certification
procedures (or, in the case of payments made outside the United States with
respect to an offshore account, certain documentary evidence procedures) are
complied with, directly or through an intermediary. Under current regulations,
the Company must report annually to the United States Internal Revenue Service
(the "IRS") and to each Non-U.S. Holder the amount of dividends paid to, and
the tax withheld with respect to, each Non-U.S. Holder. These reporting
requirements apply regardless of whether withholding was reduced or eliminated
by an applicable tax treaty. Copies of these information returns also may be
made available under the provisions of a specific treaty or agreement with the
tax authorities of the country in which the Non-U.S. Holder resides.

A Non-U.S. Holder that is eligible for a reduced rate of United States
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for refund
with the IRS.

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<PAGE>

Sale of Common Stock. Generally, a Non-U.S. Holder will not be subject to
United States federal income tax on any gain realized upon the sale or other
disposition of such holder's shares of Common Stock unless (i) the gain is
effectively connected with a trade or business carried on by the Non-U.S.
Holder within the United States and, if a tax treaty applies, the gain is
attributable to a permanent establishment or a fixed base maintained by the
Non-U.S. Holder in the United States; (ii) the Non-U.S. Holder is an
individual who holds the shares of Common Stock as a capital asset and is
present in the United States for 183 days or more in the taxable year of the
disposition, and either (a) such Non-U.S. Holder has a "tax home" (as
specifically defined for U.S. federal income tax purposes) in the United
States (unless the gain from disposition is attributable to an office or other
fixed place of business maintained by such non-U.S. Holder in a foreign
country and a foreign tax equal to at least 10% of such gain has been paid to
a foreign country), or (b) the gain from the disposition is attributable to an
office or other fixed place of business maintained by such Non-U.S. Holder in
the United States; (iii) the Non-U.S. Holder is subject to tax pursuant to the
provisions of U.S. tax law applicable to certain United States expatriates; or
(iv) the Company is or has been during certain periods a "U.S. real property
holding corporation" for U.S. federal income tax purposes (which the Company
does not believe that it has been, currently is or is likely to become) and,
assuming that the Common Stock is deemed for tax purposes to be "regularly
traded on an established securities market," the Non-U.S. Holder held, at any
time during the five-year period ending on the date of disposition (or such
shorter period that such shares were held), directly or indirectly, more than
five percent of the Common Stock.

Estate Tax. Shares of Common Stock owned or treated as owned by an
individual who is not a citizen or resident (as specially defined for United
States federal estate tax purposes) of the United States at the time of death
will be includible in the individual's gross estate for United States federal
estate tax purposes, unless an applicable tax treaty provides otherwise, and
may be subject to United States federal estate tax.

Backup Withholding and Information Reporting. As a general rule, under
current United States federal income tax law, backup withholding tax (which
generally is a withholding tax imposed at the rate of 31% on certain payments
to persons that fail to furnish the information required under the U.S.
information reporting requirements) and information reporting requirements
apply to the actual and constructive payments of dividends. The United States
backup withholding tax and information reporting requirements generally, under
current regulations, will not apply to dividends paid on Common Stock to a
Non-U.S. Holder at an address outside the United States that are either
subject to the 30% withholding discussed above or that are not so subject
because a tax treaty applies that reduces or eliminates such 30% withholding,
unless the payer has knowledge that the payee is a U.S. person. Backup
withholding and information reporting generally will apply to dividends paid
to addresses inside the United States on shares of Common Stock to beneficial
owners that are not recipients that are entitled to an exemption, as discussed
above, and that fail to provide in the manner required certain identifying
information. However, under proposed regulations, in the case of dividends
paid after December 31, 1997, a Non-U.S. Holder generally would be subject to
backup withholding at a 31% rate, unless certain certification procedures (or,
in the case of payments made outside the United States with respect to an
offshore account, certain documentary evidence procedures) are complied with,
directly or through an intermediary.

The payment of the proceeds from the disposition of shares of Common Stock
to or through the United States office of a broker will be subject to
information reporting and backup withholding unless the holder, under
penalties of perjury, certifies, among other things, its status as a Non-U.S.
Holder, or otherwise establishes an exemption. Generally, the payment of the
proceeds from the disposition of shares of Common Stock to or through a non-
U.S. office of a non-U.S. broker will not be subject to backup withholding and
will not be subject to information reporting. In the case of the payment of
proceeds from the disposition of shares of Common Stock to or through a non-
U.S. office of a broker that is a U.S. person or a "U.S.-related person,"
existing regulations require (i) backup withholding if the broker has actual
knowledge that the owner is a Non-U.S. Holder, and (ii) information reporting
on the payment unless the broker receives a statement from the owner, signed
under penalties of perjury, certifying, among other things, its status as a
Non-U.S. Holder, or the broker has documentary evidence in its files that the
owner is a Non-U.S. Holder and the broker has no actual knowledge to the
contrary. For this purpose, a "U.S.-related person" is (i) a "controlled
foreign corporation" for United States

67
<PAGE>

federal income tax purposes or (ii) a foreign person 50% or more of whose
gross income from all sources for the three-year period ending, with the close
of its taxable year preceding the payment (or for such part of the period that
the broker has been in existence) is derived from activities that are
effectively connected with the conduct of a United States trade or business.
The IRS recently proposed regulations addressing the withholding and
information reporting rules which could affect the treatment of the payment of
proceeds discussed above. Non-U.S. Holders should consult their tax advisors
regarding the application of these rules to their particular situations, the
availability of an exemption therefrom, the procedure for obtaining such an
exemption, if available, and the possible application of the proposed
regulations addressing the withholding and information reporting rules.

Backup withholding is not an additional tax. Any amounts withheld from a
payment to a Non-U.S. Holder under the backup withholding rules will be
allowed as a credit against such holder's United States federal income tax
liability, if any, and provided that such holder furnishes the IRS with the
information entitling such holder to an exemption from or reduced rate of
withholding, such holder would be entitled to a refund.

68
<PAGE>

PLAN OF DISTRIBUTION

The Company will receive no proceeds from the resale of the Shares by the
Selling Stockholder pursuant to this offering. The Shares offered for sale
hereby may be sold from time to time by the Selling Stockholder in one or more
transactions on NASDAQ, in the over-the-counter market, in negotiated
transactions or in a combination of such methods of sale, at fixed prices, at
market prices prevailing at the time of sale, at prices relating to prevailing
market prices or at negotiated prices. The Selling Stockholder may effect such
transactions directly to purchasers or to or through broker-dealers which may
act as agents or principals. Such broker-dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the
Selling Stockholder (which compensation as to a particular broker-dealer may
be less than or in excess of customary commissions). In addition, any Shares
covered by this Prospectus that qualify for sale pursuant to Rule 144 of the
Securities Act may be sold under Rule 144 rather than pursuant to this
Prospectus.

The Shares were issued to the Selling Stockholder on March 15, 1996, 1996
upon exercise of the Warrant granted to the Selling Stockholder on January 2,
1996. Pursuant to the Warrant, the Company agreed to file the Registration
Statement of which this Prospectus forms a part with the Commission, and to
keep the Registration Statement effective (subject to suspension under certain
circumstances) until the earlier of (i) the date all the shares registered
hereunder have been sold and (ii) January 2, 1998 plus a period equal to any
Suspension Period (as defined in the Warrant).

At the time a particular offer of Shares is made, a Prospectus Supplement,
to the extent required, will be distributed which will set forth the Shares
being offered by the Selling Stockholder, the purchase price, the amount of
expenses of the offering and the terms of the offering, including the name or
names of any underwriters, dealers or agents, and any discounts, commissions
and other items constituting compensation from any discounts, commissions or
concessions allowed or reallowed or paid to dealers.

To comply with certain states' securities laws, if applicable, the Shares
will be sold in such states only through brokers or dealers. In addition, in
certain states the Shares may not be sold unless they have been registered or
qualified for sale in such states or an exemption from registration or
qualification is available and is complied with. The Company is obligated
pursuant to the Warrant to register or qualify the Shares under the securities
or blue sky laws of such jurisdictions, as applicable.

Any broker-dealers who participate in a sale of the Shares may be deemed to
be "underwriters" within the meaning of Sections 11 and 12 of the Securities
Act and Rule 10b-5 of the Exchange Act, and any commissions received by them,
and proceeds of any such sales as principal, may be deemed to be underwriting
discounts and commissions under the Securities Act. To the extent the Selling
Stockholder may be deemed to be an underwriter, the Selling Stockholder may be
subject to certain statutory liabilities of the Securities Act.

In addition, the Selling Stockholder and any other person participating in
the sale or distribution of the Common Stock will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including without limitation Rules 10b-5, 10b-6 and 10b-7, which provisions
may limit the timing of purchases and sales of any of the Common Stock by the
Selling Stockholder and any other such person. The Company advises the Selling
Stockholder to consult with competent securities counsel prior to initiating
any such transaction. Furthermore, under Rule 10b-6 under the Exchange Act,
any person engaged in a distribution of Common Stock may not simultaneously
engage in market-making activities with respect thereto for a specified period
prior to the commencement of such distribution. All of the foregoing may
effect the marketability of the Common Stock and the ability of any person or
entity to engage in market-making activities with respect to the Common Stock.

The Common Stock is included for trading on the NASDAQ National Market under
the symbol "IDTC."

Pursuant to the Warrant, the Company shall bear the cost of preparation of
the Registration Statement but shall not be responsible for underwriting or
brokers discounts or commissions, transfer taxes or legal fees of the Selling
Stockholder. Expenses to be borne by the Company are estimated to be
approximately $ . As and when the Company is required to update this
Prospectus, it may incur additional expenses in excess of this estimated
amount.

69
<PAGE>

LEGAL MATTERS

Certain legal matters with respect to this offering will be passed upon for
the Company by Joyce J. Mason, Esq., Secretary of the Company.

EXPERTS

The consolidated financial statements and schedule of IDT Corporation as of
July 31, 1996 and 1995 and for each of the three years in the period ended
July 31, 1996 appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein and in the Registration Statement,
and are included herein in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.

70
<PAGE>

IDT CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Auditors........................................... F-2
Consolidated Balance Sheets as of July 31, 1995 and 1996................. F-3
Consolidated Statements of Operations for the years ended July 31, 1994,
1995 and 1996........................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended July
31, 1994, 1995 and 1996................................................. F-5
Consolidated Statements of Cash Flows for the years ended July 31, 1994,
1995 and 1996........................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Condensed Consolidated Balance Sheets as of July 31, 1996 and October 31,
1996 (Unaudited)........................................................ F-16
Condensed Consolidated Statements of Operations for the three months
ended October 31, 1995 and 1996 (Unaudited)............................. F-17
Condensed Consolidated Statements of Cash Flows for the three months
ended October 31, 1995 and 1996 (Unaudited)............................. F-18
Notes to Condensed Consolidated Financial Statements (Unaudited)......... F-19
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
IDT Corporation

We have audited the accompanying consolidated balance sheets of IDT
Corporation as of July 31, 1995 and 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended July 31, 1996. 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 generally accepted auditing
standards. 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 consolidated financial position
of the Company at July 31, 1995 and 1996 and the results of its operations and
its cash flows for each of the three years in the period ended July 31, 1996,
in conformity with generally accepted accounting principles.

Ernst & Young LLP

New York, New York
September 30, 1996

F-2
<PAGE>

IDT CORPORATION

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JULY 31
-------------------------
1995 1996
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 231,592 $ 14,893,756
Trade accounts and commissions receivable, net of
allowance for doubtful accounts of $250,000 at
July 31, 1995 and $2,100,000 at July 31, 1996.... 2,029,518 11,497,565
Advances receivable............................... -- 925,000
Due from Yovelle.................................. -- 1,200,000
Other current assets.............................. 141,034 1,985,090
----------- ------------
Total current assets............................ 2,402,144 30,501,411
Property and equipment, at cost, net................ 1,770,113 12,453,330
Advances receivable................................. -- 325,000
Other assets........................................ 25,000 517,630
----------- ------------
Total assets.................................... $ 4,197,257 $ 43,797,371
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable............................ $ 798,587 $ 7,778,860
Accrued expenses.................................. 2,028,753 7,770,334
Deferred revenue.................................. 266,584 983,496
Notes payable to former stockholder............... 5,001 --
Other current liabilities......................... 187,357 422,005
----------- ------------
Total current liabilities....................... 3,286,282 16,954,695
----------- ------------
Commitments and contingencies.......................
Stockholders' equity:
Preferred stock, $.01 par value; authorized
shares--10,000,000;
no shares issued................................. -- --
Common stock, $.01 par value; authorized shares--
100,000,000;
4,491,900 and 9,666,900 shares issued and
outstanding in 1995 and 1996, respectively....... 44,919 96,669
Class A stock, $.01 par value; authorized shares--
35,000,000;
11,174,330 shares issued and outstanding......... 111,743 111,743
Additional paid-in capital........................ 3,223,598 44,746,841
Accumulated deficit............................... (2,469,285) (18,112,577)
----------- ------------
Total stockholders' equity...................... 910,975 26,842,676
----------- ------------
Total liabilities and stockholders' equity...... $ 4,197,257 $ 43,797,371
=========== ============
</TABLE>

See accompanying notes.

F-3
<PAGE>

IDT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED JULY 31
--------------------------------------
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Revenues.............................. $ 3,169,013 $11,664,434 $ 57,693,880
Costs and expenses:
Direct cost of revenues............. 989,886 7,543,923 36,437,583
Selling, general and
administrative..................... 2,402,556 5,991,520 35,799,158
Depreciation and amortization....... 105,853 303,619 1,212,235
----------- ----------- ------------
Total costs and expenses.......... 3,498,295 13,839,062 73,448,976
----------- ----------- ------------
Loss from operations.................. (329,282) (2,174,628) (15,755,096)
Interest expense...................... (3,167) -- (113,160)
Interest income....................... 26,376 15,129 458,464
Other................................. 7,684 14,950 --
----------- ----------- ------------
Loss before income taxes and
extraordinary item................... (298,389) (2,144,549) (15,409,792)
Income taxes.......................... -- -- --
----------- ----------- ------------
Loss before extraordinary item........ (298,389) (2,144,549) (15,409,792)
Extraordinary loss on retirement of
debt................................. -- -- (233,500)
----------- ----------- ------------
Net loss.............................. $ (298,389) $(2,144,549) $(15,643,292)
=========== =========== ============
Loss per share:
Loss before extraordinary item...... $ (0.02) $ (0.13) $ (0.85)
Extraordinary loss on retirement of
debt............................... -- -- (0.01)
----------- ----------- ------------
Net loss.............................. $ (0.02) $ (0.13) $ (0.86)
=========== =========== ============
Weighted average number of shares used
in calculation of loss per share..... 16,569,292 16,569,292 18,180,023
=========== =========== ============
</TABLE>

See accompanying notes.

F-4
<PAGE>

IDT CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK CLASS A STOCK ADDITIONAL STOCK
----------------- ------------------- PAID-IN SUBSCRIPTION (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT)
--------- ------- ---------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 31,
1993................... 4,491,900 $44,919 11,174,330 $111,743 $ 939,938 $(25,000) $ (26,347)
Contribution and sale
of common stock....... -- -- -- -- 1,315,000 -- --
Net loss for the year
ended July 31, 1994... -- -- -- -- -- -- (298,389)
--------- ------- ---------- -------- ----------- -------- ------------
Balance at July 31,
1994................... 4,491,900 44,919 11,174,330 111,743 2,254,938 (25,000) (324,736)
Stock options.......... -- -- -- -- 968,660 -- --
Services rendered in
exchange for
subscription
receivable............ -- -- -- -- -- 25,000 --
Net loss for the year
ended July 31, 1995... -- -- -- -- -- -- (2,144,549)
--------- ------- ---------- -------- ----------- -------- ------------
Balance at July 31,
1995................... 4,491,900 44,919 11,174,330 111,743 3,223,598 -- (2,469,285)
Stock options.......... -- -- -- -- 70,000 -- --
Sale of common stock... 4,600,000 46,000 -- -- 41,458,993 -- --
Exercise of warrants... 575,000 5,750 -- -- (5,750) -- --
Net loss for the year
ended July 31, 1996... -- -- -- -- -- -- (15,643,292)
--------- ------- ---------- -------- ----------- -------- ------------
Balance at July 31,
1996................... 9,666,900 $96,669 11,174,330 $111,743 $44,746,841 $ -- $(18,112,577)
========= ======= ========== ======== =========== ======== ============
</TABLE>

See accompanying notes.

F-5
<PAGE>

IDT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED JULY 31
--------------------------------------
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.............................. $ (298,389) $(2,144,549) $(15,643,292)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Stock option expense................ -- 968,660 70,000
Depreciation and amortization....... 105,853 303,619 1,212,235
Write-off of abandoned equipment.... 82,000 -- --
Services rendered in exchange for
subscription receivable............ -- 25,000 --
Gain on sale of short-term
investments........................ (7,284) -- --
Changes in assets and liabilities:
Accounts receivable............... (648,928) (1,104,087) (9,468,047)
Due from Yovelle.................. -- -- (1,200,000)
Other current assets.............. (9,896) (97,357) (1,844,056)
Other assets...................... (25,000) -- (492,630)
Advances receivable............... -- -- (1,250,000)
Trade accounts payable............ 321,873 417,662 6,980,273
Accrued expenses.................. 260,557 1,731,696 5,741,581
Deferred revenue.................. -- 242,921 716,912
Other current liabilities......... (15,488) 177,810 234,648
----------- ----------- ------------
Net cash provided by (used in)
operating activities................. (234,702) 521,375 (14,942,376)
INVESTING ACTIVITIES
Purchase of equipment................. (716,623) (1,325,518) (11,895,452)
Purchase of short-term investments.... (1,490,413) -- --
Proceeds from the sale of short-term
investments.......................... 1,669,355 297,974 --
----------- ----------- ------------
Net cash used in investing
activities........................... (537,681) (1,027,544) (11,895,452)
FINANCING ACTIVITIES
Payments on notes due to former
shareholder.......................... (13,334) (16,669) (5,001)
Proceeds from notes payable from
shareholders, affiliates and outside
investors............................ -- -- 4,237,000
Repayments of notes payable from
shareholders, affiliates and outside
investors............................ -- -- (4,237,000)
Payments of stockholder loans......... (77,500) -- --
Proceeds from sale of common stock.... 1,315,000 -- 41,504,993
----------- ----------- ------------
Net cash provided by (used in)
financing activities................. 1,224,166 (16,669) 41,499,992
----------- ----------- ------------
Net increase (decrease) in cash....... 451,783 (522,838) 14,662,164
Cash and cash equivalents at beginning
of period............................ 302,647 754,430 231,592
----------- ----------- ------------
Cash and cash equivalents at end of
period............................... $ 754,430 $ 231,592 $ 14,893,756
=========== =========== ============
</TABLE>

See accompanying notes.

F-6
<PAGE>

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 1996

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

IDT Corporation (the "Company") was incorporated in Delaware in December
1995 as a wholly-owned subsidiary of International Discount
Telecommunications, Corp. ("IDT New York"). IDT New York was incorporated
under the laws of the state of New York in August 1990. In March 1996, in
order to effect IDT New York's Reincorporation in Delaware, IDT New York was
merged into the Company ("the Reincorporation"). As part of the
Reincorporation, the stockholders of IDT New York exchanged their shares of
common stock of IDT New York for an aggregate of 4,491,900 shares of Common
Stock and 11,174,330 shares of Class A Stock of the Company. The accompanying
financial statements give retroactive effect to the Reincorporation.

The Company provides Internet connectivity and certain telecommunication
services to subscribers in the United States and abroad. In August 1996, the
Company also began providing Internet telephony services with the introduction
of Net2Phone.

Principles of Consolidation

The accompanying consolidated financial statements include accounts of the
Company and its majority-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results inevitably will differ from those
estimates.

Revenue Recognition

Monthly subscription service revenue is recognized over the period services
are provided. Telecommunication revenues are recognized as they are incurred.
Equipment sales are recognized when installation is completed. Deferred
revenue consists primarily of semi-annual and annual Internet services billed
in advance.

Direct Cost of Revenues

Direct cost of revenues consists primarily of telecommunication costs,
connectivity costs, and the cost of equipment sold to customers.

Property and Equipment

Equipment, software, and furniture and fixtures are depreciation using the
straight-line method over the estimated useful lives of the assets, which
range from five to seven years. Leasehold improvements are depreciated using
the straight-line method over the term of the lease or estimated useful life
of the assets, whichever is shorter.

Subscriber Acquisition Costs and Advertising

Subscriber acquisition costs including sales commissions, license fees and
production and shipment of starter packages are expensed as incurred.

F-7
<PAGE>

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company expenses the costs of advertising as incurred. For the years
ended July 31, 1994, 1995 and 1996, advertising expense totaled $10,000,
$581,000 and $8,520,000, respectively.

Software Development Costs

Costs for the internal development of new software products and substantial
enhancements to existing software products are expensed as incurred until
technological feasibility has been established, at which time any additional
costs would be capitalized. To date, the Company has essentially completed its
software development concurrently with the establishment of technological
feasibility and, accordingly, no such costs have been capitalized to date.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Cash and cash
equivalents are carried at cost which approximates market value.

Income Taxes

The Company accounts for income taxes on the liability method as required by
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between the financial reporting and tax bases of assets
and liabilities.

Net Income (Loss) Per Share

Except as noted below, net income (loss) per common share is computed using
the weighted average number of common and Class A shares outstanding and
dilutive common stock equivalent shares from stock options. Stock options and
warrants are included as share equivalents using the treasury stock method.
For all periods prior to the Company's initial public offering the net income
(loss) per share amounts were computed in accordance with rules and practices
of the Securities and Exchange Commission that require common stock, common
stock options and common stock warrants issued at a price substantially below
the proposed public offering price and within a twelve-month period prior to
an initial public offering of common stock to be treated as common stock
equivalents outstanding for all periods prior to the initial public offering.

Current Vulnerability Due to Certain Concentrations

The Company is dependent upon certain suppliers for the provision of
telecommunication and Internet services to its customers. The Company has not
experienced and does not expect any disruption of such services. Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of cash, cash equivalents and trade receivables.
Concentrations of credit risk with respect to trade receivables are limited
due to the large number of customers comprising the Company's customer base.
However, international customers account for a significant amount of the
Company's total revenues. Therefore, the Company is subject to risks
associated with international operations, including changes in exchange rates,
difficulty in accounts receivable collection and longer payment cycles.

Management regularly monitors the creditworthiness of its domestic and
international customers and believes that it has adequately provided for any
exposure to potential credit losses.

Impact of Recently Issued Accounting Standards

In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment

F-8
<PAGE>

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. The
Company will adopt Statement 121 in the first quarter of fiscal 1997 and,
based on current circumstances, does not believe the effect of adoption will
be material.

Stock Based Compensation

The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to or less than the fair value of the shares at
the date of grant. In October 1995, the FASB issued of Statement No. 123,
Accounting for Stock Based Compensation, which is effective for fiscal years
beginning after December 15, 1995. In accordance with the provisions of
Statement 123, the Company has elected to continue to account for stock option
grants in accordance with APB Opinion No. 25, Accounting for Stock Issued to
Employees, and, accordingly, recognizes compensation expense for stock option
grants only when the exercise price is less than the fair value of the shares
at the date of grant. However, Statement 123 requires additional pro forma
disclosures regardless of whether a company elects to continue to apply APB 25
for its stock option grants. The Company will include such disclosures in its
fiscal 1997 annual financial statements.

2. ADVANCES RECEIVABLE

Prior to July 31, 1996, the Company advanced $1,250,000 to one of its
carriers. The Company also had trade receivables of approximately $1,600,000
due from the carrier at July 31, 1996. Subsequent to July 31, 1996, the
Company converted the advance and trade receivables, plus accrued interest
thereon, into a promissory note bearing interest at a rate of 13% per annum
and payable in 12 monthly installments commencing on November 15, 1996. The
promissory note is secured by the carrier's equipment.

3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
JULY 31
-----------------------
1995 1996
---------- -----------
<S> <C> <C>
Equipment................................... $1,906,622 $10,661,941
Computer software........................... 140,319 1,971,018
Leasehold improvements...................... 48,249 296,718
Furniture and fixtures...................... 115,902 1,176,867
---------- -----------
2,211,092 14,106,544
Less accumulated depreciation and
amortization............................... (440,979) (1,653,214)
---------- -----------
Net property and equipment.................. $1,770,113 $12,453,330
========== ===========
</TABLE>

4. NOTE PAYABLE TO FORMER STOCKHOLDER

In May 1991, the Company repurchased 1,035,000 shares of its Common for
$80,000 payable $20,000 on execution of the agreement and 36 monthly principal
payments of $1,667 beginning May 1, 1992. The note bore interest at 2% above
the prime rate as defined. In connection with the aforementioned stock
repurchase, the former stockholder received a warrant permitting him, in the
event of certain sales of the Company's Common stock, as defined, to purchase
shares of the Company's stock at a discount to the sale price. On January 1,
1996, in full satisfaction of the previous agreement, the former stockholder
was granted a warrant to purchase 575,000 shares of the Company's Common stock
for an aggregate purchase price of $1.00. This warrant was exercised in March
1996.

F-9
<PAGE>

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5. RELATED PARTY TRANSACTIONS

The Company currently leases office space from a corporation which is
wholly-owned by an officer stockholder. Aggregate lease payments under such
lease, which expires on June 30, 1997, were $24,000 for each of the years
ended July 31, 1994, 1995 and 1996. The Company provided a portion of such
space to corporations owned by an officer/stockholder without compensation.

The Company has been provided professional services by directors and/or
relatives of officers/directors. The Company incurred approximately $9,000,
$37,000 and $197,000 for such services for the years ended July 31, 1994, 1995
and 1996, respectively.

During 1996, the Company received $760,000 in non-interest bearing advances
from a company which is wholly-owned by an officer/shareholder of the Company.
Such advances were repaid during 1996.

The Company supplied telecommunications services to its customers under an
agreement wherein Lermer Overseas Telecommunications, Inc. ("Lermer") was the
carrier. Simon L. Lermer, who served as a director of the Company from
December 1992 to December 1995, is the sole shareholder of Lermer. Mr. Lermer
and Marc Knoller, a director of the Company, are the two directors of Lermer.
Under an agreement between Lermer and the Company, the Company provides Lermer
with marketing, technical support, billing and collection and rate procurement
services. Payments made to Lermer in Fiscal 1994 (from the inception of Lermer
in April 1994 until July 31, 1994), 1995 and 1996 equal $181,160, $2,416,534
and $2,142,718, respectively. The Company's revenues for such services
amounted to approximately $298,000, $6,016,000 and $13,024,259 for the years
ended July 31, 1994, 1995 and 1996, respectively.

During fiscal 1996, the Company obtained a license to supply
telecommunications services directly to its customers and the agreement with
Mr. Lermer was terminated.

6. INCOME TAXES

Significant components of the Company's deferred tax assets and liabilities
are as follows:

<TABLE>
<CAPTION>
JULY 31
----------------------
1995 1996
--------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................. $ 570,000 $ 7,257,000
Bad debt reserve................................. -- 844,000
Employee benefits................................ 330,000 418,000
--------- -----------
Deferred tax assets................................ 900,000 8,519,000
Deferred tax liability--depreciation............... 60,000 759,000
--------- -----------
Net deferred tax assets............................ 840,000 7,760,000
Valuation allowance................................ (840,000) (7,760,000)
--------- -----------
Total deferred tax assets.......................... $ -- $ --
========= ===========
</TABLE>

The Company has provided a full valuation allowance on net deferred tax
assets since realization of these benefit cannot be reasonably assured. The
valuation allowance increased by $6,920,000 during 1996.

At July 31, 1996, based upon tax returns filed and to be filed, the Company
had net operating loss carryforwards for federal income tax purposes of
approximately $18,400,000 expiring in the years 2009 through 2011. These net
operating loss carryforwards may be limited in their use in the event of
significant changes in the Company's ownership. In addition, their use is
limited to future taxable earnings of the Company.

F-10
<PAGE>

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

7. STOCKHOLDERS' EQUITY

Common Stock and Class A Stock

The rights of holders of Common stock and holders of Class A stock are
identical except for voting and conversion rights and restrictions on
transferability. The holders of Class A stock are entitled to three votes per
share and the holders of Common stock are entitled to one vote per share.
Class A stock is subject to certain limitations on transferability that do not
apply to the Common stock. Each share of Class A stock may be converted into
one share of Common stock, at any time at the option of the holder.

Stock Options

In August 1994, the Company granted options to purchase 1,783,530 shares of
common stock at exercise prices ranging from $0.21 to $0.83 per share. In
April 1995, the Company granted options to purchase 356,840 shares of common
stock at exercise prices ranging from $0.41 to $1.66 per share. In November
1995, the Company granted options to purchase 18,400 shares of common stock at
exercise prices ranging from $2.54 to $10.16 per share. The options granted
include various vesting provisions and expire ten years from the date of
grant. In connection with the granting of these options, the Company recorded
compensation expense of approximately $969,000 and $70,000 during the years
ended July 31, 1995 and 1996, respectively.

At July 31, 1996, options to purchase 3,503,520 shares of the Company's
Common Stock were outstanding of which 2,446,512 were then exercisable.

Initial Public Offering

On March 15, 1996, the Company completed an initial public offering of
4,600,000 shares of its common stock for $10 per share. The Company realized
net proceeds of approximately $41.5 million from this offering. A portion of
the proceeds from this offering was used to repay $3,477,000 of short-term
notes previously issued during fiscal 1996.

8. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

On August 2, 1995, in a suit entitled Fisher, Herbst & Kimble, P.C. et al v.
International Discount Telecommunications Corporation, pending in the U.S.
District Court of Dallas County, Texas, two plaintiffs alleged violation of
the Telephone Consumer Protection Act of 1991, 47 U.S.C. (beta)227(b)(1)(C)
("TCPA). In general, the TCPA prohibits certain kinds of, but not all,
unauthorized advertising by way of facsimile. The named Plaintiffs filed suit
individually and as a class action certification contending that the Company
transmitted advertisements proscribed by the TCPA and should be liable for
damages permitted by law. The statute provides a private right of action (if
otherwise permitted by the laws or rules of a court of a state) and allows
recovery of up to $500 or actual damages, if greater, for each individual
violation. The Company has entered into a settlement agreement with such
plaintiffs which has received final court approval.

In October 1995, an investigation was instituted by the Attorneys General of
Iowa, New Jersey, New York, Tennessee and Texas (collectively, the "A.G.")
into certain business practices of the Company as a result of complaints by
residents of those states. Michigan, thereafter entered the investigation on
or about September 1996. The focus of the A.G.'s investigation concerns
advertising practices that the Company voluntarily terminated prior to the
notice of investigation from the A.G. The majority of the advertising in
question concerns the sale of a product that the Company now sells only in
limited circumstances. The A.G. has indicated its desire to settle the matter
with a consent order, the content of which is being presently negotiated with
the Company.

F-11
<PAGE>

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company believes that the outcome will not have a material effect on the
Company's results of operations or financial condition.

On December 29, 1995, DRTV, Inc. a/k/a Surfers ("Surfers") filed a breach of
contract action in court. The suit names the Company as defendant and seeks
damages for licensing the sale of a product in the retail market to a third
party allegedly in violation of the agreement between the Company and Surfers.
The Company has filed a counterclaim. The Company and Surfers have reached a
settlement agreement and are in the process of finalizing it.

The Company is subject to other legal proceedings and claims which have
arisen in the ordinary course of its business and have not been finally
adjudicated. In the opinion of management, settlement of these and the
aforementioned actions when ultimately concluded will not have a material
adverse effect on results of operations, cash flows or the financial condition
of the Company.

Employment Agreements

The Company has entered into employment agreements with four senior
executives and two other employees of the Company which extend through
December 1999. The employment agreements provide, among other things, minimum
annual compensation aggregating $835,000 and for the issuance of stock options
and common stock.

Operating Leases

The Company has operating leases for its premises and certain equipment.
Rental expense under such leases was approximately $25,000, $30,000 and
$178,000 for the years ended July 31, 1994, 1995 and 1996, respectively.
Future minimum lease payments under such leases for the years ending July 31
are as follows:

<TABLE>
<S> <C>
1997.......................................................... $392,000
1998.......................................................... 351,000
1999.......................................................... 203,000
2000.......................................................... 4,000
--------
Total minimum lease payments.................................. $950,000
========
</TABLE>

License Fees

In connection with the provision of Internet access, the Company provides
certain customers with Internet software licensed from a third party. In the
prior year, the Company agreed to pay royalties based upon end users. In May
1996, such agreement was amended, except for monies due under the original
agreement. Under the terms of the amended agreement, which expires in May
1998, the Company has agreed to pay minimum royalties based upon end users and
annual service fees of approximately $1,850,000 and $300,000, respectively.
For the years ended July 31, 1994, 1995 and 1996, total licensing fees
amounted to $0, $30,000 and $1,098,000, respectively.

Communications Services

The Company has an agreement with a supplier of telecommunications services
("Vendor") which began in August 1994 and continues monthly unless terminated
by one of the parties. Under such agreement, the Vendor bills and collects, on
behalf of the Company, for long distance telephone services provided to the
Company's customers. The Company is responsible for all uncollected
receivables. For the year ended July 31, 1995 and 1996, the Company purchased
approximately $1,723,000 and $3,900,000 respectively, of services from the
Vendor.

F-12
<PAGE>

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company has entered into agreements with certain carriers to buy and
sell communications services. As of July 31, 1996, the Company has
approximately $1,475,000 in minimum purchase commitments related to such
agreements.

Distribution Agreements

The Company has entered into distribution agreements under which it has
agreed to pay its agents commissions for obtaining new Internet and discount
telecommunications customers. The agreements require commissions upon
activation of the customers.

9. CUSTOMER, GEOGRAPHICAL AREA AND SEGMENT INFORMATION

During the year ended July 31, 1996, one customer accounted for
approximately 19% of revenues. No customer accounted for more than 10% of
revenues during the years ended July 31, 1994 and 1995.

Revenues from customers outside the United States represented approximately
59%, 56% and 23% of total revenues during the years ended July 31, 1994, 1995
and 1996, respectively. No single geographic area accounted for more than 10%
of total revenues.

Operating results and other financial data are presented for the principal
business segments of the Company for the years ended July 31, 1995 and 1996.
Prior to August 1, 1994, the Company operated principally in one segment --
telecommunications.

<TABLE>
<CAPTION>
INTERNET ACCESS TELE-COMMUNICATIONS NET2PHONE TOTAL
--------------- ------------------- --------- --------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended July 31, 1995
Revenues.............. $ 875 $10,789 $ -- $ 11,664
Income (loss) from
operations........... (3,005) 830 -- (2,175)
Depreciation and
amortization......... 187 117 -- 304
Total assets.......... 869 3,328 -- 4,197
Capital expenditures.. 893 433 -- 1,326
Year ended July 31, 1996
Revenues.............. 21,986 35,708 -- 57,694
Income (loss) from
operations........... (17,851) 2,756 (660) (15,755)
Depreciation and
amortization......... 930 258 24 1,212
Total assets.......... 20,570 22,907 320 43,797
Capital expenditures.. 10,335 1,358 202 11,895
</TABLE>

10. NOTES AND ADVANCES PAYABLE

During fiscal 1996, the Company borrowed an aggregate of $3,477,000 from
shareholders, affiliates and outside investors. The notes bore interest at 12%
per annum. The notes were repaid with the proceeds of the Company's initial
public offering. In connection with the repayment of such notes, the Company
incurred a prepayment penalty of $233,500. Such prepayment penalty has been
classified as an extraordinary loss on retirement of debt in the accompanying
statement of operations.

F-13
<PAGE>

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

11. ADDITIONAL FINANCIAL INFORMATION

Additional financial information with respect to cash flows is as follows:

<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------
1994 1995 1996
------ ------- --------
<S> <C> <C> <C>
Cash payments made for interest................... $4,574 $ -- $113,000
Cash payments made for income taxes............... -- 56,000 --
</TABLE>

Other current assets include advances from carriers of $1,498,502 at July
31, 1996. Accrued expenses includes $1,791,587 and $5,839,706 due to
telecommunication carriers at July 31, 1995 and 1996, respectively.

12. CONSULTING AND LICENSING AGREEMENT

The Company possesses the exclusive right to make the services of Genie,
including its multi-player games and information services, accessible over the
Internet and the World Wide Web, pursuant to its agreement with Yovelle
Renaissance Corporation ("Yovelle," and such agreement, the "Yovelle
Agreement"). Yovelle, a recently formed entity, purchased the Genie service
from GE Information Services, Inc. in January 1996. Pursuant to the Yovelle
Agreement, the Company provided certain management consulting and other
services to Yovelle and paid Yovelle certain online content product costs and
licensing fees, in exchange for the right to make Genie's online offerings
available over the Internet (including the World Wide Web) exclusively through
the Company. The Yovelle Agreement was to expire in February 1998, and was
renewable thereafter. The Company's Chief Executive Officer and Chairman of
the Board of Directors, loaned $500,000 to Yovelle and received a promissory
note in consideration therefor which bore interest at a rate of 12% per annum
and was due in June 1996.

During the year ended July 31, 1996, revenue under the Yovelle Agreement
amounted to $1,200,000.

In August 1996, the Company purchased all of the issued and outstanding
stock of Yovelle for $200,000. The purchase price is comprised of $100,000 in
cash and a non-interest bearing promissory note for $100,000, payable on or
before December 31, 1996.

13. JOINT VENTURE

In May 1996, the Company entered into an agreement with Internet Consulting
Group Limited to make the Company's Internet services available throughout
Europe by providing marketing and customer support services. Under the terms
of the agreement, the Company has agreed to an initial capital investment of
$1,400,000 for 70% of the shares of the new joint venture, of which the
Company has invested $90,000 as of July 31, 1996. Operations of the joint
venture are expected to commence in 1997.

14. SUBSEQUENT EVENTS

Acquisition of PCIX, Inc.

On August 16, 1996, the Company completed the acquisition of the assets of
PCIX, Inc. ("PCIX"), a former alliance partner of the Company. The acquisition
price included a $690,000 promissory note, cash payments totaling $260,000,
forgiveness of $162,300 owed to the Company from PCIX, and the assumption of
$95,400 of other PCIX liabilities. The acquisition price is subject to
adjustment based on PCIX's operating activity during the period from May 1,
1996 to August 16, 1996. The promissory note bears interest at 8.25% per annum
and matures on August 16, 1998.

F-14
<PAGE>

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)

Capital Lease

In August 1996, the Company entered into a $1,000,000 capital lease
arrangement to acquire computer and communications related equipment. The
lease which expires in July 1999, requires monthly payments of $31,270,
including interest at 8.4% and is collateralized by the equipment.

Note Payable

On August 8, 1996, the Company borrowed $2,500,000 from a financing company
under an interest bearing note. Such note will be repaid in 34 installments of
$77,330 per month commencing in October 1996 and includes a balloon payment of
$312,500 in September 1999. The note is collateralized by certain equipment
owned by the Company.

F-15
<PAGE>

IDT CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
OCTOBER 31, JULY 31,
1996 1996
----------- -----------
(UNAUDITED) (NOTE 1)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.......................... $ 9,191,237 $14,893,756
Short-term investments............................. 957,108 --
Accounts Receivable (Net).......................... 12,594,978 11,497,565
Other current assets............................... 3,249,685 4,110,090
----------- -----------
Total current assets............................. 25,993,008 30,501,411
Property and equipment, net.......................... 20,515,693 12,453,330
Other assets......................................... 2,133,258 842,630
----------- -----------
Total assets..................................... $48,641,959 $43,797,371
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable............................. $ 8,202,132 $ 7,778,860
Accrued expenses................................... 7,514,495 7,770,334
Deferred revenue................................... 1,905,993 983,496
Notes payable & current portion of long-term debt
and capital lease obligations..................... 1,596,090 --
Other current liabilities.......................... 408,333 422,005
----------- -----------
Total current liabilities........................ 19,627,043 16,954,695
Long-term debt and capital lease obligations......... 5,278,883 --
Commitments and contingencies........................ -- --
----------- -----------
Total liabilities................................ 24,905,926 16,954,695
Stockholders' equity
Preferred stock, $.01 par value; authorized
shares--10,000,000; no shares issued.............. -- --
Common stock, $.01 par value; authorized shares--
100,000,000; 9,666,900 shares issued and
outstanding....................................... 96,669 96,669
Class A stock, $.01 par value; authorized shares--
35,000,000; 11,174,330 shares issued and
outstanding....................................... 111,743 111,743
Additional paid in capital......................... 44,746,841 44,746,841
Accumulated deficit................................ (21,219,220) (18,112,577)
----------- -----------
Total stockholders' equity....................... 23,736,033 26,842,676
----------- -----------
Total liabilities and stockholders' equity....... $48,641,959 $43,797,371
=========== ===========
</TABLE>

See notes to condensed consolidated financial statements.

F-16
<PAGE>

IDT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 31,
-------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
Revenues..................................... $ 28,317,671 $ 6,600,818
Cost and expenses:
Direct cost of revenues.................... 18,012,801 4,172,712
Selling, general, and administrative....... 12,597,679 3,953,483
Depreciation and amortization.............. 963,433 130,755
-------------- ---------------
Total costs and expenses................. 31,573,913 8,256,950
Loss from operations......................... (3,256,242) (1,656,132)
Interest and other, net...................... 149,599 2,817
-------------- ---------------
Net loss................................... $ (3,106,643) $ (1,653,315)
============== ===============
Net loss per share........................... ($0.15) ($0.10)
============== ===============
Weighted average number of shares used in
calculation of earnings per share........... 20,841,230 16,659,292
============== ===============
</TABLE>

See notes to condensed consolidated financial statements.

F-17
<PAGE>

IDT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 31,
------------------------------
1996 1995
---------------- ---------------
<S> <C> <C>
Cash provided by (used in) operating activi-
ties....................................... ($ 4,820,559) $ 240,652
INVESTING ACTIVITIES
Payment for purchase of businesses, net of
cash acquired.............................. (1,873,157) --
Purchase of short-term investments.......... (757,108) --
Receipt of payment on advance............... 1,500,000 --
Purchase of property and equipment.......... (4,122,656) (835,546)
---------------- --------------
Net cash used in investing activities....... (5,252,921) (835,546)
FINANCING ACTIVITIES
Repayment of loans.......................... (374,286) (5,001)
Repayments of capital lease obligation...... (4,753) --
Proceeds from loans......................... 4,750,000 450,000
---------------- --------------
Net cash provided by financing activities... 4,370,961 444,999
---------------- --------------
Net decrease in cash & cash equivalents..... (5,702,519) (149,895)
Cash & cash equivalents, beginning of peri-
od......................................... 14,893,756 231,592
---------------- --------------
Cash & cash equivalents, end of period...... $ 9,191,237 $ 81,697
================ ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFOR-
MATION
Interest paid............................... $ 48,410 --
Income taxes paid........................... -- --
</TABLE>

See notes to condensed consolidated financial statements.

F-18
<PAGE>

IDT CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of
IDT Corporation and Subsidiaries (collectively "the Company") have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three months
ended October 31, 1996 are not necessarily indicative of the results that may
be expected for the year ending July 31, 1997. For further information, refer
to the consolidated financial statements and footnotes thereto for the year
ended July 31, 1996.

NOTE 2--PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
OCTOBER 31, JULY 31,
1996 1996
----------- -----------
<S> <C> <C>
Equipment......................................... $18,827,522 $10,661,941
Computer software................................. 2,527,282 1,971,018
Leasehold improvements............................ 439,515 296,718
Furniture and fixtures............................ 1,209,457 1,176,867
Automobile........................................ 21,650 --
Property and improvements......................... 106,914 --
----------- -----------
23,132,340 14,106,544
Less: Accumulated depreciation and amortization... (2,616,647) (1,653,214)
----------- -----------
$20,515,693 $12,453,330
=========== ===========
</TABLE>

NOTE 3--ACQUISITIONS

During the quarter ended October 31, 1996, the Company purchased the
equipment and networks of two of its alliance partners for approximately $4.4
million. The Company issued three promissory notes to finance these purchases.
The notes include a $690,000 two year 8.25% note, a $750,000 four year 10%
note, and a $2,250,000 four year note with interest only payments for the
first six months at 11% per annum and 42 equal monthly payments of principal
and interest at 14% per annum thereafter, and convertible into Common Stock at
the lower of $14 or the market price at the date of conversion per share at
the option of the holder after nine months of issuance.

In August 1996, the Company purchased all of the issued and outstanding
stock of Yovelle Renaissance Corporation, who owns the GENIE online service,
for cash of $200,000 which was due and payable in December 1996. The purchase
price included assumption of a note payable of $750,000 to GE Information
Services, due by December 15, 1996 and resulted in the recording of Goodwill
of $1,372,289 which is included in other assets and is being amortized over
forty years.

NOTE 4--LOANS PAYABLE AND CAPITAL LEASE OBLIGATIONS

During the quarter ended October 31, 1996, the Company borrowed $6,190,000
consisting of four interest bearing notes collateralized by certain equipment
owned by the Company and with terms ranging from twenty-four months to forty-
eight months.

One note of $2,250,000 can be converted into Common Stock at the option of
the holder.

F-19
<PAGE>

The Company also entered into three capital lease arrangements to acquire
computer and communications related equipment totaling approximately $314,000
in the aggregate with terms ranging from twenty-four months to thirty-six
months and collateralized by the equipment.

NOTE 5--LEGAL PROCEEDINGS AND CONTINGENCIES

IDT has received an inquiry from a state Attorney General's office, in which
several states are participating, concerning IDT's advertising and marketing
practices. IDT is cooperating with the Attorneys General in this investigation
and has met with representatives of the offices involved. The parties are
currently working toward a resolution of this matter and IDT believes that the
outcome will not have a material effect on the ongoing business of the
Company.

On June 19, 1996, the Business Software Alliance ("BSA") in correspondence
with the Company alleged that the Company has made unlicensed internal use of
certain third party software. The Company has agreed to conduct an internal
software audit and is in negotiations with BSA to settle this matter. Although
there can be no assurance, the Company believes that the outcome will not have
a material adverse effect on the ongoing business of the Company.

The Company recently has been served with a third party complaint in a
pending action between The New York Times Company and Independent Media
Services, Inc. ("IMS"). In the third party complaint, IMS alleges non-payment
of media services fees and print advertisement fees. The claim against the
Company is for approximately $300,000. An answer has not yet been filed and an
assesment of potential liability is not possible at this time.

The Company received correspondence from a stockholder of 575,000 shares of
Common Stock with the right to require the Company to register his shares for
sale in a public offering. The Company asserted its right to delay or suspend
such registration for a limited time under specified circumstances. The
stockholder has stated his belief that the Company has no such right and that
the Company and Howard Jonas, its Chairman and Chief Executive Officer, will
be held responsible for any loss suffered by such stockholder from a decline
in the market price of the stock or other losses resulting from the delay in
registering his shares. Although the Company believes it has valid defenses to
the stockholder's claims, there can be no assurance as to the outcome of this
matter.

The Company is subject to other legal proceedings and claims which have
arisen in the ordinary course of its business and have not been finally
adjudicated. Although there can be no assurance, the opinion of management is
that settlement of these actions, when ultimately concluded, will not have a
material adverse effect on results of operations, cash flows or the financial
condition of the Company.

F-20
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THESE OF-
FERINGS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY, OR THE SELLING STOCKHOLDER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR
AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIR-
CUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

-----------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 20
Price Range of Common Stock and Dividend Policy.......................... 20
Selected Consolidated Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 32
Management............................................................... 52
Certain Transactions..................................................... 58
Security Ownership of Certain Beneficial Owners and Management........... 60
Selling Stockholder...................................................... 61
Description of Capital Stock............................................. 61
Shares Eligible for Future Sale.......................................... 64
Certain United States Federal Tax Considerations for Non-U.S. Holders of
Common Stock............................................................ 66
Plan of Distribution..................................................... 69
Legal Matters............................................................ 70
Experts.................................................................. 70
Index to Financial Statements............................................ F-1
</TABLE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

400,000 SHARES

IDT CORPORATION

COMMON STOCK

-----------------

PROSPECTUS

-----------------

, 1996

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the costs and expenses incurred by the
Company in connection with the sale of Common Stock being registered (all
amounts are estimated except the SEC registration fee and the NASDAQ National
Market listing fee). The Company is not responsible for underwriting or
brokers discounts or commissions, transfer taxes or legal fees of the Selling
Stockholder.

<TABLE>
<CAPTION>
ITEM AMOUNT
---- ---------
<S> <C>
SEC registration fee............................................ $1,379.00
NASDAQ National Market listing fee.............................. *
Printing and engraving expenses................................. *
Legal fees and expenses......................................... *
Accounting fees and expenses.................................... *
Blue sky fees and expenses...................................... *
Transfer agent fees and expenses................................ *
Miscellaneous................................................... *
---------
Total......................................................... $1,379.00
=========
</TABLE>
--------
* To be filed by amendment

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Reference is made to Section 145 of the General Corporation Law of the State
of Delaware (the "DGCL"), which provides for indemnification of directors,
officers and other employees in certain circumstances, and to Section
102(b)(7) of the DGCL, which provides for the elimination or limitation of the
personal liability for monetary damages of directors under certain
circumstances. Article Sixth of the Certificate of Incorporation of the
Company eliminates the personal liability for monetary damages of directors
under certain circumstances and provides indemnification to directors and
officers of the Company to the fullest extent permitted by the DGCL. Among
other things, these provisions provide indemnification for officers and
directors against liabilities for judgments in and settlements of lawsuits and
other proceedings and for the advance and payment of fees and expenses
reasonably incurred by the director or officer in defense of any such lawsuit
or proceeding.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Between August 1994 and December 1995, the Company issued options to
purchase an aggregate of 2,158,770 shares of its Common Stock to certain of
its officers and employees under various management and employee equity
programs. Such securities were sold in transactions that were exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act").

In December 1993, the Company issued an aggregate of 1,490,400 shares of
Common Stock to six investors for an aggregate of $1,240,000. The transactions
were exempt from registration under Section 4(2) of the Securities Act.

In May 1994, the Company issued 103,500 shares of its Common Stock to an
investor for $75,000. The transaction was exempt from registration under
Section 4(2) of the Securities Act.

In September 1995, the Company issued $75,000 aggregate principal amount of
a 12% Promissory Note due September 28, 1996 to an investor. This transaction
was exempt from registration under Section 4(2) of the Securities Act.

In October 1995, the Company issued $275,000 aggregate principal amount of a
12% Promissory Note due October 1996 to three investors. The transaction was
exempt from registration under Section 4(2) of the Securities Act.

II-1
<PAGE>

In November 1995, the Company issued $100,000 aggregate principal amount of
a 12% Promissory Note due November 13, 1996 to an investor. The transaction
was exempt from registration under Section 4(2) of the Securities Act.

In November 1995, the Company issued $75,000 aggregate principal amount of a
12% Promissory Note due November 15, 1996 to an investor. The transaction was
exempt from registration under Section 4(2) of the Securities Act.

In November 1995, the Company issued $500,000 aggregate principal amount of
a 12% Convertible Note due November 21, 1996 to an investor. The Note was
amended and restated in January 1996 to remove the conversion feature and
become due on the earlier to occur of (i) an initial public offering or (ii)
June 3, 1996. The transaction was exempt from registration under Section 4(2)
of the Securities Act.

In December 1995, the Company issued $300,000 aggregate principal amount of
a 12% Promissory Note due December 18, 1996 to three investors. In the event
of an initial public offering of the Company's Common Stock, the Company must
redeem the Note at a price equal to the principal amount of the Note plus any
accrued interest. In addition, if the Company must redeem the Note due to its
initial public offering, it must pay the holder of the Note a premium equal to
10% of the principal amount of such note. This transaction was exempt from
registration under Section 4(2) of the Securities Act.

In January 1996, the Company issued a warrant to purchase 575,000 shares of
Common Stock to Alan M. Grayson (the Selling Stockholder in this offering) in
exchange for a warrant previously issued to Mr. Grayson in May 1991. Such
transaction was exempt from registration under Section 4(2) of the Securities
Act.

In January 1996, the Company issued $880,000 aggregate principal amount of
12% Promissory Notes due January 1997 to nine investors and $250,000 aggregate
principal amount of 12% Promissory Notes due September 1996 to two investors.
In the event of an initial public offering of the Company's Common Stock, the
Company must redeem the Notes at a price equal to the principal amount of the
Notes plus any accrued interest. In addition, if the Company must redeem the
Note due its initial public offering, it must pay the holder of a Note a
premium equal to 10% of the principal amount. These transactions were exempt
from registration under Section 4(2) of the Securities Act.

In February 1996, the Company issued $905,000 aggregate principal amount of
12% Promissory Notes due February 1997 to eleven investors. In the event of an
initial public offering of the Company's Common Stock, the Company must redeem
the Notes at a price equal to the principal amount of the Notes plus any
accrued interest. In addition, if the Company must redeem the Note due its
initial public offering, it must pay the holder of a Note a premium equal to
10% of the principal amount. These transactions were exempt from registration
under Section 4(2) of the Securities Act.

Effective on the consummation of the initial public offering in March 1996,
International Discount Telecommunications Corp., a New York corporation ("IDT
New York") merged with and into its wholly-owned subsidiary, IDT Corporation,
a Delaware corporation ("IDT Delaware"). In connection with the merger, IDT
Delaware issued shares of its Common Stock in exchange for shares of IDT New
York common stock. The issuances of securities were exempt from registration
under Section 3(a)9 of the Securities Act.

II-2
<PAGE>

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(A) EXHIBITS:

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.01## Merger Agreement relating to the reincorporation of the
Registrant in Delaware.
3.01## Restated Certificate of Incorporation of the Registrant.
3.02## By-laws of the Registrant.
4.01### Specimen Certificates for shares of the Registrant's Common
Stock and Class A Stock.
4.02## Description of Capital Stock (contained in the Certificate of
Incorporation of the Registrant, filed as Exhibit 3.01)
5.01[_] Legal Opinion of Joyce J. Mason, Esq.
10.01(star)(star) Employment Agreement between the Registrant and Howard S. Jonas.
10.02(star)(star) Employment Agreement between the Registrant and Howard S.
Balter.
10.03(star)(star) Employment Agreement between the Registrant and Eric L. Raab.
10.04## 1996 Stock Option and Incentive Plan.
10.05*+ Network Service Provider Agreement between Netscape
Communications Corporation and the Registrant
10.06(star)(star) Marketing Services and Independent Contractor Services Agreement
between Lermer Overseas Telecommunications, Inc. and the
Registrant.
10.07# Rebiller Service Agreement between WorldCom, Inc. (formerly LDDS
Communications, Inc.) and the Registrant.
10.08### Registration Rights Agreement between the Company's stockholders
and the Company.
10.09# Lease of 294 State Street.
10.11(circle) Registration Rights Agreement between Howard S. Jonas and the
Registrant.
10.12[_] Employment Agreement between the Registrant and James A.
Courter.
10.13[_] Employment Agreement between the Registrant and Kenneth Scharf.
10.14*+ Access Agreement between PSINet Inc. and the Registrant.
10.15*+ Restated Sales Agreement between International Computer Systems,
Inc. and the Registrant.
10.16(star) Form of Stock Option Agreement under the Employee Stock Option
Program
10.17(star) Form of Stock Option Agreement under 1996 Stock Option and
Incentive Plan.
21.01* Subsidiaries of the Registrant.
23.01[_] Consent of Joyce J. Mason, Esq. (contained in Exhibit 5.01).
23.02(star) Consent of Ernst & Young LLP.
24.01(star) Power of Attorney (included on page II-5 hereof).
</TABLE>
- --------
<TABLE>
<S> <C>
(star) filed herewith
[_] to be filed by amendment
+ confidential treatment request pending
(star)(star) incorporated by reference to Form S-1 filed January 9, 1996, file No. 333-
00204
# incorporated by reference to Form S-1 filed January 22, 1996, file No. 333-
00204
## incorporated by reference to Form S-1 filed February 21, 1996, file No. 333-
00204
### incorporated by reference to Form S-1 filed March 8, 1996, file No. 333-
00204
(circle) incorporated by reference to Form S-1 filed March 14, 1996, file No. 333-
00204
* incorporated by reference to Form 10-K for the fiscal year ended July 31,
1996, filed October 29, 1996, as amended November 21, 1996, file No. 000-
27898.
</TABLE>

(B) FINANCIAL STATEMENT SCHEDULES:

<TABLE>
<CAPTION>
SCHEDULE NO. DESCRIPTION
-------------- -----------
<C> <S>
II Valuation and qualifying accounts
</TABLE>

II-3
<PAGE>

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes:

(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement: (i) to include any
prospectus required by section 10(a)(3) of the Securities Act; (ii) to
reflect in the prospectus any facts or events arising after the effective
date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration
Statement; and (iii) to include any material information with respect to
the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Statement.

(b) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

II-4
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HACKENSACK, STATE OF NEW
JERSEY, ON DECEMBER 27, 1996.

IDT Corporation

/s/ Howard S. Jonas
By: _________________________________
Howard S. Jonas
Chairman and Chief Executive
Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Howard S. Jonas and Howard S. Balter, and each
of them, each with full power to act without the other, his true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for such person and in his name, place and stead, in any and
all capacities, to sign any or all further amendments or supplements (including
post-effective amendments filed pursuant to Rule 462(b) of the Securities Act
of 1993) to this Form S-1 Registration Statement and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto each of said attorneys-in-
fact and agents full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully as to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact and agents, or
his substitutes, may lawfully do or cause to be done by virtue hereof.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED BELOW.

SIGNATURE TITLE DATE

/s/ Howard S. Jonas Chairman and Chief December 27,
- ------------------------------------- Executive Officer 1996
HOWARD S. JONAS (Principal
Executive Officer)

/s/ Howard S. Balter Chief Operating December 27,
- ------------------------------------- Officer and Vice 1996
HOWARD S. BALTER Chairman (Principal
Financial Officer)

/s/ Stephen R. Brown Chief Financial December 27,
- ------------------------------------- Officer (Principal 1996
STEPHEN R. BROWN Accounting Officer)

II-5
<PAGE>

SIGNATURE TITLE DATE

/s/ James Courter President and December 27,
- ------------------------------------- Director 1996
JAMES COURTER

/s/ Joyce J. Mason Secretary and December 27,
- ------------------------------------- Director 1996
JOYCE J. MASON

/s/ Marc E. Knoller Vice President and December 27,
- ------------------------------------- Director 1996
MARC E. KNOLLER

Director December ,
- ------------------------------------- 1996
MEYER A. BERMAN

/s/ J. Warren Blaker Director December 27,
- ------------------------------------- 1996
J. WARREN BLAKER

/s/ David S. Steiner Director December 27,
- ------------------------------------- 1996
DAVID S. STEINER

Director December ,
- ------------------------------------- 1996
BERT W. WASSERMAN

II-6
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
IDT Corporation

We have audited the consolidated financial statements of IDT Corporation as
of July 31, 1996 and 1995, and for each of the three years in the period ended
July 31, 1996, and have issued our report thereon dated September 30, 1996
(included elsewhere in this Registration Statement). Our audits also included
the financial statement schedule listed in Item 16(b) of this Registration
Statement. This schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

Ernst & Young LLP

New York, New York
September 30, 1996

S-1
<PAGE>

IDT CORPORATION

SCHEDULE--VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS(1) OF PERIOD
----------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
1994:
Reserves deducted from accounts
receivable:
Allowance for doubtful
accounts.................... $ -- $ 5,000 $ -- $ 5,000
1995:
Reserves deducted from accounts
receivable:
Allowance for doubtful
accounts.................... 5,000 439,891 (194,891) 250,000
1996:
Reserves deducted from accounts
receivable:
Allowance for doubtful
accounts.................... 250,000 4,042,070 (2,192,070) 2,100,000
</TABLE>
- --------
(1) Uncollectible accounts written off, net of recoveries.

S-2
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
SUBSEQUENTLY
EXHIBIT NUMBERED
NUMBER PAGES
------- ------------
<C> <S> <C>
2.01## Merger Agreement relating to the reincorporation of
the Registrant in Delaware.
3.01## Restated Certificate of Incorporation of the
Registrant.
3.02## By-laws of the Registrant.
4.01### Specimen Certificates for shares of the Registrant's
Common Stock and Class A Stock.
4.02## Description of Capital Stock (contained in the
Certificate of Incorporation of the Registrant, filed
as Exhibit 3.01)
5.01[_] Legal Opinion of Joyce J. Mason, Esq.
10.01(star)(star) Employment Agreement between the Registrant and Howard
S. Jonas.
10.02(star)(star) Employment Agreement between the Registrant and Howard
S. Balter.
10.03(star)(star) Employment Agreement between the Registrant and Eric
L. Raab.
10.04## Form of 1996 Stock Option and Incentive Plan.
10.05*+ Network Service Provider Agreement between Netscape
Communications Corporation and the Registrant
10.06(star)(star) Marketing Services and Independent Contractor Services
Agreement between Lermer Overseas Telecommunications,
Inc. and the Registrant.
10.07# Rebiller Service Agreement between WorldCom, Inc.
(formerly LDDS Communications, Inc.) and the
Registrant.
10.08### Registration Rights Agreement between the Company's
stockholders and the Company.
10.09## Lease of 294 State Street.
10.11(circle) Form of Registration Rights Agreement between Howard
S. Jonas and the Registrant.
10.12(star) Form of Employment Agreement between the Registrant
and James A. Courter.
10.13(star) Form of Employment Agreement between the Registrant
and Kenneth Scharf.
10.14*+ Access Agreement between PSINet Inc. and the
Registrant.
10.15*+ Restated Sales Agreement between International
Computer Systems, Inc. and the Registrant.
10.16(star) Form of Stock Option Agreement under the 1996 Stock
Option and Incentive Plan.
10.17(star) Form of Stock Option Agreement under the Employee
Stock Option Program.
21.01* Subsidiaries of the Registrant.
23.01[_] Consent of Joyce J. Mason, Esq. (contained in Exhibit
5.01).
23.02(star) Consent of Ernst & Young LLP.
24.01 Power of Attorney (included on page II-5 hereof).
</TABLE>
- --------
<TABLE>
<S> <C>
(star) filed herewith
[_] to be filed by amendment
+ confidential treatment request pending
(star)(star) incorporated by reference to Form S-1 filed January 9, 1996, file No. 333-00204
# incorporated by reference to Form S-1 filed January 22, 1996, file No. 333-00204
## incorporated by reference to Form S-1 filed February 21, 1996, file No. 333-00204
### incorporated by reference to Form S-1 filed March 8, 1996, file No. 333-00204
(circle) incorporated by reference to Form S-1 filed March 14, 1996, file No. 333-00204
* incorporated by reference to Form 10-K for the fiscal year ended July 31,
1996, filed October 29, 1996, as amended November 21, 1996, file No. 000-27898.
</TABLE>

<PAGE>

EXHIBIT 10.12

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT (this "Agreement"), dated as of October 28, 1996, by
and between IDT Corporation, a Delaware corporation (the "Company"), and James
Courter (the "Executive").

WHEREAS, in recognition of the Executive's experience and abilities, the
Company desires to assure itself of the employment of the Executive in
accordance with the terms and conditions provided herein; and

WHEREAS, the Executive wishes to perform services for the Company in
accordance with the terms and conditions provided herein.

NOW, THEREFORE, in consideration of the premises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:

1. Employment. The Company hereby agrees to employ the Executive, and the
Executive hereby agrees to perform, services for the Company, on the terms and
conditions set forth herein.

2. Term. This Agreement is for the three year period (the "Term") commencing
on October 1, 1996, and terminating on the third anniversary of such date, or
upon the Executive's earlier death, disability or other termination of
employment pursuant to Section 7 hereof; provided, however, that commencing on
October 1, 1999 and each anniversary thereafter the term shall automatically
be extended for one additional year beyond its otherwise scheduled expiration
unless, not later than ninety (90) days prior to any such anniversary, either
party hereto shall have notified the other party hereto in writing that such
extension shall not take effect.

3. Position. During the Term, the Executive shall serve as the President of
the Company.

4. Duties and Reporting Relationship. During the Term, the Executive shall,
on a full time basis, use his skills and render services to the best of his
abilities in supervising and conducting the operations of the Company. The
Executive shall report directly to the Chairman and board of Directors of the
Company.

5. Place of Performance. The Executive shall perform his duties and conduct
his business at the offices of the Company located in Hackensack, New Jersey,
except for required travel on the Company's business.

6. Compensation and Related Matters.

(a) Annual Base Salary. The Company shall pay to the executive an annual
base salary (the "Base Salary") at a rate not less than $200,000, such
salary to be paid in conformity with the Company's payroll policies
relating to its senior executive officers. The Base Salary may, from time
to time, be increased, however, if the Executive's Base Salary is
increased, it shall not thereafter be decreased during the Term.

(b) Employee Benefit Plans. During the Term, the Executive shall be
entitled to participate in those incentive plans, programs, and
arrangements which are available to other senior executives officers of the
Company (the "Benefits Plans"). The Executive shall be provided benefits
under the Benefit Plans substantially equivalent, in the aggregate; to the
benefits provided to other senior executive officers of the Company and on
substantially similar terms and conditions.

(c) Pension and Welfare Benefits. During the Term, the Executive shall be
eligible to participate in the pension and retirement plans (the "Pension
Plains") provided to other senior executive officers of the Company, and
participate fully in all health benefits, insurance programs and other
similar executive welfare benefit arrangements available to other senior
executive officer of the Company and shall be provided benefits under such
plans and arrangements substantially equivalent, in the aggregate, to the
benefits provided to other senior executive officers of the Company and on
substantially similar terms and conditions. Notwithstanding the foregoing,
during the Term, the Company shall provide the Executive with life
insurance and disability insurance at a benefit level no less favorable to
the Executive than the benefit level provided to him as of the date of this
Agreement.
<PAGE>

(d) Fringe Benefits and Perquisites. During the Term, the Company shall
provide to the Executive all of the fringe benefits and perquisites that
are provided to other senior executive officers of the Company, and the
Executive shall be entitled to receive any other fringe benefits or
perquisites that become available to other senior executive officers of the
Company subsequent to the date hereof.

(e) Stock Option Grant. Executive shall receive on October 29, 1996,
options to purchase One Hundred Thousand (100,000) shares of IDT common
stock at the IPO price of ten dollars ($10) per share. Such stock options
shall vest as follows: (i) options to purchase twenty-five thousand
(25,000) shares shall vest on January 1, 1997; and (ii) the balance of
options to purchase seventy-five thousand (75,000) shares shall vest on a
prorated monthly basis over the nine month period ending on October 1,
1997. On or about October 1, 1997 and again on or about October 1, 1998,
the Executive shall receive additional options to purchase options to
purchase One Hundred Thousand (100,000 ) shares of IDT common stock at a
price estimated to be two dollars ($2) below the market value on the
respective grant dates, vesting in equal quarters throughout the one year
anniversary from each respective grant date.

(f) Business Expenses. The Executive will be reimbursed for all ordinary
and necessary business expenses incurred by him in connection with his
employment (including without limitation, expenses for travel and
entertainment incurred in conducting or promoting business for the Company)
upon submission by the Executive of receipts and other documentation in
accordance with the company's normal reimbursement procedures.

7. Termination. The Executive's employment hereunder may be terminated
without breach of this Agreement only under the following circumstances:

(a) Death. The Executive's employment hereunder shall terminate upon his
death.

(b) Disability. If, as result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been absent form his
duties hereunder fro the entire period of six consecutive months, and
within thirty (30) days after written Notice of Termination (as defined in
paragraph (e) below) is given, shall not have returned to the performance
of his duties hereunder, the Company may terminate the Executive's
employment hereunder for "Disability."

(c) Cause. The Company may terminate the Executive's employment hereunder
for "Cause". For purposes of this Agreement, the Company shall have "Cause"
to terminate the Executive's employment hereunder (i) upon the Executive's
conviction for the commission of an act or acts constituting a felony under
the laws of the United States or any state thereof, or (ii) upon the
Executive's willful and continued failure to substantially perform his
duties hereunder (other than any such failure resulting form the
Executive's incapacity due to physical or mental illness), after written
has been delivered to the Executive by the Company, which notice
specifically identifies the manner in which the Executive has not
substantially performed his duties, and the Executive's failure to
substantially perform his duties is not cured within ten (10) business days
after notice of such failure has been given to the Executive. For purposes
of this Section 7 (c), no act, or failure to act, on the Executive's part
shall be deemed "willful" unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that the
Executive's act, or failure to act, was in the best interest of the
Company.

(d) Termination by the Executive. The Executive may terminate his
employment hereunder for "Good Reason." "Good Reason" for termination by
the Executive of the Executive's employment shall mean the occurrence
(without the Executive's express written consent) of any one of the
following acts by the Company, or failures by the Company to act:

(i) a material breach of the Agreement by the Company;

(ii) the assignment to the Executive of any duties inconsistent with
the Executive's status as a senior executive officer of the Company or
a substantial adverse alteration in the nature or status of the
Executive's responsibilities; or

2
<PAGE>

(iii) any purported termination of the Executive's employment which
is not effected pursuant to a Notice of Termination satisfying the
requirement of paragraph (e) below; for purposes of this Agreement, no
such purported termination shall be effective.

The Executive's right to terminate the Executive's employment for Good
Reason shall not be affected by the Executive's incapacity due to physical or
mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to any act or failure to act
constituting Good Reason hereunder.

(e) Notice of Termination. Any termination of the Executive's employment
by the Company or by the Executive (other than termination under Section 7
(a) hereof) shall be communicated by written Notice of Termination to the
other party hereto in accordance with Section 12 hereof. For purposes of
this Agreement, a "Notice of Termination" shall mean a notice that shall
indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment
under the provision so indicated. Further, a Notice of Termination for
Cause is required to include a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire membership of
the Board at a meeting of the Board (after reasonable notice to the
Executive and an opportunity for the Executive, together with the
Executive's counsel, to be heard before the Board) finding that, in the
good faith opinion of the Board, the Executive was guilty of conduct set
forth in the definition of Cause herein, and specifying the particulars
thereof.

(f) Date of Termination. "Date of Termination" shall mean (i) if the
Executive's employment is terminated by his death, the date of his death,
(ii) if the Executive's employment is terminated pursuant to paragraph (b)
above, thirty (30) days after Notice of Termination is given (provided that
the Executive shall not have returned to the performance of his duties on a
full-time basis during such thirty (30) day period), and (iii) if the
Executive's employment is terminated pursuant to paragraph (c) or (d)
above, the date specified in the Notice of Termination; provided, however,
that if within thirty (30) days after any Notice of Termination is given
the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination
shall be the date on which the dispute is finally determined. If within
fifteen (15) days after any Notice of Termination is given, or if later,
prior to the Date of Termination (as determined without regard to the
Section 7 (f)), the party receiving such Notice of Termination notifies the
other party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally resolved,
either by mutual written agreement of the parties or by a final judgment,
order or decree of a court of competent jurisdiction (which is not
appealable or with respect to which the time for appeal therefrom has
expired and no appeal has been perfected); provided further that the Date
of Termination shall be extended by a notice of dispute only if such notice
is given in good faith and the party giving such notice pursues the
resolution of such dispute with reasonable diligence.

(g) Compensation During Dispute. If a purported termination occurs during
the term of this Agreement, and such termination is disputed in accordance
with Section 7 (f) hereof, the Company shall continue to pay the Executive
the full compensation in effect when the notice giving rise to the dispute
was given (including, but not limited to, Base Salary) and continue the
Executive as a participant in all compensation, benefit and insurance plans
in which the Executive was participating when the notice giving rise to the
dispute was given, until the dispute is finally resolved. Amounts paid
under this Section 7(g) are in addition to all other amounts due under this
Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.

8. Compensation Upon Termination or During Disability.

(a) Disability or Death. During any period that the Executive fails to
perform his duties hereunder as a result of incapacity due to physical or
mental illness, the Executive shall continue to receive his full Base
Salary, as well as other applicable employee benefits provided to other
senior executives of the Company, until his employment is terminated
pursuant to Section 7 (b) hereof. In the event the Executive's

3
<PAGE>

employment is terminated pursuant to Section 7 (a) or 7 (b) hereof, then as
soon as practicable thereafter, the Company shall pay the Executive or the
Executive's Beneficiary (as defined in Section 11 (b) hereof), as the case
may be, (i) all unpaid amounts, if any, to which the Executive was entitled
as of the Date of Termination under Section 6 (a) hereof and (ii) all
unpaid amounts to which the Executive was then entitled under the Benefit
Plans, the Pension Plans and any other unpaid employee benefits,
perquisites or other reimbursements (the amounts set forth in clauses (i)
and (ii) above being hereinafter referred to as the "Accrued Obligation").

(b) Termination for Cause; Voluntary Termination Without Good Reason. If
the Executive's employment is terminated by the Company for Cause or by the
Executive other than for Good Reason, then the Company shall pay all
Accrued Obligations to the Executive and the Company shall have no further
obligations to the Executive under this Agreement.

(c) Termination Without Cause; Termination for Good Reason. If (i) the
Company shall terminate the Executive's employment, other than for
Disability or for Cause, or (ii) the Executive shall terminate his
employment for Good Reason, then:

(1) the Company shall pay to the Executive, within ten (10) days
after the Date of Termination, the Accrued Obligations; and

(2) the Company shall pay to the Executive, within ten (10) days
after the Date of Termination, a lump sum amount in cash equal to two
(2) multiplied by the Executive's Base Salary as in effect immediately
prior to the circumstances giving rise to the Notice of Termination.

9. Non-Disclosure. The parties hereto agree, recognize and acknowledge that
during the Term the Executive shall obtain knowledge of confidential
information regarding the business and affairs of the Company. It is therefore
agreed that the Executive will respect and protect the confidentiality of all
confidential information pertaining to the Company, and will not (i) without
the prior written consent of the Company, (ii) unless required in the course
of the Executive's employment hereunder, or (iii) unless required by
applicable law, rules, regulations or court, governmental or regulatory
authority order or decree, disclose in any fashion such confidential
information to any person (other than a person who is a director of, or who is
employed by, the Company or any subsidiary or who is engaged to render
services to the Company or any subsidiary) at any time during the Term.

10. Covenant Not to Compete. (a) Executive hereby agrees that for a period
of one (1) year following the termination of this Agreement (other than a
termination of the Executive's employment (i) by the Executive for Good Reason
or (ii) by the Company other than for Cause or Disability) (the "Restricted
Period") the Executive shall not, directly or indirectly, whether acting
individually or through any person, firm, corporation, business or any other
entity:

(i) engage in, or have any interest in any person, firm, corporation,
business or other entity (as an officer, director, employee, agent,
stockholder, or other security holder, creditor, consultant or
otherwise) that engages in any business activity where any aspect of
the business of the Company is conducted, or planned to be conducted,
at any time during the Restricted Period, which business activity is
the same as, similar to or competitive with the Company as the same may
be conducted from time to time;

(ii) interfere with any contractual relationship that may exist from
time to time of the business of the Company, including, but not limited
to, any contractual relationship with any director, officer, employee,
or sales agent, or supplier of the Company; or

(iii) solicit, induce or influence, or seek to induce or influence,
any person who currently is, or from time to time may be, engaged or
employed by the Company (as an officer, director, employee, agent, or
independent contractor) to terminate his or her employment or
engagement by the Company.

4
<PAGE>

(b) Notwithstanding anything to the contrary contained herein, Executive,
directly or indirectly, may own publicly traded stock constituting not more
than five percent (5%) of the outstanding shares of such class of stock of
any corporation if, and as long as, Executive is not an officer, director,
employee or agent of, or consultant or advisor to, or has any other
relationship or agreement with such corporation.

(c) Executive acknowledges that the non-competition provisions contained
in this Agreement are reasonable and necessary, in view of the nature of
the Company and his knowledge thereof, in order to protect the legitimate
interests of the Company.

11. Successors; Binding Agreement. (a) The Company shall require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance reasonably satisfactory to the
Executive, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle the Executive to
compensation from the Company in the same amount and on the same terms as he
would be entitled to hereunder if he terminated his employment for Good
Reason, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid that executes and delivers the agreement provided for in this
Section 11 or that otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.

(b) This Agreement and all rights of the Executive hereunder shall inure
to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees, and legatees. If the Executive should die while any
amounts should still be payable to him hereunder if he had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, if there be no such designee, to the
Executive's estate (any of which is referred to herein as a "Beneficiary").

12. Notice. For purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or (unless otherwise specified)
mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:

If to the Company: IDT Corporation
294 State Street
Hackensack, NJ 07601
Attn: General Counsel

If to the Executive: James Courter
1001 Route 517
Hacketstown, NJ 07840

or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.

13. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and such officer of the Company as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or prior or subsequent time. No agreements or representations, oral
or otherwise, express or implied, with

5
<PAGE>

respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws
of the state of Delaware without regard to its conflicts of law principles.

14. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect.

15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.

16. Entire Agreement. This Agreement sets forth the entire agreement of the
parties hereto in respect of the subject matter contained herein and
supersedes any and all other prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any party hereto, and
in prior agreement of the parties hereto in respect of the subject matter
contained herein is hereby terminated and cancelled.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.

IDT CORPORATION

By: _________________________________
Stephen Brown
Chief Financial Officer

Executive: __________________________
James Courter

<PAGE>

EXHIBIT 10.13

EMPLOYMENT AGREEMENT

Agreement made on October 28, 1996 by and between IDT Corporation, a
Delaware corporation ("IDT") and Kenneth Scharf ("Scharf"). This Agreement
supersedes any previous agreements between IDT and Scharf.

Scharf is employed by IDT as the Chief Information Officer. Scharf's first
day of employment was September 1, 1996. Scharf reports directly to Howard
Balter and Howard Jonas. Scharf shall be compensated as follows:

1.Signing Bonus
Upon October 29, 1996, Scharf shall receive an option grant to purchase 15,000
shares of IDT stock at $.01 per share, and an additional option grant to
purchase 5,000 shares of IDT stock at $12.00 per share. Both grants, the
15,000 shares and the 5,000 shares, shall become vested with respect to an
incremental twenty-five (25%) of the shares on these dates: December 1, 1996
(25%), March 1, 1997 (25%), June 1, 1997 (25%), and September 1, 1997 (25%).
If at any time when Scharf exercises any portion of the 15,000 options granted
at $.01, and the selling price is below $10 per share, IDT will pay Scharf a
bonus equal to the number of shares sold multiplied by the amount below $10
per share of the selling price, less all applicable taxes.

2.Annualized Salary
Scharf shall receive an annualized salary of $200,000 consisting of two
components.

The first component, $150,000 of the $200,000, will be paid to Scharf in a
bi-weekly gross check of $5,769.23.

The second component, $50,000 of the $200,000, will be paid to Scharf on a
quarterly basis in either one of two manners. Scharf must specify each quarter
which manner he wishes to receive this component of compensation. Within two
weeks after November 1, 1997 and each ninety (90) day anniversary thereafter,
Scharf must notify Jonathan Rand as to which manner of compensation Scharf
wishes to receive for each respective quarter. The two payment manners are as
follows:

a. Cash Basis--Scharf will receive a payment of a $12,500 pre-tax check per
quarter.
b. Stock Options--Scharf will receive 3,000 IDT stock options with an
immediate vesting period and exercise date. The exercise price will be
equal IDT's lowest closing price on the NASDAQ anytime within the
quarter previous to each two week period in which Scharf must notify
Rand to select this payment method.

3.Executive Benefits
The above compensation plan includes paid medical coverage for Scharf. Other
benefits are available to Scharf by his voluntary contributions. In the event
an Executive Benefits package becomes available to IDT executives, Scharf will
be included in the executive group. All benefits covered by this paragraph do
not refer to any form of cash compensation such as salary, bonus, or stock.
With regard to cash compensation, Scharf's agreement will be independent from
any other IDT employee's compensation package.

4.Termination
In the event IDT terminates Scharf, Scharf will receive six months severance
once Scharf signs a severance release. The six months of severance pay will be
at the annualized rate of $200,000, and will not allow Scharf the choice of
compensation components as described above.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date written above.

IDT, CORP.
By:

----------------------------- ---------------------------------
Stephen Brown Kenneth Scharf
Chief Financial Officer

<PAGE>

EXHIBIT 10.16

Post IPO 1 of 2
STOCK OPTION AGREEMENT

AGREEMENT made on ______________, by and between IDT Corporation, a Delaware
corporation (the "Company") and (the "Employee").

WHEREAS, the Company has adopted the IDT Corporation 1996 Stock Option and
Incentive Plan ( the "Plan"); and

WHEREAS, the Company desires to grant to the Employee options under the Plan to
acquire an aggregate of shares of common stock of the Company, par
value $.01 per share (the "Stock"), on the terms set forth herein and in the
Plan.

NOW, THEREFORE, the parties hereby agree as follows:

1. Definitions. Capitalized terms not otherwise defined herein shall have the
-----------
meanings set forth in the Plan.

2. Grant of Options. The Employee is hereby granted Incentive Stock Options or
----------------
Nonqualified Stock Options (the "Options") to purchase an aggregate of
shares of Stock, pursuant to the terms of this Agreement and the provisions of
the Plan.

3. Term. The term of the Options (the "Option Term") shall be for ten (10)
----
years from the date of this Agreement.

4. Option Price. The initial exercise price per share of the Options shall be
------------
$10.00, subject to adjustment as provided in the Plan.

5. Conditions to Exercisability. The Options shall become vested and
----------------------------
exercisable with respect to an incremental twenty percent (20%) of the shares
subject thereto on each of the first through fifth anniversaries of the date of
the Agreement if the Employee continues to be employed by the Company or any of
its subsidiaries on such dates. The terms and conditions set forth in the Plan,
including, without limitation, the provisions relating to the termination of the
Employee's employment with the Company, are hereby incorporated by reference in
this Agreement.

6. Entire Agreement. This Agreement and the Plan contain all of the
----------------
understandings between the parties hereto pertaining to the matters referred to
herein, and supersedes all undertakings and agreements, whether oral or in
writing, previously entered into by them with respect thereto. The Employee
represents that, in executing this Agreement, he does not rely and has not
relied upon any representation or statement not set forth therein made by the
Company with regard to the subject matter, bases or effect of this Agreement or
otherwise.

7. Amendment of Modification, Waiver. No provision of this Agreement may be
---------------------------------
amended or waived unless such amendment or waiver is agreed to in writing,
signed by the Employee and by a duly authorized officer of the Company. No
waiver by any party hereto of any breach by another party hereto of any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of a similar of dissimilar condition or provision at
the same time, any prior time or any subsequent time.

8. Notices. Each notice relating to this Agreement shall be in writing and
-------
delivered in person or by certified mail to the proper address. All notices
to the Company shall be addressed to it at:
<PAGE>

2 of 2
IDT Corporation
294 State Street
Hackensack, NJ 07601
Attention: Options Administrator

with a copy to:
Jeffrey S. Marcus
Morrison & Foerster
1290 Avenue of the Americas
New York, NY 10104

All notices to the Employee or other person or persons then entitled to exercise
the Options shall be addressed to the Employee or such other person or persons
at:
__________________________
__________________________
__________________________

Anyone to whom a notice may be given under this Agreement may designate a new
address by notice to the effect.

9. Severability. If any provision of this Agreement or the application of
------------
any such provision to any party or circumstances shall be determined by any
court of competent jurisdiction to be invalid and unenforceable to any extent,
the remainder of this Agreement or the application of such provision to such
person or circumstances other than those to which it is so determined to be
invalid and unenforceable, shall not be affected thereby, and each provision
hereof shall be validated and shall be enforced to the fullest extent permitted
by law.

10. Governing Law. This Agreement shall be construed and governed in
-------------
accordance with the laws of the state of Delaware, without regard to the
conflicts of law principles.

11. Headings. All descriptive headings of sections and paragraphs in this
--------
Agreement are intended solely for convenience, and no provision of this
Agreement is to be construed by reference to the heading of any section or
paragraph.

12. Construction. This Agreement is made under and subject to the provisions
------------
of the Plan, and all of the provisions of the Plan are hereby incorporated
herein as provisions of this Agreement. If there is a conflict between the
provisions of this Agreement and the provisions of the Plan, the provisions of
the Agreement shall govern. By signing this Agreement, the Employee confirms
that he has received a copy of the Plan and has had an opportunity to review the
contents thereof.

13. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed to be an original but both of which together shall
constitute one and the same instrument.

IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by an authorized officer and the Executive has hereunto set his hand
all as of the day, month and year first above written.

IDT CORPORATION

By:__________________________
Stephen Brown
Chief Financial Officer

Executive: ____________________

<PAGE>

EXHIBIT 10.17

Pre IPO Non Vested 1 of 4
STOCK OPTION AGREEMENT

AGREEMENT made on March 19, 1996, by and between IDT Corporation, a Delaware
corporation (the "Company") and (the "Executive").

W I T N E S S E T H :

WHEREAS, the Executive is formerly a key employee of International Discount
Telecommunications Corp., a New Jersey corporation ("Old IDT") and currently a
key employee of the Company;

WHEREAS, to effect a reincorporation into Delaware, Old IDT formed the Company
as a wholly owned subsidiary to effect a merger (the "Merger") with the
surviving entity being the Company; and

WHEREAS, in order to appropriately reflect the Merger, the Company and the
Executive desire, in connection with the Merger, to effectuate certain equitable
adjustments to the terms and conditions of certain stock options previously
granted to the Executive by Old IDT by exchanging such options for the Options
(defined below) granted in Section 2 hereof.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein
set forth and other good and valuable consideration, the parties to this
Agreement hereby agree as follows:

1. Cancellation of Prior Options. The parties hereto agree and confirm that
-----------------------------
any and all, oral and written, agreements and arrangements relating to the
Executive's right to purchase or receive from the Company, Old IDT or any of
their affiliates stock or other securities of such entities from any of them,
including, without limitation, the stock options reflected in the Agreements,
dated as of December 28, 1995, by and between the Executive and Old IDT (the
"Prior Agreements"), but excluding all options granted to the Executive pursuant
to the 1996 Stock Option and Incentive Plan, are hereby canceled, terminated and
of no further force and effect.

2. Grant of Options. Pursuant to a determination by the Board of Directors
----------------
of the Company (the "Board"), the Company, subject to the terms and conditions
of this Agreement, hereby grants effective as of the date hereof (the "Grant
Date"), Incentive Stock Options or Nonqualified Stock Options (the "Options") to
purchase from the Company shares of common stock, par value $.01 per
share ("Common Stock"), subject to adjustment as provided in Section 8 hereof.

3. Term. The term of the Options (the "Option Term") shall be for ten (10)
----
years from the date of this Agreement.

4. Option Price. The price at which shares of Common Stock shall be
------------
purchasable upon exercise of the Options shall be $ per share (the
"Option Price"), subject to adjustment as provided in Section 8 hereof.

5. Conditions to Exercisability. Subject to Section 7, the Options shall
----------------------------
vest and become fully exercisable in respect of all of the shares of Common
Stock thereunder on ---------. After such date, the Options shall remain
outstanding and may be exercised in whole at any time or in part and from time
to time prior to the expiration of the Option Term, subject to earlier
termination or cancellation pursuant to Section 7 hereof.
<PAGE>

2 of 4
6. Non-transferability of Options. Except as provided in this Section 6, the
------------------------------
Options may not be sold, pledged, assigned, hypothecated or transferred other
than by will or the laws of descent and distribution and may be exercised during
the lifetime of the Executive only by the Executive or by his guardian or legal
representative. Upon the death of the Executive, outstanding options may be
exercised only by the executor or administrator of the holder's estate or by a
person who shall have acquired the right to such exercise by will or by the laws
of descent and distribution.

Notwithstanding the foregoing, during the Executive's lifetime, the Company
may permit the transfer or assignment of the Options by the Executive, without
consideration paid therefore; provided, that the Executive obtains the express
--------
written consent of the Company and complies with any and all conditions and
procedures established by the Company.

7. Termination. If the Executive's employment with the Company terminates
-----------
under the circumstances described below in this Section 7, such termination
shall have the following effect on the Options:

(a) Cause, Voluntary Termination. If the Executive terminates his
----------------------------
employment with the Company or is terminated from his employment with the
Company for Cause (as defined below), the Options, whether or not then vested,
shall automatically terminate and be deemed cancelled (without any action on the
part of the Company). For purposes of this Agreement, Cause shall mean (i) the
deliberate and continued failure by the Executive to devote substantially all
the Executive's business time and best efforts to the performance of the
Executive's duties or (ii) the deliberate engaging by the Executive in gross
misconduct which is injurious to the Company, monetarily or otherwise, including
but not limited to fraud or embezzlement by the Executive.

(b) Disability, Death. If the Executive dies or is terminated from his
-----------------
employment with the Company by reason of disability (within the meaning of any
long-term disability plan or program maintained by the Company), (i) all Options
which are not then vested shall become fully and immediately vested and
exercisable and (ii) all Options shall remain vested and exercisable for a
period of one year following the date of death or disability (but in no event
beyond the Option Term).

(c) Other Terminations of Employment. If the Executive's employment
--------------------------------
with the Company is terminated by the Company without Cause (other than for
disability) the Options, if not then vested, shall become immediately and fully
vested and exercisable and shall remain exercisable for a period of thirty (30)
days following the date of termination (but in no event beyond the Option Term).

8. Certain Adjustments. In the event that any extraordinary dividend, stock
-------------------
dividend, recapitalization, merger, consolidation, stock split, warrant or
rights issuance, or any similar corporate transaction or event affects the
Common Stock, the number of shares of Common Stock subject to the Options and
the Option Price may be equitably adjusted by the Board to reflect such event
and preserve the value of such Options.

9. Method of Exercise of Options. Subject to the terms and conditions of
-----------------------------
this Agreement, the Options shall be exercisable by notice (an "Exercise
Notice") and payment to the Company in accordance with the procedure prescribed
herein. A form of Exercise Notice is attached to this Agreement. If the
Executive fails to accept delivery of and pay for all or any part of the number
of shares specified in the Exercise Notice upon tender or delivery thereof, his
right to exercise the Options with respect to such undelivered shares may be
terminated in the sole discretion of the Board. Each Exercise Notice shall: (i)
state the number of shares of
<PAGE>

3 of 4
Common Stock which are being exercised and (ii) be signed by the person or
persons entitled to exercise such Options. If such Options are being exercised
by any person or persons other than the Executive, the Exercise Notice shall be
accompanied by proof, satisfactory to the Company and its counsel, of the right
of such person or persons to exercise such Options. The Option Price shall be
paid in full, at the time of exercise, in cash or in shares of Common Stock
(whether then owned by the Executive or issuable upon exercise of the Option)
having a fair market value (which shall be determined by the Company in good
faith) equal to such Option Price or in a combination of cash and Common Stock
or in such other manner as the Company shall determine including a cashless
exercise procedure through a broker-dealer.

10. No Right To Continued Employment. Nothing in this Agreement shall confer
--------------------------------
upon the Executive the right to continue in the employ of the Company or to be
entitled to any right or benefit not set forth in this Agreement or to interfere
with or limit in any way the right of the Company to terminate the Executive's
employment.

11. Withholding Taxes. The Company shall have the right to require the
-----------------
Executive (or such other person, if any, who has the right to exercise the
Options) to pay to the Company in cash the amount of any taxes that the Company
may be required to withhold before delivering to the Executive (or such other
person) a certificate or certificates representing shares of Common Stock
issuable hereunder.

12. Approval of Counsel. Any exercise of the Options and the issuance and
-------------------
delivery of shares of Common Stock pursuant thereto shall be subject to approval
by the Company's counsel of all legal matters in connection therewith, including
compliance with the requirements of the Securities Act of 1933, as amended, and
the Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, the requirements of any stock exchange upon which the Common Stock
may then be listed and any applicable state securities or "blue sky" laws. The
Executive understands that, as of the date hereof, neither the Options nor the
shares of Common Stock issuable upon exercise of the Options have been
registered under the Securities Act or any applicable state securities or "blue
sky" laws.

13. Notices. Each notice relating to this Agreement shall be in writing and
-------
delivered in person or by certified mail to the proper address. All notices to
the Company shall be addressed to it at:

IDT Corporation
294 State Street
Hackensack, New Jersey 07601
Attention: Options Administrator

with a copy to:
Jeffrey S. Marcus
Morrison & Foerster
1290 Avenue of the Americas
New York, NY 10104

All notices to the Executive or other person or persons then entitled to
exercise the Options shall be addressed to the Executive or such other person or
persons at:

------------------------
------------------------
------------------------

Anyone to whom a notice may be given under this Agreement may designate a
new address by notice to that effect.
<PAGE>

4 of 4

14. Benefits of Agreement. This Agreement shall inure to the benefit of and
---------------------
be binding upon each successor and assign of the Company. All obligations
imposed upon the Executive and all rights granted to the Company under this
Agreement shall be binding upon the Executive and, to the limited extent set
forth herein, the Executive's heirs, legal representatives and successors. No
other person shall have any rights under this Agreement.

15. Severability. In the event that any one or more provisions of this
------------
Agreement shall be deemed to be illegal or unenforceable, such illegality or
unenforceability shall not affect the validity and enforceability of the
remaining legal and enforceable provisions herein, which shall be construed as
if such illegal or unenforceable provision or provisions had not been inserted.

16. Entire Agreement. The parties hereto agree that this Agreement contains
----------------
the entire understanding and agreement between them, and supersedes all prior
understandings and agreements between the parties respecting the subject matter
hereof, and that the provisions of this Agreement may not be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
signed by the parties hereto.

17. Waiver. No waiver by either party hereto at any time of any breach by
------
the other party hereto of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.

18. Governing Law. This Agreement shall be construed and governed in
-------------
accordance with the laws of the State of Delaware, without regard to the
conflicts of law principles thereof.

19. Incorporation by Reference. The incorporation herein of any terms by
--------------------------
reference to another document shall not be affected by the termination of any
agreement set forth in such other document or the invalidity of any provision
thereof.

20. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed to be an original but both of which together shall
constitute one and the same instrument.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by an authorized officer and the Executive has hereunto set his hand all as of
the day, month and year first above written.

IDT CORPORATION

By: _______________________________
Stephen Brown
Chief Financial Officer

Executive: _______________________________

<PAGE>

EXHIBIT 23.02

CONSENT OF INDEPENDENT AUDITORS

We consent to the references to our firm under the captions "Experts" and
"Selected Consolidated Financial and Operating Data" and to the use of our
reports dated September 30, 1996, in the Registration Statement on Form S-1
and related Prospectus of IDT Corporation for the registration of 400,000
shares of its common stock.

ERNST & YOUNG LLP

New York, New York
December 26, 1996