IDT CORP, S-3/A, 1998-01-28

IDT CORP
S-3/A, 1998-01-28
COMPUTER INTEGRATED SYSTEMS DESIGN

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1998

REGISTRATION NO. 333-43501
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------

AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

IDT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
DELAWARE 22-3415036
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
</TABLE>

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

190 MAIN 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, CHIEF EXECUTIVE OFFICER AND TREASURER
IDT CORPORATION
190 MAIN 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:

<TABLE>
<S> <C> <C>
IRA A. GREENSTEIN, ESQ. JOYCE MASON, ESQ. ROBERT W. SMITH, JR., ESQ.
MORRISON & FOERSTER LLP GENERAL COUNSEL PIPER & MARBURY L.L.P.
1290 AVENUE OF THE AMERICAS IDT CORPORATION 36 SOUTH CHARLES STREET
NEW YORK, NEW YORK 10104-0050 190 MAIN STREET BALTIMORE, MARYLAND 21201
(212) 468-8000 HACKENSACK, NEW JERSEY 07601 (410) 539-2530
(201) 928-1000
</TABLE>

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

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
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

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, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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 CHART

<TABLE>
<CAPTION>
NUMBER OF PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SHARES TO BE OFFERING PRICE AGGREGATE OFFERING
SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE PRICE
<S> <C> <C> <C>
Common Stock, par value $.01 per share.......... 4,715,000 $19.75(1) $93,121,250
Common Stock, par value $.01 per share.......... 100,000 $23.275(3) $2,327,500
Total........................................... 4,815,000(4) -- $95,396,250

TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE
<S> <C>
Common Stock, par value $.01 per share.......... $27,471(2)
Common Stock, par value $.01 per share.......... $687
Total........................................... $28,158
</TABLE>

(1) Estimated solely for the purpose of computing the amount of the registration
fee, based on the average of the high and low prices for the Common Stock as
reported on the Nasdaq National Market on December 24, 1997, in accordance
with Rule 457(c) promulgated under the Securities Act of 1933.

(2) A registration fee of $27,471 was paid on or about December 30, 1997.

(3) Estimated solely for the purpose of computing the amount of the registration
fee, based on the average of high and low prices for the Common Stock as
reported on the Nasdaq National Market on January 21, 1998, in accordance
with Rule 457(c) promulgated under the Securities Act of 1933.

(4) Includes 615,000 shares that the Underwriters have the option to purchase
from the Company to cover over-allotments, if any. See "Underwriting."

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

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 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 THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
<PAGE>
SUBJECT TO COMPLETION

JANUARY 28, 1998

4,200,000 SHARES

[LOGO]

COMMON STOCK
-----------

Of the 4,200,000 shares of Common Stock offered hereby (the "Offering"),
4,000,000 shares are being sold by IDT Corporation ("IDT" or the "Company") and
200,000 shares are being sold by certain stockholders of the Company (the
"Selling Stockholders"). The Company will not receive any proceeds from the sale
of shares by the Selling Stockholders. See "Principal and Selling Stockholders."
The Company's Common Stock is quoted on the Nasdaq National Market under the
symbol "IDTC." On January 27, 1998, the last reported sale price of the Common
Stock on the Nasdaq National Market was $24.63 per share. See "Price Range of
Common Stock and Dividend Policy."

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

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 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.

<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS
TO DISCOUNTS AND TO TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share...................................... $ $ $ $
Total(2)....................................... $ $ $ $
</TABLE>

(1) Before deducting expenses payable by the Company estimated at $850,000.

(2) The Company has granted to the Underwriters a 30-day option to purchase up
to 615,000 additional shares of Common Stock solely to cover
over-allotments, if any. To the extent that the option is exercised, the
Underwriters will offer the additional shares at the Price to Public shown
above. If the option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of BT Alex. Brown Incorporated, Baltimore, Maryland, on or about ,
1998.

BT ALEX. BROWN

HAMBRECHT & QUIST

FRIEDMAN, BILLINGS, RAMSEY & CO., INC.

JEFFERIES & COMPANY, INC.

THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
[MAP INDICATING PRIMARY EXISTING AND PLANNED INTERNATIONAL TELECOMMUNICATIONS
FACILITIES, INCLUDING EXISTING AND PLANNED INTERNATIONAL GATEWAY SERVERS,
EXISTING AND PLANNED T1 AND T3 LINES, AND LOCATIONS IN WHICH THE COMPANY HAS AN
OPERATING AGREEMENT OR A TERMINATING AGREEMENT TO TERMINATE TRAFFIC]
<PAGE>
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

When used in this Prospectus, the words "expects," "anticipates,"
"estimates" and similar expressions are intended to identify forward-looking
statements. Such statements, which include but are not limited to statements
under the captions "Risk Factors," "Use of Proceeds," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business" and
elsewhere in this Prospectus as to the Company's plans to implement its growth
strategy, improve its financial performance, expand its infrastructure, develop
new products and services, expand its sales force, expand its customer base and
enter international markets. Such forward-looking statements also include the
Company's expectations concerning factors affecting the markets for its
products, such as demand for long distance telecommunications, Internet access
and online and Internet telephony services. These forward looking statements are
subject to risks and uncertainties that could cause actual results to differ
materially from those projected. These risks and uncertainties include, but are
not limited to, those risks discussed herein and in the documents incorporated
herein by reference. The cautionary statements made in this Prospectus should be
read as being applicable to all related forward-looking statements wherever they
appeal in this Prospectus. The Company assumes no obligation to update such
forward-looking statements or to update the reasons actual results could differ
materially from those anticipated in such forward-looking statements. See "Risk
Factors."

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, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices located at Seven World Trade Center, Suite
1300, New York, New York 10048, and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained by mail from the Public Reference section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, reports, proxy statements and other information that the
Company files with the Commission electronically are contained in the Internet
Web site maintained by the Commission. The commission's Web site address is
http://www.sec.gov. The Common Stock is quoted on the Nasdaq National Market.
Reports, proxy statements and other information concerning the Company may be
inspected at the offices of the National Association of Securities Dealers, Inc.
at 1735 K Street, Washington, D.C. 20006.

The Company has filed with the Commission, a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended, with respect to the Common
Stock offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules thereto,
to which reference is hereby made. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed to be qualified in its entirety by such
reference.

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

IDT-Registered Trademark-, IDT and design-Registered Trademark-, and
Genie-Registered Trademark- are registered service marks of the Company. All
other trademarks and service marks referred to in this Prospectus are the
property of their respective owners.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH REGULATION M. SEE "UNDERWRITING."

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. 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 ("IDT
NEW YORK"), AND THEIR SUBSIDIARIES, COLLECTIVELY. ALL INFORMATION IN THIS
PROSPECTUS GIVES EFFECT TO THE 1996 REINCORPORATION OF THE COMPANY IN DELAWARE.
IN ADDITION, EXCEPT AS OTHERWISE INDICATED HEREIN, ALL INFORMATION IN THIS
PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. THE
COMPANY'S FISCAL YEAR ENDS ON JULY 31 OF EACH CALENDAR YEAR. ALL REFERENCES TO
FISCAL YEARS IN THIS PROSPECTUS REFER TO THE FISCAL YEARS ENDING IN THE CALENDAR
YEARS INDICATED (E.G., FISCAL 1997 REFERS TO THE FISCAL YEAR ENDED JULY 31,
1997). CERTAIN TERMS USED IN THIS PROSPECTUS ARE DEFINED IN THE GLOSSARY
BEGINNING ON PAGE 75.

THE COMPANY

IDT is a leading emerging multinational carrier that combines its position
as an international telecommunications operator, its experience as an Internet
service provider and its leading position in Internet telephony to provide a
broad range of telecommunications services to its wholesale and retail customers
worldwide. The Company provides its customers with integrated and competitively
priced international and domestic long distance, Internet access and, through
its Net2Phone product offerings, Internet telephony services. IDT delivers these
services over a high-quality network consisting of 14 switches in the U.S. and
Europe and owned and leased transmission capacity on 11 undersea fiber optic
cables, together with resale capacity obtained from other carriers. The Company
terminates its international traffic worldwide pursuant to resale arrangements
with domestic carriers and through terminating agreements with 17 PTTs and
competitive foreign carriers. In addition, IDT maintains a domestic Internet
backbone to support both its traditional Internet access services as well as its
Internet telephony services. The Company has grown considerably in recent years,
generating revenues of $11.7 million, $57.7 million and $135.2 million in Fiscal
1995, Fiscal 1996 and Fiscal 1997, respectively, and $54.8 million in the three
months ended October 31, 1997.

The Company believes that it is well positioned to capitalize on the
opportunities presented by the large and growing market for international
telecommunications services. According to industry sources, revenues generated
by the international telecommunications industry increased to $61.3 billion in
1996 from $23.9 billion in 1987, a compound annual growth rate of 11.0%. The
market for international voice and data telecommunications is undergoing
fundamental changes and has experienced significant growth as a result of (i)
the deregulation and privatization of telecommunications markets worldwide; (ii)
the convergence of traditional voice and packet switching technology; and (iii)
the growth of the Internet as a communications medium, including Internet
telephony. As a result of these factors, as well as general increases in demand
for telecommunications services, industry sources have projected that
international telecommunications revenues may approach $85.7 billion by 2000, a
compound annual growth rate of 8.7% from 1996.

As of November 30, 1997, the Company had approximately 100 wholesale
customers located in the U.S. and Europe. IDT supplements this wholesale
customer base by offering retail long distance services to individual and
business customers in the U.S. and over 170 other countries. Within the U.S.,
IDT provides dedicated and dial-up Internet access services to approximately
80,000 retail customers. The Company's Net2Phone service, which allows customers
to make telephone calls from any multimedia PC to any telephone, and the
Company's recently launched Net2Phone Direct service, which enables users to
make phone-to-phone calls over the Internet, have been used by over 300,000
registered customers worldwide.

The Company operates a growing facilities-based telecommunications network
consisting of (i) 14 Excel and Nortel switches in the U.S. and Europe; (ii)
owned and leased transmission capacity on 11

3
<PAGE>
undersea fiber optic cables connecting the Company's U.S. facilities with its
international facilities and with the facilities of its foreign partners in
Europe, Latin America and Asia; and (iii) resale capacity obtained on a
per-minute basis from other carriers. The Company monitors its network 24 hours
a day, seven days a week through an automated network operations center. The
Company follows a disciplined, incremental approach to network expansion,
investing in facilities when the Company determines that such investments are
justified by traffic volumes. The Company plans to expand its global
telecommunications network infrastructure in order to reduce its operating
costs, ensure service quality and facilitate the expansion of its customer base.
IDT plans to install Company-owned switches in France, Germany and Italy by the
end of Fiscal 1998 and to continue to pursue operating agreements with foreign
carriers in order to terminate traffic directly at advantageous rates. IDT also
operates a domestic Internet network comprised of multiple leased DS3 lines,
creating a 45 mbps high speed backbone, and leased T1 lines. IDT operates one of
the nation's largest Internet access networks, providing local dial-up access
through more than 75 POPs owned by the Company, and more than 375 additional
POPs owned by local and regional ISPs (the "Alliance Partners"). This Internet
network, combined with the Company's telecommunications network, is also used to
route IDT's Internet telephony traffic.

IDT's background as a leading alternative provider of wholesale and retail
international telecommunications services, combined with its experience as a
domestic ISP and its leadership role in the field of Internet telephony,
position it to capitalize on continuing deregulation in the international
telecommunications marketplace and the convergence of voice and data
telecommunications technologies. The Company leverages its customer base,
existing carrier relationships and technology platforms to (i) develop new, low-
cost termination arrangements; (ii) offer new services such as prepaid calling
cards and Internet telephony to wholesale and retail customers in target
countries; and (iii) negotiate partnership arrangements with existing and
emerging carriers to market the Company's Internet telephony services.

STRATEGY

The Company's objective is to be a leading provider of high-quality,
low-cost international telecommunications services to wholesale and retail
customers in both the U.S. and abroad. Key elements of the Company's strategy
include:

FOCUS ON INTERNATIONAL TELECOMMUNICATIONS. The Company believes that the
international long distance market provides attractive opportunities due to its
higher revenue and gross profit per minute, and higher projected growth rate
compared to the domestic long distance market. The Company targets international
markets with high volumes of traffic, relatively high per-minute rates and
favorable prospects for deregulation and privatization. The Company believes
that the ongoing trend toward deregulation and privatization will create new
opportunities for the Company to increase its revenues and to reduce its
termination costs, while maintaining balanced growth in wholesale and retail
traffic.

EXPAND SWITCHING AND TRANSMISSION FACILITIES. The Company is continuing to
expand and enhance its network facilities by investing in switching and
transmission facilities where traffic volumes justify such investments. Through
Fiscal 1999, the Company intends to invest in (i) undersea cables connecting the
U.S. and Europe, the U.S. and Asia, and points within Europe; (ii) switching
facilities in the U.S., the U.K., France, Italy, Germany and other European
countries; and (iii) additional network compression equipment. The Company
believes that these investments will allow it to reduce its cost of service and
to enhance its service offerings, while maintaining carrier-grade service
quality.

EXPAND SERVICE OFFERINGS AND MARKETING ACTIVITIES. The Company will
continue to develop value-added services and to market them on a wholesale and
retail basis in order to increase margins, optimize network utilization and
improve customer loyalty. IDT has historically used technology to capitalize on
regulatory opportunities and market niches by offering innovative value-added
services such as call reorigination, international prepaid calling cards and
Internet telephony. In addition, the Company intends

4
<PAGE>
to capitalize on its strategic alliances and other relationships with U.S. and
foreign companies in order to expand its customer base.

COMBINE VOICE TELECOMMUNICATIONS AND INTERNET TELEPHONY EXPERTISE. The
Company's knowledge of international voice telecommunications technology, packet
switching technology and Internet telephony provides the Company with a
significant competitive advantage as voice and Internet technologies converge.
The efficiencies of packet switching technology and the artificially high costs
of terminating international voice traffic resulting from the Accounting Rate
Mechanism (a negotiated rate which international long distance providers pay one
another to terminate traffic) are expected to result in high growth for Internet
telephony and the transmission of voice telecommunications using packet
switching technology. The Company expects that its leadership in Internet
telephony and its knowledge of voice telecommunications systems will enable it
to partner with foreign carriers seeking to provide inexpensive international
termination to their customers.

PURSUE STRATEGIC ALLIANCES AND INTERNATIONAL AGREEMENTS. The Company has
capitalized on its significant traffic volume and technological expertise to
negotiate favorable termination agreements with international carriers. The
Company intends to continue to seek new termination relationships with
established and emerging carriers to reduce its termination costs for
traditional international voice telephony, and to seek foreign partners for the
expansion of its Internet telephony offerings. To date, the Company has entered
into 17 agreements with carriers that provide for the termination of its calls
in 27 countries. In addition, the Company has negotiated partnership
arrangements with Daewoo Corporation and Naray Mobile Telecom Inc. in South
Korea and Marubeni Corporation in Japan to market its Internet telephony
services. In addition, the Company will selectively pursue strategic
acquisitions as they become available.

MAINTAIN LOW OPERATING COSTS AND IMPROVE PROFITABILITY. The Company seeks
to continue to improve its profitability by (i) maintaining a streamlined
general and administrative staff; (ii) leveraging its general and administrative
staff across its complementary telecommunications services businesses; (iii)
capitalizing on its wholesale traffic volumes to arrange cost-effective resale
and termination arrangements, while continuing to increase its sales of higher
margin retail international minutes; and (iv) investing in network
infrastructure and selling, general and administration expenses when such
investment is justified by traffic volumes.
------------------------

The Company entered the international call reorigination business in 1990 to
capitalize on the opportunity created by the spread 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 to
businesses as stand-alone services. In 1995, IDT began reselling to other long
distance carriers access to the favorable telephone rates and special tariffs
the Company receives as a result of the calling volume generated by its call
reorigination customers. IDT entered the Internet telephony market in August
1996 with its introduction of Net2Phone, and expanded its Internet telephony
offerings in October 1997 with the introduction of its Net2Phone Direct service.
The Company began marketing its prepaid calling cards in January 1997.

The Company is incorporated in the State of Delaware. The Company's
principal executive offices are located at 190 Main Street, Hackensack, New
Jersey 07601, and its telephone number is (201) 928-1000. The Company's Internet
address is HTTP://WWW.IDT.NET.

5
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company......... 4,000,000 shares
Common Stock offered by the Selling
Stockholders.............................. 200,000 shares
Capital Stock to be outstanding after this
Offering:
Common Stock.............................. 16,284,832 shares (1)
Class A Stock............................. 10,323,367 shares (2)
Total................................... 26,608,199 shares
Use of proceeds............................. To expand international and domestic
telecommunications networks, develop new
products, expand sales and marketing
activities, finance potential acquisitions and
for working capital and other general cor-
porate purposes.
Nasdaq National Market symbol............... IDTC
</TABLE>

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

(1) Includes 190,000 shares of Common Stock issuable pursuant to options to be
exercised by certain Selling Stockholders in connection with this Offering,
and 10,000 shares issued in November 1997 pursuant to options exercised by a
Selling Stockholder. Excludes (i) 4,513,107 shares of Common Stock issuable
upon the exercise of outstanding options at October 31, 1997 granted to the
Company's directors, officers and other employees at a weighted average
exercise price of $5.09 per share (of which 355,135 shares were exercised
between November 1, 1997 and January 26, 1998); (ii) 494,723 shares of
Common Stock issuable upon conversion of the Company's 3% Convertible
Subordinated Debentures at a conversion price of $15.16 per share; (iii)
145,981 shares issued upon conversion of a convertible note at a conversion
price of $14.00 per share in December 1997; (iv) 174,004 shares issuable
upon exercise of warrants at a weighted average exercise price of $10.78 per
share; (v) 625,000 shares issuable in connection with the Company's purchase
of Rock Enterprises, Inc. in November 1997 (of which 312,500 shares were
issued in November 1997); and (vi) excludes 67,458 shares of Common Stock
that were issued upon conversion of Class A Stock in November and December
1997.

(2) Includes 67,458 shares of Class A Stock that were converted to Common Stock
in November and December 1997.

6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

The summary consolidated financial and operating data set forth below is
qualified in its entirety by, and should be read together with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements, the Notes thereto and the other
financial information included elsewhere or incorporated by reference in this
Prospectus.

<TABLE>
<CAPTION>
THREE
MONTHS ENDED
YEAR ENDED JULY 31, OCTOBER 31,
----------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA AND OTHER OPERATING DATA)
STATEMENT OF OPERATIONS
DATA:
Revenues:
Telecommunications..... $ 1,675 $ 3,169 $10,789 $ 35,708 $ 99,937 $18,102 $47,804
Internet access........ -- -- 875 21,986 32,895 10,137 4,850
Net2Phone.............. -- -- -- -- 2,355 79 2,097
------- ------- ------- -------- -------- ------- -------
Total revenues....... 1,675 3,169 11,664 57,694 135,187 28,318 54,751
Costs and expenses:
Direct cost of
revenues............. 272 990 7,544 36,438 92,214 18,013 40,861
Selling, general and
administrative....... 1,019 2,402 5,992 35,799 41,545 12,598 9,835
Depreciation and
amortization......... 79 106 303 1,212 4,873 963 1,745
------- ------- ------- -------- -------- ------- -------
Total costs and
expenses........... 1,370 3,498 13,839 73,449 138,632 31,574 52,441
------- ------- ------- -------- -------- ------- -------
Income (loss) from
operations............. 305 (329) (2,175) (15,755) (3,445) (3,256) 2,310
Other, net(1)............ (3) 31 30 112 (392) 150 (347)
------- ------- ------- -------- -------- ------- -------
Net income (loss)........ $ 302 $ (298) $(2,145) $(15,643) $ (3,837) $(3,106) $ 1,963
------- ------- ------- -------- -------- ------- -------
------- ------- ------- -------- -------- ------- -------
Net income (loss) per
share.................. $ 0.02 $ (0.02) $ (0.13) $ (0.86) $ (0.18) $ (0.15) $ 0.08
------- ------- ------- -------- -------- ------- -------
------- ------- ------- -------- -------- ------- -------
Weighted average number
of shares used in
calculation of net
income (loss) per
share.................. 16,569 16,569 16,569 18,180 21,153 20,841 25,480

OTHER FINANCIAL DATA:
EBITDA(2)................ $ 384 $ (223) $(1,872) $(14,543) $ 1,428 $(2,293) $ 4,055
EBITDA margin(3)......... 22.9% (7.0)% (16.0)% (25.2)% 1.1% (8.1)% 7.4%
Capital expenditures..... $ 229 $ 717 $ 1,326 $ 11,895 $ 18,049 $ 9,026 $ 5,700

OTHER OPERATING DATA:
Billed telecommunications
minutes of use (in
thousands)(4).......... -- -- 10,900 88,300 233,800 39,000 111,500
Revenue per billed
telecommunications
minute of use(4)....... -- -- $ 0.79 $ 0.36 $ 0.40 $ 0.43 $ 0.42
Number of employees at
end of period.......... 14 49 96 485 360 499 348
Number of switches at end
of period.............. -- -- 1 3 9 4 14
</TABLE>

<TABLE>
<CAPTION>
OCTOBER 31, 1997
--------------------------
ACTUAL AS ADJUSTED(5)
--------- ---------------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............................................................. $ 13,332 $89,674
Total assets........................................................................... 77,090 153,432
Total liabilities...................................................................... 47,178 47,178
Total stockholders' equity............................................................. 29,912 106,254
</TABLE>

7
<PAGE>
(1) For the year ended July 31, 1996, includes an extraordinary loss on
retirement of debt of $233,500.

(2) EBITDA represents net earnings (loss) before interest, income taxes,
depreciation and amortization. While EBITDA is not a measurement of
financial performance under generally accepted accounting principles and
should not be construed either as a substitute for net earnings (loss) as a
measure of performance or cash flow from operations as a measure of
liquidity, it is included herein because it is a measure commonly used in
the telecommunications industry.

(3) Represents EBITDA divided by total revenues.

(4) Excludes minutes of use and revenues from domestic long distance services.
The Company did not derive a material portion of its telecommunications
revenues on a per-minute basis in Fiscal 1993 and Fiscal 1994.

(5) Adjusted to give effect to (i) the sale of the 4,000,000 shares of Common
Stock offered by the Company hereby at an assumed public offering price of
$20.25 per share, after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company; and (ii) the receipt by
the Company of proceeds from the exercise of stock options for 200,000
shares being sold by the Selling Stockholders. See "Use of Proceeds,"
"Capitalization" and "Principal and Selling Stockholders."

8
<PAGE>
RISK FACTORS

THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. BEFORE PURCHASING
THE SHARES OF COMMON STOCK OFFERED HEREBY, THE FOLLOWING RISK FACTORS SHOULD BE
CONSIDERED CAREFULLY, IN ADDITION TO THE OTHER INFORMATION WHICH APPEARS IN THIS
PROSPECTUS OR IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. THE DISCUSSION
IN THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES,
EXPECTATIONS AND INTENTIONS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE
TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW AS WELL AS THOSE DISCUSSED
ELSEWHERE HEREIN. THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE MADE AS OF
THE DATE OF THIS PROSPECTUS, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE
SUCH FORWARD-LOOKING STATEMENTS OR TO UPDATE THE REASONS THAT ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING
STATEMENTS. SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND "INFORMATION REGARDING FORWARD-LOOKING STATEMENTS."

RISKS OF EXPANSION AND IMPLEMENTATION OF GROWTH STRATEGY

The Company's ability to continue to grow may be affected by various
factors, many of which are not within its control, including governmental
regulation of the telecommunications industry in the U.S. and other countries,
competition and technological developments. Although the Company has experienced
significant growth in a relatively short period of time and intends to continue
to grow rapidly, there can be no assurance that the growth experienced by the
Company will continue or that the Company will be able to expand its
telecommunications infrastructure, add services, expand its customer bases and
markets, install additional POPs or implement the other features of its business
strategy at the rate or to the extent presently planned. The Company has
experienced significant revenue growth and has expanded the number of its
employees and the geographic scope of its operations. These factors have
resulted in increased responsibilities for its management personnel. The
Company's ability to continue to manage its growth successfully will require it
to further expand its network and infrastructure, to enhance its management,
financial and information systems and controls and to effectively expand, train
and manage its employee base. In addition, as the Company increases its service
offerings and expands its target markets, there will be additional demands on
its customer service support and sales, marketing and administrative resources.
There can be no assurance that the Company will be able to successfully manage
its expanding operations. If the Company's management is unable to manage growth
effectively, the Company's business, financial condition or results of
operations could be materially and adversely affected.

As of October 31, 1997, the Company had 348 employees. The Company believes
that it will need, both in the short-term and in the long-term, to hire
additional sales and marketing and technical personnel, as well as additional
qualified administrative and management personnel in its accounting and finance
areas to manage its financial control systems. 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 to effectively adapt to future growth. The
inability to continue to upgrade 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.

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
international long distance business to suffer and could have other material
adverse effects on the Company's business, financial condition or results of
operations.

9
<PAGE>
RISKS ASSOCIATED WITH GROWTH OF TELECOMMUNICATIONS NETWORKS AND CUSTOMER BASE

Historically, the Company has relied primarily on leased transmission
capacity for the delivery of its telecommunications services. The Company's
telecommunications expenses have in the past primarily been variable, based upon
minutes of use, consisting largely of payments to other long distance carriers,
customer/carrier interconnect charges, leased fiber circuit charges and switch
facility costs. However, since Fiscal 1995, the Company has made considerable
capital expenditures in order to expand its network, and intends to continue to
do so in the future. See "Use of Proceeds" and "Business--Strategy." Although
the Company's strategy is to seek to establish significant traffic volumes prior
to investing in fixed-cost facilities, the development of such facilities
entails significant costs and prior planning, which are based in part on the
Company's expectations concerning future revenue growth and market developments.
As the Company expands its network and the volume of its network traffic, the
cost of revenues will increasingly consist of fixed costs arising from the
ownership and maintenance of its switches and undersea fiber optic cables. While
the Company believes that in the long-term these investments will allow it to
reduce its cost of service and to enhance its service offerings, in the
short-term, cost increases and a decrease in the Company's profit margins may
occur. In addition, the fixed nature of these costs is also expected to lead to
larger fluctuations in gross margins, depending on the minutes of traffic and
the associated revenues generated by the Company. If the Company's traffic
volume were to decrease, or fail to increase to the extent expected or necessary
to make efficient use of its network, the Company's costs as a percentage of
revenues would increase significantly, which would have a material adverse
effect on the Company's business, financial condition or results of operations.

In addition, the Company's business depends in part on its ability to obtain
transmission facilities on a cost-effective basis. Because undersea fiber optic
cables typically take several years to plan and construct, carriers generally
make investments based on a forecast of anticipated traffic. Therefore, the
Company's operations are subject to the risk that it will not adequately
anticipate the amount of traffic over its network, and may not procure
sufficient network equipment in order to ensure the cost-effective transmission
of customer traffic. The Company does not control the planning or construction
of undersea fiber optic transmission facilities and must seek access to such
facilities through partial ownership positions. If ownership positions are not
available, the Company must seek access to such facilities through lease
arrangements on negotiated terms that may vary with industry and market
conditions. The Company currently owns or leases transmission capacity on 11
undersea fiber optic cables. There can be no assurance that the Company will be
able to continue to obtain sufficient transmission facilities or access to
undersea fiber optic cable on economically viable terms. The failure of the
Company to obtain telecommunications facilities that are sufficient to support
its network traffic in a manner that ensures the reliability and quality of its
telecommunications services may have a material adverse effect on its business,
financial condition or results of operations.

DEPENDENCE ON OTHERS

The Company is dependent on other carriers of network transmission services
for many of its services, and generally does not have long-term contracts with
these carriers. These carriers are not restricted from competing against the
Company. To the extent that any of these carriers raise their rates, change
their pricing structure or provide the Company with a reduced amount of
capacity, the Company may be adversely affected. Also, the Company faces the
risk that there may be a disruption in the service provided by these carriers,
causing a disruption in the services provided by the Company to its customers.
The Company is dependent upon WorldCom, Inc. ("WorldCom"), which is the primary
provider to the Company of leased-line network capacity and data communications
facilities, and leases to the Company physical space for switches, modems and
other equipment. If WorldCom becomes unable to expand its network or becomes
unwilling to provide or expand its current level of service to the Company in
the future, the Company's business, financial condition or results of operations
could be materially adversely affected.

10
<PAGE>
The Company's ability to compete in the long distance telecommunications
market depends, in part, on its ability to procure advantageous rates from PTTs
and from other interexchange carriers ("IXCs"), and on the ability of such
parties to carry the calls the Company routes to their networks. If, as a result
of a termination of its relationship with a PTT or an IXC, or the inability of a
PTT or an IXC to carry traffic routed to it, the Company routed the traffic to
another IXC providing service at a less advantageous rate, or with lesser
quality, there could be a material adverse effect on the Company's profit
margins or network service quality. A reduction of the Company's service quality
could result in a loss of customers, which in turn could reduce the Company's
profit margins. Similarly, if the facilities-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.

The Company is also dependent upon established LECs, WorldCom and other
CLECs to provide telecommunications services to the Company's customers.
Although certain leased data communications services are currently available
from several alternative suppliers, including AT&T Corp. ("AT&T") and Sprint
Corp. ("Sprint"), there can be no assurance that the Company would be able to
obtain substitute services from other suppliers at reasonable or comparable
terms and prices or in a timely fashion.

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

The Company currently is dependent on software licensed from Netscape
Communications Corporation ("Netscape") and Microsoft Corporation ("Microsoft")
for the front-end software of its Internet access services. The Company uses and
reproduces certain Netscape and Microsoft products, and distributes such
products to distributors and end users together with IDT configuration software.
The occurrence of any operating difficulties in connection with such software
could deter customers from using the Company's Internet access services, which
could result in 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 Sun Microsystems, Inc., Cisco Systems, Inc.
("Cisco"), Northern Telecom Limited ("Nortel"), Excel Switching Corp. ("Excel")
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.

DEPENDENCE ON SALES REPRESENTATIVES AND RETAILERS

The Company is dependent on its independent sales representatives,
particularly with respect to sales of its international long distance
telecommunications services in key foreign markets. Most of the Company's
independent sales representatives also sell services or products of other
companies. Accordingly, there can be no assurance that these sales
representatives will devote sufficient efforts to promoting and selling the
Company's services, or that the Company will be able to find capable sales
representatives in the new markets into which it is entering. In particular, the
Company is dependent upon a single master distributor, 32-62 Union Corp.
("Union"), an entity owned by Mr. Carlos Gomez, for a substantial portion of its
sales of prepaid calling cards. The Company's agreement with Union provides that
Union will be the exclusive distributor of certain of the Company's prepaid
calling cards. Mr. Gomez, CG Com, Inc. (an entity owned by Mr. Gomez) and the
Company are currently defendants in a lawsuit in which the plaintiffs

11
<PAGE>
have alleged that Mr. Gomez and CG Com, Inc. breached a non-competition
agreement by virtue of Mr. Gomez's relationship with the Company. See
"Business--Litigation." An adverse decision in this action, the loss of Mr.
Gomez or Union as a distribution channel or the failure of Union or another
significant sales representative to effectively distribute the Company's
products, would substantially impair the Company's ability to generate revenues
from the sales of these products, which could have a material adverse effect on
the Company's business, financial condition or results of operations.

HISTORICAL LOSSES

The Company incurred net losses in Fiscal 1994, 1995, 1996 and 1997 of
$298,000, $2.1 million, $15.6 million and $3.8 million, respectively. The
Company has only recently begun to generate profits, generating net income of
$161,000, $939,000 and $2.0 million for each of the three-month periods ended
April 30, 1997, July 31, 1997 and October 31, 1997, respectively. Although the
Company has experienced significant growth in recent periods, such growth may
not be sustainable and should not be considered indicative of future growth of
its business, revenues or profits.

A substantial portion of the Company's revenues in Fiscal 1997 were derived
from telecommunications services. The Company has only a limited operating
history with respect to certain of its services in these areas, and no assurance
can be given regarding the Company's future performance. In addition, the
Company intends to enter markets where it has limited or no operating
experience. Accordingly, there can be no assurance that the Company's future
operations will continue to generate operating income, and the Company's
prospects must be considered in light of the risks, expenses, problems and
delays inherent in establishing a new business in a rapidly changing industry.

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, capacity and competitive pricing. The Company's ability to grow
depends, in part, on its ability to expand its operations through the ownership
and leasing of network capacity, which requires significant capital
expenditures, that are often incurred prior to the Company's receipt of the
related revenue.

The Company believes that, based upon its present business plan, the
proceeds from the Offering, together with the Company's 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 twelve months. If the Company's growth exceeds current expectations, if
the Company obtains one or more attractive opportunities to purchase the
business or assets of another company, or if the Company's cash flow from
operations after the end of such period 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 anticipated expansion, which could have a
material adverse effect on the Company's business, financial condition or
results of operations.

12
<PAGE>

other purposes; (ii) such a financing could impose covenants and restrictions on
the Company that may limit its flexibility in planning for, or reacting to,
changes in its business or that could restrict its ability to declare dividends,
redeem stock, incur additional indebtedness, sell assets, and consummate
mergers, consolidations, investments and acquisitions; and (iii) the Company's
degree of indebtedness and leverage may render it more vulnerable to a downturn
in its business or in the telecommunications industry or the economy generally.

DEPENDENCE ON MANAGEMENT INFORMATION SYSTEMS

The Company is dependent upon its information systems and switching
equipment to provide service to its customers, manage its network, collect
billing information and perform other vital functions. The Company is
particularly dependent upon its maintenance of an effective billing and
collection system, especially with respect to its call reorigination business,
in which its clients are geographically dispersed. The Company's management
information systems and switching equipment are subject to hardware defects and
software bugs, the existence of which may be outside of the Company's control.
The Company may experience technical difficulties with its hardware or software
which could materially adversely affect 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
low-cost, uninterrupted international and domestic long distance telephone
services. Any system or network failure that causes interruptions in the
Company's operations could have a material adverse effect on its business,
financial condition or results of operations. At times, the Company's call
reorigination switching equipment has experienced failures, which temporarily
prevented customers from using its 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 to cause 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. 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 operations.

The success of the Company's Internet-related business is dependent on its
ability to deliver high-quality, uninterrupted access to the Internet. In the
past, the Company experienced failures relating to individual POPs, and the
Company's subscribers experienced difficulties in accessing, and maintaining
their connection to, the Internet. The Company maintains a substantial portion
of its Internet accounts, e-mail services, and other systems essential to the
Company's service offerings at its primary operational facilities in Hackensack,
New Jersey. Significant or prolonged system failures 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.

RAPID TECHNOLOGICAL DEVELOPMENT

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 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

13
<PAGE>
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 products, software or service
developments or enhancements introduced by the Company will achieve or sustain
market acceptance or that they will effectively address the compatibility and
interoperability issues raised by technological changes or new industry
standards.

Fundamental changes in the technologies for delivering telephone, Internet
access and content, and Internet telephony services expose the Company to
substantial risks. For example, although the Company's Internet access services
are currently accessed primarily by computers through telephone lines, several
companies have recently introduced 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.

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 EU has mandated competitive markets for the
European telecommunications industry by January 1998 and the member states of
the EU 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 of international and domestic
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 brought about by deregulation, the Company frequently
enters new markets and is unable to predict how the regulatory environments of
such markets will evolve. There can be no assurance that changes in the
marketplace and new strategic alliances among companies with greater resources
than the Company will not adversely affect the Company's ability to continue its
efforts to increase its overseas telecommunications customer base and its
traffic volume, or its ability to recover the cost of building out its
international telecommunications switching infrastructure.

The markets for Internet access, content and telephony services and related
software products are relatively new, and the Company's current and future
competitors are likely to introduce competing Internet access and/or online
services and products. Therefore, it is difficult to predict the rate at which
these markets will grow or at which new or increased competition will result in
market saturation. If demand for Internet services fails to grow, or grows more
slowly than anticipated, or if the market becomes saturated with competitors,
the Company's business, financial condition or results of operations could be
adversely affected. Although the Company intends to support emerging standards
in the market for Internet access, 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."

In August 1996, the Company began offering Net2Phone, the first commercial
telephone service to bridge calls between multimedia PCs and telephones via the
Internet, and in October 1997, the Company introduced Net2Phone Direct, a
service that allows for phone-to-phone calling via the Internet. The Company
believes that these services expand the role of the Internet as a communications
medium, and enable users to benefit from substantially reduced long distance
telecommunications rates. However, Internet telephony is in the early stages of
development, and there continue to be issues regarding quality and consistency
of such service. Although Internet telephony continues to be an area of intense
focus of various Internet software providers, traditional telephone service
companies and telephone equipment

14
<PAGE>
manufacturers, there can be no assurance that Internet telephony will gain
market acceptance or prove to be a viable alternative to traditional telephone
service. Notwithstanding the potential cost savings, many international
telephone callers, accustomed to the convenience and quality of phone-to-phone
international calling, may not switch to Internet telephony services. The
failure of Internet telephony to develop as a viable industry may adversely
affect the Company's business, financial condition or results of operations.

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS; CURRENCY FLUCTUATIONS

In Fiscal 1995, 1996, 1997 and in the three-month period ended October 31,
1997, international customers accounted for approximately 56%, 23%, 25% and 14%
of the Company's total revenues, respectively. 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 install a gateway 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;
the collection and payment of applicable value-added taxes ("VAT"); political
and economic instability; difficulties in collecting accounts receivable; 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 telecommunications companies and ISPs by
foreign jurisdictions. Although the Company's sales to date have generally been
denominated in U.S. dollars, some of the Company's recent contracts are
denominated in foreign currencies, and the value of the U.S. dollar in relation
to foreign currencies may also adversely affect the Company's 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 begins to denominate prices in foreign currencies,
the Company will be exposed to increased risks of currency fluctuation. 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."

RISKS ASSOCIATED WITH COLLECTIONS OF RECEIVABLES

The Company's business as a wholesale provider of international long
distance services makes it highly dependent upon traffic carried by the Company
for other long distance providers, and the collection of receivable balances
from such customers. While the Company's most significant customers vary from
quarter to quarter, the Company's five largest customers accounted for 20.8% of
revenues in the year ended July 31, 1997, and 34.5% of revenues in the
three-month period ended October 31, 1997. This concentration of revenues
amplifies the risk of non-payment by customers, and other carriers have
experienced significant receivable writeoffs related to the provision of
wholesale carrier services. While the Company performs ongoing credit
evaluations of its customers, it generally does not require collateral to
support accounts receivable from its customers. If the Company experiences
difficulties in the collection of its accounts receivable from its major
customers, the Company's financial condition and results of operations could be
materially adversely affected.

Historically, the Company has experienced losses from the uncollectability
of receivables in its Internet access and call reorigination businesses. The
call reorigination business is particularly susceptible to credit risks because
the customers for such services reside in a wide range of countries, many of
which do not have established credit bureaus, thereby making it more difficult
for the Company to ascertain the creditworthiness of potential customers. The
Company's Internet access business is characterized by a

15
<PAGE>
large number of small dollar value receivables. As a result, the collection
costs associated with delinquent Internet access receivables are high relative
to the receivable balances.

In addition, the Company expends considerable resources to collect
receivables from customers who fail to make payment in a timely manner. While
the Company continually seeks to minimize bad debt, and at times requires
collateral to support accounts receivable from certain customers, the Company's
experience indicates that a certain portion of past due receivables will never
be collected and that such bad debt is a necessary cost of conducting business.
As of October 31, 1997, the Company reserved approximately $3.5 million for
receivables expected to be uncollectible. There can be no assurance, however,
that, with regard to any particular time period or periods or any particular
geographic location or locations, bad debt expense will not rise significantly
above historical or anticipated levels. Any significant increase in bad debt
levels could have a material adverse effect on the Company's business, financial
condition or results of operations.

The telecommunications and Internet access industries have historically
incurred losses due to fraud. Although the Company has implemented anti-fraud
measures in order to control losses relating to fraudulent practices, there can
be no assurance that the Company can effectively control fraud when operating in
the international or domestic telecommunications arena. The Company's failure to
effectively control fraud could have a material adverse effect on its 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 larger
industry participants. There are limited barriers to entry in many of the
telecommunications and Internet 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 and other long distance
resellers and providers, including large carriers, such as AT&T, MCI, Sprint,
and WorldCom; (ii) foreign PTTs; (iii) other providers of international long
distance services such as STAR Telecommunications, Inc., Pacific Gateway
Exchange, Inc., RSL Communications Ltd. and Telegroup, Inc.; (iv) alliances that
provide wholesale carrier services, such as "Global One" (Sprint, Deutsche
Telekom AG and France Telecom S.A.) and Uniworld (AT&T, Unisource-Telecom
Netherlands, Telia AB, Swiss Telecom PTT and Telefonica de Espana S.A.); (v) new
entrants to the domestic long distance market such as the regional bell
operations companies ("RBOCs") in the U.S., who have entered or have announced
plans to enter the U.S. interstate long distance market pursuant to recent
legislation authorizing such entry, and utilities such as RWE Aktiengesellschaft
in Germany; and (vi) small long distance resellers. 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 as well as greater financial, technical, operational, marketing
and other resources and experience than the Company.

The Company competes for customers in the telecommunications markets
primarily based on price and, to a lesser extent, on the type and quality of
service offered. Increased competition could force the Company to reduce its
prices and profit margins if its competitors are able to procure rates or enter
into service agreements that are comparable to or better than those the Company
obtains, or if they are able 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 the
volume of minutes that it carries on its network, as the Company's ability to
obtain favorable rates and tariffs from its carrier suppliers depends, to

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a significant extent, on the Company's total volume of international long
distance call traffic. There is no guarantee that the Company will be able to
maintain the volume of international and domestic long distance traffic
necessary to obtain favorable rates and tariffs. Although the Company has no
reason to believe that its competitors will adopt 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 long distance resale services depends upon the existence of
spreads between the rates offered by the Company and those offered by the IXCs
with which it competes, as well as those from which 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. See "Risk
Factors--Dependence on Others" and "Business-- Competition."

Because of their close ties to their respective national regulatory
authorities, PTTs may 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. Deregulation in foreign countries also could result in competition from
other service providers that have large, established customer bases and close
ties to governmental authorities in their home countries. Deregulation and
increased competition in foreign markets could cause prices for direct-dial
international calls to decrease so much that customers will no longer be 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 or 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.

The large U.S. long distance carriers have, in the past, been reluctant to
enter the international call reorigination business and attempt to capture a
significant market share of the domestic customers of the incumbent overseas
PTTs. Because of their ability to compete on the basis of superior financial and
technical resources, the entry of any large U.S. long distance carrier into the
international call reorigination business in a country in which the Company has
a significant customer base 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
proscribes 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 prepaid calling card industry is extremely competitive, and the Company
expects competition to increase in the future. The Company estimates that there
are more than 100 companies that offer prepaid calling cards in the U.S. Several
of these companies have greater financial and operating resources than the
Company. The failure of the Company to capture a significant share of the
prepaid calling card market may have an adverse effect on its business,
financial condition or results of operations.

INTERNET ACCESS

The Company's current and prospective competitors in the Internet access
market include many large companies that have substantially greater market
presence, as well as greater 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 (which has agreed to be acquired by ICG Communications,
Inc.); (ii) established on-line services companies that offer Internet access,
such as America Online, Inc. ("AOL"), CompuServe Corp. ("CompuServe") and
Prodigy Services Company ("Prodigy"); (iii) computer software and other
technology companies, such as Microsoft; (iv) national long distance
telecommunications carriers, such as AT&T, MCI and Sprint; (v) RBOCs; (vi) cable
television operators, such as Comcast Corporation ("Comcast"),
Tele-Communications, Inc. ("TCI") and Time

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Warner Inc. ("Time Warner"); (vii) nonprofit or educational ISPs; (viii)
newly-licensed providers of spectrum-based wireless data services; and (ix)
CLECs such as Teleport Communications Group Inc. ("TCG") and WorldCom. See
"Business--Competition."

Many of the established on-line services companies and telecommunications
companies have begun to offer or have announced plans to offer expanded Internet
access services. In addition, the Company believes that new competitors,
including large computer hardware and software, cable, media, wireless and
wireline telecommunications companies, may enter the Internet access market,
resulting in even greater competition for the Company. The ability of these or
other competitors to bundle services and products that are not offered by the
Company together with Internet access services could place the Company at a
significant competitive disadvantage. In addition, certain telecommunications
companies that compete with the Company may be able to provide customers with
reduced communications costs or other incentives in connection with their
Internet access services, reducing the overall cost of their Internet access
services 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.

The Company believes that its ability to compete successfully in the
Internet access market depends upon a number of factors including: (i) market
presence; (ii) the adequacy of the Company's customer support services; (iii)
the capacity, reliability and security of its network infrastructure; (iv) the
ease of access to and navigation of the Internet; (v) the pricing policies of
its competitors and suppliers; (vi) regulatory price requirements for
interconnection to and use of existing local exchange networks by ISPs; (vii)
the timing of introductions of new products and services by the Company and its
competitors; (viii) the Company's ability to support existing and emerging
industry standards; and (ix) 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.

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 using the LEC networks in this manner,
other than the 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. 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. In May 1997,
the FCC determined that it would not impose interstate access charges on ISPs.
However, the FCC is currently conducting two proceedings in which it is
exploring the impact of the Internet on the public switched network. No
assurances can be given as to whether the FCC will continue to permit ISPs to
use basic business telecommunications services without imposing any additional
charges.

Competition is also expected to increase in 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 U.S. 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.

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INTERNET TELEPHONY

The market for Internet telephony services is expected to be extremely
competitive. Most of the current Internet telephony products enable voice
communications over the Internet between two parties simultaneously connected to
the Internet via multimedia PCs, where both parties are using identical Internet
telephony software products. Current product offerings include VocalTec
Communications, Ltd.'s Internet Phone, QuarterDeck Corporation's WebPhone and
Microsoft's NetMeeting. In addition, a number of large, well-capitalized
companies such as Intel Corporation ("Intel"), Cisco, Lucent Technologies Inc.
("Lucent"), Nortel and Dialogic Corp. ("Dialogic") have announced their
intentions to offer server-based products that are expected to allow
communications over the Internet between parties using a multimedia PC and a
telephone and between two parties using telephones where both parties have
specialized servers at each end of the call. Several other companies, such as
AT&T and Qwest Communications International Inc ("Qwest Communications"), have
recently announced plans to offer Internet telephony products and services
during the first half of 1998. There can be no assurance that the Company will
be able to successfully compete in the developing Internet telephony market, or
that other large companies will not enter the market as suppliers of Internet
telephony services or equipment. In addition, the Company's competitors may
introduce products that permit origination and termination of calls at a
telephone through the Internet.

RISKS ASSOCIATED WITH ACQUISITIONS, INVESTMENTS AND STRATEGIC ALLIANCES

In furtherance of its business strategy, the Company expects to enter into
strategic alliances with, acquire assets or businesses from, or make investments
in, companies that are complementary to its current operations. Any such future
strategic alliances, investments or acquisitions would be accompanied by the
risks commonly encountered in such transactions. Such risks include, among other
things, the difficulty of absorbing the operations and personnel of the acquired
companies, the potential disruption of the Company's ongoing business, costs
associated with the development and integration of such operations, the
inability of management to maximize the financial and strategic position of the
Company by the successful incorporation of licensed or acquired technology into
the Company's service offerings, the maintenance of uniform standards, controls,
procedures and policies, the impairment of relationships with employees and
customers as a result of changes in management, and higher customer attrition
with respect to customers obtained through acquisitions.

GOVERNMENT REGULATORY POLICY RISKS

TELECOMMUNICATIONS

As a multinational telecommunications company, the Company is subject to
varying degrees of regulation in each of the jurisdictions in which it operates.
As a non-dominant carrier in the U.S., the Company's provision of international
and domestic long distance telecommunications services is generally regulated on
a streamlined basis. Despite recent trends toward deregulation, some of the
countries in which the Company intends to provide telecommunications services do
not currently permit the Company to provide public-switched voice
telecommunications services. In those countries not yet open to switched voice
service competition, the Company provides services to closed user groups
("CUGs") and a variety of value-added services, as permitted by each country's
laws.

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which the Company's services are provided. Non-dominant carriers, such as the
Company, are required by federal and state law and regulations to file tariffs
listing the rates, terms and conditions for the services they provide. In March
1997, the FCC initiated a proceeding in which it proposed to eliminate the
requirement that non-dominant interstate carriers such as the Company maintain
tariffs on file with the FCC for domestic interstate services. The FCC's
proposed rules are pursuant to authority granted to the FCC in the
Telecommunications Act to forbear from regulating any telecommunications service
provider if the FCC determines that the public interest will be served. The FCC
subsequently adopted its proposal and eliminated the requirement that interstate
carriers file domestic tariffs in most circumstances. That decision has been
appealed to the U.S. Court of Appeals for the 8th Circuit, and a stay has been
issued pending a decision on the merits of the appeal. It is unclear when the
Court will rule on the appeal.

In May 1997, the FCC issued an order to implement the provisions of the
Telecommunications Act relating to the preservation and advancement of universal
telephone service (the "Universal Service Order"). The Universal Service Order
requires all telecommunications carriers providing interstate telecommunications
services to contribute to universal support by contributing to a fund (the
"Universal Service Fund"). Universal service contributions will be assessed
based on certain intrastate, interstate and international end-user gross
telecommunications revenues, effective January 1, 1998. All carriers were
required to submit a Universal Service Fund worksheet in September 1997. The
Company has filed its Universal Service Fund worksheet. Although the FCC order
provides a method for determining the amount that the Company must contribute to
support these subsidies, the FCC has only provided the contribution factors for
the first quarter of 1998. The revised factors are 3.19% for the high cost and
low income fund and 0.72% for the schools, libraries and healthcare fund. The
amounts remitted to the Universal Service Fund may be billed to the Company's
customers. If the Company does not bill these amounts to its customers, its
profit margins may be less than if it had elected to do so. However, if the
Company elects to bill these amounts to its customers, customers may reduce
their use of the Company's services, or elect to use the services provided by
the Company's competitors, which may have a material adverse effect upon the
Company's business, financial condition, or results of operations.

In addition to regulation by the FCC, the majority of the states require the
Company to register or apply for certification prior to initiating intrastate
interexchange telecommunications services. To date, the Company, together with
its subsidiaries, is certified to provide intrastate interexchange
telecommunications services in 43 states. State issued certificates of authority
to provide intrastate interexchange telecommunications services can generally be
conditioned, modified, canceled, terminated or revoked by state regulatory
authorities for failure to comply with state law and/or the rules, regulations
and policies of the state regulatory authorities. Fines and other penalties also
may be imposed for such violations.

U.S. REGULATION OF INTERNATIONAL TELECOMMUNICATIONS SERVICES. International
common carriers, such as the Company, are required to obtain authority under
Section 214 of the Communications Act and file a tariff containing the rates,
terms and conditions applicable to their services prior to initiating their
international telecommunications services. The Company has obtained a global
Section 214 authority from the FCC to use, on a facilities and resale basis,
various transmission media for the provision of international switched and
private line services. Non-dominant international carriers such as the Company
must file their international tariffs and any revisions thereto with one day's
notice. Additionally, international telecommunications service providers are
required to file copies of their contracts with other carriers, including
foreign carrier agreements, with the FCC within 30 days of execution. The FCC's
rules also require that the Company file periodically a variety of reports
regarding the volume of its international traffic and revenues and use of
international facilities. In addition to the general common carrier principles,
and as discussed below, the Company is also required to conduct its
facilities-based international business in compliance with the FCC's
International Settlements Policy (the "IS Policy"), or an FCC approved
alternative accounting rate arrangement.

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by the FCC to offer "equivalent opportunities" to U.S. carriers. To date, the
FCC has found that only Canada, the U.K., Sweden, Australia and New Zealand
offer such opportunities. The FCC currently imposes certain restrictions upon
the use of the Company's private lines between the U.S. and "equivalent"
countries. The Company may not route traffic to or from the U.S. over a private
line between the U.S. and an "equivalent" country (such as the U.K.) if such
traffic originates or terminates in a third country, if the third country has
not been found by the FCC to offer "equivalent" resale opportunities. Following
implementation of the Full Competition Directive by member states of the
European Union (the "EU"), and the World Trade Organization ("WTO") Basic
Telecommunications Agreement (the "WTO Agreement") by the signatories, the FCC
may authorize the Company to originate and terminate traffic over its private
line between the U.S. and the U.K. and (pursuant to ISR authority) over
additional private lines to additional member states if the FCC finds that such
additional member states provide equivalent resale opportunities or that such
authority would otherwise promote competition. The FCC has also recently
proposed to permit U.S. carriers to provide ISR to WTO member countries without
a finding of equivalency where certain settlement rate requirements are met.

With regard to international services, the FCC administers a variety of
international service regulations, including the IS Policy. The IS Policy
governs the permissible arrangements between U.S. carriers and their foreign
correspondents to settle the cost of terminating traffic over each other's
networks, the rates for such settlement and permissible deviations from these
policies. As a consequence of the increasingly competitive global
telecommunications market, the FCC has adopted a number of policies that permit
carriers to deviate from the IS Policy under certain circumstances that promote
competition. The FCC also requires carriers such as the Company to report any
affiliations, as defined by the Commission, with foreign carriers.

The Company offers its call reorigination services pursuant to an FCC
authorization (the "Section 214 Switched Voice Authorization") under Section 214
of the Communications Act and certain relevant FCC decisions. The FCC has
determined that call reorigination services that use uncompleted call signaling
does not violate U.S. or international law, but has held that U.S. companies
providing such services must comply with the laws of the countries in which they
operate as a condition of such companies' Section 214 Switched Voice
Authorizations. The FCC reserves the right to condition, modify or revoke any
Section 214 Authorizations and impose fines for violations of the Communications
Act or the FCC's regulations, rules or policies promulgated thereunder, or for
violations of the clear and explicit telecommunications laws of other countries
that are unable to enforce their laws against U.S. carriers. FCC policy provides
that foreign governments that satisfy certain conditions may request FCC
assistance in enforcing their laws against call reorigination providers based in
the U.S. that are violating the laws of these jurisdictions. 30 countries have
formally notified the FCC that call reorigination services violate their laws.
The FCC has held that it would consider enforcement action against companies
based in the U.S. engaged in call reorigination by means of uncompleted call
signaling in countries where this activity is expressly prohibited. While the
FCC has not initiated any action to date to limit the provision of call
reorigination services, there can be no assurance that it will not take action
in the future. Enforcement action could include an order to cease providing call
reorigination services in such country, the imposition of one or more
restrictions on the Company, monetary fines or, ultimately, the revocation of
the Company's Section 214 Switched Voice Authorization, and could have a
material adverse effect on the Company's business, financial condition and
results of operations.

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lower rates for the termination of international services. These rates range
from a $0.15/minute benchmark for upper income countries such as the U.K. to
$0.23/minute for lower income countries such as China. Moreover, the FCC
recently initiated a proceeding proposing to revise its Foreign Carrier Entry
Policy as part of its efforts to change its rules to implement the WTO
Agreement.

In addition, the FCC is currently considering whether to limit or prohibit
the practice whereby a carrier routes, through its facilities in a third
country, traffic originating from one country and destined for another country.
The FCC has permitted third country calling where all countries involved consent
to the routing arrangements (referred to as "transiting"). Under certain
arrangements referred to as "refiling," the carrier in the destination country
does not consent to receiving traffic from the originating country and does not
realize the traffic it receives from the third country is actually originating
from a different country. To date, the FCC has made no pronouncement as to
whether refiling arrangements are inconsistent with the regulations of the U.S.
or the International Telecommunication Union (the "ITU"), although it is
considering these issues in connection with MCI's 1995 petition to the FCC for
declaratory ruling regarding Sprint's Fonaccess service. It is possible that the
FCC will determine that refiling violates U.S. and/or international law. Such a
finding could have a material adverse effect on the Company's business,
operating results and financial condition.

No assurances can be given that changes to the existing international or
domestic regulatory framework will not occur. Such changes may increase the
Company's legal, administrative or operating costs, or may otherwise limit or
constrain the Company's activities, any of which could have a material adverse
effect on the Company's business, financial condition, or results of operations.

EUROPEAN REGULATION OF TELECOMMUNICATIONS SERVICES. In Europe, the
regulation of the telecommunications industry is governed at a supra-national
level by the EU. The EU's institutions, such as the European Commission, are
responsible for creating pan-European policies. Through its legislation, the EU
has developed a regulatory framework aimed at ensuring an open, competitive
telecommunications market. The EU was established by the Treaty of Rome and
subsequent conventions and the European Commission and the Council of Ministers
of the European Union are authorized by such treaties to issue EU "directives."
EU member states are required to implement these directives through national
legislation. If an EU member state fails to adopt such directives, the European
Commission may take action, including referral to the European Court of Justice,
to enforce the directives.

In 1990, the EU issued the Services Directive requiring each EU member state
to abolish existing monopolies in telecommunications services, with the
exception of voice telephony. The intended effect of the Services Directive was
to permit the competitive provision of all services, including value-added
services and voice services to CUGs, other than voice telephony. However, as a
consequence of local implementation of the Services Directive through the
adoption of national legislation, there are differing interpretations of the
definition of prohibited voice telephony and permitted value-added and CUG
services. Voice services accessed by customers through leased lines are
permissible in all EU member states. The European Commission has generally taken
a narrow view of the services classified as voice telephony, declaring that
voice services may not be reserved to the ITOs if (i) dedicated customer access
is used to provide the service; (ii) the service confers new value-added
benefits on users; or (iii) calling is limited by a service provider to a group
having legal, economic or professional ties.

In March 1996, the EU adopted the Full Competition Directive containing two
provisions which required EU member states to allow the creation of alternative
telecommunications infrastructures by July 1, 1996, and which reaffirmed the
obligation of EU member states to abolish the ITOs' monopolies in voice
telephony by 1998. The Full Competition Directive encouraged EU member states to
accelerate the liberalization of voice telephony. To date, Sweden, Finland,
Denmark and the U.K. have liberalized facilities-based services to all routes.
Certain EU countries may delay the abolition of monopolies in voice telephony
based on exemptions established in the Full Competition Directive. These
countries include Spain (1998), Portugal and Ireland (2000) and Greece (2003).

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In addition to the foregoing regulations, the EU has recently adopted the
Interconnection Directive and the Licensing Directive. These measures attempt to
harmonize telecommunications regulations among the member states of the EU. The
Interconnection Directive provides that ITOs are obliged to interconnect with
other operators requesting to do so, and to enter into such arrangements on
transparent, objective and non-discriminatory terms. The Licensing Directive
provides for the establishment of a national regulatory authority independent of
the ITO in each member state of the EU, and provides that member states may
reject applications for licenses only upon certain narrowly-defined grounds.

Each EU member state in which the Company currently conducts or plans to
conduct its business has a different regulatory regime, and such differences are
expected to continue beyond January 1998. The requirements for the Company to
obtain necessary approvals vary considerably from one member state to another
and are likely to change as competition is permitted in new service sectors.

No assurances can be given that any changes to the existing European
regulatory framework will not occur. Changes to existing regulations may
decrease the opportunities that are available for the Company to enter into
those markets, or may increase the Company's legal, administrative or
operational costs, or may otherwise constrain the Company's activities, any of
which could have a material adverse effect on the Company's business, financial
condition, or results of operations.

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 ACCESS

ISPs are generally considered "enhanced service providers" and are exempt
from federal and state regulations governing common carriers. Accordingly, the
Company's provision of Internet access services are currently exempt from
tariffing, certification and rate regulation. Nevertheless, regulations
governing disclosure of confidential communications, copyright, excise tax and
other requirements may apply to the Company's provision of Internet access
services. The Company cannot predict the likelihood that state, federal or
foreign governments will impose additional regulation on the Company's Internet
business, nor can it predict the impact that future regulation will have on the
Company's operations.

The 1996 Telecommunications Act imposes criminal liability on persons
sending or displaying indecent material on an interactive computer service such
as the Internet in a manner available to minors. The Telecommunications Act also
imposes criminal liability 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 exempt 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 their interpretation and enforcement is uncertain.
The Telecommunications Act may decrease demand for Internet access, chill the
development of Internet content, or have other adverse effects on ISPs 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, among
other things, prohibiting users from maintaining home pages on the World Wide
Web.

In December 1996, the FCC initiated a Notice of Inquiry regarding whether to
impose regulations or surcharges upon providers of Internet access and
Information Service (the "Internet NOI"). The Internet NOI seeks public comment
upon whether to impose or continue to forebear from regulation of Internet and
other packet-switched network service providers. The Internet NOI specifically
identifies Internet telephony as a subject for FCC consideration. The Company
can not predict the outcome of this proceeding or other FCC proceedings that may
impact the Company's operations or impose additional requirements, regulations
or charges upon IDT's provision of Internet access services.

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INTERNET TELEPHONY

The Company knows of no domestic or foreign laws that prohibit voice
communications over the Internet. As identified above, the FCC is currently
considering whether or not to impose surcharges or additional regulation upon
providers of Internet telephony. In addition, several efforts have been made to
enact federal legislation that would either regulate or exempt from regulation
services provided over the Internet. State public utility commissions may also
retain jurisdiction to regulate the provision of intrastate Internet telephone
services and could initiate proceedings to regulate Internet telephony. If a
foreign government, Congress, the FCC or a state utility commission begins to
regulate Internet telephony, there can be no assurances that any such regulation
will not materially adversely affect the Company's business, financial condition
or results of operations.

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 currently have any issued patents or registered
copyrights, although it has registered service marks in connection with its name
and logo and its GENIE services and other pending applications for certain
trademarks. The Company's policy is to require its 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 in connection with the Company's
development of its services or products would be available on reasonable terms
if at all. See "Business--Intellectual Property."

The Company has applied for a patent in connection with its development of
the systems and methodology comprising the technologies underlying Net2Phone.
There can be no assurance that this application will result in any patent being
issued or that, if issued, such patent will provide adequate protection against
competitive technology or that it will be held valid and enforceable if
challenged. There can be no assurance that the Company's competitors would not
be able to design around any such patent or that others will not obtain patents
that the Company would need to license or circumvent in order to exploit its
patent.

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 recently granted to others based on fundamental
technologies in the communications, multimedia and Internet telephony areas, and
patents may be issued which relate to fundamental technologies incorporated in
the Company's services and products. Because patent applications in the U.S. are
not publicly disclosed until the relevant patent is issued, applications may
have been filed which, if issued as patents, could relate to the Company's
services and products. 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 or products in the U.S. or abroad. Such a
judgment could have a material adverse effect on the Company's business,
financial condition or results of operations.

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SECURITY RISKS

Despite the implementation of network security measures by the Company, such
as limiting physical and network access to its routers, the Company's 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. Break-ins
reported in the press and otherwise have reached computers connected to the
Internet at major corporations and ISPs. A number of these break-ins have
involved the theft of information, including incidents in which hackers bypassed
firewalls through fraudulent means. 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. 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

ISPs and Internet 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 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 ISPs 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 ISP for copyright violation based on content included by a subscriber
on a Web site.

The Company carries errors and omissions insurance. However, such insurance
may not be adequate to compensate the Company for 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 ISPs including the Company, as well as additional costs and technological
challenges in complying with any statutory or regulatory requirements imposed by
such legislation. See "--Government Regulatory Public Risks--Internet." 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, and a number of
countries are considering content restrictions based on such factors as
political or religious views expressed, pornography or indecency. The operation
of the GENIE on-line service has increased the Company's exposure to such
legislation, and to

25
<PAGE>
libel and defamation suits, primarily because of the increased level of content
being provided by or through the Company.

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 to
identify or hire additional personnel. In particular, the Company is dependent
on the services of Howard S. Jonas, its Chief Executive Officer, Chairman of the
Board and founder, Howard S. Balter, its Chief Operating Officer and Vice
Chairman of the Board and James A. Courter, its President. The loss of Mr.
Jonas', Mr. Balter's or Mr. Courter's services could have a material adverse
effect on the Company's business, financial condition or results of operations.
See "Management."

CONTROL BY PRINCIPAL STOCKHOLDER

Howard S. Jonas, the Company's Chief Executive Officer, Chairman of the
Board and founder, is the beneficial owner of substantially all of the Company's
outstanding shares of Class A Stock and therefore, currently holds, and after
the Offering, will continue to hold, more than 50% 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 "Principal and Selling Stockholders."

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
revenues, 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 have particularly affected companies in the technology sector,
and have resulted in changes in the market price of the shares 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. See "Price Range of Common Stock and Dividend
Policy."

POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS AND DELAWARE LAW

The Company's Certificate of Incorporation authorizes the Board of Directors
to issue, without stockholder approval, one or more series of preferred stock
having such preferences, powers and relative, participating, optional and other
rights (including preferences over the Common Stock respecting dividends,
distributions and voting rights) as the Board of Directors may determine. The
issuance of this "blank-check" preferred stock could render more difficult or
discourage an attempt to obtain control of the Company by means of a tender
offer, merger, proxy contest or otherwise, which may limit the ability of the
stockholders to obtain the maximum value for their shares of Common Stock. In
addition, the Certificate of Incorporation provides for a classified Board of
Directors, which may also have the effect of inhibiting or delaying a change in
control of the Company. Certain provisions of the Delaware General Corporation
law may also discourage takeover attempts that have not been approved by the
Board of Directors. See "Management" and "Description of Capital Stock."

26
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of shares of Common Stock into the public
market could adversely affect the market price for the Common Stock. The
Company, the Selling Stockholders, and each of the Company's directors and
executive officers have agreed that they will not, directly or indirectly,
without the prior written consent of BT Alex. Brown Incorporated, offer, sell,
offer to sell, contract to sell or otherwise dispose of any shares of Common
Stock for a period of 90 days after the date of this Prospectus, except that the
Company (i) may issue shares of Common Stock upon the exercise or conversion of
other currently outstanding options, warrants and other convertible securities;
(ii) may issue options to purchase shares of Common Stock to its directors,
officers and employees in connection with its existing stock options plans; and
(iii) may issue shares of Common Stock or securities convertible into, or
exercisable for, shares of Common Stock pursuant to an acquisition transaction.
In addition, the Company's directors, officers and shareholders described above
may dispose of shares of Common Stock (i) as bona fide gifts; (ii) pursuant to
the laws of testamentary or intestate descent; or (iii) pursuant to a final and
nonappealable order of a court or other body of competent jurisdiction. See
"Underwriting." On or around the expiration of the 90-day period described
above, the Company intends to file a Registration Statement with the Commission
relating to 100,000 shares of Common Stock issuable upon the exercise of options
held by Clifford M. Sobel, the President of the Company's Net2Phone, Inc.
subsidiary.

27
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company hereby at an assumed public offering price of $20.25 per
share will be $76.3 million ($88.1 million, if the Underwriters' over-allotment
option is exercised in full) after deducting the underwriting discounts and
commissions and estimated offering expenses payable by the Company. The Company
will not receive any of the proceeds from the sale of Common Stock by the
Selling Stockholders.

The Company intends to use the net proceeds from the sale of the Common
Stock for the expansion of its international and domestic telecommunications
networks, product development, expansion of its sales and marketing activities,
and working capital and other general corporate purposes. In addition, the
Company may use the net proceeds from the sale of the Common Stock offered by
the Company hereby for acquisitions of complementary products, technologies or
businesses, although the Company is not currently a party to any agreements with
respect to any such acquisitions. Pending such uses, the Company expects to
invest the net proceeds from the sale of the Common Stock offered by the Company
hereby in short-term, investment grade, interest-bearing securities.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock has traded publicly on the Nasdaq National Market under the
symbol "IDTC" since March 15, 1996, the date of the Company's initial public
offering. The table below sets forth the high and low sales prices for the
Common Stock as reported by the Nasdaq National Market for the fiscal periods
indicated.

<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............................................................................. 15.75 8.50
Third Quarter.............................................................................. 8.75 4.00
Fourth Quarter............................................................................. 9.25 5.25
FISCAL YEAR ENDING JULY 31, 1998
First Quarter.............................................................................. $ 22.13 $ 7.88
Second Quarter (through January 27, 1998).................................................. 25.25 15.50
</TABLE>

On January 27, 1998, the last sale price reported on the Nasdaq National
Market for the Common Stock was $24.63 per share.

The Company has never declared or paid any dividends on its Common Stock and
does not expect to pay dividends for the foreseeable future. The Company's
current policy is to retain all of its earnings to finance future growth. Any
future declaration of dividends will be subject to the discretion of the Board
of Directors of the Company, and will be subject to any limitations set forth in
the Company's credit agreements. The availability of funds for the payment of
dividends by the Company is also dependent upon the Company's receipt of
dividends from its subsidiaries, which is subject to certain limitations under
applicable state laws.

28
<PAGE>
CAPITALIZATION

The following table sets forth the actual capitalization of the Company at
October 31, 1997 and as adjusted to give effect to (i) the sale of the 4,000,000
shares of Common Stock offered by the Company hereby at the assumed public
offering price of $20.25 per share (after deducting the underwriting discounts
and commissions and estimated Offering expenses payable by the Company and the
application of the net proceeds therefrom); and (ii) the exercise of options to
purchase 200,000 shares of Common Stock by the Selling Stockholders. See "Use of
Proceeds."

<TABLE>
<CAPTION>
OCTOBER 31, 1997
(IN THOUSANDS)
-----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
---------- -----------
Cash and cash equivalents................................................................ $ 13,332 $ 89,674
---------- -----------
---------- -----------
Notes payable--long-term portion......................................................... $ 6,481 $ 6,481
Capital lease obligations--long-term portion............................................. 3,226 3,226
Convertible debentures................................................................... 7,500 7,500
Stockholders' equity:
Preferred Stock, $0.01 par value; 10,000,000 shares authorized; none issued and
outstanding.......................................................................... -- --
Common Stock, $0.01 par value; 100,000,000 shares authorized; 12,084,832 shares issued
and outstanding (actual) and 16,284,832 shares issued and outstanding (as
adjusted)(1)......................................................................... 121 163
Class A Common Stock; $0.01 par value; 35,000,000 shares authorized; 10,323,367 shares
issued and outstanding(2)............................................................ 103 103
Additional paid-in capital............................................................. 49,674 125,974
Accumulated deficit.................................................................... (19,986) (19,986)
---------- -----------
Total stockholders' equity............................................................... 29,912 106,254
---------- -----------
Total capitalization............................................................... $ 47,119 $123,461
---------- -----------
---------- -----------
</TABLE>

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

(1) Actual and as adjusted Common Stock issued and outstanding as of October 31,
1997 excludes (i) 4,513,107 shares of Common Stock issuable upon the
exercise of outstanding options at October 31, 1997 granted to the Company's
directors, officers and other employees at a weighted average exercise price
of $5.09 per share (of which 355,135 shares were exercised between November
1, 1997 and January 26, 1998); (ii) 494,723 shares of Common Stock issuable
upon conversion of the Company's 3% Convertible Subordinated Debentures at a
conversion price of $15.16 per share; (iii) 145,981 shares issued upon
conversion of a convertible note at a conversion price of $14.00 per share
in December 1997; (iv) 174,004 shares issuable upon exercise of warrants at
a weighted average exercise price of $10.78 per share; (v) 625,000 shares
issuable in connection with the Company's purchase of Rock Enterprises, Inc.
in November 1997 (of which 312,500 shares were issued in November 1997); and
(vi) 67,458 shares of Common Stock that were issued upon conversion of Class
A Stock in November and December 1997. Actual Common Stock issued and
outstanding as of October 31, 1997 excludes the 200,000 shares of Common
Stock to be issued upon the exercise of stock options by the Selling
Stockholders.

(2) As adjusted Common Stock issued and outstanding as of October 31, 1997
includes 67,458 shares of Class A Stock that were converted to Common Stock
in November and December 1997.

29
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

The selected consolidated financial data presented below for each of the
five years in the period ended July 31, 1997 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 for
the three months ended October 31, 1996 and 1997 and at October 31, 1997 have
been derived from the unaudited consolidated financial statements of the Company
that have been prepared on the same basis as the audited consolidated financial
statements and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations for the periods presented. Operating
results for any period are not necessarily indicative of the results for any
future period. The selected consolidated financial and operating data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and the Notes thereto and is qualified in its entirety by the other financial
information appearing elsewhere or incorporated by reference in this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED JULY 31, ENDED OCTOBER 31,
----------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA AND OTHER OPERATING DATA)
STATEMENT OF OPERATIONS
DATA:
Revenues:
Telecommunications..... $ 1,675 $ 3,169 $10,789 $ 35,708 $ 99,937 $18,102 $47,804
Internet access........ -- -- 875 21,986 32,895 10,137 4,850
Net2Phone.............. -- -- -- -- 2,355 79 2,097
------- ------- ------- -------- -------- ------- -------
Total revenues....... 1,675 3,169 11,664 57,694 135,187 28,318 54,751
Costs and expenses:
Direct cost of
revenues............. 272 990 7,544 36,438 92,214 18,013 40,861
Selling, general and
administrative....... 1,019 2,402 5,992 35,799 41,545 12,598 9,835
Depreciation and
amortization......... 79 106 303 1,212 4,873 963 1,745
------- ------- ------- -------- -------- ------- -------
Total costs and
expenses........... 1,370 3,498 13,839 73,449 138,632 31,574 52,441
------- ------- ------- -------- -------- ------- -------
Income (loss) from
operations............. 305 (329) (2,175) (15,755) (3,445) (3,256) 2,310
Other, net(1)............ (3) 31 30 112 (392) 150 (347)
------- ------- ------- -------- -------- ------- -------
Net income (loss)........ $ 302 $ (298) $(2,145) $(15,643) $ (3,837) $(3,106) $ 1,963
------- ------- ------- -------- -------- ------- -------
------- ------- ------- -------- -------- ------- -------
Net income (loss) per
share.................. $ 0.02 $ (0.02) $ (0.13) $ (0.86) $ (0.18) ($ 0.15) $ 0.08
------- ------- ------- -------- -------- ------- -------
------- ------- ------- -------- -------- ------- -------
Weighted average number
of shares used in
calculation of net
income (loss) per
share.................. 16,569 16,569 16,569 18,180 21,153 20,841 25,480

30
<PAGE>

<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
----------------------------------------------------- -----------
1993 1994 1995 1996 1997 1997
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 302 $ 754 $ 232 $ 14,894 $ 7,674 $ 13,332
Working capital (deficit)................................. 826 1,289 (884) 13,547 4,887 13,203
Total assets.............................................. 1,302 2,795 4,197 43,797 58,537 77,090
Total stockholders' equity................................ 1,045 2,062 911 26,843 25,259 29,912
</TABLE>

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

(1) For the year ended July 31, 1996, includes an extraordinary loss on
retirement of debt of $233,500.

(3) Represents EBITDA divided by total revenues.

31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA" AND THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES INCLUDED IN THIS PROSPECTUS. THE
DISCUSSION IN THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES,
EXPECTATIONS AND INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS
SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS
WHEREVER THEY APPEAR IN THIS PROSPECTUS OR IN THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE
OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED IN "RISK FACTORS," AS
WELL AS THOSE DISCUSSED ELSEWHERE HEREIN AND IN THE DOCUMENTS INCORPORATED
HEREIN BY REFERENCE. THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE MADE AS
OF THE DATE OF THIS PROSPECTUS, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE
SUCH FORWARD-LOOKING STATEMENTS OR TO UPDATE THE REASONS ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS. SEE
"RISK FACTORS" AND "INFORMATION REGARDING FORWARD-LOOKING STATEMENTS."

OVERVIEW

In Fiscal 1997, the Company began to place increased emphasis on its
international telecommunications operations and less emphasis on its Internet
access services. As a result, the Company's telecommunications revenues as a
percentage of total revenues increased from 63.9% for the three months ended
October 31, 1996 to 87.3% for the three months ended October 31, 1997. In
addition, the Company's revenues from telecommunications operations increased
from $18.1 million during the three months ended October 31, 1996 to $47.8
million during the three months ended October 31, 1997. Revenues from the

32
<PAGE>
Company's telecommunications operations are derived primarily from the following
activities: (i) wholesale carrier services to other long distance carriers; (ii)
prepaid calling cards; (iii) international retail long distance services to
individuals and businesses worldwide (primarily provided through call
reorigination services); and (iv) domestic long distance services to individuals
and businesses. Revenues from the Company's Internet operations are derived
primarily from providing Internet access services to individuals and businesses.
The Company's Net2Phone revenues are derived from the marketing of Net2Phone and
Net2Phone Direct services and equipment to individuals, businesses and the
Company's foreign partners.

Direct cost of revenues for the Company's telecommunications services
include costs associated with the transmission and termination of international
and domestic long distance services. Historically, this expense has primarily
been variable, based upon minutes of use, and consists mainly of payments to
other long distance carriers and, to a lesser extent, customer/carrier
interconnect charges, leased fiber circuit charges and switch facility costs.
The direct cost of revenues for Internet access and Net2Phone services consists
primarily of leased circuit and network costs and local access costs. Direct
cost of revenues for Internet services also include fees paid to the Company's
Alliance Partners.

The Company operates a growing facilities-based telecommunications network
consisting of (i) 14 Excel and Nortel switches in the U.S. and the U.K.; (ii)
owned and leased transmission capacity on 11 undersea fiber optic cables
connecting the Company's U.S. facilities with its international facilities, and
with the facilities of its foreign partners in Europe, Latin America and Asia;
and (iii) resale capacity obtained on a per-minute basis from other carriers.
The Company seeks to follow a disciplined strategy of establishing significant
traffic volumes prior to investing in fixed-cost facilities. As the Company
expands its network and the volume of its traffic, the cost of revenues will
increasingly consist of fixed costs associated with leased and owned lines, as
well as costs arising from the ownership and maintenance of its switches. The
Company expects that these factors will cause the direct cost of revenues to
decline as a percentage of revenues over time. The fixed nature of these costs
may also lead to larger fluctuations in gross margins, depending on the minutes
of traffic and associated revenues generated by the Company.

Selling expenses consist primarily of sales commissions paid to independent
agents and internal salespersons, which are the primary cost associated with the
acquisition of customers. General and administrative expenses include salaries,
benefits, bad debt expenses and other corporate overhead costs. These costs have
increased in recent fiscal years due to the development and expansion of the
Company's operations and corporate infrastructure.

The Company's telecommunications revenues are generally associated with
lower selling, general and administrative expenses than the Company's Internet
revenues, and the Company's revenues from its wholesale sales of
telecommunications services have generally had lower selling, general and
administrative expenses than other types of telecommunications revenues. As a
result of these factors, and as a result of the increasing percentage of the
Company's revenues that are derived from telecommunications services and the
decreased emphasis placed on Internet access services, the Company's selling,
general and administrative expenses generally have declined as a percentage of
total revenues. However, as the Company expects its prepaid calling card and
Internet telephony businesses to grow, it is likely that selling, general and
administrative expenses will also grow as a percentage of revenues.

33
<PAGE>
such time as such an offering may be practical; the Company will make available
up to 9% of the subsidiary's shares for additional management incentive plans;
and for a one-year period commencing on September 5, 1999, Mr. Sobel will have
the right to purchase 1,000,000 shares of IDT's Common Stock in return for his
ownership interest in Net2Phone plus $6.50 in cash for each share of Common
Stock. There is no assurance that a public offering of the stock of the
subsidiary will occur; however, if and to the extent that any such offering does
take place, the Company currently intends to maintain at least a majority of the
voting power of the subsidiary.

RESULTS OF OPERATIONS

The following table sets forth certain items in the Company's statement of
operations as a percentage of total revenues for the periods indicated:

<TABLE>
<CAPTION>
THREE
MONTHS ENDED
YEAR ENDED JULY 31, OCTOBER 31,
--------------------- -------------
1995 1996 1997 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Telecommunications............... 92.5% 61.9% 74.0% 63.9% 87.3%
Internet access.................. 7.5 38.1 24.3 35.8 8.9
Net2Phone........................ -- -- 1.7 0.3 3.8
----- ----- ----- ----- -----
Total revenues................. 100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Direct cost of revenues.......... 64.7 63.2 68.2 63.6 74.6
Selling, general and
administrative................. 51.4 62.0 30.7 44.5 18.0
Depreciation and amortization.... 2.5 2.1 3.6 3.4 3.2
----- ----- ----- ----- -----
Total costs and expenses....... 118.6 127.3 102.5 111.5 95.8
----- ----- ----- ----- -----
Income (loss) from operations...... (18.6) (27.3) (2.5) (11.5) 4.2
Other, net......................... 0.2 0.6 (0.3) 0.5 (0.6)
----- ----- ----- ----- -----
Income before taxes and
extraordinary item........... (18.4) (26.7) (2.8) (11.0) 3.6
Income taxes....................... -- -- -- -- --
----- ----- ----- ----- -----
Income (loss) before extraordinary
item............................. (18.4) (26.7) (2.8) (11.0) 3.6
Extraordinary loss on retirement of
debt............................. -- (0.4) -- -- --
----- ----- ----- ----- -----
Net income (loss).................. (18.4)% (27.1)% (2.8)% (11.0)% 3.6%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>

THREE MONTHS ENDED OCTOBER 31, 1997 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
1996

REVENUES. Revenues increased 93.6% from approximately $28.3 million for the
three months ended October 31, 1996 to approximately $54.8 million for the three
months ended October 31, 1997. Telecommunications revenues increased 164.1% from
approximately $18.1 million for the three months ended October 31, 1996 to
approximately $47.8 million for the three months ended October 31, 1997.
Internet access revenues decreased 51.5% from approximately $10.1 million for
the three months ended October 31, 1996 to approximately $4.9 million for the
three months ended October 31, 1997, reflecting the Company's decision to
deemphasize its activities in this area. Internet telephony revenues increased
approximately twenty-six fold from approximately $79,000 for the three months
ended October 31, 1996 to approximately $2.1 million for the three months ended
October 31, 1997.

Telecommunications revenues increased 164.1% primarily as a result of a
185.9% increase in minutes of use, from approximately 39.0 million to
approximately 111.5 million, offset in part by a decline in revenue per minute
from $0.44 to $0.42. Telecommunications minutes increased primarily due to the
addition of wholesale carrier service clients, increased usage by existing
clients, and increased marketing of

34
<PAGE>

the Company's prepaid calling cards. The offsetting decline in revenue per
minute resulted from variations
in the mix of telecommunications revenue. The addition of wholesale carrier
services clients and the increased use by existing clients resulted in an
increase in wholesale carrier services revenues of 269.1%, from approximately
$9.7 million for the three months ended October 31, 1996 to approximately $35.8
million for the three months ended October 31, 1997. As a percentage of
telecommunications revenues, wholesale carrier services revenues increased from
approximately 53.6% to 74.8%. Revenues from the Company's prepaid calling card
business, which the Company began to market in January 1997, increased from
approximately $23,000 for the three months ended October 31, 1996 to
approximately $5.4 million for the three months ended October 31, 1997. As a
percentage of telecommunications revenues, prepaid calling card revenues
increased from 0.1% to 11.3%. As a percentage of telecommunications revenues,
international retail services revenues decreased from 39.1% to 11.4%.

As a percentage of total revenues, Internet access revenues decreased from
approximately 35.8% for the three months ended October 31, 1996 to approximately
8.9% for the three months ended October 31, 1997, reflecting the Company's
decision to deemphasize its activities in this area. This decrease was due to
the substantial increase in telecommunications revenues as a percentage of total
revenues, as well as a dollar decrease in Internet access revenues due to a
decrease in total dial-up subscribers.

Internet telephony revenues as a percentage of total revenues increased from
0.3% for the three months ended October 31, 1996 to 3.8% for the three months
ended October 31, 1997. The increase in Internet telephony revenues was
primarily due to an increase in billed-minute usage, and the sale of $720,000 of
equipment during the three months ended October 31, 1997.

DIRECT COST OF REVENUES. The Company's direct cost of revenues increased by
127.2%, from approximately $18.0 million in the three months ended October 31,
1996 to approximately $40.9 million in the three months ended October 31, 1997.
As a percentage of total revenues, these costs increased from 63.6% in the three
months ended October 31, 1996 to 74.6% in the three months ended October 31,
1997. The dollar increase is primarily due to increases in underlying carrier
costs because the Company's telecommunications minutes of use, and associated
revenue, grew substantially. As a percentage of total revenues, the increase in
direct costs reflects lower gross margins associated with wholesale carrier
services as compared with international retail and Internet access services.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
costs decreased 22.2%, from approximately $12.6 million in the three months
ended October 31, 1996 to approximately $9.8 million in the three months ended
October 31, 1997. As a percentage of total revenues, these costs decreased from
44.5% in the three months ended October 31, 1996 to 18.0% in the three months
ended October 31, 1997. The decrease in these costs in dollar terms and as a
percentage of total revenues was due primarily to the shift of focus of the
Company's Internet access marketing efforts from aggressive mass marketing to
new reseller programs and the increase in wholesale carrier services revenues
relative to total revenues.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization costs
increased 76.5%, from approximately $963,000 in the three months ended October
31, 1996 to approximately $1.7 million in the three months ended October 31,
1997. As a percentage of total revenues, these costs decreased from 3.4% in the
three months ended October 31, 1996 to 3.2% in the three months ended October
31, 1997. The dollar increase in these costs was primarily due to the Company's
higher fixed asset base during the three months ended October 31, 1997 compared
to the three months ended October 31, 1996 due to the Company's infrastructure
expansion. The Company anticipates that depreciation and amortization costs will
continue to increase as the Company continues to implement its growth strategy.

INCOME (LOSS) FROM OPERATIONS. Income from operations for the
telecommunications segment increased to approximately $3.2 million in the three
months ended October 31, 1997 from approximately $621,000 in the three months
ended October 31, 1996, primarily as a result of significant growth in

35
<PAGE>
telecommunications revenue, expanded gross margins and increased operating
efficiencies. As a percentage of telecommunication revenues, income from
operations for the telecommunications segment increased to 6.7% in the three
months ended October 31, 1997 from approximately 3.4% in the three months ended
October 31, 1996.

Net loss from operations for the Internet access segment of the Company's
business decreased to approximately $1.5 million in the three months ended
October 31, 1997 from approximately $3.2 million in the three months ended
October 31, 1996, primarily due to the refocusing of the Company's marketing
efforts from aggressive mass marketing to new reseller programs. Income
generated from the operations of the Net2Phone division increased to
approximately $647,000 for the three months ended October 31, 1997, compared to
a loss of approximately $631,000 for the three months ended October 31, 1996.
This change was due to the increase in Net2Phone revenues since the product's
introduction in August 1996, and the sale of equipment in the three months ended
October 31, 1997.

INCOME TAXES. The Company did not record an income tax benefit in the three
months ended October 31, 1996 because the realization of available net operating
loss ("NOL") carryforwards was not probable. In the three months ended October
31, 1997 the Company did not recognize income tax expense as a result of the
utilization of NOL carryforwards. As of July 31, 1997, the Company had federal
NOL carryforwards of approximately $21.0 million. The amount of these NOL
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 does not believe
that the prior ownership changes will significantly limit its ability to use its
NOL carryforwards.

FISCAL YEAR ENDED JULY 31, 1997 COMPARED TO FISCAL YEAR ENDED JULY 31, 1996

REVENUES. Revenues increased 134.3% from approximately $57.7 million in
Fiscal 1996 to approximately $135.2 million in Fiscal 1997. Telecommunications
revenues increased 179.8% from approximately $35.7 million in Fiscal 1996 to
approximately $99.9 million in Fiscal 1997. Internet access revenues increased
49.5% from approximately $22.0 million in Fiscal 1996 to approximately $32.9
million in Fiscal 1997. The Company generated revenues of approximately $2.4
million from its Internet telephony services in Fiscal 1997 through its
Net2Phone service, which was launched in August 1996.

In Fiscal 1997, international telecommunications revenues constituted a
greater percentage of total revenues as compared to Fiscal 1996, due to the
Company's increased focus in that area as compared to its Internet access
services. The 179.9% increase in telecommunications revenues was due primarily
to a 169.3% increase in telecommunications minutes of use from approximately 88
million minutes of use to approximately 234 million minutes of use combined with
an increase in revenue per minute from $0.36 to $0.40. The increase in
telecommunications minutes of use was due to the addition of wholesale carrier
services clients, a substantial increase in international retail customers and
migration of existing customers to the Company's least cost routing switch
platform. The increase in telecommunications revenues per minute resulted from
variations in the mix of the Company's telecommunications revenues. As a
percentage of telecommunications revenues, international retail services
revenues decreased from approximately 36.8% to 27.3%. The addition of wholesale
carrier services clients resulted in an increase in wholesale carrier services
revenues from approximately $18.6 million in Fiscal 1996 to approximately $64.7
million in Fiscal 1997. As a percentage of telecommunications revenues,
wholesale carrier services revenues increased from approximately 52.1% to 64.7%.

As a percentage of total revenues, Internet access revenues decreased from
approximately 38.1% in Fiscal 1996 to approximately 24.3% in Fiscal 1997. The
dollar increase in Internet access revenues was due primarily to the increase in
the dial-up subscribers base, and to a lesser degree increased revenues from
online services and dedicated customers from Fiscal 1996 to Fiscal 1997. The
decrease in Internet access revenue as a percentage of total revenue was due to
the increase of telecommunications revenue as compared to Internet access
revenue, consistent with the change in the focus of the Company's operations.

36
<PAGE>
Internet access revenues also included approximately $3.4 million of online
service revenues for Fiscal 1996 and $1.2 million for Fiscal 1997. The Company
introduced Net2Phone in August 1996 and generated Internet telephony revenues of
approximately $2.4 million in Fiscal 1997.

DIRECT COST OF REVENUES. The Company's direct cost of revenues increased by
153.3% from approximately $36.4 million in Fiscal 1996 to approximately $92.2
million in Fiscal 1997. As a percentage of total revenues, these costs increased
from 63.2% in Fiscal 1996 to 68.2% in Fiscal 1997. The dollar increase is
primarily due to increases in underlying carrier costs because the Company's
telecommunications minutes of use, and the associated revenue, grew
substantially. To a lesser extent, the increase is due to the increase in fees
paid to Alliance Partners and 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.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
costs increased from approximately $35.8 million in Fiscal 1996 to approximately
$41.5 million in Fiscal 1997. As a percentage of total revenues, these costs
decreased from 62.0% in Fiscal 1996 to 30.7% in Fiscal 1997. The decrease in
selling, general and administrative costs as a percentage of total revenues was
primarily due to the shift of the focus of the Internet division's marketing
efforts from aggressive mass marketing to new reseller programs which entail
lower selling costs, together with the growth of the Company's wholesale carrier
services business.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization costs
increased 308.3% from approximately $1.2 million in Fiscal 1996 to approximately
$4.9 million in Fiscal 1997. As a percentage of total revenues, these costs
increased from 2.1% in Fiscal 1996 to 3.6% in Fiscal 1997. These costs increased
in absolute terms and as a percentage of revenues primarily as a result of the
Company's higher fixed asset base during Fiscal 1997 as compared with Fiscal
1996 due to the Company's installation of additional Company-owned POPs,
enhancement of its network infrastructure and expansion of its facilities.

INCOME (LOSS) FROM OPERATIONS. Income from operations from the
telecommunications segment increased to approximately $5.7 million in Fiscal
1997 from $2.8 million in Fiscal 1996 and as a percentage of telecommunications
revenues decreased to 5.7% from 7.7%. The dollar increase resulted primarily
from increased revenue generated by the expansion of operations. The decrease as
a percentage of telecommunication revenues resulted primarily from increased
selling, general and administrative expenses. Loss from operations for the
Internet access segment decreased to approximately $8.1 million in Fiscal 1997
from approximately $17.9 million in Fiscal 1996. The loss from operations from
the Internet access segment was principally due to the initial costs of
acquiring customers and increased personnel and facilities costs to sustain
growth. The decreased loss of the Internet access segment is largely due to the
refocusing of its marketing efforts from aggressive mass marketing to new
reseller programs. The loss generated from the development and marketing of
Net2Phone was approximately $1.1 million and $660,000 for Fiscal 1997 and 1996
respectively.

INCOME TAXES. The Company did not record an income tax benefit in Fiscal
1996 or 1997, because the realization of available tax losses was not probable.

FISCAL YEAR ENDED JULY 31, 1996 COMPARED TO FISCAL YEAR ENDED JULY 31, 1995

REVENUES. Revenues increased 393.2% from approximately $11.7 million in
Fiscal 1995 to approximately $57.7 million in Fiscal 1996. Telecommunications
revenues increased 230.6% from approximately $10.8 million in Fiscal 1995 to
approximately $35.7 million in Fiscal 1996. Internet access revenues increased
from $875,000 in Fiscal 1995 to approximately $22.0 million in Fiscal 1996, a
25-fold increase.

The increase in the Company's telecommunications revenues was due primarily
to an eight-fold increase in telecommunications minutes of use, from
approximately 11 million to nearly 88 million. The increase in
telecommunications minutes of use was due to a substantial increase in
international retail

37
<PAGE>
customers, migration of existing customers to the Company's least cost routing
switch platform and the addition of wholesale carrier services clients. During
this period, the number of international retail customers increased 208.0% from
approximately 6,358 at July 31, 1995 to 19,582 customers at July 31, 1996. As a
percentage of telecommunications revenues international retail services revenues
decreased from approximately 66.7% to 36.7%. The addition of wholesale carrier
services clients resulted in an increase in wholesale carrier services revenues
from approximately $1.4 million in Fiscal 1995 to approximately $18.6 million in
Fiscal 1996. As a percentage of telecommunications revenues, wholesale carrier
services revenues increased from approximately 13.0% to 52.1%.

As a percentage of total revenues, Internet access revenues increased from
approximately 7.5% in Fiscal 1995 to approximately 38.1% in Fiscal 1996. The
increase in Internet access revenues both in dollars and as a percentage of
revenues was due primarily to a 12-fold 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. The Company's direct cost of revenues increased by
385.3% from approximately $7.5 million in Fiscal 1995 to approximately $36.4
million in Fiscal 1996. As a percentage of total revenues, these costs decreased
from 64.7% in Fiscal 1995 to 63.2% in Fiscal 1996. The dollar increase was
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, access lines and network connectivity to
support subscriber growth in both Internet access and international retail
services.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
costs increased 496.7% from approximately $6.0 million in Fiscal 1995 to
approximately $35.8 million in Fiscal 1996. As a percentage of total revenues,
these costs increased from 51.4% in Fiscal 1995 to 62.0% in Fiscal 1996. The
increase in these costs both in dollars 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 increased
license fees paid to Netscape, 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 296.0% from approximately $303,000 in Fiscal 1995 to approximately
$1.2 million in Fiscal 1996. As a percentage of revenues, these costs decreased
from 2.5% in Fiscal 1995 to 2.1% in Fiscal 1996. These costs increased 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. 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.
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. The increased loss of the Internet access segment is largely due to
the growth in Internet customer base, because the initial costs of acquiring
customers exceeds the initial revenue received from such customers. The customer
base increased 12-fold 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 did not record an income tax benefit in the
periods ended July 31, 1995 or 1996, because the realization of available tax
losses was not probable.

38
<PAGE>
QUARTERLY RESULTS OF OPERATIONS

The following tables set forth certain quarterly financial data for the nine
quarters ended October 31, 1997. 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 the results for any future period.

CONSOLIDATED QUARTERLY INCOME STATEMENT
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------
OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1995 1996 1996 1996 1996 1997
----------- ------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Telecommunications........................ $ 4,808 $ 5,852 $ 11,338 $ 13,710 $ 18,102 $ 21,939
Internet access........................... 1,793 3,862 6,888 9,442 10,137 9,074
Net2Phone................................. -- -- -- -- 79 392
----------- ------------- ----------- ----------- ----------- -------------
Total revenues.......................... 6,601 9,714 18,226 23,152 28,318 31,405
Costs and expenses:
Direct costs.............................. 4,173 5,926 12,289 14,050 18,013 20,862
Selling, general and administrative....... 3,953 8,506 10,135 13,205 12,598 11,245
Depreciation and amortization............. 131 175 264 642 963 1,083
----------- ------------- ----------- ----------- ----------- -------------
Total costs and expenses................ 8,257 14,607 22,688 27,897 31,574 33,190
----------- ------------- ----------- ----------- ----------- -------------
Income (loss) from operations............... (1,656) (4,893) (4,462) (4,745) (3,256) (1,785)
Other, net.................................. 3 (32) 59 316 150 (45)
----------- ------------- ----------- ----------- ----------- -------------
Income (loss) before taxes.................. (1,653) (4,925) (4,403) (4,429) (3,106) (1,830)
Taxes....................................... -- -- -- -- -- --
----------- ------------- ----------- ----------- ----------- -------------
Net income (loss) before extraordinary
item...................................... (1,653) (4,925) (4,403) (4,429) (3,106) (1,830)
Extraordinary item.......................... -- -- (234) -- -- --
----------- ------------- ----------- ----------- ----------- -------------
Net income (loss)........................... $ (1,653) $ (4,925) $ (4,637) $ (4,429) $ (3,106) $ (1,830)
----------- ------------- ----------- ----------- ----------- -------------
----------- ------------- ----------- ----------- ----------- -------------
Net income (loss) per share................. $ (0.10) $ (0.30) $ (0.25) $ (0.21) $ (0.15) $ (0.09)
----------- ------------- ----------- ----------- ----------- -------------
----------- ------------- ----------- ----------- ----------- -------------
Weighted average shares outstanding......... 16,569 16,569 18,705 20,841 20,841 20,873

APRIL 30, JULY 31, OCTOBER 31,
1997 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Telecommunications........................ $ 26,061 $ 33,835 $ 47,804
Internet access........................... 7,555 6,129 4,850
Net2Phone................................. 836 1,049 2,097
----------- ----------- -----------
Total revenues.......................... 34,452 41,013 54,751
Costs and expenses:
Direct costs.............................. 23,681 29,659 40,861
Selling, general and administrative....... 9,163 8,539 9,835
Depreciation and amortization............. 1,317 1,510 1,745
----------- ----------- -----------
Total costs and expenses................ 34,161 39,708 52,441
----------- ----------- -----------
Income (loss) from operations............... 291 1,305 2,310
Other, net.................................. (130) (367) (347)
----------- ----------- -----------
Income (loss) before taxes.................. 161 938 1,963
Taxes....................................... -- -- --
----------- ----------- -----------
Net income (loss) before extraordinary
item...................................... 161 938 1,963
Extraordinary item.......................... -- -- --
----------- ----------- -----------
Net income (loss)........................... $ 161 $ 938 $ 1,963
----------- ----------- -----------
----------- ----------- -----------
Net income (loss) per share................. $ 0.01 $ 0.04 $ 0.08
----------- ----------- -----------
----------- ----------- -----------
Weighted average shares outstanding......... 23,249 23,641 25,480
</TABLE>

CONSOLIDATED QUARTERLY INCOME STATEMENT
(AS A PERCENTAGE OF TOTAL REVENUES)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------
OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1995 1996 1996 1996 1996 1997
----------- ------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Telecommunications........................ 72.8% 60.2% 62.2% 59.2% 63.9% 69.9%
Internet access........................... 27.2 39.8 37.8 40.8 35.8 28.9
Net2Phone................................. -- -- -- -- 0.3 1.2
----------- ------------- ----------- ----------- ----------- -------------
Total revenues.......................... 100.0 100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Direct costs.............................. 63.2 61.0 67.4 60.7 63.6 66.4
Selling, general and administrative....... 59.9 87.6 55.6 57.0 44.5 35.8
Depreciation and amortization............. 2.0 1.8 1.5 2.8 3.4 3.5
----------- ------------- ----------- ----------- ----------- -------------
Total costs and expenses................ 125.1 150.4 124.5 120.5 111.5 105.7
Income (loss) from operations............... (25.1) (50.4) (24.5) (20.5) (11.5) (5.7)
Other, net.................................. 0.1 (0.3) 0.3 1.4 0.5 (0.1)
----------- ------------- ----------- ----------- ----------- -------------
Income (loss) before taxes.................. (25.0) (50.7) (24.2) (19.1) (11.0) (5.8)
Taxes....................................... -- -- -- -- -- --
----------- ------------- ----------- ----------- ----------- -------------
Net income (loss) before extraordinary
item...................................... (25.0) (50.7) (24.2) (19.1) (11.0) (5.8)
Extraordinary item.......................... -- -- (1.3) -- -- --
----------- ------------- ----------- ----------- ----------- -------------
Net income (loss)........................... (25.0)% (50.7 )% (25.5 )% (19.1 )% (11.0 )% (5.8 )%
----------- ------------- ----------- ----------- ----------- -------------
----------- ------------- ----------- ----------- ----------- -------------

APRIL 30, JULY 31, OCTOBER 31,
1997 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Telecommunications........................ 75.7% 82.5% 87.3%
Internet access........................... 21.9 14.9 8.9
Net2Phone................................. 2.4 2.6 3.8
----------- ----------- -----------
Total revenues.......................... 100.0 100.0 100.0
Costs and expenses:
Direct costs.............................. 68.8 72.3 74.6
Selling, general and administrative....... 26.6 20.8 18.0
Depreciation and amortization............. 3.8 3.7 3.2
----------- ----------- -----------
Total costs and expenses................ 99.2 96.8 95.8
Income (loss) from operations............... 0.8 3.2 4.2
Other, net.................................. (0.4) (0.9) (0.6)
----------- ----------- -----------
Income (loss) before taxes.................. 0.4 2.3 3.6
Taxes....................................... -- -- --
----------- ----------- -----------
Net income (loss) before extraordinary
item...................................... 0.4 2.3 3.6
Extraordinary item.......................... -- -- --
----------- ----------- -----------
Net income (loss)........................... 0.4% 2.3% 3.6%
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

39
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

Historically, the Company has satisfied its cash requirements through a
combination of cash flow from operating activities, sales of equity securities
and borrowings from third parties (including borrowings from certain of its
stockholders and under certain credit facilities). In September 1997, the
Company completed a $7.5 million private placement of 3% convertible debentures
with a group of institutional investors. The debentures are convertible into
shares of the Company's Common Stock. In December 1997, the Company obtained a
$10.0 million line of credit from Transamerica Technology Finance, a subsidiary
of Transamerica Corporation, which is guaranteed by certain of the Company's
subsidiaries, and is secured by the Company's carrier receivables and certain
other assets. The Company also received approximately $2.7 million and $2.2
million on the exercise of stock options in the three months ended October 31,
1997 and in Fiscal 1997, respectively. As of October 31, 1997, the Company had
cash and cash equivalents of $13.3 million and working capital of approximately
$13.2 million.

The Company generated cash flow from operating activities of approximately
$33,000 during the three months ended October 31, 1997 compared with negative
cash flow from operating activities of approximately $4.8 million during the
three months ended October 31, 1996. The Company generated negative cash flow
from operating activities of approximately $4.4 million during Fiscal 1997,
compared to a negative cash flow from operating activities of approximately
$14.9 million during Fiscal 1996. The improvement in cash flow from operating
activities from Fiscal 1996 to Fiscal 1997 was primarily due to the decrease in
the Company's net loss. 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 $12.6 million and $24.5
million at October 31, 1996 and 1997, respectively. Accounts receivable,
accounts payable and accrued expenses have increased from period to period as
the Company's businesses have grown.

The Company's capital expenditures decreased from approximately $9.0 million
in the three months ended October 31, 1996 to approximately $5.7 million in the
three months ended October 31, 1997, as the Company significantly curtailed the
expansion of its Internet network. Capital expenditures for the three months
ended October 31, 1997 consisted primarily of purchases of equipment to support
expansion of the Company's international and domestic telecommunications network
infrastructure. The Company financed a large portion of its capital expenditures
since the beginning of Fiscal 1997 through capital leases and notes payable.
Payments on purchases of fixed assets increased from approximately $4.1 million
in the three months ended October 31, 1996 to approximately $4.6 million in the
three months ended October 31, 1997.

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 Fiscal 1997,
the Company purchased the equipment and networks of two of its Alliance Partners
for approximately $4.4 million. The purchase price includes a cash payment of
$2.3 million, which the Company financed through a four-year convertible note,
assumption of trade liabilities of approximately $280,000 (excluding $429,000
due to the Company), and the issuance of promissory notes totaling approximately
$1.4 million, of which $690,000 is a two-year note paying interest at 8.25%
interest per annum, and $750,000 is a four year note paying interest at 10% per
annum. In December 1997, the four-year convertible note was converted by the
holder into shares of the Company's Common Stock.

In November 1997, the Company purchased the stock of Rock Enterprises, Inc.
in exchange for 625,000 shares of Common Stock, 312,500 shares of which were
issued immediately and the remainder of which the Company is obligated to issue
over five years, commencing in 1998.

40
<PAGE>
The Company believes that, based upon its present business plan, the
proceeds from the Offering, together with the Company's existing cash resources,
credit facilities and expected cash flow from operating activities, will be
sufficient to meet its currently anticipated working capital and capital
expenditure requirements for at least twelve months. If the Company's growth
exceeds current expectations, if the Company acquires the business or assets of
another company, or if the Company's cash flow from operations after the end of
such period 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
anticipated expansion, which could have a material adverse effect on the
Company's business, financial condition or results of operations.

In order to provide flexibility for potential acquisition and network
expansion opportunities, the Company may seek in the near future to enter into a
significant financing arrangement. Among other possibilities, such an
arrangement may consist of a high yield debt offering or a new bank credit
facility. While such a financing may provide the Company additional capital
resources that may be used to implement its business plan, the incurrence of
such indebtedness could impose risks, covenants and restrictions on the Company
that may affect the Company in a number of ways, including the following: (i) a
significant portion of the Company's cash flow from operations may be required
for the repayment of interest and principal payments arising from the financing,
which such cash flow may not be available for other purposes; (ii) such a
financing could impose covenants and restrictions on the Company that may limit
its flexibility in planning for, or reacting to, changes in its business or that
could restrict its ability to declare dividends, redeem stock, incur additional
indebtedness, sell assets and consummate mergers, consolidations, investments
and acquisitions; and (iii) the Company's degree of indebtedness and leverage
may render it more vulnerable to a downturn in its business or in the
telecommunications industry or the economy generally. See "Risk Factors--Need
for Additional Capital to Finance Growth and Capital Requirements."

41
<PAGE>
BUSINESS

THE COMPANY

INDUSTRY

OVERVIEW

The international long distance industry, which principally consists of the
transmission of voice and data between countries, is undergoing a period of
fundamental change that has resulted, and is expected to continue to result, in
significant growth in usage of international telecommunications services.
According to industry sources, in 1996, the international long distance
telecommunications industry accounted for approximately $61.3 billion in
revenues and 70.0 billion minutes of use, an increase from approximately $23.9
billion in revenues and 19.1 billion minutes of use in 1987. Industry sources
have estimated that by 2000 this market may approach $85.7 billion in revenues
and 122.4 billion minutes of use, representing compound annual growth rates from
1996 of 8.7% and 15.0%, respectively.

The Company believes that growth in international long distance services is
being driven by (i) the globalization of the world's economies and the worldwide
trend toward deregulation of the telecommunications sector; (ii) declining
prices arising from increased competition generated by privatization and
deregulation; (iii) increased worldwide telephone density and accessibility
arising from technological advances and greater investment in telecommunications
infrastructure, including the deployment of wireless networks; (iv) a wider
selection of products and services; and (v) the growth in the transmission of
data traffic via internal company networks and the Internet. The Company
believes that growth of traffic originated in markets outside the U.S. will be
higher than growth in traffic originated within the U.S. due to recent
deregulation in many foreign markets, relative economic growth rates and
increasing access to telecommunications facilities in emerging markets.

REGULATORY AND COMPETITIVE ENVIRONMENT

Consumer demand and competitive initiatives have acted as catalysts for
government deregulation, especially in developed countries. Deregulation
accelerated in the U.S. in 1984 with the divestiture by AT&T of the RBOCs.
Today, there are over 500 U.S. long distance companies, most of which are small
or medium-sized companies. In order to be successful, these small and
medium-sized companies typically offer their customers a full range of services,
including international long distance. However, most of these carriers do not
have the critical mass of customers to receive volume discounts on international
traffic from the larger facilities-based carriers such as AT&T, MCI, Sprint and
WorldCom. In addition, these companies have only a limited ability to invest in
international facilities. Alternative international carriers, such as the
Company, have capitalized on this demand for less expensive international
transmission facilities. These alternative international carriers are able to
take advantage of larger traffic volumes in order to

42
<PAGE>
obtain volume discounts on international routes (resale traffic) and/or invest
in facilities when the volume of particular routes justifies such investments.
As these emerging international carriers have become established, they have also
begun to carry overflow traffic from the larger long distance providers that own
overseas transmission facilities.

Deregulation in the U.K. began in 1981 when Mercury, a subsidiary of Cable &
Wireless plc, was granted a license to operate a facilities-based network and
compete with British Telecommunications plc. Deregulation spread to other
European countries with the adoption of the "Directive on Competition in the
Markets for Telecommunication Services" in 1990. A series of subsequent EU
directives, reports and actions are expected to result in substantial
deregulation of the telecommunications industries in most EU member states by
the end of 1998. Further deregulation of the EU telecommunications market will
occur in 2000 upon the implementation of the EU's Amending Directive to the
Interconnection Directive, which mandates the introduction of equal access and
carrier pre-selection by 2000. A similar movement toward deregulation has
already taken place in Australia and New Zealand, and is also taking place in
Japan, Mexico, Hong Kong and other markets. Other governments have begun to
allow competition for value-added and other selected telecommunications services
and features, including data and facsimile services and certain restricted voice
services. Deregulation and privatization have also allowed new long distance
providers to emerge in other foreign markets. In many countries, however, the
rate of change and emergence of competition remain slow, and the timing and
extent of future deregulation is uncertain.

On February 15, 1997, the U.S. and 68 other countries signed the WTO
Agreement and agreed to open their telecommunications markets to competition and
foreign ownership starting in January 1998. These 69 countries represent
approximately 95% of worldwide telecommunications traffic. The Company believes
that the WTO Agreement will provide IDT with significant opportunities to
compete in markets where it did not previously have access, and to provide
end-to-end facilities-based services to and from these countries. The FCC
recently released an order that significantly changes U.S. regulation of
international services in order to implement the U.S. open market commitments
under the WTO Agreement. This order is expected to increase opportunities for
foreign carriers to compete in the U.S. communications market, while increasing
opportunities for U.S. carriers to enter foreign markets and to develop
alternative termination arrangements with non-dominant carriers in other
countries.

Deregulation has encouraged competition, which in turn has prompted carriers
to offer a wider selection of products and services at lower prices. The Company
believes that the lower price environment resulting from increased competition
has been more than offset by cost decreases and increases in telecommunications
usage. For example, based on FCC data for the period 1989 through 1995,
per-minute settlement payments by U.S.-based carriers to foreign PTTs fell
31.4%, from $0.70 per minute to $0.48 per minute. Over this same period,
however, per-minute international billed revenues fell only 13.7%, from $1.02 in
1989 to $0.88 in 1995. The Company believes that as settlement rates and costs
for leased capacity continue to decline, international long distance will
continue to provide opportunities to generate relatively high revenues and
per-minute gross profits.

INTERNATIONAL SWITCHED LONG DISTANCE SERVICES

International switched long distance services are provided through switching
and transmission facilities that automatically route calls to circuits based
upon a predetermined set of routing criteria. In the U.S., an international long
distance call typically originates on a LEC's network and is switched to the
caller's domestic long distance carrier. The domestic long distance provider
then carries the call to its own or to another carrier's international gateway
switch. From there it is carried to a corresponding gateway switch operated in
the country of destination by the ITO of that country and then is routed to the
party being called though that country's domestic telephone network.

International long distance providers can generally be categorized by the
extent, if any, of their ownership and use of their own switches and
transmission facilities. The largest U.S. carriers, AT&T, MCI, Sprint and
WorldCom primarily utilize owned U.S. transmission facilities and have operating
agreements

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with, and own transmission facilities that carry traffic to, the countries to
which they provide service. A significantly larger group of long distance
providers own and operate their own switches and generally carry the overflow
traffic of other long distance providers. These carriers either rely solely on
resale agreements with other long distance carriers to terminate traffic or use
a combination of resale agreements and leased or owned facilities in order to
terminate their traffic, as discussed below.

OPERATING AGREEMENTS. Operating agreements provide for the termination of
traffic in, and return traffic from, the international long distance providers
that have rights in facilities in different countries at a negotiated Accounting
Rate. Under a traditional operating agreement, the international long distance
provider that originates more traffic compensates the other long distance
provider by paying an amount determined by multiplying the net traffic imbalance
by the latter's share of the accounting rate. Under a typical operating
agreement, each carrier has a right in its portion of the transmission
facilities between two countries. A carrier gains ownership rights in a fiber
optic cable by purchasing direct ownership in a particular cable (usually prior
to the time that the cable is placed in service), by acquiring an Indefeasible
Right of Use ("IRU") in a previously installed cable, or by leasing or obtaining
capacity from another long distance provider that either has direct ownership or
IRU rights in the cable. In situations where a long distance provider has
sufficiently high traffic volume, routing calls across leased or IRU cable
capacity is generally more cost-effective on a per-call basis than the use of
resale arrangements with other long distance providers. However, leased capacity
and acquisition of IRU rights require a substantial initial capital investment
based on the amount of capacity acquired.

TRANSIT ARRANGEMENTS. In addition to utilizing an operating agreement to
terminate traffic delivered from one country directly to another, an
international long distance provider may enter into transit arrangements
pursuant to which a long distance provider in an intermediate country carries
the traffic to the country of destination.

SWITCHED RESALE ARRANGEMENTS. A switched resale arrangement typically
involves the wholesale purchase of termination services on a variable,
per-minute basis by one long distance provider from another. A single
international call may pass through the facilities of multiple long distance
resellers before it reaches the foreign facilities-based carrier that ultimately
terminates the call. Such resale, first permitted with the deregulation of the
U.S. market, enabled the emergence of alternative international providers that
relied, at least in part, on transmission services acquired on a wholesale basis
from other long distance providers. Resale arrangements set per-minute prices
for different routes, that may be guaranteed for a set time period or subject to
fluctuation following notice. The resale market for international transmission
is constantly changing, as new long distance resellers emerge, and as existing
providers respond to fluctuating costs and competitive pressures. In order to
effectively manage costs when utilizing resale arrangements, long distance
providers need timely access to changing market data and must quickly react to
changes in costs through pricing adjustments or routing decisions.

ALTERNATIVE TRANSIT/TERMINATION ARRANGEMENTS. As the international long
distance market began to deregulate, long distance providers developed
alternative transit/termination arrangements in an effort to decrease their
costs of terminating international traffic. Some of the more significant of
these arrangements include refiling, ISR and ownership of switching facilities
in foreign countries.

Refiling and transiting of traffic, which take advantage of disparities in
settlement rates between different countries, allow traffic to a destination
country to be treated as if it originated in another country that benefits from
lower settlement rates with the destination country, thereby resulting in a
lower overall termination cost. The difference between transit and refiling is
that, with respect to transit, the long distance provider in the destination
country has a direct relationship with the originating long distance provider
and is aware of the arrangement, while with refiling, it is likely that the long
distance provider in the destination country is not aware of the country in
which the traffic originated or of the originating carrier. To date, the FCC has
made no pronouncement as to whether refiling complies with either U.S. or ITU
regulations, although it is considering these issues in an existing proceeding.

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Under ISR, a long distance provider completely bypasses the Accounting Rate
system by connecting an international leased private line (i) to the PSTN of two
countries or (ii) directly to the premises of a customer or partner in one
country and the PSTN in the other country. While ISR currently is only
sanctioned by applicable regulatory authorities on a limited number of routes,
including U.S.-U.K., U.S.-Canada, U.S.-Sweden, U.S.-New Zealand, U.S.-Australia,
U.K.-worldwide and Canada-U.K., it is increasing in use and is expected to
expand significantly as deregulation of the international telecommunications
market continues. In addition, deregulation has made it possible for U.S.-based
long distance providers to establish their own switching facilities in certain
foreign countries, enabling them to terminate traffic directly.

COMPETITIVE OPPORTUNITIES AND ADVANCES IN TELECOMMUNICATIONS TECHNOLOGY

The combination of a continually expanding global telecommunications market,
consumer demand for lower prices with improved quality and service, and ongoing
deregulation has created competitive opportunities in many countries. Similarly,
new technologies, including fiber optic cable and improvements in digital
compression, have improved quality and increased transmission capacities and
speed, with transmission costs decreasing as a result. In addition, the growth
of the Internet as a communications medium, and advances in packet switching
technology and Internet telephony are expected to have an increasing impact on
the international telecommunications market.

Advances in technology have created a variety of ways for telecommunications
carriers to provide customer access to their networks and services. These
include customer-paid local access, international and domestic toll-free access,
direct digital access through a dedicated line, equal access through automated
routing from the PSTN, call reorigination and Internet telephony. The type of
access offered depends on the proximity of switching facilities to the customer,
the needs of the customer, and the regulatory environment in which the carrier
competes. Overall, these changes have resulted in a trend towards bypassing
traditional international long distance operating agreements as international
long distance companies seek to operate more efficiently.

In a deregulated country such as the U.S., carriers can establish switching
facilities, own or lease fiber optic cable, enter into operating agreements with
foreign carriers and, accordingly, provide direct access service. In markets
that have not deregulated or are slow in implementing deregulation, such as
Lebanon, international long distance carriers have used advances in technology
to develop innovative alternative access methods, such as call reorigination. In
other countries, such as Japan and most EU member states, where deregulation has
commenced but has not been completed, carriers are permitted to offer
facilities-based data and facsimile services, as well as limited voice services
including those to CUGs, but are not yet permitted to offer full voice
telephony. As countries deregulate, the demand for alternative access methods
typically decreases because carriers are permitted to offer a wider range of
facilities-based services on a transparent basis.

The most common form of alternative international access, traditional call
reorigination, avoids the high international rates offered by the ITO in a
particular regulated country by providing dial tone from a deregulated country,
typically the U.S. To place a call using traditional call reorigination, a user
dials a unique phone number to an international carrier's switching center and
then hangs up after it rings. The user then receives an automated callback
providing dial tone from the U.S. which enables the user to complete the call.
Technical innovations, ranging from inexpensive dialers to sophisticated
in-country switching platforms, have enabled telecommunications carriers to
offer a "transparent" form of call reorigination. The customer dials into the
local switch, and then dials the international number in the usual fashion,
without the "hang-up" and "callback," and the international call is
automatically and rapidly processed. The Company believes that as deregulation
occurs and competition increases in various markets around the world, the
pricing advantage of traditional call reorigination to most destinations
relative to conventional international direct dial service will diminish in
those markets.

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DEVELOPMENTS IN THE INTERNET INDUSTRY

Use of the Internet has grown rapidly since its initial commercialization in
the early 1990's. However, determining the precise number of Internet users is
extremely difficult because (i) the Internet does not have a single point of
control from which statistics may be recorded; (ii) computers are connected and
disconnected from the Internet on a continual basis; and (iii) a large number of
users may access the Internet through a single network. According to the
estimates of the International Telecommunication Union (the "ITU"), there were
approximately 60 million Internet users worldwide at the end of 1996. In
addition, the ITU estimates that the number of Internet users may increase to
300 million by 2001.

The Internet has evolved dramatically over the last several years as a
result of several trends affecting the computer and communications industries.
These trends include (i) the migration by organizations from proprietary
mainframe environments to open systems and distributed computing; (ii) the
emergence of low-cost, high-capacity telecommunications bandwidth; (iii) the
increased use of PCs in the home; (iv) the increased percentage of PCs that are
equipped with modems; (v) the growth of commercial on-line services; (vi) the
growth of information, entertainment and commercial applications; and (vii) the
increase in the number and variety of services available on the Internet.
Through an Internet connection, users can access commercial, educational and
governmental databases, software, graphics, newspapers, magazines, library
catalogs, industry newsletters, and other information. Currently, the primary
uses of the Internet include e-mail, Web browsing, electronic commerce, file
transfers, remote log-in, news, bulletin board and chat services and other
on-line services.

In addition, during the last years, several navigational and utility tools
have become available that have enabled easier access to the resources of the
Internet. Navigational software such as Netscape Navigator and Microsoft's
Internet Explorer, and search tools from such companies as Excite, Inc. and
InfoSeek, Inc., help users access information from the Internet.

As the volume of information available on organizations' computer systems
has increased and the use of data communications has grown as a preferred means
of day-to-day communications, organizations increasingly seek a number of
geographically dispersed access points to their own networks and to the networks
of other organizations. In the commercial sector, the number of interconnections
that businesses desire to establish with networks, customers, suppliers and
affiliates generally has made the development of proprietary access systems on a
case-by-case basis costly and time consuming. As a result, many organizations
seek reliable, high-speed and cost-effective means of internetworking and
increasingly rely on the Internet. As reliance on the Internet for the
transmission of data, applications and electronic commerce continues to grow
among organizations, the Company believes that these organizations will require
reliable, geographically dispersed and competitively priced Internet access and
services.

INTERNET TELEPHONY

The Internet telephony industry began in 1995, when experienced Internet
users began to transfer voice messages from one PC to another. In 1995, VocalTec
Communications, Ltd. ("VocalTec") introduced software that allowed PC users to
place international calls via the Internet to other PC users for the price of a
local call. In its early months, the growth of Internet telephony was
constrained due to the poor sound quality of the calls and because calls were
mainly limited to those placed from one PC to another.

The poor sound quality of Internet telephony was due to the fact that the
Internet was not created to provide for simultaneous voice traffic. Unlike
conventional voice communication circuits, in which the entire circuit is
reserved for a call, Internet telephony uses packet switching technology, in
which voice data is divided into discrete packets that are transmitted over the
Internet. These packets must travel through several routers in order to reach
their destination, which may cause misrouting, and delays in transmission and
reception. The limited capacity of the Internet has also restrained the growth
rate of Internet telephony.

However, as the industry has grown, substantial improvements have been made.
New software algorithms have substantially reduced delays. The use of private
networks or intranets to transmit calls as

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an alternative to the public Internet has alleviated capacity problems. Another
key development has been the introduction of gateway servers, which connect
packet-switched data networks such as the Internet to circuit-switched public
telephone networks. Developments in hardware, software and networks are expected
to continue to improve the quality and viability of Internet telephony. In time,
packet-switched networks may become substantially less expensive to operate than
circuit-switched networks, because carriers can compress voice traffic and place
more calls on a single line.

The Internet telephony market has grown in terms of the number and size of
companies offering products. Established long distance providers such as AT&T,
Bell Atlantic and Deutsche Telekom, as well as other major companies such as
Motorola, Microsoft, Intel and Netscape, have all entered or plan to enter the
Internet telephony market, in certain cases by investing in companies engaged in
the development of Internet telephony products.

Internet telephony provides customers with substantial savings compared to
conventional long distance calls, because the total cost of an Internet
telephone call is based on the local calls to and from the gateways of the
respective ISPs, thereby bypassing the international settlements process.
According to industry sources, the market for calls carried by Internet
telephony systems is expected to be approximately $30 million in 1998, and may
increase to as much as $1 billion in 2002.

MARKET OPPORTUNITY

The market for international voice and data telecommunications is undergoing
fundamental change and has experienced significant growth as a result of: (i)
deregulation and privatization of telecommunications markets worldwide; (ii) the
convergence of traditional voice and packet switching technology; and (iii) the
growth of the Internet as a communications medium, including Internet telephony.

DEREGULATION AND PRIVATIZATION OF TELECOMMUNICATIONS MARKETS
WORLDWIDE. Significant legislation and agreements have been adopted since the
beginning of 1996 which are expected to lead to increased liberalization of the
majority of the world's telecommunication markets, including:

- the U.S. Telecommunications Act, signed in February 1996, which
establishes parameters for the implementation of full competition in the
U.S. domestic long distance markets;

- the EU's Services Directive, adopted in 1990, which abolishes exclusive
rights for the provision of voice telephony services throughout the EU and
the PSTNs of any member country of the EU by January 1, 1998, subject to
extension by certain EU member countries; and

- the WTO Agreement, signed in February 1997, which creates a framework
under which 69 countries have committed to liberalize their
telecommunications laws in order to permit increased competition and, in
most cases, foreign ownership in their telecommunications markets,
beginning in 1998.

The Company believes that these initiatives, as well as other proposed
legislation and agreements, will provide increased opportunities for emerging
competitive carriers such as IDT to provide telecommunications services in
targeted markets. Deregulation has encouraged competition, which in turn has
prompted carriers to offer a wider selection of services and reduce prices. The
industry's projections for substantially increased international minutes of use
and revenue by 2000 are based in part on the belief that reduced pricing as a
result of deregulation and competition will result in a substantial increase in
the demand for telecommunications services in most markets.

CONVERGENCE OF TRADITIONAL VOICE AND PACKET SWITCHING
TECHNOLOGY. Technological advancements have allowed the use of packet switching
technology for the transmission of voice telecommunications traffic, enabling a
substantial increase in network efficiency, as well as the use of the Internet
for voice communications. The use of the Internet as a voice communications
medium provides significant reductions in the network cost of transmitting
traffic, while bypassing the cumbersome and expensive settlement process
inherent in international voice telecommunications. The development of voice
applications for the Internet is part of a larger trend of convergence of
standard voice and data networks. Internet telephony

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services are expected to be one of the fastest growth segments in the
telecommunications industry. Industry sources have estimated that the size of
the total market may reach $1.0 billion by 2002. The Company believes that the
providers of packet switching technology will be able to offer quality
communications services at rates that are significantly less than the rates
currently charged for long distance calls.

THE IDT APPROACH

STRATEGY

COMBINE VOICE TELECOMMUNICATIONS AND INTERNET TELEPHONY EXPERTISE. The
Company's knowledge of international voice telecommunications technology, packet
switching technology and Internet telephony provides the Company with a
significant competitive advantage as voice and Internet technologies converge.
The efficiencies of packet switching technology and the artificially high costs
of terminating international voice traffic resulting from the Accounting Rate
Mechanism are expected to result in high growth for Internet telephony and the
transmission of voice telecommunications using packet switching technology. The
Company expects that its leadership in Internet telephony and its knowledge of
voice telecommunications systems will enable it to partner with foreign carriers
seeking to provide inexpensive international termination to their customers.

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SERVICES

The Company provides its customers with integrated and competitively priced
international and domestic telecommunications, Internet access and Internet
telephony services.

TELECOMMUNICATIONS SERVICES

The Company's four primary telecommunications services are: (i) wholesale
carrier services; (ii) prepaid calling cards; (iii) international retail
services for individuals and businesses; and (iv) domestic long distance
services in the U.S. The Company generated revenues from its telecommunications
business of approximately $47.8 million during the three months ended October
31, 1997.

WHOLESALE CARRIER SERVICES

The Company sells its wholesale carrier services to other U.S. and
international carriers. In offering this service, the Company leverages the
rates that it is able to obtain through (i) its extensive relationships in the
long distance telecommunications industry; (ii) its ability to generate a high
volume of long distance call traffic; and (iii) the advantageous rates
negotiated with foreign PTTs and competitive carriers. The Company generated
revenues from its wholesale carrier services business of approximately $35.8
million during the three months ended October 31, 1997.

PREPAID CALLING CARDS

The Company sells prepaid debit and rechargeable calling cards providing
access to more than 230 countries and territories. The Company's rates are
between 10% and 50% less than the rates for international calls that are charged
by the major facilities-based carriers. The Company's debit cards are marketed
primarily to ethnic communities in the U.S. that generate high levels of
international traffic to specific countries where the Company has favorable
termination agreements. The Company's COLUMBIANITA and DOMINICALL cards offer
attractive rates to Columbia and the Dominican Republic, respectively. In
addition, the Company's MEGATEL card provides favorable rates to a variety of
countries. The Company's rechargeable cards permit users to place calls from 39
countries through international toll-free services. The Company generated
revenues from its prepaid calling card business of approximately $5.4 million
during the three months ended October 31, 1997.

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INTERNATIONAL RETAIL SERVICES

The Company offers international retail services to customers outside of the
U.S., primarily through call reorigination. Through this service, the Company
enables customers to access a U.S. dial tone from overseas and place
international calls that are reoriginated in the U.S., thereby benefitting from
more favorable U.S. outbound long distance rates, superior transmission quality
and enhanced services. The Company generated revenues from its international
retail services business of approximately $5.5 million during the three months
ended October 31, 1997.

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 preprogrammed number, access to U.S. toll-free 888 and
800 numbers, and simplified billing that combines the cost of the call back to
the customer and the cost of the customer's outbound call from the U.S. in one
bill for convenient and orderly presentation. The Company markets its call
reorigination service to businesses and individuals.

As an alternative service, the Company provides international long distance
services to certain overseas customers, currently in the U.K., via standard
international direct-dial network services. Through this service, the Company
offers a foreign 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 call reorigination. In markets that are deregulating, the Company's
strategy is to migrate its call reorigination customers to international
direct-dial service, where operating environments warrant. The Company expects
to offer international direct-dial service in France and Germany by the end of
Fiscal 1998.

DOMESTIC LONG DISTANCE SERVICES

The Company markets certain long distance services directly to retail
customers in the U.S. The Company's customers pay rates that are between 10% and
50% less than the rates for domestic long distance service charged by the major
facilities-based carriers. 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 savings that
are approximately 20% less than the rates for dial-up Internet access that are
charged by the major national ISPs. The Company generated revenues from its
domestic long distances services of approximately $1.2 million during the three
months ended October 31, 1997.

INTERNET ACCESS

The Company's three primary Internet access and online services are: (i)
dial-up Internet access for individuals and businesses; (ii) direct-connect
dedicated Internet services for corporate customers; and (iii) the GENIE online
entertainment and information services. The Company generated revenues from its
Internet access business of $4.9 million during the three months ended October
31, 1997.

DIAL-UP ACCESS SERVICES

The Company's dial-up service offers individuals 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 e-mail functions, Web sites, Usenet news groups,
databases and public domain software, as well as a full graphics package and
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 SLIP/PPP
account bundled with an Internet browser, unlimited dial-up Internet access, and
an e-mail account. Premium Account customers are entitled to the Reuters news
service, a second e-

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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 long distance 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.

DIRECT CONNECT DEDICATED SERVICES

The Company offers a variety of Internet access options and applications
specifically designed to address the unique needs of medium to large-sized
businesses. These corporate clients typically require high-speed dedicated
circuits because either they desire to put up a Web site, the nature of their
business requires the transfer of large data files, or it would be impractical
for them to maintain 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 through both T1 lines and fractional T1 lines. 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.

GENIE SERVICES

In addition, the Company offers the GENIE online service, giving subscribers
access to roundtables, bulletin boards and chat areas, individual and
multiplayer games, and premium news, travel, entertainment, weather and other
information services. Currently, the Company markets the Genie content as an
online service available only to subscribers. The Company offers Internet access
to Genie online subscribers for an additional fee.

INTERNET TELEPHONY

In August 1996, the Company began offering Net2Phone, the first commercial
telephone service to bridge calls between multimedia PCs and telephones via the
Internet, and to charge for this service on a per-minute basis. Upon
installation of the Net2Phone software, which is provided by the Company
primarily through the Internet without charge, a Net2Phone user receives an
account number, and chooses a personal identification number as an added
security feature. Once the Net2Phone software is installed, a user may place
toll-free "800" or "888" calls from anywhere in the world without incurring any
charges for such calls. Upon a user's prepayment for Net2Phone minutes, the user
may begin using Net2Phone to place telephone calls worldwide. In July 1997,
Net2Phone was recognized as the "Product of the Week" by PC Magazine.

A user places a Net2Phone call after establishing a connection to the
Internet. The call is routed over the Internet, at no charge to the customer, to
the Company's telecommunications switches in the U.S. The call is then routed in
the same manner as other voice telephony calls, using the Company's LCR platform
in order to increase the savings realized by international callers. For calls
originating overseas, the cost of placing and terminating the call with
Net2Phone is up to 95% below the rates generally charged by traditional foreign
carriers to place and terminate standard international telephone calls.

In October 1997, the Company introduced Net2Phone Direct, a commercial
telephone service that allows for international and domestic phone-to-phone
calling via the Internet using packet switching technology. Net2Phone Direct
enables phone-to-phone calling between two parties using telephones, while using
the Internet to transport the long-haul components of the call. Users of
Net2Phone Direct are able to call a local or toll-free access number, which
connects the call to an outbound switch server that connects the call to the
Internet. Through such use of the Internet, the Company expects to significantly
reduce the cost of international calling by extending the benefits of placing
Internet telephone calls to customers with access to a regular telephone without
requiring the use of PCs or individual Internet access. The Company also intends
to develop a global network of switches and servers, thereby expanding the
Company's reach for providing competitively priced Internet telephony solutions.
The Company generated

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revenues from its Internet telephony business of $2.1 million during the three
months ended October 31, 1997.

In October 1997, the Company created a new subsidiary, Net2Phone, Inc., for
the development of its Internet telephony business, based on its current view
that a separate entity would provide the necessary flexibility to attract
management personnel and to otherwise develop the business. In January 1998, Mr.
Clifford Sobel, the President of Net2Phone, Inc., purchased 10% of the capital
stock of Net2Phone, Inc., for $100,000. The purchase was effected through the
exercise of stock options that Mr. Sobel received pursuant to his employment
agreement. Mr. Sobel holds these shares subject to certain provisions that limit
the Company's ability to dilute his ownership interest in Net2Phone, Inc. Mr.
Sobel's employment agreement provides that he will endeavor to position the
subsidiary for a possible initial public offering at such time as such an
offering may be practical; the Company will make available up to 9% of the
subsidiary's shares for additional management incentive plans; and for a
one-year period commencing on September 5, 1999, Mr. Sobel will have the right
to purchase 1,000,000 shares of IDT's Common Stock in return for his ownership
interest in Net2Phone plus $6.50 in cash for each share of Common Stock. There
is no assurance that a public offering of the stock of the subsidiary will
occur; however, if and to the extent that any such offering does take place, the
Company currently intends to maintain at least a majority of the voting power of
the subsidiary.

SALES, MARKETING AND DISTRIBUTION

TELECOMMUNICATIONS

The Company primarily markets its international telecommunications services
through its direct wholesale carrier services sales staff. The staff primarily
relies on, and benefits from, (i) the Company's extensive relationships and
increasing international exposure and recognition throughout the long distance
industry for marketing its carrier services; (ii) the Company's substantial
traffic volumes, which enable the Company to negotiate for lower rates; and
(iii) favorable terminating rates negotiated with foreign PTTs and carriers.

The Company primarily markets its international call reorigination services
through its overseas network of independent sales representatives. The foreign
sales representatives, who are supervised by the Company's U.S.-based sales
managers, provide the Company with access to local business clientele and
residential customers and new opportunities in the local markets they serve. The
Company pays its foreign sales representatives on a commission basis. As of
October 31, 1997, the Company was represented by over 300 foreign sales
representatives in over 170 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 that it does
not currently serve.

The Company currently uses a single independent master distributor, Union,
to market its prepaid debit cards to retail outlets throughout the U.S. See
"Risk Factors--Dependence on Sales Representatives and Retailers." The Company's
rechargeable calling cards are distributed primarily through in-flight
magazines.

INTERNET ACCESS

The Company established itself as a leading national provider of Internet
access services primarily through extensive broadcast and print advertising to
the consumer market. In Fiscal 1997, the Company refocused the marketing efforts
of its Internet access operations in order to lower the cost of acquiring new
customers. While the Company intends to continue various means of broadcast
advertising in select markets, the Company's sales and marketing efforts now are
focused primarily on increasing its Internet customer base through (i) OEM
transactions, including hardware, software and operating system bundling; (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

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its customer acquisition costs as compared to traditional broadcast and print
advertising. As of October 31, 1997, the Internet sales force consisted of
approximately 12 salespersons. The Company's Internet sales staff is closely
supervised and undergoes customized and ongoing training to ensure a high level
of knowledge and service.

BUNDLING OF SERVICE OFFERINGS

The Company bundles its Internet access services with its domestic long
distance telephone services. 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. At the same time, the Company
differentiates itself from its competitors in the Internet access market who are
unable to offer their customers significant savings on their monthly long
distance bills. The Company leverages its existing Internet sales force for the
sale of its bundled long distance and Internet access service.

INTERNET TELEPHONY

The Company currently markets its Net2Phone Internet telephony services
primarily by distributing its Net2Phone software without charge via the Internet
and acquiring commercial Net2Phone customers through its prepaid platform. IDT
currently promotes its Net2Phone service through online and Internet-based
advertising venues, traditional print advertising in international publications,
and electronic media. In addition, the Company has entered into agreements to
bundle the required software for Net2Phone, as a value-added component, with the
software of other companies, and with other PC and computer equipment. The
Company has entered into exclusive agreements with resellers in certain
countries, pursuant to which such resellers purchase bulk amounts of Net2Phone
minutes in advance, and resell such minutes to users in their own countries as
representative sellers of Net2Phone. The Company currently offers Net2Phone
Direct in over 50 cities in the U.S., and has entered into agreements with
Daewoo and Naray in South Korea and Marubeni in Japan to market Net2Phone Direct
in those countries. The Company also seeks to sell Net2Phone Direct switch
servers to additional third parties in strategic markets worldwide.

CUSTOMERS

TELECOMMUNICATIONS

As of November 30, 1997, the Company had approximately 100 wholesale
customers located in the U.S. and Europe. The Company supplements this wholesale
customer base by offering retail long distance services to individuals and
business customers in the U.S. and over 170 countries including over 25,000 call
reorigination customers. Since January 1997, the Company has sold over 400,000
prepaid calling cards and over 53,600 rechargeable debit cards.

INTERNET

IDT is one of the nation's largest ISPs. The Company offers local dial-up
access to approximately 80,000 retail customers, and provides dedicated access
to approximately 350 medium and large-sized businesses as of October 31, 1997.

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INTERNET TELEPHONY

As of November 30, 1997, the Company's Net2Phone service has been used by
over 300,000 registered customers worldwide. Total usage of Net2Phone increased
from approximately 135,000 minutes in October 1996 to approximately 1.5 million
minutes in October 1997. In addition, since its inception in October 1997,
approximately 4,500 customers have registered for the Company's Net2Phone Direct
service.

CUSTOMER SUPPORT AND BILLING

IDT believes that reliable, sophisticated and flexible billing and
information systems are essential to its ability to remain competitive in the
global telecommunications market. Accordingly, the Company has invested
substantial resources to develop and implement its proprietary management
information systems.

The Company's billing system enables the Company to (i) accurately analyze
its network traffic, revenues and margins by customer and by route on an
intra-day basis; (ii) validate carrier settlements; and (iii) monitor least cost
routing of customer traffic. The entire process is fully automated and increases
efficiencies by reducing the need for monitoring by the Company's employees. The
Company believes that the accuracy and efficiency of its management information
systems provide it with a significant strategic advantage over other emerging
carriers.

The Company has also developed a sophisticated real-time management
information system for its Internet telephony services. The Company is able to
monitor the length and quality of the calls that are placed over its Net2Phone
and Net2Phone Direct systems, thereby helping to ensure a high level of service
and more efficient routing of calls. In addition, this system helps the Company
prevent fraud, and assists in the customer management process by automatically
informing customers of new information, including system upgrades.

The Company believes that its ability to provide adequate customer support
services is a crucial component of its ability to retain customers. The Company
has successfully 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.

NETWORK INFRASTRUCTURE

The Company maintains an international telecommunications switching
infrastructure and U.S. domestic network, consisting of owned and leased lines
that enable it to provide an array of telecommunications, Internet access and
Internet telephony services to its worldwide customer base. IDT believes it
enjoys competitive advantages by utilizing this network to carry both voice and
Internet traffic, resulting in the optimization of both its network utilization
and associated capital.

IDT's network is monitored 24 hours a day, seven days a week, and 365 days a
year 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.

TELECOMMUNICATIONS NETWORK

PRIVATE LINE NETWORK

The Company operates a growing telephone network consisting of resold
international switched services, U.S. domestic dedicated leased fiber optic
lines, and Company-owned switch equipment in the

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U.S. which are interconnected to major international PTTs, emerging carriers and
domestic IXCs, LECs and CLECs. IDT's major switching facilities are located in
Piscataway, N.J., Westfield, N.J., New York, N.Y. and London. These varied
locations serve to provide the network with redundancy and diversity. All of
these locations are linked with the dominant LEC as well as at least one of the
CLECs, 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.

In addition, the Company owns and leases switched services to connect its
U.S. and U.K. facilities. These services are used to originate traffic from
IDT's customer base in the U.K. and to terminate existing carrier and call
reorigination traffic to the U.K. The Company has 17 terminating agreements that
provide for the termination of traffic in 27 countries, including recent
agreements with companies based in Spain, the Dominican Republic, Italy,
Bangladesh, Cyprus and Chile. The Company also plans to obtain leased lines 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 and the size of the Company's installed base of
telecommunications customers in these countries.

SWITCHING PLATFORMS

The Company utilizes two major switching platforms. The Company uses its
Excel LNX switches for its application-based products such as call reorgination,
direct dial, call through, prepaid calling cards, and value-added services such
as voice prompts, speed dialing, voice mail and conferencing. The Excel LNX is
flexible and programmable, and is designed to implement network-based
intelligence quickly and efficiently. The Company currently owns 13 Excel LNX
switches. The other platform is the Nortel DMS250-300, which serves as an
international gateway and generic carrier switch. The Company currently owns one
Nortel switch, and expects to install two additional Nortel switches by the end
of the third quarter of Fiscal 1998. All of 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.

The Company plans to use other technologies, including Nortel 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
telephone minutes. If successfully developed, this leveraging of IDT's Internet
network could provide considerable cost efficiencies for transporting a
substantial portion of the Company's domestic voice traffic.

SOFTWARE

The Company's Excel LNX switch incorporates Company-developed software which
efficiently performs all the applications the Company requires to provide
value-added services, as well as billing and traffic analysis. The software
enables the Excel LNX 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 capacity or network
limitations, the LCR system is designed to transmit the traffic over the next
least cost route. The LCR system analyzes the following variables that may
affect the cost of a long distance call: different suppliers, different time
zones and multiple choices of terminating carrier per country. In some
instances, instead of routing a call directly between two overseas points, the
LCR system may backhaul an overseas carrier's minutes 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 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.

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INTERNET NETWORK

The Company operates a national Internet network comprised of a leased DS3
45 mbps backbone of high speed fiber optic lines connecting eight major cities
across the U.S., 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 Nortel ERS Magellan switches.
The DS3 backbone connects 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 50 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 to reduce the frequency of congestion in the network.
Also, major IDT backbone nodes employ routing switches for directing network
traffic. To further enhance network performance, the Company employs an "Open
Shortest Path First" protocol, which allows data traffic to be routed most
efficiently.

The Company seeks to retain flexibility and to maximize its opportunities by
utilizing a continuously changing mix of routing alternatives. This diversified
approach is intended to enable the Company to take advantage of the rapidly
evolving Internet market in order to provide low-cost service to its customers.

The Company utilizes the local dial-up switching infrastructure of several
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 access services. The Company offers
the Alliance Partners a monthly fee for each customer account routed through
their local access networks. The Company also provides 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. Finally, the Company entered into
an agreement with PSINet Inc. ("PSINet") 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 other 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. Through the buildout of
its own infrastructure and its agreement to utilize the PSI network as well the
local networks of its Alliance Partners, IDT now operates one of the nation's
largest networks, providing local dial-up Internet access through over 450 POPs,
of which the Company owns more than 75 POPs.

RESEARCH AND DEVELOPMENT

The Company employs a technical staff that is devoted to the improvement and
enhancement of the Company's existing telecommunications and Internet 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 adjust and 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
telecommunications and Internet 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."

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. The barriers to entry

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are not insurmountable in any of the telecommunications or Internet 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 and other long distance
resellers and providers, including large carriers such as AT&T, MCI, Sprint, and
WorldCom; (ii) foreign PTTs; (iii) other providers of international long
distance services such as STAR Telecommunications, Inc., Pacific Gateway
Exchange, Inc., RSL Communications Ltd. and Telegroup, Inc.; (iv) alliances that
provide wholesale carrier services, such as "Global One" (Sprint, Deutsche
Telekom AG and France Telecom S.A.) and Uniworld (AT&T, Unisource-Telecom
Netherlands, Telia AB, Swiss Telecom PTT and Telefonica de Espana S.A.); (v) new
entrants to the domestic long distance market such as the RBOCs in the U.S., who
have entered or have announced plans to enter the U.S. interstate long distance
market pursuant to recent legislation authorizing such entry, and utilities such
as RWE Aktiengesellschaft in Germany; and (vi) small long distance resellers.
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, as well as greater financial, technical,
operational, marketing and other resources and experience than the Company.

The Company competes for customers in the telecommunications markets
primarily based on price and, to a lesser extent, the type and quality of
service offered. Increased competition could force the Company to reduce its
prices and profit margins if its competitors are able to procure rates or enter
into service agreements that are comparable to or better than those the Company
obtains, or are able 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 the
volume of minutes that it carries on its network, as the Company's ability to
obtain favorable rates and tariffs from its carrier suppliers depends, to a
significant extent, on the Company's total volume of international long distance
call traffic. There is no guarantee that the Company will be able to maintain
the volume of international and domestic long distance traffic necessary to
obtain favorable rates and tariffs. Although the Company has no reason to
believe that its competitors will adopt 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 long distance resale services depends upon the existence of
spreads between the rates offered by the Company and those offered by the IXCs
with which it competes, as well as those from which 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. See "Risk
Factors--Increasing Competition--Telecommunications."

INTERNET ACCESS

The Company's current and prospective competitors in the Internet access
market include many large companies that have substantially greater market
presence, as well as greater 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; (ii) established online services companies that offer
Internet access, such as AOL, CompuServe and Prodigy; (iii) computer software
and technology companies such as Microsoft; (iv) national long distance
telecommunications carriers, such as AT&T, MCI and Sprint; (v) RBOCs; (vi) cable
television operators, such as Comcast, TCI and Time Warner; (vii) nonprofit or
educational ISPs; (viii) newly-licensed providers of spectrum-based wireless
data services; and (ix) competitive local telephone service providers such as
TCG and WorldCom.

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support services; (iii) the capacity, reliability and security of its network
infrastructure; (iv) the ease of access to and navigation of the Internet; (v)
the pricing policies of its competitors and suppliers; (vi) regulatory price
requirements for interconnection to and use of existing local exchange networks
by ISPs; (vii) the timing of introductions of new products and services by the
Company and its competitors; (viii) the Company's ability to support existing
and emerging industry standards; and (ix) 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. See "Risk
Factors--Increasing Competition--Internet Access."

INTERNET TELEPHONY

The market for Internet telephony services is expected to be extremely
competitive. Most of the current Internet telephony products enable voice
communications over the Internet between two parties simultaneously connected to
the Internet via multimedia PCs, where both parties are using identical Internet
telephony software products. Current product offerings include VocalTec's
Internet Phone, QuarterDeck's WebPhone and Microsoft's NetMeeting. In addition,
a number of large, well-capitalized companies such as Intel, Cisco, Lucent,
Nortel and Dialogic have announced their intentions to offer server-based
products that are expected to allow communications over the Internet between
parties using a multimedia PC and a telephone and between two parties using
telephones where both parties have specialized servers at each end of the call.
Several other companies, such as AT&T and Qwest Communications, have recently
announced plans to offer Internet telephony products and services during the
first half of 1998. There can be no assurance that the Company will be able to
successfully compete in the developing Internet telephony market, or that other
large companies will not enter the market as suppliers of Internet telephony
services or equipment. In addition, the Company's competitors may introduce
products that permit origination and termination of calls at a telephone through
the Internet.

REGULATION

TELECOMMUNICATIONS

As a multinational telecommunications company, the Company is subject to
varying degrees of regulation in each of the jurisdictions in which it operates.
As a nondominant carrier in the U.S., the Company's provision of international
and domestic long distance telecommunications services is generally regulated on
a streamlined basis. Despite recent trends toward deregulation, some of the
countries in which the Company intends to provide telecommunications services do
not currently permit the Company to provide public switched voice
telecommunications services. In those countries not yet open to switched voice
service competition, the Company provides services to closed user groups
("CUGs") and a variety of value-added services as permitted by each country's
laws.

REGULATION OF DOMESTIC TELECOMMUNICATIONS SERVICES. In the U.S., provision
of the Company's services is subject to the provisions of the Communications
Act, as amended by the Telecommunications Act of 1996 (the "Telecommunications
Act") and the FCC regulations promulgated thereunder, as well as the applicable
laws and regulations of the various states administered by the relevant state
authorities. The recent trend in the U.S., for both federal and state regulation
of telecommunications service providers, has been in the direction of reducing
regulation. Nonetheless, the FCC and relevant state authorities continue to
regulate ownership of transmission facilities, provision of services and the
terms and conditions under which the Company's services are provided.
Non-dominant carriers, such as the Company, are required by federal and state
law and regulations to file tariffs listing the rates, terms and conditions for
the services they provide. In March 1997, the FCC initiated a proceeding in
which it proposed to eliminate the requirement that non-dominant interstate
carriers such as the Company maintain tariffs on file with the FCC for domestic
interstate services. The FCC's proposed rules are pursuant to authority granted
to the FCC in the Telecommunications Act to forbear from regulating any
telecommunications service provider if

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the FCC determines that the public interest will be served. The FCC subsequently
adopted its proposal and eliminated the requirement that interstate carriers
file domestic tariffs in most circumstances. That decision has been appealed to
the U.S. Court of Appeals for the 8th Circuit, and a stay has been issued
pending a decision on the merits of the appeal. It is unclear when the Court
will rule on the appeal.

In May 1997, the FCC issued an order to implement the provisions of the
Telecommunications Act relating to the preservation and advancement of universal
telephone service (the "Universal Service Order"). The Universal Service Order
requires all telecommunications carriers providing interstate telecommunications
services to contribute to universal support by contributing to a fund (the
"Universal Service Fund"). Universal service contributions will be assessed
based on certain intrastate, interstate and international end-user gross
telecommunications revenues, effective January 1, 1998. All carriers were
required to submit a Universal Service Fund worksheet in September 1997. The
Company has filed its Universal Service Fund worksheet. Although the FCC order
provides a method for determining the amount that the Company must contribute to
support these subsidies, the FCC has only provided the contribution factors for
the first quarter of 1998. The revised factors are 3.19% for the high cost and
low income fund and 0.72% for the schools, libraries and healthcare fund. The
amounts remitted to the Universal Services Fund may be billed to the Company's
customers. If the Company does not bill these amounts to its customers, its
profit margins may be less than if it had elected to do so. However, if the
Company elects to bill these amounts to its customers, customers may reduce
their use of the Company's services, or elect to use the services provided by
the Company's competitors, which may have a material adverse effect upon the
Company's business, financial condition, or results of operations.

The Company's FCC authorizations also permit the Company to resell
international private lines interconnected to the PSTNs for the provision of
switched services in those countries that have been found by the FCC to offer
"equivalent opportunities" to U.S. carriers. To date, the FCC has found that
only Canada, the U.K., Sweden, Australia and New Zealand offer such
opportunities. The FCC currently imposes certain restrictions upon the use of
the Company's private lines between the U.S. and "equivalent" countries. The
Company may not route traffic to or from the U.S. over a private line between
the U.S. and an "equivalent" country (such as the U.K.) if such traffic
originates or terminates in a third country, if the third country has not been
found by the FCC to offer "equivalent" resale opportunities.

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Following implementation of the Full Competition Directive by member states of
the EU, and the WTO Agreement by the signatories, the FCC may authorize the
Company to originate and terminate traffic over its private line between the
U.S. and the U.K. and (pursuant to ISR authority) over additional private lines
to additional member states if the FCC finds that such additional member states
provide equivalent resale opportunities or that such authority would otherwise
promote competition. The FCC has also recently proposed to permit U.S. carriers
to provide ISR to WTO member countries without a finding of equivalency where
certain settlement rate requirements are met.

The Company offers its call reorigination services pursuant to an FCC
authorization (the "Section 214 Switched Voice Authorization") under Section 214
of the Communications Act and certain relevant FCC decisions. The FCC has
determined that call reorigination services that use uncompleted call signaling
do not violate U.S. or international law, but has held that U.S. companies
providing such services must comply with the laws of the countries in which they
operate as a condition of such companies' Section 214 Switched Voice
Authorizations. The FCC reserves the right to condition, modify or revoke any
Section 214 Authorizations and impose fines for violations of the Communications
Act or the FCC's regulations, rules or policies promulgated thereunder, or for
violations of the clear and explicit telecommunications laws of other countries
that are unable to enforce their laws against U.S. carriers. FCC policy provides
that foreign governments that satisfy certain conditions may request FCC
assistance in enforcing their laws against call reorigination providers based in
the U.S. that are violating the laws of these jurisdictions. 30 countries have
formally notified the FCC that call reorigination services violate their laws.
The FCC has held that it would consider enforcement action against companies
based in the U.S. engaged in call reorigination by means of uncompleted call
signaling in countries where this activity is expressly prohibited. While the
FCC has not initiated any action to date to limit the provision of call
reorigination services, there can be no assurance that it will not take action
in the future. Enforcement action could include an order to cease providing call
reorigination services in such country, the imposition of one or more
restrictions on the Company, monetary fines or, ultimately, the revocation of
the Company's Section 214 Switched Voice Authorization, and could have a
material adverse effect on the Company's business, financial condition and
results of operations.

Regulatory requirements pertinent to the Company's operations will continue
to evolve as a result of the WTO Agreement, federal legislation, court
decisions, and new and revised policies of the FCC. In particular, the FCC
continues to refine its international service rules to promote competition,
reflect and encourage liberalization in foreign countries and reduce
international accounting rates toward cost. Indeed, the FCC recently adopted new
lower accounting rate benchmarks that became effective on January 1, 1998. Under
the FCC's new benchmarks, after a transition period of one to four years
depending on a country's income level, U.S. carriers will be required to pay
foreign carriers significantly lower rates for the termination of international
services. These rates range from a $0.15 per minute benchmark for upper income
countries such as the U.K. to $0.23 per minute for lower income countries such
as China. Moreover, the FCC recently issued a decision revising its Foreign
Carrier Entry Policy as part of its efforts to change its rules to implement the
WTO Agreement.

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routing arrangements (referred to as "transiting"). Under certain arrangements
referred to as "refiling," the carrier in the destination country does not
consent to receiving traffic from the originating country and does not realize
the traffic it receives from the third country is actually originating from a
different country. To date, the FCC has made no pronouncement as to whether
refiling arrangements are inconsistent with the regulations of the U.S. or
International Telecommunications Union ("ITU"), although it is considering these
issues in connection with MCI's 1995 petition to the FCC for declaratory ruling
regarding Sprint's Fonaccess service. It is possible that the FCC will determine
that refiling violates U.S. and/or international law. Such a finding could have
a material adverse effect on the Company's business, operating results and
financial condition.

EUROPEAN REGULATION OF TELECOMMUNICATIONS SERVICES. In Europe, the
regulation of the telecommunications industry is governed at a supranational
level by the EU. The EU's institutions, such as the European Commission, are
responsible for creating pan-European policies. Through its legislation, the EU
has developed a regulatory framework aimed at ensuring an open, competitive
telecommunications market. The EU was established by the Treaty of Rome and
subsequent conventions and the European Commission and the Council of Ministers
of the European Union are authorized by such treaties to issue EU "directives."
EU member states are required to implement these directives through national
legislation. If an EU member state fails to adopt such directives, the European
Commission may take action, including referral to the European Court of Justice,
to enforce the directives.

In 1990, the EU issued the Services Directive requiring each EU member state
to abolish existing monopolies in telecommunications services, with the
exception of voice telephony. The intended effect of the Services Directive was
to permit the competitive provision of all services, including value-added
services and voice services to CUGs, other than voice telephony. However, as a
consequence of local implementation of the Services Directive through the
adoption of national legislation, there are differing interpretations of the
definition of prohibited voice telephony and permitted value-added and CUG
services. Voice services accessed by customers through leased lines are
permissible in all EU member states. The European Commission has generally taken
a narrow view of the services classified as voice telephony, declaring that
voice services may not be reserved to the ITOs if (i) dedicated customer access
is used to provide the service; (ii) the service confers new valueadded benefits
on users; or (iii) calling is limited by a service provider to a group having
legal, economic or professional ties.

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Each EU member state in which the Company currently conducts or plans to
conduct its business has a different regulatory regime, and such differences are
expected to continue beyond January 1998. The requirements for the Company to
obtain necessary approvals vary considerably from one member state to another
and are likely to change as competition is permitted in new service sectors.

INTERNET ACCESS

ISPs are generally considered "enhanced service providers" and are exempt
from federal and state regulations governing common carriers. Accordingly, the
Company's provision of Internet access services are currently exempt from
tariffing, certification and rate regulation. Nevertheless, regulations
governing disclosure of confidential communications, copyright, excise tax, and
other requirements may apply to the Company's provision of Internet access
services. The Company cannot predict the likelihood that state, federal or
foreign governments will impose additional regulation on the Company's Internet
business, nor can it predict the impact that future regulation will have on the
Company's operations.

The 1996 Telecommunications Act imposes criminal liability on persons
sending or displaying indecent material on an interactive computer service such
as the Internet in a manner available to minors. The 1996 Telecommunications Act
also imposes criminal liability 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. The
constitutionality of these provisions has been successfully challenged in
federal appellate court, and their interpretation and enforcement is uncertain.
The Telecommunications Act may decrease demand for Internet access, chill the
development of Internet content, or have other adverse effects on ISPs 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, among
other things, prohibiting users from maintaining home pages on the Web.

In December 1996, the FCC initiated a Notice of Inquiry regarding whether to
impose regulations or surcharges upon providers of Internet access and
Information Service (the "Internet NOI"). The Internet NOI seeks public comment
upon whether to impose or continue to forebear from regulation of Internet and
other packetswitched network service providers. The Internet NOI specifically
identifies Internet telephony as a subject for FCC consideration. The Company
can not predict the outcome of this proceeding or other FCC proceedings that may
impact the Company's operations or impose additional requirements, or
regulations or charges upon IDT's provision of Internet access services.

INTERNET TELEPHONY

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<PAGE>
Internet telephone services and could initiate proceedings to regulate Internet
telephony. If a foreign government, Congress, the FCC, or a state utility
commission begins to regulate Internet telephony, there can be no assurances
that any such regulation will not materially adversely affect the Company's
business, financial condition or results of operation.

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 currently have any issued patents or registered copyrights. The
Company's policy is to require its 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 may not be 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 a service mark registration for the mark GENIE. The Company
has also registered service marks relating to its name and logo. In addition,
the Company has applications pending with respect to the registration of the
service marks Net2Phone, N2P, Amtalk, Amtalk design and Net2Fax, and trademarks
relating to its prepaid calling card business. In addition, the Company has
applied for a patent in connection with its development of the systems and
methodology comprising the technologies underlying Net2Phone. There can be no
assurance that the Company's competitors will not develop the ability to provide
similar or better services than that of 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, such patent will provide protection
against competitive technology or that it will be held valid and enforceable if
challenged. There can be no assurance that the Company's competitors would not
be able to design around such patent or that others will not obtain patents that
the Company would need to license or circumvent in order to exploit its patent.
See "Risk Factors--Dependence on Technological Development."

In addition, the Company has entered into an agreement pursuant to which it
has received a non-exclusive license to utilize in certain European countries
the technologies covered by a European patent relating to the processing of
calls made with prepaid calling cards. Under the agreement, the Company is
entitled to receive royalties from companies selling prepaid calling cards in
Europe who acquire license rights under the patent or against which the patent
is successfully enforced. Under the patent agreement, the Company is permitted
to grant sublicenses with respect to prepaid calling cards in Europe, and
receive royalties from such sublicenses. The Company expects that this
arrangement will be attractive to European carriers because it will enable them
to fulfill demand for their services without raising their total costs, and the
Company believes that it will help to accelerate the growth of its carrier
business in Europe.

The Company has received correspondence from a company that claims to own a
registered U.S. trademark, which asserts that the Company's use of the mark
"Net2Phone" in connection with its Internet telephony services infringes the
relevant trademark, and requests that the Company cease and desist from using
the mark. The trademark in question does not purport to relate to Internet
telephony services, and no legal proceedings have been commenced against the
Company with respect to this matter. The Company is currently conducting an
investigation with respect to this claim.

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LEGAL PROCEEDINGS

On December 29, 1995, Surfers Unlimited, L.L.C. filed a breach of contract
action in the New Jersey Superior Court, Bergen County. The suit names a
subsidiary of the Company as defendant and seeks restitutional and consequential
damages in an unspecified amount for interference with prospective business
advantages, breach of contract and improper use of confidential and proprietary
information. Howard S. Jonas, the Chairman and Chief Executive Officer of the
Company, has also been named as a defendant in the action. The suit is currently
in the discovery phase.

In January 1997, six former employees alleging employment discrimination
commenced a suit in New Jersey Superior Court, Bergen County. Howard S. Jonas,
the Chairman and Chief Executive Officer of the Company, has also been named as
a defendant in the action. The action claims that the Company has made hiring
and promotion decisions based upon the religious backgrounds of the relevant
individuals. The complaint seeks compensatory and punitive damages in an
unspecified amount and also seeks statutory multiples of damages. The case is
currently in the discovery stage. The Company has received an administrative
notice from the court setting March 17, 1998 as a trial date for this matter,
although the Company expects that a later trial date may occur.

In June 1997, an uncertified class-action suit seeking compensatory damages
in an unspecified amount was brought against the Company in New York Supreme
Court, New York County. The suit concerns advertisements that are no longer used
by the Company, and advertising practices that were voluntarily terminated by
the Company following a prior investigation of the Company by the Attorneys
General of several states. The case is currently in preliminary stages of
discovery.

In September 1997, DigiTEC 2000, Inc. ("DigiTEC") filed a complaint
(subsequently amended) in New York Supreme Court, New York County against the
Company alleging that in connection with its sale of prepaid calling cards, the
Company engaged in unfair competition and tortiously interfered with an
exclusive business relationship between DigiTEC and two co-defendants, CG Com,
Inc. and Mr. Carlos Gomez. The complaint seeks compensatory and consequential
damages in an unspecified amount of not less than $50 million and also seeks an
unspecified amount of punitive damages. The complaint also alleges that CG Com,
Inc. and Mr. Gomez owe DigiTEC more than $500,000. In November 1997, the Court
denied DigiTEC's motion for a preliminary injunction to bar CG Com, Inc. and Mr.
Gomez from distributing IDT's calling cards. The case is currently in
preliminary stages of discovery.

The Company filed a lawsuit against Mr. Glen Miller in August 1997 in the
New Jersey Superior Court, Bergen County. The action was based upon various
matters arising out of Mr. Miller's employment with IDT. Mr. Miller answered the
complaint and filed a counterclaim against IDT seeking compensatory and punitive
damages for breach of his employment contract and breach of the covenant of good
faith and fair dealing. Mr. Miller alleges that the Company breached his
employment agreement by failing to compensate him as contemplated by his
employment agreement, including by failing to deliver to him 20,000 shares of
the Company's Common Stock. Mr. Miller also filed a third-party complaint
against Howard Balter, the Chief Operating Officer of IDT, and Jonathan Rand,
IDT's former Director of Human Resources, for fraudulent conduct and
misrepresentation. The Company filed its answer to Mr. Miller's counterclaim in
December 1997.

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 assurances in this regard, in the opinion
of the Company's management, such proceedings, as well as aforementioned
actions, will not have a material adverse effect on results of operations or the
financial condition of the Company.

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<PAGE>
EMPLOYEES

As of October 31, 1997, the Company had 348 full-time employees, including
approximately 138 in technical support and customer service, 60 in sales and
marketing, 38 in its technical staff, 57 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 are 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
and are 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, 1999. 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. The
Company occupies facilities in a second building pursuant to a lease which
expires on September 30, 1998 and facilities in a third building, which the
Company also leases from an entity controlled by Mr. Jonas, pursuant to a lease
which expires in December 1998.

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MANAGEMENT

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

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Howard S. Jonas........................... 41 Chief Executive Officer, Chairman of the Board and Treasurer
Howard S. Balter.......................... 36 Chief Operating Officer and Vice Chairman of the Board
James A. Courter.......................... 56 President and Director
Stephen R. Brown.......................... 41 Chief Financial Officer
Joyce J. Mason............................ 38 General Counsel, Secretary and Director
Marc E. Knoller........................... 37 Vice President and Director
Hal Brecher............................... 39 Executive Vice President of Operations and Director
Ilan M. Slasky............................ 27 Executive Vice President of Finance
Joshua Winkler............................ 42 Executive Vice President of Sales
Meyer A. Berman........................... 64 Director
J. Warren Blaker.......................... 65 Director
James R. Mellor........................... 67 Director
Elmo R. Zumwalt, Jr....................... 77 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. degree 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. degree in
Mathematics and Computers from Yeshiva University and attended New York
University School of Business.

JAMES A. 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. degree from Colgate
University and a J.D. degree 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. degree in Economics from Yeshiva
University and a B.B.A. degree in Business and Accounting from Baruch College.

JOYCE J. MASON has served as General Counsel, Secretary and director of the
Company since its inception. Ms. Mason received a B.A. degree from the City
University of New York and a J.D. degree from New York Law School.

MARC E. KNOLLER joined the Company as Vice President and director in March
1991. From 1988 until March 1991, Mr. Knoller was director of national sales for
Jonas Publishing. Mr. Knoller received a B.B.A. degree from Baruch College.

66
<PAGE>
HAL BRECHER has served as the Company's Executive Vice President of
Operations since he joined the Company in November 1996, and became a director
of the Company in April 1997. Mr. Brecher also serves as Chief Operating Officer
of Net2Phone. Prior to joining the Company, Mr. Brecher was the Executive Vice
President of DME Marketing, a private direct marketing firm. He holds a B.S.
degree in Computer Science from Brooklyn College, and an M.B.A. degree from the
Wharton School of the University of Pennsylvania.

ILAN M. SLASKY joined the Company in April 1996 and served as Director of
Carrier Services from November 1996 to July 1997. Since July 1997, Mr. Slasky
has served as Executive Vice President of Finance in charge of investor
relations and mergers and acquisitions. From 1991 to 1996, Mr. Slasky worked for
Merrill Lynch in various capacities including risk management, fixed income
trading and equity derivatives. Mr. Slasky holds an M.B.A. degree from New York
University in Finance and Management, and a B.A. degree in Economics from the
University of Pittsburgh.

JOSHUA WINKLER joined the Company in October 1996 as Vice President of
Finance, and was named Executive Vice President of Sales in November 1997. From
1985 to 1995, Mr. Winkler served as president of Rophe Management, a private
company which owned and operated medical facilities, and served as an adjunct
professor of accounting and business management at Touro College from 1992 to
1996. Mr. Winkler is a certified public accountant, and holds a B.S. degree in
accounting from Brooklyn 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. Mr. Berman has a B.A. degree from the University of
Connecticut.

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. degree from Wilkes University and a Ph.D. from the
Massachusetts Institute of Technology.

JAMES R. MELLOR joined the Company as a director in August, 1997. Since
1981, Mr. Mellor had been working for General Dynamics Corporation ("General
Dynamics"), a leader in nuclear submarines, surface combatant ships and combat
systems. From 1994 until 1997, Mr. Mellor served as CEO of General Dynamics.
Before joining General Dynamics, Mr. Mellor served as President and Chief
Operating Officer of AM International, Inc., now Multigraphics, Inc. Prior to
that, Mr. Mellor spent 18 years with Litton Industries in a variety of
engineering and management positions, including Executive Vice President in
charge of Litton's Defense Group from 1973 to 1977. Mr. Mellor has a B.S. degree
and an M.S. degree in electrical engineering from the University of Michigan.

ELMO R. ZUMWALT, JR. became a director of the Company in February 1997. He
is a retired U.S. Navy Admiral and served as Chief of Naval Operation and a
member of the Joint Chiefs of Staff from 1970 to 1974. Since 1991, he has been
President of Admiral Zumwalt & Consultants, Inc., a Washington-based consulting
firm. Admiral Zumwalt is a director of Magellan Aerospace Corporation, Dallas
Semiconductor Corporation and NL Industries Inc. He is also a member of the
President's Foreign Intelligence Advisory Board, Chairman of the International
Consortium for Research on the Health Effects of Radiation, Chairman of the
Morrow Foundation and Chairman of the Ethics and Public Policy Center. Admiral
Zumwalt received a B.S. degree in electrical engineering from the United States
Naval Academy in Annapolis, Maryland.

In addition to the directors identified above, Denis A. Bovin was elected to
serve as a director in September 1997 and is currently expected to take office
before the fourth quarter of Fiscal 1998. Mr. Bovin currently serves as Vice
Chairman of Investment Banking and Senior Managing Director of Bear, Stearns &
Co. Inc. ("Bear Stearns"). Prior to joining Bear Stearns, Mr. Bovin spent almost
twenty years in the

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<PAGE>
Investment Banking Corporate Coverage and Capital Markets divisions as well as
the Communications and Technology Group of Salomon Brothers Inc.

Each of the Company's directors 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, Knoller and Zumwalt
constituting Class I, Messrs. Balter, Berman and Brecher constituting Class II
and Messrs. Jonas, Mellor and Ms. Mason constituting Class III. Mr. Bovin will
be a Class III director at such time as he takes office. 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.

Mr. Jonas and Ms. Mason are brother and sister.

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors has established an Executive Committee consisting of
Messrs. Jonas and Balter. In addition, the Board of Directors has established a
Compensation Committee, which currently consists of Messrs. Berman, Mellor and
Blaker, and an Audit Committee consisting of Messrs. Berman and Blaker. The
Compensation Committee makes recommendations concerning the salaries and
incentive compensation of employees of, and consultants to, the Company and
administers the Company's Amended and Restated 1996 Stock Option and Incentive
Plan. The Audit Committee is responsible for reviewing the results and scope of
audits and other services provided by the Company's independent auditors.

KEY EMPLOYEES

In addition to the foregoing individuals, the Company employs the following
key employees:

DR. DAVID L. TUROCK became Director of Technology of the Company in November
1997 at the time that the Company acquired Rock Enterprises, Inc. ("Rock"), a
telecommunications company which Dr. Turock founded in 1992. Dr. Turock provided
consulting services to the Company through Rock since 1992. Pursuant to an
agreement with the Company, Dr. Turock is permitted to provide certain
consulting services to, and serve as a director of, certain telecommunications
businesses outside of IDT, subject to certain limitations. Prior to joining IDT,
Dr. Turock also founded a number of other telecommunications companies,
including TPS Call Sciences. In addition, Dr. Turock has conducted research on
human information processing and telecommunications systems at Bell
Communications Research Inc. between 1988 and 1992, and at AT&T Bell
Laboratories between 1982 and 1988. Dr. Turock holds a Ph.D. in Cognitive
Science from Rutgers University, an M.S.E. degree in Engineering and Computer
Science from the University of Pennsylvania, an M.S. degree in Experimental
Psychology from Rutgers University, a B.S. degree in Psychology from Syracuse
University, an A.A. degree from Keystone College, and executive certificates
from the Wharton School of the University of Pennsylvania and the Sloan School
of Management at M.I.T.

CLIFFORD M. SOBEL has been employed as the President of the Company's
Net2Phone subsidiary since September 1997. Prior to his employment with the
Company, Mr. Sobel founded several import-export companies, including DVMI,
Bon-Art International and Bauchet International. Mr. Sobel holds a B.A. degree
in Economics from the University of Vermont, and a B.S. degree in Accounting,
Foreign Trade and Management and Marketing from New York School of Commerce.

H. JEFF GOLDBERG has served as the Director of Technology of the Company's
Net2Phone division and as a consultant to the Company since 1995. Prior to his
employment with the Company, Mr. Goldberg served as a developer of multimedia
communications software at AT&T Bell Laboratories between 1977 and 1979, and as
a Vice President of Software at Charles River Data Systems in Massachusetts
between 1979 and 1985. In addition, Mr. Goldberg has worked as an independent
software consultant between 1985 and 1995. Mr. Goldberg holds a B.S. degree in
Electrical Engineering from Cooper Union and an S.M. degree in Computer Science
from Massachusetts Institute of Technology.

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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock and Class A Stock of the Company (assuming
conversion of all of the shares of Class A Stock into Common Stock) as of
December 31, 1997 and as adjusted to reflect the sale of the shares of Common
Stock offered hereby with respect to (i) each person known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock based solely
on publicly available filings with the Securities and Exchange Commission
received by the Company; (ii) each Selling Stockholder; (iii) each of the
Company's directors; (iv) certain executive officers of the Company; and (v) all
executive officers and directors as a group. Except as otherwise indicated, each
of the stockholders has sole voting and investment power with respect to the
shares beneficially owned.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES
OWNED PRIOR TO SHARES TO BENEFICIALLY OWNED
THE OFFERING BE AFTER THE OFFERING
------------------------- SOLD IN THE -------------------------
NAME AND ADDRESS OF STOCKHOLDERS NUMBER PERCENT OFFERING NUMBER PERCENT
- ----------------------------------------------------- ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>

Howard S. Jonas(1)................................... 10,255,909 44.3 -- 10,255,909 37.5
190 Main Street
Hackensack, NJ 07601

Putnam Investments, Inc.(2).......................... 1,154,113 5.0 -- 1,154,113 4.2
One Post Office Square
Boston, MA 02109

Howard S. Balter(3).................................. 492,920 2.1 68,000 424,920 1.5

James A. Courter(4).................................. 267,000 * -- 267,000 *

Joyce J. Mason(5).................................... 50,532 * 10,000 40,532 *

Ilan M. Slasky(6).................................... 35,000 * 10,000 25,000 *

Meyer A. Berman...................................... 83,500 * -- 83,500 *

Clifford M. Sobel(7)................................. 571,700 2.4 100,000 471,700 1.7

J. Warren Blaker(8).................................. 20,000 * 2,000 18,000 *

Marc E. Knoller(8)................................... 180,000 * -- 180,000 *

James R. Mellor(8)................................... 10,000 * -- 10,000 *

Stephen R. Brown(8).................................. 47,420 * 10,000 37,420 *

Hal Brecher(8)....................................... 52,500 * -- 52,500 *

Elmo R. Zumwalt, Jr.(8).............................. 16,000 * -- 16,000 *

All directors and executive officers as a group (13
persons)........................................... 11,524,781 48.1 -- 11,424,781 40.1
</TABLE>

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

* 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. 14,242 of these shares of
Class A Stock are owned of record by the Jonas Family Limited Partnership,
over which Mr. Jonas exercises the power to vote and the power to dispose.

(2) Includes 1,154,113 shares held by Putnam Investment Managements, Inc. as the
wholly-owned investment adviser of Putnam Investments, Inc. 817,940 of these
shares are held by the Putnam Voyager Fund. The investment adviser has
dispository power over the shares in each of the funds, but the investment
trustee has voting power over the shares in each fund.

69
<PAGE>

(3) Includes 255,920 shares beneficially owned prior to the Offering pursuant to
stock options exercisable within 60 days.

(4) Includes 135,000 shares beneficially owned prior to the Offering pursuant to
stock options exercisable within 60 days.

(5) Includes 40,200 shares beneficially owned prior to the Offering pursuant to
stock options exercisable within 60 days. Includes 3,999 shares beneficially
held by members of Ms. Mason's immediate family.

(6) Includes 25,000 shares beneficially owned prior to the Offering pursuant to
stock options exercisable within 60 days.

(7) Includes 200,000 shares beneficially owned prior to the Offering pursuant to
stock options exercisable within 60 days, and 371,700 shares of Common Stock
beneficially owned by SJJ Investment Corp., of which Mr. Sobel is the
majority shareholder.

(8) Common Stock beneficially owned prior to the Offering pursuant to stock
options exercisable within 60 days.

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<PAGE>
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 authorized capital stock of the Company consists of
100,000,000 shares of Common Stock, $.01 par value, 35,000,000 shares of Class A
Common Stock, $.01 par value (the "Class A Stock") 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 December 31, 1997, the Company had 23,141,721 shares of
capital stock outstanding, consisting of 12,885,812 shares of Common Stock and
10,255,909 shares of Class A Stock.

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. After the consummation of this Offering, Howard S. Jonas,
the Chairman of the Board, Chief Executive Officer and Treasurer of the Company,
will beneficially own 10,255,909 outstanding shares of Class A Stock, and will
retain effective control of the Company by holding approximately 65.5% of the
combined voting power of the Company's outstanding capital stock. Therefore, Mr.
Jonas will have the ability to elect all of the directors of the Company and to
effect or prevent certain corporate transactions which require majority or
supermajority 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 if
there is a Transfer (as defined therein) of shares of Class A Stock to a person
other than a Permitted Transferee (as hereinafter defined) then such shares
automatically convert into an equal number of shares of Common Stock, other than
when such shares are pledged pursuant to a bona fide pledge. In the event of
foreclosure, however, such shares will convert automatically into Common Stock
30 days after notice of foreclosure has been given, unless the Class A Shares
are transferred to a Permitted Transferee or the foreclosure action has been
canceled or annulled. "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) the spouse of such holder, lineal ancestors
of such holder or spouse and any person who is a lineal descendant of a
grandparent of such holder or the spouse, or a spouse of any such lineal
descendant or such lineal ancestor (collectively referred to as the "Family
Members" of such holder); (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.
The provision in the Certificate of Incorporation regarding conversion of Class
A Stock 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.

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<PAGE>
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 nonassessable 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.

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, preferences and relative 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 designated to 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. There are no shares of Preferred Stock outstanding.

TRANSFER AGENT AND REGISTRAR

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

72
<PAGE>
UNDERWRITING

Subject to the terms and conditions of an Underwriting Agreement, the
underwriters named below (the "Underwriters"), through their representatives, BT
Alex. Brown Incorporated, Hambrecht & Quist LLC, Friedman, Billings, Ramsey &
Co., Inc. and Jefferies & Company, Inc. (the "Representatives") have severally
agreed to purchase from the Company and the Selling Stockholders the following
respective number of shares of Common Stock at the public offering price less
the underwriting discounts and commissions set forth on the cover page of this
Prospectus:

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
BT Alex. Brown Incorporated................................................
Hambrecht & Quist LLC......................................................
Friedman, Billings, Ramsey & Co., Inc......................................
Jefferies & Company, Inc...................................................

-----------------
Total.................................................................. 4,200,000
-----------------
-----------------
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Common Stock offered hereby if any of such shares are
purchased.

The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page of this Prospectus and to certain dealers at such price less a concession
not in excess of $ per share. The Underwriters may allow and such
dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the Offering, the public offering price and other
selling terms may be changed by the Representatives.

The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to an aggregate
of 615,000 additional shares of Common Stock at the public offering price, less
the underwriting discounts and commissions, set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares as the number of shares of Common Stock to
be purchased by it shown in the above table bears to the total number of shares
of Common Stock offered hereby, and the Company will be obligated, pursuant to
the option, to sell shares to the Underwriters if any. The Underwriters may
exercise such option only to cover over-allotments, if any, made in connection
with the sale of shares of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 4,200,000 shares are being offered.

In connection with this Offering, certain Underwriters may engage in passive
market making transactions in the Common Stock on the Nasdaq National Market
immediately prior to the commencement of sales in this Offering in accordance
with Rule 103 of Regulation M. Passive market making consists of displaying bids
on the Nasdaq National Market limited by the bid prices of independent market
makers and making purchases limited by such prices and effected in response to
order flow. Net purchases by a passive market maker on each day are limited to a
specified percentage of the passive market maker's average daily trading volume
in the Common Stock during a specified period and must be discontinued when such
limit is reached. Passive market making may stabilize the market price of the
Common Stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.

Subject to applicable limitations, the Underwriters, in connection with this
Offering, may place bids for or make purchases of the Common Stock in the open
market or otherwise, for long or short account or

73
<PAGE>
cover short positions incurred, to stabilize, maintain or otherwise affect the
price of the Common Stock, which may be higher than the price that might
otherwise prevail in the open market. There can be no assurance that the price
of the Common Stock will be stabilized, or that stabilizing, if commenced, will
not be discontinued at any time. Subject to applicable limitations, the
Underwriters may also place bids or make purchases on behalf of the underwriting
syndicate to reduce a short position created in connection with this Offering.
The Underwriters are not required to engage in these activities and may end
these activities at any time.

The Underwriting Agreement contains certain covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil,
liabilities, including liabilities under the Securities Act of 1933, as amended.

The Company, the Selling Stockholders, and each of the Company's directors
and executive officers, who in the aggregate will beneficially own, following
this Offering, 11,424,781 shares of Common Stock (assuming conversion of the
Company's Class A Stock, and including options to purchase shares of Common
Stock that are currently exercisable or exercisable within 60 days), have agreed
that they will not, directly or indirectly, without the prior written consent of
BT Alex. Brown Incorporated, offer, sell, offer to sell, contract to sell or
otherwise dispose of any shares of Common Stock for a period of 90 days after
the date of this Prospectus, except that the Company (i) may issue shares of
Common Stock upon the exercise or conversion of other currently outstanding
options, warrants and other convertible securities; (ii) may issue options to
purchase shares of Common Stock to its directors, officers and employees in
connection with its existing stock option plans; and (iii) may issue shares of
Common Stock or securities convertible into, or exercisable for, shares of
Common Stock pursuant to an acquisition transaction. In addition, the Company's
directors, officers and shareholders described above may dispose of shares of
Common Stock (i) as bona fide gifts; (ii) pursuant to the laws of testamentary
or intestate descent; or (iii) pursuant to a final and nonappealable order of a
court or other body of competent jurisdiction.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Stockholders by Morrison & Foerster LLP, New York, New
York. Certain legal matters in connection with this Offering will be passed upon
for the Underwriters by Piper & Marbury L.L.P., Baltimore, Maryland.

EXPERTS

The consolidated financial statements of the Company at July 31, 1997 and
1996, and for each of the three years in the period ended July 31, 1997
appearing in this Prospectus and the related Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act, are incorporated herein by reference:

(1) the Company's Annual Report on Form 10-K, as amended, for the fiscal
year ended July 31, 1997;

(2) the Company's Quarterly Report on Form 10-Q for the three months
ended October 31, 1997; and

(3) the description of the Common Stock contained in the Registration
Statement on Form 8-A, and any amendment or report filed for the purpose of
updating such description.

74
<PAGE>
All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of the Common Stock
hereunder shall be deemed to be incorporated by reference herein and to be a
part hereof from the date of the filing of such reports and documents. The
Company hereby undertakes to provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus is delivered, upon
written or oral request of such person, a copy of any or all of the foregoing
documents incorporated herein by reference (exclusive of exhibits, unless such
exhibits are specifically incorporated by reference into such documents).
Requests for such documents should be submitted in writing to the Corporate
Secretary at the corporate headquarters of the Company at 190 Main Street,
Hackensack, New Jersey 07601 or by telephone at (201) 928-1000.

Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of the Registration Statement or this
Prospectus.

75
<PAGE>
GLOSSARY OF TERMS

<TABLE>
<S> <C>
Accounting Rate Mechanism..... A negotiated rate which international long distance
providers pay one another to terminate traffic.

Backbone...................... A centralized high-speed network that connects smaller,
independent networks.

Call reorigination

Traditional call A form of dial-up access that allows a user to access a
reorigination............. telecommunications company's network by placing a telephone
call, hanging up, and waiting for an automated callback. The
company then provides the user with a dial tone that enables
the user to initiate and complete a call.

Transparent call Technical innovations have enabled telecommunications
reorigination............. carriers to offer a "transparent" form of call reorigination
without the usual "hang-up" and "callback" whereby the call
is automatically and swiftly processed by a programmed
switch.

Call-through.................. The provision of international long distance service through
conventional long distance or transparent call
reorigination.

Circuit-switched network...... A communications network in which a dedicated communication
path is established between the sender and receiver along
which all packets travel. The telephone system is an example
of a circuit switched network.

CLEC.......................... Competitive Local Exchange Carrier.

CUG........................... Closed User Group. A group of specified users, such as
employees of a company, permitted by applicable regulations
to access a private voice or data network, which access
would otherwise be denied to them as individuals.

Dedicated telephone Telecommunications lines dedicated or reserved for use by
circuits.................... particular customers along predetermined routes.

DS3........................... A data communications line capable of transmission speeds of
45 Mbps; also known as T3.

Electronic mail............... An application that allows a user to send or receive
messages to or from any other user with an Internet address;
commonly termed e-mail.

EU............................ European Union.

Facilities-based carrier...... A carrier which transmits a significant portion of its
traffic over owned transmission facilities.

Firewall...................... A gateway between two networks that buffers and screens all
information that passes between such networks in order to
prevent unauthorized access.

Gateway server................ Equipment used to connect packet-switched data networks
(such as the Internet) to circuit-switched public telephone
networks.
</TABLE>

76
<PAGE>
<TABLE>
<S> <C>
Graphical user interface...... A means of communicating with a computer by manipulating
icons and windows rather than using text commands.

Host.......................... A computer with a direct connection to the Internet, as
opposed to a dial-up connection.

Internet...................... An open global network of interconnected commercial,
educational and governmental computer networks which utilize
a common communications protocol, TCP/IP.

IRU........................... Indefeasible Right of Use, the right to use a
telecommunications system, usually an undersea cable, with
most of the rights and duties of ownership, but without the
right to control or manage the facility and, depending upon
the particular agreement, without any right to salvage or
duty to dispose of the cable at the end of its useful life.

ISDN.......................... Integrated Services Digital Network. A digital network that
combines voice and digital network services through a single
medium, making it possible to offer customers digital data
services as well as voice connections.

ISP........................... Internet Service Provider.

IS Policy..................... International Settlements Policy. FCC international service
regulation which governs the permissible arrangements
between U.S. carriers and their foreign correspondents to
settle the cost of terminating traffic over each others
networks, settlement rates and permissible deviations from
these policies.

ISR........................... International Simple Resale. The use of international leased
lines for the resale of switched telephony services to the
public, bypassing the current system of accounting rates.

ITO........................... Incumbent Telecommunications Operator, the dominant carrier
or carriers in each country, often, but not always,
government-owned or protected (alternatively referred to as
the PTT of that country).

IXC........................... Interexchange Carrier. A carrier of telecommunications
services between local exchanges.

Kbps.......................... Kilobits per Second. A rate of digital information
transmission. One kilobit equals 1,000 bits.

LAN........................... Local Area Network. A data communications network designed
to interconnect personal computers, workstations,
minicomputers, file servers and other communications and
computing devices within a localized environment.

LCR........................... Least-Cost Routing. A process by which the Company optimizes
the routing of calls over the least cost route on its switch
for over 230 countries. Minimizes per-minute resale cost to
the third party IXC by routing the IXC customer's minutes
through the LCRs switching platform enabling the carrier
customer to benefit from the competitive rates offered by
the Company.

LEC........................... Local Exchange Carrier. A carrier which provides local dial
tone and long distance access services.
</TABLE>

77
<PAGE>
<TABLE>
<S> <C>
Local exchange................ A geographic area, determined by the appropriate regulatory
authority, in which calls are generally transmitted without
toll charges to the calling or called party.

Mbps.......................... Megabits per Second. A rate of digital information
transmission. One megabit equals 1,000 kilobits.

Modem......................... A piece of equipment that connects a computer to an analog
transmission line (typically a telephone line).

Multiplexer................... A device that combines several signals for transmission on
the same shared medium, such as a telephone wire.

Node.......................... A specially-configured multiplexer that provides an
interface between the local PSTN where the node is located
and the Company's switch. A node collects and concentrates
call traffic from its local area and transfers it to the
Company's switches over private lines for call processing.

On-line services.............. Commercial information services that offer a computer user
access through a modem to a specified slate of information,
entertainment and communications menus. These services are
generally closed systems but may offer Internet access at
additional cost.

Packet-switched network....... A communications network in which packets (messages or
fragments of messages) are individually routed between hosts
with no previously established communication path. Packets
are routed to their destination through the most expedient
route. Not all packets travelling between the same two
hosts, even those from a single message, will necessarily
follow the same route. The destination computer reassembles
the packets into their appropriate sequence. Packet
switching is used to optimize the use of the bandwidth
available in a network and to minimize latency.

POPs.......................... Points of Presence. An interlinked group of modems, routers
and other computer equipment, located in a particular city
or metropolitan area, that allows a nearby subscriber to
access the Internet through a local telephone call.

PPP........................... Point-to-Point Protocol. An information transfer standard
for transmitting Internet protocol packets over asynchronous
data connections as well as certain synchronous systems.

Private line.................. A dedicated telecommunications connection between end user
locations.

Protocol...................... A formal description of message formats and the rules two or
more machines must follow in order to exchange data.

PSTN.......................... Public Switched Telephone Network. A telephone network which
is accessible by the public through private lines, wireless
systems and pay phones.

PTT........................... The Postal, Telephone and Telegraph monopolies of foreign
countries, which have undergone varying levels of
privatization. Examples include NTT of Japan, Deutsche
Telekom AG, France Telecom, British Telecom plc and
Telefonica de Espana S.A.
</TABLE>

78
<PAGE>
<TABLE>
<S> <C>
RBOCs......................... Regional Bell Operating Companies. The seven local telephone
companies established by the 1982 agreement between AT&T and
the U.S. Department of Justice.

Resale/Reseller............... The wholesale purchase of termination services on a
variable, per minute basis by one long distance provider
from another.

Router........................ A device that receives and transmits data between segments
in one or more networks.

Server........................ Software that allows a computer to offer a service to
another computer. Other computers contact the server program
by means of matching client software. The term also refers
to the computer on which server software runs.

SLIP.......................... Serial Line Internet Protocol. An information transfer
standard for transmitting Internet protocol packets over
asynchronous data connections between two points.

SS7........................... Signaling System 7. A protocol used for communication with,
and control of, telephone central office switches and their
attached processors.

Switching system or A system which uses devices that open or close circuits or
switches.................... select the paths or circuits to be used for transmission of
information.

T1............................ A data communications line capable of transmission speeds of
1.554 Mbps.

Transiting.................... The practice whereby a carrier routes, through its
facilities in a third country, traffic originating from one
country and destined for another country.

Undersea fiber optic cable.... Cables placed at the bottom of the oceans making them immune
to electrical interference and environmental factors, in
order to connect the Company's facilities and support its
operating agreements between Europe, North America, Asia and
Latin America.

Usenet........................ User Network. A distributed bulletin board system supported
mainly by the individuals who post and read articles
thereon. Usenet has rapidly grown to become international in
scope and is now one of the largest decentralized
information utilities in existence, hosting 1200 newsgroups
and an average of 40 megabytes (the equivalent of several
thousand paper pages) of new technical articles, news,
discussion and other information every day.

World Wide Web or the Web..... A network of computer servers that uses a special
communications protocol to link different servers throughout
the Internet and permits communications of graphics, video
and sound.
</TABLE>

79
<PAGE>
IDT CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Audited Financial Statements:
Report of Independent Auditors....................................................... F-2
Consolidated Balance Sheets as of July 31, 1996 and 1997............................. F-3
Consolidated Statements of Operations for the years ended July 31, 1995, 1996 and
1997............................................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended July 31, 1995,
1996 and 1997...................................................................... F-5
Consolidated Statements of Cash Flows for the years ended July 31, 1995, 1996 and
1997............................................................................... F-6
Notes to Consolidated Financial Statements........................................... F-7

Unaudited Financial Statements:
Condensed Consolidated Balance Sheet as of October 31, 1997.......................... F-20
Condensed Consolidated Statements of Operations for the three months ended October
31, 1996 and 1997.................................................................. F-21
Condensed Consolidated Statements of Cash Flows for the three months ended October
31, 1996 and 1997.................................................................. F-22
Notes to Condensed Consolidated Financial Statements................................. F-23
</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, 1996 and 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended July 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company at
July 31, 1996 and 1997 and the consolidated results of its operations and its
cash flows for each of the three years in the period ended July 31, 1997, in
conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

New York, New York
September 25, 1997

F-2
<PAGE>
IDT CORPORATION
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JULY 31
------------------------------
<S> <C> <C>
1996 1997
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 14,893,756 $ 7,674,313
Trade accounts and commissions receivable, net of allowance for doubtful
accounts of approximately $2,100,000 at July 31, 1996 and $3,190,000 at July
31, 1997...................................................................... 11,497,565 17,128,890
Notes receivable................................................................ 925,000 1,291,403
Due from Yovelle................................................................ 1,200,000 --
Other current assets............................................................ 1,985,090 2,922,750
-------------- --------------
Total current assets.............................................................. 30,501,411 29,017,356
Property and equipment, at cost, net.............................................. 12,453,330 25,725,805
Note receivable................................................................... 325,000 --
Goodwill, net..................................................................... -- 1,357,606
Other assets...................................................................... 517,630 2,436,334
-------------- --------------
Total assets...................................................................... $ 43,797,371 $ 58,537,101
-------------- --------------
-------------- --------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.......................................................... $ 10,602,075 $ 16,957,656
Accrued expenses................................................................ 4,947,119 721,142
Deferred revenue................................................................ 983,496 2,442,848
Notes payable--current portion.................................................. -- 1,880,939
Capital lease obligations--current portion...................................... -- 1,531,971
Other current liabilities....................................................... 422,005 595,951
-------------- --------------
Total current liabilities......................................................... 16,954,695 24,130,507
Notes payable--long-term portion.................................................. -- 5,241,088
Capital lease obligations--long-term portion...................................... -- 3,906,362
-------------- --------------
Total liabilities................................................................. 16,954,695 33,277,957
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; 9,666,900 and
10,636,000 shares issued and outstanding in 1996 and 1997, respectively....... 96,669 106,360
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 46,990,388
Accumulated deficit............................................................. (18,112,577) (21,949,347)
-------------- --------------
Total stockholders' equity........................................................ 26,842,676 25,259,144
-------------- --------------
Total liabilities and stockholders' equity........................................ $ 43,797,371 $ 58,537,101
-------------- --------------
-------------- --------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-3
<PAGE>
IDT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED JULY 31
---------------------------------------------
<S> <C> <C> <C>
1995 1996 1997
------------- -------------- --------------
Revenues.......................................................... $ 11,664,434 $ 57,693,880 $ 135,187,227
Costs and expenses:
Direct cost of revenues......................................... 7,543,923 36,437,583 92,214,223
Selling, general and administrative............................. 5,991,520 35,799,158 41,544,987
Depreciation and amortization................................... 303,619 1,212,235 4,873,142
------------- -------------- --------------
Total costs and expenses.......................................... 13,839,062 73,448,976 138,632,352
------------- -------------- --------------
Loss from operations.............................................. (2,174,628) (15,755,096) (3,445,125)
Interest expense.................................................. -- (113,160) (862,954)
Interest income................................................... 15,129 458,464 436,112
Other............................................................. 14,950 -- 35,197
------------- -------------- --------------
Loss before income taxes and extraordinary item................... (2,144,549) (15,409,792) (3,836,770)
Income taxes...................................................... -- -- --
------------- -------------- --------------
Loss before extraordinary item.................................... (2,144,549) (15,409,792) (3,836,770)
Extraordinary loss on retirement of debt.......................... -- (233,500) --
------------- -------------- --------------
Net loss.......................................................... $ (2,144,549) $ (15,643,292) $ (3,836,770)
------------- -------------- --------------
------------- -------------- --------------
Loss per share:
Loss before extraordinary item.................................... $ (0.13) $ (0.85) $ (0.18)
Extraordinary loss on retirement of debt.......................... -- (0.01) --
------------- -------------- --------------
Net loss.......................................................... $ (0.13) $ (0.86) $ (0.18)
------------- -------------- --------------
------------- -------------- --------------
Weighted average number of shares used in calculation of loss per
share........................................................... 16,569,292 18,180,023 21,152,927
------------- -------------- --------------
------------- -------------- --------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-4
<PAGE>
IDT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL STOCK
PAID-IN SUBSCRIPTION (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT)
--------- --------- --------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCK CLASS A STOCK
-------------------- --------------------
Balance at July 31, 1994.............. 4,491,900 $ 44,919 11,174,330 $ 111,743 $2,254,938 $ (25,000) $ (324,736)
Compensation expense recognized on
issuance of 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)
Compensation expense recognized on
issuance of 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)
Compensation expense recognized on
issuance of stock options......... -- -- -- -- 41,213 -- --
Exercise of stock options........... 969,100 9,691 -- -- 2,202,334 -- --
Net loss for the year ended July 31,
1997.............................. -- -- -- -- -- -- (3,836,770)
--------- --------- --------- --------- ---------- ------------ ------------
Balance at July 31, 1997.............. 10,636,000 $ 106,360 11,174,330 $ 111,743 $46,990,388 $ -- ($21,949,347)
--------- --------- --------- --------- ---------- ------------ ------------
--------- --------- --------- --------- ---------- ------------ ------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-5
<PAGE>
IDT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED JULY 31
--------------------------------------------
<S> <C> <C> <C>
1995 1996 1997
------------- -------------- -------------
OPERATING ACTIVITIES
Net loss............................................................ $ (2,144,549) $ (15,643,292) $ (3,836,770)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Stock option expense.............................................. 968,660 70,000 41,213
Depreciation and amortization..................................... 303,619 1,212,235 4,873,142
Services rendered in exchange for subscription receivable......... 25,000 -- --
Changes in assets and liabilities:
Accounts receivable............................................. (1,104,087) (9,468,047) (9,273,827)
Due from Yovelle................................................ -- (1,200,000) --
Other current assets............................................ (97,357) (1,844,056) (937,660)
Other assets.................................................... -- (492,630) (1,801,077)
Advances receivable............................................. -- (1,250,000) 2,861,003
Trade accounts payable.......................................... 417,662 9,803,488 6,233,349
Accrued expenses................................................ 1,731,696 2,918,366 (4,225,977)
Deferred revenue................................................ 242,921 716,912 1,459,352
Other current liabilities....................................... 177,810 234,648 173,946
------------- -------------- -------------
Net cash provided by (used in) operating activities................. 521,375 (14,942,376) (4,433,306)

INVESTING ACTIVITIES
Purchases of property and equipment................................. (1,325,518) (11,895,452) (7,112,962)
Payments for the purchase of Yovelle, net cash acquired............. -- -- 376,843
Payments for the purchase of the assets of International Computer
Systems, Inc...................................................... -- -- (2,250,000)
Payment for the purchase of the assets of PCIX, Inc................. -- -- (260,000)
Proceeds from the sale of short-term investments.................... 297,974 -- --
------------- -------------- -------------
Net cash used in investing activities............................... (1,027,544) (11,895,452) (9,246,119)

FINANCING ACTIVITIES
Payments on notes due to former shareholder......................... (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) --
Proceeds from notes payable......................................... -- -- 6,750,000
Exercise of stock options........................................... -- -- 2,212,025
Repayment of capital lease obligations.............................. -- -- (684,070)
Repayments of notes payable......................................... -- -- (1,817,973)
Proceeds from sale of common stock.................................. -- 41,504,993 --
------------- -------------- -------------
Net cash provided by (used in) financing activities................. (16,669) 41,499,992 6,459,982
------------- -------------- -------------
Net increase (decrease) in cash..................................... (522,838) 14,662,164 (7,219,443)
Cash and cash equivalents at beginning of period.................... 754,430 231,592 14,893,756
------------- -------------- -------------
Cash and cash equivalents at end of period.......................... $ 231,592 $ 14,893,756 $ 7,674,313
------------- -------------- -------------
------------- -------------- -------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-6
<PAGE>
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

IDT Corporation (the "Company") provides telecommunication, Internet
connectivity and Internet telephony services to customers in the United States
and abroad.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include accounts of the
Company and its wholly-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, Internet telephony service, and debit card
revenues are recognized as service is provided. Equipment sales are recognized
when installation is completed. Deferred revenues result from advance billings
for services.

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 depreciated using the
straight-line method over the estimated useful lives of the assets, which range
from five to seven years. Leasehold improvements are amortized 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.

The Company expenses the costs of advertising as incurred. For the years
ended July 31, 1995, 1996 and 1997, advertising expense totaled approximately
$581,000, $8,520,000 and $4,011,000, 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

F-7
<PAGE>
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. At July 31, 1997, the
Company has substantially all of its cash and cash equivalents deposited with
one financial institution.

GOODWILL

Goodwill is amortized over 20 years using the straight-line method.
Accumulated amortization of Goodwill at July 31, 1997 was $34,307. The Company
systematically reviews the recoverability of its goodwill for each acquired
entity to determine whether an impairment may exist. Upon a determination that
the carrying value of goodwill will not be recovered from the undiscounted
future cash flows of the acquired business, the carrying value of such goodwill
would be considered impaired and will be reduced by a charge to operations in
the amount of the impairment.

INCOME TAXES

The Company accounts for income taxes on the liability method as required by
Statement of Financial Accounting Standards ("SFAS") 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

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.

International customers account for a significant portion 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.

F-8
<PAGE>
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 FINANCIAL ACCOUNTING STANDARDS

In March 1997, the Financial Accounting Standards Board issued SFAS No. 128,
EARNINGS PER SHARE, which is not effective until the second quarter of the
Company's fiscal 1998. This new standard requires dual presentation of basic and
diluted earnings per share ("EPS") on the face of the statement of operations
and requires a reconciliation of the numerators and denominators of basic and
diluted EPS calculations. The results would not materially differ from earnings
per share as presented.

SFAS No. 130, REPORTING COMPREHENSIVE INCOME, was issued in June 1997. The
Company will be required to adopt the new standard for the year ending July 31,
1999, although early adoption is permitted. The primary objective of this
statement is to report and disclose a measure ("Comprehensive Income") of all
changes in equity of a company that result from transactions and other economic
events of the period other than transactions with owners. The Company intends to
adopt this statement in fiscal 1999 and does not anticipate that the statement
will have a significant impact on its financial statements .

SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, was issued in June 1997. The Company will be required to adopt the
new standard for the year ending July 31, 1999, although early adoption is
permitted. This statement requires use of the "management approach" model for
segment reporting. The management approach model is based on the way a company's
management organizes segments within the company for making operating decisions
and assessing performance. Reportable segments are based on products and
services, geography, legal structure, management structure, or any other manner
in which management disaggregates a company. The Company intends to adopt this
statement in fiscal 1999 and does not anticipate that the adoption of the
statement will have a significant impact on its financial statements.

STOCK BASED COMPENSATION

The Company has adopted the disclosure-only provisions of SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION. The Company applies APB Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and related interpretations in
accounting for stock options.

RECLASSIFICATION

Certain prior year amounts have been reclassified to conform to the 1997
presentation.

2. NOTES 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 such carrier at 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. At July 31, 1996 and 1997, the outstanding balance of such promissory
note was $1,250,000 and $486,000, respectively.

On January 1, 1997, the Company converted a $1,996,000 trade receivable
balance from a carrier into a loan. At July 31, 1997, the outstanding balance of
such loan was approximately $805,000. The Company

F-9
<PAGE>
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. NOTES RECEIVABLE (CONTINUED)
expects the outstanding loan balance will be satisfied through services provided
to the Company by the carrier.

3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
JULY 31
----------------------------
<S> <C> <C>
1996 1997
------------- -------------
Equipment...................................................... $ 10,661,941 $ 24,945,687
Computer software.............................................. 1,971,018 4,618,931
Leasehold improvements......................................... 296,718 1,115,822
Furniture and fixtures......................................... 1,176,867 1,365,140
Building....................................................... -- 109,525
------------- -------------
14,106,544 32,155,105
Less accumulated depreciation and amortization................. (1,653,214) (6,429,300)
------------- -------------
Net property and equipment..................................... $ 12,453,330 $ 25,725,805
------------- -------------
------------- -------------
</TABLE>

Fixed assets under capital leases aggregate $6,122,403 at July 31, 1997. The
accumulated amortization related to these assets under capital leases was
$440,552 at July 31, 1997.

4. NOTES PAYABLE

Notes payable consist of:

<TABLE>
<CAPTION>
JULY 31
--------------------------
<S> <C> <C>
1996 1997
------------ ------------
Convertible promissory note (A)................................... $ -- $ 2,159,000
Promissory note (B)............................................... -- 1,901,000
Acquisition note payable (C)...................................... -- 689,000
Acquisition note payable (D)...................................... -- 690,000
Promissory note (E)............................................... -- 1,683,000
------------ ------------
-- 7,122,000
Less current portion.............................................. -- (1,881,000)
------------ ------------
Note payable--long-term portion................................... $ -- $ 5,241,000
------------ ------------
------------ ------------
</TABLE>

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

(A) On October 14, 1996, the Company entered into a $2,250,000 promissory note
with a commercial bank. The promissory note is payable in monthly payments
of interest only commencing on November 15, 1996 for a period of six months
at a rate of 11.00% per annum, and thereafter, in equal monthly payments of
principal and interest at a rate of 14.00% per annum. The promissory note is
convertible to the Company's Common stock at the option of the Company based
upon the prevailing market price of the Company's common stock on the date
of conversion. The promissory note is collateralized by certain equipment.

(B) On August 14, 1996, the Company entered into a $2,500,000 promissory note
with a financing company. The promissory note is payable in 36 monthly
installments commencing on September 1,

F-10
<PAGE>
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. NOTES PAYABLE (CONTINUED)
1996 and bears interest at an effective rate at 16.30% per annum. The
promissory note is collateralized by certain equipment.

(C) In October 1996, as partial payment for the acquisition of an Internet
service provider, the Company issued a $750,000 note. The note is payable in
48 monthly installments and bears interest at 10.00% per annum.

(D) In August 1996, as partial payment for the acquisition of an Internet
service provider, the Company issued the $690,000 note. The note is payable
on August 15, 1998 and bears interest at 8.25% per annum.

(E) On January 10, 1997, the Company entered into a $2,000,000 promissory note
with a financing company. The loan is payable in 36 monthly installments and
bears interest at 18.58% per annum. Such interest rate is adjusted on a
monthly basis in accordance with changes in the interest rate of three-year
U.S. Treasury Securities. The promissory note is collateralized by certain
equipment.

On July 31, 1997, the estimated fair value of the notes payable described
above was approximately the same as the carrying amount. Required annual
principal payments of notes payable as of July 31, 1997 are as follows:

<TABLE>
<S> <C> <C>
Year ending July 31:.................... 1998................ $1,827,000
1999................ 2,799,000
2000................ 1,682,000
2001................ 649,000
2002................ 165,000
----------
$7,122,000
----------
----------
</TABLE>

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, $24,000 and $69,000 for the
years ended July 31, 1995, 1996 and 1997, respectively.

The Company has been provided professional services by directors and/or
relatives of officers/ directors. The Company incurred approximately $37,000,
$197,000 and $245,000 for such services for the years ended July 31, 1995, 1996
and 1997, 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 1995 and 1996 were approximately $2,417,000
and $2,143,000, respectively. The Company's revenues for such services amounted
to approximately $6,016,000 and $13,024,000 for the years ended July 31, 1995
and 1996,

F-11
<PAGE>
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. RELATED PARTY TRANSACTIONS (CONTINUED)
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
--------------------------
<S> <C> <C>
1996 1997
------------ ------------
Deferred tax assets:
Net operating loss carryforwards.................................................... $ 7,257,000 $ 8,579,000
Bad debt reserve.................................................................... 844,000 1,280,000
Employee benefits................................................................... 418,000 434,000
------------ ------------
Deferred tax assets................................................................... 8,519,000 10,293,000
Deferred tax liability--depreciation.................................................. 759,000 999,000
------------ ------------
Net deferred tax assets............................................................... 7,760,000 9,294,000
Valuation allowance................................................................... (7,760,000) (9,294,000)
------------ ------------
Total deferred tax assets............................................................. $ -- $ --
------------ ------------
------------ ------------
</TABLE>

The Company has provided a full valuation allowance on net deferred tax
assets since realization of these benefits cannot be reasonably assured.

At July 31, 1997, based upon tax returns filed and to be filed, the Company
had net operating loss carryforwards for federal income tax purposes of
approximately $21,000,000 expiring in the years 2009 through 2012. These net
operating loss carryforwards may be limited in their use in the event of
significant changes in the Company's ownership.

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.

WARRANTS

In May 1991, the Company repurchased 1,035,000 shares of its Common stock
for $80,000. 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
Common 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.

In July 1997, the Company issued warrants to purchase 63,908 shares of its
common stock at $6.958 per share to a leasing company in connection with a
capital lease.

F-12
<PAGE>
IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. STOCKHOLDERS' EQUITY (CONTINUED)

STOCK OPTIONS

Prior to March 15, 1996, the Company had an informal stock option program
whereby employees were granted options to purchase shares of the Company's
Common stock. Under such program, options to purchase 2,158,770 shares of Common
stock were granted. On March 15, 1996, the Company adopted a stock option plan
for officers, employees and non-employee directors to purchase up to 2,300,000
shares of the Company's Common stock. Generally, options become exercisable over
vesting periods up to six years and expire ten years from the date of grant.

During the years ended July 31, 1995, 1996 and 1997, the Company recorded
compensation expense related to the granting of stock options of approximately
$969,000, $70,000 and $41,000, respectively. On February 15, 1997, the Company
canceled 1,272,250 outstanding options with an exercise price of $10 and granted
new options with an exercise price at the market value on that date of $7.75. On
April 16, 1997, the Company canceled 603,500 outstanding options with an
exercise price of $7.75 and granted new options with an exercise price at the
market value on that date of $4.375.

A summary of stock option activity under the Company's stock option plans is
as follows:

<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF SHARES EXERCISE PRICE
----------- ---------------
<S> <C> <C>
Outstanding at July 31, 1994......................................................... -- $ --
Granted.............................................................................. 2,140,370 0.41
----------- -----
Outstanding at July 31, 1995......................................................... 2,140,370 0.41
Granted.............................................................................. 1,363,150 9.92
----------- -----
Outstanding at July 31, 1996......................................................... 3,503,520 9.15
Granted.............................................................................. 3,807,544 6.50
Exercised............................................................................ (969,100) 2.08
Canceled............................................................................. (1,875,750) 9.28
Forfeited............................................................................ (67,188) 4.47
----------- -----
Outstanding at July 31, 1997......................................................... 4,399,026 $ 3.89
----------- -----
----------- -----
</TABLE>

At July 31, 1997, 2,235,646 stock options were exercisable at prices ranging
from $.41 to $10.00. The weighted average exercise price and remaining term of
such stock options was $2.41 and 8.3 years, respectively. The weighted average
fair value of an option granted during the year was $3.21 and $4.46 for the
years ended July 31, 1996 and 1997, respectively.

Pro forma information regarding net loss and net loss per share is required
by SFAS 123, and has been determined as if the Company had accounted for
employees' stock options under the fair value method

F-13
<PAGE>
IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. STOCKHOLDERS' EQUITY (CONTINUED)
provided by that statement. The fair value of the stock options was estimated at
the date of grant using the Black-Scholes option pricing model with the
following assumptions for vested and non-vested options.

<TABLE>
<CAPTION>
JULY 31
--------------------
<S> <C> <C>
ASSUMPTIONS 1996 1997
- ------------------------------------------------------------------------- --------- ---------
Risk-free interest rate.................................................. 6.05% 6.11%
Dividend yield........................................................... -- --
Volatility factor of the expected market price of the Company's common
stock.................................................................. 105% 89%
Estimated life........................................................... 6 years 6 years
</TABLE>

The Black Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the
options under SFAS 123 is amortized to expense over the options' vesting period.
For the years ended July 31, 1996 and 1997, pro forma net loss and pro forma net
loss per share under SFAS 123 amounted to approximately $18,106,932 and
$10,054,043, respectively, and $1.00 and $.48, respectively.

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 December 29, 1995, Surfers Unlimited, L.L.C. filed a breach of contract
action in the New Jersey Superior Court. The suit names a subsidiary of the
Company as defendant and seeks damages in an unspecified amount for interference
with prospective business advantages, breach of contract and improper use of
confidential and proprietary information. The Company has filed a counterclaim.
The suit is currently in the discovery phase and a trial is tentatively
scheduled for February 1998.

In January 1997, six former employees alleging employment discrimination
commenced a suit in New Jersey entitled INNELLA, ET AL V. IDT CORP., ET AL. The
suit claims that the Company has made hiring and promotion decisions based on
religious background. The case is in the very early stages of discovery.

In June 1997, an uncertified class-action suit was brought against IDT in
New York. The suit concerns advertisements no longer in use by IDT, and
advertising practices that were voluntarily terminated by the

F-14
<PAGE>
IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Company following a prior investigation by the Attorneys General of several
states. The case is in the preliminary stages of discovery.

In September 1997, DigiTEC 2000, Inc. ("DigiTEC") filed a complaint against
the Company alleging that in connection with its sale of prepaid calling cards,
the Company tortiously interfered with a business relationship between DigiTEC
and two codefendants, CG Com, Inc. and Carlos Gomez. DigiTEC has filed a motion
for a preliminary injunction that would bar the Company from selling its prepaid
calling cards through these co-defendants. The Court has not yet ruled upon
DigiTEC's motion and the case is currently in preliminary stages of discovery.

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.

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 moneys 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, 1995, 1996 and 1997, total licensing fees amounted to
$30,000, $1,098,000 and $234,000, respectively.

LEASES

The future minimum payments for capital and operating leases as of July 31,
1997 are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------------ ------------
<S> <C> <C>
1998.................................................................................. $ 2,216,000 $ 1,038,000
1999.................................................................................. 1,912,000 945,000
2000.................................................................................. 1,740,000 456,000
2001.................................................................................. 735,000 83,000
2002.................................................................................. 540,000 52,000
------------ ------------
Total payments........................................................................ 7,143,000 $ 2,574,000
------------ ------------
------------
Less amounts representing interest.................................................... (1,705,000)
Current portion....................................................................... (1,532,000)
------------
Capital lease obligations-long-term portion........................................... $ 3,906,000
------------
------------
</TABLE>

Rental expense under operating leases was approximately $30,000, $178,000
and $388,000 for the years ended July 31, 1995, 1996 and 1997, respectively.

F-15
<PAGE>
IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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, 1996 and 1997, the Company purchased approximately
$3,900,000 and $17,330,000, respectively, of such services from the Vendor.

The Company has entered into agreements with certain carriers to buy and
sell communications services. As of July 31, 1997, the Company has approximately
$30,000,000 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 total revenues. No customer accounted for more than 10% of
revenues during the year ended July 31, 1995 or 1997.

Revenues from customers outside the United States represented approximately
56%, 23% and 25% of total revenues during the years ended July 31, 1995, 1996
and 1997, respectively. No single geographic area accounted for more than 10% of
total revenues.

F-16
<PAGE>
IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. CUSTOMER, GEOGRAPHICAL AREA AND SEGMENT INFORMATION (CONTINUED)
Operating results and other financial data are presented for the principal
business segments of the Company for the years ended July 31, 1995, 1996 and
1997.

<TABLE>
<CAPTION>
INTERNET TELE-
ACCESS COMMUNICATIONS NET2PHONE TOTAL
--------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
($ IN THOUSANDS)
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

YEAR ENDED JULY 31, 1997
Revenues..................................................... $ 32,895 $ 99,937 $ 2,355 $ 135,187
Income (loss) from operations................................ (8,092) 5,707 (1,060) (3,445)
Depreciation and amortization................................ 3,562 1,128 183 4,873
Total assets................................................. 24,205 33,110 1,222 58,537
Capital expenditures......................................... 9,448 7,635 975 18,058
</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.

11. ADDITIONAL FINANCIAL INFORMATION

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

<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- ---------- ----------
Cash payments made for interest............................. $ -- $ 113,000 $ 863,000
Cash payments made for income taxes......................... 56,000 -- --
</TABLE>

Other current assets include advances to carriers of approximately
$1,499,000 and $1,982,000 at July 31, 1996 and 1997, respectively. Accounts
payable includes approximately $5,840,000 and 14,541,000 due to
telecommunication carries at July 31, 1996 and 1997, respectively.

F-17
<PAGE>
IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 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 which was paid.

13. ACQUISITIONS

In August 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 $280,300,
forgiveness of $428,800 owed to the Company from PCIX, and the assumption of
$95,400 of other PCIX liabilities. The promissory note is payable on August 16,
1998 and bears interest at 8.25% per annum.

In October 1996, the Company completed the acquisition of the assets of
International Computer Systems, Inc., a former alliance partner of the Company.
The acquisition price included cash payments totaling $2,250,000 and a $750,000
promissory note. Such promissory note is payable in 48 monthly installments
commencing on October 1, 1996 and bears interest at 10.00% per annum.

14. SUBSEQUENT EVENTS

CONVERTIBLE DEBENTURES

On September 5, 1997 the Company entered into a Securities Purchase
Agreement (the "Agreement") with a group of institutional investors (the
"Investors") pursuant to which the Investors purchased Convertible Debentures
totaling $7,500,000 (the "Debentures"). The Debentures carry an interest rate of
3.00% per annum.

The Debentures, including the principal amount and all unpaid accrued
interest, are convertible into the Company's Common stock at the option of the
Investors at a conversion price equal to the lower of $15.16 per share or the
lowest closing price on any one trading day during the twelve consecutive
trading day period preceding the date that notice of conversion is given to the
Company. Any principal amount or unpaid accrued interest outstanding on
September 5, 2000 will be automatically converted into shares of the Company's
Common stock.

F-18
<PAGE>
IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. SUBSEQUENT EVENTS (CONTINUED)
ACQUISITION OF ROCK ENTERPRISES, INC.

In September 1997, the Company agreed to purchase all of the issued and
outstanding stock of Rock Enterprises, Inc., a telecom engineering firm owned by
an employee of the Company, in exchange for shares of the Company's Common stock
valued at $5,000,000 to be issued over several years. A substantial portion of
the purchase price has been allocated to goodwill.

F-19
<PAGE>
IDT CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

(UNAUDITED)

<TABLE>
<CAPTION>
OCTOBER 31,
1997
---------------
<S> <C>
ASSETS
Current assets
Cash and cash equivalents...................................................................... $ 13,331,696
Accounts receivable (net)...................................................................... 24,504,349
Notes receivable............................................................................... 805,592
Other current assets........................................................................... 4,533,737
---------------
Total current assets............................................................................. 43,175,374

Property and equipment, net...................................................................... 29,785,870
Goodwill, net.................................................................................... 1,340,452
Other assets..................................................................................... 2,788,647
---------------
Total assets..................................................................................... $ 77,090,343
---------------
---------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable......................................................................... $ 23,516,890
Accrued expenses............................................................................... 175,258
Deferred revenue............................................................................... 1,749,636
Notes payable-current portion.................................................................. 2,067,126
Capital lease obligations-current portion...................................................... 1,926,106
Other current liabilities...................................................................... 537,083
---------------
Total current liabilities...................................................................... 29,972,099

Notes payable--long-term portion................................................................. 6,480,546
Capital lease obligation--long-term portion...................................................... 3,226,084
Convertible Debentures........................................................................... 7,500,000
---------------
Total liabilities................................................................................ 47,178,729

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; 12,084,832 shares issued and
outstanding. ................................................................................ 120,848
Class A stock, $.01 par value; authorized shares--35,000,000; 10,323,367 shares issued and
outstanding.................................................................................. 103,233
Additional paid-in capital..................................................................... 49,673,935
Accumulated deficit............................................................................ (19,986,402)
---------------
Total stockholders' equity..................................................................... 29,911,614
---------------
Total liabilities and stockholders' equity..................................................... $ 77,090,343
---------------
---------------
</TABLE>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

F-20
<PAGE>
IDT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 31,
------------------------------
<S> <C> <C>
1997 1996
----------- -----------
Revenues...................... $54,750,978 $28,317,671
Cost and expenses:
Direct cost of revenues..... 40,861,017 18,012,801
Selling, general, and
administrative............ 9,834,947 12,597,679
Depreciation................ 1,745,134 963,433
----------- -----------
TOTAL COSTS AND EXPENSES.... 52,441,098 31,573,913
----------- -----------
Income (loss) from
operations.................. 2,309,880 (3,256,242)
Interest and other, net....... (346,935) 149,599
----------- -----------
NET INCOME (LOSS)........... $ 1,962,945 $(3,106,643)
----------- -----------
----------- -----------
Net income (loss) per share... $ 0.08 $ (0.15)
----------- -----------
----------- -----------
Weighted average number of
shares used in calculation
of earnings per share....... 25,479,585 20,841,230
----------- -----------
----------- -----------
</TABLE>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

F-21
<PAGE>
IDT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 31,
--------------------------------
<S> <C> <C>
1997 1996
--------------- ---------------
Cash provided by (used in) operating activities................................. $ 33,291 $ (4,820,559)

INVESTING ACTIVITIES
Payment for purchase of Yovelle, net of cash acquired........................... -- 376,843
Proceeds from the sale of short-term investments................................ -- (757,108)
Payment for the purchase of ICS assets.......................................... -- (2,250,000)
Receipt of payment on advance................................................... -- 1,500,000
Purchase of property and equipment.............................................. (4,598,802) (4,122,656)
--------------- ---------------
Net cash used in investing activities........................................... (4,598,802) (5,252,921)

FINANCING ACTIVITIES
Proceeds from Convertible Debentures............................................ 7,500,000 --
Proceeds from notes payable..................................................... 810,247 4,750,000
Exercise of stock options....................................................... 2,689,525 --
Repayment of capital lease obligations.......................................... (261,818) (4,753)
Repayment of notes payable...................................................... (515,060) (374,286)
--------------- ---------------
Net cash provided by financing activities....................................... 10,222,894 4,370,961
--------------- ---------------
Net increase (decrease) in cash and cash equivalents............................ 5,657,383 (5,702,519)

Cash and cash equivalents at beginning of period................................ 7,674,313 14,893,756
--------------- ---------------
Cash and cash equivalents, end of period........................................ $ 13,331,696 $ 9,191,237
--------------- ---------------
--------------- ---------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid................................................................... $ 504,100 $ 48,410
Income taxes paid............................................................... -- --
</TABLE>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

F-22
<PAGE>
IDT CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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, 1997 are
not necessarily indicative of the results that may be expected for the year
ending July 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included elsewhere in this
Prospectus.

NOTE 2--PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
OCTOBER 31,
1997
---------------
<S> <C>
Equipment........................................................................................ $ 29,761,239
Computer software................................................................................ 5,182,397
Leasehold improvements........................................................................... 1,351,414
Furniture and fixtures........................................................................... 1,447,524
Property and improvements........................................................................ 112,569
---------------
37,855,143
Less: Accumulated depreciation and amortization.................................................. (8,069,273)
---------------
$ 29,785,870
---------------
---------------
</TABLE>

NOTE 3--LOANS PAYABLE, CAPITAL LEASE OBLIGATIONS AND CONVERTIBLE DEBENTURES.

During the three months ended October 31, 1997, the Company borrowed
approximately $810,000 with an interest bearing note collateralized by certain
equipment owned by the Company with a forty-eight month term.

The Company also entered into various capital lease arrangements during the
three months ended October 31, 1997 to acquire computer and communications
related equipment totaling approximately $1.1 million with terms ranging from
thirty-six months to sixty months and collaterized by the equipment.

During the three months ended October 31, 1997, the Company entered into a
Securities Purchase Agreement (the "Agreement") with a group of institutional
investors (the "Investors") pursuant to which the Investors purchased
Convertible Debentures totaling $7,500,000 (the "Debentures"). The Debentures
carry an interest rate of 3.00% per annum.

The Debentures, including the principal amount and all unpaid accrued
interest, are convertible into the Company's Common Stock at the option of the
Investors at a conversion price equal to the lower of $15.16 per share or the
lowest closing price on any one trading day during the twelve consecutive
trading day period preceding the date that notice of conversion is given to the
Company. Any principal amount or unpaid accrued interest outstanding on
September 5, 2000 will be automatically converted into shares of the Company's
Common Stock.

F-23
<PAGE>
IDT CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

NOTE 4--LEGAL PROCEEDINGS AND CONTINGENCIES

In June 1997, an uncertified class-action suit was brought against the
Company in New York. The suit concerns advertisements no longer in use by IDT,
and advertising practices that were voluntarily terminated by the Company
following a prior investigation by the Attorneys General of several states. The
case is in the preliminary stages of discovery.

In September 1997, DigiTEC 2000, Inc. ("DigiTEC") filed a complaint against
the company alleging that in connection with its sale of prepaid calling cards,
the Company tortiously interfered with a business relationship between DigiTEC
and two codefendants, CG Com, Inc. and Carlos Gomez. DigiTEC has filed a motion
for preliminary injunction that would bar the Company from selling its prepaid
calling cards through these co-defendants. The court denied DigiTEC's motion and
the case is currently in preliminary stages of discovery.

The Company filed a lawsuit against Mr. Glen Miller in August 1997 based
upon various matters arising out of Mr. Miller's employment with IDT. Mr. Miller
answered the complaint and filed a counterclaim against IDT for breach of his
employment contract and breach of the covenant of good faith and fair dealing.
Mr. Miller also filed a third-party complaint against Howard Balter, who is the
Chief Operating Officer of IDT, and Jonathan Rand, IDT's former Director of
Human Resources, for fraudulent conduct and misrepresentation.

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 assurances in this regard, in the opinion
of the Company's management, such proceedings, as well as the aforementioned
actions, will not have a material adverse effect on results of operations, cash
flows or the financial condition of the Company.

NOTE 5--SUBSEQUENT EVENTS

In November 1997, the Company finalized its purchase of all the issued and
outstanding stock of Rock Enterprises, Inc., a telecom engineering firm owned by
an employee of the Company, in exchange for 625,000 shares of the Company's
Common Stock, of which 312,500 shares were issued at closing. The remaining
shares will be issued over several years. The acquisition will be accounted for
using the purchase method of accounting for business combinations. The Company
expects that substantially all of the purchase price will be allocated to
goodwill.

F-24
<PAGE>
[LOGO]
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------

NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Information Regarding Forward-Looking
Statements................................... 2
Available Information.......................... 2
Prospectus Summary............................. 3
Risk Factors................................... 9
Use of Proceeds................................ 28
Price Range of Common Stock and Dividend
Policy....................................... 28
Capitalization................................. 29
Selected Consolidated Financial and Operating
Data......................................... 30
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 32
Business....................................... 42
Management..................................... 66
Principal and Selling Stockholders............. 69
Description of Capital Stock................... 71
Underwriting................................... 73
Legal Matters.................................. 74
Experts........................................ 74
Incorporation of Certain Documents by
Reference.................................... 74
Glossary of Terms.............................. 76
Index to Consolidated Financial Statements..... F-1
</TABLE>

4,200,000 SHARES

[LOGO]

COMMON STOCK

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

PROSPECTUS

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

BT ALEX. BROWN
HAMBRECHT & QUIST
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
JEFFERIES & COMPANY, INC.

, 1998

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee, NASD filing fee and Nasdaq listing fee.

<TABLE>
<S> <C>
SEC registration fee.............................................. $ 28,158
NASD filing fee................................................... 9,812
Nasdaq listing fee................................................ 17,500
Legal fees and expenses........................................... 400,000
Accounting fees and expenses...................................... 150,000
Printing expenses................................................. 200,000
Transfer agent fee................................................ 4,000
Miscellaneous..................................................... 40,530
---------

Total......................................................... 850,000
</TABLE>

ITEM 15. 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 16. EXHIBITS

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
1.01* Form of Underwriting Agreement.
4.01(1) Specimen Certificates for shares of the Registrant's Common Stock and Class A Stock.
4.02(2) Certificate of Incorporation of the Registrant.
5.01* Opinion of Morrison & Foerster LLP.
23.01* Consent of Ernst & Young LLP.
23.02 Consent of Morrison & Foerster LLP (included in exhibit 5.01).
23.03* Consent of Denis A. Bovin.
24.01 Power of Attorney (included on signature pages) (previously filed).
</TABLE>

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

*filed herewith

(1) incorporated by reference to Form S-1 filed March 8, 1996 file no. 333-00204

(2) incorporated by reference to Form S-1 filed February 21, 1996 file no.
333-00204

II-1
<PAGE>
ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes that:

(1) For the purposes of determining any liability under the Securities Act
of 1933, as amended (the "Securities Act"), the information omitted from the
form of prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared effective.

(2) 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.

(3) For purposes of determining any liability under the Securities Act, each
filing of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.

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-2
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Hackensack, State of New Jersey, on January 28,
1998.

IDT CORPORATION

BY: /S/ HOWARD S. JONAS
-----------------------------------------
Howard S. Jonas
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND
TREASURER

Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<S> <C> <C>

Chairman and Chief
/s/ HOWARD S. JONAS Executive Officer
- ---------------------------- (Principal Executive January 28, 1998
Howard S. Jonas Officer)

* President and Director
- ---------------------------- (Principal Executive January 28, 1998
James Courter Officer)

* Chief Operating Officer and
- ---------------------------- Director (Principal January 28, 1998
Howard S. Balter Financial Officer)

* Chief Financial Officer
- ---------------------------- (Principal Accounting January 28, 1998
Stephen R. Brown Officer)

* Director
- ---------------------------- January 28, 1998
Marc E. Knoller

* Director
- ---------------------------- January 28, 1998
Joyce J. Mason

Director
- ----------------------------
Meyer A. Berman

Director
- ----------------------------
J. Warren Blaker

Director
- ----------------------------
James Mellor

Director
- ----------------------------
Elmo R. Zumwalt

* Director
- ---------------------------- January 28, 1998
Hal Brecher

/s/ HOWARD S. JONAS
- ----------------------------
* By Howard S. Jonas, as Attorney-in-fact
</TABLE>

II-3

<PAGE>
Exhibit 1.01

4,200,000 Shares

IDT Corporation

Common Stock

(Par Value $.01 Per Share)

UNDERWRITING AGREEMENT

January __, 1998
BT Alex. Brown Incorporated
Hambrecht & Quist LLC
Friedman, Billings, Ramsey & Co., Inc.
Jefferies & Company, Inc.
As Representatives of the
Several Underwriters
c/o BT Alex. Brown Incorporated
One South Street
Baltimore, Maryland 21202

Dear Ladies and Gentlemen:

IDT Corporation, a Delaware corporation (the "Company"), and certain
stockholders of the Company (the "Selling Stockholders") propose to sell to
the several underwriters (the "Underwriters") named in Schedule I hereto, for
whom you are acting as representatives (the "Representatives"), an aggregate
of 4,200,000 shares of the Company's Common Stock, $.01 par value (the "Firm
Shares"), of which 4,000,000 shares will be sold by the Company and 200,000
shares will be sold by the Selling Stockholders. The respective amounts of
the Firm Shares to be so purchased by the several Underwriters are set forth
opposite their names in Schedule I hereto, and the respective amounts to be
sold by the Selling Stockholders are set forth opposite their names in
Schedule II hereto. The Company and the Selling Stockholders are sometimes
referred to herein collectively as the "Sellers." The Company also proposes
to sell at the Underwriters' option an aggregate of up to 615,000 additional
shares of the Company's Common Stock (the "Option Shares") as set forth below.

As the Representatives, you have advised the Company and the Selling
Stockholders (a) that you are authorized to enter into this Agreement on
behalf of the several Underwriters, and

-1-
<PAGE>

(b) that the several Underwriters are willing, acting severally and not jointly,
to purchase the numbers of Firm Shares set forth opposite their respective names
in Schedule I, plus their pro rata portion of the Option Shares if you elect to
exercise the over-allotment option in whole or in part for the accounts of the
several Underwriters. The Firm Shares and the Option Shares (to the extent the
aforementioned option is exercised) are herein collectively called the "Shares."

In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:

1. Representations and Warranties of the Company and the Selling
Stockholders.

(a) The Company represents and warrants to each of the
Underwriters as follows:

(i) A registration statement on Form S-3 (File No.
333-43501) with respect to the Shares has been carefully prepared by the
Company in conformity with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), and the Rules and Regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder and has been filed with the Commission. The Company has complied
with the conditions for the use of Form S-3 in connection with the
transactions contemplated by this Agreement. Copies of such registration
statement, including any amendments thereto, the preliminary prospectuses
(meeting the requirements of the Rules and Regulations) contained therein and
the exhibits, financial statements and schedules, as finally amended and
revised, have heretofore been delivered by the Company to you. Such
registration statement, together with any registration statement filed by the
Company pursuant to Rule 462 (b) of the Act, herein referred to as the
"Registration Statement," which shall be deemed to include all information
omitted therefrom in reliance upon Rule 430A and contained in the Prospectus
referred to below, has become effective under the Act and no post-effective
amendment to the Registration Statement has been filed as of the date of this
Agreement. "Prospectus" means (a) the form of prospectus first filed with
the Commission pursuant to Rule 424(b) or (b) the last preliminary prospectus
included in the Registration Statement filed prior to the time it becomes
effective or filed pursuant to Rule 424(a) under the Act that is delivered by
the Company to the Underwriters for delivery to purchasers of the Shares,
together with the term sheet or abbreviated term sheet, if any, filed with
the Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary
prospectus included in the Registration Statement prior to the time it
becomes effective is herein referred to as a "Preliminary Prospectus." Any
reference herein to the Registration Statement, any Preliminary Prospectus or
to the Prospectus shall be deemed to refer to and include any documents
incorporated by reference therein, and, in the case of any reference herein
to any Prospectus, also shall be deemed to include any documents incorporated
by reference therein, and any supplements or amendments thereto, filed with
the Commission after the date of filing of the Prospectus under Rules 424(b)
or 430A, and prior to the termination of the offering of the Shares by the
Underwriters (the "Offering").

-2-
<PAGE>

(ii) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own or lease its properties
and conduct its business as described in the Registration Statement. Each of
the subsidiaries of the Company listed in Exhibit A hereto (collectively, the
"Subsidiaries") has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement. Other than the Subsidiaries, the Company does not have any
"significant subsidiaries" (as such term is defined in Regulation S-X under
the Securities Act). The Company and each of the Subsidiaries are duly
qualified to transact business in all jurisdictions in which the conduct of
their business requires such qualification, except where the failure to be so
qualified would not have a material adverse effect upon the business,
financial condition or results of operations of the Company and the
Subsidiaries, taken as a whole. The outstanding shares of capital stock of
each of the Subsidiaries have been duly authorized and validly issued, are
fully paid and non-assessable and except to the extent set forth in Exhibit A
hereto, are owned by the Company or another Subsidiary free and clear of all
liens, encumbrances and equities and claims; and no options, warrants or
other rights to purchase, agreements or other obligations to issue or other
rights to convert any obligations into shares of capital stock or ownership
interests in the Subsidiaries are outstanding.

(iii) The outstanding shares of Common Stock of the
Company, including the shares to be sold by Mr. Ilan Slasky, have been duly
authorized and validly issued and are fully paid and non-assessable. The
shares to be sold by the remaining Selling Stockholders have been duly
authorized, and upon exercise of the related stock options on or prior to the
Closing Date in accordance with the relevant stock option agreements, will be
validly issued, fully paid and non-assessable. The Shares to be issued and
sold by the Company have been duly authorized and when issued and paid for as
contemplated herein will be validly issued, fully paid and non-assessable;
and no preemptive rights of stockholders exist with respect to any of the
Shares or the issue and sale thereof. Neither the filing of the Registration
Statement nor the offering or sale of the Shares as contemplated by this
Agreement gives rise to any rights, other than those which have been waived
or satisfied on or prior to the Closing Date referred to below, for or
relating to the registration of any shares of Common Stock.

(iv) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct. All of the Shares
conform to the description thereof contained in the Registration Statement.
The form of certificates for the Shares conforms to the corporate laws of
the State of Delaware.

(v) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed Offering of the
Shares nor instituted proceedings for that purpose. The Registration
Statement contains, and the Prospectus and any amendments or supplements
thereto will contain, all statements which are required to be stated therein
by, and will conform in all material respects, to the requirements of the Act
and the Rules and Regulations. The documents incorporated by reference in the
Prospectus, at the time filed

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<PAGE>

with the Commission conformed, in all material respects to the requirements
of the Securities Exchange Act of 1934, as amended (the "1934 Act"), or the
Securities Act, as applicable, and the rules and regulations of the
Commission thereunder. The Registration Statement and any amendment thereto
do not contain, and will not contain, any untrue statement of a material fact
and do not omit, and will not omit, to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Prospectus and
any amendments and supplements thereto do not contain, and will not contain,
any untrue statement of material fact; and do not omit, and will not omit, to
state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the Company makes no
representations or warranties as to information contained in or omitted from
the Registration Statement or the Prospectus, or any such amendment or
supplement, in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of any Underwriter through the
Representatives, specifically for use in the preparation thereof, including
the information set forth in the last paragraph on the cover page of the
Prospectus, the information set forth in the last two paragraphs on page 2 of
the Prospectus, and the information set forth in the Prospectus under the
caption "Underwriting."

(vi) The consolidated financial statements of the Company
and the Subsidiaries, together with the related notes and schedules as set
forth or incorporated by reference in the Registration Statement, present
fairly the financial position and the results of operations and cash flows of
the Company and its consolidated subsidiaries, at the indicated dates and for
the indicated periods. Such financial statements and related schedules have
been prepared in accordance with generally accepted principles of accounting,
consistently applied throughout the periods involved, except as disclosed
therein, and all adjustments necessary for a fair presentation of results for
such periods have been made. The summary financial and statistical data
included or incorporated by reference in the Registration Statement presents
fairly the information shown therein and such data has been compiled on a
basis consistent with the financial statements presented therein and/or the
books and records of the Company, as the case may be.

(vii) Ernst & Young LLP, who have certified certain of the
financial statements filed with the Commission as part of, or incorporated by
reference in, the Registration Statement, are independent public accountants
as required by the Act and the Rules and Regulations.

(viii) Except as set forth in the Registration Statement,
there is no action, suit, claim or proceeding pending or, to the knowledge of
the Company, threatened against the Company or any of the Subsidiaries before
any court or administrative agency or otherwise (a) which if determined
adversely to the Company or any of its Subsidiaries might result in any
material adverse change in the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise) or prospects
of the Company and of the Subsidiaries taken as a whole or (b) which
challenges or seeks to enjoin or to prevent the consummation of the
transactions contemplated hereby.

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<PAGE>

(ix) The Company and the Subsidiaries have good and
marketable title to all of the properties and assets reflected in the
financial statements (or as described in the Registration Statement)
hereinabove described, subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except those reflected in such financial statements
(or as described in the Registration Statement) or which are not material in
amount. The Company and the Subsidiaries occupy their leased properties
under valid and binding leases.

(x) The Company and the Subsidiaries have filed all
federal, state, local and foreign income tax returns which have been required
to be filed and have paid all taxes indicated by said returns and all
assessments received by them or any of them to the extent that such taxes
have become due. All tax liabilities, if any, have been adequately provided
in all material respects for in the financial statements of the Company.

(xi) Since the respective dates as of which information
is given in the Registration Statement, as it may be amended or supplemented,
there has not been any material adverse change or any development involving a
prospective material adverse change in or affecting the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise), or prospects of the Company and its Subsidiaries taken as a
whole, whether or not occurring in the ordinary course of business, and there
has not been any material transaction entered into or any material
transaction that is expected to be entered into by the Company or the
Subsidiaries, other than transactions in the ordinary course of business and
changes and transactions described in the Registration Statement, as it may
be amended or supplemented. The Company and the Subsidiaries have no
material contingent obligations which are not disclosed in the Company's
financial statements which are included in the Registration Statement.

(xii) Neither the Company nor any of the Subsidiaries is
or with the giving of notice or lapse of time or both, will be, in violation
of or in default under its Restated Certificate of Incorporation or By-Laws
or under any agreement, lease, contract, indenture or other instrument or
obligation to which it is a party or by which it, or any of its properties,
is bound and which default is of material significance in respect of the
business, management properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company and the Subsidiaries,
taken as a whole. The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated and the fulfillment of
the terms hereof will not conflict with or result in a breach of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust or other material agreement or instrument to which
the Company or any Subsidiary is a party, or of the Charter or By-Laws of the
Company or any order, rule or regulation applicable to the Company or any
Subsidiary of any court or of any regulatory body or administrative agency or
other governmental body having jurisdiction.

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<PAGE>

(xiii) Each approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative
or other governmental body necessary in connection with the execution and
delivery by the Company of this Agreement and the consummation of the
transactions herein contemplated (except such additional steps as may be
required by the Commission, the National Association of Securities Dealers,
Inc. (the "NASD"), if any, or such additional steps as may be necessary to
qualify the Shares for public offering by the Underwriters under state
securities or Blue Sky laws) has been obtained or made and is in full force
and effect, except where the failure to obtain such approval, consent, order,
authorization, designation, declaration or filing would not have a material
adverse effect upon the business, properties, assets, rights, operations or
condition (financial or otherwise) of the Company and the Subsidiaries, taken
as a whole.

(xiv) The Company and each of the Subsidiaries holds all
material licenses, certificates and permits from governmental authorities
which are necessary to the conduct of their businesses as presently
conducted; and neither the Company nor any of the Subsidiaries has infringed
any patents, patent rights, trade names, trademarks or copyrights, which
infringement is material to the business of the Company and the Subsidiaries
taken as a whole. The Company is not aware of any material infringement by
others of patents, patent rights, trade names, trademarks or copyrights owned
by or licensed to the Company.

(xv) Neither the Company, nor to the Company's best
knowledge, any of its affiliates, has taken or may take, directly or
indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of Common Stock to
facilitate the sale or resale of the Shares. The Company acknowledges that
the Underwriters may engage in passive market making transactions in the
Shares on The Nasdaq Stock Market in accordance with Rule 103 under
Regulation M of the Exchange Act.

(xvi) Neither the Company nor any Subsidiary is an
"investment company" within the meaning of such term under the Investment
Company Act of 1940, as amended (the "1940 Act") and the rules and
regulations of the Commission thereunder.

(xvii) The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access
to assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.

(xviii) The Company and each of its Subsidiaries carry, or
are covered by, insurance in such amounts and covering such risks as is
commercially reasonable for the conduct of their respective businesses and
the value of their respective properties.

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<PAGE>

(xix) The Company is in compliance in all material
respects with all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event" (as
defined in ERISA) has occurred with respect to any "pension plan" (as defined
in ERISA) for which the Company would have any liability; the Company has not
incurred and does not expect to incur liability under (i) Title IV of ERISA
with respect to termination of, or withdrawal from, any "pension plan" or
(ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the
"Code"); and each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the Code
is so qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such qualification.

(xx) The Company is in compliance in all material
respects with the provisions of Section S17.075 of the laws of the State of
Florida relating to the disclosure of business with Cuba.

(b) Each of the Selling Stockholders severally represents and
warrants as follows:

(i) Mr. Slasky now has, and upon exercise of the option
agreements at the Closing Date (as such date is hereinafter defined) all of
the Selling Stockholders will have, good and marketable title to the Firm
Shares to be sold by such Selling Stockholder, free and clear of any liens,
encumbrances, equities and claims, and full right, power and authority to
effect the sale and delivery of such Firm Shares; and upon the delivery of,
against payment for, such Firm Shares pursuant to this Agreement, the
Underwriters will acquire good and marketable title thereto, free and clear
of any liens, encumbrances, equities and claims.

(ii) Such Selling Stockholder has full right, power and
authority to execute and deliver this Agreement, the Power of Attorney and
the Custodian Agreement referred to below and to perform its obligations
under such agreements. The execution and delivery of this Agreement and the
consummation by such Selling Stockholder of the transactions herein
contemplated and the fulfillment by such Selling Stockholder of the terms
hereof will not require any consent, approval, authorization or other order
of any court, regulatory body, administrative agency or other governmental
body (except as may be required under the Securities Act, state securities
laws or Blue Sky laws or by the NASD) and will not result in a breach of any
indenture, mortgage, deed of trust or other agreement or instrument to which
such Selling Stockholder is a party, or of any order, rule or regulation
applicable to such Selling Stockholder of any court or of any regulatory body
or administrative agency or other governmental body having jurisdiction over
such Selling Stockholder.

(iii) Such Selling Stockholder has not taken and will not
take, directly or indirectly, any action designed to, or which has
constituted, or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Common Stock

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<PAGE>

of the Company and, other than as permitted by the Act, the Selling Stockholder
will not distribute any prospectus or other offering material in connection with
the offering of the Shares.

(iv) Without having undertaken to determine independently
the accuracy or completeness of either the representations and warranties of
the Company contained herein or the information contained in the Registration
Statement, such Selling Stockholder has no reason to believe that the
representations and warranties of the Company contained in this Section 1 are
not true and correct, is familiar with the Registration Statement and has no
knowledge of any material fact, condition or information not disclosed in the
Registration Statement which has adversely affected or may adversely affect
the business of the Company or any of the Subsidiaries (with the exception of
Mr. Blaker and Ms Mason, as to which no such representation or warranty is
made); and the sale of the Firm Shares by such Selling Stockholder pursuant
hereto is not prompted by any information concerning the Company or any of
the Subsidiaries which is not set forth in the Registration Statement or the
documents incorporated by reference therein. The information pertaining to
such Selling Stockholder under the caption "Principal and Selling
Stockholders" in the Prospectus is complete and accurate in all material
respects.

2. Purchase, Sale and Delivery of the Firm Shares and the Option Shares.

(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Sellers
agree to sell to the Underwriters and each Underwriter agrees, severally and not
jointly, to purchase, at a price of $_____ per share, the number of Firm Shares
set forth opposite the name of each Underwriter in Schedule I hereof, subject to
adjustments in accordance with Section 9 hereof. The number of Firm Shares to
be purchased by each Underwriter from each Seller shall be as nearly as
practicable in the same proportion to the total number of Firm Shares being sold
by each Seller as the number of Firm Shares being purchased by each Underwriter
bears to the total number of Firm Shares to be sold hereunder. The obligations
of the Company and of each of the Selling Stockholders shall be several and not
joint.

(b) Certificates in negotiable form or stock option agreements,
as the case may be, for the total number of the Shares to be sold hereunder by
the Selling Stockholders have been placed in custody with Shlomit Oz, the
Company's Assistant General Counsel, as custodian (the "Custodian") pursuant to
the Custodian Agreement executed by each Selling Stockholder for delivery of all
Firm Shares to be sold hereunder by the Selling Stockholders. Each of the
Selling Stockholders specifically agrees that the Firm Shares represented by the
certificates or option agreements held in custody for the Selling Stockholders
under the Custodian Agreement are subject to the interests of the Underwriters
hereunder, that the arrangements made by the Selling Stockholders for such
custody are to that extent irrevocable, and that the obligations of the Selling
Stockholders hereunder shall not be terminable by any act or deed of the Selling
Stockholders (or by any other person, firm or corporation including the Company,
the Custodian or the Underwriters) or by operation of law (including the death
of an individual Selling Stockholder) or by the occurrence of any other event or
events, except as

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<PAGE>

set forth in the Custodian Agreement. If any such event should occur prior to
the delivery to the Underwriters of the Firm Shares hereunder, certificates for
the Firm Shares shall be delivered by the Custodian in accordance with the terms
and conditions of this Agreement as if such event has not occurred. The
Custodian is authorized to receive and acknowledge receipt of the proceeds of
sale of the Shares held by it against delivery of such Shares.

(c) Payment for the Firm Shares to be sold hereunder is to be made in
same day funds via wire transfer of same-day funds to an account of the Company
for the shares to be sold by it and to the order of Shlomit Oz, "as Custodian"
for the shares to be sold by the Selling Stockholders, in each case against
delivery of certificates therefor to the Representatives for the several
accounts of the Underwriters. Such payment and delivery are to be made at the
offices of BT Alex. Brown Incorporated, 1 South Street, Baltimore, Maryland, at
10:00 a.m., Baltimore time, on the third business day after the date of this
Agreement or at such other time and date not later than five business days
thereafter as you and the Company shall agree upon, such time and date being
herein referred to as the "Closing Date." (As used herein, "business day" means
a day on which the New York Stock Exchange is open for trading and on which
banks in New York are open for business and not permitted by law or executive
order to be closed.) The certificates for the Firm Shares will be delivered in
such names and denominations as the Representatives request in writing not later
than the second full business day prior to the Closing Date, and will be made
available for inspection by the Representatives at least one business day prior
to the Closing Date.

(d) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company hereby grants an option to the several Underwriters to purchase the
Option Shares at the price per share as set forth in the first paragraph of this
Section 2. The option granted hereby may be exercised in whole or in part by
giving written notice (i) at any time before the Closing Date and (ii) only once
thereafter within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company, setting forth the
number of Option Shares as to which the several Underwriters are exercising the
option, the names and denominations in which the Option Shares are to be
registered and the time and date at which such certificates are to be delivered.
The time and date at which certificates for Option Shares are to be delivered
shall be determined by the Representatives, but shall not be earlier than three
nor later than 10 full business days after the exercise of such option, nor in
any event prior to the Closing Date (such time and date being herein referred to
as the "Option Closing Date"). If the date of exercise of the option is three
or more days before the Closing Date, the notice of exercise shall set the
Closing Date as the Option Closing Date. The number of Option Shares to be
purchased by each Underwriter shall be in the same proportion to the total
number of Option Shares being purchased as the number of Firm Shares being
purchased by such Underwriter bears to the total number of Firm Shares, adjusted
by you in such manner as to avoid fractional shares. The option with respect to
the Option Shares granted hereunder may be exercised only to cover
over-allotments in the sale of the Firm Shares by the Underwriters. You, as
Representatives of the several Underwriters, may cancel such option at any time
prior to its expiration by giving written notice of such cancellation to the

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<PAGE>

Company. To the extent, if any, that the option is exercised, payment for the
Option Shares shall be made on the Option Closing Date in same day funds via
wire transfer to an account of the Company against delivery of certificates
therefor at the offices of BT Alex. Brown Incorporated, 1 South Street,
Baltimore, Maryland.

(e) If on the Closing Date any Selling Stockholder fails to sell the
Firm Shares which such Selling Stockholder has agreed to sell on such date as
set forth in Schedule II hereto, the Company agrees that it will sell or arrange
for the issuance and sale of that number of shares of Common Stock to the
Underwriters which represents Firm Shares which such Selling Stockholder has
failed to so sell, as set forth in Schedule II hereto, or such lesser number as
may be requested in writing by the Representatives.

3. Offering by the Underwriters.

It is understood that the several Underwriters intend to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.

It is further understood that you will act as the Representatives for the
Underwriters in the offering and sale of the Shares in accordance with a Master
Agreement Among Underwriters entered into by you and the several other
Underwriters, a copy of which shall be furnished to the Company on or prior to
the Closing Date.

4. Covenants of the Company and the Selling Stockholders.

(a) The Company covenants and agrees with the several Underwriters
that:

(i) The Company will (A) use its best efforts to cause
the Registration Statement to become effective or, if the procedure in Rule
430A of the Rules and Regulations is followed, to prepare and timely file
with the Commission under Rule 424(b) of the Rules and Regulations a
Prospectus in a form approved by the Representatives (which such approval
shall not be unreasonably withheld) containing information previously omitted
at the time that the Registration Statement became effective in reliance on
Rule 430A of the Rules and Regulations and (B) not file any amendment to the
Registration Statement or supplement to the Prospectus or document
incorporated by reference therein of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations and (C) file on a timely basis all
reports and any definitive proxy or information statements required to be
filed by the Company with the Commission subsequent to the date of the
Prospectus and prior to the termination of the offering of the Shares by the
Underwriters.

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<PAGE>

(ii) The Company will advise the Representatives promptly (A)
when the Registration Statement or any post-effective amendment thereto shall
have become effective, (B) of receipt of any comments from the Commission, (C)
of any request of the Commission for amendment of the Registration Statement or
for any supplement to the Prospectus or for any additional information, and (D)
of the issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement or the use of the Prospectus or of the institution
of any proceedings for that purpose. The Company will use its best efforts to
prevent the issuance of any such stop order preventing or suspending the use of
the Prospectus and to obtain as soon as possible the lifting thereof, if issued.

(iii) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction in which it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports and other documents as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request in connection with the
distribution of the Shares.

(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Securities Act, as many copies of the
Prospectus in final form, or as thereafter amended or supplemented, as the
Representatives may reasonably request. The Company will deliver to the
Representatives at or before the Closing Date, four signed copies of the
Registration Statement and all amendments thereto, including all exhibits filed
therewith, and will deliver to the Representatives such number of copies of the
Registration Statement (including such number of copies of the exhibits filed
therewith that may reasonably be requested), including documents incorporated by
reference therein, and of all amendments thereto, as the Representative may
reasonably request.

(v) The Company will comply with the Securities Act and the
Rules and Regulations, and the 1934 Act, and the rules and regulations of the
Commission thereunder, so as to permit the completion of the distribution of the
Shares as contemplated in this Agreement and the Prospectus. If during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, any event shall occur as a result of which, in the
judgment of the Company or in the reasonable opinion of the Underwriters, it
becomes necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances existing at the time the
Prospectus is delivered to a purchaser, not misleading, or, if it is necessary
at any time to amend or supplement the Prospectus to comply with any law, the
Company promptly will either (i) prepare and file with the Commission an
appropriate amendment to the Registration Statement or supplement to the
Prospectus or (ii) prepare and file

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<PAGE>

with the Commission an appropriate filing under the 1934 Act which shall be
incorporated by reference in the Prospectus so that the Prospectus as so amended
or supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the
requirements of the Securities Act.

(vi) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the effective date of the Registration Statement, an earning
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earning statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will
advise you in writing when such statement has been so made available.

(vii) The Company will, for a period of five years from the
Closing Date, deliver to the Representatives copies of annual reports and copies
of all other documents, reports and information furnished by the Company to its
stockholders or filed with any securities exchange pursuant to the requirements
of such exchange or with the Commission pursuant to the Securities Act or the
1934 Act, as amended. The Company will deliver to the Representatives similar
reports with respect to the Company's significant subsidiaries, as that term is
defined in the Rules and Regulations, which are not consolidated in the
Company's financial statements.

(viii) No offering, sale, contract to sell or other
disposition of any shares of Common Stock of the Company or other securities
convertible into or exchangeable or exercisable for shares of Common Stock (or
agreement for such) will be made for a period of 90 days after the date of this
Agreement, directly or indirectly, by the Company otherwise than hereunder or
with the prior written consent of BT Alex. Brown Incorporated, except that the
Company (a) may issue shares of Common Stock upon the exercise or conversion of
other currently outstanding options, warrants and other convertible securities;
(b) may issue options to purchase shares of Common Stock to its directors,
officers and employees in connection with its existing stock option plans; and
(c) may issue shares of Common Stock or securities convertible into, or
exercisable for, shares of Common Stock pursuant to an acquisition transaction.

(ix) The Company will use its best efforts to effect the listing
of the Shares on The Nasdaq Stock Market ("Nasdaq").

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<PAGE>

(x) Each officer and director and certain Stockholders of the
Company has furnished to you, on or prior to the date of this agreement, a
letter or letters, in form and substance satisfactory to the Underwriters,
pursuant to which each such person shall agree not to offer, sell, contract to
sell or otherwise dispose of any shares of Common Stock of the Company or other
capital stock of the Company, or any other securities convertible, exchangeable
or exercisable for Common Shares or derivative of Common Shares owned by such
person or request the registration for the offer or sale of any of the foregoing
(or as to which such person has the right to direct the disposition of) for a
period of 90 days after the date of this Agreement, directly or indirectly,
except with the prior written consent of BT Alex. Brown Incorporated and except
that the foregoing restrictions shall not apply to a disposition (a) as a bona
fide gift; (b) pursuant to the laws of testamentary or interstate descent; or
(c) pursuant to a final nonappealable order of a court or other body of
competent jurisdiction ("Lockup Agreements").

(xi) The Company shall apply the net proceeds of its sale of the
Shares as set forth in the Prospectus .

(xii) The Company shall not invest, or otherwise use the
proceeds received by the Company from its sale of the Shares in such a manner as
would require the Company or any of the Subsidiaries to register as an
investment company under the 1940 Act.

(xiii) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
for the Common Stock.

(xiv) The Company will not take, directly or indirectly, any
action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any securities of the Company; provided, however, that the Company
shall not be deemed to have taken any action under this Section that is taken by
any of the Underwriters.

(b) Each of the Selling Stockholders covenants and agrees with the
several Underwriters that:

(i) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other capital stock of the Company or
other securities convertible, exchangeable or exercisable for Common Stock or
derivative of Common Stock owned by the Selling Stockholder or request the
registration for the offer or sale of any of the foregoing (or as to which the
Selling Stockholder has the right to direct the disposition of) will be made for
a period of 90 days after the date of this Agreement, directly or indirectly, by
such Selling Stockholder otherwise than hereunder or with the prior written
consent of BT Alex. Brown Incorporated.

(ii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal Responsibility
Act of 1982 and the Interest and Dividend Tax Compliance Act of 1983 with
respect to the transactions

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<PAGE>

herein contemplated, each of the Selling Stockholders agrees to deliver to you
prior to or at the Closing Date a properly completed and executed United States
Treasury Department Form W-9 (or other applicable form or statement specified by
Treasury Department regulations in lieu thereof).

(iii) Such Selling Stockholder will not take, directly or
indirectly, any action designed to cause or result in, or that has constituted
or might reasonably be expected to constitute, the stabilization or manipulation
of the price of any securities of the Company.

5. Costs and Expenses.

The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Sellers under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting
fees of the Company; the fees and disbursements of counsel for the Company and
the Selling Stockholders; the cost of printing and delivering to, or as
requested by, the Underwriters copies of the Registration Statement, Preliminary
Prospectuses, the Prospectus, this Agreement, the Underwriters' Selling
Memorandum and the Underwriters' Invitation Letter; the filing fees of the
Commission; the filing fee of the NASD terms of the sale of the Shares; the
Listing Fee of the Nasdaq Stock Market. To the extent, if at all, that any of
the Selling Stockholders engage special legal counsel to represent them in
connection with this offering, the fees and expenses of such counsel shall be
borne by such Selling Stockholder. Any transfer taxes imposed on the sale of
the Shares to the several Underwriters will be paid by the Sellers pro rata.
The Sellers shall not, however, be required to pay for any of the Underwriter's
expenses (other than those related to qualification under NASD regulation which
shall be borne by the Company) except that, if this Agreement shall not be
consummated because the conditions in Section 6 hereof are not satisfied by the
Company or by the Selling Stockholders, or because this Agreement is terminated
by the Representatives pursuant to Section 11 hereof, or by reason of any
failure, refusal or inability on the part of the Company or the Selling
Stockholders to perform any undertaking or satisfy any condition of this
Agreement or to comply with any of the terms hereof on their part to be
performed, unless such failure to satisfy said condition or to comply with said
terms be due to the default or omission of any Underwriter, then the Company
shall reimburse the several Underwriters for reasonable out-of-pocket expenses,
including fees and disbursements of counsel, reasonably incurred in connection
with investigating, marketing and proposing to market the Shares or in
contemplation of performing their obligations hereunder; but the Company and the
Selling Stockholders shall not in any event be liable to any of the several
Underwriters for damages on account of loss of anticipated profits from the sale
by them of the Shares.

6. Conditions of Obligations of the Underwriters.

The several obligations of the Underwriters to purchase the Firm Shares on
the Closing Date and the Option Shares, if any, on the Option Closing Date are
subject to the accuracy, as of the Closing Date or the Option Closing Date, as
the case may be, of the representations and warranties of the Company and the
Selling Stockholders contained herein, and to the

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<PAGE>

performance by the Company and the Selling Stockholders of their covenants and
obligations hereunder and to the following additional conditions:

(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any request
of the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or
threatened by the Commission and no injunction, restraining order, or order of
any nature by a federal or state court of competent jurisdiction shall have been
issued as of the Closing Date which would prevent the issuance of the Shares.

(b) The Representatives shall have received on the Closing Date
or the Option Closing Date, as the case may be, the opinion of Morrison &
Foerster LLP, counsel for the Company and the Selling Stockholders, dated the
Closing Date or the Option Closing Date, as the case may be, addressed to the
Underwriters (and stating that it may be relied upon by counsel to the
Underwriters) to the effect that:

(i) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
full corporate power and authority to conduct its business as described in the
Registration Statement; each of the Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and has full corporate power and authority to
conduct its business as described in the Registration Statement; the Company and
each of the Subsidiaries are duly qualified to transact business in all
jurisdictions in which the conduct of their business requires such
qualification, or in which the failure to qualify would have a materially
adverse effect upon the business of the Company and the Subsidiaries taken as a
whole; and the outstanding shares of capital stock of each of the Subsidiaries
have been duly authorized and validly issued and are fully paid and
non-assessable and (with the exception of the shares of common stock of
Net2Phone, Inc. that are owned by Mr. Clifford M. Sobel) are owned by the
Company or a Subsidiary; and, to the best of such counsel's knowledge, the
outstanding shares of capital stock of each of the Subsidiaries is owned free
and clear of all liens, encumbrances, equities and claims, and (with the
exception of the rights set forth in the Employment Agreement between the
Company and Mr. Clifford M. Sobel) no options, warrants or other rights to
purchase, agreements or other obligations to issue or other rights to convert
any obligations into any shares of capital stock or of ownership interests in
the Subsidiaries are outstanding.

(ii) The Company has authorized and outstanding capital stock as
set forth under the caption "Capitalization" in the Prospectus; the authorized
shares of the Company's Common Stock have been duly authorized; the outstanding
shares of the Company's Common Stock, including the Shares to be sold by the
Selling Stockholders, have been duly authorized and validly issued and are fully
paid and non-assessable. The form of certificate used

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<PAGE>

to evidence the Shares complies in all material respects with all applicable
requirements of the Delaware General Corporation Law. The shares of Common
Stock, including the Option Shares, if any, to be sold by the Company pursuant
to this Agreement have been duly authorized and, upon delivery to the
Underwriters against payment therefor in accordance with the terms of the
Underwriting Agreement, will be validly issued, fully paid and non-assessable;
and the issuance of the Shares by the Company is not subject to any preemptive
rights.

(iii) Except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, there are no outstanding
securities of the Company convertible or exchangeable into or evidencing the
right to purchase or subscribe for any shares of capital stock of the Company
and there are no outstanding or authorized options, warrants or rights of any
character obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such stock; and except as described in the
Prospectus, to the knowledge of such counsel, no holder of any securities of the
Company or any other person has the right, contractual or otherwise, which has
not been satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, any of the
Shares or the right to have any Common Shares or other securities of the Company
included in the Registration Statement or the right, as a result of the filing
of the Registration Statement, to require registration under the Act of any
shares of Common Stock or other securities of the Company.

(iv) The Registration Statement has become effective under the
Act, and such counsel is not aware of the issuance of any stop order suspending
the effectiveness thereof or the institution of any proceedings for that
purpose, pending or threatened under the Act.

(v) The Registration Statement and each amendment or supplement
thereto and each document incorporated by reference therein, as of the effective
date of the Registration Statement, complied as to form in all material respects
with the requirements of the Act or the Securities Exchange Act of 1934, as
applicable and the applicable rules and regulations thereunder (except that such
counsel need express no opinion as to the financial statements, supporting
schedules, footnotes and other financial and statistical information included or
incorporated by reference therein). The Company satisfied all of the conditions
for the use of Form S-3, set forth in the General Instructions thereto.

(vi) The statements under the caption "Description of Capital
Stock" in the Prospectus, insofar as such statements constitute a summary of the
Company's Restated Certificate of Incorporation or matters of law, fairly
summarize in all material respects the information called for with respect to
such documents and matters.

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<PAGE>

(vii) Such counsel does not know of any contracts or other
documents required to be filed as exhibits to or incorporated by reference in
the Registration Statement or described in the Registration Statement or the
Prospectus which are no so filed, incorporated by reference or described as
required, and such contracts and documents as are summarized in the Registration
Statement or the Prospectus are fairly summarized in all material respects.

(viii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company or any of the Subsidiaries
except as set forth in the Prospectus.

(ix) The execution and delivery of this Agreement and the
performance by the Company of its terms do not and will not violate or result in
a violation of the Company's Restated Certificate of Incorporation or By-Laws,
and, to our knowledge, will not constitute a material breach of the terms,
conditions or provisions of or constitute a default under any material contract,
undertaking, indenture or other agreement by which the Company or any of the
Subsidiaries is now bound or to which it is now a party.

(x) This Agreement has been duly authorized, executed and
delivered by the Company.

(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental authority is necessary in connection with the execution and
delivery of this Agreement, except such as have been obtained under the Act and
such as may be required by the NASD or as required by state securities and Blue
Sky laws as to which such counsel need express no opinion) except such as have
been obtained or made, specifying the same.

(xii) The Company is not, and will not become, as a result of
the consummation of the transactions contemplated by this Agreement, and
application of the net proceeds therefrom as described in the Prospectus, an
"investment company" within the meaning of the 1940 Act.

(xiii) This Agreement has been duly authorized, executed and
delivered by or on behalf of the Selling Stockholders.

(xiv) Each Selling Stockholder has full legal right, power
and authority, and any approval required by law (other than as required by the
NASD or by State securities and Blue Sky laws as to which such counsel need
express no opinion), to sell and deliver the portion of the Shares to be sold by
such Selling Stockholder.

(xv) The Custodian Agreement and the Power of Attorney executed
and delivered by each Selling Stockholder is valid and binding.

(xvi) The Underwriters (assuming that they are bona fide
purchasers within the meaning of the Uniform Commercial Code) have acquired good
and marketable title

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<PAGE>

to the Shares being sold by each Selling Stockholder on the Closing Date, and
the Option Closing Date, as the case may be, free and clear of all liens,
encumbrances, equities and claims.

In rendering such opinion Morrison & Foerster LLP may rely as to matters
governed by the laws of states other than New York, Delaware or federal laws on
local counsel in such jurisdictions, provided that in each case Morrison &
Foerster LLP shall state that they believe that they and the Underwriters are
justified in relying on such other counsel. In addition to the matters set
forth above, such opinion shall also include a statement to the effect that
nothing has come to the attention of such counsel which leads them to believe
that (i) the Registration Statement, at the time it became effective under the
Act (but after giving effect to any modifications incorporated therein pursuant
to Rule 430A under the Act) and as of the Closing Date or the Option Closing
Date, as the case may be, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that (ii) the Prospectus, at the
time it was filed with the Commission pursuant to the Rules and Regulations and
as of the Closing Date or the Option Closing Date, as the case may be, contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary therein to make the statements
therein, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, supporting schedules, footnotes and other financial or statistical
information contained therein). With respect to such statement, Morrison &
Foerster LLP may state that their belief is based upon the procedures set forth
therein, but is without independent check and verification.

(c) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinion of Swidler & Berlin,
Chartered, special regulatory counsel of the Company, dated the Closing Date or
the Option Closing Date, as the case may be, addressed to the Underwriters (and
stating that it may be relied upon by counsel to the Underwriters) to the effect
that the statements under the captions "Risk Factors--Government Regulatory
Policy Risks" and "Business--Regulation," insofar as such statements constitute
a summary of matters of law, fairly summarize in all material respects the
information called for with respect to such matters.

(d) The Representatives shall have received from Piper & Marbury
L.L.P., counsel for the Underwriters, an opinion dated the Closing Date or the
Option Closing Date, as the case may be, substantially to the effect specified
in subparagraphs (ii), (iii), (iv)[,] [and] (x) [and (xi)] of Paragraph (b) of
this Section 6, and that the Company is a duly organized and validly existing
corporation under the laws of the State of Delaware. In rendering such opinion,
Piper & Marbury L.L.P. may rely as to all matters governed other than by the
laws of the State of Maryland or Federal laws on the opinions of Morrison &
Foerster LLP and Swidler & Berlin, Chartered referred to in Paragraphs (b) and
(c), respectively, of this Section 6. In addition to the matters set forth
above, such opinion shall also include a statement to the effect that nothing
has come to the attention of such counsel which leads them to believe that (i)
the Registration Statement, or any amendment thereto, as of the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) as

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<PAGE>

of the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact, necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, schedules and statistical information therein). With respect to
such statement, Piper & Marbury L.L.P. may state that their belief is based upon
the procedures set forth therein, but is without independent check and
verification.

(e) You shall have received, on each of the dates hereof, the Closing
Date and the Option Closing Date, as the case may be, a letter dated the date
hereof, the Closing Date or the Option Closing Date, as the case may be, in form
and substance satisfactory to you, of Ernst & Young LLP confirming that they are
independent public accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder and stating that in their opinion the
financial statements and schedules examined by them and included in the
Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published Rules
and Regulations; and containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.

(f) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, a certificate or certificates of
the Chief Executive Officer and the Chief Financial Officer of the Company to
the effect that, as of the Closing Date or the Option Closing Date, as the case
may be, each of them severally represents as follows:

(i) The Registration Statement has become effective under
the Act and no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for such purpose have been taken
or are, to his knowledge, contemplated by the Commission;

(ii) The representations and warranties of the Company
contained in Section 1 hereof are true and correct as of the Closing Date or the
Option Closing Date, as the case may be;

(iii) All filings required to have been made pursuant to
Rules 424 or 430A under the Act have been made;

(iv) He or she has carefully examined the Registration
Statement and the Prospectus and, in his or her opinion, as of the effective
date of the Registration Statement, the statements contained in the Registration
Statement were true and correct, and such Registration Statement and Prospectus
did not omit to state a material fact

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<PAGE>

required to be stated therein or necessary in order to make the statements
therein not misleading, and since the effective date of the Registration
Statement, no event has occurred which should have been set forth in a
supplement to or an amendment of the Prospectus which has not been so set forth
in such supplement or amendment; and

(v) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been any
material adverse change or any development involving a prospective material
adverse change in or affecting the condition, financial or otherwise, of the
Company and its Subsidiaries taken as a whole or the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company and the Subsidiaries taken as a whole,
whether or not arising in the ordinary course of business.

(g) The Company and the Selling Stockholders shall have furnished to
the Representatives such further certificates and documents confirming the
representations and warranties, covenants and conditions contained herein and
related matters as the Representatives may reasonably have requested.

(h) The Firm Shares and Option Shares, if any, have been approved for
designation upon notice of issuance on the Nasdaq Stock Market.

(i) The Lockup Agreements described in Section 4 (j) are in full
force and effect.

The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects satisfactory to the Representatives and to Piper & Marbury L.L.P.,
counsel for the Underwriters.

If any of the conditions hereinabove provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Representatives by notifying the Company and the Selling Stockholders of such
termination in writing or by facsimile transmission (upon the confirmation of
error-free transmission) at or prior to the Closing Date or the Option Closing
Date, as the case may be.

In such event, the Selling Stockholders, the Company and the Underwriters
shall not be under any obligation to each other (except to the extent provided
in Sections 5 and 8 hereof).

7. Conditions of the Obligations of the Sellers.

The obligations of the Sellers to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.

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<PAGE>

8. Indemnification.

(a) The Company and the Selling Stockholders, jointly and
severally, agrees to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of the Act,
against any losses, claims, damages or liabilities to which such Underwriter
or any such controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto, or (ii) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; and will reimburse
each Underwriter and each such controlling person upon demand for any legal
or other expenses reasonably incurred by such Underwriter or such controlling
person in connection with investigating or defending any such loss, claim,
damage or liability, action or proceeding or in responding to a subpoena or
governmental inquiry related to the offering of the Shares, whether or not
such Underwriter or controlling person is a party to any action or
proceeding; provided, however, that the Company and the Selling Stockholders
will not be liable in any such case (i) to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement
or alleged untrue statement, or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof or (ii) to the extent that a
copy of the final Prospectus (as then amended or supplemented) was not sent
or given by or on behalf of any Underwriter to a party at or prior to the
written confirmation of the sale of Shares to such person and if the final
Prospectus, as so amended or supplemented, would have cured the defect giving
rise to such loss, claim, damage or liability. In no event, however, shall
the aggregate liability of any Selling Stockholder for indemnification under
this Section 8(a) exceed that proportion of the total of such losses, claims,
damages or liabilities indemnified against equal to the proportion of the
total Shares sold hereunder which is being sold by such Selling Stockholder.
This indemnity agreement will be in addition to any liability which the
Company or the Selling Stockholders may otherwise have.

(b) Each Underwriter severally and not jointly will indemnify and
hold harmless the Company, each of its directors, each of its officers who
have signed the Registration Statement, the Selling Stockholders, and each
person, if any, who controls the Company or the Selling Stockholders within
the meaning of the Act, against any losses, claims, damages or liabilities to
which the Company or any such director, officer, Selling Stockholder or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or (ii) the omission or the alleged omission to state
therein a material fact required to be stated

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<PAGE>

therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made; and will reimburse any
legal or other expenses reasonably incurred by the Company or any such
director, officer, Selling Stockholder or controlling person in connection
with investigating or defending any such loss, claim, damage, liability,
action or proceeding; provided, however, that each Underwriter will be liable
in each case to the extent, but only to the extent, that (i) such untrue
statement or alleged untrue statement or omission or alleged omission has
been made in the Registration Statement, any Preliminary Prospectus, the
Prospectus or such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by or through
the Representatives specifically for use in the preparation thereof or (ii)
to the extent that a copy of the final Prospectus (as then amended or
supplemented) was not sent or given by or on behalf of any Underwriter to a
party at or prior to the written confirmation of the sale of Shares to such
person and if the final Prospectus, as so amended or supplemented, would have
cured the defect giving rise to such loss, claim, damage or liability. This
indemnity agreement will be in addition to any liability which such
Underwriter may otherwise have.

(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) shall be available to any
party who shall fail to give notice as provided in this Section 8(c) if the
party to whom notice was not given was unaware of the proceeding to which
such notice would have related and was materially prejudiced by the failure
to give such notice, but the failure to give such notice shall not relieve
the indemnifying party or parties from any liability which it or they may
have to the indemnified party for contribution or otherwise than on account
of the provisions of Section 8(a) or (b). In case any such proceeding shall
be brought against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party and shall pay as
incurred the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel at its own expense. Notwithstanding the
foregoing, the indemnifying party shall pay as incurred (or within 30 days of
presentation) the fees and expenses of the counsel retained by the
indemnified party in the event (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel, (ii) the
named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate due
to an actual or potential conflict of interest between them or (iii) the
indemnifying party shall have failed to assume the defense and employ counsel
acceptable to the indemnified party within a reasonable period of time after
notice of commencement of the action. It is understood that the indemnifying
party shall not, in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the reasonable fees and expenses of more
than one separate firm for all such indemnified parties.

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<PAGE>

Such firm shall be designated in writing by you in the case of parties
indemnified pursuant to Section 8(a) and by the Company and the Selling
Stockholders in the case of parties indemnified pursuant to Section 8(b).
The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent; provided that if any
proceeding is settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified
party from and against any loss or liability by reason of such settlement or
judgment. In addition, the indemnifying party will not, without the prior
written consent of the indemnified party, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action or
proceeding of which indemnification may be sought hereunder (whether or not
any indemnified party is an actual or potential party to such claim, action
or proceeding) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising
out of such claim, action or proceeding.

(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Stockholders on the one hand and the Underwriters on
the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law then each indemnifying party shall contribute to such amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company and the Selling Stockholders on the one hand and the Underwriters on
the other in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities, (or actions or proceedings in
respect thereof), as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Selling Stockholders on
the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Stockholders bear to the
total underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Stockholders on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission.

The Company, the Selling Stockholders and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this Section
8(d) were determined by pro rata allocation (even if all of the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations
referred

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<PAGE>

to above in this Section 8(d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) referred to above in this Section 8(d)
shall be deemed to include any legal or other expenses reasonably incurred by
each indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this subsection (d), (i)
no Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter, (ii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation and (iii) no Selling Stockholder shall be required to
contribute any amount in excess of the lesser of (A) that proportion of the
total of such losses, claims, damages or liabilities indemnified or
contributed against equal to the proportion of the total Shares sold
hereunder which is being sold by such Selling Shareholder, or (B) the
proceeds received by such Selling Stockholder from the Underwriters in the
Offering. The Underwriters' obligations in this Section 8(d) to contribute
are several in proportion to their respective underwriting obligations and
are not joint.

(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment
thereto, each party against whom contribution may be sought under this
Section 8 hereby consents to the jurisdiction of any U.S. court having
jurisdiction over any other contributing party, agrees that process issuing
from such court may be served upon him or it by any other contributing party
and consents to the service of such process and agrees that any other
contributing party may join him or it as an additional defendant in any such
proceeding in which such other contributing party is a party.

(f) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under
this Section 8 shall be paid by the indemnifying party to the indemnified
party as such losses, claims, damages, liabilities or expenses are incurred.
The indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement
shall remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, or (iii) any termination of this Agreement. A successor
to any Underwriter, or to the Company, its directors or officers, or any
person controlling the Company, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this
Section 8.

9. Default by Underwriters.

If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company or a
Selling Stockholder), you, as Representatives of the Underwriters, shall use
your reasonable efforts to procure within 36 hours thereafter one or more of
the other Underwriters, or any others, to purchase from the Company and the
Selling Stockholders such amounts as may be agreed upon and upon the terms
set forth herein, the Firm Shares or Option Shares, as the case may be, which
the defaulting Underwriter or Underwriters failed to purchase. If during
such 36 hours you, as such Representatives, shall not have procured such
other Underwriters, or

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<PAGE>

any others, to purchase the Firm Shares or Option Shares, as the case may be,
agreed to be purchased by the defaulting Underwriter or Underwriters, then
(a) if the aggregate number of shares with respect to which such default
shall occur does not exceed 10% of the Firm Shares or Option Shares, as the
case may be, covered hereby, the other Underwriters shall be obligated,
severally, in proportion to the respective numbers of Firm Shares or Option
Shares, as the case may be, which they are obligated to purchase hereunder,
to purchase the Firm Shares or Option Shares, as the case may be, which such
defaulting Underwriter or Underwriters failed to purchase, or (b) if the
aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company and
the Selling Stockholders or you as the Representatives of the Underwriters
will have the right, by written notice given within the next 36-hour period
to the parties to this Agreement, to terminate this Agreement without
liability on the part of the non-defaulting Underwriters or of the Company or
of the Selling Stockholders except to the extent provided in Section 8
hereof. In the event of a default by any Underwriter or Underwriters, as set
forth in this Section 9, the Closing Date or Option Closing Date, as the case
may be, may be postponed for such period, not exceeding seven days, as you,
as Representatives, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. For purposes of this Agreement, the term
"Underwriter" includes any person substituted for a defaulting Underwriter.
Any action taken under this Section 9 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter
under this Agreement.

10. Notices.

All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied and
confirmed as follows: (i) if to the Underwriters, to BT Alex. Brown
Incorporated, 1 South Street, Baltimore, Maryland 21202 (tel: 410-727-1700;
fax: 410-895-4481), Attention: Scott Wieler; with a copy to BT Alex. Brown
Incorporated, 1 South Street, Baltimore, Maryland 21202. Attention: General
Counsel; (ii) if to the Company, to IDT Corporation, 190 Main Street,
Hackensack, New Jersey 07601, Attention: Howard S. Balter (tel: 201-928-4480;
fax: 201-907-5165); with a copy to Morrison & Foerster LLP, 1290 Avenue of
the Americas, New York, New York 10104, Attention: Ira A. Greenstein, Esq.
(tel: 212-468-8216; fax: 212-468-7900); and (iii) if to a Selling
Stockholder, to the attention of such Selling Stockholder, c/o IDT
Corporation, 190 Main Street, Hackensack, New Jersey 07601 (tel:
201-928-1000; fax: as provided by main operator); with a copy to Ira A.
Greenstein, as indicated above.

11. Termination.

This Agreement may be terminated by you by notice to the Sellers as
follows:

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<PAGE>

(a) at any time prior to the earlier of (i) the time the Shares
are released by you for sale by notice to the Underwriters, or (ii) 11:30
a.m. on the first business day following the date of this Agreement;

(b) at any time prior to the Closing Date if any of the following
has occurred: (i) since the respective dates as of which information is given
in the Registration Statement and the Prospectus, any material adverse change
or any development involving a prospective material adverse change in or
affecting the condition, financial or otherwise, of the Company and its
Subsidiaries taken as a whole or the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries taken as a whole, whether or
not arising in the ordinary course of business; (ii) any outbreak or
escalation of hostilities or declaration of war or national emergency or
other national or international calamity or crisis or change in economic or
political conditions if the effect of such outbreak, escalation, declaration,
emergency, calamity, crisis or change on the financial markets of the United
States would, in your reasonable judgment, make it impracticable to market
the Shares or to enforce contracts for the sale of the Shares; (iii) trading
generally shall have been suspended or materially limited on or by, as the
case may be, any of the New York Stock Exchange, the American Stock Exchange
or the NASD; (iv) the enactment, publication, decree or other promulgation of
any statute, regulation, rule or order of any court or other governmental
authority which in your opinion materially and adversely affects or may
materially and adversely affect the business or operations of the Company;
(v) declaration of a banking moratorium by United States or New York State
authorities; (vi) the suspension of trading of the Company's common stock on
Nasdaq or (vii) the taking of any action by any governmental body or agency
in respect of its monetary or fiscal affairs which in your reasonable opinion
has a material adverse effect on the securities markets in the United States;
or

12. Successors.

This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and the Selling Stockholders and their respective
successors, executors, administrators, heirs and assigns, and, with respect
to the indemnification and contribution obligations set forth in Section 8
hereof, the officers, directors and controlling persons referred to herein,
and no other person will have any right or obligation hereunder. No
purchaser of any of the Shares from any Underwriter shall be deemed a
successor or assign merely because of such purchase.

13. Information Provided by Underwriters.

The Company, the Selling Stockholders and the Underwriters acknowledge
and agree that the only information furnished or to be furnished by any
Underwriter to the Company for inclusion in any Prospectus or the
Registration Statement consists of the information set forth in the last
paragraph on the front cover page (insofar as such information relates to the

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<PAGE>

Underwriters), legends required by Item 502(d) of Regulation S-K under the
Act and the information under the caption "Underwriting" in the Prospectus.

14. Miscellaneous.

The reimbursement, indemnification and contribution agreements contained
in this Agreement and the representations, warranties and covenants in this
Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of
any Underwriter or controlling person thereof, or by or on behalf of the
Company or its directors or officers and (c) delivery of and payment for the
Shares under this Agreement.

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

This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Maryland.

If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company, the Selling
Stockholders and the several Underwriters in accordance with its terms.

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<PAGE>

Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Stockholder represents by so doing that he has been duly
appointed as Attorney-in-Fact by such Selling Stockholder pursuant to a
validly existing and binding Power of Attorney which authorizes such
Attorney-in-Fact to take such action.

Very truly yours,

IDT Corporation

By ________________________________
Name:
Title:

Selling Stockholders listed on Schedule II

By ________________________________
Attorney-in-Fact

The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.

BT ALEX. BROWN INCORPORATED
HAMBRECHT & QUIST LLC
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
JEFFERIES & COMPANY, INC.

As Representatives of the several
Underwriters listed on Schedule I

By: BT Alex. Brown Incorporated

By: __________________________________
Name:
Title:

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<PAGE>

SCHEDULE I

Schedule of Underwriters

Number of Firm
Underwriter Shares to be Purchased
- ----------- ----------------------

BT Alex. Brown Incorporated
Hambrecht & Quist LLC
Friedman, Billings, Ramsey & Co., Inc.
Jefferies & Company, Inc.

---------
Total 4,200,000

I-1

<PAGE>

SCHEDULE II
SCHEDULE OF SELLING SHAREHOLDERS

Number of Firm
Selling Shareholder Shares to be Sold
- ------------------- -----------------
Clifford M. Sobel 100,000
Howard S. Balter 68,000
Joyce J. Mason 10,000
Ilan M. Slasky 10,000
Stephen R. Brown 10,000
J. Warren Blaker 2,000
------

TOTAL 200,000

II-1

<PAGE>

EXHIBIT A

IDT CORPORATION

Significant Subsidiaries Percentage Ownership by IDT
- ------------------------ ---------------------------

IDT International Corp.
IDT America, Corp.
IDT Internet Services, Inc.
Rock Enterprises, Inc.
Media Response, Inc.
Yovelle Renaissance Corporation
Net2Phone, Inc.
IDT Global Limited (England)

II-2

<PAGE>
Exhibit 5.01

[LETTERHEAD OF MORRISON & FOERSTER LLP]

January 28, 1998

IDT Corporation
190 Main Street
Hackensack, New Jersey 07601
Re: Registration Statement on Form S-3 (File No. 333-43501)
Dear Ladies and Gentlemen:

At your request, we have examined the Registration Statement on Form S-3
filed by IDT Corporation, a Delaware corporation (the "Company"), with the
Securities and Exchange Commission on December 30, 1997 (Registration No.
333-43501), Amendment No. 1 thereto filed on January 6, 1998, and Amendment No.
2 thereto filed on January 28, 1998 (the "Registration Statement"), relating to
the registration under the Securities Act of 1933, as amended, of 4,815,000
shares of the Company's common stock, par value $.01 per share (the "Stock"),
including up to 4,615,000 authorized but unissued shares being offered by the
Company and up to 200,000 shares being offered by certain selling stockholders
(the "Selling Stockholders"). The Stock is to be sold to the underwriters named
in the Registration Statement for resale to the public.

As counsel to the Company, we have examined the proceedings taken and
proposed to be taken by the Company in connection with the proposed issuance and
sale by the Company of the Stock. We have also examined the proceedings taken
and proposed to be taken by the Company in connection with the sale of Stock by
the Selling Stockholders.

We are of the opinion that (a) the shares of Stock to be offered and sold by
the Company have been duly authorized and, when issued and sold by the Company
in the manner described in the Registration Statement and in accordance with the
resolutions proposed to be adopted by the Board of Directors of the Company,
will be validly issued, fully paid and nonassessable, (b) the outstanding shares
of Stock to be offered and sold by certain Selling Stockholders have been duly
authorized and are validly issued, fully paid and nonassessable, and (c) the
shares issuable upon the exercise of stock options by certain Selling
Stockholders, when issued upon payment of the applicable exercise prices and in
accordance with the applicable stock option agreements, will be validly issued,
fully paid and nonassessable.

We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the reference to our firm set forth under the
caption "Legal Matters" in the Registration Statement, the prospectus
constituting a part thereof and any amendments thereto.

Very truly yours,
/s/ Morrison & Foerster LLP
Morrison & Foerster LLP

<PAGE>
Exhibit 23.01

CONSENT OF INDEPENDENT AUDITORS

We consent to the references to our firm under the captions "Selected
Consolidated Financial and Operating Data" and "Experts" and to the use of our
report dated September 25, 1997, in Amendment No. 2 to Registration Statement
No. 333-43501 on Form S-3 and related Prospectus of IDT Corporation for the
registration of 4,815,000 shares of its common stock.

/s/ Ernst & Young LLP
ERNST & YOUNG LLP

New York, New York
January 23, 1998

<PAGE>

EXHIBIT 23.03

CONSENT

The undersigned consents to the inclusion in the Registration Statement on
Form S-3 of IDT Corporation (the "Company") and the prospectus constituting a
part thereof of current biographical information regarding the undersigned and
to the information regarding the undersigned set forth under the caption
"Management."

/S/ DENIS A. BOVIN
Denis A. Bovin

Dated: January 6, 1998