Filed Pursuant to Rule 424(b)(4)
                                                      Registration No. 333-77395
 
                                 370,899 Shares
 
                                IDT Corporation
 
                                  Common Stock
 
                               ----------------
 
 
   This prospectus relates to the offer and sale of up to 370,899 shares of
common stock from time to time by David Turock and Richard Robbins,
stockholders of IDT Corporation.
 
   The common stock is listed on the Nasdaq National Market under the symbol
"IDTC." On April 27, 1999, the last reported sales price as reported by the
Nasdaq National Market was $28.25 per share.
 
   Investing in the common stock involves a high degree of risk. Consider
carefully the "Risk Factors" beginning on page 2.
 
                               ----------------
 
   Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
 
                               ----------------
 
 
 
                  The date of this prospectus is May 12, 1999

 
                               TABLE OF CONTENTS
 


                                                                           Page
                                                                           ----
                                                                        
The Company...............................................................   2
Risk Factors..............................................................   2
  Our revenues and profits will not increase if we are unable to continue
   to expand our telecommunications business..............................   2
  We will not be profitable if we do not manage our expanding operations
   effectively............................................................   2
  Our expenses will increase substantially if we expand our network at a
   rate that is faster or slower than the growth of our telecommunications
   traffic................................................................   2
  Our operations would be impaired if we are unable to obtain the products
   and services of the telecommunications and Internet companies that we
   are dependent upon.....................................................   3
  Our revenues and our growth will suffer if our sales representatives and
   retailers fail to effectively market and distribute our products
   and services...........................................................   5
  We may be vulnerable to technical malfunctions which could hinder our
   provision of services..................................................   5
  Network failures could prevent us from providing our services and could
   cause us to lose customers.............................................   6
  Our operations could be interrupted by the failure to resolve Year 2000
   problems...............................................................   6
  Our revenues will not grow if demand for our services in new markets is
   less than we expect....................................................   7
  Rapid technological change and frequent new product introductions in our
   markets could render our products and services obsolete................   7
  The growth of our international operations may be limited if we cannot
   effectively manage our international operations .......................   8
  Our revenues will be impaired if we experience difficulties in
   collecting our receivables.............................................   9
  Our profitability will be reduced if we become the victim of fraud or
   theft of services......................................................   9
  Competition in our core business could substantially reduce our revenues
   and our profits........................................................  10
  We will not be profitable if we do not receive attractive rates from
   other carriers for our long distance traffic...........................  12
  Privatization and deregulation of foreign markets may increase
   competition for telecommunications services............................  13
  Federal, state, and international government regulation may reduce our
   ability to provide services, or make our business less profitable......  13
  The infringement or duplication of our proprietary technology could
   increase our competition...............................................  16
  We could incur substantial costs in defending or pursuing any claims
   relating to proprietary rights.........................................  17
  Our network may be subject to disruptions through unauthorized use......  17
  We may be subject to liability for information disseminated over our
   Internet network.......................................................  17
  We may not be able to grow our operations in the future if we cannot
   raise enough capital...................................................  18
  We may suffer losses in the future, which could reduce the trading price
   of our stock...........................................................  19
  Our business may be less profitable, and less capable of growing, as a
   result of our substantial indebtedness.................................  19


 


                                                                           Page
                                                                           ----
                                                                        
  Our operations may be limited by restrictive covenants contained in the
   indenture or our proposed bank credit facility.........................  19
  If we are unable to attract and retain qualified management and
   technical personnel, we may not remain profitable......................  20
  We are controlled by our principal stockholder, which limits the ability
   of other stockholders to affect the management of our company..........  20
  Our stock price may be volatile, which could reduce the value of an
   investment in our shares...............................................  20
  Shares of common stock that will be available for resale in the future
   may increase the number of shares on the public market, causing our
   stock price to decline.................................................  20
  Anti-takeover provisions affecting us could prevent or delay a change of
   control or could adversely affect the market price of our common
   stock..................................................................  21
Recent Developments.......................................................  22
Use of Proceeds...........................................................  22
Selling Stockholders......................................................  23
Plan of Distribution......................................................  24
Legal Matters.............................................................  24
Experts...................................................................  25
Where You Can Find More Information.......................................  25
Incorporation of Documents by Reference...................................  25
Information Regarding Forward-Looking Statements..........................  26

 
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                                       2

 
                                  THE COMPANY
 
   IDT Corporation 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.
 
   Our predecessor corporation, International Discount Telecommunications,
Corp., was incorporated in New York in 1990, and we reincorporated in Delaware
in December 1995. Our principal executive offices are located at 190 Main
Street, Hackensack, New Jersey, 07601, and our telephone number is (201) 928-
1000.
 
                                  RISK FACTORS
 
Our revenues and profits will not increase if we are unable to continue to
expand our telecommunications business.
 
   We have expanded the geographic scope of our operations and substantially
increased our revenues since fiscal 1996. Our purchases of property and
equipment increased from $1.3 million in fiscal 1995, to $41.3 million in
fiscal 1998, to $23.6 million for the first half of fiscal 1999. Similarly, in
connection with our efforts to expand our customer base, our selling, general
and administrative expenses increased from $6.0 million in fiscal 1995, to
$62.0 million in fiscal 1998, to $40.8 million for the first half of fiscal
1999. We will not be able to substantially increase our revenues or our profits
if we do not continue to expand our telecommunications network, services,
customer bases or markets. Our ability to continue to expand may be affected by
many factors, including regulation of the telecommunications industry in the
U.S. and in other countries, competition from other companies and technological
developments.
 
We will not be profitable if we do not manage our expanding operations
effectively.
 
   As we increase our service offerings and expand our target markets, we will
need to further expand our network and infrastructure, upgrade our financial
and information systems and controls and hire additional sales, marketing and
technical personnel, as well as additional qualified administrative and
management personnel. Furthermore, our growth may place additional demands on
our management team, customer service support, sales, marketing and
administrative resources. If we are unable to effectively manage our expanding
operations, our revenues will not increase, our costs of operations will rise,
and we may not be profitable.
 
Our expenses will increase substantially if we expand our network at a rate
that is faster or slower than the growth of our telecommunications traffic.
 
   Since fiscal 1995, part of our strategy has been to make large capital
expenditures to expand our network, and we intend to do so in the future. This
strategy differs from our earlier strategy of leasing transmission capacity on
the networks of other carriers. This strategy may not be successful if the
expansion of our network increases more rapidly than the increase in our
network traffic, or, on the other hand, if this expansion does not keep up with
the growth of our network traffic. In either case, our profitability will
suffer because our cost of revenues will become a much larger portion of our
revenues.
 
                                       2

 
   As we expand our network, the cost of our revenues will increasingly consist
of fixed costs arising from the ownership and maintenance of our switches and
other equipment. We believe that in the long-term, these investments will allow
us to reduce our cost of service and to enhance our service offerings; however,
in the short-term, these investments will increase our costs, and may result in
smaller profits. In addition, the fixed nature of these costs is also expected
to lead to larger fluctuations in our gross margins, depending on the minutes
of traffic that we generate. If our traffic volume decreases, or fails to
increase to the extent that is needed to make efficient use of our network, our
costs as a percentage of revenues would increase significantly, which would
adversely affect our profitability.
 
   On the other hand, our network may not expand rapidly enough to transmit all
of the traffic of our customers. International and long distance
telecommunications equipment, including undersea fiber optic cables, typically
take several years to plan and construct. Like other carriers, we generally
make investments based upon a forecast of anticipated traffic. As a result, we
may not adequately anticipate the amount of traffic that our network will be
required to carry, and may not obtain enough network equipment to ensure the
cost-effective transmission of customer traffic.
 
Our operations would be impaired if we are unable to obtain the products and
services of the telecommunications and Internet companies that we are dependent
upon.
 
  Telecom companies
 
   We depend on other carriers for many of our services. As a result, our
services may be disrupted, or may become less profitable, if any of these
carriers cease to provide the services that they are currently providing to us
on the terms that are currently effective, including the pricing terms. We
generally do not have long-term contracts with these carriers. These carriers
are not restricted from competing against us. We are currently dependent upon
MCI WorldCom Inc., which is our primary provider of leased network capacity and
data communications facilities, and from whom we lease physical space for
switches, modems and other equipment. If MCI WorldCom becomes unwilling to
provide its current level of service to us in the future, we may have to pay
additional costs to obtain service from other providers.
 
   In September 1998, we entered into a long-term agreement with Frontier
Communications of the West, Inc. to obtain dedicated circuit capacity over
Frontier's network. This agreement provides us with additional facilities that
we believe will enable us to expand the range and reliability of our data and
voice transmission services. However, our services may be interrupted if
Frontier at any time fails to satisfy its obligations under this agreement.
 
   Our ability to compete in the long distance telecommunications market
depends, in part, on our ability to procure advantageous rates from other
domestic and foreign carriers, and on the ability of these parties to carry the
calls we route to their networks. If our relationship with any of our key
carriers is terminated, or if any of these carriers becomes unable to carry
traffic routed to it, and we are required to route the traffic to another
carrier providing service at a less advantageous rate or with
 
                                       3

 
lesser quality, our profit margins or network service quality may be reduced. A
reduction of our service quality could result in a loss of customers.
 
   We are also dependent upon established local service providers new
competitors to these companies and MCI WorldCom to provide telecommunications
services to our customers. Although alternative leased data communications
services are currently available from several alternative suppliers, including
AT&T and Sprint, we may be unable to obtain substitute services from other
suppliers at reasonable or comparable terms and prices or on a timely basis.
 
   We route international telephone calls using the networks of third parties
that operate or that may plan to operate in countries in which local laws or
regulations limit their ability to provide basic international service in
competition with state-owned or state-sanctioned monopoly carriers. We have no
control over the manner in which these companies operate in these countries.
Future regulatory, judicial, legislative or political considerations may not
permit these companies to offer to residents of these countries their services.
In addition, foreign telecommunications regulators or third parties may raise
issues regarding the compliance of these companies with local laws or
regulations. These regulatory, judicial, legislative or political decisions
could limit the ability of these companies to route calls to or from our
network. If these companies become unable to provide the services which they
presently provide to us or may provide in the future due to their inability to
obtain or retain the required governmental approvals or for any other reason
related to regulatory compliance, we may need to obtain similar services from
other carriers for higher prices.
 
 Developers of fiber optic cables
 
   We do not control the planning or construction of undersea fiber optic
transmission facilities. As a result, we must seek access to these facilities
through partial ownership positions. If ownership positions are not available,
we must seek access to these facilities through lease arrangements on
negotiated terms that may vary with industry and market conditions. We may not
be able to continue to obtain sufficient transmission facilities or access to
undersea fiber optic cables on favorable terms. If this occurs, our costs of
delivering international traffic may increase substantially.
 
 Suppliers of telecommunications equipment
 
   We are dependent upon our suppliers of equipment and hardware components,
including Sun Microsystems, Inc., Cisco Systems, Inc., Nortel Networks Inc.,
Excel Switching Corp. and Ascend Communications, Inc. If any of these suppliers
fail to deliver quality services or products on a timely basis, and if we are
unable to develop alternative sources as required, delays could develop which
would limit our ability to provide service to our customers or to expand our
operations.
 
 Suppliers of Internet access
 
   We also depend on other Internet service providers to provide Internet
access to our customers in areas not served by our Internet network. If a
significant number of the networks operated by these companies suffer
operational problems or failure, fail to serve new accounts, or are unable to
expand to satisfy our customer demand, we could lose customers and we will be
unable to expand our Internet access business.
 
                                       4

 
 Suppliers of browser software
 
   We are currently dependent on software licensed from Netscape Communications
Corporation and Microsoft Corporation for the front-end software of our
Internet access services. We use and reproduce Netscape and Microsoft software
products, and distribute these products to distributors and end users together
with our own software. If there are any operating difficulties in connection
with the licensed software, customers may be deterred from using our Internet
access services, which could substantially reduce our revenues from our
Internet business.
 
Our revenues and our growth will suffer if our sales representatives and
retailers fail to effectively market and distribute our products and services.
 
 Independent sales representatives
 
   We are dependent upon our independent sales representatives, particularly
for the sales of our international long distance telecommunications services in
key foreign markets, such as Germany, South Africa, Columbia, Argentina and
Zimbabwe. Most of our independent sales representatives are located in foreign
jurisdictions and also sell services or products of other companies. As a
result, we cannot control whether these sales representatives will devote
sufficient efforts to selling our services. In addition, we may not succeed in
finding capable sales representatives in new markets which we may enter in the
future. If any of our significant sales representatives fails to effectively
market or distribute our products and services, our ability to generate
revenues could be substantially impaired, and our customer base will not grow.
 
 Primary distributor of prepaid calling cards
 
   We are currently dependent upon Union Telecard Alliance, LLC, a joint
venture company formed with Mr. Carlos Gomez, for the sale of a substantial
portion of our prepaid calling cards. We own 51% of the outstanding equity
interests in this company through an agreement which we entered into with Union
Telecard and Mr. Gomez during the fourth quarter of fiscal 1998. The joint
venture may be terminated under several circumstances described in the
agreement, including a material breach of the agreement by either party, the
insolvency of either IDT or Mr. Gomez or the occurrence of a bona fide dispute
between the parties with respect to a material matter occurring during the
first two years of operation of the company. In the event of a bona fide
dispute, our ownership interests in Union Telecard could be transferred to Mr.
Gomez for all or a portion of our purchase price. We can provide no assurance
that we will continue to effectively distribute these cards if Union Telecard
does not distribute them effectively, or if the agreement is terminated by
either party.
 
We may be vulnerable to technical malfunctions which could hinder our provision
of services.
 
   We are dependent upon management information systems and switching equipment
to provide services to our customers, manage our network, collect billing
information and perform other vital
 
                                       5

 
functions. These systems and equipment are subject to hardware defects and
software bugs which may be beyond our control. If we experience substantial
technical difficulties with our hardware or software, we may not succeed in
routing traffic effectively, or in billing customers accurately, which could
reduce our profitability.
 
Network failures could prevent us from providing our services and could cause
us to lose customers.
 
   Our success depends largely on our ability to deliver low-cost,
uninterrupted international and domestic long distance telephone services. Any
system or network failure that interrupts our operations could prevent us from
providing some or all of our services. At times, for example, our call
reorigination switching equipment has experienced failures which temporarily
prevented customers from using these services. Since our operations depend on
our ability to successfully expand our network and to integrate new
technologies and equipment into our network, there is an increased risk of
system failure as well as a natural strain on the system. Our operations also
depend on our ability to protect our hardware and other equipment from damage
or interruption from natural disasters or other sources of power loss,
telecommunications failures or similar occurrences. Significant or lengthy
telephone network failures, or difficulties for customers in completing long
distance telephone calls could damage our reputation and result in the loss of
customers. These kinds of damage and losses could prevent us from obtaining new
subscribers and customers, and substantially reduce our revenues.
 
   The success of our Internet-related business depends on our ability to
deliver high-quality, uninterrupted access to the Internet. In the past, we
experienced failures relating to individual Internet servers, and our
subscribers experienced difficulties in accessing and maintaining their
connection to the Internet. Significant or lengthy system failures or
difficulties for subscribers in accessing and maintaining connection with the
Internet could damage our reputation and result in the loss of subscribers,
which could reduce our customer base and our revenues.
 
Our operations could be interrupted by the failure to resolve Year 2000
problems.
 
   Many computer systems and software products are coded to understand only
dates that have two digits for the relevant year. These systems and products
need upgrading to accept four-digit entries in order to distinguish 21st
century dates from 20th century dates. Without upgrading, many computer
applications could fail or create erroneous results beginning in the year 2000.
This could result in a major system failure or miscalculations. The lack of a
timely resolution to Year 2000 problems could substantially impair our ability
to:
 
  .route our customers' phone calls in a cost-effective manner;
 
  .process transactions;
 
  .deliver a substantial portion of our services;
 
  .properly obtain payment for our services; and
 
  .maintain accurate records of our business and operations.
 
   We may also become liable for substantial damages in the event that, as a
result of the Year 2000 problems, we fail to deliver any services that we have
contracted to provide.
 
                                       6

 
   We are conducting an external review of our customers and suppliers, and
other third parties with whom we do business, including equipment and systems
providers and other telecommunications service providers, to determine their
vulnerability to Year 2000 problems and any potential impact on our business.
In particular, we may experience problems with other telecommunications
carriers whose services are resold by us or to which we send traffic for
termination who are not Year 2000 compliant. We are limited in our ability to
determine the ability of these third parties to address issues relating to Year
2000 problem. If a limited number of carriers experience disruptions in service
due to Year 2000 problems, we believe that we will be able to obtain service
from alternate carriers. However, our ability to provide long distance services
to customers in some locations may be limited, which would reduce our revenues,
and damage the reputation of the quality of the service that we provide.
 
Our revenues will not grow if demand for our services in new markets is less
than we expect.
 
 Prepaid calling cards
 
   Although we have substantial market presence in the prepaid calling card
business, especially with regard to international calls, the market for prepaid
calling cards is a new and emerging business with a large number of market
entrants. Because this market is new, it is impossible to accurately determine
what the demand will be for our products and services in this area. Substantial
markets may not continue to develop for prepaid calling cards, and we may not
be able to sustain or increase our sales of these products and services.
 
 Internet telephony
 
   In August 1996, we began offering Net2Phone, the first commercial telephone
service to connect calls between multimedia PCs and telephones over the
Internet, and in October 1997, we introduced Net2Phone Direct, a service that
allows for phone-to-phone calling over the Internet. Although these services
enable users to benefit from substantially reduced long distance rates, demand
for these services in the future may not increase. We cannot be certain that
Internet telephony will gain market acceptance or prove to be a viable
alternative to traditional telephone service. Notwithstanding the potential
cost savings, many customers that have already invested substantial resources
in integrating traditional telephone service with their operations may be
particularly reluctant or slow to adopt a new technology that makes their
existing equipment obsolete. If the Internet telephony market fails to develop
or develops more slowly than we expect then our future revenues may not
increase substantially.
 
Rapid technological change and frequent new product introductions in our
markets could render our products and services obsolete.
 
   The markets for our products and services experience rapid technological
change, frequent new product introductions and evolving industry standards. For
example, during the past several years, we have needed to substantially upgrade
our telecommunications network to use more sophisticated equipment with greater
bandwidth and reliability. Rapid technological change and new product
introduction could render one or more of our products or services obsolete or
place us at a competitive disadvantage. Accordingly, we believe that our
success depends upon our ability to
 
                                       7

 
anticipate changes in consumer preferences, develop and market products and
services that use new technologies and enhance and expand our existing product
lines and services to keep pace with competing products. We will need to spend
significant amounts of capital to develop, market and enhance our products and
services to meet and take advantage of technological changes.
 
   Fundamental changes in the technologies for telecommunications, Internet
access and content, and Internet telephony services expose us to substantial
risks. For example, although our Internet access services are currently
accessed mainly 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 telephony services, we will need to
develop new technology or modify our existing technology to accommodate these
developments. Our pursuit of these advances may require substantial time and
expense, and we cannot provide any assurance that we will succeed in adapting
our businesses to alternate access devices or other technological developments.
 
The growth of our international operations may be limited if we cannot
effectively manage our international operations.
 
   In Fiscal 1996, 1997, 1998, and the six months ended January 31, 1999,
international customers accounted for approximately 23%, 25%, 11% and 10% of
our total revenues, respectively. We expect that revenues from international
customers will continue to account for a significant percentage of our total
revenues. In addition, part of our growth strategy is to continue to install a
switching infrastructure in foreign countries. However, we will not be able to
increase our revenues and profits from our international operations if we have
difficulties in managing our international operations. Our ability to manage
our international operations may be limited by a number of factors, including:
 
  . unexpected changes in legal and regulatory requirements;
 
  . changes in tariffs, exchange rates and other barriers;
 
  . political and economic instability;
 
  . difficulties in collecting accounts receivable;
 
  . difficulties in staffing and managing international operations;
 
  . difficulties in maintaining and repairing equipment abroad;
 
  . difficulties in protecting our intellectual property overseas; and
 
  . potentially adverse tax consequences.
 
   In addition, although our sales have generally been denominated in U.S.
dollars, some of our recent contracts are denominated in foreign currencies,
and the value of the U.S. dollar in relation to foreign currencies may also
adversely affect our sales to international customers as well as the cost of
purchasing, installing and maintaining equipment abroad. If we expand our
international operations or begin to price our services in foreign currencies,
we will be exposed to increased risks of currency fluctuation if we do not
successfully manage the risks that arise from the fluctuating value of these
currencies.
 
                                       8

 
   We are subject to the Foreign Corrupt Practices Act, which generally
prohibits U.S. companies from bribing foreign officials for the purpose of
obtaining or maintaining commercial opportunities. We may be exposed to
liability under this statute as a result of past or future actions taken
without our knowledge by agents, strategic partners and other third parties.
Any liability imposed under this statute could require us to pay substantial
amounts of damages.
 
Our revenues will be impaired if we experience difficulties in collecting our
receivables.
 
   As a wholesale provider of international long distance services, we depend
upon traffic from other long distance providers, and the collection of
receivables from these customers. If we experience difficulties in the
collection of our accounts receivable from our major customers, our revenues
may be substantially reduced. While our most significant customers vary from
quarter to quarter, our five largest customers accounted for 20.8% of revenues
in fiscal 1997, 26.2% of revenues in fiscal 1998 and 10.8% for the six months
ended January 31, 1999. This concentration of revenues increases the risk of
non-payment by customers, and we may experience significant writeoffs related
to the provision of wholesale carrier services if any of our large customers
fail to pay their outstanding balances.
 
   Historically, we have experienced losses from uncollectable receivables in
our Internet access and call reorigination businesses. These businesses are
characterized by a large number of retail customers, each of which generates
relatively small receivables. As a result, the collection costs associated with
delinquent receivables from these customers are high relative to the receivable
balances.
 
   In addition, we expend considerable resources to collect receivables from
customers who fail to make timely payments. We continually seek to minimize bad
debt, and at times require collateral to support accounts receivable from
customers that we believe pose a particular credit risk; however, our
experience indicates that a portion of past due receivables will never be
collected and that the existence of bad debt is a necessary cost of conducting
our business. As of January 31, 1998, we had reserved approximately $6.4
million for receivables that were expected to be uncollectible. Our bad debt
expense could rise significantly above historical or anticipated levels. Any
significant increase in bad debt levels could substantially reduce our
profitability.
 
Our profitability will be reduced if we become the victim of fraud or theft of
services.
 
   The telecommunications and Internet access industries have historically
incurred losses due to fraud. Unauthorized transactions or theft of our
services could reduce our profitability substantially. Although we have
implemented anti-fraud measures in order to control losses relating to
fraudulent practices, we may not succeed in effectively controlling fraud when
operating in the international or domestic telecommunications markets. From
time to time, callers have obtained services without rendering payment by
unlawfully using our access numbers and identification codes. We attempt to
manage these theft and fraud risks through our internal controls and our
monitoring and blocking systems. We believe that our risk management practices
are adequate, and to date we have not experienced material losses from fraud or
theft. However, our risk management practices may not be sufficient to protect
us in the future from unauthorized transactions or thefts of services.
 
                                       9

 
Competition in our core businesses could substantially reduce our revenues and
our profits.
 
 Telecommunications
 
   Many of our competitors are significantly larger and have substantially
greater market presence as well as greater financial, technical, operational,
marketing and other resources and experience. Increased competition could force
us to reduce our prices and profit margins, and may reduce our market share.
Our competitors may be able to procure rates or enter into service agreements
that are comparable to or better than ours, and may be able to offer other
incentives to existing and potential customers. Currently, we compete in the
market for long distance and international telecommunications with:
 
  . long distance carriers, which carry network traffic between local
    exchanges, and other long distance resellers and providers, including
    AT&T, Sprint and MCI WorldCom;
 
  . foreign primary providers of significant international transmission
    facilities (often, the national telephone company of a country);
 
  . other providers of international long distance services, including STAR
    Telecommunications, Inc., Pacific Gateway Exchange, Inc., RSL
    Communications Ltd. and Telegroup, Inc.;
 
  . alliances that provide wholesale carrier services, including 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.);
 
  . new entrants to the domestic long distance market, including the regional
    bell operating companies in the U.S., who have entered or have announced
    plans to enter the U.S. interstate long distance market; and
 
  . small long distance resellers.
 
   With respect to prepaid calling cards, we compete with many of the largest
telecommunications providers, including AT&T, MCI WorldCom and Sprint. These
companies are substantially larger and have greater financial, technical,
engineering, personnel and marketing resources, longer operating histories,
greater name recognition and larger customer bases than we do. We also compete
with smaller, emerging carriers in the prepaid calling card market, including
PT-1 Communications, Inc., RSL Communications, SmarTalk Teleservices, Inc.,
Pacific Gateway Exchange, Inc., FaciliCom International, LLC and Telegroup,
Inc. If we begin providing services to customers outside the U.S. market, we
may compete with large foreign operators, including British Telecommunications
plc in the U.K. We believe that additional competitors will be attracted to the
prepaid card market (including Internet-based service providers and other
telecommunications companies). Competition from existing or new competitors or
a decrease in the rates charged for telecommunications services by the major
long distance carriers or other competitors would substantially reduce our
revenues from the sale of these cards.
 
   Deregulation in foreign countries 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 some
of
 
                                       10

 
our services including calling cards or our international call reorigination
services. If any foreign telephone company with a dominant position in its home
country succeeds in competing on the basis of greater size and resources,
pricing flexibility or long-standing relationships with customers in its own
country our ability to increase our customer base may be significantly limited.
 
 Internet access
 
   Our current and expected competitors in the Internet access market include
many large companies that have substantially greater market presence, as well
as greater financial, technical, operational, marketing, resources and
experience. Our Internet access business competes or expects to compete with
the following types of companies:
 
  . other national and regional commercial Internet service providers,
    including NETCOM On-Line Communication Services, Inc., which was acquired
    by ICG Communications, Inc. in January 1998, Verio Inc., UUNet WorldCom,
    GTE Internetworking (formerly BBN Corporation) PSINet Inc., Concentric
    Network Corporation and DIGEX, Inc.;
 
  . established on-line services companies that offer Internet access,
    including AOL, CompuServe and Prodigy;
 
  . computer software and other technology companies, including Microsoft;
 
  . national long distance telecommunications carriers, including AT&T, MCI
    WorldCom and Sprint;
 
  . regional bell operating companies;
 
  . cable television operators, including Comcast Corporation, TCI
    International, Inc. and Time Warner; and
 
  . newly-licensed providers of spectrum-based wireless data services.
 
   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, we believe 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. These or other competitors may be able
to bundle services and products that are not offered by us together with
Internet access services, which could place us at a significant competitive
disadvantage. In addition, some of the telecommunications companies that
compete with us may be able to provide customers with lower communications
costs or other incentives with their Internet access services, reducing the
overall cost of their Internet access services and significantly increasing
price pressures on us. This price competition could significantly reduce the
prices of our services and our revenues.
 
   In addition, increased competition for new subscribers could result in
increased sales and marketing expenses and related subscriber acquisition
costs, which could adversely affect our profitability. We may not be able to
offset the effects of any of our competitors' price reductions or incentives
with an increase in the number of our customers, higher revenue from enhanced
services, cost reductions or otherwise.
 
                                       11

 
 Internet telephony
 
   The market for Internet telephony services is expected to be extremely
competitive. An increasing number of large, well-capitalized companies are
entering the market for Internet telephony products and services. As a result,
we may not be able to compete effectively with our competitors in this market,
or to increase our customer base.
 
   Our competitors include a number of companies that have introduced services
that make Internet telephony solutions available to businesses and consumers.
In addition to Net2Phone, Delta Three (a subsidiary of RSL), ITXC Corp. and
OzEmail Limited, which was recently acquired by MCI WorldCom, provide a range
of Internet telephony services to consumers and businesses. These companies may
offer both PC-to-phone services, and phone-to-phone services that are similar
to the ones that we offer. Several companies, including industry leaders,
including AT&T and Qwest, have announced their intention to offer these
services on a wider basis in both the U.S. and internationally.
 
   In addition, we compete in the market for Internet telephony services with
companies that produce software and other computer equipment that may be
installed on a user's computer to permit voice communications over the
Internet. Current Internet telephony products include VocalTec Communications,
Ltd.'s Internet Phone, QuarterDeck Corporation's WebPhone and Microsoft's
NetMeeting. In addition, a number of large companies, including Cisco Systems,
Inc., Lucent Technologies, Inc., Northern Telecom Limited and Dialogic Corp.
offer or plan to offer server-based Internet telephony products. These products
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. In addition,
major long distance providers, including AT&T, Bell Atlantic Corporation and
Deutsche Telekom AG, as well as other major companies, including Motorola,
Inc., Intel Corporation and Netscape Communications Corporation, have all
entered or plan to enter the Internet telephony market, in some cases by
investing in companies engaged in the development of Internet telephony
products.
 
We will not be profitable if we do not receive attractive rates from other
carriers for our long distance traffic.
 
   Our telecommunications business will not be profitable if we do not receive
attractive rates from other carriers for the traffic that we route. Our costs
of routing domestic and international long distance traffic may increase if the
volume of minutes that we carry on our network decreases, because our ability
to obtain favorable rates and tariffs from suppliers depends, to a significant
extent, on our total volume of long distance traffic. We may not succeed in
maintaining the volume of international and domestic long distance traffic
necessary to obtain favorable rates and tariffs.
 
   In addition, our ability to market our long distance resale services depends
upon the existence of spreads between the rates offered by us and the rates
offered by the carriers with which we compete, as well as the carriers from
which we obtain service. A decrease in these spreads could substantially reduce
our profitability.
 
                                       12

 
Privatization and deregulation of foreign markets may increase competition for
telecommunications services.
 
   Many of the foreign markets in which we currently market long distance
telephone services are undergoing dramatic changes as a result of privatization
and deregulation. While we expect that deregulation will create new
opportunities for us, the increase in competition that is expected to result
from deregulation could limit our ability to increase our customer base in
these countries. For example, the European Union has mandated competitive
markets for the European telecommunications industry and the various European
countries are at different stages of opening their telecommunications markets.
As a result of privatization and deregulation, a greater number of potential
competitors is likely to emerge in these markets. A new competitive environment
is emerging in which major European telephone companies, media companies and
utilities are entering the telecommunications market and forming new alliances
which are radically changing the landscape for domestic and international
telephone services. Changes in the foreign marketplace and new strategic
alliances among companies with greater resources may adversely affect our
ability to continue our efforts to increase our overseas telecommunications
customer base and our traffic volume, and to recover the cost of building our
international telecommunications infrastructure.
 
Federal, state, and international government regulation may reduce our ability
to provide services, or make our business less profitable.
 
   As a multinational enterprise, we are subject to varying degrees of
regulation by state, federal and foreign regulators. These laws are subject to
frequent modification and different interpretations, and therefore, it is
difficult for us to assess the impact of these factors on our operations. The
implementation, modification, interpretation and enforcement of these laws and
regulations vary and can limit our ability to provide many of our services.
 
   Our ability to compete in the long distance telecommunications, Internet,
and Internet telephony markets depends, in part, upon favorable regulatory
conditions and the favorable interpretations of existing laws. The current
domestic and international trend is toward deregulation of telecommunications
and Internet services. This trend has enabled us to compete in new domestic and
international markets. Notwithstanding this trend, several countries, including
the United States, are considering proposals that may regulate or impose
additional costs upon services that we offer or plan to offer.
 
 Changes in federal regulations may permit regional bell operating companies to
 compete against us.
 
   We compete with companies, including the regional bell operating companies,
that are also subject to government regulation. Existing regulations may
restrict these companies from fully competing with us in the market for
interstate long distance telecommunications services. If U.S. federal statutes
and regulations are amended to permit these companies to fully compete with us
in this market, our revenues from these services could be reduced if these
companies are able to acquire a substantial portion of our customers.
 
                                       13

 
 We may become subject to increased costs of operations due to uncertainty
 over the amount of payphone surcharges.
 
   Federal regulation of the telecommunications industry may also impact our
ability to sell prepaid calling cards. The Telecommunications Act of 1996
requires carriers, including our company, to pay the owners of payphones when
a payphone is used to make a telephone call using a prepaid calling card. If
these charges are increased, our margins from our prepaid calling card
business could be adversely affected. Alternatively, if these charges are
passed on to the users of the cards, demand for these services could be
substantially reduced. Since September 1996, the FCC has attempted to set the
rate of compensation that must be paid, but these charges have been
successfully challenged twice in federal court. The current charge imposed by
the FCC, $.24 per call, is likely to be challenged in federal court by
companies that operate payphones, as well as by carriers.
 
 European regulation of telecommunications services may not continue to evolve
 towards increased competition and streamlined regulation.
 
   The European Union, as well as national European governments, have been
generally deregulating many of the major European markets for
telecommunications services so as to permit increased competition. In
addition, the European Union has attempted to harmonize the regulation of
telecommunications companies across its member states. As a result of these
developments, we have been able to enhance our market presence in a number of
European countries.
 
   Changes to existing regulations of the European Union or its member states
may decrease the opportunities that are available for us to enter into those
markets, or may increase our legal, administrative or operational costs, or
may constrain our activities in other ways that we cannot necessarily
anticipate. Any of these developments could impair our efforts to develop our
European operations.
 
 Telecommunications regulations of other countries may restrict our
 operations.
 
   We are subject to the regulatory regimes in each of the countries in which
we conduct business. Local regulations range from permissive to restrictive,
depending upon the country. In the past, we have experienced problems in
certain countries and have from time to time modified or terminated our
services to comply with local regulatory requirements. In the future, changes
to statutes or regulations may inhibit or restrict the types of
telecommunications services we can offer.
 
 Government regulation of Internet access may increase our costs of
 operations.
 
   Internet service providers are generally considered "enhanced service
providers" in the U.S. and are exempt from U.S. federal and state regulations
governing common carriers. Accordingly, our provision of Internet access
services is currently exempt from tariffing, certification requirements and
rate regulation. Nevertheless, regulations governing disclosure of
confidential communications, copyright, excise tax and other requirements may
apply to our provision of Internet access services. State, federal or foreign
governments may impose additional regulation on our Internet business, which
could substantially increase the costs of our Internet operations, or limit
the nature of our Internet operations.
 
                                      14

 
   In December 1996, the FCC initiated a Notice of Inquiry regarding whether to
impose regulations or surcharges upon providers of Internet access. The Notice
of Inquiry, and several ongoing FCC proceedings, seek public comment as to
whether to impose or to continue to forebear from regulation of Internet and
other packet-switched network service providers. In addition, on April 10,
1998, the FCC issued a Report to Congress on its implementation of the
universal service provisions of the Telecommunications Act. In that Report, the
FCC indicated that it would reexamine its policy of not requiring an Internet
service provider to contribute to the FCC's universal service funds when the
Internet service provider provides its own transmission facilities and engages
in data transport over those facilities in order to provide an information
service. Any contributions of this kind would be related to the Internet
service provider's provision of telecommunications services itself. We can not
predict the outcome of any future proceedings that may impact our provision of
Internet access or that may impose additional requirements, regulations or
charges upon our provision of Internet access services.
 
 We may become subject to Internet access charges.
 
   Moreover, we use the networks of local carriers to connect our Internet
customers to our network. Under current federal and state regulations, neither
we nor our Internet customers pay charges for using these networks in this
manner, other than the monthly service charges that apply to basic telephone
service. A number of local carriers have asked the FCC to change its rules and
require Internet service providers to pay additional charges for their use of
local networks, which would significantly increase our costs of doing business.
The FCC previously determined that it would not impose interstate access
charges on Internet service providers. However, the FCC is currently conducting
and planning proceedings in which it is exploring the impact of the Internet on
the public switched network and may decide to impose additional charges on
Internet service providers. We can provide no assurance that the FCC will
continue to permit Internet service providers to use basic telecommunications
services without imposing any additional charges.
 
 Government regulation may impair the growth of our revenues from Internet
 telephony.
 
   To our knowledge, there are currently no domestic and few foreign laws or
regulations that prohibit voice communications over the Internet. If Congress,
the FCC, state regulatory agencies or foreign governments impose substantial
regulations relating to Internet telephony, the growth of our Internet
telephony business could be adversely affected. 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 telephony services, and could initiate proceedings to do
so. A number of countries that currently prohibit competition in the provision
of voice telephony have also prohibited Internet telephony. Other countries
permit but regulate Internet telephony.
 
   Currently, the FCC is considering whether or not to impose surcharges or
additional regulations upon providers of Internet telephony services. These
charges could substantially reduce the pricing advantage that Internet
telephony has with respect to traditional telephony, and could dramatically
reduce the demand for these services. These changes could substantially reduce
our revenues from Internet telephony.
 
 
                                       15

 
   On April 10, 1998, the FCC issued its Report to Congress concerning its
implementation of the universal service provisions of the Telecommunications
Act. In the Report, the FCC indicated that it would examine the question of
whether any forms of "phone-to-phone" Internet Protocol telephony are
information services or telecommunications services. It noted that the FCC did
not have, as of the date of the Report, an adequate record on which to make any
definitive pronouncements, but that the record before it suggested that some
forms of phone-to-phone Internet telephony appear to have the same
functionality as non-Internet Protocol telecommunications services.
 
   If the FCC determines that any forms of Internet telephony services are
subject to FCC regulations as telecommunications services, the FCC noted that
it may require Internet service providers to make universal service
contributions, pay access charges or to be subject to traditional common
carrier regulation. In addition, a February 1999 ruling by the FCC, relating to
charges paid between different types of local carriers, also suggested that the
FCC may being to regulate Internet telephony providers as traditional
telecommunications companies. Any of these developments could be expected to
substantially impair the growth of our revenues from Internet telephony.
 
The infringement or duplication of our proprietary technology could increase
our competition.
 
   We could suffer from additional competition, and our profitability could
suffer, if third parties infringe upon our intellectual property rights, and
misappropriate our technologies and our trademarks for their own businesses. We
rely on patent, copyright, trademark and trade secret laws and the
confidentiality provisions of our contracts with third parties to establish and
protect our technology. We do not currently own any issued patents or
registered copyrights, although we own a number of registered service marks
relating to our business and have applied for other trademarks. We have a
policy that requires our employees and consultants to execute confidentiality
and technology ownership agreements when they begin their relationships with
us.
 
   The steps taken by us may not be adequate to protect our trade secrets, and
to prevent misappropriation of our technology or other proprietary rights. Our
competitors may independently develop technologies that are substantially
equivalent or superior to our technology. Our trademark applications may not be
allowed and the issuance of any registration does not mean that a third party
may not have superior rights to the registered mark, or to a mark that is
confusingly similar to the registered mark. Any licenses for any intellectual
property that might be required for our services or products may not be
available on reasonable terms.
 
   We have applied for a patent relating to the systems and methodology
underlying our Internet telephony systems. This patent application has been
rejected, but we are continuing to prosecute it, as permitted by applicable
law. The existence of prior publications and other patent applications may
further limit the likelihood that we will obtain this patent. This application
may not result in any patent being issued and, if issued, this patent may not
provide adequate protection against competitive technology and may not be held
valid and enforceable if challenged. Other parties may assert rights as
inventors of the underlying technologies, which could limit our ability to
fully exploit the rights conferred by any patent that we receive. Our
competitors may be able to design around any patent that we receive, and other
parties may obtain patents that we would need to license or circumvent in order
to exploit our patent.
 
                                       16

 
We could incur substantial costs in defending or pursuing any claims relating
to proprietary rights.
 
   We do not believe that our products infringe the proprietary rights of
others, and no third parties have asserted any material patent infringement or
other similar claims against us. However, third parties may assert these types
of claims against us in the future, and one or more of these claims could be
successful. Parties making these types of claims could obtain a judgment
awarding substantial damages, as well as injunctive or other equitable relief,
which could effectively block our ability to provide services in the U.S. or
abroad. We are aware that patents have been granted recently to others on
technologies in the communications, multimedia and Internet telephony areas,
and patents may issue which relate to the basic technologies incorporated in
our services and products. Since patent applications in the U.S. are not
publicly disclosed until issued as patents, applications may have been filed
which, if issued as patents, could relate to our services.
 
Our network may be subject to disruptions through unauthorized use.
 
   Computer viruses, break-ins and similar disruptive problems caused by
customer or other Internet users could cause interruptions, delays or loss of
services to our Internet customers. We have implemented a variety of network
security measures, including limiting physical and network access to our
routers. However, our Internet access systems and Genie entertainment and
information services are vulnerable to these types of problems. Furthermore,
inappropriate use of the Internet by third parties could also jeopardize the
security of confidential information stored in the computer systems of our
customers and other parties connected to the Internet, which may deter
potential subscribers.
 
   Potential 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 as well as Internet access
providers. 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 third
parties may require significant expenditures of capital and resources. 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 our customer base and revenues.
Moreover, if we become the victim of a breach of network security or privacy,
customers may threaten claims against us based on for any damages that result.
These types of claims, if upheld, could require us to pay substantial amounts
of damages to the claimants.
 
We may be subject to liability for information disseminated over our Internet
network.
 
   As an Internet service provider and an Internet content provider, we could
face substantial potential liability for the actions of subscribers and others
using our 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 Internet service providers for information,
messages and other materials disseminated across and through their systems.
Prodigy lost a summary judgment motion related to the scope of its potential
liability exposure. While the
 
                                       17

 
parties subsequently settled their dispute, the court refused to vacate its
opinion on the summary judgment motion, which still stands as precedent.
 
   Another action is currently pending against Netcom relating to Netcom's
potential liability for vicarious copyright infringement arising out of
electronic messages posted by a subscriber. Netcom lost a summary judgment
motion related to the scope of its potential vicarious copyright liability
exposure, but this case has yet to come to trial. Recently, a Hong Kong court
permitted a local company to sue a California Internet service provider for
copyright violation based on content included by a subscriber on a Web site.
 
   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 for us, as well as additional costs and
technological challenges in complying with any new statutory or regulatory
requirements. For example, in April 1999, the U.S. Supreme Court has upheld a
provision of the Communications Decency Act of 1996, which makes it a crime to
transmit a communication which is obscene with intent to annoy, abuse, threaten
or harass another person. In addition, CompuServe faced action by German
authorities in response to which CompuServe temporarily restricted the scope of
the Internet access it provides to all subscribers, both in the U.S. and
internationally. A number of countries are considering content restrictions
based on factors that include political or religious views, pornography and
indecency. The operation of our Genie on-line service has increased our
exposure to this type of legislation, and to libel and defamation suits,
primarily because of the increased level of content being provided by or
through our network.
 
We may not be able to grow our operations in the future if we cannot raise
enough capital.
 
   We believe that we must continue to enhance and expand our network and build
out our telecommunications network infrastructure in order to maintain our
competitive position and meet the increasing demands for service quality,
capacity and competitive pricing. Our ability to grow depends, in part, on our
ability to expand our operations through the ownership and leasing of network
capacity, which requires significant capital expenditures that are often
incurred before we begin to receive the related revenue. If we cannot obtain
cash from operations or from debt or equity investments in our company, we may
not be able to grow as rapidly as we have during the last several fiscal years.
 
   Based upon our present business plan, we believe that our existing cash
resources and our expected cash flow from our operating activities will be
sufficient to meet our currently anticipated working capital and capital
expenditure requirements for the next 12 months. If our growth exceeds our
expectations, if we obtain one or more attractive opportunities to purchase the
business or assets of another company, or if our cash flow from operations
during this period is not sufficient to meet our working capital and capital
expenditure requirements, we will need to raise additional capital from other
sources. We can provide no assurance that we will be able to raise capital on
favorable terms. If we are unable to obtain additional capital, we may be
required to reduce the scope of our anticipated expansion.
 
                                       18

 
We may suffer losses in the future, which could reduce the trading price of our
stock.
 
   The value of an investment in our company is likely to decrease if we incur
financial losses. We incurred net losses in Fiscal 1996, 1997 and 1998 of $15.6
million, $3.8 million and $6.4 million, respectively. For the six months ended
January 31, 1999, we generated $6.9 million of net income. Although we have
experienced significant growth in recent periods, our growth may not be
sustainable and may not be indicative of our future growth.
 
Our business may be less profitable, and less capable of growing, as a result
of our substantial indebtedness.
 
   On January 31, 1999, we had long-term debt of approximately $120.8 million
and stockholders' equity of approximately $247.7 million. Moreover, we may
incur additional indebtedness in the future.
 
   Our leverage could have important adverse consequences:
 
  . increasing our vulnerability to adverse business conditions;
 
  . limiting our ability to obtain additional financing to fund future
    working capital, capital expenditures, future acquisitions and other
    general corporate purposes;
 
  . requiring the dedication of a substantial portion of our cash flow from
    operations to the payment of principal of, and interest on, our
    indebtedness, which reduces the availability of our cash flow for other
    purposes; and
 
  . limiting our flexibility in planning for, or reacting to, changes in our
    business and the industry.
 
   Our ability to pay the principal of, or the interest on, or to refinance,
our indebtedness, or to fund planned capital expenditures or future
acquisitions will depend on our future performance. Based upon our current
level of operations and anticipated revenue growth, we believe that cash flow
from operations and available cash will be adequate to meet our anticipated
future requirements for working capital, budgeted capital expenditures and
scheduled payments of principal and interest on our indebtedness for the next
12 months. We cannot provide any assurances that our business will generate
enough cash or that our revenue growth will enable us to repay our
indebtedness.
 
Our operations may be limited by restrictive covenants contained in our bank
credit facility.
 
   Our bank credit facility contains numerous financial and operating covenants
that limit the discretion of our management with respect to a wide variety of
business matters. These restrictions may bar transactions that would otherwise
be beneficial to our company. These covenants place significant restrictions
on, among other things, our ability to incur additional indebtedness, to create
liens or other encumbrances, to make different types of payments and
investments, and to sell or otherwise dispose of assets and to merge with other
entities. A failure to comply with the obligations contained in our credit
facility could result in an event of default, and the acceleration of the
related debt and the acceleration of debt under other instruments that may
contain cross-acceleration or cross-default provisions.
 
                                       19

 
If we are unable to attract and retain qualified management and technical
personnel, we may not remain profitable.
 
   We are highly dependent on the technical and management skills of our key
employees, including our technical, sales, marketing, financial and executive
personnel, and on our ability to identify, hire and retain qualified personnel.
Competition for these types of personnel is intense and we may not be able to
retain existing personnel or to identify or hire additional personnel. In
particular, we are dependent on the services of Howard S. Jonas, our Chief
Executive Officer, Chairman of the Board, Treasurer and founder, and on James
A. Courter, our Vice Chairman and President. Any failure to attract and retain
appropriate personnel, or the loss of the services of either Mr. Jonas or Mr.
Courter, could substantially reduce our ability to grow our operations and to
increase our profitability.
 
We are controlled by our principal stockholder, which limits the ability of
other stockholders to affect the management of our company.
 
   Howard S. Jonas, our Chief Executive Officer, Chairman of the Board,
Treasurer and founder, is the beneficial owner of all of our outstanding shares
of Class A common stock and therefore, currently holds more than 50% of the
combined voting power of our outstanding capital stock. Mr. Jonas is able to
control matters requiring approval by our stockholders, 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 our
assets. As a result, the ability of any of our stockholders to influence the
management of our company is limited.
 
Our stock price may be volatile, which could reduce the value of an investment
in our shares.
 
   The market price of our common stock has fluctuated significantly since our
initial public offering. Factors including variations in our revenue, earnings
and cash flow from quarter-to-quarter and announcements of new service
offerings, technological innovations or price reductions by us, or our
competitors or providers of alternative services could cause the market price
of the common stock to fluctuate substantially. In addition, the stock markets
recently have experienced significant price and volume fluctuations that
particularly have affected companies in the technology sector and resulted in
changes in the market price of the stocks of many companies, which have not
been directly related to the operating performance of those companies. Broad
market fluctuations may adversely affect the market price of our common stock
in the future.
 
   Rapid and adverse changes in the trading value of our stock could subject us
to lawsuits from our stockholders. The defense of these types of lawsuits could
require a substantial portion of the attention of the management of our
company. In addition, an adverse judgment or settlement of a stockholder
lawsuit could require us to pay substantial amounts, which would limit our
ability to fund the growth of our operations.
 
Shares of common stock that will be available for resale in the future may
increase the number of shares on the public market, causing our stock price to
decline.
 
   Sales of a substantial number of shares of our common stock into the public
market could adversely affect its market price. In connection with our
acquisition of InterExchange in April 1998, we issued 3,242,323 shares of
common stock as part of the purchase price. Of those shares, 58,667,
 
                                       20

 
537,032 and 74,344 shares were registered for resale in June 1998, October 1998
and April 1999, respectively. Under the terms of an agreement that we entered
into with two of the former stockholders of InterExchange in April 1999, in
addition to the 370,899 shares covered by this prospectus, we will also
register an additional 370,899 of these shares on or before September 15, 1999.
The remainder of these shares will become eligible for resale in installments
between October 1999 and October 2002, although up to 143,419 of these shares
will remain subject to claims for indemnification that we may be entitled to
raise against the former stockholders of InterExchange, and may be returned to
us for cancellation. In addition, through our acquisition of an interest in
Union Telecard, we became obligated to issue and register up to 200,000 shares
of common stock, of which 100,000 shares were registered for resale in April
1999. As of January 31, 1999, 2,213,867 shares of our common stock were
issuable upon exercise of outstanding employee stock options, and as of January
31, 1999, 40,000 shares of our common stock were issuable upon the exercise of
outstanding warrants.
 
Anti-takeover provisions affecting us could prevent or delay a change of
control or could adversely affect the market price of our common stock.
 
   Our certificate of incorporation authorizes the board of directors to issue,
without stockholder approval, one or more series of preferred stock having
dividend rights, voting rights and other rights as the board of directors may
determine. Our issuance of this "blank-check" preferred stock could make it
more difficult or discourage an attempt to obtain control of our company by
means of a tender offer, merger, proxy contest or otherwise, which may limit
the ability of our stockholders to obtain the maximum value for their shares of
common stock.
 
   Furthermore, 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 our company, in that only approximately one-third of our
directors will be subject to reelection at each of our annual stockholder
meetings.
 
                                       21

 
                              RECENT DEVELOPMENTS
 
   Tender Offer and Consent Solicitation. In March 1999, we commenced a tender
offer for all of our outstanding senior notes. As of April 23, 1999,
substantially all of the notes had been tendered. The purchase price for the
senior notes will be $1,020 in cash per $1,000 principal amount, plus accrued
and unpaid interest through the date of payment. Together with the offer, we
solicited consents to eliminate the primary restrictive covenants and to amend
other provisions contained in the indenture relating to the senior notes. These
amendments became operative when we accepted the tendered senior notes for
purchase.
 
   Credit Facility. We have also entered into a credit agreement with Lehman
Commercial Paper Inc., CIBC World Markets Corp. and Bankers Trust Company.
These institutions have conditionally committed to provide us with a $150
million credit facility that will include term loans in a total amount of up to
$125 million and revolving loans in an amount of up to $25 million and an
additional uncommitted amount of up to $100 million. Bankers Trust Company is
expected to serve as administrative agent for the facility. We used the
proceeds from the initial borrowings under the credit facility to purchase the
tendered senior notes.
 
   Management Changes. A number of changes have been recently made to the
management of our company. In March 1999, we announced that our President,
James Courter, has been appointed Vice Chairman of the Board. He replaces
Howard Balter, who resigned his positions as Chief Operating Officer, Vice
Chairman and a director of our company in order to serve full-time as Chief
Executive Officer and a director of our subsidiary Net2Phone. In addition, we
appointed two new directors to our board of directors: Irving Goldstein and
Moshe Kaganoff. Mr. Goldstein is the former Chief Executive Officer and
Director General of Intelsat and the former Chairman and Chief Executive
Officer of Comsat. Mr. Kaganoff has served as our Senior Vice President of
Operations.
 
                                USE OF PROCEEDS
 
   We will not receive any of the proceeds from the sale of the common stock by
the selling stockholders.
 
 
                                       22

 
                              SELLING STOCKHOLDERS
 
   The shares of common stock that may be offered by means of this prospectus
were originally issued under a merger agreement, dated April 7, 1998, in which
we agreed to acquire all of the issued and outstanding shares of InterExchange,
Inc., a Delaware corporation, including four related companies. In accordance
with the merger agreement, the former stockholders of InterExchange received an
aggregate of 3,242,323 newly issued shares of our common stock, of which
670,043 shares were previously registered for resale. Under the terms of an
agreement that we entered into in April 1999 with David Turock and Richard
Robbins, two of the former stockholders of InterExchange, we agreed to register
the 370,899 shares covered by this prospectus and we will also register an
additional 370,899 shares on or before September 15, 1999. The remainder of
these shares will become eligible for resale in installments between October
1999 and October 2002, although up to 143,419 of these shares will remain
subject to claims for indemnification that we may be entitled to raise against
the former stockholders of InterExchange, and may be returned to us for
cancellation.
 
   Dr. Turock has served as our Director of Technology since November 1997.
During 1992 through 1997, Dr. Turock provided consulting services to IDT
through Rock Enterprises, Inc., a telecom engineering firm, which we acquired
from Dr. Turock in September 1997.
 
   Mr. Robbins is the former President of InterExchange. Prior to that, Mr.
Robbins served as the Chief Financial Officer of InterExchange from its
inception in 1995 until May of 1998.
 
   The following table sets forth information about the beneficial ownership of
each selling stockholder as of April 24, 1999, as to
 
  .  the number of shares of common stock that are beneficially held by each
     selling stockholder,
 
  .  the maximum number of shares that may be offered by each selling
     stockholder in this prospectus,
 
  .  the number of shares of common stock and the percentage of outstanding
     shares of common stock that will be held by each selling stockholder if
     he or she sells all of the shares that can be sold under this
     prospectus.
 
   The percentages in the table assume that each share of our class A common
stock has been converted into shares of common stock. We can provide no
assurance as to the number of shares that will be held by each of the selling
stockholders after this offering because each of the selling stockholders may
offer all or some part of the shares which he or she holds by means of this
prospectus, and because this offering is not being underwritten on a firm
commitment basis.
 


                                                                    Shares
                                                              Beneficially Owned
                           Shares Beneficially   Number of    After the Offering
                           Owned Prior to the  Shares Offered ------------------
Selling Stockholder             Offering           Hereby     Number  Percentage
- -------------------        ------------------- -------------- ------- ----------
                                                          
David L. Turock(1)........      1,156,508         258,797     897,711   3.84%
Richard Robbins...........        432,328         112,102     320,226     *

- --------
*  Less than one percent.
 
(1) Includes 8,000 shares of common stock held of record by The JTBC
    Foundation. The JTBC Foundation is a charitable trust, of which Howard S.
    Jonas, David Turock, Howard S. Balter and James A. Courter are the
    trustees, and thereby share the power to vote and to direct the sale of
    these shares. Mr. Jonas is the Chief Executive Officer of IDT, Mr. Balter
    is the Chief Executive Officer of Net2Phone, Inc., one of our subsidiaries,
    and Mr. Courter is the President of IDT.
 
                                       23

 
                              PLAN OF DISTRIBUTION
 
   The shares offered for sale hereby may be sold from time to time by the
selling stockholders in one or more transactions on the Nasdaq National Market,
in the over-the-counter market, in negotiated transactions or in a combination
of these methods. These shares may be sold, at fixed prices, at market prices
prevailing at the time of sale, at prices relating to prevailing market prices
or at negotiated prices. The selling stockholders may make sales directly to
purchasers or to or through broker-dealers which may act as agents or
principals. Broker-dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the selling stockholders. This
compensation, as to a particular broker-dealer, may be more or less than
customary commissions. In addition, any shares covered by this prospectus that
qualify for sale under Rule 144 of the securities act may be sold under Rule
144 rather than by means of this prospectus.
 
   If necessary to comply with the securities laws of any state, the shares
will be sold only through brokers or dealers. In addition, in some states, the
shares may not be sold unless they have been registered or qualified for sale
or an exemption from registration or qualification is available and is complied
with.
 
   Any broker-dealers who participate in a sale of the shares may be deemed to
be "underwriters" within the meaning of sections 11 and 12 of the securities
act and Rule 10b-5 of the exchange act, and any commissions received by them,
and proceeds of any sales as principals, may be deemed to be underwriting
discounts and commissions under the securities act. If any of the selling
stockholders are deemed to be acting as an underwriter, they may be subject to
statutory liabilities of the securities act.
 
   In addition, the selling stockholders and any other person participating in
the sale or distribution of the shares offered under this prospectus will be
subject to the exchange act and its rules and regulations, including without
limitation Rules 10b-5 and Regulation M. These provisions may limit the timing
of purchases and sales of any of the shares. In addition, any person engaged in
a distribution of the shares may not simultaneously engage in market-making
activities during the period beginning when he or she becomes a distribution
participant and ending upon his or her completion of participation in a
distribution. All of these factors may affect the marketability of the shares
and the ability of any person or entity to engage in market-making activities.
 
   IDT has agreed to pay all expenses of the offering which we estimate will
amount to approximately $25,000.
 
                                 LEGAL MATTERS
 
   Joyce J. Mason, our Senior Vice President, General Counsel, Secretary and a
director of our company, has issued an opinion regarding the validity of the
shares offered by this prospectus.
 
                                       24

 
                                    EXPERTS
 
   Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our annual report on Form 10-K,
as amended, for the fiscal year ended July 31, 1998, as set forth in their
report, which is incorporated by reference in this prospectus and elsewhere in
the registration statement. Our financial statements and schedule are
incorporated by reference in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
 
   The combined financial statements of InterExchange and combined affiliates
as of December 31, 1997, 1996 and 1995 and for each of the three years in the
period ended December 31, 1997 incorporated by reference in this prospectus and
the related registration statement have been audited by Amper, Politziner &
Mattia P.A., independent auditors, as set forth in their report thereto which
is also incorporated by reference, and are included in reliance upon such
report given upon their authority as experts in accounting and auditing.
 
                      WHERE YOU CAN FIND MORE INFORMATION
 
   We are subject to the reporting requirements of the exchange act, and file
annual and quarterly reports, proxy and information statements and other
information with the Securities and Exchange Commission. These documents can be
inspected and copied at the public reference facilities maintained by the
commission at its office at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and at its regional offices at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of these materials can be obtained
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 we electronically file
with the commission are contained in the Internet Web site maintained by the
commission which is http://www.sec.gov.
 
   We have filed with the commission a registration statement on form S-3
relating to the common stock offered in this prospectus. This prospectus does
not contain all of the information in the registration statement and its
exhibits. The registration statement, its exhibits and the documents
incorporated by reference in this prospectus and their exhibits, all contain
information that is material to the offering of the common stock. Whenever a
reference is made in this prospectus to any of our contracts or other
documents, the reference may not be complete. You should refer to the exhibits
that are a part of the registration statement in order to review a copy of the
contract or document.
 
                    INCORPORATION OF DOCUMENTS BY REFERENCE
 
     The commission allows us to incorporate by reference many of the documents
that we file. This permits us to disclose important information to you by
referencing these filed documents. Any information referenced in this way is
considered part of this prospectus. We are incorporating by reference in this
prospectus the following documents which we have filed with the commission,
together with the filings that have amended them:
 
                                       25

 
    (1) annual report on form 10-K for the fiscal year ended July 31, 1998;
 
    (2) quarterly report on form 10-Q for the fiscal quarter ended October
         31, 1998;
 
    (3) quarterly report on form 10-Q for the fiscal quarter ended January
         31, 1999;
 
    (4) current report on form 8-K dated May 26, 1998; and
 
    (5) the description of our common stock contained in our registration
         statement on form 8-A, dated March 5, 1996.
 
   All reports and other documents that we will file with the commission under
sections 13(a), 13(c), 14 or 15(d) of the exchange act after the date of this
prospectus and before the termination of the offering of the common stock
hereunder will be incorporated by reference into this prospectus from the date
of the filing of these reports and documents, and will supersede the
information herein. We undertake to provide without charge to each person who
receives a copy of this prospectus, upon written or oral request, a copy of all
of the preceding documents that are incorporated by reference (other than
exhibits, unless the exhibits are specifically incorporated by reference into
these documents). Requests for documents should be sent in writing to the
General Counsel at our headquarters at 190 Main Street, Hackensack, New Jersey
07601 or by telephone at (201) 928-1000.
 
                INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
 
   When used in this prospectus, the words "expects," "anticipates,"
"estimates" and similar expressions identify forward-looking statements. We
believe that these statements are "forward-looking" statements within the
meaning of section 27A of the securities act and section 21E of the exchange
act. These statements, which include statements under the caption "Risk
Factors" and elsewhere in this prospectus refer to our plans to implement our
growth strategy, improve our financial performance, expand our infrastructure,
develop new products and services, expand our sales force, expand our customer
base and enter international markets. The forward-looking statements also
include our expectations concerning factors affecting the markets for our
products, including the 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 the results that we
anticipate. These risks and uncertainties include, but are not limited to,
those risks discussed in this prospectus and in the documents incorporated by
reference in this prospectus. In addition to the factors specifically noted in
the forward-looking statements, other important factors that could result in
those differences include:
 
  .  general economic conditions in the telecommunications and Internet
     markets, including inflation, recession, interest rates and other
     economic factors;
 
  .  casualty to or other disruption of our facilities and operations; and
 
  .  other factors that generally affect the business of telecommunications,
     Internet and other communications companies.
 
   We assume no obligation to update these forward-looking statements or to
update the reasons actual results could differ materially from the results
anticipated in the forward-looking statements.
 
                                       26

 
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   You should rely only on the information in this prospectus and the
additional information described under the heading "Where You Can Find More
Information." We have not authorized any other person to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely upon it. Neither we or any of the selling
stockholders are making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should assume that the
information in this prospectus was accurate on the date of the front cover of
this prospectus only. Our business, financial condition, results of operations
and prospects may have changed since that date.
 
 
 
 
 
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                                 370,899 Shares
 
                                IDT CORPORATION
 
                                  Common Stock
 
                               -----------------
                                   PROSPECTUS
 
                               -----------------
 
 
                                  May 12, 1999
 
 
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