Net2Phone Reports 2nd Quarter Fiscal 2006 Financial Results

Net2Phone, Inc. (Nasdaq: NTOP), a leading Voice over IP
service provider, today announced results for the second quarter of
fiscal 2006 ended January 31, 2006.
   Firmwide revenue for the second quarter totaled $25.8 million, up
19% from revenue of $21.7 million from the prior quarter, and up 45%
as compared with revenue of $17.8 million in the second quarter of
fiscal 2005 (which included a $2.0 million reduction in revenue that
resulted from a review of Net2Phone's quarterly deferred revenue
adequacy analysis).
   Quarterly gross profit continued to improve, with second quarter
gross profit of $10.5 million on 41% gross margins, up from $9.1
million on 42% gross margins in the first quarter of fiscal 2006 and
$6.4 million on 36% gross margins in the second quarter of fiscal 2005
(which included a $2.0 million reduction in gross profit that resulted
from a review of Net2Phone's quarterly deferred revenue adequacy
analysis).
   Net loss for the second quarter was ($4.1) million compared to a
net loss of ($7.2) million in the prior quarter and net loss of
($10.6) million in the second quarter of 2005. Net loss for the second
quarter includes an $8.1 million net gain resulting from the
termination of agreements with Altice One. During November 2005,
Net2Phone received $18.8 million from Altice One, an investment fund
with interests in cable properties, due to a recent change in
ownership of those cable properties. The net gain generated by the
termination of the Altice agreements, which is reflected in Other
income (loss) in second quarter financial results, includes buy-out
provision proceeds of $18.8 million reduced by a write-off of $6.9
million of Consideration paid to customers, $3.4 million in impairment
of equipment and internally developed software related to the Altice
deployments, and legal, arbitration and other expenses totaling $0.4
million. Net2Phone is seeking an additional payment from Altice of
approximately EUR 25 million, which is the difference between $18.8
million (the amount of the initial payment) and the buyout payment
Net2Phone believes is required by the agreements. The financial
statements for the second quarter do not include any amounts relating
to the aforementioned EUR 25 million nor any other claims or
counterclaims of Altice and Net2Phone.
   Net loss includes certain non-operational, non-cash and/or
non-recurring items that management excludes in assessing Net2Phone's
performance. As a result, Net2Phone also reports net income (loss)
before special and non-cash items(1) (adjusted for inventory
obsolescence expense, non-recurring selling, general and
administrative expense, depreciation and amortization, non-cash
compensation, non-cash services provided by IDT, restructuring,
severance, impairment and other items, interest income net, and other
income (loss)), which excludes the impact that these aforementioned
items have on Net2Phone's financial results.
   Net loss before special and non-cash items for the quarter
improved to ($3.8) million, as compared with ($4.0) million in the
prior quarter, and ($6.6) million in the second quarter of 2005 (which
included a $2.0 million increase in net loss before special and
non-cash items that resulted from a review of Net2Phone's quarterly
deferred revenue adequacy analysis). Net loss before special and
non-cash items excludes, among other items, non-recurring selling,
general and administrative expense. Non-recurring selling, general and
administrative expense for the second quarter of fiscal 2006 of $2.4
million and $0.3 million in the prior quarter consisted entirely of
expenses directly related to the tender offer commenced by IDT
Corporation on November 10, 2005. Net income (loss) before special and
non-cash items is not a term defined by generally accepted accounting
principles (GAAP) and may not be comparable to other similarly titled
measurements used by other companies. Such non-GAAP measures should be
considered in addition to, and not as a substitute for, performance
measures calculated in accordance with GAAP.
   Net2Phone believes that net income (loss) before special and
non-cash items provides investors with a measure of Net2Phone's
operational and financial progress that corresponds with the
measurements used by management. Management uses this measurement,
instead of net income (loss), as a basis for allocating resources and
making other daily operating decisions. The accompanying table
includes a detailed reconciliation of net loss reported in accordance
with generally accepted accounting principles to net loss before
special and non-cash items.
   Capital expenditures during the second quarter were $1.3 million,
compared with $3.1 million in the prior quarter, and $2.6 million in
the second quarter of 2005.
   As of January 31, 2006, cash, cash equivalents and marketable
securities stood at $99.2 million, including $20.1 million of
restricted funds.
   As of the end of the quarter, Net2Phone had more than 85,000
broadband telephony subscriber lines, including 13,000 subscribers
from Altice One's cable properties, which Net2Phone is no longer
servicing as a result of the aforementioned change of ownership of the
Altice cable properties. This is a 50% increase from 57,000 subscriber
lines at the end of the prior quarter and up more than 200% from
25,000 subscribers at the end of the second quarter of 2005.

   Distribution Channels

   International Reseller: Revenue from Net2Phone's partnerships with
resellers including licensed telecom operators was $15.4 million in
the second quarter, up 24% from the prior quarter's revenue of $12.4
million and up 66% from $9.3 million in the second quarter of 2005
(which included a $1.1 million reduction in revenue that resulted from
a review of Net2Phone's quarterly deferred revenue adequacy analysis).
This significant growth is primarily attributable to Net2Phone's
ability to sell its IP telephony services through multiple
international channels, including telecommunications operators, ISPs,
retail stores and local distributors in 89 countries. Net2Phone
contracts with telecommunications and other broadband providers to
sell a full suite of VoIP products to consumers and small businesses.
   Cable: Revenue from partnerships with cable operators was $2.0
million in the second quarter, up 39% from the prior quarter's revenue
of $1.5 million and up 518% from $0.3 million in the second quarter of
2005. As of the end of the second quarter, Net2Phone had executed
contracts to serve cable operators serving franchises with over 3.2
million homes (including 520,000 homes in the Altice cable telephony
properties), with cable telephony services marketed to more than 1.5
million of these homes (including 520,000 homes in the Altice cable
telephony properties).
   Consumer: Revenue from Net2Phone's direct-to-consumer products and
services was $5.8 million in the second quarter, as compared with $6.0
in the prior quarter and $5.2 million in the second quarter of 2005
(which included a $0.9 million reduction in revenue that resulted from
a review of Net2Phone's quarterly deferred revenue adequacy analysis).
Consumer products include rechargeable calling cards, PC2Phone,
software-based calling applications, and Voiceline broadband telephony
services sold directly. Net2Phone has more than 100,000 active
subscribers using various consumer services - and Net2Phone has kept
that number stable for the past few years.
   Carrier: Revenue from Net2Phone's sale of wholesale traffic
capacity to carriers was $2.5 million in the second quarter, up 32%
from the prior quarter's revenue of $1.9 million and down 17% from
revenue of $3.0 million in the second quarter of 2005. Carrier is a
low margin business. The primary focus of the Carrier business is to
satisfy Net2Phone's wholesale carrier purchasing needs as required to
support its various products and services. Revenue is generated via
the sale of excess carrier capacity as market opportunities arise from
time to time. Growth this quarter was directly attributed to increased
demand for excess capacity, though this is the first quarter of
revenue growth in six quarters. The volatility in carrier revenue has
impacted recent growth in Net2Phone's overall revenue.

   Merger Update

   As previously reported, IDT Corporation, Net2Phone's controlling
stockholder, completed an unsolicited tender offer for all of the
outstanding shares of Net2Phone's common stock that IDT and its
affiliates did not own for $2.05 per share in cash on January 27,
2006. On January 30, 2006, IDT announced that, as a result of the
tender offer, IDT owned approximately 80.52% of the then-outstanding
capital stock and 85.75% of the then-outstanding voting power of
Net2Phone.
   On February 17, 2006, IDT and Net2Phone jointly announced that
they had executed a merger agreement providing for the acquisition of
Net2Phone by IDT. Under the terms and subject to conditions described
in the merger agreement, NTOP Acquisition, Inc., a wholly-owned
subsidiary of IDT, would merge with and into Net2Phone, with Net2Phone
continuing as the surviving corporation. If the merger is consummated,
each issued and outstanding share of common stock and Class A common
stock of Net2Phone, other than shares held by IDT or its subsidiaries
or as to which dissenters' rights have been perfected, will be
canceled and converted automatically into the right to receive $2.05
in cash, without interest.
   Net2Phone filed preliminary solicitation materials with the
Securities and Exchange Commission (the "Commission") on February 24,
2006, and intends to distribute final solicitation materials to seek
stockholders' written consents to approve and adopt the merger and the
merger agreement as promptly as practicable. Net2Phone expects to
close the merger promptly following receipt of the requisite
stockholder approval, subject to the closing conditions described in
the merger agreement. The Net2Phone board of directors is recommending
that Net2Phone's stockholders approve the transaction.
   As of March 3, 2006, Net2Phone shares beneficially owned by IDT
represented approximately 87.2% of the voting power of Net2Phone's
outstanding capital stock. IDT has informed the Independent Committee
that it intends to grant its consent in favor of the merger agreement
and the merger. The consent of the shares controlled by IDT is
sufficient under Delaware law and the Net2Phone Certificate of
Incorporation to adopt the merger agreement and approve the merger.
Accordingly, if the other conditions in the merger agreement are
satisfied, Net2Phone is likely to complete the merger whether or not
its remaining shareholders grant their consent.

   THIS PRESS RELEASE SHALL NOT CONSTITUTE A SOLICITATION OF PROXIES
FOR ANY PURPOSE. NET2PHONE HAS FILED A PRELIMINARY SCHEDULE 14A AND
SCHEDULE 13E-3 WITH THE SEC IN CONNECTION WITH THE PROPOSED MERGER.
THE DEFINITIVE SCHEDULE 14A WILL CONTAIN A CONSENT SOLICITATION
STATEMENT AND OTHER DOCUMENTS FOR THE STOCKHOLDERS' TO CONSIDER IN
DECIDING HOW TO VOTE ON THE PROPOSED TRANSACTION. NET2PHONE PLANS TO
MAIL THE DEFINITIVE CONSENT SOLICITATION STATEMENT TO ITS
STOCKHOLDERS. THE DEFINITIVE CONSENT SOLICITATION STATEMENT WILL
CONTAIN IMPORTANT INFORMATION ABOUT NET2PHONE, THE PROPOSED MERGER AND
RELATED MATTERS. INVESTORS AND STOCKHOLDERS SHOULD READ THE DEFINITIVE
CONSENT SOLICITATION STATEMENT AND THE OTHER DOCUMENTS FILED WITH THE
COMMISSION IN CONNECTION WITH THE PROPOSED MERGER CAREFULLY BEFORE
THEY MAKE ANY DECISION WITH RESPECT TO THE TRANSACTION. THE CONSENT
SOLICITATION STATEMENT AND ALL OTHER DOCUMENTS FILED WITH THE
COMMISSION IN CONNECTION WITH THE PROPOSED MERGER WILL BE AVAILABLE,
AS AND WHEN FILED, FREE OF CHARGE AT THE SEC'S WEB SITE, WWW.SEC.GOV.
IN ADDITION, THE CONSENT SOLICITATION STATEMENT AND ALL OTHER
DOCUMENTS FILED WITH THE COMMISSION IN CONNECTION WITH THE MERGER WILL
BE MADE AVAILABLE TO INVESTORS FREE OF CHARGE BY WRITING TO NET2PHONE
AT THE ADDRESS SET FORTH IN THIS PRESS RELEASE.
   THE PARTICIPANTS IN THE SOLICITATION INCLUDE NET2PHONE, IDT
CORPORATION, HOWARD S. JONAS AND JAMES A. COURTER AND MAY INCLUDE THE
RESPECTIVE AFFILIATES, DIRECTORS AND EXECUTIVE OFFICERS OF NET2PHONE
AND IDT CORPORATION. INFORMATION CONCERNING THEM AND THEIR DIRECT AND
INDIRECT INTERESTS IN NET2PHONE IS CONTAINED IN THE PRELIMINARY
SCHEDULE 14A FILED WITH THE COMMISSION ON FEBRUARY 24, 2006.

   About Net2Phone

   Net2Phone provides VoIP PacketCable, SIP and wireless solutions
around the world. As a leader in turnkey hosted VoIP telephony
services, Net2Phone has routed billions of VoIP minutes globally,
servicing more than 100,000 users in the US as well as hundreds of
thousands more overseas. Net2Phone provides partners with a SIP-based
broadband telephony solution, calling cards, prefix dialing and
enterprise services in over 100 countries. Net2Phone helps cable
operators deliver a high-quality, primary-line-type service that
includes emergency calling, basic and enhanced features. For more
information about Net2Phone's products and services, please visit
www.net2phone.com.

   This press release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements involve risks and uncertainties and actual
results could differ materially from those discussed in the
forward-looking statements. For this purpose, any statements contained
in this press release that are not statements of historical fact may
be deemed to be forward-looking statements. Factors which may affect
Net2Phone's results include, but are not limited to, Net2Phone's
ability to satisfy in a timely manner the requirements of Section 404
of the Sarbanes-Oxley Act and the rules and regulations adopted
pursuant thereto, the Net2Phone's ability to expand its customer base,
Net2Phone's ability to develop additional and leverage its existing
distribution channels for its products and solutions, dependence on
strategic and channel partners including their ability to distribute
Net2Phone's products and meet or renew their financial commitments,
Net2Phone's ability to address international markets, the
effectiveness of Net2Phone's sales and marketing activities, the
acceptance of Net2Phone's products in the marketplace, the timing and
scope of deployments of Net2Phone's products by customers,
fluctuations in customer sales cycles, customers' ability to obtain
additional funding, technical difficulties with respect to Net2Phone's
products or products in development, the need for ongoing product
development in an environment of rapid technological change, the
emergence of new competitors in the marketplace, Net2Phone's ability
to compete successfully against established competitors with greater
resources, the uncertainty of future governmental regulation,
Net2Phone's ability to manage growth, obtain patent protection, and
obtain additional funds, general economic conditions and other risks
discussed in this Press Release and in Net2Phone's filings with the
Securities and Exchange Commission. In addition, the payment of any
additional amount related to the termination of the Altice agreements
is uncertain, and will be affected by uncertainties associated with
any continued negotiation with Altice, or the results of arbitration
proceedings. Consequently, there can be no assurance that Net2Phone
will receive any portion of the additional EUR 25 million and/or the
additional claims it is seeking from Altice. All forward-looking
statements and risk factors included in this document are made as of
the date hereof, based on information available to Net2Phone as of the
date thereof, and Net2Phone assumes no obligation to update any
forward-looking statement or risk factors.

   (1) The schedule accompanying this release provides
reconciliations to generally accepted accounting principles (GAAP) for
all non-GAAP financial measures mentioned in this release.

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*T

                            Net2Phone, Inc.
            Condensed Consolidated Statements of Operations
                              (unaudited)

                                         ------------------- --------
(All Numbers in 000's except EPS           2Q06      2Q05      1Q06
 Calculation)                            January   January    October
                                         31, 2006  31, 2005   31,2005
                                         --------  --------- --------
Revenue                                  $ 25,799  $ 17,817  $ 21,726

Direct cost of revenue                   $ 15,324  $ 11,376    12,608
Selling, general and administrative (a)    17,877    14,721    15,466
Depreciation and amortization               1,984     2,097     2,183
Non-cash services provided by IDT           2,231      (504)     (283)
Restructuring, severance, impairment and
 other items                                   24       887      (585)
                                         --------- --------- ---------
    Total cost and expense                 37,441    28,577    29,389
                                         --------- --------- ---------

Miscellaneous Income (b)                     (249)      168       313
                                         --------- --------- ---------
Loss from operations                     $(11,891) $(10,592) $ (7,350)

Interest income, net                          486       571       244
Other Income (loss)                         7,307      (581)     (103)
                                         --------- --------- ---------
Net loss                                 $ (4,098) $(10,603) $ (7,209)

Net loss per common share-basic
 and diluted                             $  (0.05) $  (0.14) $  (0.09)

Weighted Average number of common shares 
 used in the calculation of basic and 
 diluted net loss per common share         77,837    76,166    76,664
                                         --------- --------- ---------
Cash, cash equivalents and marketable
 securities (c)                          $ 99,156  $118,022  $ 89,009
Fixed assets (net)                         19,841    20,010    23,817
Total assets                              136,036   152,238   137,174
Total Stockholders' Equity                 90,563   112,911    91,055
                                         --------- --------- ---------

(a) Includes non-cash compensation of 
    $1,305; $1,165, $1,677, respectively
(b) Includes estimation adjustment related 
    to first quarter of fiscal 2006
(c) Includes restricted cash of $20,092; 
    $27,880; $20,428, respectively

                                         --------- --------- ---------
Net loss                                 $ (4,098) $(10,603) $ (7,209)
EXCLUDING
----------
   Inventory obsolescence expense             (93)        -        (9)
   Non-recurring SG&A expense              (2,403)     (374)     (328)
   Depreciation and amortization           (1,984)   (2,097)   (2,183)
   Non-cash compensation                   (1,306)   (1,165)   (1,677)
   Non-cash services provided by IDT       (2,231)      504       283
   Restructuring, severance, impairment
    and other items                           (24)     (887)      585
   Interest income, net                       486       571       244
   Other Income (loss)                      7,307      (581)     (103)
                                         --------- --------- ---------
   Net loss before special and
    non-cash items                       $ (3,850) $ (6,573) $ (4,022)
                                         --------- --------- ---------

   Revenue by distribution channel
   -------------------------------
   The following table summarizes
   Net2Phone's revenue by business channel:

   International Reseller                  15,446     9,286    12,424
   Cable                                    2,038       330     1,464
   Consumer                                 5,840     5,221     5,969
   Carrier                                  2,475     2,980     1,869
                                         --------- --------- ---------
   Consolidated Total                    $ 25,799  $ 17,817  $ 21,726
                                         --------- --------- ---------

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