The following information should be read in conjunction with the accompanying condensed consolidated financial statements and the associated notes thereto of this Quarterly Report, and the audited consolidated financial statements and the notes thereto and our Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended July 31, 2008, as filed with the U.S. Securities and Exchange Commission.

As used below, unless the context otherwise requires, the terms "the Company," "IDT," "we," "us," and "our" refer to IDT Corporation, a Delaware corporation, its predecessor, International Discount Telecommunications, Corp., a New York corporation, and their subsidiaries, collectively.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that contain the words "believes," "anticipates," "expects," "plans," "intends," and similar words and phrases. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the results projected in any forward-looking statement. In addition to the factors specifically noted in the forward-looking statements, other important factors, risks and uncertainties that could result in those differences include, but are not limited to, those discussed under Item 1A to Part II in this Quarterly Report on Form 10-Q and under Item 1A to Part I in our Annual Report on Form 10-K for the fiscal year ended July 31, 2008. The forward-looking statements are made as of the date of this report and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investors should consult all of the information set forth herein and the other information set forth from time to time in our reports filed with the U.S. Securities and Exchange Commission pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934, including our Annual Report on Form 10-K for the year ended July 31, 2008.

Overview

General

We are a multinational holding company with subsidiaries spanning several industries. Our principal businesses consist of:

• IDT Telecom, which provides telecommunications services to consumers and businesses, including prepaid and rechargeable calling cards, a range of voice over Internet protocol (VoIP) communications services, wholesale carrier services and local, long distance and wireless phone services;

• IDT Energy, which operates our Energy Services Company, or ESCO, in New York State;

• IDT Carmel, which manages receivables portfolios and performs debt collection services;

• IDT Local Media, which is primarily comprised of CTM Media Group, our brochure distribution company, IDW Publishing, which is a comic book, graphics novel and children's book publisher that creates and licenses original intellectual property, and the WMET-AM radio station in the Washington D.C. metropolitan area;

• Zedge, which provides a web-based, worldwide destination for free, user-generated mobile content distribution and sharing; and

• Alternative Energy, which consists of American Shale Oil Corporation, or AMSO, our U.S. oil shale initiative, and other alternative energy initiatives.

We also hold assets and operate other smaller or early-stage initiatives and operations, including the IDT Spectrum unit of IDT Capital, which holds a significant number of Federal Communications Commission

licenses for commercial fixed wireless spectrum in the United States. We also own certain real estate investments.

We conduct our business through the following five reportable segments: Prepaid Products, Consumer Phone Services and Wholesale Telecommunications Services, which comprise IDT Telecom, IDT Energy and IDT Carmel. All other operating segments that are not reportable individually are collectively called IDT Capital. IDT Capital includes the following businesses: IDT Local Media, Zedge, Alternative Energy, our real estate investments and various other smaller lines of business.

We are in the process of evaluating divestitures of non-core businesses and assets as well as reducing or eliminating the operations of certain of our non-profitable divisions and reducing corporate overhead. We are also focusing on continuing to streamline our core businesses and our businesses in which we believe there is potential for large enterprise value. In particular, we continue to reduce connectivity and other network-related costs in IDT Telecom. We also plan to make modest investments in a very limited number of closely managed opportunities. We have retained Jefferies & Company, Inc. to serve as our financial advisor to assist us with the potential monetization of non-core assets, explore opportunities in the capital markets to finance the growth of our core businesses, and advise us with respect to strengthening our core businesses through strategic partnerships.

In December 2008, we announced an agreement to sell our European prepaid payment services business to NEOVIA Financial Plc for approximately $15 million. NEOVIA is an independent, global provider of online payments. Under the terms of the agreement, NEOVIA will acquire IDT Financial Services Holdings Limited and other assets which together provide prepaid MasterCard® products in the United Kingdom market under the "Prime Card" brand. The assets sold include approximately $10 million in securities held pursuant to regulatory requirements. The proposed transaction is subject to regulatory approval by the Gibraltar Financial Services Commission and consent of MasterCard®.

Dispositions

Sale of IDT Entertainment

In the first quarter of fiscal 2007, we completed the sale of IDT Entertainment to Liberty Media Corporation. We are eligible to receive additional consideration from Liberty Media based upon any appreciation in the value of IDT Entertainment over the five-year period following the closing of the transaction or a shorter period under specified circumstances ("Contingent Value"), equal to 25% of the excess, if any, of the net equity value of IDT Entertainment over $453 million. However, we would have to pay Liberty Media up to $3.5 million if the Contingent Value does not exceed $439 million, which is included in "Other long-term liabilities" in the condensed consolidated balance sheet. Loss on sale of discontinued operations in the three months ended October 31, 2007 of $1.8 million included compensation and the costs of a lawsuit, all of which arose from and were directly related to the operations of IDT Entertainment prior to its disposal.

Telecom Competition

Since our inception, we have derived the majority of our revenues and operating expenses from IDT Telecom's businesses. IDT Telecom's revenues represented 80.1% of our total revenues from continuing operations in the three months ended October 31, 2008, compared to 86.1% in the three months ended October 31, 2007.

In our IDT Telecom businesses, our competitors continue to aggressively price their services. In addition, we discovered that many of our major competitors were significantly overstating the number of minutes to be delivered by their calling cards, and accordingly, on March 8, 2007, we filed a civil anti-fraud action in the federal district court in Newark, New Jersey, claiming that these competitors have been misleading calling card customers, and as a result, negatively impacting our market share resulting in a reduction in our gross revenues

and profits. On July 22, 2008, we filed a deceptive practices and false advertising complaint in New York, New York, claiming that certain entities conspired together to deceive and/or mislead consumers who use prepaid calling cards. We also believe that there may have been a gradual shift in demand industry-wide away from calling cards and into wireless products, which, among other things, may have further eroded pricing power. The continued growth of the use of wireless services, largely due to lower pricing of such services, has adversely affected the sales of our prepaid calling cards as customers migrate from using prepaid calling cards to wireless services. We expect pricing of wireless services to continue to decrease, resulting in increased substitution of prepaid calling cards by wireless services and increased pricing pressure on our prepaid calling cards. In our wholesale markets as well, we have generally had to pass along portions of our per-minute cost savings to our customers in the form of lower prices. These trends have impacted our telecom businesses, and as a result, we have generally experienced declines in both our revenues and overall per-minute price realizations. At times, though, we have chosen to raise prices, particularly within our calling card business, in an effort to increase per-minute price realizations, which generally results in a negative impact on minute volumes, thereby reducing revenues. Minutes-of-use in our global calling card business has generally declined each quarter beginning in the third quarter of fiscal 2006, from 4.23 billion in the second quarter of fiscal 2006 to 1.97 billion in the first quarter of fiscal 2009.

We believe that recent immigration trends in the United States may be decreasing our potential customer base. Since immigrants are a target customer base for our prepaid calling card business, their reduced number has adversely affected our revenues and profitability in that business. If these immigration trends continue or accelerate, our calling card revenues and profitability will continue to be adversely affected.

The contract for one of our largest private label calling card customers, which was scheduled to expire in November 2008, was renewed for an additional three year term ending on November 22, 2011.

Critical Accounting Policies

Our condensed consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States. Our significant accounting policies are described in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for fiscal 2008. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. Critical accounting policies are those that require application of management's most subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. Our critical accounting policies include those related to the allowance for doubtful accounts, goodwill, valuation of long-lived and intangible assets, income and other taxes and regulatory agency fees, contingent liabilities and revenue recognition for our purchased debt portfolios. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. For additional discussion of our critical accounting policies, see our Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for fiscal 2008.

Results of Operations

Three Months Ended October 31, 2008 Compared to Three Months Ended October 31, 2007

We evaluate the performance of our operating business segments based primarily on income (loss) from operations. Accordingly, the income and expense line items below income (loss) from operations are only included in our discussion of the consolidated results of operations.

Consolidated



                                  Three months ended
                                     October 31,              Change
                                   2008         2007        $          %
                                              (in millions)
               Revenues
               IDT Telecom      $    353.5    $  402.9   $ (49.4 )   (12.3 )%
               IDT Energy             67.2        42.1      25.1      59.6
               IDT Carmel              8.9         9.7      (0.8 )    (8.4 )
               IDT Capital            11.8        13.3      (1.5 )   (11.7 )

               Total revenues   $    441.4    $  468.0   $ (26.6 )    (5.7 )%

Revenues. The decrease in consolidated revenues in the three months ended October 31, 2008 compared to the similar period in fiscal 2008 was primarily due to a decline in IDT Telecom revenues, partially offset by an increase in IDT Energy revenues. The decrease in IDT Telecom revenues in the three months ended October 31, 2008 compared to the similar period in fiscal 2008 resulted from decreases in the revenues of all three of the IDT Telecom segments. In addition, $6.0 million of the decrease in IDT Telecom revenues in the three months ended October 31, 2008 compared to the similar period in fiscal 2008 was due to changes in foreign currency exchange rates. IDT Telecom minutes of use (excluding minutes related to our consumer phone services business, as the portion of such minute traffic carried in our network is insignificant) declined 4.8% from 5.884 billion in the three months ended October 31, 2007 to 5.604 billion in the three months ended October 31, 2008.

The increase in IDT Energy revenues in the three months ended October 31, 2008 compared to the similar period in fiscal 2008 was the result of increases in revenue from sales of both electricity and natural gas driven by the significant growth in the customer base of IDT Energy, as well as increases in average electricity and natural gas rates charged to customers.

IDT Carmel's revenues decreased in the three months ended October 31, 2008 compared to the similar period in fiscal 2008, as IDT Carmel's purchased debt portfolios balance declined from $81.1 million at October 31, 2007 to $59.5 million at October 31, 2008, which results in a decrease in revenues under the effective yield method.

The decrease in IDT Capital revenues in the three months ended October 31, 2008 compared to the similar period in fiscal 2008 is primarily due to the disposal of IDT Global Israel, Ltd., our call center operations in Israel, in the fourth quarter of fiscal 2008. IDT Global Israel generated revenues of $1.2 million in the three months ended October 31, 2007.

                                             Three months ended
                                                October 31,              Change
                                              2008         2007        $          %
                                                         (in millions)
     Costs and expenses
     Direct cost of revenues               $    339.4    $  366.5   $ (27.1 )    (7.4 )%
     Selling, general and administrative         94.9       115.0     (20.1 )   (17.4 )
     Depreciation and amortization               14.0        17.8      (3.8 )   (21.3 )
     Bad debt                                     1.9         2.3      (0.4 )   (17.7 )
     Research and development                     1.6         0.4       1.2     343.3
     Restructuring and severance charges          2.0         1.7       0.3      15.7

     Total costs and expenses              $    453.8    $  503.7   $ (49.9 )    (9.9 )%

Direct Cost of Revenues. The decrease in direct cost of revenues in the three months ended October 31, 2008 compared to the similar period in fiscal 2008 was due primarily to the declines in IDT Telecom and IDT Capital's

direct cost of revenues, partially offset by increases in IDT Energy's direct cost of revenues. The decrease in direct cost of revenues in IDT Telecom in the three months ended October 31, 2008 compared to the similar period in fiscal 2008 reflects the decline in IDT Telecom's revenues and continued reductions in connectivity costs. In addition, $5.0 million of the decrease in direct cost of revenues in IDT Telecom in the three months ended October 31, 2008 compared to the similar period in fiscal 2008 was due to changes in foreign currency exchange rates. The increase in IDT Energy's direct cost of revenues in the three months ended October 31, 2008 compared to the similar period in fiscal 2008 was due to increases in electricity and natural gas consumption and an increase in the average unit cost of natural gas. The decrease in IDT Capital's direct cost of revenues in the three months ended October 31, 2008 compared to the similar period in fiscal 2008 was primarily due to the disposal of IDT Global Israel in the fourth quarter of fiscal 2008. Overall gross margin increased from 21.7% in the three months ended October 31, 2007 to 23.1% in the three months ended October 31, 2008 due to increases in gross margins in IDT Energy and IDT Capital, partially offset by lower gross margins in IDT Telecom and IDT Carmel.

Selling, General and Administrative. The decrease in selling, general and administrative expenses in the three months ended October 31, 2008 compared to the similar period in fiscal 2008 was due to reductions in the selling, general and administrative expenses of IDT Telecom, IDT Capital and corporate, offset by an increase in the selling, general and administrative expenses of IDT Energy. The reduction in IDT Telecom's selling, general and administrative expenses in the three months ended October 31, 2008 compared to the similar period in fiscal 2008 was primarily the result of reductions in sales and marketing expenses, compensation costs, equipment and software maintenance, legal fees, consulting fees and professional fees. IDT Capital's selling, general and administrative expenses decreased in the three months ended October 31, 2008 compared to the similar period in fiscal 2008 primarily due to a decrease in legal fees related to ongoing litigation related to certain of our patents. Corporate general and administrative expenses decreased in the three months ended October 31, 2008 compared to the similar period in fiscal 2008 primarily due to decreases in payroll and related expenses and charitable contributions. IDT Energy's selling, general and administrative expenses increased in the three months ended October 31, 2008 compared to the similar period in fiscal 2008 due primarily to increases in compensation expense, billing related fees and customer acquisition costs. As a percentage of total revenues, selling, general and administrative expenses decreased from 24.6% in the three months ended October 31, 2007 to 21.5% in the three months ended October 31, 2008 as selling, general and administrative expenses decreased at a faster rate than total revenues.

Stock-based compensation expense included in selling, general and administrative expenses, primarily relating to the vesting of restricted stock and stock option grants, was $1.3 million and $1.4 million in the three months ended October 31, 2008 and 2007, respectively.

On October 31, 2008, we entered into an Amended and Restated Employment Agreement with Mr. Howard S. Jonas, our Chairman. Pursuant to this Agreement
(i) the term of Mr. Jonas' employment with us runs until December 31, 2013 and
(ii) Mr. Jonas was granted 3.5 million restricted shares of our Class B common stock and 2.7 million restricted shares of our common stock in lieu of a cash base salary beginning January 1, 2009 through December 31, 2013. The restricted shares vest in different installments throughout the term of Mr. Jonas' employment as delineated in the agreement, and all of the restricted shares paid to Mr. Jonas under the agreement automatically vest in the event of (i) a change in control of the Company; (ii) Mr. Jonas' death; or (iii) if Mr. Jonas is terminated without cause or if he terminates his employment for good reason as defined in the agreement. A pro rata portion of the restricted shares will vest in the event of termination for cause. The restricted shares were granted on October 31, 2008 pursuant to our 2005 Stock Option and Incentive Plan, as amended and restated, and are subject to approval of the amendment of the Plan at our annual meeting of stockholders on December 17, 2008. Total unrecognized compensation cost on the grant date was $5.5 million. The unrecognized compensation cost is expected to be recognized over the vesting period from January 1, 2009 through December 31, 2013.

On November 5, 2008, we and Mr. James A. Courter, our Vice Chairman and Chief Executive Officer, entered into an amendment to Mr. Courter's employment agreement. Pursuant to the amendment, Mr. Courter was granted 1.1 million restricted shares of Class B common stock in lieu of a cash base salary from January 1, 2009 until

October 21, 2009. The restricted shares are scheduled to vest on October 21, 2009, the last day of the term under the amended employment agreement. Pursuant to the amendment, all of the restricted shares paid to Mr. Courter under the amendment automatically vest in the event of (i) a change in control of the Company; (ii) Mr. Courter's death; or (iii) if Mr. Courter is terminated without cause or if he terminates his employment for good reason as defined by the amendment. A pro rata portion of the restricted shares will vest in the event of termination for cause. The restricted shares were granted on November 5, 2008 pursuant to our 2005 Stock Option and Incentive Plan, and are subject to approval of the amendment of the Plan at our annual meeting of stockholders on December 17, 2008. Total unrecognized compensation cost on the grant date was $0.8 million. The unrecognized compensation cost is expected to be recognized from January 1, 2009 through October 21, 2009.

Depreciation and amortization. The decrease in depreciation and amortization expense in the three months ended October 31, 2008 compared to the similar period in fiscal 2008 was primarily due to IDT Telecom property, plant and equipment becoming fully depreciated and a decrease in capital expenditures.

Bad Debt. Bad debt expense decreased in the three months ended October 31, 2008 compared to the similar period in fiscal 2007 primarily due to a decrease in IDT Telecom's bad debt expense. IDT Telecom's bad debt expense decreased in the three months ended October 31, 2008 compared to the similar period in fiscal 2007 primarily due to a decrease in Consumer Phone Services bad debt expense, which reflected the decline in its revenues and evaluations of its outstanding receivables that resulted in adjustments to its provisions.

Research and Development. Research and development expenses in three months ended October 31, 2008 include costs of $0.8 million related to Alternative Energy and $0.8 million related to Fabrix T.V., Ltd., our majority-owned venture developing a video content delivery and storage platform. Research and development expenses in the three months ended October 31, 2007 of $0.4 million were related to Fabrix T.V., Ltd. Alternative Energy includes (1) our majority-owned subsidiary, American Shale Oil, L.L.C. (AMSO LLC), which is one of three holders of 10-year leases granted by the U.S. Bureau of Land Management to research, develop and demonstrate in-situ technologies for potential commercial shale oil production in western Colorado, and (2) our Israeli alternative energy initiative, which was granted a license in Israel in the fourth quarter of fiscal 2008 to explore oil shale for potential production of shale oil. In the three months ended October 31, 2008, research and development expenses incurred by AMSO and by our Israeli initiative were $0.7 million and $0.1 million, respectively.

Restructuring and Severance Charges. The restructuring and severance charges in the three months ended October 31, 2008 and 2007 consist primarily of severance related to a company-wide cost savings program initiated towards the end of the third quarter of fiscal 2006. As of October 31, 2008, this program resulted in the termination of approximately 1,260 employees. In the three months ended October 31, 2008, IDT Telecom reversed accrued severance of $2.6 million as a result of modifications to retention agreements with two IDT Telecom executive employees. In the three months ended October 31, 2007, IDT Spectrum (which is included in IDT Capital) reversed $0.4 million of restructuring charges recorded in fiscal 2006 for a contract termination. The following table summarizes the changes in the reserve balances related to our restructuring activities (substantially all of which relates to workforce reductions):

                         Balance at                                    Balance at
                          July 31,      Charged to                     October 31,
                            2008         Expense        Payments          2008
                                              (in thousands)
          IDT Telecom   $     10,854   $       (780 )   $  (3,629 )   $       6,445
          IDT Energy              -              15           (15 )              -
          IDT Carmel             713            389          (671 )             431
          IDT Capital            526          1,065        (1,420 )             171
          Corporate            7,076          1,328        (1,806 )           6,598

          Total         $     19,169   $      2,017     $  (7,541 )   $      13,645

Arbitration Award Income. In November 2007, our Net2Phone Cable Telephony subsidiary, which is included in our Wholesale Telecommunications Services segment, was awarded approximately €23 million, plus interest from November 2005, in an arbitration proceeding against Altice One S.A. and certain of its affiliates. The arbitration proceeding related to Altice's termination of cable telephony license agreements Net2Phone Cable Telephony had entered into in November 2004. We recorded a gain of $40.0 million for this arbitration award, including accrued interest, in the first quarter of fiscal 2008, which is included in income from operations.

                                              Three months ended
                                                  October 31,                 Change
                                               2008           2007         $          %
                                                            (in millions)
 (Loss) income from operations              $    (12.5 )     $  4.3     $ (16.8 )   (388.3 )%
 Interest (expense) income, net                   (0.9 )        2.4        (3.3 )   (139.2 )
 Other (expense) income, net                     (21.2 )        6.3       (27.5 )   (434.8 )
 Minority interests                                0.3         (0.6 )       0.9      158.1
 Provision for income taxes                       (3.0 )       (3.8 )       0.8       22.6

 (Loss) income from continuing operations        (37.3 )        8.6       (45.9 )   (533.6 )
 Loss from discontinued operations                  -          (1.8 )       1.8      100.0
. . .