Net2Phone Reports Third Quarter Results; Company Records $18.9 Million in Quarterly Revenues and Loss of $0.21 Per Share; Company Provides Outline for AT&T Relationship - Company Financial Information

Cambridge Telcom Report, June 5, 2000

Net2Phone, Inc. (NASDAQ: NTOP) Wednesday reported net revenues totaling $18.9 million for the third quarter of fiscal year 2000 ended April 30, 2000, more than double the revenues of $9.0 million for the third quarter of FY1999 and a 22% increase over revenues of $15.5 million in the prior quarter.

Net loss before the amortization of non-cash compensation expense from the issuance of options for the third quarter of 2000 was ($11.4) million or ($0.21) per share, as compared to a net loss of ($0.83) million or ($0.03) per share for the third quarter of 1999 and ($8.7) million or ($0.17) per share in the prior quarter.

Gross margins in the quarter were 42% as compared to 46% for the prior quarter. Depreciation and amortization for the third quarter was $1.6 million as compared to $1.1 million for the prior quarter.

"Once again, Net2Phone has demonstrated strong growth coupled with new initiatives for additional revenue streams, such as our carrier wholesale initiatives, broadband opportunities and Yap -- our new hardware line," said Howie Balter, CEO of Net2Phone. "Not only are our gross margins significantly higher than anyone in the industry, but the company's VoIP product and service offerings continue to be the most attractive and competitive in the industry."

INCREASED USAGE

Total Net2Phone minutes of use grew to 121 million minutes for the quarter, an 89% increase over the 64 million minutes of use for the same quarter year-ago and a 17% increase over the prior quarter's 103 million minutes. As of April 30, 2000, Net2Phone had over 825,000 active customers who had paid for and used Net2Phone's services during the past three months, a 43% increase over the prior quarter's 575,000.

OUTLINE OF AT&T RELATIONSHIP

During the quarter, an AT&T-led consortium announced it will acquire a 39 percent voting stake in Net2Phone. The company Wednesday outlined central themes for leveraging the strengths between AT&T and Net2Phone to create next generation telecommunications products and services. Joint opportunities include value-added services utilizing global IP networks, creating standards for Voice over IP and routing Voice over IP for consumers and the enterprise. Additionally, AT&T WorldNet Service and Net2Phone have already begun working together to offer PC-to-phone service to AT&T WorldNet Service members. The companies expect the deal to close in the first quarter of fiscal year 2001.

HARDWARE SOLUTIONS AND IP DEVICES

This quarter, Net2Phone announced a strategic inititave to develop and market Yap (Your Alternative Phone) products, a new product line designed to enhance Internet calling for businesses and consumers around the world. In only a few months, the company has produced five Yap products, and has already signed distribution agreements with the largest global distribution companies, including Tech Data and Ingram Micro. Yap Gear is already available in retail outlets nationwide, including CompUSA, MicroCenter, and Office Max. For more information on Yap Gear, visit www.yapgear.com. The company plans to roll out more products in the near future, including those for Voice over DSL and cable.

Net2Phone has also signed an agreement with Scientific-Atlanta to work together to develop new voice over Internet protocol and unified messaging applications that incorporate Scientific-Atlanta's Explorer digital set-tops and interactive network, enabling Net2Phone to provide Scientific-Atlanta's customers with Voice over IP for cable.

ONLINE DISTRIBUTION

Last week, Net2Phone joined priceline.com in launching Priceline Long Distance, a service that enables customers to name their price for long distance services. Net2Phone is priceline.com's premier provider of long distance services with the right to fulfill the first 60 percent of incoming offers. In beta tests with priceline.com, Net2Phone signed up more than 10,000 customers.

"The success of our early testing with Priceline Long Distance is indicative of the strong demand for low-cost telecom services," said Howie Balter. "We look forward to expanding our suite of services with priceline.com to exclusively offer computerless bidding for long distance services where users can order by phone and name their own price."

Netscape also launched the beta version of its new browser, Netscape 6, last month, incorporating Net2Phone in the download and on the Personal Toolbar. Net2Phone has a multiyear exclusive relationship with Netscape to be the sole Internet telephony application on the browser.

The company is on track to integrate into AOL's Instant Messenger as well as AOL's ICQ client software in mid to late summer.

IP NETWORK EXPANSION

Furthering its commitment to a worldwide IP telephony network, Net2Phone has rolled out its phone-to-phone service internationally. The Company has started offering its low cost Voice over IP ("VoIP") service in 20 countries. Net2Phone's network currently reaches over 30 countries and expects to be operational in 25 additional countries by the end of the year.