##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended April 30, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 000-24996
 
 EasyLink Services International Corporation
  Delaware(State or Other Jurisdiction of Incorporation or Organization)
    
    13-3645702(I.R.S. Employer Identification No.)6025 The Corners Parkway, Suite 100Norcross, Georgia
(Address of Principal Executive Offices)
    
    30092
(Zip Code)
 (678) 533-8000
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated þ
    
    Smaller reporting company o
 o þ




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##### 



EASYLINK SERVICES INTERNATIONAL CORPORATION  INDEX TO FORM 10-Q
 Page NumberPART 1 FINANCIAL INFORMATION
    
    
    1Item 1: Interim Condensed Consolidated Financial Statements
    
    
    1Condensed Consolidated Balance Sheets as of April 30, 2008
and July 31, 2007 (Unaudited)
    
    
    1Condensed Consolidated Statements of Income for the three
and nine months ended April 30, 2008 and 2007 (Unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows for the
nine months ended April 30, 2008 and 2007 (Unaudited)
    
    
    3Notes to Interim Condensed Consolidated Financial
Statements (Unaudited)
    
    
    4Item 2: Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    16Item 3: Quantitative and Qualitative Disclosures about Market Risk
    
    
    21Item 4: Controls and Procedures
    
    
    21PART II OTHER INFORMATION
    
    
    21Item 1: Legal Proceedings
    
    
    21Item 1A: Risk Factors
    
    
    21Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 3: Defaults Upon Senior Securities
    
    
    22Item 4: Submission of Matters to a Vote of Security Holders
    
    
    22Item 5: Other Information
    
    
    22Item 6: Exhibits
    
    
    22Signatures
    
    
    24Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Interim Condensed Consolidated Financial Statements
 
 Condensed Consolidated Balance Sheets as of April 30, 2008 and July 31, 2007 (Unaudited)
 April 30,
    
    
    July 31,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    27,179,529
    
    
    $
    5,444,176Accounts receivable, net of allowance for doubtful accounts and allowance for sales returns and allowances
of $1,541,120 and $558,643, respectively
    
    
    14,070,519
    
    
    
    3,479,134Prepaid expenses and other current assets
    
    
    4,527,665
    
    
    
    602,516Total current assets
    
    
    45,777,713
    
    
    
    9,525,826Property and equipment, net
    
    
    8,313,302
    
    
    
    943,836Goodwill
    
    
    44,051,765
    
    
    
    6,293,054Other intangible assets, net (See Note 4)
    
    
    29,119,719
    
    
    
    3,737,003Investments
    
    
    431,020
    
    
    
    13,223,184Restricted cash
    
    
    417,330
    
    
    
    433,635Deferred acquisition costs
    
    
    
    
    
    
    1,039,076Other assets
    
    
    224,689
    
    
    
    222,172Total assets
    
    $
    128,335,538
    
    
    $
    35,417,786LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,681,117
    
    
    $
    615,100Current portion of long term debt
    
    
    3,907,263
    
    
    
    10,000,000Accrued expenses
    
    
    8,377,959
    
    
    
    1,152,774Deferred revenue
    
    
    680,971
    
    
    
    227,496Other current liabilities
    
    
    879,421
    
    
    
    573,577Total current liabilities
    
    
    17,526,731
    
    
    
    12,568,947Long term debt (See Note 5)
    
    
    49,540,155
    
    
    
    Deferred tax liability
    
    
    10,306,895
    
    
    
    Other liabilities
    
    
    1,181,739
    
    
    
    709,203Total liabilities
    
    $
    78,555,520
    
    
    $
    13,278,150Commitments and contingencies (See Note 10)Stockholders Equity:Preferred stock  5,000,000 shares authorized, including 5,000 shares of series C and 250 shares of series D:Series C Preferred Stock  par value $.01 per share, 44.76 votes per share; 5,000 shares issued and
outstanding (liquidation value of $5,066,120 at 2008 and $5,116,164 at 2007)
    
    
    50
    
    
    
    50Series D Preferred Stock  par value $.01 per share, 769 votes per share; zero and 250 shares issued and
outstanding, respectively (liquidation value of $250,000 at 2007)
    
    
    
    
    
    
    3Common stock:Class A  par value $.01 per share, 300,000,000 shares authorized, one vote per share; 25,092,835 and
23,263,056 shares issued and outstanding, respectively
    
    
    250,938
    
    
    
    232,630Additional paid-in capital
    
    
    122,326,210
    
    
    
    101,860,585Accumulated other comprehensive loss
    
    
    (954,988
    )
    
    
    Accumulated deficit
    
    
    (71,842,192
    )
    
    
    (79,953,632
    )Total stockholders equity
    
    
    49,780,018
    
    
    
    22,139,636Total liabilities and stockholders equity
    
    $
    128,335,538
    
    
    $
    35,417,786
   1




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Condensed Consolidated Statements of Income for the three and nine months ended April 30, 2008 and
2007 (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedApril 30,
    
    
    April 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Service revenue
    
    $
    23,599,696
    
    
    $
    5,390,270
    
    
    $
    68,236,367
    
    
    $
    16,500,465Cost of services
    
    
    6,701,442
    
    
    
    1,190,759
    
    
    
    19,745,758
    
    
    
    3,760,384Gross Profit
    
    
    16,898,254
    
    
    
    4,199,511
    
    
    
    48,490,609
    
    
    
    12,740,081Operating expenses:Product development and enhancement
    
    
    2,111,513
    
    
    
    595,836
    
    
    
    5,983,735
    
    
    
    1,898,177Selling and marketing
    
    
    2,897,718
    
    
    
    379,589
    
    
    
    8,207,447
    
    
    
    1,268,905General and administrative
    
    
    7,367,411
    
    
    
    2,589,139
    
    
    
    21,918,906
    
    
    
    7,677,614Operating income
    
    
    4,521,612
    
    
    
    634,947
    
    
    
    12,380,521
    
    
    
    1,895,385Other income (expense):Interest and investment income
    
    
    163,160
    
    
    
    69,856
    
    
    
    595,836
    
    
    
    233,542Interest expense
    
    
    (2,306,541
    )
    
    
    (18,791
    )
    
    
    (10,464,847
    )
    
    
    (59,065
    )Equity in losses in investment
    
    
    
    
    
    
    
    
    
    
    (930,269
    )
    
    
    Foreign exchange gain
    
    
    128,292
    
    
    
    
    
    
    
    914,214
    
    
    
    Other income (expense)
    
    
    11,209
    
    
    
    288
    
    
    
    89,359
    
    
    
    (21,288
    )Income before income taxes
    
    
    2,517,732
    
    
    
    686,300
    
    
    
    2,584,814
    
    
    
    2,048,574(Benefit) provision for income taxes
    
    
    (4,418,376
    )
    
    
    135,097
    
    
    
    (5,612,515
    )
    
    
    219,367Net income
    
    
    6,936,108
    
    
    
    551,203
    
    
    
    8,197,329
    
    
    
    1,829,207Dividends on preferred stock
    
    
    (49,180
    )
    
    
    (48,767
    )
    
    
    (149,956
    )
    
    
    (233,425
    )Extinguishment of dividends on retired
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,000Income attributable to common stockholders
    
    
    6,886,928
    
    
    $
    502,436
    
    
    
    8,047,373
    
    
    $
    1,795,782Basic income per common share
    
    $
    0.28
    
    
    $
    0.02
    
    
    $
    0.33
    
    
    $
    0.08Diluted income per common share
    
    $
    0.17
    
    
    $
    0.02
    
    
    $
    0.29
    
    
    $
    0.07Anti-dilutive stock options, warrants and
series C preferred stock
    
    
    5,793,178
    
    
    
    2,371,473
    
    
    
    5,625,675
    
    
    
    1,482,592Weighted average number of common shares
outstanding  basic
    
    
    24,604,376
    
    
    
    22,823,776
    
    
    
    24,318,536
    
    
    
    22,759,581Weighted average number of common shares
outstanding  diluted
    
    
    48,852,869
    
    
    
    24,234,565
    
    
    
    48,844,713
    
    
    
    24,674,040
   2




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Condensed Consolidated Statements of Cash Flows for the nine months ended April 30, 2008 and 2007
(Unaudited)
 Nine Months Ended April 30,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    8,197,329
    
    
    $
    1,829,207Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    6,303,225
    
    
    
    1,517,310Bad debt expense
    
    
    373,691
    
    
    
    364,610Amortization of discount and other non-cash interest expense
    
    
    6,963,998
    
    
    
    58,958Loss on disposal of fixed assets
    
    
    
    
    
    
    52Non-cash charges for equity instruments issued for compensation and
services
    
    
    345,852
    
    
    
    694,889Non-cash equity in losses of investment and other non-cash items
    
    
    1,058,360
    
    
    
    Release of valuation reserve
    
    
    (4,396,995
    )
    
    
    Changes in assets and liabilities, net of effects from acquisition:Accounts receivable
    
    
    (1,480,075
    )
    
    
    (798,873
    )Prepaid expenses and other assets
    
    
    466,745
    
    
    
    (222,096
    )Accounts payable
    
    
    149,293
    
    
    
    (264,224
    )Accrued expenses
    
    
    (8,141,307
    )
    
    
    298,933Deferred revenue and other liabilities
    
    
    (4,156,298
    )
    
    
    (239,096
    )Net cash provided by operating activities
    
    
    5,683,818
    
    
    
    3,239,670Cash flows from investing activities:Payment for purchase of acquisitions, net of cash acquired
    
    
    (53,453,874
    )
    
    
    (320,551
    )Payment for investments
    
    
    (429,919
    )
    
    
    Proceeds from sale of business
    
    
    4,504,477
    
    
    
    Purchases of property and equipment
    
    
    (957,291
    )
    
    
    (361,341
    )Other
    
    
    18,233
    
    
    
    Net cash used in investing activities
    
    
    (50,318,374
    )
    
    
    (681,892
    )Cash flows from financing activities:Proceeds from sale of stock and exercise of options and warrants
    
    
    6,629,702
    
    
    
    375,081Payment to retire preferred and common stock
    
    
    
    
    
    
    (2,875,000
    )Proceeds from borrowings for acquisition
    
    
    59,788,117
    
    
    
    Net cash provided by (used in) financing activities
    
    
    66,417,819
    
    
    
    (2,499,919
    )Effect of foreign exchange rate changes on cash and cash equivalents
    
    
    (47,910
    )
    
    
    Net increase in cash and cash equivalents
    
    
    21,735,353
    
    
    
    57,859Cash and cash equivalents, beginning of period
    
    
    5,444,176
    
    
    
    6,988,753Cash and cash equivalents, end of period
    
    $
    27,179,529
    
    
    $
    7,046,612
   3




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EASYLINK SERVICES INTERNATIONAL CORPORATION
 
 Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
    1. ORGANIZATION AND NATURE OF BUSINESS
      4




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2. ACQUISITIONS
 EasyLink Services Corporation
         5




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6




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Base purchase price
    
    $
    63,378,560EasyLink class A common stock issued
    
    
    724,125Transaction costs paid in cash
    
    
    4,213,390Transaction costs paid with stock
    
    
    2,485,350Total purchase price
    
    $
    70,801,425
   Cash
    
    $
    3,971,120Accounts receivable
    
    
    10,493,510Prepaid expenses and other current assets
    
    
    3,251,342Fixed assets
    
    
    8,969,279Intangible assets  software
    
    
    8,700,000Intangible assets  trade names
    
    
    3,185,000Intangible assets  customer relationships
    
    
    19,400,000Accounts payable
    
    
    (3,830,013
    )Accrued liabilities
    
    
    (14,283,647
    )Other current liabilities
    
    
    (1,321,307
    )Long term liabilities
    
    
    (8,634,759
    )Fair value of net assets acquired
    
    $
    29,900,525Goodwill
    
    $
    40,900,900Total purchase price
    
    $
    70,801,425
  Weighted AverageAcquired Intangible Assets
    
    Estimated Fair Value
    
    
    Estimated Useful LifeCustomer Relationships
    
    $
    19,400,000
    
    
    8Internally developed software
    
    
    8,700,000
    
    
    4Trade name
    
    
    3,185,000
    
    
    IndefiniteGoodwill
    
    
    40,900,900
    
    
    Non-amortizable
  7




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For the nine months ended April 30,2008
    
    
    2007Revenues
    
    $
    70,488,183
    
    
    $
    72,055,316Income from continuing operations
    
    
    4,432,841
    
    
    
    (297,331
    )Income from discontinued operations
    
    
    
    
    
    
    928,366Net income
    
    
    4,432,841
    
    
    
    631,035Income available to common stockholders
    
    
    4,282,885
    
    
    
    597,610Basic income per common stock:Income from continuing operations
    
    $
    0.18
    
    
    $
    (0.01
    )Income from discontinued operations
    
    $
    0.00
    
    
    $
    0.04Net Income
    
    $
    0.18
    
    
    $
    0.03Diluted income per common stock:Income from continuing operations
    
    $
    0.17
    
    
    $
    (0.02
    )Income from discontinued operations
    
    $
    0.00
    
    
    $
    0.04Net Income
    
    $
    0.17
    
    
    $
    0.02
  8




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##### Table of Contents



3. DISPOSITION OF ASSETS
  4. ACQUIRED INTANGIBLE ASSETS
  Weightedaverageamortization
    
    April 30,
    
    
    July 31,period (years)
    
    2008
    
    
    2007Mapping technology
    
    5
    
    $
    4,780,000
    
    
    $
    4,780,000Purchased customer relationships
    
    6-8
    
    
    20,053,129
    
    
    
    2,978,789Internally developed systems
    
    4
    
    
    11,806,570
    
    
    
    2,840,159Trade names
    
    <1
    
    
    3,435,000
    
    
    
    250,000Intangible assets, gross
    
    
    
    
    40,074,699
    
    
    
    10,848,948Less accumulated amortization:Mapping technology
    
    
    
    
    (4,780,000
    )
    
    
    (4,780,000
    )Purchased customer relationships
    
    
    
    
    (2,757,915
    )
    
    
    (905,354
    )Internally developed systems
    
    
    
    
    (3,346,430
    )
    
    
    (1,382,742
    )Trade names
    
    
    
    
    (70,635
    )
    
    
    (43,849
    )Accumulated amortization
    
    
    
    
    (10,954,980
    )
    
    
    (7,111,945
    )Intangible assets, net
    
    
    
    $
    29,119,719
    
    
    $
    3,737,003
 5. LONG TERM DEBT
  Series A
    
    
    Series B
    
    
    TotalFace value upon issuanceOn August 20, 2007
    
    $
    35,052,708
    
    
    $
    35,052,708
    
    
    $
    70,105,416Less:Value of beneficial conversion feature
    
    
    (7,761,885
    )
    
    
    (7,761,885
    )
    
    
    (15,523,770
    )Value of warrants
    
    
    (3,504,577
    )
    
    
    (3,504,577
    )
    
    
    (7,009,154
    )Debt issue costs
    
    
    (156,048
    )
    
    
    (156,047
    )
    
    
    (312,095
    )Net balance at August 20, 2007
    
    
    23,630,198
    
    
    
    23,630,199
    
    
    
    47,260,397Accretion of discounts as non-cash interest expense
    
    
    3,111,807
    
    
    
    3,055,327
    
    
    
    6,167,134Net balance at April 30, 2008
    
    
    26,742,005
    
    
    
    26,685,526
    
    
    
    53,427,531Current portion
    
    
    1,941,477
    
    
    
    1,945,899
    
    
    
    3,887,376Long term balance at April 30, 2008
    
    $
    24,800,528
    
    
    $
    24,739,627
    
    
    $
    49,450,155
  9




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6. EQUITY TRANSACTIONS
   7. NEW ACCOUNTING PRONOUNCEMENTS
      10




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8. RECLASSIFICATIONS OF CERTAIN COSTS
   Three months endedApril 30, 2007
    
    
    
    
    
    
    Three months endedPreviously
    
    
    Customer Service
    
    
    April 30, 2007Reported
    
    
    Reclassification
    
    
    ReclassifiedCost of services
    
    $
    1,999,118
    
    
    $
    (808,359
    )
    
    $
    1,190,759General and administrative
    
    
    1,780,780
    
    
    
    808,359
    
    
    
    2,589,139
 Nine months endedApril 30, 2007
    
    
    
    
    
    
    Nine months endedPreviously
    
    
    Customer Service
    
    
    April 30, 2007Reported
    
    
    Reclassification
    
    
    ReclassifiedCost of services
    
    $
    5,828,093
    
    
    $
    (2,067,709
    )
    
    $
    3,760,384General and administrative
    
    
    5,609,905
    
    
    
    2,067,709
    
    
    
    7,677,614
 9. INCOME TAXES
     11




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10. COMMITMENTS AND CONTINGENCIES
 Series A and B Notes:
  Representations and Warranties:
  Letters of Credit:
  Legal Proceedings:
  Penalty for Failure to Register Shares:
    12




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New York State Sales Tax Assessment:
   11. BUSINESS SEGMENT INFORMATION
  
    
    Supply Chain Messaging segment, which includes VAN services,
browser-based and hosted applications, EDI outsourcing and services,
mapping and professional services, and telex services; and
    
    On Demand Messaging segment, which includes the integrated desktop
messaging services, other fax services, DCM services, and the workflow
service obtained in the ESC acquisition.
   13




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Supply Chain
    
    
    On Demand
    
    
    TotalThree Months Ended April 30, 2008Revenue from external customers
    
    $
    12,317,430
    
    
    $
    11,282,266
    
    
    $
    23,599,696Segment gross profit
    
    $
    9,213,492
    
    
    $
    7,684,762
    
    
    $
    16,898,254
  Segment gross profit
    
    $
    16,898,254Corporate expenses
    
    
    12,376,642Operating income
    
    
    4,521,612Other income (expense), net
    
    
    (2,003,880
    )Income before income taxes
    
    
    2,517,732Income tax benefit
    
    
    (4,418,376
    )Net income
    
    $
    6,936,108
 Supply Chain
    
    
    On Demand
    
    
    TotalThree Months Ended April 30, 2007Revenue from external customers
    
    $
    5,390,270
    
    
    
    
    
    
    $
    5,390,270Segment gross profit
    
    $
    4,199,511
    
    
    
    
    
    
    $
    4,199,511
  Segment gross profit
    
    $
    4,199,511Corporate expenses
    
    
    (3,564,564
    )Operating income
    
    
    634,947Other income (expense), net
    
    
    51,353Income before income taxes
    
    
    686,300Income tax expense
    
    
    135,097Net income
    
    $
    551,203
  14




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Supply Chain
    
    
    On Demand
    
    
    TotalNine Months Ended April 30, 2008Revenue from external customers
    
    $
    36,246,455
    
    
    $
    31,989,912
    
    
    $
    68,236,367Segment gross profit
    
    $
    26,893,641
    
    
    $
    21,596,968
    
    
    $
    48,490,609
  Segment gross profit
    
    $
    48,490,609Corporate expenses
    
    
    36,110,088Operating income
    
    
    12,380,521Other income (expense), net
    
    
    (9,795,707
    )Income before income taxes
    
    
    2,584,814Income tax benefit
    
    
    (5,612,515
    )Net income
    
    $
    8,197,329
 Supply Chain
    
    
    On Demand
    
    
    TotalNine Months Ended April 30, 2007Revenue from external customers
    
    $
    16,500,465
    
    
    
    
    
    
    $
    16,500,465Segment gross profit
    
    $
    12,740,081
    
    
    
    
    
    
    $
    12,740,081
  Segment gross profit
    
    $
    12,740,081Corporate expenses
    
    
    10,844,696Operating income
    
    
    1,895,385Other income (expense), net
    
    
    153,189Income before income taxes
    
    
    2,048,574Income tax expense
    
    
    219,367Net income
    
    $
    1,829,207
 12. SUBSEQUENT EVENTS
   15




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   Critical Accounting Policies and Significant Use of Estimates in Financial Statements
  Beneficial
Conversion Feature and Accretive Interest Expense
   16




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Nine Months Ended April 30, 2008 Compared with the Nine Months Ended April 30, 2007  Results of Operations
  Nine Months Ended April 30,2008
    
    
    2007
    
    
    VarianceRevenue:Supply Chain MessagingEDI Services
    
    $
    27,863,355
    
    
    $
    16,500,465
    
    
    $
    11,362,890Telex Services
    
    
    8,383,100
    
    
    
    
    
    
    
    8,383,100Total Supply Chain Messaging
    
    
    36,246,455
    
    
    
    16,500,465
    
    
    
    19,745,990On Demand MessagingFax Services
    
    
    25,452,140
    
    
    
    
    
    
    
    25,452,140DCM Services
    
    
    2,085,282
    
    
    
    
    
    
    
    2,085,282Other Services
    
    
    4,452,490
    
    
    
    
    
    
    
    4,452,490Total On Demand Messaging
    
    
    31,989,912
    
    
    
    
    
    
    
    31,989,912Total Revenue:
    
    
    68,236,367
    
    
    
    16,500,465
    
    
    
    51,735,902Cost of Revenue:Supply Chain Messaging
    
    
    9,352,814
    
    
    
    3,760,384
    
    
    
    5,592,430On Demand Messaging
    
    
    10,392,944
    
    
    
    
    
    
    
    10,392,94419,745,758
    
    
    
    3,760,384
    
    
    
    15,985,374Gross Margin:Supply Chain Messaging
    
    
    26,893,641
    
    
    
    12,740,081
    
    
    
    14,153,560On Demand Messaging
    
    
    21,596,968
    
    
    
    
    
    
    
    21,596,96848,490,609
    
    
    
    12,740,081
    
    
    
    35,750,528Product Development and Enhancement
    
    
    5,983,736
    
    
    
    1,898,177
    
    
    
    4,085,559Selling and Marketing
    
    
    8,207,447
    
    
    
    1,268,905
    
    
    
    6,938,542General and Administrative
    
    
    21,918,906
    
    
    
    7,677,614
    
    
    
    14,241,29236,110,089
    
    
    
    10,844,696
    
    
    
    25,265,392Other (expense) income
    
    
    (9,795,706
    )
    
    
    153,189
    
    
    
    (9,948,895
    )Income before income taxes
    
    $
    2,584,814
    
    
    $
    2,048,574
    
    
    $
    536,241
    17




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18




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Three Months Ended April 30, 2008 Compared with the Three Months Ended April 30, 2007  Results of Operations
  Three Months Ended April 30,2008
    
    
    2007
    
    
    VarianceRevenue:Supply Chain MessagingEDI Services
    
    $
    9,410,015
    
    
    $
    5,390,270
    
    
    $
    4,019,745Telex Services
    
    
    2,907,415
    
    
    
    
    
    
    
    2,907,415Total Supply Chain Messaging
    
    
    12,317,430
    
    
    
    5,390,270
    
    
    
    6,927,160On Demand MessagingFax Services
    
    
    9,045,614
    
    
    
    
    
    
    
    9,045,614DCM Services
    
    
    708,822
    
    
    
    
    
    
    
    708,822Other Services
    
    
    1,527,830
    
    
    
    
    
    
    
    1,527,830Total On Demand Messaging
    
    
    11,282,266
    
    
    
    
    
    
    
    11,282,266Total Revenue:
    
    
    23,599,696
    
    
    
    5,390,270
    
    
    
    18,209,426Cost of Revenue:Supply Chain Messaging
    
    
    3,103,939
    
    
    
    1,190,759
    
    
    
    1,913,180On Demand Messaging
    
    
    3,597,503
    
    
    
    
    
    
    
    3,957,5036,701,442
    
    
    
    1,190,759
    
    
    
    5,510,683Gross Margin:Supply Chain Messaging
    
    
    9,213,491
    
    
    
    4,199,511
    
    
    
    5,013,980On Demand Messaging
    
    
    7,684,763
    
    
    
    
    
    
    
    7,684,76316,898,254
    
    
    
    4,199,511
    
    
    
    12,698,743Product Development and Enhancement
    
    
    2,111,513
    
    
    
    595,836
    
    
    
    1,515,677Selling and Marketing
    
    
    2,897,718
    
    
    
    379,589
    
    
    
    2,518,129General and Administrative
    
    
    7,367,411
    
    
    
    2,589,139
    
    
    
    4,778,27212,376,642
    
    
    
    3,564,564
    
    
    
    8,812,078Other (expense) income
    
    
    (2,003,880
    )
    
    
    51,353
    
    
    
    (2,055,233
    )Income before income taxes
    
    $
    2,517,732
    
    
    $
    686,300
    
    
    $
    1,831,432
      19




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Liquidity and Capital Resources
   Off-Balance Sheet Arrangements
  Tabular Disclosure of Contractual Obligations
  Payment due by periodLess than
    
    
    1-3
    
    
    3-5
    
    
    More thanContractual
Obligations
    
    Total
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 yearsOperating Lease
Obligations
    
    $
    13,915,508
    
    
    $
    3,362,499
    
    
    $
    6,207,979
    
    
    $
    3,098,742
    
    
    $
    1,246,288Series A and B Notes
    
    $
    70,105,416
    
    
    $
    4,673,694
    
    
    $
    56,084,333
    
    
    $
    9,347,389
    
    
    $
    Total
    
    $
    84,020,924
    
    
    $
    8,036,193
    
    
    $
    62,292,312
    
    
    $
    12,446,131
    
    
    $
    1,246,288
  20




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
     
 Item 4. Controls and Procedures
 
 
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Our business could be adversely affected by unfavorable general economic and business
conditions
  21




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##### Table of Contents



We may not be profitable in the future .
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 10.1*
    
    
    Amended and Restated Employment Agreement between
EasyLink Services International Corporation and
Thomas J. Stallings dated April 1, 2008
(incorporated by Reference to the Companys Current
Report on Form 8-K (File No. 000-24996), dated April
1, 2008, as filed with the Securities and Exchange
Commission on April 2, 2008).10.2*
    
    
    Amended and Restated Employment Agreement between
EasyLink Services International Corporation and Glen
E. Shipley dated April 1, 2008 (incorporated by
Reference to the Companys Current Report on Form
8-K (File No. 000-24996), dated April 1, 2008, as
filed with the Securities and Exchange Commission on
April 2, 2008).10.3*
    
    
    Amended and Restated Employment Agreement between
EasyLink Services International Corporation and
Kevin R. Maloney dated April 1, 2008 (incorporated
by Reference to our Current Report on Form 8-K (File
No. 000-24996), dated April 1, 2008, as filed with
the Securities and Exchange Commission on April 2,
2008).10.4*
    
    
    Amended and Restated Employment Agreement between
EasyLink Services International Corporation and John
Mecke dated April 1, 2008 (incorporated by Reference
to the Companys Current Report on Form 8-K (File
No. 000-24996), dated April 1, 2008, as filed with
the Securities and Exchange Commission on April 2,
2008).
  22




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##### Table of Contents



10.5*
    
    
    Amended and Restated Employment Agreement between
EasyLink Services International Corporation and
Terri Deuel dated April 1, 2008 (incorporated by
Reference to our Current Report on Form 8-K (File
No. 000-24996), dated April 1, 2008, as filed with
the Securities and Exchange Commission on April 2,
2008).31.1
    
    
    Certification of the Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.31.2
    
    
    Certification of the Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.32.1
    
    
    Certification of the Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.32.2
    
    
    Certification of the Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
 *
    
    Confidential Treatment has been requested with respect to portions of this Exhibit.
The omitted portions of this Exhibit were filed separately with the Securities and
Exchange Commission.  23




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##### Table of Contents



SIGNATURES
   EASYLINK SERVICES INTERNATIONAL CORPORATIONBy:
    /s/ Glen E. ShipleyGlen E. ShipleyChief Financial Officer  24




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##### Table of Contents



EXHIBIT INDEX
 Exhibits
    
    Description10.1*
    
    
    Amended and Restated Employment Agreement between EasyLink
Services International Corporation and Thomas J. Stallings
dated April 1, 2008 (incorporated by Reference to the Companys
Current Report on Form 8-K (File No. 000-24996), dated April 1,
2008, as filed with the Securities and Exchange Commission on
April 2, 2008).10.2*
    
    
    Amended and Restated Employment Agreement EasyLink Services
International Corporation and Glen E. Shipley dated April 1,
2008 (incorporated by Reference to the Companys Current Report
on Form 8-K (File No. 000-24996), dated April 1, 2008, as filed
with the Securities and Exchange Commission on April 2, 2008).10.3*
    
    
    Amended and Restated Employment Agreement EasyLink Services
International Corporation and Kevin
R. Maloney dated April 1,
2008 (incorporated by Reference to the Companys Current Report
on Form 8-K (File No. 000-24996), dated April 1, 2008, as filed
with the Securities and Exchange Commission on April 2, 2008).10.4*
    
    
    Amended and Restated Employment Agreement EasyLink Services
International Corporation and John
Mecke dated April 1, 2008
(incorporated by Reference to the Companys Current Report on
Form 8-K (File No. 000-24996), dated April 1, 2008, as filed
with the Securities and Exchange Commission on April 2, 2008).10.5*
    
    
    Amended and Restated Employment Agreement EasyLink Services
International Corporation and Terri
Deuel dated April 1, 2008
(incorporated by Reference to the Companys Current Report on
Form 8-K (File No. 000-24996), dated April 1, 2008, as filed
with the Securities and Exchange Commission on April 2, 2008).31.1
    
    
    Certification of the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of the Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    Certification of the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 *
    
    Confidential Treatment has been requested with respect to portions of this Exhibit. The
omitted portions of this Exhibit were filed separately with the Securities and Exchange
Commission.  25