##### 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 January 31, 2009
 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
    
    13-3645702(State or Other Jurisdiction of Incorporation or Organization)
    
    (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 o
    
    Smaller reporting company þ
 o þ




---



##### 



EASYLINK SERVICES INTERNATIONAL CORPORATION  INDEX TO FORM 10-Q
 PagePART I FINANCIAL INFORMATION
    
    
    1Item 1: Financial Statements
    
    
    1Condensed Consolidated Balance Sheets as of January 31, 2009
and July 31, 2008 (Unaudited)
    
    
    1Condensed Consolidated Statements of Operations for the three
and six months ended January 31, 2009 and 2008 (Unaudited)
    
    
    2Condensed
Consolidated Statements of Cash Flows for the six months ended January 31, 2009 and 2008 (Unaudited)
    
    
    3Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    4Item 2: Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    10Item 3: Quantitative and Qualitative Disclosures about Market Risk
    
    
    16Item 4T: Controls and Procedures
    
    
    16PART II OTHER INFORMATION
    
    
    17Item 1: Legal Proceedings
    
    
    17Item 1A: Risk Factors
    
    
    17Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    17Item 3: Defaults Upon Senior Securities
    
    
    18Item 4: Submission of Matters to a Vote of Security Holders
    
    
    18Item 5: Other Information
    
    
    18Item 6: Exhibits
    
    
    18Signatures
    
    
    19Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 Condensed Consolidated Balance Sheets as of January 31, 2009 and July 31, 2008 (Unaudited)
 January 31,
    
    
    July 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    11,237,231
    
    
    $
    32,091,005Accounts receivable, net
    
    
    11,803,606
    
    
    
    13,575,782Prepaid expenses and other current assets
    
    
    3,437,737
    
    
    
    5,414,192Total current assets
    
    
    26,478,574
    
    
    
    51,080,979Property and equipment, net
    
    
    9,560,190
    
    
    
    8,551,927Goodwill
    
    
    36,206,639
    
    
    
    40,209,960Other intangible assets, net
    
    
    25,083,092
    
    
    
    27,742,466Tax asset
    
    
    3,335,613
    
    
    
    3,343,778Other assets
    
    
    632,519
    
    
    
    595,689Total assets
    
    $
    101,296,627
    
    
    $
    131,524,799LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,671,277
    
    
    $
    2,820,744Notes payable
    
    
    41,105,881
    
    
    
    7,052,313Accrued expenses
    
    
    6,512,861
    
    
    
    10,683,206Other current liabilities
    
    
    1,665,695
    
    
    
    1,861,869Total current liabilities
    
    
    51,955,714
    
    
    
    22,418,132Long term debt
    
    
    
    
    
    
    47,497,402Other liabilities
    
    
    799,591
    
    
    
    1,005,505Total liabilities
    
    
    52,755,305
    
    
    
    70,921,039Commitments and contingenciesStockholders Equity:Series C Preferred Stock  par value
$.01 per share, 44.76 votes per share;
5,000 shares issued and 5,000 outstanding
(liquidation value of $5,216,986 at
January 2009 and $5,116,393 at July 2008)
    
    
    50
    
    
    
    50Common stock:class A  par value $.01 per share,
300,000,000 shares authorized, one vote
per share; 25,233,420 shares issued and
24,233,420 outstanding for January 2009
and 25,125,088 shares issued and
25,015,838 outstanding for July 2008
    
    
    253,796
    
    
    
    251,251Additional paid-in capital
    
    
    125,930,339
    
    
    
    125,457,794Treasury stock  1,000,000 shares atf
January 2009 and 109,250 shares at July
2008
    
    
    (2,122,288
    )
    
    
    (303,325
    )Accumulated other comprehensive loss
    
    
    (2,613,893
    )
    
    
    (1,063,266
    )Accumulated deficit
    
    
    (72,906,682
    )
    
    
    (63,738,744
    )Total stockholders equity
    
    
    48,541,322
    
    
    
    60,603,760Total liabilities and stockholders equity
    
    $
    101,296,627
    
    
    $
    131,524,799
   1




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##### Table of Contents



Condensed Consolidated Statements of Operations for the three and six months ended January 31, 2009
and 2008 (Unaudited)
 Three Months Ended
    
    
    Six Months EndedJanuary 31,
    
    
    January 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Service revenue
    
    $
    20,856,115
    
    
    $
    23,650,804
    
    
    $
    43,671,061
    
    
    $
    44,636,671Cost of services
    
    
    5,802,493
    
    
    
    7,039,413
    
    
    
    12,521,638
    
    
    
    13,044,315Gross profit
    
    
    15,053,622
    
    
    
    16,611,391
    
    
    
    31,149,423
    
    
    
    31,592,356Operating expenses:Product development and enhancement
    
    
    2,004,863
    
    
    
    1,839,541
    
    
    
    4,127,328
    
    
    
    3,872,222Selling and marketing
    
    
    3,090,884
    
    
    
    2,927,111
    
    
    
    6,656,528
    
    
    
    5,309,729General and administrative
    
    
    6,532,092
    
    
    
    7,350,389
    
    
    
    15,890,119
    
    
    
    14,551,496Goodwill and Intangible impairment
    
    
    4,245,914
    
    
    
    
    
    
    
    4,245,914
    
    
    
    Operating
income (loss)
    
    
    (820,131
    )
    
    
    4,494,350
    
    
    
    229,534
    
    
    
    7,858,909Other income (expense):Interest and investment income
    
    
    12,208
    
    
    
    278,581
    
    
    
    141,783
    
    
    
    432,676Interest expense
    
    
    (3,901,426
    )
    
    
    (3,154,738
    )
    
    
    (9,018,655
    )
    
    
    (8,158,306
    )Equity in losses of investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (930,269
    )Foreign exchange gain
    
    
    138,548
    
    
    
    586,112
    
    
    
    136,150
    
    
    
    785,922Other income
    
    
    34,460
    
    
    
    46,680
    
    
    
    98,565
    
    
    
    78,150Income
(loss) before income taxes
    
    
    (4,536,341
    )
    
    
    2,250,985
    
    
    
    (8,412,623
    )
    
    
    67,082Provision (Benefit) for income taxes
    
    
    298,917
    
    
    
    (1,021,999
    )
    
    
    755,269
    
    
    
    (1,194,139
    )Net Income (loss)
    
    
    (4,835,258
    )
    
    
    3,272,984
    
    
    
    (9,167,892
    )
    
    
    1,261,221Dividends on preferred stock
    
    
    (50,230
    )
    
    
    (50,365
    )
    
    
    (100,593
    )
    
    
    (100,776
    )Net Income (loss) attributable to common stockholders
    
    $
    (4,885,488
    )
    
    $
    3,222,619
    
    
    $
    (9,268,485
    )
    
    $
    1,160,445Basic Income (loss) per common share
    
    $
    (0.20
    )
    
    $
    0.13
    
    
    $
    (0.38
    )
    
    $
    0.05Diluted Income (loss) per common share
    
    $
    (0.20
    )
    
    $
    0.10
    
    
    $
    (0.38
    )
    
    $
    0.04Anti-dilutive stock options, restricted
stock, warrants, Series A and Series B
Convertible Notes and Series C preferred
stock
    
    
    25,886,935
    
    
    
    6,332,187
    
    
    
    24,053,003
    
    
    
    29,293,563Weighted average number of common shares
outstanding  basic
    
    
    24,220,786
    
    
    
    24,337,515
    
    
    
    24,565,540
    
    
    
    24,178,723Weighted average number of common shares
outstanding  diluted
    
    
    24,220,786
    
    
    
    49,009,606
    
    
    
    24,565,540
    
    
    
    25,892,557
   2




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Condensed Consolidated Statements of Cash Flows for the six months ended January 31, 2009 and 2008
(Unaudited)
 Six Months Ended January 31,2009
    
    
    2008Cash flows from operating activities:Net income (loss)
    
    $
    (9,167,893
    )
    
    $
    1,261,221Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    4,404,994
    
    
    
    4,126,075Bad debt expense
    
    
    545,003
    
    
    
    384,547Amortization of discount and other non-cash interest expense
    
    
    5,365,010
    
    
    
    5,885,323Non-cash charges for equity instruments issued for compensation and services
    
    
    573,095
    
    
    
    230,955Non-cash
equity in losses of investment, dividends and other non-cash items
    
    
    (107,649
    )
    
    
    1,233,756Goodwill and intangible asset impairment
    
    
    4,245,914
    
    
    
    Changes in assets and liabilities, net of effects from acquisition:Accounts receivable
    
    
    512,606
    
    
    
    (1,433,203
    )Prepaid expenses and other assets
    
    
    1,535,758
    
    
    
    (1,544,288
    )Accounts payable
    
    
    (89,595
    )
    
    
    (523,928
    )Accrued expenses
    
    
    (3,575,809
    )
    
    
    (6,006,471
    )Deferred revenue and other liabilities
    
    
    (915,280
    )
    
    
    (1,649,437
    )Net cash
(used in) provided by operating activities
    
    
    3,326,154
    
    
    
    1,964,550Cash flows from investing activities:Payment for purchase of acquisitions, net of cash acquired
    
    
    
    
    
    
    (55,851,563
    )Sale of Business
    
    
    
    
    
    
    4,504,477Purchases of intellectual property and equipment
    
    
    (3,188,745
    )
    
    
    (328,314
    )Other
    
    
    53,924
    
    
    
    17,877Net cash used in investing activities
    
    
    (3,134,821
    )
    
    
    (51,657,523
    )Cash flows from financing activities:Proceeds from sale of stock and exercise of options and warrants
    
    
    2,588
    
    
    
    5,576,510Purchase of treasury stock
    
    
    (1,818,963
    )
    
    
    Net (repayments) borrowings
    
    
    (18,808,845
    )
    
    
    59,788,117Net cash (used in) provided by financing activities
    
    
    (20,625,220
    )
    
    
    65,364,627Effect of foreign exchange rate changes on cash and cash equivalents
    
    
    (419,887
    )
    
    
    (52,710
    )Net (decrease) increase in cash and cash equivalents
    
    
    (20,853,774
    )
    
    
    15,618,944Cash and cash equivalents, beginning of period
    
    
    32,091,005
    
    
    
    5,444,176Cash and cash equivalents, end of period
    
    $
    11,237,231
    
    
    $
    21,063,120
   3




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##### Table of Contents



EASYLINK SERVICES INTERNATIONAL CORPORATION
 
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 1. BASIS OF PRESENTATION
    Principles of consolidation and basis of presentation
  Recently adopted accounting pronouncements
 Fair Value
Measurements Effective Date of FASB
Statement No. 157
 The Fair Value Option for Financial Assets and Liabilities
 Noncontrolling Interests in Consolidated Financial Statements, an
Amendment to ARB No. 51
 Disclosures about Derivative Instruments and Hedging Activities, an
amendment of FASB Statement No. 133 Accounting for Derivative
Instruments and Hedging Activities
  4




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Recent accounting pronouncements not yet adopted
 The Hierarchy of Generally Accepted Accounting
Principles. The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles.
 Business Combinations
 , Determining Whether an Instrument (or
Embedded Feature) Is Indexed to an Entitys Own Stock
 2. ACQUIRED INTANGIBLE ASSETS
  Weighted averageamortizationperiod (years)
    
    
    January 31, 2009
    
    
    July 31, 2008Purchased customer relationships
    
    
    6  8
    
    
    $
    15,028,922
    
    
    $
    16,634,932Internally developed systems
    
    
    4
    
    
    
    6,266,591
    
    
    
    7,752,097Tradenames
    
    
    <1
    
    
    
    3,787,579
    
    
    
    3,355,437Intangible assets, net
    
    
    
    
    
    $
    25,083,092
    
    
    $
    27,742,466
     5




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##### Table of Contents



3. INDEBTEDNESS
      January 31, 2009
    
    
    July 31, 2008York Select Unit Trust
    
    $
    6,839,544
    
    
    $
    9,347,390York Credit Opportunities Fund, L.P.
    
    
    16,243,914
    
    
    
    22,200,048York Investment Limited
    
    
    17,098,857
    
    
    
    23,368,472York Capital Management, L.P.
    
    
    5,300,645
    
    
    
    7,244,226York Select, L.P.
    
    
    5,813,611
    
    
    
    7,945,280Capitalized leases
    
    
    19,304
    
    
    
    20,251Subtotal
    
    
    51,315,875
    
    
    
    70,125,667Less debt discount
    
    
    10,209,994
    
    
    
    15,575,952Less current portion of long term
debt
    
    
    41,105,881
    
    
    
    7,052,313Long term debt and capital leases
    
    $
    
    
    
    $
    47,497,402
  Twelve months ending January 31,
    
    Amount2010
    
    $
    51,315,875
 4. STOCKHOLDERS EQUITY
 Dividends
   6




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##### Table of Contents



Share Repurchases
  Total Number of
    
    
    MaximumTotal
    
    
    
    
    
    
    Shares
    
    
    Number of SharesNumber of
    
    
    Average
    
    
    Purchased as
    
    
    that May Yet beShares
    
    
    Price Paid
    
    
    Part of Publicly
    
    
    Purchased UnderPeriod
    
    Purchased
    
    
    per Share
    
    
    Announced Plan
    
    
    the PlanBalance as of July
31, 2008
    
    
    109,250
    
    
    $
    2.78
    
    
    
    109,250
    
    
    
    890,750October 1 to 31
    
    
    636,600
    
    
    $
    2.08
    
    
    
    636,600
    
    
    
    254,150November 1 to 30
    
    
    245,000
    
    
    $
    1.96
    
    
    
    245,000
    
    
    
    9,150December 1 to 31
    
    
    9,150
    
    
    $
    1.72
    
    
    
    9,150
    
    
    
    Total
    
    
    1,000,000
    
    
    $
    2.12
    
    
    
    1,000,000
 5. INCOME TAXES
  Accounting for Uncertainty in Income Taxes
 6. FAIR VALUE REPORTING
  
    
    Level 1  Observable inputs such as quoted prices in active market;
 
    
    Level 2  Inputs, other than the quoted prices in active markets, that are
observable either directly or indirectly; and
 
    
    Level 3  Unobservable inputs in which there is little or no market data, which
require the reporting entity to develop its own assumptions.
  7




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Quoted Prices inActive Markets
    
    
    Significantfor Identical
    
    
    Other
    
    
    SignificantAssets
    
    
    Observable
    
    
    Unobservable(Liabilities)
    
    
    Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Carrying AmountCash
    
    $
    10,231,967
    
    
    
    
    
    
    
    
    
    
    $
    10,231,967Cash Equivalents
    
    $
    1,005,264
    
    
    
    
    
    
    
    
    
    
    $
    1,005,264Notes Payable
    
    
    
    
    
    
    
    
    
    
    (47,375,958
    )
    
    
    (51,315,875
    )
  7. COMMITMENTS AND CONTINGENCIES
 New York State Sales Tax Assessment
   Litigation
     8




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##### Table of Contents



Accounting for Contingencies
 8. INTERIM SEGMENT DISCLOSURES
  
    
    Supply Chain Messaging Segment (Supply Chain), which includes all our EDI and
telex services. This segment was 50% and 52% of reported revenue for the quarters
ending January 31, 2009 and 2008, respectively.
 
    
    On Demand Messaging Segment (On Demand), which includes all fax, e-mail, document
capture and management (DCM) and workflow services. This segment was 50% and 48% of
reported revenue for the quarters ending January 31, 2009 and 2008, respectively.
  Quarter Ended January 31, 2009
    
    Supply Chain
    
    
    On Demand
    
    
    TotalRevenue from external customers
    
    $
    10,432,808
    
    
    $
    10,423,307
    
    
    $
    20,856,115Segment gross profit
    
    $
    7,790,427
    
    
    $
    7,263,195
    
    
    $
    15,053,622
  Segment gross profit
    
    $
    15,053,622Corporate expenses
    
    
    11,627,839Intangible impairment
    
    
    4,245,914Operating loss
    
    
    (820,131
    )Other income (expense), net
    
    
    (3,716,210
    )Loss before income taxes
    
    
    (4,536,341
    )Income tax expense
    
    
    298,917Net loss
    
    $
    (4,835,258
    )
 Quarter Ended January 31, 2008
    
    Supply Chain
    
    
    On Demand
    
    
    TotalRevenue from external customers
    
    $
    12,408,790
    
    
    $
    11,242,014
    
    
    $
    23,650,804Segment gross profit
    
    $
    9,142,069
    
    
    $
    7,469,322
    
    
    $
    16,611,391
  Segment gross profit
    
    $
    16,611,391Corporate expenses
    
    
    12,117,041Operating income
    
    
    4,494,350Other income (expense), net
    
    
    (2,243,365
    )Income before income taxes
    
    
    2,250,985Income tax benefit
    
    
    (1,021,999
    )Net income
    
    $
    3,272,984
  9




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Six Months Ended January 31, 2009
    
    Supply Chain
    
    
    On Demand
    
    
    TotalRevenue from external customers
    
    $
    22,047,882
    
    
    $
    21,623,179
    
    
    $
    43,671,061Segment gross profit
    
    $
    16,264,872
    
    
    $
    14,884,551
    
    
    $
    31,149,423
  Segment gross profit
    
    $
    31,149,423Corporate expenses
    
    
    26,673,975Intangible impairment
    
    
    4,245,914Operating income
    
    
    229,534Other income (expense), net
    
    
    (8,642,157
    )Loss before income taxes
    
    
    (8,412,623
    )Income tax expense
    
    
    755,269Net loss
    
    $
    (9,167,892
    )
 Six Months Ended January 31, 2008
    
    Supply Chain
    
    
    On Demand
    
    
    TotalRevenue from external customers
    
    $
    23,929,025
    
    
    $
    20,707,646
    
    
    $
    44,636,671Segment gross profit
    
    $
    17,680,150
    
    
    $
    13,912,206
    
    
    $
    31,592,356
  Segment gross profit
    
    $
    31,592,356Corporate expenses
    
    
    23,733,447Operating income
    
    
    7,858,909Other income (expense), net
    
    
    (7,791,827
    )Income before income taxes
    
    
    67,082Income tax benefit
    
    
    (1,194,139
    )Net income
    
    $
    1,261,221
 9. DERIVATIVE FINANCIAL INSTRUMENTS
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    10




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Critical Accounting Policies and Significant Use of Estimates in Financial Statements
    11




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Six Months Ended January 31, 2009 Compared with the Six Months Ended January 31, 2008
 Results of Operations
  Six Months Ended January 31,2009
    
    
    2008
    
    
    VarianceRevenue:Supply Chain MessagingEDI Services
    
    $
    16,966,983
    
    
    $
    18,453,340
    
    
    $
    (1,486,357
    )Telex Services
    
    
    5,080,899
    
    
    
    5,475,685
    
    
    
    (394,786
    )Total Supply Chain Messaging
    
    
    22,047,882
    
    
    
    23,929,025
    
    
    
    (1,881,143
    )On Demand MessagingFax Services
    
    
    17,333,028
    
    
    
    16,406,526
    
    
    
    926,502DCM Services
    
    
    1,432,903
    
    
    
    1,376,460
    
    
    
    56,443Other Services
    
    
    2,857,248
    
    
    
    2,924,660
    
    
    
    (67,412
    )Total On Demand Messaging
    
    
    21,623,179
    
    
    
    20,707,646
    
    
    
    915,533Total Revenue:
    
    
    43,671,061
    
    
    
    44,636,671
    
    
    
    (965,610
    )Cost of Revenue:Supply Chain Messaging
    
    
    5,783,010
    
    
    
    6,248,875
    
    
    
    (465,865
    )On Demand Messaging
    
    
    6,738,628
    
    
    
    6,795,440
    
    
    
    (56,812
    )Total Cost of Revenue
    
    
    12,521,638
    
    
    
    13,044,315
    
    
    
    (522,677
    )Gross Margin:Supply Chain Messaging
    
    
    16,264,872
    
    
    
    17,680,150
    
    
    
    (1,415,278
    )On Demand Messaging
    
    
    14,884,551
    
    
    
    13,912,206
    
    
    
    972,345Total Gross Margin
    
    
    31,149,423
    
    
    
    31,592,356
    
    
    
    (442,933
    )Product Development and Enhancement
    
    
    4,127,328
    
    
    
    3,872,222
    
    
    
    255,106Selling and Marketing
    
    
    6,656,528
    
    
    
    5,309,729
    
    
    
    1,346,799General and Administrative
    
    
    15,890,119
    
    
    
    14,551,496
    
    
    
    1,338,623Goodwill and Intangible Impairment
    
    
    4,245,914
    
    
    
    
    
    
    
    4,245,914Total product, selling and G&A expenses
    
    
    30,919,889
    
    
    
    23,733,447
    
    
    
    7,186,442Other (expense) income
    
    
    8,642,157
    
    
    
    7,791,827
    
    
    
    850,330Income (loss) before income taxes
    
    $
    (8,412,623
    )
    
    $
    67,082
    
    
    $
    (8,479,705
    )
   12




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Three Months Ended January 31, 2009 Compared with the Three Months Ended January 31, 2008
 Results of Operations
  Three Months Ended January 31,2009
    
    
    2008
    
    
    VarianceRevenue:Supply Chain MessagingEDI Services
    
    $
    8,046,624
    
    
    $
    9,394,187
    
    
    $
    (1,347,563
    )Telex Services
    
    
    2,386,184
    
    
    
    3,014,603
    
    
    
    (628,419
    )Total Supply Chain Messaging
    
    
    10,432,808
    
    
    
    12,408,790
    
    
    
    (1,975,982
    )On Demand MessagingFax Services
    
    
    8,572,674
    
    
    
    8,949,066
    
    
    
    (376,392
    )DCM Services
    
    
    689,374
    
    
    
    702,353
    
    
    
    (12,979
    )Other Services
    
    
    1,161,259
    
    
    
    1,590,595
    
    
    
    (429,336
    )Total On Demand Messaging
    
    
    10,423,307
    
    
    
    11,242,014
    
    
    
    (818,707
    )Total Revenue:
    
    
    20,856,115
    
    
    
    23,650,804
    
    
    
    (2,794,689
    )Cost of Revenue:Supply Chain Messaging
    
    
    2,642,381
    
    
    
    3,266,721
    
    
    
    (624,340
    )On Demand Messaging
    
    
    3,160,112
    
    
    
    3,772,692
    
    
    
    (612,580
    )Total Cost of Revenue
    
    
    5,802,493
    
    
    
    7,039,413
    
    
    
    (1,236,920
    )Gross Margin:Supply Chain Messaging
    
    
    7,790,427
    
    
    
    9,142,069
    
    
    
    (1,351,642
    )On Demand Messaging
    
    
    7,263,195
    
    
    
    7,469,322
    
    
    
    (206,127
    )Total Gross Margin
    
    
    15,053,622
    
    
    
    16,611,391
    
    
    
    (1,557,770
    )Product Development and Enhancement
    
    
    2,004,863
    
    
    
    1,839,541
    
    
    
    165,322Selling and Marketing
    
    
    3,090,884
    
    
    
    2,927,111
    
    
    
    163,773General and Administrative
    
    
    6,532,092
    
    
    
    7,350,389
    
    
    
    (818,297
    )Goodwill and Intangible Impairment
    
    
    4,245,914
    
    
    
    
    
    
    
    4,245,914Total product, selling and G&A expenses
    
    
    15,873,753
    
    
    
    12,117,041
    
    
    
    3,756,712Other (expense) income
    
    
    3,716,210
    
    
    
    2,243,365
    
    
    
    1,472,845Income (loss) before income taxes
    
    $
    (4,536,341
    )
    
    $
    2,250,985
    
    
    $
    (6,787,326
    )
    14




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Liquidity and Capital Resources
   15




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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
    
    $
    13,550,284
    
    
    $
    2,868,945
    
    
    $
    5,212,712
    
    
    $
    3,768,846
    
    
    $
    1,699,781Telecomm Commitments
    
    
    3,153,550
    
    
    
    1,905,150
    
    
    
    1,248,400Series A and B Notes
and capital leases
    
    
    51,315,875
    
    
    
    51,315,875
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    68,019,709
    
    
    $
    56,089,970
    
    
    $
    6,461,112
    
    
    $
    3,768,846
    
    
    $
    1,699,781
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4T. Controls and Procedures
 Disclosure Controls and Procedures
   16




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Internal Controls
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Our business is being affected by the global economic slowdown and the rapid changes in
foreign exchange rates.
 If we were to default on our loan covenants our cash flow would not be adequate to meet the
default provisions.
 Our year end fair value analysis and impairment testing on our current outstanding intangibles
and goodwill could lead to additional impairment charges .
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders.
   Name
    
    Votes For
    
    
    Votes WithheldRichard J. Berman
    
    
    18,962,037
    
    
    
    2,207,265Kim D. Cooke
    
    
    19,849,370
    
    
    
    1,318,932Donald R. Harkleroad
    
    
    19,936,794
    
    
    
    1,231,508Paul D. Lapides
    
    
    19,941,241
    
    
    
    1,227,061John S. Simon
    
    
    19,940,998
    
    
    
    1,227,304Thomas J. Stallings
    
    
    19,913,575
    
    
    
    1,254,727
   
 Item 5. Other Information
  
 Item 6. Exhibits
 Exhibits
    
    Description2.1
    
    
    Fourth Amendment to Securities Purchase Agreement, dated as of
December 31, 2008, by and among EasyLink Services International
Corporation and each of the Purchasers identified on the
signature pages thereto. (Incorporated by reference to the
Companys Current Report on Form 8-K (File No. 000-24996), dated
December 31, 2008, as filed with the Securities and Exchange
Commission on January 7, 2009.)10.1
    
    
    Employment Agreement between EasyLink Services International
Corporation and Chris A. Parker, dated November 14, 2008.
(Incorporated by reference to the Companys Current Report on
Form 8-K (File No. 000-24996), dated December November 14, 2008,
as filed with the Securities and Exchange Commission on November
17, 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.
  18




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SIGNATURES
   EASYLINK SERVICES INTERNATIONAL CORPORATIONBy:
    /s/ Glen E. ShipleyGlen E. ShipleyChief Financial Officer  19




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EXHIBIT INDEX
 Exhibits
    
    Description31.1
    
    
    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.
  20