##### 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, 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
    
    13-3645702(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)6025 The Corners Parkway, Suite 100
    
    30092Norcross, Georgia
    
    (Zip Code)(Address of Principal Executive Offices)
 (678) 533-8000
 þ o
  o o þ o
 Yes o       No þ




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##### 



EASYLINK SERVICES INTERNATIONAL CORPORATION
INDEX TO FORM 10-Q
 Page NumberPart 1: FINANCIAL INFORMATION
    
    
    3Item 1: Interim Condensed Consolidated Financial Statements
    
    
    3Condensed Consolidated Balance Sheets as of January 31, 2008 and July 31, 2007 (Unaudited)
    
    
    3Condensed Consolidated Statements of Income for the three and six months ended January 31, 2008 and 2007 (Unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended January 31, 2008 and 2007 (Unaudited)
    
    
    5Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
    
    
    6Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3: Quantitative and Qualitative Disclosures about Market Risk
    
    
    24Item 4: Controls and Procedures
    
    
    24PART II OTHER INFORMATION
    
    
    24Item 1: Legal Proceedings
    
    
    24Item 1A: Risk Factors
    
    
    25Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3: Defaults Upon Senior Securities
    
    
    25Item 4: Submission of Matters to a Vote of Security Holders
    
    
    25Item 5: Other Information
    
    
    26Item 6: Exhibits
    
    
    26Signatures
    
    
    27Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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PART I. FINANCIAL INFORMATION
 
 Item 1. Interim Condensed Consolidated Financial Statements
 
 Condensed Consolidated Balance Sheets as of January 31, 2008 and July 31, 2007 (Unaudited)
 January 31,
    
    
    July 31,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    21,063,120
    
    
    $
    5,444,176Accounts receivable, net of allowance for
doubtful accounts and allowance for sales returns and allowances of $1,619,077 and $558,643, respectively
    
    
    14,174,861
    
    
    
    3,479,134Prepaid expenses and other current assets
    
    
    4,550,112
    
    
    
    602,516Total current assets
    
    
    39,788,093
    
    
    
    9,525,826Property and equipment, net
    
    
    8,484,173
    
    
    
    943,836Goodwill
    
    
    46,175,493
    
    
    
    6,293,054Other intangible assets, net
    
    
    30,498,733
    
    
    
    3,737,003Investments
    
    
    1,890,001
    
    
    
    13,223,184Restricted cash
    
    
    417,330
    
    
    
    433,635Deferred acquisition costs
    
    
    
    
    
    
    1,039,076Other assets
    
    
    2,211,562
    
    
    
    222,172Total assets
    
    $
    129,465,385
    
    
    $
    35,417,786LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    5,131,624
    
    
    $
    615,100Current portion of long term debt
    
    
    
    
    
    
    10,000,000Accrued expenses
    
    
    10,437,563
    
    
    
    1,152,774Deferred revenue
    
    
    799,796
    
    
    
    227,496Other current liabilities
    
    
    1,076,512
    
    
    
    573,577Total current liabilities
    
    
    17,445,495
    
    
    
    12,568,947Long term debt (See Note 5)
    
    
    52,348,856
    
    
    
    Deferred tax liability
    
    
    16,913,988
    
    
    
    Other liabilities
    
    
    1,248,239
    
    
    
    709,203Total liabilities
    
    
    87,956,578
    
    
    
    13,278,150Commitments and contingencies (See Note 9)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 $5,216,940 at 2008
and $5,116,164 at 2007)
    
    
    50
    
    
    
    50Series D Preferred Stock  par value
$.01 per share, 769 votes per share; 250
shares issued and outstanding
(liquidation value of $250,000)
    
    
    3
    
    
    
    3Common stock:Class A  par value $.01 per share,
300,000,000 shares authorized, one vote
per share; 24,422,973 and 23,263,056
shares issued and outstanding,
respectively
    
    
    244,240
    
    
    
    232,630Additional paid-in capital
    
    
    121,173,925
    
    
    
    101,860,585Accumulated other comprehensive loss
    
    
    (1,131,112
    )
    
    
    Accumulated deficit
    
    
    (78,778,299
    )
    
    
    (79,953,632
    )Total stockholders equity
    
    
    41,508,807
    
    
    
    22,139,636Total liabilities and stockholders equity
    
    $
    129,465,385
    
    
    $
    35,417,786
   3




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Condensed Consolidated Statements of Income for the three and six months ended January 31, 2008 and
2007 (Unaudited)
 Three Months Ended
    
    
    Six Months EndedJanuary 31,
    
    
    January 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Service revenue
    
    $
    23,650,804
    
    
    $
    5,302,468
    
    
    $
    44,636,671
    
    
    $
    11,110,196Cost of services
    
    
    7,039,413
    
    
    
    1,209,558
    
    
    
    13,044,315
    
    
    
    2,569,625Gross Profit
    
    
    16,611,391
    
    
    
    4,092,910
    
    
    
    31,592,356
    
    
    
    8,540,571Operating expenses:Product development and enhancement
    
    
    1,839,541
    
    
    
    585,697
    
    
    
    3,872,222
    
    
    
    1,302,341Selling and marketing
    
    
    2,927,111
    
    
    
    369,359
    
    
    
    5,309,729
    
    
    
    889,316General and administrative
    
    
    7,350,389
    
    
    
    2,480,435
    
    
    
    14,551,496
    
    
    
    5,088,476Operating income
    
    
    4,494,350
    
    
    
    657,419
    
    
    
    7,858,909
    
    
    
    1,260,438Other income (expense):Interest and investment income
    
    
    278,581
    
    
    
    81,293
    
    
    
    432,676
    
    
    
    163,686Interest expense
    
    
    (3,154,738
    )
    
    
    (19,687
    )
    
    
    (8,158,306
    )
    
    
    (40,274
    )Equity in Losses in Investment
    
    
    
    
    
    
    
    
    
    
    (930,269
    )
    
    
    Foreign exchange gain
    
    
    586,112
    
    
    
    
    
    
    
    785,922
    
    
    
    Other income (expense)
    
    
    46,680
    
    
    
    1,044
    
    
    
    78,150
    
    
    
    (21,576
    )Income before income taxes
    
    
    2,250,985
    
    
    
    720,069
    
    
    
    67,082
    
    
    
    1,362,274Provision (benefit) for income taxes, current
    
    
    (1,021,999
    )
    
    
    16,663
    
    
    
    (1,194,139
    )
    
    
    84,270Net income
    
    
    3,272,984
    
    
    
    703,406
    
    
    
    1,261,221
    
    
    
    1,278,004Dividends on preferred stock
    
    
    (50,365
    )
    
    
    (83,836
    )
    
    
    (100,776
    )
    
    
    (184,658
    )Extinguishment of dividends on retired
preferred stock
    
    
    
    
    
    
    200,000
    
    
    
    
    
    
    
    200,000Income attributable to common stockholders
    
    $
    3,222,619
    
    
    $
    819,570
    
    
    $
    1,160,445
    
    
    $
    1,293,346Basic income per common share
    
    $
    0.13
    
    
    $
    0.04
    
    
    $
    0.05
    
    
    $
    0.06Diluted income per common share
    
    $
    0.10
    
    
    $
    0.03
    
    
    $
    0.04
    
    
    $
    0.05Anti-dilutive
stock options, warrants, series A and series B convertible notes and
series C preferred stock outstanding
    
    
    6,332,187
    
    
    
    1,710,399
    
    
    
    29,293,563
    
    
    
    1,710,399Weighted average number of common shares
outstanding  basic
    
    
    24,337,515
    
    
    
    22,740,594
    
    
    
    24,178,723
    
    
    
    22,728,530Weighted average number of common shares
outstanding diluted
    
    
    49,009,606
    
    
    
    24,963,417
    
    
    
    25,892,557
    
    
    
    25,066,145
   4




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Condensed Consolidated Statements of Cash Flows for the six months ended January 31, 2008 and 2007
(Unaudited)
 Six Months Ended January 31,2008
    
    
    2007Cash flows from operating activities:Net income (loss)
    
    $
    1,261,221
    
    
    $
    1,278,004Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    4,126,075
    
    
    
    993,142Bad debt expense
    
    
    384,547
    
    
    
    156,535Amortization of discount and other non-cash interest expense
    
    
    5,885,323
    
    
    
    40,274Non-cash charges for equity instruments issued for compensation and
services
    
    
    230,955
    
    
    
    493,999Non-cash equity in losses of investment and other non-cash items
    
    
    1,233,756
    
    
    
    Changes in assets and liabilities, net of effects from acquisition:Accounts receivable
    
    
    (1,433,203
    )
    
    
    (362,767
    )Prepaid expenses and other assets
    
    
    (1,544,288
    )
    
    
    (165,933
    )Accounts payable
    
    
    (523,928
    )
    
    
    (161,678
    )Accrued expenses
    
    
    (6,006,471
    )
    
    
    167,161Deferred revenue and other liabilities
    
    
    (1,649,437
    )
    
    
    (110,853
    )Net cash provided by (used in) operating activities
    
    
    1,964,550
    
    
    
    2,327,885Cash flows from investing activities:Payment for purchase of acquisitions, net of cash acquired
    
    
    (53,453,874
    )
    
    
    (320,551
    )Payment for investments
    
    
    (2,397,689
    )
    
    
    Proceeds from sale of business
    
    
    4,504,477
    
    
    
    Purchases of property and equipment
    
    
    (328,314
    )
    
    
    (296,084
    )Other
    
    
    17,877
    
    
    
    Net cash used in investing activities
    
    
    (51,657,523
    )
    
    
    (616,635
    )Cash flows from financing activities:Proceeds from sale of stock and exercise of options and warrants
    
    
    5,576,510
    
    
    
    269,969Payment to retire preferred and common stock
    
    
    
    
    
    
    (2,875,000
    )Borrowings for acquistion
    
    
    59,788,117Net cash provided by financing activities
    
    
    65,364,627
    
    
    
    (2,605,031
    )Effect of foreign exchange rate changes on cash and cash equivalents
    
    
    (52,710
    )
    
    
    Net increase in cash and cash equivalents
    
    
    15,618,944
    
    
    
    (893,781
    )Cash and cash equivalents, beginning of period
    
    
    5,444,176
    
    
    
    6,988,753Cash and cash equivalents, end of period
    
    $
    21,063,120
    
    
    $
    6,094,972
   5




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EASYLINK SERVICES INTERNATIONAL CORPORATION
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
    1. ORGANIZATION AND NATURE OF BUSINESS
      6




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2. ACQUISITIONS
 EasyLink Services Corporation
        7




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8




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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
    
    
    10,414,440Prepaid expenses and other current assets
    
    
    3,251,342Fixed assets
    
    
    8,791,679Intangible assets  software
    
    
    8,700,000Intangible assets  trade names
    
    
    3,185,000Intangible assets  customer relationships
    
    
    19,400,000Accounts payable
    
    
    (5,034,024
    )Accrued liabilities
    
    
    (14,283,647
    )Other current liabilities
    
    
    (1,321,307
    )Long term liabilities
    
    
    (9,997,766
    )Fair value of net assets acquired
    
    $
    27,076,837Goodwill
    
    $
    43,724,588Total 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
    
    
    43,724,588
    
    
    Non-amortizable
  9




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For the six months ended January 31,2008
    
    
    2007Revenues
    
    $
    46,888,487
    
    
    $
    47,909,255Income (loss) from continuing operations
    
    
    (2,503,267
    )
    
    
    (272,930
    )Income from discontinued operations
    
    
    
    
    
    
    928,366Net income (loss)
    
    
    (2,503,267
    )
    
    
    655,436Income (loss) available to common stockholders
    
    
    (2,604,043
    )
    
    
    670,778Basic income (loss) per common stock:Income (loss) from continuing operations
    
    $
    (0.11
    )
    
    $
    (0.01
    )Income from discontinued operations
    
    $
    (0.00
    )
    
    $
    0.04Net Income (Loss)
    
    $
    (0.11
    )
    
    $
    0.03Diluted income (loss) per common stock:Income (loss) from continuing operations
    
    $
    (0.10
    )
    
    $
    (0.01
    )Income from discontinued operations
    
    $
    0.00
    
    
    $
    0.04Net Income (Loss)
    
    $
    (0.10
    )
    
    $
    0.03
   10




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##### Table of Contents



3. DISPOSITION OF ASSETS
  4. ACQUIRED INTANGIBLE ASSETS
  Weightedaverageamortization
    
    
    January 31,
    
    
    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
    
    
    
    11,808,282
    
    
    
    2,840,159Trade names
    
    
    <1
    
    
    
    3,435,000
    
    
    
    250,000Intangible assets, gross
    
    
    
    
    
    
    40,076,411
    
    
    
    10,848,948Less accumulated amortization:Mapping technology
    
    
    
    
    
    
    (4,780,000
    )
    
    
    (4,780,000
    )Purchased customer relationships
    
    
    
    
    
    
    (2,097,635
    )
    
    
    (905,354
    )Internally developed systems
    
    
    
    
    
    
    (2,638,337
    )
    
    
    (1,382,742
    )Trade names
    
    
    
    
    
    
    (61,706
    )
    
    
    (43,849
    )Accumulated amortization
    
    
    
    
    
    
    (9,577,678
    )
    
    
    (7,111,945
    )Intangible assets, net
    
    
    
    
    
    $
    30,498,733
    
    
    $
    3,737,003
 5. LONG TERM DEBT
  Series A
    
    
    Series B
    
    
    TotalFace value upon issuance
On 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
    
    
    2,563,390
    
    
    
    2,525,069
    
    
    
    5,088,459Long Term balance at January 31, 2008
    
    
    26,193,588
    
    
    
    26,155,268
    
    
    
    52,348,856Current portion
    
    
    
    
    
    
    
    
    
    
    Balance at January 31, 2008
    
    $
    26,193,588
    
    
    $
    26,155,268
    
    
    $
    52,348,856
  11




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6. NEW ACCOUNTING PRONOUNCEMENTS
    7. RECLASSIFICATIONS OF CERTAIN COSTS
   12




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Three months endedJanuary 31, 2007
    
    
    
    
    
    
    Three months endedPreviously
    
    
    Customer Service
    
    
    January 31, 2007reported
    
    
    Reclassification
    
    
    ReclassifiedCost of services
    
    $
    1,969,683
    
    
    $
    (760,125
    )
    
    $
    1,209,558General and administrative
    
    
    1,720,310
    
    
    
    760,125
    
    
    
    2,480,435Six months endedJanuary 31, 2007
    
    
    
    
    
    
    Six months endedPreviously
    
    
    Customer Service
    
    
    January 31, 2007reported
    
    
    Reclassification
    
    
    ReclassifiedCost of services
    
    $
    3,828,975
    
    
    $
    (1,259,350
    )
    
    $
    2,569,625General and administrative
    
    
    3,829,126
    
    
    
    1,259,350
    
    
    
    5,088,476
 8. INCOME TAXES
       13




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9. COMMITMENTS AND CONTINGENCIES
 Series A and B Notes:
 Representations and Warranties:
 Letters of Credit:
 Legal Proceedings:
 Penalty for Failure to Register Shares:
  New York State Sales Tax Assessment:
  14




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10. BUSINESS SEGMENT INFORMATION
  
    
    Supply Chain Messaging segment, which includes VAN
services, browser-based and hosted applications, the
Electronic Commerce (EC) service center, EC outsourcing,
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.
   15




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Supply Chain
    
    
    On Demand
    
    
    TotalThree Months Ended January 31, 2008Revenue from external customers
    
    $
    12,408,790
    
    
    $
    11,242,014
    
    
    $
    23,650,804Segment gross margin
    
    $
    9,142,069
    
    
    $
    7,469,322
    
    
    $
    16,611,391
  Segment gross margin
    
    $
    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
 Supply Chain
    
    
    On Demand
    
    
    TotalThree Months Ended January 31, 2007Revenue from external customers
    
    $
    5,302,468
    
    
    
    
    
    
    $
    5,302,468Segment gross margin
    
    $
    4,092,910
    
    
    
    
    
    
    $
    4,092,910
  Segment gross margin
    
    $
    4,092,910Corporate expenses
    
    
    3,435,491Operating income
    
    
    657,419Other income (expense), net
    
    
    62,650Income before income taxes
    
    
    720,069Income tax expense
    
    
    16,663Net income
    
    $
    703,406
  16




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Supply Chain
    
    
    On Demand
    
    
    TotalSix Months Ended January 31, 2008Revenue from external customers
    
    $
    23,929,025
    
    
    $
    20,707,646
    
    
    $
    44,636,671Segment gross margin
    
    $
    17,680,150
    
    
    $
    13,912,206
    
    
    $
    31,592,356
  Segment gross margin
    
    $
    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
 Supply Chain
    
    
    On Demand
    
    
    TotalSix Months Ended January 31, 2007Revenue from external customers
    
    $
    11,110,196
    
    
    
    
    
    
    $
    11,110,196Segment gross margin
    
    $
    8,540,571
    
    
    
    
    
    
    $
    8,540,571
  Segment gross margin
    
    $
    8,540,571Corporate expenses
    
    
    7,280,133Operating income
    
    
    1,260,438Other income (expense), net
    
    
    101,836Income before income taxes
    
    
    1,362,274Income tax expense
    
    
    84,270Net income
    
    $
    1,278,004
 11. SUBSEQUENT EVENTS
   17




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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
    18




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Six Months Ended January 31, 2008 Compared with the Six Months Ended January 31, 2007  Results of Operations
  Six Months Ended January 31,2008
    
    
    2007
    
    
    VarianceRevenue:Supply Chain MessagingEDI Services
    
    $
    18,453,340
    
    
    $
    11,110,196
    
    
    $
    7,343,144Telex Services
    
    
    5,475,685
    
    
    
    
    
    
    
    5,475,685Total Supply Chain Messaging
    
    
    23,929,025
    
    
    
    11,110,196
    
    
    
    12,818,829On Demand MessagingFax Services
    
    
    16,406,526
    
    
    
    
    
    
    
    16,406,526DCM Services
    
    
    1,376,460
    
    
    
    
    
    
    
    1,376,460Other Services
    
    
    2,924,660
    
    
    
    
    
    
    
    2,924,660Total On Demand Messaging
    
    
    20,707,646
    
    
    
    
    
    
    
    20,707,646Total Revenue:
    
    
    44,636,671
    
    
    
    11,110,196
    
    
    
    33,526,475Cost of Revenue:Supply Chain Messaging
    
    
    6,248,875
    
    
    
    2,569,625
    
    
    
    3,679,250On Demand Messaging
    
    
    6,795,440
    
    
    
    
    
    
    
    6,795,44013,044,315
    
    
    
    2,569,625
    
    
    
    10,474,690Gross Margin:Supply Chain Messaging
    
    
    17,680,150
    
    
    
    8,540,571
    
    
    
    9,139,579On Demand Messaging
    
    
    13,912,206
    
    
    
    
    
    
    
    13,912,20631,592,356
    
    
    
    8,540,571
    
    
    
    23,051,785Product Development and Enhancement
    
    
    3,872,222
    
    
    
    1,302,341
    
    
    
    2,569,881Selling and Marketing
    
    
    5,309,729
    
    
    
    889,316
    
    
    
    4,420,413General and Administrative
    
    
    14,551,496
    
    
    
    5,088,476
    
    
    
    9,463,02023,733,447
    
    
    
    7,280,133
    
    
    
    16,453,314Other (income) expense
    
    
    7,791,827
    
    
    
    (101,836
    )
    
    
    7,892,943Income (loss) before income taxes
    
    $
    67,082
    
    
    $
    1,362,274
    
    
    $
    (1,294,472
    )
  19




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20




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Three Months Ended January 31, 2008 Compared with the Three Months Ended January 31, 2007  Results of Operations
  Three Months Ended January 31,2008
    
    
    2007
    
    
    VarianceRevenue:Supply Chain MessagingEDI Services
    
    $
    9,394,187
    
    
    $
    5,302,468
    
    
    $
    4,091,719Telex Services
    
    
    3,014,603
    
    
    
    
    
    
    
    3,014,603Total Supply Chain Messaging
    
    
    12,408,790
    
    
    
    5,302,468
    
    
    
    7,106,322On Demand MessagingFax Services
    
    
    8,949,066
    
    
    
    
    
    
    
    8,949,066DCM Services
    
    
    702,353
    
    
    
    
    
    
    
    702,353Other Services
    
    
    1,590,595
    
    
    
    
    
    
    
    1,590,595Total On Demand Messaging
    
    
    11,242,014
    
    
    
    
    
    
    
    11,242,014Total Revenue:
    
    
    23,650,804
    
    
    
    5,302,468
    
    
    
    18,348,336Cost of Revenue:Supply Chain Messaging
    
    
    3,266,721
    
    
    
    1,209,558
    
    
    
    2,057,163On Demand Messaging
    
    
    3,772,692
    
    
    
    
    
    
    
    3,772,6927,039,413
    
    
    
    1,209,558
    
    
    
    5,829,855Gross Margin:Supply Chain Messaging
    
    
    9,142,069
    
    
    
    4,092,910
    
    
    
    5,049,159On Demand Messaging
    
    
    7,469,322
    
    
    
    
    
    
    
    7,469,32216,611,391
    
    
    
    4,092,910
    
    
    
    12,518,481Product Development and Enhancement
    
    
    1,839,541
    
    
    
    585,697
    
    
    
    1,253,844Selling and Marketing
    
    
    2,927,111
    
    
    
    369,359
    
    
    
    2,557,752General and Administrative
    
    
    7,350,389
    
    
    
    2,480,435
    
    
    
    4,869,95412,117,041
    
    
    
    3,435,491
    
    
    
    8,681,550Other (income) expense
    
    
    2,243,365
    
    
    
    (62,650
    )
    
    
    2,306,015Income (loss) before income taxes
    
    $
    2,250,985
    
    
    $
    720,069
    
    
    $
    1,530,916
  21




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Liquidity and Capital Resources
   22




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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
    
    $
    10,959,136
    
    
    $
    2,785,068
    
    
    $
    5,638,114
    
    
    $
    2,110,446
    
    
    $
    425,508Series A and B Notes
    
    $
    70,105,416
    
    
    $
    
    
    
    $
    53,747,486
    
    
    $
    16,357,930
    
    
    $
    Total
    
    $
    81,064,552
    
    
    $
    2,785,068
    
    
    $
    59,385,600
    
    
    $
    18,468,376
    
    
    $
    425,508
  23




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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
   24




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Item 1A. Risk Factors
  Our business could be adversely affected by unfavorable general economic and business
conditions
 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
   Name
    
    Votes For
    
    
    Votes WithheldRichard J. Berman
    
    
    21,029,216
    
    
    
    393,324Kim D. Cooke
    
    
    21,049,936
    
    
    
    372,604Donald R. Harkleroad
    
    
    21,055,506
    
    
    
    367,034Paul D. Lapides
    
    
    21,304,907
    
    
    
    117,633John S. Simon
    
    
    21,256,714
    
    
    
    165,826Thomas J. Stallings
    
    
    21,067,092
    
    
    
    355,448
    25




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##### Table of Contents



Item 5. Other Information
  
 Item 6. Exhibits
 2.1
    
    Second Amendment to Securities Purchase Agreement, dated as of December 18, 2007, 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 18, 2007, as filed with the Securities and Exchange Commission on December 20, 2007).2.2
    
    Third Amendment to Securities Purchase Agreement, dated February 22, 2008 by and among
EasyLink Services International Corporation and 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
February 22, 2008, as filed with the Securities and Exchange Commission on February 25, 2008).14.1
    
    Code of Ethics and Business Conduct (incorporated by reference to the Companys
Current Report on Form 8-K (File No. 000-24996), dated
February 21, 2008, as filed with the Securities and Exchange Commission on February 22, 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.
  26




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##### Table of Contents



SIGNATURES
  EASYLINK SERVICES INTERNATIONAL CORPORATIONDate: March 17, 2008
    By:
    /s/ Glen E. ShipleyGlen E. ShipleyChief Financial Officer  27




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##### Table of Contents



EXHIBIT INDEX
 Exhibits
    
    Description2.1
    
    Second Amendment to Securities Purchase Agreement, dated as of December 18, 2007, 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 18, 2007, as filed with the Securities and Exchange Commission on December 20, 2007).2.2
    
    Third Amendment to Securities Purchase Agreement, dated February 22, 2008 by and among
EasyLink Services International Corporation and 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
February 22, 2008, as filed with the Securities and Exchange Commission on February 25, 2008).14.1
    
    Code of Ethics and Business Conduct (incorporated by reference to the Companys
Current Report on Form 8-K (File No. 000-24996), dated
February 21, 2008, as filed with the Securities and Exchange Commission on February 22, 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.
  28