##### 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, 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
    
    30092(Address of Principal Executive Offices)
    
    (Zip Code)
 (678) 533-8000
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated o
    
    Smaller reporting company þ
 Yes o No þ




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##### 



EASYLINK SERVICES INTERNATIONAL CORPORATION  INDEX TO FORM 10-Q
 PagePART I FINANCIAL INFORMATION
    
    
    1Item 1: Financial Statements
    
    
    1Condensed Consolidated Balance Sheets as of April 30, 2009 and
July 31, 2008 (Unaudited)
    
    
    1Condensed Consolidated Statements of Operations for the three
and nine months ended April 30, 2009 and 2008 (Unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows for the nine
months ended April 30, 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
    
    
    11Item 3: Quantitative and Qualitative Disclosures about Market Risk
    
    
    18Item 4T: Controls and Procedures
    
    
    18PART II OTHER INFORMATION
    
    
    19Item 1: Legal Proceedings
    
    
    19Item 1A: Risk Factors
    
    
    19Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    19Item 3: Defaults Upon Senior Securities
    
    
    20Item 4: Submission of Matters to a Vote of Security Holders
    
    
    20Item 5: Other Information
    
    
    20Item 6: Exhibits
    
    
    20Signatures
    
    
    22Exhibit 3(i).1Exhibit 3(i).2Exhibit 3(i).3Exhibit 3(i).4Exhibit 3(i).5Exhibit 3(i).6Exhibit 3(i).7Exhibit 3(i).8Exhibit 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 April 30, 2009 and July 31, 2008 (Unaudited)
 April 30,
    
    
    July 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    9,724,752
    
    
    $
    32,091,005Accounts receivable, net
    
    
    12,342,036
    
    
    
    13,575,782Prepaid expenses and other current assets
    
    
    3,205,727
    
    
    
    5,414,192Total current assets
    
    
    25,272,515
    
    
    
    51,080,979Property and equipment, net
    
    
    8,788,815
    
    
    
    8,551,927Goodwill
    
    
    36,206,639
    
    
    
    40,209,960Other intangible assets, net
    
    
    23,811,872
    
    
    
    27,742,466Other assets
    
    
    4,569,689
    
    
    
    3,939,467Total assets
    
    $
    98,649,530
    
    
    $
    131,524,799LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,185,336
    
    
    $
    2,820,744Notes payable   current
    
    
    9,583,333
    
    
    
    7,052,313Accrued expenses
    
    
    6,593,180
    
    
    
    10,683,206Other current liabilities
    
    
    1,414,490
    
    
    
    1,861,869Total current liabilities
    
    
    20,776,339
    
    
    
    22,418,132Notes Payable
    
    
    27,311,690
    
    
    
    47,497,402Other liabilities
    
    
    679,153
    
    
    
    1,005,505Total liabilities
    
    
    48,767,182
    
    
    
    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 $5,065,753 at April
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; 25,256,427 shares issued and
24,256,427 outstanding for April 2009 and
25,125,088 shares issued and 25,015,838
outstanding for July 2008
    
    
    252,564
    
    
    
    251,251Additional paid-in capital
    
    
    126,048,727
    
    
    
    125,457,794Treasury stock  1,000,000 shares as of
April 2009 and 109,250 shares at July
2008
    
    
    (2,122,288
    )
    
    
    (303,325
    )Accumulated other comprehensive loss
    
    
    (2,623,861
    )
    
    
    (1,063,266
    )Accumulated deficit
    
    
    (71,672,844
    )
    
    
    (63,738,744
    )Total stockholders equity
    
    
    49,882,348
    
    
    
    60,603,760Total liabilities and stockholders equity
    
    $
    98,649,530
    
    
    $
    131,524,799
   1




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##### Table of Contents



Condensed Consolidated Statements of Operations for the three and nine months ended April 30, 2009
and 2008 
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedApril 30,
    
    
    April 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Service revenue
    
    $
    21,038,978
    
    
    $
    23,599,696
    
    
    $
    64,710,039
    
    
    $
    68,236,367Cost of services
    
    
    6,501,061
    
    
    
    6,701,442
    
    
    
    19,022,699
    
    
    
    19,745,758Gross profit
    
    
    14,537,917
    
    
    
    16,898,254
    
    
    
    45,687,340
    
    
    
    48,490,609Operating expenses:Product development and enhancement
    
    
    1,774,455
    
    
    
    2,111,513
    
    
    
    5,901,783
    
    
    
    5,983,735Selling and marketing
    
    
    3,124,099
    
    
    
    2,897,718
    
    
    
    9,780,627
    
    
    
    8,207,447General and administrative
    
    
    6,758,521
    
    
    
    7,367,411
    
    
    
    22,648,639
    
    
    
    21,918,906Goodwill and intangible impairment
    
    
    
    
    
    
    
    
    
    
    4,245,914
    
    
    
    Operating income
    
    
    2,880,842
    
    
    
    4,521,612
    
    
    
    3,110,377
    
    
    
    12,380,521Other income (expense):Interest and investment income
    
    
    10,901
    
    
    
    163,160
    
    
    
    152,684
    
    
    
    595,836Interest expense
    
    
    (1,584,575
    )
    
    
    (2,306,541
    )
    
    
    (10,603,230
    )
    
    
    (10,464,847
    )Equity in losses of investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (930,269
    )Foreign exchange gain
    
    
    167,663
    
    
    
    128,292
    
    
    
    303,813
    
    
    
    914,214Other income
    
    
    1,247
    
    
    
    11,209
    
    
    
    99,812
    
    
    
    89,359Income (loss) before income taxes
    
    
    1,476,078
    
    
    
    2,517,732
    
    
    
    (6,936,544
    )
    
    
    2,584,814Provision (Benefit) for income taxes
    
    
    239,890
    
    
    
    (4,418,376
    )
    
    
    995,159
    
    
    
    (5,612,515
    )Net income (loss)
    
    
    1,236,188
    
    
    
    6,936,108
    
    
    
    (7,931,703
    )
    
    
    8,197,329Dividends on preferred stock
    
    
    (48,767
    )
    
    
    (49,180
    )
    
    
    (149,360
    )
    
    
    (149,956
    )Net income (loss) attributable to
common stockholders
    
    $
    1,187,421
    
    
    $
    6,886,928
    
    
    $
    (8,081,063
    )
    
    $
    8,047,373Basic income (loss) per common share
    
    $
    0.05
    
    
    $
    0.28
    
    
    $
    (0.33
    )
    
    $
    0.33Diluted income (loss) per common share
    
    $
    0.05
    
    
    $
    0.17
    
    
    $
    (0.33
    )
    
    $
    0.29Anti-dilutive stock options,
restricted stock, warrants, Series A
and Series B Convertible Notes and
Series C preferred stock
    
    
    23,733,691
    
    
    
    5,793,178
    
    
    
    22,506,043
    
    
    
    5,625,675Weighted average number of common
shares outstanding  basic
    
    
    24,243,183
    
    
    
    24,604,376
    
    
    
    24,460,449
    
    
    
    24,318,536Weighted average number of common
shares outstanding  diluted
    
    
    24,670,190
    
    
    
    48,852,869
    
    
    
    24,460,449
    
    
    
    48,844,713
   2




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Condensed Consolidated Statements of Cash Flows for the nine months ended April 30, 2009 and 2008

(Unaudited)
 Nine Months Ended April 30,2009
    
    
    2008Cash flows from operating activities:Net income (loss)
    
    $
    (7,931,703
    )
    
    $
    8,197,329Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    6,468,531
    
    
    
    6,303,225Bad debt expense
    
    
    886,621
    
    
    
    373,691Amortization of discount and other non-cash interest expense
    
    
    6,283,810
    
    
    
    6,963,998Non-cash charges for equity instruments issued for compensation and services
    
    
    738,832
    
    
    
    345,852Non-cash equity in losses of investment and other non-cash items
    
    
    77,731
    
    
    
    1,058,360Release of Valuation Reserve
    
    
    
    
    
    
    (4,396,995
    )Goodwill and intangible asset impairment
    
    
    4,245,914
    
    
    
    Changes in assets and liabilities, net of effects from acquisition:Accounts receivable
    
    
    132,897
    
    
    
    (1,480,075
    )Prepaid expenses and other assets
    
    
    1,983,235
    
    
    
    466,745Accounts payable
    
    
    685,950
    
    
    
    149,293Accrued expenses
    
    
    (4,416,827
    )
    
    
    (8,141,307
    )Other liabilities
    
    
    (1,371,375
    )
    
    
    (4,156,298
    )Net cash provided by operating activities
    
    
    7,783,616
    
    
    
    5,683,818Cash flows from investing activities:Payment for purchase of acquisitions, net of cash acquired
    
    
    
    
    
    
    (53,453,874
    )Payment for investments
    
    
    
    
    
    
    (429,919
    )Sale of Business
    
    
    
    
    
    
    4,504,477Purchases of intellectual property and equipment
    
    
    (3,211,356
    )
    
    
    (957,291
    )Other
    
    
    53,924
    
    
    
    18,233Net cash used in investing activities
    
    
    (3,157,432
    )
    
    
    (50,318,374
    )Cash flows from financing activities:Proceeds from sale of stock and exercise of options and warrants
    
    
    2,774
    
    
    
    6,629,702Proceeds from borrowings for acquisition
    
    
    
    
    
    
    59,788,117Payment of dividends
    
    
    (200,000
    )Purchase of treasury stock
    
    
    (1,818,963
    )
    
    
    Net repayments of notes payable
    
    
    (23,938,502
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (25,954,691
    )
    
    
    66,417,819Effect of foreign exchange rate changes on cash and cash equivalents
    
    
    (1,037,746
    )
    
    
    (47,910
    )Net (decrease) increase in cash and cash equivalents
    
    
    (22,366,253
    )
    
    
    21,735,353Cash and cash equivalents, beginning of period
    
    
    32,091,005
    
    
    
    5,444,176Cash and cash equivalents, end of period
    
    $
    9,724,752
    
    
    $
    27,179,529
   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)
    
    
    April 30, 2009
    
    
    July 31, 2008Purchased customer relationships
    
    
    6-8
    
    
    $
    14,430,831
    
    
    $
    16,634,932Internally developed systems
    
    
    4
    
    
    
    5,602,390
    
    
    
    7,752,097Tradenames
    
    
    <1
    
    
    
    3,778,651
    
    
    
    3,355,437Intangible assets, net
    
    
    
    
    
    $
    23,811,872
    
    
    $
    27,742,466
     5




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##### Table of Contents



3. NOTES PAYABLE
      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 Marketsfor Identical
    
    
    SignificantAssets
    
    
    Other
    
    
    Significant(Liabilities)
    
    
    Observable
    
    
    Unobservable(Level 1)
    
    
    Inputs (Level 2)
    
    
    Inputs (Level 3)
    
    
    Carrying AmountCash
    
    $
    8,719,488
    
    
    
    
    
    
    
    
    
    
    $
    8,719,488Cash Equivalents
    
    $
    1,005,264
    
    
    
    
    
    
    
    
    
    
    $
    1,005,264Notes Payable
    
    
    
    
    
    
    
    
    
    
    (46,333,877
    )
    
    
    (36,895,023
    )
  7. COMMITMENTS AND CONTINGENCIES
 New York State Sales Tax Assessment
   Litigation
 j2
   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.
    
    On Demand Messaging Segment (On Demand), which includes all fax, e-mail, document
capture and management (DCM) and workflow services.
  Quarter Ended April 30, 2009
    
    Supply Chain
    
    
    On Demand
    
    
    TotalRevenue from external customers
    
    $
    10,348,534
    
    
    $
    10,690,444
    
    
    $
    21,038,978Segment gross profit
    
    $
    7,184,346
    
    
    $
    7,353,571
    
    
    $
    14,537,917
  Segment gross profit
    
    $
    14,537,917Corporate expenses
    
    
    11,657,075Operating income
    
    
    2,880,842Other income (expense), net
    
    
    (1,404,764
    )Income before income taxes
    
    
    1,476,078Income tax expense
    
    
    239,890Net income
    
    $
    1,236,188
 Quarter Ended April 30, 2008
    
    Supply Chain
    
    
    On Demand
    
    
    TotalRevenue 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
  9




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Nine Months Ended April 30, 2009
    
    Supply Chain
    
    
    On Demand
    
    
    TotalRevenue from external customers
    
    $
    32,396,416
    
    
    $
    32,313,623
    
    
    $
    64,710,039Segment gross profit
    
    $
    23,449,218
    
    
    $
    22,238,122
    
    
    $
    45,687,340
  Segment gross profit
    
    $
    45,687,340Corporate expenses
    
    
    38,331,049Intangible impairment
    
    
    4,245,914Operating income
    
    
    3,110,377Other income (expense), net
    
    
    (10,046,921
    )Loss before income taxes
    
    
    (6,936,544
    )Income tax expense
    
    
    995,159Net loss
    
    $
    (7,931,703
    )
 Nine Months Ended April 30, 2008
    
    Supply Chain
    
    
    On Demand
    
    
    TotalRevenue 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
 9. DERIVATIVE FINANCIAL INSTRUMENTS
  10. SUBSEQUENT EVENTS
    10




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward
Looking Statement Disclaimer
   Executive
Summary
     11




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Critical Accounting Policies and Significant Use of Estimates in Financial Statements
    12




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Nine Months Ended April 30, 2009 Compared with the Nine Months Ended April 30, 2008
 Results of Operations
  Nine Months Ended April 30,2009
    
    
    2008
    
    
    VarianceRevenue:Supply Chain MessagingEDI Services
    
    $
    24,996,848
    
    
    $
    27,863,355
    
    
    $
    (2,866,507
    )Telex Services
    
    
    7,399,568
    
    
    
    8,383,100
    
    
    
    (983,532
    )Total Supply Chain Messaging
    
    
    32,396,416
    
    
    
    36,246,455
    
    
    
    (3,850,039
    )On Demand MessagingFax Services
    
    
    25,883,384
    
    
    
    25,452,140
    
    
    
    431,244DCM Services
    
    
    2,046,495
    
    
    
    2,085,282
    
    
    
    (38,787
    )Other Services
    
    
    4,383,744
    
    
    
    4,452,490
    
    
    
    (68,746
    )Total On Demand Messaging
    
    
    32,313,623
    
    
    
    31,989,912
    
    
    
    323,711Total Revenue:
    
    
    64,710,039
    
    
    
    68,236,367
    
    
    
    (3,526,328
    )Cost of Revenue:Supply Chain Messaging
    
    
    8,947,198
    
    
    
    9,352,814
    
    
    
    (405,616
    )On Demand Messaging
    
    
    10,075,501
    
    
    
    10,392,944
    
    
    
    (317,443
    )Total Cost of Revenue
    
    
    19,022,699
    
    
    
    19,745,758
    
    
    
    (723,059
    )Gross Margin:Supply Chain Messaging
    
    
    23,449,218
    
    
    
    26,893,641
    
    
    
    (3,444,423
    )On Demand Messaging
    
    
    22,238,122
    
    
    
    21,596,968
    
    
    
    641,154Total Gross Margin
    
    
    45,687,340
    
    
    
    48,490,609
    
    
    
    (2,803,269
    )Product Development and Enhancement
    
    
    5,901,783
    
    
    
    5,983,735
    
    
    
    (81,952
    )Selling and Marketing
    
    
    9,780,627
    
    
    
    8,207,447
    
    
    
    1,573,180General and Administrative
    
    
    22,648,639
    
    
    
    21,918,906
    
    
    
    729,733Goodwill and Intangible Impairment
    
    
    4,245,914
    
    
    
    
    
    
    
    4,245,914Total product, selling and G&A expenses
    
    
    42,576,963
    
    
    
    36,110,088
    
    
    
    6,466,875Other (expense) income
    
    
    (10,046,921
    )
    
    
    (9,795,707
    )
    
    
    (251,214
    )Income (loss) before income taxes
    
    $
    (6,936,544
    )
    
    $
    2,584,814
    
    
    $
    (9,521,358
    )
   13




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14




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Three Months Ended April 30, 2009 Compared with the Three Months Ended April 30, 2008
 Results of Operations
  Three Months Ended April 30,2009
    
    
    2008
    
    
    VarianceRevenue:Supply Chain MessagingEDI Services
    
    $
    8,029,866
    
    
    $
    9,410,015
    
    
    $
    (1,380,149
    )Telex Services
    
    
    2,318,668
    
    
    
    2,907,415
    
    
    
    (588,747
    )Total Supply Chain Messaging
    
    
    10,348,534
    
    
    
    12,317,430
    
    
    
    (1,968,896
    )On Demand MessagingFax Services
    
    
    8,550,085
    
    
    
    9,045,614
    
    
    
    (495,529
    )DCM Services
    
    
    613,592
    
    
    
    708,822
    
    
    
    (95,230
    )Other Services
    
    
    1,526,767
    
    
    
    1,527,830
    
    
    
    (1,063
    )Total On Demand Messaging
    
    
    10,690,444
    
    
    
    11,282,266
    
    
    
    (591,822
    )Total Revenue:
    
    
    21,038,978
    
    
    
    23,599,696
    
    
    
    (2,560,718
    )Cost of Revenue:Supply Chain Messaging
    
    
    3,164,188
    
    
    
    3,103,939
    
    
    
    60,249On Demand Messaging
    
    
    3,336,873
    
    
    
    3,597,503
    
    
    
    (260,630
    )Total Cost of Revenue
    
    
    6,501,061
    
    
    
    6,701,442
    
    
    
    (200,381
    )Gross Margin:Supply Chain Messaging
    
    
    7,184,346
    
    
    
    9,213,491
    
    
    
    (2,029,145
    )On Demand Messaging
    
    
    7,353,571
    
    
    
    7,684,763
    
    
    
    (331,192
    )Total Gross Margin
    
    
    14,537,917
    
    
    
    16,898,254
    
    
    
    (2,360,337
    )Product Development and Enhancement
    
    
    1,774,455
    
    
    
    2,111,513
    
    
    
    (337,058
    )Selling and Marketing
    
    
    3,124,099
    
    
    
    2,897,718
    
    
    
    226,381General and Administrative
    
    
    6,758,521
    
    
    
    7,367,411
    
    
    
    (608,890
    )Total product, selling and G&A
expenses
    
    
    11,657,075
    
    
    
    12,376,642
    
    
    
    (719,567
    )Other (expense) income
    
    
    (1,404,764
    )
    
    
    (2,003,880
    )
    
    
    (599,116
    )Income (loss) before income taxes
    
    $
    1,476,078
    
    
    $
    2,517,732
    
    
    $
    (1,041,654
    )
   15




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##### Table of Contents



Amount
    
    
    %Compensation & Benefits
    
    $
    362,000
    
    
    
    12.6Intangible Amortization due to an impairment in the second quarter
    
    
    106,000
    
    
    
    7.7Rent
    
    
    156,000
    
    
    
    24.9Outside Professional Services
    
    
    50,000
    
    
    
    6.0Taxes
    
    
    52,000
    
    
    
    39.1Public Relations
    
    
    43,000
    
    
    
    74.8Insurance
    
    
    40,000
    
    
    
    26.4Travel
    
    
    39,000
    
    
    
    42.7
   16




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Liquidity and Capital Resources
        17




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Off-Balance Sheet Arrangements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4T. Controls and Procedures
 Disclosure Controls and Procedures
  Internal Controls
   18




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  j2
  Accounting for Contingencies
 
 Item 1A. Risk Factors
  Our business is being affected by the global economic slowdown and the rapid changes in
foreign exchange rates.
 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
   19




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##### Table of Contents



Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information
  
 Item 6. Exhibits
 ExhibitNumber
    
    Description3(i).1
    
    
    Amended and Restated Certificate of Incorporation of Infosafe Systems, Inc., dated August
27, 1997, as filed with the Secretary of State of Delaware on August 27, 1997.3(i).2
    
    
    Certificate of Merger of Internet Commerce Corporation into Infosafe Systems, Inc., dated
September 23, 1998, as filed with the Secretary of State of
Delaware on September 23, 1998.3(i).3
    
    
    Certificate of Amendment to the Amended and Restated Certificate of Incorporation of
Infosafe Systems, Inc., dated September 23, 1998, as filed with the Secretary of State of
Delaware on September 23, 1998.3(i).4
    
    
    Certificate of Powers, Designations, Preferences and Relative, Participating, Optional and
Other Special Rights of the Series C Convertible Redeemable Preferred Stock of Internet
Commerce Corporation, dated January 5, 2000, as filed with the Secretary of State of
Delaware on January 6, 2000.3(i).5
    
    
    Certificate of Powers, Designations, Preferences and Relative, Participating, Optional and
Other Special Rights of the Series D Convertible Redeemable Preferred Stock of Internet
Commerce Corporation, dated April 29, 2003, as filed with the Secretary of State of Delaware
on April 29, 2003.3(i).6
    
    
    Certificate of Ownership and Merger of Internet Commerce Corporation and Enable Corp.,
dated August 20, 2007, as filed with the Secretary of State of Delaware on August 20, 2007.3(i).7
    
    
    Certificate of Amendment to the Amended and Restated Certificate of Incorporation of
EasyLink Services International Corporation, dated August 20, 2007, as filed with the
Secretary of State of Delaware on August 22, 2007.3(i).8
    
    
    Certificate of Powers, Designations, Preferences and Relative, Participating, Optional and
Other Special Rights of the Series E Redeemable Preferred Stock of EasyLink
Services International Corporation, dated May 18, 2009, as filed with the Secretary of State
of Delaware on May 18, 2009.4.1
    
    
    Specimen Stock Certificate for Series E Preferred Redeemable Stock. (Incorporated by
reference to Exhibit 4.1 to the Companys Form 8-K (File no. 000-24996), filed on May 21,
2009).10.1
    
    
    Revolving Credit and Term Loan Agreement, dated as of May 19, 2009, among EasyLink
Services International Corporation, as Borrower, The Lenders from time to time party
thereto, SunTrust Bank, as Administrative Agent and The Private Bank and Trust Company, as
Syndication Agent. (Incorporated by reference to Exhibit 10.1 to the Companys Form 8-K
(File no. 000-24996), filed on May 21, 2009).10.2
    
    
    Form of Term Note. (Incorporated by reference to Exhibit 10.2 to the Companys Form
8-K (File no. 000-24996), filed on May 21, 2009).10.3
    
    
    $2,000,000 Revolving Credit Note among EasyLink Services International Corporation, the
Borrower, and the lenders from time to time party there to and SunTrust Bank, dated May 19,
2009. (Incorporated by reference to Exhibit 10.3 to the Companys Form 8-K (File no.
000-24996), filed on May 21, 2009).
  20




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##### Table of Contents



ExhibitNumber
    
    Description10.4
    
    
    Subsidiary Guaranty Agreement, dated as of May 19, 2009, by and among EasyLink Services
International Corporation, the Borrower, each of the subsidiaries of the Borrower listed on
Schedule 1 thereto and SunTrust Bank, in its capacity as Administrative Agent. (Incorporated by
reference to Exhibit 10.4 to the Companys Form 8-K (File no. 000-24996), filed on May
21, 2009).10.5
    
    
    Security Agreement, dated as of May 19, 2009, among EasyLink Services International
Corporation, the Borrower, the subsidiaries of the Borrower signatory thereto, each of the
subsidiaries of the Borrower hereafter a party thereto and SunTrust Bank, as Administrative
Agent for the Lenders. (Incorporated by reference to Exhibit 10.5 to the Companys Form
8-K (File no. 000-24996), filed on May 21, 2009).10.6
    
    
    Stock Pledge Agreement, dated as of May 19, 2009, by EasyLink Services International
Corporation, the Borrower, the subsidiaries of the Borrower signatory thereto in favor of
SunTrust Bank, as Administrative Agent for the Lenders. (Incorporated by reference to
Exhibit 10.6 to the Companys Form 8-K (File no. 000-24996), filed on May 21, 2009).10.7
    
    
    Securities Exchange Agreement, dated as of May 19, 2009, by and among EasyLink Services
International Corporation and each of the Purchasers identified on the signature pages
thereto. (Incorporated by reference to Exhibit 10.7 to the Companys Form 8-K (File no.
000-24996), filed on May 21, 2009).10.8
    
    
    Form of Warrant. (Incorporated by reference to Exhibit 10.8 to the Companys Form 8-K
(File no. 000-24996), filed on May 21, 2009).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.
  21




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SIGNATURES
   EASYLINK SERVICES INTERNATIONAL CORPORATIONBy:
    /s/ Glen E. ShipleyGlen E. ShipleyChief Financial Officer  22




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description3(i).1
    
    
    Amended and Restated Certificate of Incorporation of Infosafe Systems, Inc., dated August
27, 1997, as filed with the Secretary of State of Delaware on August 27, 1997.3(i).2
    
    
    Certificate of Merger of Internet Commerce Corporation into Infosafe Systems, Inc., dated
September 23, 1998, as filed with the Secretary of State of
Delaware on September 23, 1998.3(i).3
    
    
    Certificate of Amendment to the Amended and Restated Certificate of Incorporation of
Infosafe Systems, Inc., dated September 23, 1998, as filed with the Secretary of State of
Delaware on September 23, 1998.3(i).4
    
    
    Certificate of Powers, Designations, Preferences and Relative, Participating, Optional and
Other Special Rights of the Series C Convertible Redeemable Preferred Stock of Internet
Commerce Corporation, dated January 5, 2000, as filed with the Secretary of State of
Delaware on January 6, 2000.3(i).5
    
    
    Certificate of Powers, Designations, Preferences and Relative, Participating, Optional and
Other Special Rights of the Series D Convertible Redeemable Preferred Stock of Internet
Commerce Corporation, dated April 29, 2003, as filed with the Secretary of State of Delaware
on April 29, 2003.3(i).6
    
    
    Certificate of Ownership and Merger of Internet Commerce Corporation and Enable Corp.,
dated August 20, 2007, as filed with the Secretary of State of Delaware on August 20, 2007.3(i).7
    
    
    Certificate of Amendment to the Amended and Restated Certificate of Incorporation of
EasyLink Services International Corporation, dated August 20, 2007, as filed with the
Secretary of State of Delaware on August 22, 2007.3(i).8
    
    
    Certificate of Powers, Designations, Preferences and Relative, Participating, Optional and
Other Special Rights of the Series E Redeemable Preferred Stock of EasyLink
Services International Corporation, dated May 18, 2009, as filed with the Secretary of State
of Delaware on May 18, 2009.31.1
    
    
    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.
  23