##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

---

FORM 10-Q

---

| | x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003.
| | - | -------------------------------------------------------------------------------------------------------------------------------------

OR

| | 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:
0-27778

---

PTEK HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

---

GEORGIA(State or other jurisdiction of incorporation or organization)

59-3074176(I.R.S. Employer Identification No.)

3399 PEACHTREE ROAD NETHE LENOX BUILDING, SUITE 700ATLANTA, GEORGIA 30326(Address of principal executive offices, including zip code)

(404)
262-8400(Registrants telephone number including area code)

N/A(Former name, former
address and former fiscal year,if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No o

Indicate by check mark whether the Registrant is an
accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o

Indicate the number of shares outstanding of
each of the issuers classes of common stock, as of the latest practicable date.



| | ClassCommon Stock, $0.01 par value |  | Outstanding at August 11, 200354,066,090 Shares | 
| | ---------------------------------- |  | ----------------------------------------------- | 

---





---

##### Table of Contents



PTEK HOLDINGS, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q



|        |  |                       |  |                                                                                                           | Page
|------- |  | --------------------- |  | --------------------------------------------------------------------------------------------------------- | ----
|        |  |                       |  |                                                                                                           |     
|PART I  |  | FINANCIAL INFORMATION | 
|        |  |                       |  |                                                                                                           |     
|        |  | Item 1                |  | Financial Statements                                                                                      |     
|        |  |                       |  |                                                                                                           |     
|        |  |                       |  | Condensed Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002                           | 1   
|        |  |                       |  |                                                                                                           |     
|        |  |                       |  | Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2003 and 2002 | 2   
|        |  |                       |  |                                                                                                           |     
|        |  |                       |  | Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2003 and 2002           | 3   
|        |  |                       |  |                                                                                                           |     
|        |  |                       |  | Notes to Condensed Consolidated Financial Statements                                                      | 4   
|        |  |                       |  |                                                                                                           |     
|        |  | Item 2                |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                     | 16  
|        |  |                       |  |                                                                                                           |     
|        |  | Item 3                |  | Quantitative and Qualitative Disclosures About Market Risk                                                | 27  
|        |  |                       |  |                                                                                                           |     
|        |  | Item 4                |  | Controls and Procedures                                                                                   | 28  
|        |  |                       |  |                                                                                                           |     
|PART II |  | OTHER INFORMATION     | 
|        |  |                       |  |                                                                                                           |     
|        |  | Item 1                |  | Legal Proceedings                                                                                         | 29  
|        |  |                       |  |                                                                                                           |     
|        |  | Item 2                |  | Changes in Securities and Use of Proceeds                                                                 | 32  
|        |  |                       |  |                                                                                                           |     
|        |  | Item 3                |  | Defaults Upon Senior Securities                                                                           | 32  
|        |  |                       |  |                                                                                                           |     
|        |  | Item 4                |  | Submission of Matters to a Vote of Security Holders                                                       | 32  
|        |  |                       |  |                                                                                                           |     
|        |  | Item 5                |  | Other Information                                                                                         | 32  
|        |  |                       |  |                                                                                                           |     
|        |  | Item 6                |  | Exhibits and Reports on Form 8-K                                                                          | 33  

|SIGNATURES    | 34
|------------- | --
|              |   
|EXHIBIT INDEX | 35





---

##### Table of Contents

PART I. FINANCIAL INFORMATION

| | ITEM 1. | FINANCIAL STATEMENTS
| | ------- | --------------------

PTEK HOLDINGS, INC. AND SUBSIDIARIESCONDENSED
CONSOLIDATED BALANCE SHEETS(IN THOUSANDS, EXCEPT SHARE DATA, UNAUDITED)



|                                                                                                                                                                                                                                                                             |  | June 30,2003 |          | December 31,2002 |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -------- | ---------------- | -
|                                                                                                                                                                                                                                                                             |  |              |          |                  |  
|                                                                                                                                                                                                                                                                             |  |              |          |                  |  
|ASSETS                                                                                                                                                                                                                                                                       |  |              |          |                  |  
|CURRENT ASSETS                                                                                                                                                                                                                                                               |  |              |          |                  |  
|Cash and cash equivalents                                                                                                                                                                                                                                                    |  | $            | 30,453   |                  | $
|Restricted cash, current                                                                                                                                                                                                                                                     |  |              | 1,250    |                  |  
|Marketable securities, available for sale                                                                                                                                                                                                                                    |  |              | 272      |                  |  
|Accounts receivable (less allowance of $6,749 and $7,074, respectively)                                                                                                                                                                                                      |  |              | 56,694   |                  |  
|Prepaid expenses and other                                                                                                                                                                                                                                                   |  |              | 5,708    |                  |  
|Deferred income taxes, net                                                                                                                                                                                                                                                   |  |              | 13,614   |                  |  
|                                                                                                                                                                                                                                                                             |  |              |          |                  |  
|Total current assets                                                                                                                                                                                                                                                         |  |              | 107,991  |                  |  
|PROPERTY AND EQUIPMENT, NET                                                                                                                                                                                                                                                  |  |              | 60,499   |                  |  
|OTHER ASSETS                                                                                                                                                                                                                                                                 |  |              |          |                  |  
|Goodwill                                                                                                                                                                                                                                                                     |  |              | 123,066  |                  |  
|Intangibles, net                                                                                                                                                                                                                                                             |  |              | 15,040   |                  |  
|Deferred income taxes, net                                                                                                                                                                                                                                                   |  |              | 3,546    |                  |  
|Notes receivable-employees                                                                                                                                                                                                                                                   |  |              | 2,086    |                  |  
|Restricted cash, non-current                                                                                                                                                                                                                                                 |  |              | 3,438    |                  |  
|Other assets                                                                                                                                                                                                                                                                 |  |              | 3,227    |                  |  
|                                                                                                                                                                                                                                                                             |  |              |          |                  |  
|                                                                                                                                                                                                                                                                             |  | $            | 318,893  |                  | $
|                                                                                                                                                                                                                                                                             |  |              |          |                  |  
|                                                                                                                                                                                                                                                                             |  |              |          |                  |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                                                                                                         |  |              |          |                  |  
|CURRENT LIABILITIES                                                                                                                                                                                                                                                          |  |              |          |                  |  
|Accounts payable                                                                                                                                                                                                                                                             |  | $            | 32,613   |                  | $
|Accrued taxes                                                                                                                                                                                                                                                                |  |              | 8,160    |                  |  
|Accrued liabilities                                                                                                                                                                                                                                                          |  |              | 30,723   |                  |  
|Current maturities of long-term debt and capital lease obligations                                                                                                                                                                                                           |  |              | 4,002    |                  |  
|Accrued restructuring costs                                                                                                                                                                                                                                                  |  |              | 883      |                  |  
|                                                                                                                                                                                                                                                                             |  |              |          |                  |  
|Total current liabilities                                                                                                                                                                                                                                                    |  |              | 76,381   |                  |  
|LONG-TERM LIABILITIES                                                                                                                                                                                                                                                        |  |              |          |                  |  
|Convertible subordinated notes                                                                                                                                                                                                                                               |  |              | 133,000  |                  |  
|Long-term debt and capital lease obligations                                                                                                                                                                                                                                 |  |              | 1,534    |                  |  
|Other accrued liabilities                                                                                                                                                                                                                                                    |  |              | 10,935   |                  |  
|                                                                                                                                                                                                                                                                             |  |              |          |                  |  
|Total long-term liabilities                                                                                                                                                                                                                                                  |  |              | 145,469  |                  |  
|COMMITMENTS AND CONTINGENCIES (Note 7)                                                                                                                                                                                                                                       |  |              |          |                  |  
|SHAREHOLDERS EQUITY                                                                                                                                                                                                                                                         |  |              |          |                  |  
|Common stock, $0.01 par value; 150,000,000 shares authorized, 53,603,148 and 58,733,628 shares issued at June 30, 2003 and December 31, 2002, respectively, and
53,603,148 and 53,540,828 shares issued and outstanding at June 30, 2003 and December 31, 2002, respectively |  |              | 536      |                  |  
|Unrealized gain on marketable securities, available for sale                                                                                                                                                                                                                 |  |              | 74       |                  |  
|Additional paid-in capital                                                                                                                                                                                                                                                   |  |              | 581,966  |                  |  
|Unearned restricted stock compensation                                                                                                                                                                                                                                       |  |              | (1,256   | )                |  
|Treasury stock, at cost                                                                                                                                                                                                                                                      |  |              |         |                  |  
|Note receivable, shareholder                                                                                                                                                                                                                                                 |  |              | (5,193   | )                |  
|Cumulative translation adjustment                                                                                                                                                                                                                                            |  |              | (2,065   | )                |  
|Accumulated deficit                                                                                                                                                                                                                                                          |  |              | (477,019 | )                |  
|                                                                                                                                                                                                                                                                             |  |              |          |                  |  
|Total shareholders equity                                                                                                                                                                                                                                                   |  |              | 97,043   |                  |  
|                                                                                                                                                                                                                                                                             |  |              |          |                  |  
|                                                                                                                                                                                                                                                                             |  | $            | 318,893  |                  | $
|                                                                                                                                                                                                                                                                             |  |              |          |                  |  

See notes to the condensed consolidated financial statements.

1



---

##### Table of Contents

P
TEK HOLDINGS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED)



|                                                                                                                                                    |  | Three Months Ended |        | Six Months Ended |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ---------------- | -
|                                                                                                                                                    |  |                    |        |                  |  
|                                                                                                                                                    |  | June 30,2003       |        | June 30,2002     |  
|                                                                                                                                                    |  |                    |        |                  |  
|REVENUES                                                                                                                                            |  | $                  | 94,851 |                  | $
|TELECOMMUNICATIONS COSTS                                                                                                                            |  |                    | 19,444 |                  |  
|                                                                                                                                                    |  |                    |        |                  |  
|GROSS PROFIT                                                                                                                                        |  |                    | 75,407 |                  |  
|DIRECT OPERATING COSTS                                                                                                                              |  |                    | 13,490 |                  |  
|                                                                                                                                                    |  |                    |        |                  |  
|CONTRIBUTION MARGIN                                                                                                                                 |  |                    | 61,917 |                  |  
|                                                                                                                                                    |  |                    |        |                  |  
|OTHER OPERATING EXPENSES:                                                                                                                           |  |                    |        |                  |  
|Selling and marketing                                                                                                                               |  |                    | 26,845 |                  |  
|General and administrative                                                                                                                          |  |                    | 13,548 |                  |  
|Research and development                                                                                                                            |  |                    | 2,178  |                  |  
|Depreciation                                                                                                                                        |  |                    | 5,740  |                  |  
|Amortization                                                                                                                                        |  |                    | 1,416  |                  |  
|Equity based compensation                                                                                                                           |  |                    | 541    |                  |  
|Legal settlements                                                                                                                                   |  |                    |       |                  |  
|                                                                                                                                                    |  |                    |        |                  |  
|Total operating expenses                                                                                                                            |  |                    | 50,268 |                  |  
|                                                                                                                                                    |  |                    |        |                  |  
|OPERATING INCOME                                                                                                                                    |  |                    | 11,649 |                  |  
|                                                                                                                                                    |  |                    |        |                  |  
|OTHER INCOME (EXPENSE):                                                                                                                             |  |                    |        |                  |  
|Interest, net                                                                                                                                       |  |                    | (2,256 | )                |  
|Gain on sale of marketable securities                                                                                                               |  |                    | 501    |                  |  
|Gain on repurchase of bonds                                                                                                                         |  |                    | 1,397  |                  |  
|Other, net                                                                                                                                          |  |                    | 126    |                  |  
|                                                                                                                                                    |  |                    |        |                  |  
|Total other income (expense)                                                                                                                        |  |                    | (232   | )                |  
|                                                                                                                                                    |  |                    |        |                  |  
|INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES                                                                                               |  |                    | 11,417 |                  |  
|INCOME TAX EXPENSE                                                                                                                                  |  |                    | 4,663  |                  |  
|INCOME FROM CONTINUING OPERATIONS                                                                                                                   |  | $                  | 6,754  |                  | $
|                                                                                                                                                    |  |                    |        |                  |  
|DISCONTINUED OPERATIONS:                                                                                                                            |  |                    |        |                  |  
|Loss from operations of Voicecom (including a loss on disposal of $1,262 and $13,887 for the three and six months ended June 30, 2002,respectively) |  |                    | (132   | )                |  
|Income tax benefit                                                                                                                                  |  |                    | (51    | )                |  
|                                                                                                                                                    |  |                    |        |                  |  
|Loss on discontinued operations                                                                                                                     |  |                    | (81    | )                |  
|                                                                                                                                                    |  |                    |        |                  |  
|NET INCOME (LOSS)                                                                                                                                   |  | $                  | 6,673  |                  | $
|                                                                                                                                                    |  |                    |        |                  |  
|BASIC EARNINGS (LOSS) PER SHARE:                                                                                                                    |  |                    |        |                  |  
|Continuing operations                                                                                                                               |  | $                  | 0.13   |                  | $
|Discontinued operations                                                                                                                             |  | $                  | (0.00  | )                | $
|                                                                                                                                                    |  |                    |        |                  |  
|Net income (loss)                                                                                                                                   |  | $                  | 0.13   |                  | $
|                                                                                                                                                    |  |                    |        |                  |  
|DILUTED EARNINGS (LOSS) PER SHARE:                                                                                                                  |  |                    |        |                  |  
|Continuing operations                                                                                                                               |  | $                  | 0.12   |                  | $
|Discontinued operations                                                                                                                             |  | $                  | (0.00  | )                | $
|                                                                                                                                                    |  |                    |        |                  |  
|Net income (loss)                                                                                                                                   |  | $                  | 0.12   |                  | $
|                                                                                                                                                    |  |                    |        |                  |  
|WEIGHTED AVERAGE SHARES OUTSTANDING                                                                                                                 |  |                    |        |                  |  
|Basic                                                                                                                                               |  |                    | 53,168 |                  |  
|                                                                                                                                                    |  |                    |        |                  |  
|Diluted                                                                                                                                             |  |                    | 55,817 |                  |  
|                                                                                                                                                    |  |                    |        |                  |  

See notes to the condensed consolidated financial statements.

2



---

##### Table of Contents

P
TEK HOLDINGS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(IN THOUSANDS, UNAUDITED)



|                                                                                    |  | Six Months EndedJune 30, |        
|----------------------------------------------------------------------------------- |  | ------------------------ | -------
|                                                                                    |  |                          |        
|                                                                                    |  | 2003                     |        
|                                                                                    |  |                          |        
|CASH FLOWS FROM OPERATING ACTIVITIES                                                |  |                          |        
|Net income (loss)                                                                   |  | $                        | 11,452 
|Adjustments to reconcile net income (loss) to cash flows from operating activities: |  |                          |        
|Loss on discontinued operations                                                     |  |                          | 81     
|Depreciation                                                                        |  |                          | 11,273 
|Amortization                                                                        |  |                          | 3,415  
|Gain on sale of marketable securities                                               |  |                          | (501   
|Deferred income taxes                                                               |  |                          | 5,429  
|Payments for restructuring, merger costs and other special charges                  |  |                          | (549   
|Gain on repurchase of bonds                                                         |  |                          | (1,397 
|Equity based compensation                                                           |  |                          | 1,125  
|Changes in assets and liabilities:                                                  |  |                          |        
|Accounts receivable, net                                                            |  |                          | (4,784 
|Prepaid expenses and other receivables                                              |  |                          | 3,280  
|Accounts payable and accrued expenses                                               |  |                          | (8,998 
|                                                                                    |  |                          |        
|Total adjustments                                                                   |  |                          | 8,374  
|                                                                                    |  |                          |        
|Net cash provided by operating activities from continuing operations                |  |                          | 19,826 
|                                                                                    |  |                          |        
|Net cash provided by operating activities from discontinued operations              |  |                          |       
|                                                                                    |  |                          |        
|Net cash provided by operating activities                                           |  |                          | 19,826 
|                                                                                    |  |                          |        
|CASH FLOWS FROM INVESTING ACTIVITIES                                                |  |                          |        
|Capital expenditures                                                                |  |                          | (7,124 
|Proceeds from sale of discontinued operation                                        |  |                          |       
|Sale of marketable securities                                                       |  |                          | 541    
|Business acquisitions                                                               |  |                          | (6,782 
|Increase in restricted cash for acquisitions, net                                   |  |                          | (4,688 
|                                                                                    |  |                          |        
|Net cash (used in) provided by investing activities from continuing operations      |  |                          | (18,053
|                                                                                    |  |                          |        
|Net cash used in investing activities from discontinued operations                  |  |                          |       
|                                                                                    |  |                          |        
|Net cash (used in) provided by investing activities                                 |  |                          | (18,053
|                                                                                    |  |                          |        
|CASH FLOWS FROM FINANCING ACTIVITIES                                                |  |                          |        
|Payments under borrowing arrangements                                               |  |                          | (2,192 
|Payments for bond repurchase                                                        |  |                          | (37,901
|Proceeds from borrowing arrangement                                                 |  |                          |       
|Purchase of treasury stock, at cost                                                 |  |                          | (627   
|Exercise of stock options, net of tax withholding payments                          |  |                          | 363    
|                                                                                    |  |                          |        
|Net cash (used in) provided by financing activities from continuing operations      |  |                          | (40,357
|                                                                                    |  |                          |        
|Net cash used in financing activities from discontinued operations                  |  |                          |       
|                                                                                    |  |                          |        
|Net cash (used in) provided by financing activities                                 |  |                          | (40,357
|                                                                                    |  |                          |        
|EFFECT OF EXCHANGE RATE CHANGES ON CASH                                             |  |                          | 260    
|                                                                                    |  |                          |        
|NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS                                     |  |                          | (38,324
|CASH AND EQUIVALENTS, beginning of period                                           |  |                          | 68,777 
|                                                                                    |  |                          |        
|CASH AND EQUIVALENTS, end of period                                                 |  | $                        | 30,453 
|                                                                                    |  |                          |        

Supplemental Disclosure of Cash Flow Information: In February 2002, the Company made a discretionary
non-cash contribution of $1.6 million in common stock to the Companys 401(k) Plan.

See notes to the condensed consolidated financial
statements.

3



---

##### Table of Contents

PTEK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

| | 1. | BASIS OF PRESENTATION
| | -- | ---------------------

The accompanying unaudited interim condensed consolidated financial statements have been
prepared by management of PTEK Holdings, Inc. and its subsidiaries (collectively, the Company or PTEK) in accordance with rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, certain
information and footnote disclosures usually found in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. In the opinion of management of the Company, all adjustments (consisting
only of normal recurring adjustments, except as disclosed herein) considered necessary for a fair presentation of the condensed consolidated financial statements have been included. Preparing financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Examples include provisions for bad debts, carrying values and useful lives assigned to intangible and other long-lived assets, and accrued
liabilities. Actual results could differ from those estimates. These interim condensed consolidated financial statements should be read in conjunction with the Companys Annual Report on Form 10-K for the year ended December 31,
2002.

| | 2. | SIGNIFICANT ACCOUNTING POLICIES
| | -- | -------------------------------

Accounts Receivable

Included in accounts receivable at June 30, 2003 was earned but unbilled revenue of approximately $2.8 million at Premiere Conferencing, which resulted from weekly cycle billing that was implemented during the third
quarter of 2002. Earned but unbilled revenue is billed within 30 days.

Software Development Costs

Pursuant to the American Institute of Certified Public Accountants Statement of Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, costs
incurred to develop significant enhancements to software features to be sold as part of services offerings and costs incurred to develop or enhance internal information systems are being capitalized. For the three months ended June 30, 2003 and
2002, the Company capitalized $0.9 million and $0.7 million, respectively. For the six months ended June 30, 2003 and 2002, the Company capitalized $1.4 million and $1.3 million, respectively. These costs are amortized on a straight-line basis over
the estimated life of the software, not to exceed three years. Depreciation expense recorded for phases completed in the three and six months ended June 30, 2003 was $0.2 million and $0.5 million, respectively. Depreciation expense recorded for
phases completed in the three and six months ended June 30, 2002 was $0.1 million and $0.1 million respectively.

Equity Based Compensation Plans

The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion (APB) No. 25, Accounting
for Stock Issued to Employees, and related Interpretations. Accordingly, no compensation expense has been recognized for awards (other than restricted share awards) issued under the Companys stock-based compensation plans where the
exercise price of such award is equal to the market price of the underlying common stock at the date of grant. The Company provides the additional disclosures required under Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123), as amended by SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure.

4



---

##### Table of Contents

PTEK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company has adopted the disclosure-only provision of SFAS No. 123. If compensation expense for the Companys stock option grants described above had been determined
based on the fair value at the grant date for awards in the three and six months ended June 30, 2003 and 2002 consistent with the provisions of SFAS No. 123, the Companys net loss and loss per share would have been increased to the pro forma
amounts indicated below (in thousands, except per share data):



|                                                                                                                                   |  | Three Months EndedJune 30, |       | Six Months EndedJune 30, |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ----- | ------------------------ | -
|                                                                                                                                   |  |                            |       |                          |  
|                                                                                                                                   |  | 2003                       |       | 2002                     |  
|                                                                                                                                   |  |                            |       |                          |  
|Net income (loss):                                                                                                                 |  |                            |       |                          |  
|As reported                                                                                                                        |  | $                          | 6,673 |                          | $
|Add: stock-based employee compensation expense included in reporting net income, net of related tax effect                         |  |                            | 320   |                          |  
|Deduct: total stock-based compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                            | (926  | )                        |  
|                                                                                                                                   |  |                            |       |                          |  
|Pro forma                                                                                                                          |  | $                          | 6,067 |                          | $
|                                                                                                                                   |  |                            |       |                          |  
|Basic net income (loss) per share:                                                                                                 |  |                            |       |                          |  
|As reported                                                                                                                        |  | $                          | 0.13  |                          | $
|Pro forma                                                                                                                          |  | $                          | 0.11  |                          | $
|Diluted net income (loss) per share:                                                                                               |  |                            |       |                          |  
|As reported                                                                                                                        |  | $                          | 0.12  |                          | $
|Pro forma                                                                                                                          |  | $                          | 0.11  |                          | $

Basic and Diluted Net Income (Loss) per Share

Basic earnings per share is computed by dividing net income (loss) available to common shareholders by the weighted-average number of common shares outstanding during the
period. The weighted-average number of common shares outstanding does not include any potentially dilutive securities or any unvested restricted shares of common stock. These unvested restricted shares, although classified as issued and outstanding
at June 30, 2003 and December 31, 2002, are considered contingently returnable until the restrictions lapse and will not be included in the basic net income (loss) per share calculation until the shares are vested. Diluted net income (loss) per
share gives effect to all potentially dilutive securities. The Companys convertible subordinated notes, unvested restricted shares and stock options are potentially dilutive securities during the three and six months ended June 30, 2003 and
2002, respectively. For the three and six months ended June 30, 2003 and 2002, the difference between basic and diluted weighted-average shares outstanding was the dilutive effect of stock options and the unvested restricted shares, computed as
follows:



|                                                    |  | Three Months EndedJune 30, |  | Six Months EndedJune 30, | 
|--------------------------------------------------- |  | -------------------------- |  | ------------------------ | 
|                                                    |  |                            |  |                          | 
|                                                    |  | 2003                       |  | 2002                     | 
|                                                    |  |                            |  |                          | 
|                                                    |  |                            |  |                          | 
|Total weighted-average shares outstanding  Basic   |  | 53,168,046                 |  | 53,739,325               | 
|Add common stock equivalents:                       |  |                            |  |                          | 
|Stock options                                       |  | 1,718,001                  |  | 1,915,990                | 
|Unvested restricted shares                          |  | 930,544                    |  | 781,185                  | 
|                                                    |  |                            |  |                          | 
|Total weighted-average shares outstanding  Diluted |  | 55,816,591                 |  | 56,436,500               | 
|                                                    |  |                            |  |                          | 

Treasury Stock

All treasury stock transactions are recorded at cost. During the second quarter of 2003, at the directive of executive management, the Company cancelled all shares of outstanding treasury stock.

5



---

##### Table of Contents

PTEK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Comprehensive Income (Loss)

Comprehensive income (loss) represents the change in equity
of a business during a period, except for investments by owners and distributions to shareholders. Foreign currency translation adjustments and unrealized gain on available-for-sale marketable securities represent the Companys components of
other comprehensive income. The following table shows total comprehensive income (loss) for the three and six months ended June 30, 2003 and 2002 (in thousands):



|                                                               |  | Three Months Ended |       | Six Months Ended |  
|-------------------------------------------------------------- |  | ------------------ | ----- | ---------------- | -
|                                                               |  |                    |       |                  |  
|                                                               |  | June 30,2003       |       | June 30,2002     |  
|                                                               |  |                    |       |                  |  
|Net income (loss)                                              |  | $                  | 6,673 |                  | $
|Translation adjustments                                        |  |                    | 870   |                  |  
|Change in unrealized gain on marketable securities, net of tax |  |                    | (137  | )                |  
|Comprehensive income (loss)                                    |  | $                  | 7,406 |                  | $

New Accounting Pronouncements

In May 2003, the Financial Accounting Standards Board (FASB) issued SFAS No. 150,Accounting for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity, which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS 150 had no impact on our Condensed Consolidated Financial Statements as we did not have
any financial instruments with characteristics of both liabilities and equity during the quarter ended June 30, 2003.

In January 2003, FASB issued FASB
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities. This interpretation of Accounting Research Bulletin 51, Consolidated Financial Statements, addresses consolidation by business
enterprises of variable interest entities that possess certain characteristics. The interpretation requires that if a business enterprise has a controlling financial interest in a variable interest entity, the assets, liabilities, and results of the
activities of the variable interest entity must be included in the consolidated financial statements with those of the business enterprise. This interpretation applies immediately to variable interest entities created after January 31, 2003 and to
variable interest entities in which an enterprise obtains an interest after that date. We do not have any ownership in any variable interest entities as of June 30, 2003. We will apply the consolidation requirement of the interpretation in future
periods if we should own any interest in any variable interest entity.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB interpretation No. 34. The
disclosure provisions of the interpretation are effective for financial statements of interim or annual periods that end after December 15, 2002. However, the provisions for initial recognition and measurement are effective on a prospective basis
for guarantees that are issued or modified after December 31, 2002, irrespective of a guarantors year-end. See Note 5 Acquisitions and Dispositions.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure (SFAS No. 148) which amends SFAS No. 123. SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for
stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the pro forma effect in interim financial statements. See Equity Based Compensation Plans section
of Note 2 Significant Accounting Policies for the additional annual disclosures made to comply with SFAS No. 148. As the Company does not intend to adopt the provisions of SFAS

6



---

##### Table of Contents

PTEK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

No. 123, the Company does not expect the transition provisions of SFAS No. 148 to have a material effect on its results of operations or financial condition.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS No. 146), which addresses financial
accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring) (EITF 94-3). The principal difference between SFAS No. 146 and EITF 94-3 relates to SFAS No. 146 requirements for recognition of a liability for a cost associated with an exit
or disposal activity. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability for an exit cost as generally defined in EITF 94-3 was
recognized at the date of an entitys commitment to an exit plan. The Company adopted SFAS No. 146 for the fiscal year beginning January 1, 2003.

In April
2002, the FASB issued SFAS No. 145, Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS No. 145). Among other things, this statement rescinds SFAS No. 4,
Reporting Gains and Losses from Extinguishment of Debt (SFAS No. 4), which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of the related
income tax effect. As a result, the criteria in Accounting Principles Board Opinion No. 30, Reporting the Results of Operations  Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, which requires gains and losses on extinguishments of debt to be classified as income or loss from continuing operations, will now be applied. The Company adopted SFAS No. 145 for the fiscal year beginning
January 1, 2003.

Exclusion of SFAS NO. 142 Amortization

Effective January 1,
2002, the Company adopted SFAS No. 142, Accounting for Goodwill and Other Intangible Assets. It requires that goodwill and certain intangible assets will no longer be subject to amortization, but instead will be subject to a periodic
impairment assessment by applying a fair value based test. The balance of goodwill was $123.1 million as of June 30, 2003 and December 31, 2002. The Company determined there was no impairment of these assets as of June 30, 2003.

Summarized below are the carrying value and accumulated amortization of intangible assets that continue to be amortized under SFAS No. 142 (in thousands):



|                                          |  | June 30, 2003      |        | December 31, 2002       |  
|----------------------------------------- |  | ------------------ | ------ | ----------------------- | -
|                                          |  |                    |        |                         |  
|                                          |  | GrossCarryingValue |        | AccumulatedAmortization |  
|                                          |  |                    |        |                         |  
|                                          |  |                    |        |                         |  
|Intangible assets subject to amortization |  | $                  | 96,192 |                         | $

7



---

##### Table of Contents

PTEK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

| | 3. | RESTRUCTURING COSTS
| | -- | -------------------

Consolidated restructuring costs at December 31, 2002 and June 30, 2003 are as follows (in
thousands):



|Consolidated                 |  | AccruedCosts atDecember 31,2002 |       | Payments |   | Non-CashCosts |  | ReversalofCharge |     | AccruedCosts atJune 30,2003 |  
|---------------------------- |  | ------------------------------- | ----- | -------- | - | ------------- |  | ---------------- | --- | --------------------------- | -
|                             |  |                                 |       |          |   |               |  |                  |     |                             |  
|Accrued restructuring costs: |  |                                 |       |          |   |               |  |                  |     |                             |  
|Severance and exit costs     |  | $                               | 1,396 |          | $ | 602           |  | $                |    |                             | $
|Contractual obligations      |  |                                 | 220   |          |   | 7             |  |                  |    |                             |  
|Other                        |  |                                 | 282   |          |   |              |  |                  | 206 |                             |  
|                             |  |                                 |       |          |   |               |  |                  |     |                             |  
|Accrued restructuring costs  |  | $                               | 1,898 |          | $ | 609           |  | $                | 206 |                             | $
|                             |  |                                 |       |          |   |               |  |                  |     |                             |  

In the fourth quarter of 2002, Xpedite and the Company terminated employees pursuant
to a plan to reduce headcount and other sales and administrative costs. During the first six months of 2003, the Company paid approximately $0.6 million in severance and exit costs related to this plan and approximately $0.2 million in non-cash
costs associated with exiting the voice messaging business in Australia due to declining revenue and the need to make substantial capital investments.

In the
fourth quarter of 2001 the Company completed a realignment of workforce in the former Voicecom operating segment. A portion of these costs were related to the future minimum lease payments for one of the network equipment sites that was eliminated
as part of this plan. The Company was able to terminate this lease during 2003 and therefore approximately $0.2 million of costs were reversed to the discontinued operations line.

| | 4. | MARKETABLE SECURITIES, AVAILABLE FOR SALE
| | -- | -----------------------------------------

Marketable securities, available for sale at June 30,
2003 and December 31, 2002, are principally common stock investments carried at fair value based on quoted market prices and mutual funds carried at amortized cost. At June 30, 2003 and December 31, 2002, the Company held investments in public
companies with an aggregate market value of approximately $0.3 million and $0.6 million, respectively. During the three months ended June 30, 2003, the Company sold investments with aggregate proceeds less commissions of approximately $0.5 million
and realized gains of approximately $0.5 million. During the three months ended March 31, 2002, the Company sold investments with aggregate proceeds less commissions of approximately $0.9 million and realized gains of approximately $0.8
million.

| | 5. | ACQUISITIONS AND DISPOSITIONS
| | -- | -----------------------------

Xpedite

On April 30, 2003, Xpedite and its Canadian subsidiary acquired substantially all of the assets of BillWhiz, Inc. d/b/a Linkata Technologies, a Canadian company. The Company will pay a minimum of approximately $0.4
million, up to a maximum of approximately $0.8 million, in cash purchase price over a three-year earn-out period based on the achievement of specified revenue targets. If the earn-out is achieved, the purchase price will be adjusted in accordance
with SFAS No. 141, Business Combinations.

On January 16, 2003, Xpediteacquired substantially all of
the assets related to the U.S. based e-mail and facsimile messaging business of Cable & Wireless USA, Inc. (C&W), and assumed certain liabilities, for a total purchase price of $11.4 million. The Company paid $6.0 million in cash
at closing, $0.4 million in transaction fees and closing costs, and will pay $5.0 million in 16 equal quarterly installments commencing with the quarter ended March 31, 2003, which is classified on the balance sheet as restricted cash. In accordance
with SFAS No. 141, Business Combinations, the Company has completed a third-party valuation of certain intangible assets. As a result of this valuation, approximately $1.1 million has been allocated to acquired property, plant and
equipment,

8



---

##### Table of Contents

PTEK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

and $10.3 million of the aggregate purchase price has been allocated to identifiable customer lists which are being amortized over a five-year useful life.

Discontinued Operations

On March 26, 2002, the Company sold substantially all the assets of the
Voicecom operating segment, exclusive of its Australian operations, to an affiliate of Gores Technology Group, for a total purchase price of approximately $22.4 million, comprised of cash and the assumption of certain liabilities. In connection with
the sale, the Company terminated its credit agreement with ABN AMRO Bank in all material respects.

In accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, the transaction was accounted for as a discontinued operation. The revenues and pre-tax loss for the Voicecom operating segment for the three and six months ended June 30, 2002 were approximately
$15.8 million and $(5.8) million, respectively.

Of the Voicecom transferred liabilities, approximately $2.7 million represents capital leases guaranteed by the
Company as of June 30, 2003. As of June 30, 2003, Voicecom owes one of our affiliates approximately $5.1 million for telecommunication services.

| | 6. | EQUITY BASED COMPENSATION
| | -- | -------------------------

Options exchanged for restricted shares

In the fourth quarter of 2001, the Company offered an exchange program in which it granted one restricted share of common stock in exchange for every 2.5 options tendered. Approximately 6.0 million
employee and director stock options were exchanged for approximately 2.4 million shares of restricted stock on December 28, 2001, the date of the exchange. The restricted shares maintain the same vesting schedules as those of the original options
exchanged, except that in the case of tendered options that were vested on the exchange date, the restricted shares received in exchange therefore vested on the day after the exchange date. To the extent options were vested at the exchange date, the
Company recognized equity based compensation expense determined by using the closing price of the Companys common stock at December 28, 2001, which was $3.32 per share. To the extent that restricted shares were received for unvested options
exchanged, this cost was deferred on the balance sheet under the caption Unearned restricted share compensation. This value was also determined using the closing price of the Companys common stock at the date of the exchange. The
unearned restricted share compensation is recognized as equity based compensation expense as these shares vest. For the three and six months ended June 30, 2003, equity based compensation expense of approximately $0.1 million and $0.4 million,
respectively, was recognized. For the three and six months ended June 30, 2002, equity based compensation expense of approximately $40,000 and $1.0 million, respectively, was recognized. The Company has agreed to lend to certain members of the
executive management of the Company the amount of taxes due with respect to the restricted shares received in the exchange program, with each such loan to be evidenced by a 10-year recourse promissory note bearing interest at the applicable Federal
rate, and secured by the restricted shares. The amounts loaned during the three and six months ended June 30, 2002 were approximately $0.0 and $0.1 million,respectively. There were no amounts loaned
during the three and six months ended June 30, 2003. The outstanding balance of these loans on both June 30, 2003 and December 31, 2002 was approximately $0.7million.

In addition, approximately 890,000 options that were eligible to be exchanged for restricted shares pursuant to the exchange offer were not tendered. At June 30, 2003, the Company had
approximately 561,000 of these options outstanding. The decrease in number of options outstanding is due to the sale of the Voicecom operating segment and other option cancellations. These options will be subject to variable accounting until such
options are exercised, are forfeited, or expire unexercised. These options have exercise prices ranging from $5.32 to $29.25. At both June 30, 2003 and 2002, no charge was recorded because the exercise price of each of the options was greater than
the market value of the Companys common stock.

9



---

##### Table of Contents

PTEK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Restricted shares issued to executive management

Certain members of the executive
management of the Company were awarded discretionary bonuses in the form of restricted shares in November 2001. The purpose of these discretionary bonuses was to better align executive managements performance with the interests of the
shareholders. Certain of these restricted shares vested immediately in 2001 and were restricted from trading for a one-year period. The cost associated with the remaining restricted shares is recognized straight line through 2004 and the equity
based compensation expense recorded for each of the three and six months ended June 30, 2003 and 2002 was approximately $0.1 million and $0.3 million, respectively. At the time of the award, the Company agreed to lend to these members of executive
management the amount of taxes due with respect to the shares of restricted stock granted, with each such loan to be evidenced by a 10-year recourse promissory note bearing interest at the applicable Federal rate, and secured by the restricted
stock. The amounts loaned during the three and six months ended June 30, 2002 were approximately $0.1 million and $0.1 million, respectively. The amounts loaned during the three and six months ended June 30, 2003 were approximately $0.1 million and
$0.2 million, respectively. The outstanding balance of these loans on June 30, 2003 and December 31, 2002 was approximately $0.7 million and $0.5 million, respectively.

Other stock compensation expense

During the second quarter of 2003, the Company recognized stock compensation expense of approximately $0.3 million
as a result of the acceleration of options associated with the resignation of several board members.

| | 7. | COMMITMENTS AND CONTINGENCIES
| | -- | -----------------------------

The Company has several litigation matters pending, as described below, which it
is defending vigorously. Due to the inherent uncertainties of the litigation process and the judicial system, the Company is unable to predict the outcome of such litigation matters. If the outcome of one or more of such matters is adverse to the
Company, it could have a material adverse effect on the Companys business, financial condition and results of operations.

A lawsuit was filed on November 4,
1998 against the Company and certain of its officers and directors in the Southern District of New York. Plaintiffs are shareholders of Xpedite who acquired common stock of the Company as a result of the merger between the Company and Xpedite in
February 1998. Plaintiffs allegations are based on the representations and warranties made by the Company in the prospectus and the registration statement related to the merger, the merger agreement and other documents incorporated by
reference, regarding the Companys acquisitions of Voice-Tel and VoiceCom Systems, the Companys roll-out of Orchestrate, the Companys relationship with customers Amway Corporation and DigiTEC, 2000, and the Companys 800-based
calling card service. Plaintiffs allege causes of action against the Company for breach of contract, against all defendants for negligent misrepresentation, violations of Sections 11 and 12(a)(2) of the Securities Act of 1933 and against the
individual defendants for violation of Section 15 of the Securities Act. Plaintiffs seek undisclosed damages together with pre- and post-judgment interest, recission or recissory damages as to violation of Section 12(a)(2) of the Securities Act,
punitive damages, costs and attorneys fees. The defendants motion to transfer venue to Georgia has been granted. The defendants motion to dismiss has been granted in part and denied in part. The defendants filed an answer on March
30, 2000. On January 22, 2002, the court ordered the parties to mediate. The parties did so on February 8, 2002. On October 17, 2002, the Defendants filed a Motion for Summary Judgment and a Motion in Limine to exclude the testimony of the
Plaintiffs expert. Both motions are pending.

On February 23, 1998, Rudolf R. Nobis and Constance Nobis filed a complaint in the Superior Court of Union
County, New Jersey against 15 named defendants including Xpedite and certain of its alleged current and former officers, directors, agents and representatives. The plaintiffs allege that the 15 named defendants and certain unidentified John
Doe defendants engaged in wrongful activities in connection with the management of the plaintiffs investments with Equitable Life Assurance Society of the United States and/or Equico Securities, Inc., collectively Equitable.
The complaint asserts wrongdoing in connection with the plaintiffs investment in securities of Xpedite and in unrelated investments involving insurance-related products. The defendants include Equitable and certain of its current or former
representatives. The allegations in the complaint against Xpedite are limited to plaintiffs investment in Xpedite. Plaintiffs have alleged that two of the named defendants, allegedly

10



---

##### Table of Contents

PTEK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

acting as officers, directors, agents or representatives of Xpedite, induced the plaintiffs to make certain investments in Xpedite but that the plaintiffs failed to receive the benefits
that they were promised. Plaintiffs allege that Xpedite knew or should have known of alleged wrongdoing on the part of other defendants. Plaintiffs seek an accounting of the corporate stock in Xpedite, compensatory damages of approximately $4.9
million, plus $200,000 in lost investments, interest and/or dividends that have accrued and have not been paid, punitive damages in an unspecified amount, and for certain equitable relief, including a request for Xpedite to issue 139,430
shares of common stock in the plaintiffs names, attorneys fees and costs and such other and further relief as the court deems just and equitable. This case has been dismissed without prejudice and compelled to NASD arbitration, which has
commenced. In August 2000, Plaintiffs filed a statement of claim with the NASD against 12 named respondents, including Xpedite (the Nobis Respondents). Claimants allege that the 12 named respondents engaged in wrongful activities in
connection with the management of the claimants investments with Equitable. The statement of claim asserts wrongdoing in connection with the claimants investment in securities of Xpedite and in unrelated investments involving
insurance-related products. The allegations in the statement of claim against Xpedite are limited to claimants investment in Xpedite. Claimants seek, among other things, an accounting of the corporate stock in Xpedite, compensatory damages of
not less than $415,000, a fair conversion rate on stock options, losses on the investments, plus interest and all dividends, punitive damages, attorneys fees and costs. Hearings before the NASD panel were held on November 27-29, 2001, January
22-24, 2002, February 4-7, 2002, April 9-19, 2002, and May 30, 2002. On July 31, 2002, the NASD Panel issued its Award. The Award was subsequently amended on September 9, 2002. The Panel, among other things, held Xpedite, along with co-Respondents
Angrisani, Erb, and CEA Financial, jointly and severally liable to Claimant Constance Nobis for $50,000, plus 9% simple interest from January 1, 1999 until September 9, 2002. The Panel also held Angrisani, Erb, and CEA Financial jointly and
severally liable to Xpedite for $50,000, plus 9% simple interest from January 1, 1999 until September 9, 2002. Xpedite has filed a Notice of Petition, Verified Petition to Vacate Arbitration Award, and Request for Judicial Intervention in New York
State. That proceeding is pending. On April 7, 2003, the New Jersey Superior Court entered an Order for Judgment affirming the NASD Award. Plaintiffs filed a Motion for Reconsideration of the April 7, 2003 Order on April 25, 2003. On May 30, 2003,
the New Jersey Court issued its Amended Order for Judgment, which effectively denied the Plaintiffs Motion. Xpedite has filed a Notice of Appeal with the New Jersey Court of Appeals. The Claimants and Xpedite have reached a settlement in
principle; however, no settlement agreement has been signed yet.

On September 3, 1999, Elizabeth Tendler filed a complaint in the Superior Court of New Jersey Law
Division, Union County, against 17 named defendants including PTEK and Xpedite, and various alleged current and former officers, directors, agents and representatives of Xpedite. The plaintiff alleges that the defendants engaged in wrongful
activities in connection with the management of the plaintiffs investments, including investments in Xpedite. The allegations against Xpedite and PTEK are limited to plaintiffs investment in Xpedite. Plaintiffs claims against
Xpedite and PTEK include breach of contract, breach of fiduciary duty, unjust enrichment, conversion, fraud, interference with economic advantage, liability for ultra vires acts, violation of the New Jersey Consumer Fraud Act and violation of New
Jersey RICO. Plaintiff seeks an accounting of the corporate stock of Xpedite, compensatory damages of approximately $1.3 million, accrued interest and/or dividends, a constructive trust on the proceeds of the sale of any Xpedite or PTEK stock,
shares of Xpedite and/or PTEK to satisfy defendants obligations to plaintiff, attorneys fees and costs, punitive and exemplary damages in an unspecified amount, and treble damages. On February 25, 2000, Xpedite filed its answer, as well
as cross claims and third party claims. This case has been dismissed without prejudice and compelled to NASD arbitration, which has commenced. In August 2000, a statement of claim was also filed with the NASD against all but one of the Nobis
Respondents making virtually the same allegations on behalf of claimant Elizabeth Tendler. Claimant seeks an accounting of the corporate stock in Xpedite, compensatory damages of not less than $265,000, a fair conversion rate on stock options,
losses on other investments, interest and/or unpaid dividends, punitive damages, attorneys fees and costs. Hearings before the NASD panel were held on November 27-29, 2001, January 22-24, 2002, February 4-7, 2002, April 9-19, 2002, and May 30,
2002. On July 31, 2002, the NASD Panel issued its Award. The Award was subsequently amended on September 9, 2002. The Panel, among other things, held Xpedite, along with co-respondents Angrisani, Erb, and CEA Financial, jointly and severally liable
to claimant Elizabeth Tendler for $57,500, plus 9% simple interest from March 1, 1999 until September 9, 2002. The Panel also held Angrisani, Erb, and CEA Financial jointly and severally liable to Xpedite for $57,500, plus 9% simple interest form
March 1, 1999 until September 9, 2002. Xpedite has filed a Notice of Petition, Verified Petition to Vacate Arbitration Award, and Request for Judicial Intervention in New York State. That proceeding is pending. On April 7, 2003, the New Jersey
Superior Court

11



---

##### Table of Contents

PTEK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

entered an Order for Judgment affirming the NASD Award. Plaintiff filed a Motion for Reconsideration of the April 7, 2003 Order on April 25, 2003. On May 30, 2003, the New Jersey Court
issued its Amended Order for Judgment, which effectively denied the Plaintiffs Motion. Xpedite has filed a Notice of Appeal with the New Jersey Court of Appeals. The Claimants and Xpedite have reached a settlement in principle; however, no
settlement agreement has been signed yet.

On December 10, 2001, Voice-Tel Enterprises, Inc. (Voice-Tel) filed a Complaint against Voice-Tel
franchisees JOBA, Inc. (JOBA) and Digital Communication Services, Inc. (Digital) in the U.S. District Court for the Northern District of Georgia. The Complaint sought injunctive relief and a declaratory judgment with respect
to Voice-Tels right to terminate the franchise agreements with JOBA and Digital. On January 7, 2002, JOBA and Digital answered Voice-Tels Complaint and asserted counterclaims against Voice-Tel for alleged breach of franchise agreements
and other alleged franchise-related agreements. JOBA and Digital also asserted claims alleging tortious interference of contract against Premiere Communications, Inc. (PCI) and PTEK. On January 18, 2002, Voice-Tel, PCI and PTEK filed
responses and answers to the counterclaims and filed additional breach of contract and tort claims against JOBA and Digital. In March 2002, Voice-Tel and JOBA and Digital sought leave of court to file amended complaints and answers, which the court
granted as to JOBA and Digital and granted in part and denied in part as to Voice-Tel. The Digital Franchise Agreement contained a mandatory arbitration provision, which was not found in the JOBA Franchise Agreement. Therefore, on April 10, 2002,
the federal court severed the Digital breach of franchise agreement claims and ordered them to be arbitrated. The Court ordered that all remaining claims, including but not limited to the breach of franchise agreement claims as to JOBA, would remain
in federal court. On July 10, 2002, JOBA and Digital moved to amend their Complaint to add claims for constructive termination of their franchises, which was subsequently denied by the court on September 11, 2002. On July 16, 2002, Voicecom
Telecommunications, LLC (Voicecom) was added as a party Plaintiff in the lawsuit against JOBA and Digital. The parties have filed motions and cross motions for partial summary judgment, including responses thereto. A mediation of all
claims between all parties was held on March 24, 2003, which failed to resolve any of the issues in litigation. On March 31, 2003, the federal court issued an Order granting in part and denying in part each of the parties Motions for Summary
Judgment. As a result of the federal courts rulings, Voice-Tel, PTEK and PCI contend the only remaining claims in federal court are alleged breach of franchise claims by and against Voice-Tel and JOBA, and the only claims to be arbitrated are
breach of franchise agreement claims by and against Voice-Tel and Digital. JOBA and Digital disagree with this characterization. Voice-Tel, PTEK and PCI have filed a motion to clarify the federal courts Order, and JOBA and Digital filed a
motion for reconsideration of the courts Order as well as a cross-motion for clarification. On June 17, 2003, the federal court agreed that PCI and PTEK were not parties to the arbitration and that Voice-Tel would not have to re-litigate
issues relative to the grand solution or the national accounts program in arbitration. The Digital arbitration began on July 13, 2003 and concluded on July 29, 2003. There is no date set for trial.

On March 25, 2003, EasyLink Services Corporation (EasyLink) filed an amended complaint against the Company, Xpedite and AT&T Corp. (AT&T), in the Superior Court of New
Jersey, Chancery Division: Middlesex County (referred to as EasyLink I). EasyLinks complaint alleges, among other things, that the Company entered into agreements to purchase a secured promissory note (the Note) in the
original principal amount of $10 million (the Note Purchase Agreement) and 1,423,980 shares of EasyLinks Class A common stock (the Stock Purchase Agreement) for the purpose of obtaining EasyLinks business by using
the acquired securities to block a debt restructuring that EasyLink was allegedly pursuing with its creditors, including AT&T, and for other improper motives. EasyLinks complaint alleges that it pursued such debt restructuring in reliance
on its understanding that AT&T would participate in the restructuring on certain terms to which EasyLink and AT&T allegedly had agreed, and that AT&T misled EasyLink as to its intentions with respect to such restructuring. The complaint
further alleges that AT&T disclosed confidential information of EasyLink to the Company in violation of AT&Ts agreements with EasyLink, and that such information was used by AT&T and the Company in furtherance of a joint scheme to
force EasyLink out of the marketplace. EasyLinks complaint also alleges that the Companys employees and those of Xpedite have knowingly made false statements to EasyLinks customers, investors and creditors regarding EasyLink and
its financial stability. EasyLink claims that these various actions have impaired its ability to restructure its debt effectively and caused it to suffer various other commercial losses. EasyLinks complaint seeks to (i) enjoin AT&T from
selling the secured promissory note to the Company, improperly interfering with EasyLinks business and contracts and disclosing EasyLinks confidential information without EasyLinks consent; (ii) compel AT&T to consummate
EasyLinks proposed restructuring; (iii) enjoin the Company

12



---

##### Table of Contents

PTEK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

and Xpedite from making false statements to EasyLinks customers and creditors regarding EasyLink and its financial position; (iv) enjoin the Company from contacting EasyLinks
creditors and preventing the restructuring of EasyLinks debt; and (v) enjoin the Company and Xpedite from using EasyLinks confidential information and contacting EasyLinks current and former employees to obtain such confidential
information. EasyLinks complaint also seeks unspecified damages from AT&T and the Company. The Company and Xpedite filed a motion to dismiss the claims against them. A hearing on EasyLinks application for a preliminary injunction was
held on May 1, 2003. The court adjourned the hearing without ruling and directed the parties to explore settlement. The hearing was reconvened on May 13, 2003. The court again adjourned the hearing without ruling and directed the parties to explore
settlement. The hearing was scheduled to reconvene on May 22, 2003. On June 26, 2003, the Trial Judge issued an oral opinion dismissing each and every cause of action against the Company, AT&T and Xpedite. On July 11, 2003, the court entered an
order granting AT&Ts, the Companys and Xpedites motions to dismiss Easylinks complaint, without prejudice and without costs.

The
Company is also involved in various other legal proceedings which the Company does not believe will have a material adverse effect upon the Companys business, financial condition or results of operations, although no assurance can be given as
to the ultimate outcome of any such proceedings.

| | 8. | LONG-TERM DEBT
| | -- | --------------

In July 1997, the Company issued $172.5 million of 53⁄4% convertible subordinated notes that
mature on July 1, 2004 (the 2004 Convertible Notes). The 2004 Convertible Notes are convertible at the option of the holder into common stock at a conversion price of $33 per share, through the date of maturity, subject to adjustment in
certain events.

The Board of Directors of the Company authorized the Companys management to redeem or repurchase the 2004 Convertible Notes in the open
market or in privately negotiated transactions, at managements discretion. During the second quarter of 2003, the Company used existing cash to repurchase approximately $39.5 million in face value of the 2004 Convertible Notes, resulting in a
gain on the early extinguishment of debt of approximately $1.4 million before taxes. The principal balance of the 2004 Convertible Notes at June 30, 2003 was $133.0 million.

| | 9. | SEGMENT REPORTING
| | -- | -----------------

PTEK is a global provider of business communications services, including conferencing (audio
conferencing and Web-based collaboration) and multimedia messaging (high-volume actionable communications, e-mail, wireless messaging, voice message delivery and fax). The Companys reportable segments align the Company into two operating
segments based on product offering. These segments are Premiere Conferencing and Xpedite. Premiere Conferencing offers a variety of audio and Web-based collaboration solutions, and Xpedite offers enhanced electronic information delivery solutions
through various modalities, including fax, e-mail, wireless and voice. In addition, the Company had one other reportable segment, Voicecom, which the Company exited through a sale, exclusive of its Australian operations, effective March 26, 2002.
Voicecom offered a suite of integrated communications solutions including voice messaging, interactive voice response services and unified communications.

Premiere Conferencing has historically relied on sales through a particular customer, IBM, for a significant portion of its revenues. Sales to that customer accounted for approximately 11.4% of consolidated revenue from continuing operations
(27.5% of Premiere Conferencings revenue) for the six months ended June 30, 2003 and 11.9% of consolidated revenue from continuing operations (29.6% of Premiere Conferencings revenue) for the six months ended June 30, 2002.

13



---

##### Table of Contents

PTEK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Information concerning the operations in these reportable segments is as follows (in millions):



|                                                    |  | Three Months EndedJune 30, |      | Six Months EndedJune 30, |  
|--------------------------------------------------- |  | -------------------------- | ---- | ------------------------ | -
|                                                    |  |                            |      |                          |  
|                                                    |  | 2003                       |      | 2002                     |  
|                                                    |  |                            |      |                          |  
|Revenues:                                           |  |                            |      |                          |  
|Revenues from continuing operations:                |  |                            |      |                          |  
|Premiere Conferencing                               |  | $                          | 39.7 |                          | $
|Xpedite                                             |  |                            | 55.2 |                          |  
|Eliminations                                        |  |                            | (0.0 | )                        |  
|                                                    |  |                            |      |                          |  
|                                                    |  | $                          | 94.9 |                          | $
|                                                    |  |                            |      |                          |  
|Revenues from discontinued operations:              |  |                            |      |                          |  
|Voicecom                                            |  | $                          |     |                          | $
|                                                    |  |                            |      |                          |  
|Operating income (loss):                            |  |                            |      |                          |  
|Operating income (loss) from continuing operations: |  |                            |      |                          |  
|Premiere Conferencing                               |  | $                          | 7.8  |                          | $
|Xpedite                                             |  |                            | 7.6  |                          |  
|Holding Company                                     |  |                            | (3.7 | )                        |  
|                                                    |  |                            |      |                          |  
|                                                    |  | $                          | 11.7 |                          | $
|                                                    |  |                            |      |                          |  
|Operating loss from discontinued operations:        |  |                            |      |                          |  
|Voicecom                                            |  | $                          |     |                          | $
|                                                    |  |                            |      |                          |  



|                      |  | June 30,2003 |       | December 31,2002 |  
|--------------------- |  | ------------ | ----- | ---------------- | -
|                      |  |              |       |                  |  
|Identifiable Assets:  |  |              |       |                  |  
|Premiere Conferencing |  | $            | 77.9  |                  | $
|Xpedite               |  |              | 202.2 |                  |  
|Holding Company       |  |              | 38.8  |                  |  
|                      |  |              |       |                  |  
|                      |  | $            | 318.9 |                  | $
|                      |  |              |       |                  |  

| | 10. | SUBSEQUENT EVENTS
| | --- | -----------------

On July 31, 2003, EasyLink filed a Notice of Appeal to the July 11, 2003 court order
dismissing the EasyLink I complaint. In addition, on July 31, 2003, EasyLink filed a new lawsuit against the Company, Xpedite and AT&T in the Law Division of the Superior Court of New Jersey, Middlesex County (referred to as EasyLink
II). The Company or Xpedite are named in Counts Three, Four and Six; AT&T is named in Counts One, Two, Three and Five. The causes of action asserted against AT&T alone allege breach of contract (to which the Company is not a party),
breach of fiduciary duty based on assertions that AT&T failed to disclose its dealings with the Company to EasyLink, agreed to the Note Purchase Agreement after previously agreeing to sell the Note to EasyLink, disclosed confidential information
to the Company and precluded EasyLink from obtaining a working capital loan. The Third Cause of Action seeks a declaratory judgment to the effect that the Note Purchase Agreement and Stock Purchase Agreement constitute illegal, unenforceable
contracts as a matter of law and violate Section 5(b)(1) of the Securities Act of 1933 as well as the terms of a Note and Modification Agreement between AT&T and EasyLink dated as of June 1, 2001. In the Fourth Cause of Action, EasyLink seeks
damages in an unspecified amount against the Company and Xpedite for unfair competition based on allegations that Xpedite transgressed generally accepted standards of business by attempting to purchase EasyLinks debt from creditors in order to
derail EasyLinks financial restructuring; making false and misleading statements to EasyLinks creditors and stockholders regarding EasyLinks financial stability and the Note Purchase Agreement; issuing a false and misleading press
release dated March 2003; attempting to purchase EasyLinks stock in a manner that violated the securities laws; and contacting EasyLinks customers about the Note Purchase Agreement and EasyLinks financial stability, causing them to
redirect business elsewhere. The Sixth Cause of Action, asserted against the Company alone, charges tortious interference with contract and prospective business advantage by contacting creditors of EasyLink that had already agreed to restructure
EasyLinks debt and offering to buy that debt on better terms than EasyLink had offered as well as making false statements to creditors concerning EasyLinks financial

14



---

##### Table of Contents

PTEK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

status. By way of relief, EasyLink seeks damages in an undetermined amount and asserts that it was forced to restructure debt on more onerous terms, downsize its business and terminate 15
percent of its domestic employees because of the Companys actions. There is a substantial similarity in the allegations that are made in this lawsuit and those made in the prior lawsuit previously dismissed by order dated July 11,
2003.

On August 12, 2003, the Company issued $75.0 million of 5% convertible subordinated notes due August 15, 2008 (the 2008 Convertible Notes). On
August 12, 2003, the initial purchasers of the 2008 Convertible Notes exercised an option to purchase an additional $10.0 million of 2008 Convertible Notes. The annual interest commitment associated with the outstanding 2008 Convertible Notes is
$4.3 million and will be paid semiannually on February 15 and August 15 of each year. The 2008 Convertible Notes are convertible at any time at the option of the holder into common stock at a conversion price of approximately $6.69 per share,
subject to adjustment in certain events. The Company may provisionally redeem the 2008 Convertible Notes at any time at a redemption price equal to $1,000 per $1,000 of the principal amount of the notes to be redeemed plus accrued and unpaid
interest, if any, to, but excluding, the date of redemption if: (i) the closing price of the Companys common stock has exceeded 150% of the conversion price then in effect for at least 20 trading days within a period of 30 consecutive
trading days ending on the trading day before the date of mailing of the provisional redemption notice; and (ii) the shelf registration statement covering resales of the notes and shares of common stock issuable upon conversion of the 2008
Convertible Notes is effective and available for use and is expected to remain effective and available for use for the 30 days following the provisional redemption date, unless registration is no longer required. The Company also will make an
interest make-whole payment in cash, or at its option, in common stock with respect to all 2008 Convertible Notes called for provisional redemption, including any notes converted after the notice date and before the provisional redemption date. The
interest make-whole payment would be equal to the present value of the aggregate amount of interest that would otherwise have accrued from the provisional redemption date through the maturity date. The interest make-whole payment will be payable in
cash or, at the Companys option, subject to certain conditions, in common stock or a combination thereof. The Company intends to use the net proceeds from the issuance of the 2008 Convertible Notes to repurchase in the open market or redeem a
portion of the 2004 Convertible Notes. If the Company redeems the 2004 Convertible Notes, the redemption price will be 100.821% of the principal amount redeemed, plus accrued and unpaid interest to the date of redemption.

As of August 14, 2003, the Company has repurchased, pending settlement, approximately $44.5 million in face value of the 2004 Convertible Notes.

15



---

##### Table of Contents

| | I
TEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
| | -------- | -------------------------------------------------------------------------------------

OVERVIEW

PTEK Holdings, Inc., a Georgia corporation, and its subsidiaries (collectively the Company or PTEK), is a global provider of business communications
services, including conferencing (audio conferencing and Web-based collaboration) and multimedia messaging (high-volume actionable communications, including e-mail, wireless messaging, voice message delivery and fax). The Companys reportable
segments align the Company into two operating segments based on product offerings. These segments are Premiere Conferencing and Xpedite. Premiere Conferencing offers a variety of audio and Web-based collaboration solutions, and Xpedite offers
enhanced electronic information delivery solutions through various modalities, including fax, e-mail, wireless and voice. In addition, the Company had one other reportable segment, Voicecom, which the Company exited through a sale, exclusive of its
Australian operations, effective March 26, 2002. Voicecom offered a suite of integrated communications solutions, including voice messaging, interactive voice response services and unified communications.

Revenues of the Company are recognized when persuasive evidence of an arrangement exists, services have been rendered, the price to the buyer is fixed or determinable, and collectibility is reasonably
assured. Revenues consist of fixed monthly fees, usage fees generally based on per minute or transaction rates, and service initiation fees. Unbilled revenue consists of earned but unbilled revenue which results from the weekly billing cycle that
was implemented at Premiere Conferencing during the third quarter of 2002.

Telecommunications costs consist primarily of the cost of metered and fixed
telecommunications related costs incurred in providing the Companys services.

Direct operating costs consist primarily of salaries and wages,
travel, consulting fees and facility costs associated with maintaining and operating the Companys various revenue-generating platforms and telecommunications networks, regulatory fees and non-telecommunications costs directly associated with
providing services and all costs associated with international hardware system sales.

Selling and marketing costs consist primarily of salaries and
wages, travel and entertainment, advertising, commissions and facility costs associated with the functions of selling or marketing the Companys services.

General and administrative costs consist primarily of salaries and wages associated with billing, customer service, order processing, executive management and administrative functions that support the Companys operations.
Bad debt expense associated with customer accounts is also included in this caption.

Research and development costs consist primarily of salaries and
wages, travel, consulting fees and facilities costs associated with developing product enhancements and new product development.

Depreciation and
amortization includes depreciation of computer and telecommunications equipment, furniture and fixtures, office equipment, leasehold improvements, capitalized software and amortization of intangible assets. The Company provides for
depreciation using the straight-line method of depreciation over the estimated useful lives of property and equipment, generally two to ten years, with the exception of leasehold improvements which are depreciated on a straight-line basis over the
shorter of the term of the lease or the useful life of the assets. Intangible assets being amortized include customer lists and developed technology. Intangible assets are amortized over the useful life of the asset generally ranging from three to
seven years.

Equity based compensation relates primarily to restricted stock granted to employees and directors in exchange for options, and
restricted stock granted to certain officers of PTEK and one of its operating units. In addition, it includes the non-cash cost of stock options and restricted stock issued to consultants for services rendered.

16



---

##### Table of Contents

Interest expense includes the interest costs associated with the Companys convertible subordinated notes, term equipment
loans and various capital lease obligations.

Interest income includes interest earned on highly liquid investments with a maturity at date of purchase
of three months or less and interest on employee loans.

Gain on sale of marketable securities includes proceeds less commissions in excess of original
cost on the sale of marketable securities available for sale. These marketable securities are traded on a national exchange with a readily determinable market price.

Gain on repurchase of bonds includes proceeds on the early retirement of bonds purchased in the open market, net of unamortized debt issuance costs.

EBITDA is defined by the Company as income (loss) from continuing operations before interest, taxes, depreciation and amortization. For a discussion of EBITDA and a reconciliation of EBITDA to net cash provided by operating
activities from continuing operations, see  Operating Cash Flow to EBITDA.

The preparation of financial statements in conformity with generally
accepted accounting principles in the United States (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates. The following discussion and analysis provides information which management believes is relevant
to an assessment and understanding of the Companys consolidated results of operations and financial condition. This discussion should be read in conjunction with the Companys consolidated financial statements contained herein and notes
thereto.

RESULTS OF OPERATIONS

The following table presents selected financial
information regarding the Companys operating segments for the periods presented (in millions, unaudited):



|                                                    |  | Three Months EndedJune 30, |      | Six Months EndedJune 30, |  
|--------------------------------------------------- |  | -------------------------- | ---- | ------------------------ | -
|                                                    |  |                            |      |                          |  
|                                                    |  | 2003                       |      | 2002                     |  
|                                                    |  |                            |      |                          |  
|Revenues:                                           |  |                            |      |                          |  
|Revenues from continuing operations:                |  |                            |      |                          |  
|Premiere Conferencing                               |  | $                          | 39.7 |                          | $
|Xpedite                                             |  |                            | 55.2 |                          |  
|Eliminations                                        |  |                            | (0.0 | )                        |  
|                                                    |  |                            |      |                          |  
|                                                    |  | $                          | 94.9 |                          | $
|                                                    |  |                            |      |                          |  
|Revenues from discontinued operations:              |  |                            |      |                          |  
|Voicecom                                            |  | $                          |     |                          | $
|                                                    |  |                            |      |                          |  
|Operating income (loss):                            |  |                            |      |                          |  
|Operating income (loss) from continuing operations: |  |                            |      |                          |  
|Premiere Conferencing                               |  | $                          | 7.8  |                          | $
|Xpedite                                             |  |                            | 7.6  |                          |  
|Holding Company                                     |  |                            | (3.7 | )                        |  
|                                                    |  |                            |      |                          |  
|                                                    |  | $                          | 11.7 |                          | $
|                                                    |  |                            |      |                          |  
|Operating loss from discontinued operations:        |  |                            |      |                          |  
|Voicecom                                            |  | $                          |     |                          | $
|                                                    |  |                            |      |                          |  

17



---

##### Table of Contents

ANALYSIS

Consolidated revenues increased 8.5% to $94.9 million
for the three months ended June 30, 2003 compared with $87.4 million for the same period in 2002, and increased 7.8% to $184.1 million in the six months ended June 30, 2003 compared with $170.7 million for the same period in 2002. On a segment
basis:

| |  | Premiere Conferencing revenue was 41.8% and 40.0% of consolidated revenues for the three months ended June 30, 2003 and 2002, respectively and was 41.4% and 40.0% for the six months ended June 30, 2003 and 2002,
respectively. Premiere Conferencing experienced a 13.4% increase in revenue from $35.0 million to $39.7 million for the three months ended June 30, 2003 compared with the same period in 2002 and an 11.7% increase from $68.4 million to $76.3 million
for the six months ended June 30, 2003 compared with the same period in 2002. The overall growth in revenue at Premiere Conferencing resulted primarily from an increase in international revenue for the three and six months ended June 30, 2003 of
109.1% and 111.0%, respectively, from the comparable periods in 2002 and, domestically, from growth in minutes for its ReadyConference® product.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Xpedite revenue was 58.2% and 60.0% of consolidated revenues for the three months ended June 30, 2003 and 2002, respectively, and was 58.6% and 60.0% for the six months ended June 30, 2003 and 2002, respectively.
Xpedite experienced a 5.3% increase in revenue from $52.4 million to $55.2 million for the three months ended June 30, 2003 compared with the same period in 2002, and a 5.4% increase from $102.4 million to $107.9 million for the six months ended
June 30, 2003 compared with the same period in 2002. The overall growth resulted primarily from increased revenue from its messageReach® and voiceReachSM products, which grew 57.6% and 58.0%, respectively, from the same three and six
month periods in 2002, the beneficial impact of foreign currency exchange rates and the additional customers acquired from Cable & Wireless USA, Inc. (C&W). This growth was mitigated by the continued decline in broadcast fax
revenue which has declined from 65.5% to 59.9% of revenue for the three months ended June 30, 2003 compared to the same period in 2002, and from 66.1% to 60.1% of revenue for the six months ended June 30, 2003 compared to the same period in
2002.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Consolidated gross profit margins (gross profit as a percentage of total revenue) were 79.5% and 80.5% for the three months ended June 30,
2003 and 2002, respectively, and were 80.0% and 80.2% for the six months ended June 30, 2003 and 2002, respectively. Gross profit margin for Premiere Conferencing declined to 80.5% for the three months ended June 30, 2003 from 82.9% for the
comparable period in 2002, and declined to 81.3% for the six months ended June 30, 2003 from 83.6% for the comparable period in 2002. This decline resulted from a reduction in the average selling price per minute as the price per minute for
ReadyConference and PremiereCall AuditoriumSM declined and as revenue from the automated conferencing product, which carries a lower price per minute than the operator-assisted conferencing product, grew to 73.0% of total segment revenue
for the three months ended June 30, 2003 from 68.1% for the comparable period in 2002, and grew to 72.4% for the six months ended June 30, 2003 from 69.5% for the comparable period in 2002. Gross profit margins for Xpedite decreased slightly to
78.8% for the three months ended June 30, 2003 from 78.9% for the comparable period in 2002 but increased to 79.1% for the six months ended June 30, 2003 from 77.9% for the comparable period in 2002. In the second quarter of 2003, Xpedite incurred
higher than normal telecommunications costs associated with the C&W acquisition and the transition of traffic off the C&W network. These higher than normal costs should be virtually eliminated by the fourth quarter of 2003. Absent the costs
associated with the C&W acquisition, price compression in the three and six months ended June 30, 2003 was more than offset by reductions in telecommunications costs and a change in the product mix towards the higher gross margin products,
messageReach and voiceReach, which grew to 17.0% and 16.4% of total segment revenue for the three and six month periods ended June 30, 2003, respectively, from 11.4% and 11.0% for the comparable three and six month periods in 2002.

Premiere Conferencings contribution margin (gross profit less direct operating costs as a percentage of total revenues) was 58.6% and 60.3% for the three months ended
June 30, 2002 and 2003, respectively, and 58.6% and 60.2% for the six months ended June 30, 2002 and 2003, respectively. Xpedites contribution margin was 69.6% and 68.8% for the three months ended June 30, 2002 and 2003, respectively, and
68.7% and 69.1% for the six months ended June 30, 2002 and 2003, respectively.

18



---

##### Table of Contents

Consolidated direct costs of operations were 14.2% of revenues for the three months ended June 30, 2003 as compared with 15.3% for the same
period in 2002, and were 14.6% of revenues for the six months ended June 30, 2003 as compared with 15.5% for the same period in 2002. Premiere Conferencings direct costs of operations as a percentage of revenue declined to 20.3% for the three
months ended June 30, 2003 as compared with 24.3% for the same period in 2002, and declined to 21.1% of revenue for the six months ended June 30, 2003 as compared with 25.0% for the same period in 2002. This decrease reflects the growth in Premiere
Conferencings revenue from automated conferencing services relative to its total revenue base, as the automated conferencing product requires almost no call center support because operators are not needed in the delivery of the service.
Xpedites direct costs of operations as a percentage of revenue increased to 9.9% for the three months ended June 30, 2003 as compared to 9.2% for the same period in 2002, and increased to 9.5% for the six months ended June 30, 2003 as compared
to 9.2% for the same period in 2002. These increases were due primarily to extra costs related to the transitioning of services associated with the C&W acquisition in January 2003 onto the Xpedite platform.

Consolidated selling and marketing costs increased to 28.3% of revenues for the three months ended June 30, 2003 from 26.0% of revenues for the comparable 2002 period, and increased to
27.8% of revenue for the six months ended June 30, 2003 as compared with 26.4% of revenues for the comparable 2002 period. Premiere Conferencings selling and marketing costs as a percentage of revenue grew from 18.6% for the three months ended
June 30, 2002 to 25.4% for the comparable period in 2003, and grew from 19.7% for the six months ended June 30, 2002 to 24.6% for the comparable period in 2003. The increases primarily resulted from increased headcount, commissions, costs associated
with sales training and conferences, and the cost of re-branding marketing material in Asia Pacific. Xpedites selling and marketing costs as a percent of revenues declined slightly from 30.9% of revenue for the three months ended June 30, 2002
to 30.4% for the comparable 2003 period, and decreased from 30.8% of revenue for the six months ended June 30, 2002 to 30.0% for the comparable 2003 period. Although these costs decreased as a percentage of revenue, the expense increased
approximately $0.6 million and $0.9 million for the three and six months ended June 30, 2003 as compared to the same periods in 2002 mainly as a result of higher commissions related to increased revenue, increased travel and meeting costs and the
negative impact of the weaker dollar on expenses denominated in foreign currencies.

Consolidated research and development costs were 2.3% of revenues for the
three months ended June 30, 2003 compared with 2.1% of revenues for the comparable period in 2002, and were 2.3% of revenues for the six months ended June 30, 2003 as compared with 2.4% of revenues for the comparable period in 2002. Overall, these
costs increased approximately $0.4 million and $0.1 million for the three and six months ended June 30, 2003, respectively, as compared to the same periods in 2002. The increase primarily resulted from Xpedites introduction of new product
offerings and the addition of an executive management position.

Consolidated general and administrative costs decreased to 14.3% of revenues for the three months
ended June 30, 2003 from 14.8% of revenues for the same period in 2002, and decreased to 14.7% of revenues for the six months ended June 30, 2003 as compared with 15.1% for the same period in 2002. Premiere Conferencings general and
administrative costs increased slightly from 7.5% of revenue for the three months ended June 30, 2002 to 7.6% of revenue for the comparable period in 2003, and decreased from 8.6% of revenue for the six months ended June 30, 2002 to 8.3% for the
comparable period in 2003. Costs for the three and six months ended June 30, 2003 increased by approximately $0.4 million and $0.5 million, respectively, over the same periods in 2002, driven primarily by increased headcount resulting from the
build-out of Premiere Conferencings international finance and management teams. Xpedites general and administrative costs increased as a percentage of revenue from 12.7% of revenue for the three months ended June 30, 2002 to 13.7% of
revenue for the comparable period in 2003, and increased from 12.7% of revenue for the six months ended June 30, 2002 to 14.0% for the comparable period in 2003. Costs for the three and six months ended June 30, 2003 increased by approximately $0.9
million and $2.1 million, respectively, over the same periods in 2002, driven primarily by increased allocations from the Holding Company and the negative impact of the weaker dollar. The Holding Companys general and administrative costs
decreased approximately $0.7 million to approximately $3.0 million for the three months ended June 30, 2003 and decreased approximately $1.3 million to approximately $5.6 million for the six months ended June 30, 2003, primarily driven by increased
allocations to the operating segments and reductions in employee, travel and entertainment costs.

Consolidated depreciation expense was 6.1% of revenues for the
three months ended June 30, 2003 compared with 6.6% of revenues for the same period in 2002, and was 6.1% of revenues for the six months ended

19



---

##### Table of Contents

June 30, 2003 as compared with 6.5% for the same period in 2002. Absolute costs remained relatively constant for the three months ended June 30, 2003 as
compared to the same period last year and increased slightly by $0.3 million for the six months ended June 30, 2003 as compared to the same period last year.

Consolidated amortization was 1.5% of revenues for the three months ended June 30, 2003 compared with 2.7% for the comparable 2002 period and was 1.9% of revenues for the six months ended June 30, 2003 as compared with 3.6% for the comparable
2002 period. The decrease in amortization expense for both the three and six months ended June 30, 2003, resulted primarily from asset impairment charges recorded in the fourth quarter of 2002, relating mainly to Xpedite customer lists and an asset
becoming fully amortized during the first quarter of 2003.

Net interest expense decreased to $2.3 million for the three months ended June 30, 2003 compared to
$2.8 million for the same 2002 period and decreased to $4.8 million for the six months ended June 30, 2003 compared to $5.7 million for the same 2002 period. Net interest expense decreased for the three and six months ended June 30, 2003 as compared
to the same periods last years as a result of the repurchase of approximately $39.5 million of the Companys convertible subordinated notes, which reduced interest expense by the unamortized portion of the deferred financing costs associated
with these notes of approximately $0.2 million, and from the interest income resulting from employee loans.

DISCONTINUED OPERATIONS

On March 26, 2002, the Company sold substantially all of the assets of the Voicecom operating segment, exclusive of its Australian operations, to Gores Technology Group, for a total
purchase price of approximately $22.4 million, comprised of cash and the assumption of certain liabilities. In accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the transaction was accounted for as
a discontinued operation. In connection with the sale, the Company terminated its credit agreement with ABN AMRO Bank in all material respects.

LIQUIDITY AND CAPITAL
RESOURCES

Net cash provided by operating activities from continuing operations totaled approximately $19.8 million for the six months ended June 30, 2003,
compared to cash provided by operating activities from continuing operations of approximately $1.6 million for the comparable 2002 period. The balance sheet movement associated with operating activities in the first half of 2003 was attributable
primarily to growth in accounts receivable of approximately $4.8 million due to growth in revenues and reductions in accounts payable and accrued liabilities associated with payments for the settlement of a lawsuit that was previously accrued, the
discretionary 401(k) match in cash and a significant payment to a telecommunications vendor. Net of the loss on discontinued operations, a majority of the cash used in operating activities from continuing operations during 2002 can be attributed to
the significant reductions in accounts payable and accrued expenses as well as the increased accounts receivable balance at Premiere Conferencing at June 30, 2002.

Investing activities from continuing operations used cash totaling approximately $18.1 million for the six months ended June 30, 2003, compared to cash provided by investing activities from continuing operations totaling $1.3 million for the
same period in 2002. The principal uses of cash in investing activities in the first half of 2003 include approximately $6.8 million in payments made for the acquisitions of C&W and Linkata, an increase in restricted cash for the deferred
payments of $4.7 million related to the C&W acquisition, and capital expenditures in the six months ended June 30, 2003 of approximately $7.1 million. The principal source of cash from investing activities in the first quarter of 2002 was
proceeds received from the sale of the Voicecom operating segment. The approximately $7.2 million of proceeds from the sale of Voicecom were partially offset by capital expenditures in the six months ended June 30, 2002 of $6.8 million.

Cash used in financing activities from continuing operations for the six months ended June 30, 2003 totaled $40.4 million, compared with cash provided by financing
activities from continuing operations of $2.2 million for the comparable 2002 period. Cash outflows for financing activities in the first half of 2003 were the result of the

20



---

##### Table of Contents

Companys repurchase in the open market of $39.5 million in principal amount of its 2004 Convertible Notes (as defined below) at a purchase price of
approximately $37.9 million, debt payments for equipment loans of $2.2 million and the purchase of $0.6 million of the Companys common stock during the first quarter of 2003. Cash inflows for the six months ended June 30, 2002 were primarily
the result of a new equipment loan offset by debt repayments on existing note obligations associated with a Premiere Conferencing equipment loan.

In July 1997,
the Company issued $172.5 million of 53⁄4% convertible subordinated notes that mature on July 1, 2004 (the 2004 Convertible Notes). The 2004 Convertible Notes are convertible at the option of the holder into common stock at a
conversion price of $33 per share, through the date of maturity, subject to adjustment in certain events.

The Board of Directors of the Company has authorized the
Companys management to redeem or repurchase the 2004 Convertible Notes, in the open market or in privately negotiated transactions, at managements discretion. During the second quarter of 2003, the Company used existing cash to
repurchase approximately $39.5 million in face value of the 2004 Convertible Notes, resulting in a gain on the early extinguishment of debt of approximately $1.4 million before taxes. The outstanding balance of 2004 Convertible Notes at June 30,
2003 was $133.0 million. The annual interest commitment associated with the remaining 2004 Convertible Notes is $7.6 million and is paid semiannually on July 1 and January 1 of each year. In addition to the 2004 Convertible Notes, at June 30, 2003,
the Company had $5.5 million of other indebtedness outstanding.

During the second quarter of 2003, the Company continued to improve certain leverage measurements,
as net debt to equity declined from 1.1 to 1 at June 30, 2003, from 1.4 to 1 at March 31, 2003. Net debt is a non-GAAP financial measure. Management believes that net debt provides useful information regarding the level of the Companys
indebtedness by reflecting cash and cash equivalents that could be used to repay debt. The Companys net debt to equity leverage ratio is calculated as follows (in thousands, other than ratio, unaudited):



|                                                                   |  | June30,2003 |         | March31,2003 |  
|------------------------------------------------------------------ |  | ----------- | ------- | ------------ | -
|                                                                   |  |             |         |              |  
|Current maturities of long-term debt and capital lease obligations |  | $           | 4,002   |              | $
|Long-term debt and capital lease obligations                       |  |             | 1,534   |              |  
|Convertible subordinated notes                                     |  |             | 133,000 |              |  
|                                                                   |  |             |         |              |  
|Total debt                                                         |  |             | 138,536 |              |  
|Cash and cash equivalents                                          |  |             | 30,453  |              |  
|                                                                   |  |             |         |              |  
|Total cash                                                         |  |             | 30,453  |              |  
|Net debt (total debt less cash)                                    |  | $           | 108,083 |              | $
|                                                                   |  |             |         |              |  
|Total shareholders equity                                         |  | $           | 97,043  |              | $
|                                                                   |  |             |         |              |  
|Net debt to equity                                                 |  |             | 1.1     |              |  
|                                                                   |  |             |         |              |  

On August 12, 2003, the Company issued $75.0 million of 5% convertible subordinated
notes due August 15, 2008 (the 2008 Convertible Notes). On August 12, 2003, the initial purchasers of the 2008 Convertible Notes exercised an option to purchase an additional $10.0 million of 2008 Convertible Notes. The annual interest
commitment associated with the outstanding 2008 Convertible Notes is $4.3 million and will be paid semiannually on February 15 and August 15 of each year. The 2008 Convertible Notes are convertible at any time at the option of the holder into common
stock at a conversion price of approximately $6.69 per share, subject to adjustment in certain events. The Company may provisionally redeem the 2008 Convertible Notes at any time at a redemption price equal to $1,000 per $1,000 of the principal
amount of the notes to be redeemed plus accrued and unpaid interest, if any, to, but excluding, the date of redemption if: (i) the closing price of the Companys common stock has exceeded 150% of the conversion price then in effect for at
least 20 trading days within a period of 30 consecutive trading days ending on the trading day before the date of mailing of the provisional redemption notice; and (ii) the shelf registration statement covering resales of the notes and shares of
common stock issuable upon conversion of the 2008 Convertible Notes is effective and available for use and is expected to remain effective and available for use for the 30 days following the provisional redemption date, unless registration is no
longer required.

21



---

##### Table of Contents

The Company also will make an interest make-whole payment in cash, or at its option, in common stock with respect to all 2008 Convertible Notes called for
provisional redemption, including any notes converted after the notice date and before the provisional redemption date. The interest make-whole payment would be equal to the present value of the aggregate amount of interest that would otherwise have
accrued from the provisional redemption date through the maturity date. The interest make-whole payment will be payable in cash or, at the Companys option, subject to certain conditions, in common stock or a combination thereof. The Company
intends to use the net proceeds from the issuance of the 2008 Convertible Notes to repurchase in the open market or redeem a portion of the 2004 Convertible Notes. If the Company redeems the 2004 Convertible Notes, the redemption price will be
100.821% of the principal amount redeemed, plus accrued and unpaid interest to the date of redemption.

As of August 14, 2003, the Company has repurchased, pending
settlement, approximately $44.5 million in face value of the 2004 Convertible Notes.

We cannot assure that we will generate sufficient cash flow to enable us to
repay our indebtedness or to fund our other liquidity needs. If we cannot generate sufficient cash flow in the future, we may need to refinance all or a portion of our indebtedness on or before maturity. As discussed above, we expect to use the net
proceeds of our recent offering of the 2008 Convertible Notes to repurchase in the open market or redeem a portion of our 2004 Convertible Notes. Any of our 2004 Convertible Notes that are not so purchased or redeemed will remain outstanding. We
will continue to evaluate the most efficient use of our capital, and we may seek to refinance or restructure the remaining outstanding 2004 Convertible Notes prior to their maturity on July 1, 2004, through the debt markets, depending on market
conditions, or pursue strategic alternatives for portions of our business. Depending upon market conditions, these alternatives may include purchasing, refinancing or otherwise retiring a portion of the 2004 Convertible Notes in the open market.
Certain refinancing alternatives may have a significant impact on the Companys working capital and liquidity ratios. Management believes that the Company will generate adequate operating cash flows for capital expenditure needs and contractual
commitments for at least the next 12 months.

As of June 30, 2003, the Company had $30.5 million of cash and cash equivalents compared to $68.8 million at December
31, 2002. Cash balances residing outside of the United States at June 30, 2003 were $13.9 million compared to $10.3 million at December 31, 2002. Net working capital at June 30, 2003 was $31.6 million compared to $62.1 million at December 31, 2002.
The Company routinely repatriates cash in excess of operating needs in certain countries where the cost to repatriate does not exceed the economic benefits. Intercompany loans with foreign subsidiaries generally are considered by management to be
permanently invested for the foreseeable future. Therefore, all foreign exchange gains and losses are recorded in the cumulative translation adjustment account on the balance sheet. Based on potential cash positions of the Company and potential
conditions in the capital markets, management could require repayment of these loans despite the long-term intention to hold them as permanent investments.

Management regularly reviews the Companys capital structure and evaluates potential alternatives in light of current conditions in the capital markets. Depending upon conditions in these markets, cash flows from the Companys
operating segments and other factors, the Company may engage in other capital transactions. These capital transactions include but are not limited to debt or equity issuances or credit facilities with banking institutions.

22



---

##### Table of Contents

OPERATING CASH FLOW TO EBITDA

EBITDA, a non-GAAP
financial measure, is considered by the Company to be a measure of liquidity. Management uses this measure as an indicator of cash generated solely from operating activities and is an important measurement of each business units contribution
towards overall liquidity. Further, it provides management with a consistent measurement tool for evaluating the operating activities of a business unit before investing activities, interest and taxes. Management believes the most directly
comparable GAAP financial measure is net cash provided by operating activities from continuing operations presented in the Consolidated Statements of Cash Flows. Net cash provided by operating activities from continuing operations is
reconciled to EBITDA below (in thousands, unaudited):



|                                                                     |  | Three Months Ended |        | Six Months Ended |  
|-------------------------------------------------------------------- |  | ------------------ | ------ | ---------------- | -
|                                                                     |  |                    |        |                  |  
|                                                                     |  | June 30,2003       |        | June 30,2002     |  
|                                                                     |  |                    |        |                  |  
|Net cash provided by operating activities from continuing operations |  | $                  | 19,456 |                  | $
|Add: Gain on sale of marketable securities                           |  |                    | 501    |                  |  
|Gain on repurchase of bonds                                          |  |                    | 1,397  |                  |  
|Interest, net                                                        |  |                    | 2,256  |                  |  
|Tax expense                                                          |  |                    | 4,663  |                  |  
|Less: Equity based compensation                                      |  |                    | (541   | )                |  
|Movement in prepaids and other assets                                |  |                    | (3,839 | )                |  
|Movement in accounts receivable, net                                 |  |                    | (57    | )                |  
|Movement in accruals and other liabilities                           |  |                    | 157    |                  |  
|Deferred income tax movement                                         |  |                    | (3,163 | )                |  
|                                                                     |  |                    |        |                  |  
|EBITDA                                                               |  | $                  | 20,830 |                  | $
|                                                                     |  |                    |        |                  |  

At June 30, 2003, the Companys principal commitments involve minimum purchase
requirements under supply agreements with telecommunications providers, capital lease obligations, operating lease obligations and semi-annual interest on the 2004 Convertible Notes.

RESTRUCTURING COSTS

Consolidated restructuring costs at December 31, 2002 and June 30, 2003 are as follows (in
thousands):



|Consolidated                 |  | AccruedCosts atDecember 31,2002 |       | Payments |   | Non-CashCosts |  | ReversalofCharge |     | AccruedCosts atJune30,2003 |  
|---------------------------- |  | ------------------------------- | ----- | -------- | - | ------------- |  | ---------------- | --- | -------------------------- | -
|                             |  |                                 |       |          |   |               |  |                  |     |                            |  
|Accrued restructuring costs: |  |                                 |       |          |   |               |  |                  |     |                            |  
|Severance and exit costs     |  | $                               | 1,396 |          | $ | 602           |  | $                |    |                            | $
|Contractual obligations      |  |                                 | 220   |          |   | 7             |  |                  |    |                            |  
|Other                        |  |                                 | 282   |          |   |              |  |                  | 206 |                            |  
|                             |  |                                 |       |          |   |               |  |                  |     |                            |  
|Accrued restructuring costs  |  | $                               | 1,898 |          | $ | 609           |  | $                | 206 |                            | $
|                             |  |                                 |       |          |   |               |  |                  |     |                            |  

In the fourth quarter of 2002, Xpedite and the Company terminated employees pursuant
to a plan to reduce headcount and other sales and administrative costs. During the first six months of 2003, the Company paid approximately $0.6 million in severance and exit costs related to this plan and approximately $0.2 million in
non-

23



---

##### Table of Contents

cash costs associated with exiting the voice messaging business in Australia due to declining revenue and the need to make substantial capital
investments.

In the fourth quarter of 2001, the Company completed a realignment of workforce in the former Voicecom operating segment. A portion of these costs
were related to the future minimum lease payments for one of the network equipment sites that was eliminated as part of this plan. The Company was able to terminate this lease during 2003 and therefore approximately $0.2 million of costs were
reversed to the discontinued operations line.

ACQUISITIONS

On April 30, 2003,
Xpedite and its Canadian subsidiary acquired substantially all of the assets of BillWhiz Inc. d/b/a Linkata Technologies, a Canadian company. The Company will pay a minimum of approximately $0.4 million, up to a maximum of approximately $0.8
million, in cash purchase price over a three-year earn-out period based on the achievement of specified revenue targets. If the earn-out is achieved, the purchase price will be adjusted in accordance with SFAS No. 141, Business
Combinations.

On January 16, 2003, Xpediteacquired substantially all of the assets related to the U.S. based
e-mail and facsimile messaging business of C&W, and assumed certain liabilities, for a total purchase price of $11.4 million. The Company paid $6.0 million in cash at closing, $0.4 million in transaction fees and closing costs, and will pay $5.0
million in 16 equal quarterly installments commencing with the quarter ended March 31, 2003, which is classified on the balance sheet as restricted cash. In accordance with SFAS No. 141, Business Combinations, the Company has completed a
third-party valuation of certain intangible assets. As a result of this valuation, approximately $1.1 million has been allocated to acquired property, plant and equipment, and $10.3 million of the aggregate purchase price has been allocated to
identifiable customer lists which are being amortized over a five-year useful life.

CRITICAL ACCOUNTING POLICIES

Managements Discussion and Analysis of Financial Condition and Results of Operations are based upon the Companys consolidated condensed financial statements and the notes thereto, which have been
prepared in accordance with GAAP. The preparation of the consolidated condensed financial statements require the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses, and related
disclosure of contingent assets and liabilities. The Company has reviewed the accounting policies used in reporting its financial results on a regular basis. Management has reviewed these critical accounting policies and related disclosures with the
Companys Audit Committee. The Company has identified the policies below as critical to its business operations and the understanding of its financial condition and results of operations:

| |  | Revenue recognition
| | - | -------------------

| |  | Allowance for uncollectible accounts receivable
| | - | -----------------------------------------------

| |  | Goodwill and other intangible assets
| | - | ------------------------------------

| |  | Income taxes
| | - | ------------

| |  | Investments
| | - | -----------

| |  | Restructuring costs
| | - | -------------------

| |  | Legal contingencies
| | - | -------------------

For a detailed discussion on the application of these accounting policies, see Item 7,
Managements Discussion and Analysis of Financial Condition and Results of Operations, in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2002.

24



---

##### Table of Contents

NEW ACCOUNTING PRONOUNCEMENTS

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity, which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of
both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS
150 had no impact on our Condensed Consolidated Financial Statements as we did not have any financial instruments with characteristics of both liabilities and equity during the quarter ended June 30, 2003.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities. This interpretation of Accounting Research Bulletin 51,
Consolidated Financial Statements, addresses consolidation by business enterprises of variable interest entities that possess certain characteristics. The interpretation requires that if a business enterprise has a controlling financial
interest in a variable interest entity, the assets, liabilities, and results of the activities of the variable interest entity must be included in the consolidated financial statements with those of the business enterprise. This interpretation
applies immediately to variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. We do not have any ownership in any variable interest entities as of June
30, 2003. We will apply the consolidation requirement of the interpretation in future periods if we should own any interest in any variable interest entity.

In
November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45), Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB
Statements No. 5, 57, and 107 and rescission of FASB interpretation No. 34. The disclosure provisions of the interpretation are effective for financial statements of interim or annual periods that end after December 15, 2002. However, the provisions
for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002, irrespective of a guarantors year-end. See Note 5 Acquisitions and
Dispositions.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure (SFAS
No. 148) which amends SFAS No. 123. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also requires that disclosures
of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the pro forma effect in interim
financial statements. See Equity Based Compensation Plans section of Note 2 Significant Accounting Policies for the additional annual disclosures made to comply with SFAS No. 148. As the Company does not intend to adopt
the provisions of SFAS No. 123, the Company does not expect the transition provisions of SFAS No. 148 to have a material effect on its results of operations or financial condition.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS No. 146), which addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring) (EITF 94-3). The principal difference between SFAS No. 146 and EITF 94-3 relates to SFAS No. 146 requirements for recognition of a liability for a cost associated with an exit or disposal activity. SFAS No. 146
requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability for an exit cost as generally defined in EITF 94-3 was recognized at the date of an
entitys commitment to an exit plan. The Company adopted SFAS No. 146 for the fiscal year beginning January 1, 2003.

In April 2002, the FASB issued SFAS No.
145, Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS No. 145). Among other things, this statement rescinds SFAS No. 4, Reporting Gains and
Losses from Extinguishment of Debt (SFAS No. 4), which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. As a
result, the criteria in Accounting Principles Board

25



---

##### Table of Contents

Opinion No. 30, Reporting the Results of Operations  Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, which requires gains and losses on extinguishments of debt to be classified as income or loss from continuing operations, will now be applied. The Company adopted SFAS No. 145 for the fiscal year
beginning January 1, 2003.

FORWARD LOOKING STATEMENTS

When used in this Form 10-Q
and elsewhere by management or PTEK from time to time, the words believes, anticipates, expects, will may, should, intends, plans, estimates,
predicts, potential, continue and similar expressions are intended to identify forward-looking statements concerning our operations, economic performance and financial condition. These include, but are not limited
to, forward-looking statements about our business strategy and means to implement the strategy, our objectives, the amount of future capital expenditures, the likelihood of our success in developing and introducing new products and services and
expanding our business, and the timing of the introduction of new and modified products and services. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995. These statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties, many of which are beyond our control, and reflect future business decisions which are subject
to change. A variety of factors could cause actual results to differ materially from those anticipated in PTEKs forward-looking statements, including the following factors:

| |  | Our ability to respond to rapid technological change, the development of alternatives to our products and services and the risk of obsolescence of our products, services and technology;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Market acceptance of new products and services;
| | - | -----------------------------------------------

| |  | Our ability to manage our growth;
| | - | ---------------------------------

| |  | Costs or difficulties related to the integration of businesses and technologies, if any, acquired or that may be acquired by us may be greater than expected;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Expected cost savings from past or future mergers and acquisitions may not be fully realized or realized within the expected time frame;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------

| |  | Revenues following past or future mergers and acquisitions may be lower than expected;
| | - | --------------------------------------------------------------------------------------

| |  | Operating costs or customer loss and business disruption following past or future mergers and acquisitions may be greater than expected;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------

| |  | The success of our strategic relationships, including the amount of business generated and the viability of the strategic partners, may not meet expectations;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Possible adverse results of pending or future litigation or adverse results of current or future infringements claims;
| | - | ----------------------------------------------------------------------------------------------------------------------

| |  | Our ability to service or repay all or a portion of our convertible notes issued to the public, which mature on July 1, 2004 and on August 15, 2008;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The failure of the purchaser to pay the liabilities assumed in, or incurred after, the sale of the Voicecom business unit;
| | - | --------------------------------------------------------------------------------------------------------------------------

| |  | Our services may be interrupted due to failure of the platforms and network infrastructure utilized in providing our services;
| | - | ------------------------------------------------------------------------------------------------------------------------------

| |  | Our services may be interrupted and our costs may increase due to the filing by MCI and Global
| | - | ----------------------------------------------------------------------------------------------

26



---

##### Table of Contents

Crossing for protection under Chapter 11 of the United States Bankruptcy Code;

| |  | Competitive pressures among communications services providers, including pricing pressures, may increase significantly, particularly after the emergence of MCI and Global Crossing from protection under Chapter 11 of the
United States Bankruptcy Code;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Domestic and international terrorist activity, war and political instability may adversely affect the level of services utilized by our customers and the ability of those customers to pay for services
utilized;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Risks associated with expansion of our international operations;
| | - | ----------------------------------------------------------------

| |  | General economic or business conditions, internationally, nationally or in the local jurisdiction in which we are doing business, may be less favorable than expected;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Legislative or regulatory changes, such as the recent Federal Communications Commissions revisions to the rules interpreting the Telephone Consumer Protection Act of 1991, may adversely affect the businesses in
which we are engaged;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Changes in the securities markets may negatively impact us;
| | - | -----------------------------------------------------------

| |  | Increased leverage in the future may harm our financial condition and results of operations;
| | - | --------------------------------------------------------------------------------------------

| |  | Our dependence on our subsidiaries for cash flow may negatively affect our business and our ability to pay amounts due under our indebtedness;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------

| |  | We may not be able to repurchase or refinance our existing convertible notes due 2004 if so required or desired;
| | - | ----------------------------------------------------------------------------------------------------------------

| |  | Factors described under the caption Risk Factors in our Current Report on Form 8-K, dated August 5, 2003; and
| | - | ---------------------------------------------------------------------------------------------------------------

| |  | Factors described from time to time in our press releases, reports and other filings made with the Securities and Exchange Commission.
| | - | --------------------------------------------------------------------------------------------------------------------------------------

PTEK cautions that these factors are not exclusive. Consequently, all of the forward-looking statements made in this Form 10-Q and in other documents filed with the Securities and Exchange Commission are qualified by
these cautionary statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-Q. PTEK takes on no obligation to publicly release the results of any revisions to
these forward-looking statements that may be made to reflect events or circumstances after the date of this Form 10-Q, or the date of the statement, if a different date.

| | I
TEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
| | -------- | -----------------------------------------------------------

The Company is exposed to market risk from changes
in interest rates and foreign currency exchange rates. The Company manages its exposure to these market risks through its regular operating and financing activities. Derivative instruments are not currently used and, if utilized, are employed as
risk management tools and not for trading purposes.

At June 30, 2003, no derivative financial instruments were outstanding to hedge interest rate risk. A
hypothetical immediate 10% increase in interest rates would decrease the fair value of the Companys fixed-rate convertible subordinated notes outstanding at June 30, 2003, by approximately $11.0 million.

Approximately 34.8% of the Companys revenues and 35.6% of its operating costs and expenses were transacted in foreign currencies for the six-month period ended June 30, 2003. As
a result, fluctuations in exchange rates impact the amount of the Companys reported sales and operating income when translated into U.S. dollars. A

27



---

##### Table of Contents

hypothetical positive or negative change of 10% in foreign currency exchange rates would positively or negatively change revenue for the six-month period
ended June 30, 2003 by approximately $6.4 million and operating costs and expenses for the six-month period ended June 30, 2003 by approximately $5.2 million. The Company has not used derivatives to manage foreign currency exchange translation risk
and no foreign currency exchange derivatives were outstanding at June 30, 2003.

| | ITEM 4. | CONTROLS AND PROCEDURES
| | ------- | -----------------------

The Companys management, with the participation of the Companys Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Companys disclosure controls and procedures as of June 30, 2003. Based on that evaluation, the Companys Chief Executive Officer and Chief Financial Officer
have concluded that, as of June 30, 2003, the Companys disclosure controls and procedures provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

There have been no
significant changes in the Companys internal control over financial reporting during the quarter ended June 30, 2003 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over
financial reporting.

28



---

##### Table of Contents

PART II. OTHER INFORMATION

| | I
TEM 1. | LEGAL PROCEEDINGS
| | -------- | -----------------

The Company has several litigation matters pending, as described below, which it is defending
vigorously. Due to the inherent uncertainties of the litigation process and the judicial system, the Company is unable to predict the outcome of such litigation matters. If the outcome of one or more of such matters is adverse to the Company, it
could have a material adverse effect on the Companys business, financial condition and results of operations.

A lawsuit was filed on November 4, 1998
against the Company and certain of its officers and directors in the Southern District of New York. Plaintiffs are shareholders of Xpedite who acquired common stock of the Company as a result of the merger between the Company and Xpedite in February
1998. Plaintiffs allegations are based on the representations and warranties made by the Company in the prospectus and the registration statement related to the merger, the merger agreement and other documents incorporated by reference,
regarding the Companys acquisitions of Voice-Tel and VoiceCom Systems, the Companys roll-out of Orchestrate, the Companys relationship with customers Amway Corporation and DigiTEC, 2000, and the Companys 800-based calling
card service. Plaintiffs allege causes of action against the Company for breach of contract, against all defendants for negligent misrepresentation, violations of Sections 11 and 12(a)(2) of the Securities Act of 1933 and against the individual
defendants for violation of Section 15 of the Securities Act. Plaintiffs seek undisclosed damages together with pre- and post-judgment interest, recission or recissory damages as to violation of Section 12(a)(2) of the Securities Act, punitive
damages, costs and attorneys fees. The defendants motion to transfer venue to Georgia has been granted. The defendants motion to dismiss has been granted in part and denied in part. The defendants filed an answer on March 30, 2000.
On January 22, 2002, the court ordered the parties to mediate. The parties did so on February 8, 2002. On October 17, 2002, the Defendants filed a Motion for Summary Judgment and a Motion in Limine to exclude the testimony of the Plaintiffs
expert. Both motions are pending.

On February 23, 1998, Rudolf R. Nobis and Constance Nobis filed a complaint in the Superior Court of Union County, New Jersey
against 15 named defendants including Xpedite and certain of its alleged current and former officers, directors, agents and representatives. The plaintiffs allege that the 15 named defendants and certain unidentified John Doe defendants
engaged in wrongful activities in connection with the management of the plaintiffs investments with Equitable Life Assurance Society of the United States and/or Equico Securities, Inc., collectively Equitable. The complaint asserts
wrongdoing in connection with the plaintiffs investment in securities of Xpedite and in unrelated investments involving insurance-related products. The defendants include Equitable and certain of its current or former representatives. The
allegations in the complaint against Xpedite are limited to plaintiffs investment in Xpedite. Plaintiffs have alleged that two of the named defendants, allegedly acting as officers, directors, agents or representatives of Xpedite, induced the
plaintiffs to make certain investments in Xpedite but that the plaintiffs failed to receive the benefits that they were promised. Plaintiffs allege that Xpedite knew or should have known of alleged wrongdoing on the part of other defendants.
Plaintiffs seek an accounting of the corporate stock in Xpedite, compensatory damages of approximately $4.9 million, plus $200,000 in lost investments, interest and/or dividends that have accrued and have not been paid, punitive damages
in an unspecified amount, and for certain equitable relief, including a request for Xpedite to issue 139,430 shares of common stock in the plaintiffs names, attorneys fees and costs and such other and further relief as the court deems
just and equitable. This case has been dismissed without prejudice and compelled to NASD arbitration, which has commenced. In August 2000, Plaintiffs filed a statement of claim with the NASD against 12 named respondents, including Xpedite (the
Nobis Respondents). Claimants allege that the 12 named respondents engaged in wrongful activities in connection with the management of the claimants investments with Equitable. The statement of claim asserts wrongdoing in
connection with the claimants investment in securities of Xpedite and in unrelated investments involving insurance-related products. The allegations in the statement of claim against Xpedite are limited to claimants investment in
Xpedite. Claimants seek, among other things, an accounting of the corporate stock in Xpedite, compensatory damages of not less than $415,000, a fair conversion rate on stock options, losses on the investments, plus interest and all dividends,
punitive damages, attorneys fees and costs. Hearings before the NASD panel were held on November 27-29, 2001, January 22-24, 2002, February 4-7, 2002, April 9-19, 2002, and May 30, 2002. On July 31, 2002, the NASD Panel issued its Award. The
Award was subsequently amended on September 9, 2002. The Panel, among other things, held Xpedite, along with co-Respondents Angrisani, Erb, and CEA Financial, jointly and severally liable to Claimant Constance Nobis for $50,000, plus 9% simple
interest from

29



---

##### Table of Contents

January 1, 1999 until September 9, 2002. The Panel also held Angrisani, Erb, and CEA Financial jointly and severally liable to Xpedite for $50,000, plus 9%
simple interest from January 1, 1999 until September 9, 2002. Xpedite has filed a Notice of Petition, Verified Petition to Vacate Arbitration Award, and Request for Judicial Intervention in New York State. That proceeding is pending. On April 7,
2003, the New Jersey Superior Court entered an Order for Judgment affirming the NASD Award. Plaintiffs filed a Motion for Reconsideration of the April 7, 2003 Order on April 25, 2003. On May 30, 2003, the New Jersey Court issued its Amended Order
for Judgment, which effectively denied the Plaintiffs Motion. Xpedite has filed a Notice of Appeal with the New Jersey Court of Appeals. The Claimants and Xpedite have reached a settlement in principle; however, no settlement agreement has
been signed yet.

On September 3, 1999, Elizabeth Tendler filed a complaint in the Superior Court of New Jersey Law Division, Union County, against 17 named
defendants including PTEK and Xpedite, and various alleged current and former officers, directors, agents and representatives of Xpedite. The plaintiff alleges that the defendants engaged in wrongful activities in connection with the management of
the plaintiffs investments, including investments in Xpedite. The allegations against Xpedite and PTEK are limited to plaintiffs investment in Xpedite. Plaintiffs claims against Xpedite and PTEK include breach of contract, breach
of fiduciary duty, unjust enrichment, conversion, fraud, interference with economic advantage, liability for ultra vires acts, violation of the New Jersey Consumer Fraud Act and violation of New Jersey RICO. Plaintiff seeks an accounting of the
corporate stock of Xpedite, compensatory damages of approximately $1.3 million, accrued interest and/or dividends, a constructive trust on the proceeds of the sale of any Xpedite or PTEK stock, shares of Xpedite and/or PTEK to satisfy
defendants obligations to plaintiff, attorneys fees and costs, punitive and exemplary damages in an unspecified amount, and treble damages. On February 25, 2000, Xpedite filed its answer, as well as cross claims and third party claims.
This case has been dismissed without prejudice and compelled to NASD arbitration, which has commenced. In August 2000, a statement of claim was also filed with the NASD against all but one of the Nobis Respondents making virtually the same
allegations on behalf of claimant Elizabeth Tendler. Claimant seeks an accounting of the corporate stock in Xpedite, compensatory damages of not less than $265,000, a fair conversion rate on stock options, losses on other investments, interest
and/or unpaid dividends, punitive damages, attorneys fees and costs. Hearings before the NASD panel were held on November 27-29, 2001, January 22-24, 2002, February 4-7, 2002, April 9-19, 2002, and May 30, 2002. On July 31, 2002, the NASD
Panel issued its Award. The Award was subsequently amended on September 9, 2002. The Panel, among other things, held Xpedite, along with co-respondents Angrisani, Erb, and CEA Financial, jointly and severally liable to claimant Elizabeth Tendler for
$57,500, plus 9% simple interest from March 1, 1999 until September 9, 2002. The Panel also held Angrisani, Erb, and CEA Financial jointly and severally liable to Xpedite for $57,500, plus 9% simple interest form March 1, 1999 until September 9,
2002. Xpedite has filed a Notice of Petition, Verified Petition to Vacate Arbitration Award, and Request for Judicial Intervention in New York State. That proceeding is pending. On April 7, 2003, the New Jersey Superior Court entered an Order for
Judgment affirming the NASD Award. Plaintiff filed a Motion for Reconsideration of the April 7, 2003 Order on April 25, 2003. On May 30, 2003, the New Jersey Court issued its Amended Order for Judgment, which effectively denied the Plaintiffs
Motion. Xpedite has filed a Notice of Appeal with the New Jersey Court of Appeals. The Claimants and Xpedite have reached a settlement in principle; however, no settlement agreement has been signed yet.

On December 10, 2001, Voice-Tel Enterprises, Inc. (Voice-Tel) filed a Complaint against Voice-Tel franchisees JOBA, Inc. (JOBA) and Digital Communication Services, Inc.
(Digital) in the U.S. District Court for the Northern District of Georgia. The Complaint sought injunctive relief and a declaratory judgment with respect to Voice-Tels right to terminate the franchise agreements with JOBA and
Digital. On January 7, 2002, JOBA and Digital answered Voice-Tels Complaint and asserted counterclaims against Voice-Tel for alleged breach of franchise agreements and other alleged franchise-related agreements. JOBA and Digital also asserted
claims alleging tortious interference of contract against Premiere Communications, Inc. (PCI) and PTEK. On January 18, 2002, Voice-Tel, PCI and PTEK filed responses and answers to the counterclaims and filed additional breach of contract
and tort claims against JOBA and Digital. In March 2002, Voice-Tel and JOBA and Digital sought leave of court to file amended complaints and answers, which the court granted as to JOBA and Digital and granted in part and denied in part as to
Voice-Tel. The Digital Franchise Agreement contained a mandatory arbitration provision, which was not found in the JOBA Franchise Agreement. Therefore, on April 10, 2002, the federal court severed the Digital breach of franchise agreement claims and
ordered them to be arbitrated. The Court ordered that all remaining claims, including but not limited to the breach of franchise agreement claims as to JOBA, would remain in federal court. On July 10, 2002, JOBA and Digital moved to amend their
Complaint to add claims for

30



---

##### Table of Contents

constructive termination of their franchises, which was subsequently denied by the court on September 11, 2002. On July 16, 2002, Voicecom
Telecommunications, LLC (Voicecom) was added as a party Plaintiff in the lawsuit against JOBA and Digital. The parties have filed motions and cross motions for partial summary judgment, including responses thereto. A mediation of all
claims between all parties was held on March 24, 2003, which failed to resolve any of the issues in litigation. On March 31, 2003, the federal court issued an Order granting in part and denying in part each of the parties Motions for Summary
Judgment. As a result of the federal courts rulings, Voice-Tel, PTEK and PCI contend the only remaining claims in federal court are alleged breach of franchise claims by and against Voice-Tel and JOBA, and the only claims to be arbitrated are
breach of franchise agreement claims by and against Voice-Tel and Digital. JOBA and Digital disagree with this characterization. Voice-Tel, PTEK and PCI have filed a motion to clarify the federal courts Order, and JOBA and Digital filed a
motion for reconsideration of the courts Order as well as a cross-motion for clarification. On June 17, 2003, the federal court agreed that PCI and PTEK were not parties to the arbitration and that Voice-Tel would not have to re-litigate
issues relative to the grand solution or the national accounts program in arbitration. The Digital arbitration began on July 13, 2003 and concluded on July 29, 2003. There is no date set for trial.

On March 25, 2003, EasyLink Services Corporation (EasyLink) filed an amended complaint against the Company, Xpedite and AT&T Corp. (AT&T), in the Superior Court of New
Jersey, Chancery Division: Middlesex County (referred to as EasyLink I). EasyLinks complaint alleges, among other things, that the Company entered into agreements to purchase a secured promissory note (the Note) in the
original principal amount of $10 million (the Note Purchase Agreement) and 1,423,980 shares of EasyLinks Class A common stock (the Stock Purchase Agreement) for the purpose of obtaining EasyLinks business by using
the acquired securities to block a debt restructuring that EasyLink was allegedly pursuing with its creditors, including AT&T, and for other improper motives. EasyLinks complaint alleges that it pursued such debt restructuring in reliance
on its understanding that AT&T would participate in the restructuring on certain terms to which EasyLink and AT&T allegedly had agreed, and that AT&T misled EasyLink as to its intentions with respect to such restructuring. The complaint
further alleges that AT&T disclosed confidential information of EasyLink to the Company in violation of AT&Ts agreements with EasyLink, and that such information was used by AT&T and the Company in furtherance of a joint scheme to
force EasyLink out of the marketplace. EasyLinks complaint also alleges that the Companys employees and those of Xpedite have knowingly made false statements to EasyLinks customers, investors and creditors regarding EasyLink and
its financial stability. EasyLink claims that these various actions have impaired its ability to restructure its debt effectively and caused it to suffer various other commercial losses. EasyLinks complaint seeks to (i) enjoin AT&T from
selling the secured promissory note to the Company, improperly interfering with EasyLinks business and contracts and disclosing EasyLinks confidential information without EasyLinks consent; (ii) compel AT&T to consummate
EasyLinks proposed restructuring; (iii) enjoin the Company and Xpedite from making false statements to EasyLinks customers and creditors regarding EasyLink and its financial position; (iv) enjoin the Company from contacting
EasyLinks creditors and preventing the restructuring of EasyLinks debt; and (v) enjoin the Company and Xpedite from using EasyLinks confidential information and contacting EasyLinks current and former employees to obtain such
confidential information. EasyLinks complaint also seeks unspecified damages from AT&T and the Company. The Company and Xpedite filed a motion to dismiss the claims against them. A hearing on EasyLinks application for a preliminary
injunction was held on May 1, 2003. The court adjourned the hearing without ruling and directed the parties to explore settlement. The hearing was reconvened on May 13, 2003. The court again adjourned the hearing without ruling and directed the
parties to explore settlement. The hearing was scheduled to reconvene on May 22, 2003. On June 26, 2003, the Trial Judge issued an oral opinion dismissing each and every cause of action against AT&T, the Company and Xpedite. On July 11, 2003,
the court entered an order granting AT&Ts, the Companys and Xpedites motions to dismiss Easylinks complaint, without prejudice and without costs. Only July 31, 2003, EasyLink filed a Notice of Appeal.

On July 31, 2003, EasyLink filed a new lawsuit against the Company, Xpedite and AT&T in the Law Division of the Superior Court of New Jersey, Middlesex County (referred to
as EasyLink II). The Company or Xpedite are named in Counts Three, Four and Six; AT&T is named in Counts One, Two, Three and Five. The causes of action asserted against AT&T alone allege breach of contract (to which the Company
is not a party), breach of fiduciary duty based on assertions that AT&T failed to disclose its dealings with the Company to EasyLink, agreed to the Note Purchase Agreement after previously agreeing to sell the Note to EasyLink, disclosed
confidential information to the Company and precluded EasyLink from obtaining a working capital loan. The Third Cause of Action seeks a declaratory judgment to the effect that the Note Purchase Agreement and Stock Purchase Agreement constitute
illegal, unenforceable contracts as a matter of law and violate Section 5(b)(1) of the Securities

31



---

##### Table of Contents

Act of 1933 as well as the terms of a Note and Modification Agreement between AT&T and EasyLink dated as of June 1, 2001. In the Fourth Cause of Action,
EasyLink seeks damages in an unspecified amount against the Company and Xpedite for unfair competition based on allegations that the Company and Xpedite transgressed generally accepted standards of business by attempting to purchase EasyLinks
debt from creditors in order to derail EasyLinks financial restructuring; making false and misleading statements to EasyLinks creditors and stockholders regarding EasyLinks financial stability and the Note Purchase Agreement;
issuing a false and misleading press release dated March 2003; attempting to purchase EasyLinks stock in a manner that violated the securities laws; and contacting EasyLinks customers about the Note Purchase Agreement and EasyLinks
financial stability, causing them to redirect business elsewhere. The Sixth Cause of Action, asserted against the Company alone, charges tortious interference with contract and prospective business advantage by contacting creditors of EasyLink that
had already agreed to restructure EasyLinks debt and offering to buy that debt on better terms than EasyLink had offered as well as making false statements to creditors concerning EasyLinks financial status. By way of relief, EasyLink
seeks damages in an undetermined amount and asserts that it was forced to restructure debt on more onerous terms, downsize its business and terminate 15 percent of its domestic employees because of the Companys actions. There is a substantial
similarity in the allegations that are made in this lawsuit and those made in the prior lawsuit previously dismissed by order dated July 11, 2003.

The Company is
also involved in various other legal proceedings which the Company does not believe will have a material adverse effect upon the Companys business, financial condition or results of operations, although no assurance can be given as to the
ultimate outcome of any such proceedings.

| | I
TEM 2. | CHANGES IN SECURITIES AND USE OF PROCEEDS
| | -------- | -----------------------------------------

None.

| | ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
| | ------- | -------------------------------

None.

| | ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
| | ------- | ---------------------------------------------------

The annual meeting of the Companys shareholders was
held on May 20, 2003. At the annual meeting, the following nominees were elected to serve as Class III directors for a three-year term expiring at the 2006 annual meeting of shareholders:



|Name of Director     |  | Votes For  |  | Votes Withheld |  | Abstentions | 
|-------------------- |  | ---------- |  | -------------- |  | ----------- | 
|Boland T. Jones      |  | 48,001,949 |  | 703,018        |  | 0           | 
|Jeffrey T. Arnold    |  | 47,970,415 |  | 734,552        |  | 0           | 
|George M. Miller, II |  | 48,028,865 |  | 676,102        |  | 0           | 

The following persons continued as directors following the annual meeting: Jeffrey A.
Allred, Raymond H. Pirtle, Jr., Jeffrey M. Cunningham and J. Walker Smith, Jr.

| | ITEM 5. | OTHER INFORMATION
| | ------- | -----------------

None.

32



---

##### Table of Contents

| | ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K
| | ------- | --------------------------------

| | (a) | Exhibits
| | --- | --------



|Exhibit Number | Exhibit Description                                                                                                                               
|-------------- | --------------------------------------------------------------------------------------------------------------------------------------------------
|               |                                                                                                                                                   
|10.1           | Third Amended and Restated Executive Employment Agreement between Patrick G.Jones and the Registrant effective as of May 30, 2003.                
|               |                                                                                                                                                   
|10.2           | Second Amendment to Employment Agreement between Theodore P. Schrafft andAmerican Teleconferencing Services, Ltd. effective as of May 30, 2003.   
|               |                                                                                                                                                   
|10.3           | Third Amended and Restated Executive Employment Agreement between Boland T.Jones and the Registrant effective as of June 16, 2003.                
|               |                                                                                                                                                   
|10.4           | Third Amended and Restated Executive Employment Agreement between Jeffrey A. Allred and the Registrant effective as of June 26, 2003.             
|               |                                                                                                                                                   
|31.1           | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|               |                                                                                                                                                   
|31.2           | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|               |                                                                                                                                                   
|32.1           | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|               |                                                                                                                                                   
|32.2           | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|               |                                                                                                                                                   

| | (b) | Reports on Form 8-K:
| | --- | --------------------

The following reports on Form 8-K were filed during the quarter for which this report is
filed:



|Date of Report(Date Filed) | Items Reported                                                                                                                                                     
|-------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                           |                                                                                                                                                                    
|04/29/03                   | Item 7 and 9 (Pursuant to Item 12)  Regulation FD Disclosure and Disclosure of Results of Operations and Financial Condition for the
quarter ended March 31, 2003.
|                           |                                                                                                                                                                    
|05/12/03                   | Item 4  Changes in the Registrants Certifying Accountant.                                                                                                        

33



---

##### Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.



|Date: August 14, 2003 |  | PTEK HOLDINGS INC.                                                                                                                                                  
|--------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                      |  | /s/ WILLIAME.FRANKLIN                                                                                                                                               
|                      |  |                                                                                                                                                                     
|                      |  | William E. FranklinExecutive Vice President and Chief Financial Officer (principal Financial and Accounting Officer and duly authorized signatory of the
Registrant)



34



---

##### Table of Contents

EXHIBIT INDEX



|ExhibitNumber | Exhibit Description                                                                                                                               
|------------- | --------------------------------------------------------------------------------------------------------------------------------------------------
|              |                                                                                                                                                   
|10.1          | Third Amended and Restated Executive Employment Agreement between Patrick G. Jones and the Registrant effective as of May 30, 2003.               
|              |                                                                                                                                                   
|10.2          | Second Amendment to Employment Agreement between Theodore P. Schrafft and American Teleconferencing Services, Ltd. effective as of May 30, 2003.  
|              |                                                                                                                                                   
|10.3          | Third Amended and Restated Executive Employment Agreement between Boland T. Jones and the Registrant effective as of June 16, 2003.               
|              |                                                                                                                                                   
|10.4          | Third Amended and Restated Executive Employment Agreement between Jeffrey A. Allred and the Registrant effective as of June 26, 2003.             
|              |                                                                                                                                                   
|31.1          | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|              |                                                                                                                                                   
|31.2          | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|              |                                                                                                                                                   
|32.1          | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|              |                                                                                                                                                   
|32.2          | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|              |                                                                                                                                                   

35