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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q/A

(Amendment No. 1)



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|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



| ̈ | 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



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PTEK HOLDINGS, INC.

(Exact name of registrant as specified in its charter)



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GEORGIA

(State or other jurisdiction of incorporation or organization)



59-3074176

(I.R.S. Employer Identification No.)



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3399 PEACHTREE ROAD NE

THE LENOX BUILDING, SUITE 700

ATLANTA, 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)



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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 ̈



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



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



|Class                         |  | Outstanding at August 11, 2003
|----------------------------- |  | ------------------------------
|Common Stock, $0.01 par value |  | 54,066,090 Shares             



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##### Table of Contents

AMENDMENT



Pursuant to Rule 12b-15 of the Securities Exchange Act of 1934, as amended, PTEK Holdings, Inc. hereby amends its Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2003 to respond to certain comments of the Securities and Exchange Commission (SEC) in connection with its review of our Registration Statement on Form S-3 filed on September 24, 2003.



For convenience and ease of reference we are filing this Quarterly Report in
its entirety. Unless otherwise stated, all information contained in this amendment is as of August 14, 2003, the filing date of our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003. Accordingly, this Amendment No. 1 to the
Quarterly Report on Form 10-Q/A should be read in conjunction with our subsequent filings with the SEC.



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##### Table of Contents

PTEK HOLDINGS, INC. AND SUBSIDIARIES



INDEX TO FORM 10-Q/A



|              |  |                       |  |                                                                                                           |  | 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                  |  | 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                   



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##### Table of Contents

PART I. FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



PTEK HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED 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.



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##### Table of Contents

PTEK HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED 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 |   |                  | $
|                                                                                                                                                     |  |                    |        |  
|COST OF REVENUES (exclusive of depreciation shown separately below)                                                                                  |  |                    | 32,934 |   |                  |  
|                                                                                                                                                     |  |                    |        |   |                  |  
|GROSS 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.



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PTEK HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED 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.



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PTEK HOLDINGS, INC. AND SUBSIDIARIES

NOTES 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.



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PTEK HOLDINGS, INC. AND SUBSIDIARIES

NOTES 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 MonthsEndedJune 30, |       |   | Six MonthsEndedJune 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 Ended June 30, |  | Six Months Ended June 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.



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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 MonthsEnded |       |   | Six MonthsEnded |  
|-------------------------------------------------------------- |  | ----------------- | ----- | - | --------------- | -
|                                                               |  | 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 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, it does not expect the transition provisions of SFAS No. 148 to have a material effect on
its results of operations or financial condition.



In November
2002, the Emerging Issues Task Force (EITF) reached a consensus on issue 00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21). EITF 00-21 addresses revenue recognition on arrangements encompassing
multiple elements that are delivered at different points in time, defining criteria that must be met for elements to be considered to be a separate unit of accounting. If an element is determined to be a separate unit of accounting, the revenue for
the element is recognized at the time of delivery. EITF 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The Company does not expect that this pronouncement will have a material impact on its
results of operations or financial condition.



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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 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 based upon a two-step method. The first step is to identify potential goodwill impairment by comparing the estimated fair value of the reporting units to their carrying amounts. The second step measures the amount of the impairment
based upon a comparison of implied fair value of goodwill with its carrying amount. The balance of goodwill was $123.1 million as of June 30, 2003 and December 31, 2002.



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 |                        



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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, Xpedite acquired 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. The Company followed SFAS No. 141, Business Combinations, and approximately $1.1 million of
the aggregate purchase price has been allocated to acquired property, plant and equipment, and approximately $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.



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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 $0.7 million.



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.



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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



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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



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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 ruled that only Voice-Tel, the franchisor under the Digital arbitration agreement, and not PCI and PTEK, who were not parties to the franchise agreement, was a party to the arbitration, and that issues that had already been decided
in federal court with respect to Voice-Tel were not arbitrable. 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



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PTEK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



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 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 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 revenues from continuing operations (27.5% of Premiere Conferencings revenue) for the six months ended June 30, 2003 and 11.9% of consolidated revenues from
continuing operations (29.6% of Premiere Conferencings revenue) for the six months ended June 30, 2002.



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PTEK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



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



|                                             |  | Three MonthsEndedJune 30, |      |   | Six MonthsEndedJune 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                                     |  | $                         |     |   |                         | $
|                                             |  |                           |      |   |                         |  
|Income (loss) from continuing operations:    |  |                           |      |   |                         |  
|Premiere Conferencing                        |  | $                         | 4.9  |   |                         | $
|Xpedite                                      |  |                           | 9.2  |   |                         |  
|Holding Company                              |  |                           | (7.3 | ) |                         |  
|                                             |  |                           |      |   |                         |  
|                                             |  | $                         | 6.8  |   |                         | $
|                                             |  |                           |      |   |                         |  
|Operating loss from discontinued operations: |  |                           |      |   |                         |  
|Voicecom                                     |  | $                         | (0.1 | ) |                         | $
|                                             |  |                           |      |   |                         |  
|Net income (loss):                           |  | $                         | 6.7  |   |                         | $
|                                             |  |                           |      |   |                         |  



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



The following table
presents selected financial information regarding the Companys geographic regions for the periods presented (in millions):



|                                     |  | Three MonthsEndedJune 30, |      | Six monthsendedJune 30,
|------------------------------------ |  | ------------------------- | ---- | -----------------------
|                                     |  | 2003                      |      | 2002                   
|Revenues from continuing operations: |  |                           |      |                        
|North America                        |  | $                         | 61.7 |                        
|Europe                               |  |                           | 17.3 |                        
|Asia Pacific                         |  |                           | 15.9 |                        
|                                     |  |                           |      |                        
|                                     |  | $                         | 94.9 |                        
|                                     |  |                           |      |                        



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



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PTEK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



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 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.



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.



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##### Table of Contents

ITEM 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 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 and usage fees generally based on per minute or transaction rates.
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.



Cost of revenues includes telecommunication costs and direct operating costs exclusive of depreciation as
defined below. Telecommunication costs consist primarily of the cost of metered and fixed telecommunication 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 telecommunication networks, regulatory fees and non-telecommunication 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.



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



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##### Table of Contents

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.



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 MonthsEndedJune 30, |      |   | Six MonthsEndedJune 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                                     |  | $                         |     |   |                         | $
|                                             |  |                           |      |   |                         |  
|Income (loss) from continuing operations:    |  |                           |      |   |                         |  
|Premiere Conferencing                        |  | $                         | 4.9  |   |                         | $
|Xpedite                                      |  |                           | 9.2  |   |                         |  
|Holding Company                              |  |                           | (7.3 | ) |                         |  
|                                             |  |                           |      |   |                         |  
|                                             |  | $                         | 6.8  |   |                         | $
|                                             |  |                           |      |   |                         |  
|Operating loss from discontinued operations: |  |                           |      |   |                         |  
|Voicecom                                     |  | $                         | (0.1 | ) |                         | $
|                                             |  |                           |      |   |                         |  
|Net income (loss):                           |  | $                         | 6.7  |   |                         | $
|                                             |  |                           |      |   |                         |  



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The following table presents selected financial information regarding the Companys geographic
regions for the periods presented (in millions):



|                                     |  | Three Months EndedJune 30, |      | Six monthsendedJune 30,
|------------------------------------ |  | -------------------------- | ---- | -----------------------
|                                     |  | 2003                       |      | 2002                   
|Revenues from continuing operations: |  |                            |      |                        
|North America                        |  | $                          | 61.7 |                        
|Europe                               |  |                            | 17.3 |                        
|Asia Pacific                         |  |                            | 15.9 |                        
|                                     |  |                            |      |                        
|                                     |  | $                          | 94.9 |                        
|                                     |  |                            |      |                        



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 for 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 41.4% and 40.0% of consolidated
revenues 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 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 approximately 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% of consolidated revenues 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 growth resulted primarily from increased revenue from its messageREACH® and voiceREACHSMproducts, which grew an
aggregate of approximately 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 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 revenues on a geographic region basis increased in North America to $61.7 million from $58.9 million for the three months ended June 30, 2003 and 2002, respectively, and increased to $120.1 million from $116.5 million for the
six months ended June 30, 2003 and 2002, respectively. As a percentage of consolidated revenues, North America revenues decreased 2.5% and 3.0% for the three and six month periods ended June 30, 2003 over the comparable periods in 2002. Consolidated
revenues in Europe increased $3.3 million, from $14.0 million to $17.3 million for the three month periods ended June 30, 2002 and 2003, respectively. For the six month period ended June 30, 2003, European revenues increased $6.0 million to $33.4
million from $27.4 million for the comparable period in 2002. As a percentage of consolidated revenues, European revenues increased 2.3% and 2.1% for the three and six month periods ended June 30, 2003, respectively, over the comparable periods in
2002. Asia Pacific consolidated revenues also increased during the second quarter of 2003 by $1.4 million from $14.5 million for the three months ended June 30, 2002 to $15.9 million for comparable period in 2003, and increased $3.8 million from
$26.8 million for the six months ended June 30, 2002 to $30.6 million for the comparable period in 2003. As a



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percentage of consolidated revenues, Asia Pacific revenues increased 0.3% and 0.9% for the three and six month periods ended June 30, 2003, respectively,
over the comparable periods in 2002. The Company experienced revenue growth in the European and Asia Pacific regions mainly as a result of the expansion of Premiere Conferencing within these regions, as discussed above, and organic growth at
Xpedite.



Consolidated cost of revenues were $32.9 million or
34.7% of consolidated revenues and $30.5 million or 34.8% of consolidated revenues for the three months ended June 30, 2003 and 2002, respectively, and $63.6 million or 34.6% of consolidated revenues and $60.3 million or 35.3% of consolidated
revenues for the six months ended June 30, 2003 and 2002, respectively. On a segment basis:



| |  | Premiere Conferencing cost of revenue increased to $15.8 million or 39.7% of segment revenue from $14.5 million or 41.4% of segment revenue for the three months ended June 30, 2003
and 2002, respectively, and increased to $30.4 million or 39.8% of segment revenue from $28.3 million or 41.4% of segment revenue for the six months ended June 30, 2003 and 2002, respectively. This increase resulted mainly from increased
telecommunications costs of $1.7 million and $3.1 million for the three and six months ended June 30, 2003, respectively, over the comparable periods in 2002. The decline as a percentage of segment revenue resulted from a reduction in the average
selling price per minute as the price per minute for ReadyConference and PremiereCall AuditoriumSMdeclined and as
revenue from the automated conferencing product, which carries a lower price per minute than the operator-assisted conferencing product, grew to approximately 73.0% and 72.4% of total segment revenue for the three and six months ended June 30, 2003,
respectively, from approximately 68.1% and 69.5% for the comparable periods in 2002. This increase was slightly offset by a decrease in direct operating costs of $0.5 million and $1.0 million for the three and six months ended June 30, 2003,
respectively, as compared to the same periods in 2002, as the product mix continues to shift towards the automated conferencing product which requires almost no call center support because operators are not needed in the delivery of the service.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Xpedite cost of revenue increased to $17.2 million or 31.2% of segment revenue from $15.9 million or 30.4% of segment revenue for the three months ended June 30, 2003 and 2002,
respectively, and increased to $33.3 million or 30.9% of segment revenue from $32.0 million or 31.3% of segment revenue for the six months ended June 30, 2003 and 2002, respectively. This increase was due primarily to approximately $1.2 million and
$1.8 million in additional costs related to the transitioning of services associated with the C&W acquisition in January 2003 onto the Xpedite platform for the three and six months ended June 30, 2003, respectively. In the second quarter of
2003, Xpedite incurred higher than normal telecommunications costs associated with the C&W acquisition and the migration of traffic off the C&W network. These higher than normal costs should be virtually eliminated by the fourth quarter of
2003 and were slightly offset by reductions in telecommunication costs and a change in the product mix towards the higher gross margin products, messageREACH and voiceREACH, which grew to approximately 17.0% and 16.4% of total segment revenue for
the three and six month periods ended June 30, 2003, respectively, from approximately 11.4% and 11.0% for the comparable periods in 2002.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Consolidated gross margin (revenues less cost of revenues) was $57.0 million or 65.2% of consolidated revenues and $61.9 million or 65.3% of consolidated
revenues for the three months ended June 30, 2002 and 2003, respectively, and $110.4 million or 64.7% of consolidated revenues and $120.5 or 65.4% of consolidated revenues for the six months ended June 30, 2002 and 2003, respectively. Premiere
Conferencings gross margin was $20.5 million or 58.6% of segment revenue and $23.9 million or 60.3% of segment revenue for the three months ended June 30, 2002 and 2003, respectively, and $40.0 million or 58.6% of segment revenue and $45.9
million or 60.2% of segment revenue for the six months ended June 30, 2002 and 2003, respectively. Xpedites gross margin was $36.5 million or 69.6% of segment revenue and $38.0 million or 68.8% of segment revenue for the three months ended
June 30, 2002 and 2003, respectively, and $70.4 million or 68.7% of segment revenue and $74.6 million or 69.1% of segment revenue for the six months ended June 30, 2002 and 2003, respectively.



Consolidated selling and marketing costs increased to $26.8 million or 28.3%
of consolidated revenues for the three months ended June 30, 2003 from $22.7 million or 26.0% of consolidated revenues for the comparable



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2002 period, and increased to $51.5 million or 27.8% of consolidated revenues for the six months ended June 30, 2003 as compared with $45.0 million or 26.4%
of consolidated revenues for the comparable 2002 period. Premiere Conferencings selling and marketing costs grew from $6.5 million or 18.6% of segment revenue for the three months ended June 30, 2002 to $10.1 million or 25.4% of segment
revenue for the comparable period in 2003, and grew from $13.5 million or 19.7% of segment revenue for the six months ended June 30, 2002 to $18.7 million or 24.6% of segment revenue 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 revenue declined
slightly from 30.9% of segment revenue for the three months ended June 30, 2002 to 30.4% for the comparable 2003 period, and decreased from 30.8% of segment 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 $0.6 million, from $16.2 million to $16.8 million, and $0.9 million, from $31.5 million to $32.4 million, for the three and six months ended June 30, 2003 as compared
to the same periods in 2002. This increase resulted mainly from 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
consolidated revenues for the three months ended June 30, 2003 compared with 2.1% of consolidated revenues for the comparable period in 2002, and were 2.3% of consolidated revenues for the six months ended June 30, 2003 as compared with 2.4% of
consolidated revenues for the comparable period in 2002. These costs increased $0.4 million, from $1.8 million to $2.2 million, and $0.2 million, from $4.0 million to $4.2 million for the three and six months ended June 30, 2003, respectively, as
compared to the same periods in 2002. The increase resulted from Xpedites introduction of new product offerings and the addition of an executive management position, which accounted for approximately $0.3 million and $0.1 million of the
increase for the three and six months ended June 30, 2003, respectively.



Consolidated general and administrative costs increased $0.6 million from $12.9 million for the three months ended June 30, 2002 to $13.5 million for the three months ended June 30, 2003 while decreasing to 14.3% of
consolidated revenues for the three months ended June 30, 2003 from 14.8% of consolidated revenues for the same period in 2002. For the six months ended June 30, 2003, consolidated general and administrative costs decreased to $27.0 million or 14.7%
of consolidated revenues as compared with $27.8 million or 15.1% of consolidated revenues for the same period in 2002. Premiere Conferencings general and administrative costs increased $0.4 million from $2.6 million or 7.5% of segment revenue
for the three months ended June 30, 2002 to $3.0 million or 7.6% of segment revenue for the comparable period in 2003. For the six months ended June 30, 2003, these costs increased $0.5 million to $6.3 million from $5.8 million for the comparable
period in 2002, while decreasing from 8.6% of segment revenue for the six months ended June 30, 2002 to 8.3% for the comparable period in 2003. This increase in cost was 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 segment 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 $1.0 million, from $6.6
million to $7.6 million and by $2.1 million from $13.0 million to $15.1 million over the same periods in 2002, respectively, 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 $0.7 million to $3.0 million for the three months ended June 30, 2003 and decreased $1.3 million to $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 $5.7 million or 6.1% of consolidated revenues for the three months ended June 30, 2003 compared with $5.8 million or
6.6% of consolidated revenues for the same period in 2002, and was $11.3 million or 6.1% of consolidated revenues for the six months ended June 30, 2003 as compared with $11.0 million or 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 $1.4 million or 1.5% of consolidated revenues
for the three months ended June 30, 2003 compared with $2.4 million or 2.7% for the comparable 2002 period and was $3.4 million or 1.9% of



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consolidated revenues for the six months ended June 30, 2003 as compared with $6.2 million or 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 year as a result of the repurchase of $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 $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 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.



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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):



|                                                                   |  | June 30, 2003 |         | March 31, 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. 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.



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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.



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 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 |                            
|                             |  |                                 |       |          |   |               |  |                  |     |                            



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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.



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, Xpedite acquired 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. The Company followed SFAS No. 141, Business Combinations, and
approximately $1.1 million of the aggregate purchase price has been allocated to acquired property, plant and equipment, and approximately $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.



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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 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 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 November 2002, the Emerging Issues Task Force (EITF) reached a
consensus on issue 00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21). EITF 00-21 addresses revenue recognition on arrangements encompassing multiple elements that are delivered at different points in time,
defining criteria that must be met for elements to be considered to be a separate unit of accounting. If an element is determined to be a separate unit of accounting, the revenue for the element is recognized at the time of delivery. EITF 00-21 is
effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The Company does not expect that the pronouncements will have a material impact on its financial position, results of operations or cash flows.



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



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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.



FORWARD LOOKING STATEMENTS



When used in this Form 10-Q/A 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, which are updated through the date of filing of this Form 10-Q/A:



| |  | 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;
| | - | ----------------------------------------------------------------------------------------------------------------------



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| |  | Our ability to service or repay all or a portion of our convertible notes issued to the public, a portion of which mature on July 1, 2004 and the remainder of which mature 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 Crossing for protection under Chapter 11 of the United States Bankruptcy Code and
MCIs notice of rejection of some (if not all) of our telecommunication service agreements;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  | Our Risk Factors filed as Exhibit 99.1 to our Current Report on Form 8-K dated December 19, 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/A 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/A. 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/A, or the date of the statement, if a different date.



ITEM 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.



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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 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 the Companys disclosure controls and procedures were effective, as of June 30, 2003, to 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 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.



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PART II. OTHER INFORMATION



ITEM 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



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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



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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 ruled that only Voice-Tel, the franchisor under the Digital arbitration agreement, and not PCI and
PTEK, who were not parties to the franchise agreement, was a party to the arbitration, and that issues that had already been decided in federal court with respect to Voice-Tel were not arbitrable. 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



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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 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.



ITEM 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.



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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 (previously filed with the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003).             
|               | 
|10.2           |  | Second Amendment to Employment Agreement between Theodore P. Schrafft and American Teleconferencing Services, Ltd. effective as of May 30, 2003 (previously filed with the
Registrants Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003).
|               | 
|10.3           |  | Third Amended and Restated Executive Employment Agreement between Boland T. Jones and the Registrant effective as of June 16, 2003 (previously filed with the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003).             
|               | 
|10.4           |  | Third Amended and Restated Executive Employment Agreement between Jeffrey A. Allred and the Registrant effective as of June 26, 2003 (previously filed with the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 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.                                                                                                        



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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: December 19, 2003 |  |                                                                                                                                                  |  | PTEK HOLDINGS, INC.    
|----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------ |  | -----------------------
|                        |  |                                                                                                                                                 
|                        |  |                                                                                                                                                  |  | /s/ William E. Franklin
|                        |  |                                                                                                                                                  |  | William E. Franklin    
|                        |  | Executive Vice President and ChiefFinancial
Officer (principal Financial and Accounting Officer and duly authorized signatory of the Registrant)
|                       
|                       



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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 (previously filed with the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003).             
|              | 
|10.2          |  | Second Amendment to Employment Agreement between Theodore P. Schrafft and American Teleconferencing Services, Ltd. effective as of May 30, 2003 (previously filed with the
Registrants Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003).
|              | 
|10.3          |  | Third Amended and Restated Executive Employment Agreement between Boland T. Jones and the Registrant effective as of June 16, 2003 (previously filed with the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003).             
|              | 
|10.4          |  | Third Amended and Restated Executive Employment Agreement between Jeffrey A. Allred and the Registrant effective as of June 26, 2003 (previously filed with the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 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