EasyLink Services International (ESIC) 10-K/A 2008 FY Annual report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K/A

(Amendment No. 2)

(Mark One)

R	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 2008
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: 000-24996

EasyLink Services International Corporation

(Exact Name of Registrant as Specified in Its Charter)

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

Registrant’s telephone number, including area code: (678) 533-8000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Class A common stock, $.01 par value per share

Name of each exchange on which registered: NASDAQ

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes £ No R

Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes £ No R

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 R No £

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer £     Accelerated filer £     Non-accelerated £     Smaller reporting company R

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes £ No R

As of September 30, 2008, the issuer had outstanding 25,026,393 shares of class A common stock. The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant as of January 31, 2008 was approximately $69,957,698 based on the closing price for the class A common stock of $3.12 on the Nasdaq Capital Market on that date.

DOCUMENTS INCORPORATED BY REFERENCE

None

EXPLANATORY NOTE

This Amendment No. 2 (“Amendment No. 2”) to the Annual Report on Form 10-K (the “Form 10-K”) of EasyLink Services International Corporation (the “Company”) for the fiscal year ended July 31, 2008, filed on October 21, 2008, as amended by the Form 10-K/A filed on October 29, 2008, is being filed in order to remove the unaudited proforma summary financial information provided under the subheading “Proforma Financial Information” in the section entitled “Recent Acquisitions” in Item 1 of Part I of the Form 10-K in order to insure that investors do not misconstrue such information as having been prepared in accordance with the requirements of Article 11 of Regulation S-X.

This Amendment No. 2 revises only Item 1 of Part I of the Form 10-K and does not reflect events occurring after the filing of the Form 10-K or modify or update any disclosures that may have been affected by subsequent events. Consequently, all other information is unchanged and reflects the disclosures made at the time of the filing of the Form 10-K (which speaks as of the date thereof). Please read all of our filings with the Securities and Exchange Commission in conjunction with this Amendment No. 2.

As used in this Amendment No. 2, the terms “we,” “us” or “our” refer to the Company.

TABLE OF CONTENTS

	Page
PART I
Item 1. Business	1
PART IV
Item 15. Exhibits	10

PART I

Item 1. Business

Overview

EasyLink Services International Corporation is a Delaware corporation founded in 1991. We are a global provider of value added services that facilitate the electronic exchange of documents and information between enterprises, their trading communities and their customers. We deliver our services through a global Internet Protocol (“IP”) network, which hosts our applications on enterprise-class platforms that are comprised of server and network operations centers located worldwide.

Our core services include electronic data interchange (“EDI”) services, fax services, telex services and other services that are integral to the movement of money, materials, products and people in the global economy including documents such as insurance claims, trade and travel confirmations, purchase orders, invoices, shipping notices and funds transfers that help our customers to be more efficient and mobile. Our operations include two business segments defined as follows:

· Supply Chain Messaging Segment (“Supply Chain”) segment, which includes all our EDI and telex services. This segment was 100%, 100% and 53% of reported revenue for the years ending July 31, 2006, 2007 and 2008, respectively.

· On Demand Messaging Segment (“On Demand”) segment, which includes all fax, e-mail, document capture and management (“DCM”) and workflow services. This segment was 0%, 0% and 47% of reported revenue for the years ending July 31, 2006, 2007 and 2008, respectively.

Prior to our merger with EasyLink Services Corporation (“ESC”) in August of 2007, we were known as Internet Commerce Corporation (“ICC”) and had reported two different business segments solely related to our EDI service offerings through our fiscal year ended July 31, 2007, both of which are now reported in the Supply Chain Segment.

Our principal executive offices are located at 6025 The Corners Parkway, Suite 100, Norcross, Georgia 30092, and our telephone number at that location is (678) 533-8000.

Recent Acquisitions

EasyLink Services Corporation. On August 20, 2007, we completed our acquisition by merger of ESC. We acquired ESC to diversify our service offerings, increase our revenue and obtain a larger customer base in order to compete more effectively in the global marketplace.

This acquisition process began on May 3, 2007, when we and one of our then existing wholly-owned subsidiaries, Jets Acquisition Sub, Inc. (the “Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) to acquire ESC (the “Merger”). Under the terms of the Merger Agreement, we paid $5.80 per share in cash in exchange for each share of class A common stock of ESC, for an aggregate purchase price of approximately $70.8 million.

On May 3, 2007, in order to finance the Merger, we entered into a Securities Purchase Agreement (as amended, the “Purchase Agreement”) with certain accredited institutional investors (the “Purchasers”) affiliated with York Capital Management (“York Capital”). On July 2, 2007, in order to secure bridge financing for the Merger, we entered into an additional Securities Purchase Agreement with the Purchasers (the “Bridge Agreement”), pursuant to which the Purchasers purchased an aggregate of $10 million in principal amount of Senior Secured Convertible Notes (the “Bridge Notes”) issued by EasyLink.

On August 20, 2007, pursuant to the Purchase Agreement (as amended by an Amendment to the Securities Purchase Agreement dated August 20, 2007) and the Bridge Agreement, we issued to the Purchasers in a private placement Series A Senior Secured Convertible Notes (the “Series A Notes”), Series B Senior Secured Convertible Notes (the “Series B Notes”), warrants to purchase shares of our class A common stock (the “Warrants”) and additional investment rights to acquire additional notes on the same terms as the Series A Notes (the “Additional Investment Rights”) for an aggregate purchase price of $70,105,416.

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Pursuant to the terms and conditions set forth in the Purchase Agreement and the Bridge Agreement, the Purchasers purchased from us Series A Notes in an original aggregate principal amount of $30 million and Series B Notes in an original aggregate principal amount of $30 million. In addition, the Purchasers converted all of the Bridge Notes into equal portions of Series A Notes and Series B Notes in an original principal amount of $10 million plus accrued interest. The Series A Notes bear interest at the prime rate plus 75 basis points (0.75%) less an interest factor based on the performance of our class A common stock with interest payable either quarterly in arrears or annually in advance at our option. The Series B Notes bear interest at the prime rate plus 300 basis points (3.00%) less an interest factor based on the performance of our class A common stock with interest payable either quarterly in arrears or annually in advance at our option.

Both the Series A Notes and the Series B Notes (collectively, the “Notes”) have a term of four years and must be repaid in 30 equal monthly installments of principal beginning 18 months after issuance. We may prepay the Notes at any time, subject to a prepayment penalty of up to 25% and certain other conditions. Prior to August 20, 2008, we also had the option to prepay $15 million of the Series B Notes from the proceeds of certain types of asset sales, which prepayment would have been subject to a 12.5% prepayment penalty.

Prior to December 19, 2007, we were required to prepay a total of $5 million of the Series A Notes and $5 million of the Series B Notes plus interest, which prepayment would have been subject to a 12.5% prepayment penalty. Pursuant to the Second Amendment to the Securities Purchase Agreement dated December 18, 2007 (the “Second Amendment to Purchase Agreement”), however, we were relieved of the obligation to make that prepayment.

We are obligated to offer to prepay the Notes in the event of any “Asset Sale” (defined to include the issuance of any equity securities or the sale of any assets with a value of more than $500,000) or if we accumulate more than fifteen million dollars ($15,000,000) in cash and cash equivalents (defined as “Excess Cash Flow”) at the end of any fiscal quarter, with the amount of the prepayment offer to be one hundred percent (100%) of the proceeds of the Asset Sale or fifty percent (50%) of the Excess Cash Flow. Each Purchaser has ten (10) trading days in which to accept such offer.

We made offers of partial prepayment in connection with Excess Cash Flow for the first three fiscal quarters of 2008 and with the sale of our web-based fax delivery business. Pursuant to the terms of the Second Amendment to Purchase Agreement, the Purchasers declined both of our offers of partial prepayment and eliminated the requirement that we reduce the outstanding balance of the Series A Notes and the Series B Notes at December 17, 2007 to $60,000,000. The Second Amendment to Purchase Agreement also clarified certain language in the Purchase Agreement to provide that Excess Cash Flow would be measured at the end of each fiscal quarter.

The Warrants entitle the Purchasers to acquire an aggregate of 4,156,448 shares of our class A common stock. The Warrants are exercisable at a price of $3.34 per share from the closing of the ESC merger until the fifth anniversary of the date a registration statement covering the resale of the shares issuable upon exercise of the Warrants is declared effective by the SEC. The Additional Investment Rights entitle the Purchasers to purchase additional notes having terms similar to the Series A Notes in an aggregate principal amount up to $10,000,000 prior to the date on which the aggregate outstanding principal amount of the Series A and Series B Notes is less than $20,000,000.

Under the Purchase Agreement, we are subject to certain limitations, including limitations on our ability to incur additional debt or sell assets, make certain investments and acquisitions, grant liens and pay dividends and distributions. We are also subject to financial covenants on a quarterly basis, which include minimum requirements for recurring revenue of $22.5 million; for earnings before interest, taxes, depreciation and amortization (“EBITDA”) as defined in the Purchase Agreement that range from $2.75 million to $4.5 million over the life of the Notes; and for the ratio of EBITDA to interest expense that range from 1.55 to 3.00 over the life of the Notes. The Purchase Agreement contains certain events of default (many of which are subject to applicable cure periods), including, among others, the failure to make payments when due, defaults under other contractual obligations, change of control and noncompliance with covenants.

In connection with the issuance and sale of the securities pursuant to the Purchase Agreement, ESC entered into a guaranty agreement whereby it has guaranteed the repayment of the Series A Notes and Series B Notes and provided a senior security interest in all or substantially all of its assets as collateral to secure such guarantee. We also granted a senior security interest in all or substantially all of our assets and pledged our shares of capital stock in ESC. All of the proceeds from the Purchase Agreement and the Bridge Agreement were used to finance the Merger.

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Pursuant to the Purchase Agreement, we agreed to prepare and file with the SEC a registration statement covering: (1) the resale by the Purchasers of the shares of class A common stock issuable upon conversion or payment of principal and/or interest of the Series A Notes and the Series B Notes; (2) the resale by the Purchasers of the shares of class A common stock issuable upon exercise of the Warrants; (3) the resale by the Purchasers of the shares of class A common stock issuable upon conversion or payment of principal and/or interest of the additional notes on the same terms as the Series A Notes that the Purchasers have the right to acquire pursuant to the Additional Investment Rights; and (4) the resale by the Purchasers of the shares of class A common stock issuable upon conversion or payment of principal and/or interest of the additional Series A Notes and Series B Notes into which the Bridge Notes were converted (all of such securities being the “Registrable Securities”).

On February 22, 2008, we entered into the Third Amendment to Purchase Agreement with the Purchasers, further extending the date by which the initial registration statement registering the Registrable Securities must be effective. As amended, our obligation to prepare and file with the SEC a registration statement with respect to the Registrable Securities has been extended until such time as Purchasers holding at least a majority of the Registrable Securities request in writing (a “Registration Notice”) that we file such a registration statement, and we are obligated to cause such registration to become effective within 120 days following the date of the Registration Notice.

The following table sets forth the components of the purchase price for ESC as of August 20, 2007.

Base purchase price	$	63,378,560
EasyLink class A common stock issued		724,125
Transaction costs paid in cash		4,213,390
Transaction costs paid in stock		2,485,350
Total purchase price	$	70,801,425

The purchase price components include $13,223,184 invested in ESC common stock as of July 31, 2007 and $1,039,076 of transaction costs incurred as of July 31, 2007, which were deferred and included as other assets on the balance sheet as of that date.  

The following table provides the estimated fair value of assets acquired and liabilities assumed in the ESC acquisition:

Cash	$	3,971,120
Accounts receivable		11,114,444
Prepaid expenses and other current assets		3,251,342
Fixed assets		8,969,279
Intangible assets — software		8,700,000
Intangible assets — trade names		3,185,000
Intangible assets — customer relationships		19,400,000
Accounts payable		(3,869,611	)
Accrued liabilities		(14,244,428	)
Other current liabilities		(1,321,307	)
Long term liabilities		(5,221,862	)
Fair value of net assets acquired		33,933,977
Goodwill		36,867,448
Total purchase price	$	70,801,425

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Estimates of acquired intangible assets are as follows:

			Weighted Average
	Estimated		Estimated
Acquired Intangible Assets	Fair Value		Useful Life
Customer Relationships	$	19,400,000		8
Internally developed software		8,700,000		4
Trade name		3,185,000	Indefinite
Goodwill		36,867,448	Non-amortizable

Disposition of Assets

On December 7, 2007, the Company, ESC and j2 Global Communications, Inc. (“j2 Global”) entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) pursuant to which ESC sold to j2 Global certain assets and liabilities relating to and used in ESC’s web-based fax delivery service known as RapidFax. The net purchase price paid by j2 Global was $5.2 million in cash after adjustment, subject to a holdback amount as set forth in the Asset Purchase Agreement. No gain or loss was recognized from this sale.

Industry Background

Enterprise transaction and information management solutions range from mail and fax based approaches to Internet-based point-to-point communication systems. Our customers typically use a number of these transaction management solutions. The solution that is appropriate in each case depends on the size, nature and needs of the individual customer. Non-electronic means, such as mail and courier services, are appropriate for some document exchanges, whereas electronic solutions including fax, e-mail exchange, point-to-point, EDI and web-based marketplaces, may be more suited to different operating environments. We believe the business-to-business exchange of documents and information will continue to evolve towards multiple electronic means and away from paper-based formats.

Company Background

EasyLink Services International Corporation was incorporated in Delaware in 1991 under the name Infosafe Systems, Inc. (“Infosafe”). Infosafe completed an initial public offering on January 25, 1995. On April 16, 1997, Infosafe entered into an agreement to create and fund a newly incorporated majority owned subsidiary, Internet Commerce Corporation. On June 19, 1998, Infosafe entered into an agreement of merger that merged the Internet Commerce Corporation subsidiary into Infosafe, with Infosafe remaining as the surviving corporation. On July 2, 1998, Infosafe changed its name to Internet Commerce Corporation (“ICC”).  On June 22, 2004, ICC acquired Electronic Commerce Systems, Inc. (“ECS”) expanding our managed EDI services to small and medium sized businesses.  On March 17, 2005, ICC acquired the Managed ECÔ (“MEC”) division of QRS Corporation continuing the expansion of our EDI managed services business.  On November 1, 2005, ICC acquired The Kodiak Group, Inc. (“Kodiak”) adding additional EDI service offerings.  On May 9, 2006, ICC acquired Enable Corp. (“Enable”) adding web based EDI capabilities to our service offerings.

On August 20, 2007, ICC acquired ESC as a wholly-owned subsidiary. In conjunction with the acquisition, ICC changed its name to EasyLink Services International Corporation. ESC was originally incorporated as GlobeComm, Inc. in 1994 and had been publicly-traded since its initial public offering in June 1999. ESC previously did business under the name Mail.com and had developed or acquired a number of business messaging platforms. Mail.com changed its name to EasyLink Services Corporation in 2001 after its acquisition of ATT’s EasyLink Services division.

Business Strategy

Our goal is to grow profitably by providing our customers a range of products and services with high returns on investment and the functionality and scalability to enable enterprises of different sizes, diverse company infrastructures and various levels of technical sophistication to electronically transport, route and deliver information and documents seamlessly and securely, regardless of communication protocol or data format.

In order to reach this goal, we specifically intend to:

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· invest in or acquire complementary businesses that provide us with additional service offerings or technologies and/or expand our customer base and distribution channels;

· expand strategic alliances and indirect sales channels by establishing and expanding strategic alliances and partnerships in order to generate organic business growth both inside and outside of the United States;

· enhance service delivery through continued development of our existing service platforms, increased training for customer support representatives, addition of customer self-service capabilities and focus on operating efficiencies; and

· improve sales efforts through additional investments in sales resources, sales training and marketing campaigns and initiatives.

Products and Services

Our two reportable segments, Supply Chain Messaging and On Demand Messaging, are described below.

Supply Chain Messaging

Our Supply Chain Messaging segment includes:

· EasyLink EDI Value Added Network (“VAN”). We offer a complete, industry leading VAN solution to meet the EDI requirements of any sized company in a secure, reliable, available and flexible format. Our VAN can move information seamlessly and efficiently while expediting transaction processing regardless of file size, communication protocol, or data format. Through the use of our VAN services, our clients can improve reliability and security, cut costs without sacrificing service, expedite trading partner rollout and implementation, and increase supply chain visibility.  The EasyLink EDI VAN features include:

o Authentication on every transaction,

o Audit trails and archival services,

o 24x7 monitoring and support,

o Multiple connectivity options,

o Complimentary trading partner communications reporting, and

o Access to a web-based document manager.

· EasyLink EDI Managed Services (“Managed Services”). Our Managed Services offer multiple EDI solutions ranging from meeting first time EDI requirements to complete outsourcing of the EDI function regardless of company size, industry or technical sophistication. Our Managed Services allow our customers to automate manual processes, focus on their core competencies, decrease costs and redeploy resources, reduce compliance issues and improve trading partner relationships.  EasyLink EDI Managed Services include:

o Outsourcingthe internal management of the day-to-day EDI operations and projects required to exchange supply-chain information with trading partners by maintaining, enhancing and supporting customer EDI systems, connections and applications, handling communication and data errors, delivering mapping, testing and validation services, and managing day-to-day trading partner changes, additions, deletions and inquiries.

o TradeGateway for Buyers, a web-based service that streamlines supplier enablement and communications, optimizes contact management and reduces the burden of costly application support and maintenance. TradeGateway for Buyers allows customers to simplify and unify supplier contact information with a common and consolidated tool, enable new trading partner access through self registration, promote supplier participation by offering an easy-to access, easy-to-use solution, manage suppliers in a consistent manner through a single access point and increase supplier compliance to customer requirements.

o TradeGateway for Suppliers, a tailored web-based application that provides customers a white labeled user-friendly solution, requiring no previous EDI experience or technology. TradeGateway for Suppliers allows customers to set up EDI with trading partners effortlessly, use customizable parameters organized around the customer’s business, access alerts and search capabilities and reduce EDI investment by deploying a solution that requires no investment in hardware, software or personnel.

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o EDI Service Center allows a customer entry into the EDI process with nothing but fax or email capabilities. TheEDI Service Center will email or fax customer inbound EDI documents in easy-to-read formats, accept customer requests for documents via email or fax turning them into the EDI format and submitting via our VAN to trading partners, print a variety of customer labels and tickets including UCC-128 labels, hang tags and UPC price stickers and update customer product information to industry product catalogs.

· EasyLink Telex Solutions.  Many organizations around the world count on telex for effective and secure communications as this form of business messaging has continued to be both a reliable and cost-effective means of communication. EasyLink’s Telex Solutions provide our customers a wide range of telex alternatives including:

o Traditional Telex for ‘big volume’ users who are unable to change infrastructure,

o Internet Telex, an SMTP solution that allows use of existing email clients for sending telex messages,

o Real-Time Telex, a Windows solution that has real-time messaging features as well as a store-and-forward messaging facility, and

o Telex Outsourcing, a means of providing Telex services where such service is required by regulation without a substantial investment in infrastructure costs for the provider.

On Demand Messaging

Our On Demand Messaging segment includes:

· EasyLink Production Messaging.  EasyLink’s Production Messaging solution is a fully managed outsourced document delivery system that integrates with a customer’s back-end system, translates documents into branded and formatted messages, and enables delivery of documents in a variety of formats, including fax, secure email, text message, and EDI. With a variety of options related to message distribution, delivery, and tracking, the solution may be tailored to fit a customer’s specific need for the mass delivery of mission critical documents such as brokerage statements, trade confirmations, invoices, bills of lading or travel reservation confirmations.  EasyLink’s Production Messaging provides customers with:

o Enhanced productivity through automated processing of documents from back-end systems,

o Reduced cost of message delivery and required resources,

o Improved security for document routing, and

o Increased visibility with secure delivery confirmation and reporting.

· EasyLink Desktop Messaging.  EasyLink Desktop Messaging is an outsourced corporate faxing solution that allows enterprise customers to send and receive faxes exactly like e-mail.  EasyLink’s Desktop Messaging solution allows enterprises to benefit from:

o Paperless faxing,

o Elimination of costly environmentally unfriendly and burdensome fax servers and fax machines,

o Improved employee productivity,

o Immediate visibility by a web-based management platform for usage reporting and bill-back capabilities,

o Reduced delivery time and errors,

o Mobile faxing through enterprise e-mail when employees are away from the office, and

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o Secure, compliant, and auditable faxes.

· EasyLink Workflow Services.  The EasyLink Workflow Service is a hosted application that integrates a customer’s critical faxes with tailored process flows to significantly improve communication efficiency, visibility and control. The solution automates all of a customer’s faxing exchanges and enables the seamless flow of information into backend systems.  The EasyLink Workflow Solution helps customers to:

o Automate manual processing with faxed documents,

o Eliminate human error associated with data entry,

o Maximize cost savings and efficiencies for all business documents processing,

o Develop auditable workflow processes, and

o Reduce risk and complexities associated with current fax based processes.

Product Development

Our product development efforts are focused on adding enhanced and new functionality to existing products, integrating the various product offerings into our services delivery, supporting new and advanced technologies, developing new services and internal operating platforms. Our success will depend in part upon our ability to adopt technology and industry trends, respond to customer requirements and market opportunities and incorporate emerging standards into our existing and new services. To that end, our development efforts center on requirements and features that have been identified through market research, customer interactions, standards announcements and competitive analysis. As a result, we intend to continue to offer products and services with increasing functionality and scalability to meet the needs of customers regardless of size and technical sophistication. Most of our development projects are performed internally. However, some projects require specialized skills that are acquired through an outsourced arrangement with various contractors.

Our research and development expenses for the years ended July 31, 2008, 2007 and 2006 were approximately $7,811,000, $2,268,000 and $613,000, respectively.

Customer and Technical Support

Our customer and technical support efforts consist of teams of professionals who work together to provide dependable and timely resolution to customer support and technical inquiries. For complex problems, our Customer and Technical Support Center teams have immediate access to the experts on our development staff, consulting organization and IT operations, as required. Our goal is to ensure customer satisfaction each time a customer calls us to set up an account, solve a problem, answer a question or provide a product upgrade.

Sales and Marketing

We have direct and/or indirect distribution channels in Brazil, Canada, France, Germany, Hong Kong, India, Israel, Japan, Korea, Malaysia, Singapore, United Arab Emirates and the United Kingdom.

Our sales force has traditionally consisted of regional sales managers, inside sales representatives, technical sales representatives and sales support. We seek to continue to make arrangements with agents, resellers and other solution providers, to sell to companies around the world and expand our reach into markets that we do not service directly. We have dedicated a part of our sales resources to expand these indirect channels. We believe that our service offerings enable a wide variety of companies to recommend, market, and sell our services.

Customers

As of July 31, 2008, we provided services to approximately 15,000 customers in professional services, financial services, manufacturing, mining, retail, distribution, freight services, insurance, telecommunications and other industries. Our customers range in size from the Fortune 500 to sole proprietorships. The majority of our customers may generally terminate our services with 30 days notice without penalty, unless their agreement contains a minimum revenue commitment that would require payment by the customer of any unused shortfall amount upon termination. We are continuing our efforts to enter into annual or multi-year contracts with minimum commitments. For the fiscal years ended July 31, 2008, 2007 and 2006, no single customer accounted for more than 10% of our consolidated revenue.

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For the fiscal years ended July 31, 2008, 2007 and 2006, approximately 28%, 2% and 1%, respectively, of our revenues were generated from international customers. The bulk of our international revenues come from the United Kingdom, Japan, France, Brazil and South Korea.  Twenty-seven percent of our long-lived assets are held in foreign territories, principally the United Kingdom.

Seasonality and Backlog

Our revenues are impacted by the number of effective business days in a given period. We have no material backlog in sales orders or the provisioning of customer orders.

Competition

While we are unaware of any single competitor that provides all of the services we deliver, we compete with a range of companies in each of our two business segments, as well as with the internally developed solutions of companies who choose to insource these needs.  The markets for each of our two segments are highly competitive, rapidly evolving and subject to changing technology, shifting customer needs and introductions of new products and services.  We face a significant number of competitors, ranging from very large enterprises or divisions of very large companies to a number of relatively small organizations.  Our Supply Chain solutions compete with large e-commerce business-to-business and EDI vendors with a broad array of VAN, software and service offerings, including GXS, Sterling Commerce and Inovis and multiple smaller EDI companies with a core competence in a particular industry or technology, “mom-and-pop” service centers or privately owned VANs.  Our integrated desktop messaging and production messaging solutions compete primarily against traditional fax machine manufacturers, which are generally large and well established companies, providers of fax servers and related software, such as Captaris, Inc., as well as publicly traded and privately-held application service providers, such as Premiere Global Services, Inc. (formerly PTEK Holdings Inc.), j2 Global Communications, Inc. and Protus IP Solutions.  Our telex solutions compete against Swiss Telex, Network Telex, Graphnet, Wirefast and various designated international providers of postal, telephone and telegraph (“PTT”) services.

These competitors are diverse in terms of their histories, business models, corporate strategies, financial strength, name recognition, company reputation, customer base and breadth of offerings. Our large competitors generally have more history, significantly greater financial resources, larger customer bases and more easily recognized names than we do.

We also rely on many of our competitors to interconnect with our EDI VAN services. These interconnection arrangements allow trading partners using different VANs to connect with one another for trading purposes. We currently have interconnect agreements with all major VANs.

Patents, Trademarks and Proprietary Technology

We have several technology platforms through which we provide our various services to customers. Each of those platforms was developed by our company or by companies we have acquired. To the extent we have intellectual property rights in those technology platforms, those intellectual property rights generally consist of copyrights and trade secrets. We do not have any patents that would prevent competitors from deploying technology platforms identical to ours. We take steps to ensure the ongoing confidentiality of our trade secrets and to search for additional ways to maintain the proprietary nature of our technology platforms. There can be no assurance, however, that our existing intellectual property rights will afford us adequate protection or that competitors will not develop or market competing products using technologies similar to, or better than, our own.

We have trademark rights to the name EasyLink as well as other marks and logos both in the United States and in other countries.  We review our marketing and advertising efforts from time to time to ensure we take advantage of opportunities to create new or more valuable trademark rights.

In the past we held a number of patents relating to fax and other technologies. On June 12, 2006, we sold four outstanding patents and related patent applications relating to information security technology to Harmony Logic Systems LLC (“Harmony”). These patents were not being used in our services offerings and were considered immaterial to our business operations. Harmony paid us $825,000 in cash in consideration for the assignment of these patents and granted us a royalty-free, irrevocable worldwide license for the patents. In addition, we may receive a royalty of 10% of the net consideration from the licensing of the patents, if any. We have not received any royalty payments as a result of the sale of the patents. We retain some remaining patents and pending patent applications, although we do not believe they are material to our business at this time.

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Although we believe that our technology does not infringe upon the proprietary rights of others, it is possible that others may have or be granted patents claiming products or processes that are necessary for or useful to the delivery of our services. From time to time we are approached by parties claiming to own patents that they claim are infringed by our services or operations. We evaluate such claims when they arise to determine whether those claims are valid and whether it would be more effective to obtain a license or dispute that any infringement is occurring. We have at times in the past obtained licenses from parties claiming to hold patents that they contended were infringed by our services or operations, including a perpetual, fully-paid license from AudioFAX IP, L.L.P. as to certain patents owned by it.  See Item 3, Legal Proceedings.

Suppliers

We purchase telecommunications services pursuant to supply agreements with telecommunications service providers. Some of our agreements with telecommunications service providers contain commitments that require us to purchase a minimum amount of services through 2011. These costs were approximately $2,630,000 in fiscal year 2008. Prior to the acquisition of ESC, we did not have any material minimum commitments with telecom suppliers.

Government Regulation

In general, we operate as an unregulated provider of our various messaging services. We believe that our services are not subject to regulation in the United States by the Federal Communications Commission (“FCC”) or the by state-level public service commissions with respect to the manner in which we provide service or the prices we charge. We do not file tariffs setting forth our prices or business practices with the FCC, at the state level in the U.S. or in any other country.

We are, however, subject to regulations imposed by the FCC that relate to telecommunications as well as international telecommunications regulatory authorities, and we may be affected by regulatory decisions, trends or policies issued or implemented by federal, state, local and international authorities. We are also subject to regulatory requirements applicable to businesses generally in the United States and in the other countries where we do business.

In countries other than the United States we are sometimes required by national laws to obtain licenses or to pay license fees or similar amounts to national regulatory bodies. Such amounts are reflected in our financial statements and such non-U.S. regulatory matters are not material to our operations or business plans.

Telecommunications technologies and the laws that regulate businesses in the telecommunications industry are constantly changing and there can be no assurance that the FCC or another regulatory body may not try to extend its jurisdiction over all or a part of our business.

Employees

As of July 31, 2008, we had 359 employees. Of these employees, 289 were located in the United States and 70 were located in the United Kingdom and other international locations. None of our employees are covered by a collective bargaining agreement. We consider our relations with our employees to be good.

Web Availability of Reports

Our corporate information Website is www.easylink.com. The information on our Website is not part of this annual report on Form 10-K. However, on the Investor Information portion of this Website the public can access free of charge our annual, quarterly and current financial reports filed with the SEC as soon as reasonably practicable after the filing dates.  In addition, the SEC maintains an Internet site (EDGAR) that contains other ownership reports, proxy and information statements and other information regarding our filings at http://www.sec.gov.

9

PART IV

Item 15.		Exhibits.
	(a)	List of documents filed as part of the report:
		3.  Exhibits.
		The following documents are filed as exhibits to this Amendment No. 2:

Exhibit No.	Description
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

10

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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: November 5, 2009

EASYLINK SERVICES INTERNATIONAL CORPORATION
By:	/s/ Thomas J. Stallings
	Thomas J. Stallings
	Chief Executive Officer

By:	/s/ Glen E. Shipley
	Glen E. Shipley
	Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Thomas J. Stallings	Chief Executive Officer and Director	November 5, 2009
Thomas J. Stallings	(Principal Executive Officer)
/s/ Glen E. Shipley	Chief Financial Officer	November 5, 2009
Glen E. Shipley	(Principal Financial and Accounting Officer)
/s/ Richard J. Berman	Director	November 5, 2009
Richard J. Berman
/s/ Kim D. Cooke	Director	November 5, 2009
Kim D. Cooke
/s/ Donald R. Harkleroad	Director	November 5, 2009
Donald R. Harkleroad
/s/ Paul D. Lapides	Director	November 5, 2009
Paul D. Lapides
/s/ John S. Simon	Director	November 5, 2009
John S. Simon
/s/ Dwight B. Mamanteo	Director	November 5, 2009
Dwight Mamanteo

11

EXHIBIT INDEX

Exhibit No.	Description
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002