SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported)
MAY 3, 2001
EASYLINK SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 000-26371 13-3787073
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation) Identification No.)
399 Thornall Street, Edison, NJ 08837
(Address of principal executive offices)
Registrant's telephone number, including area code (732) 906-2000
ITEM 2. ACQUSITION OR DISPOSITION OF ASSETS
On May 8, 2001, the Company announced that its majority owned subsidiary
Asia.com, Inc. ("Asia.com") has sold its business (the "business") to an
investor group under a Shareholding Interest Transfer Agreement. Under the terms
of the sale, the buyer paid Asia.com $1.5 million and assumed Asia.com
liabilities of up to $1.5 million. The consideration paid to EasyLink was
determined as a result of negotiations between the buyer and EasyLink.
We expect to record a loss of approximately $100,000 to $200,000 in the second
quarter of fiscal 2001. The loss is subject to adjustment based on the actual
assets and liabilities sold and actual transaction expenses incurred.
See the Company's historical consolidated financial statements included in
EasyLink's Annual Report on Form 10-K for the year ended December 31, 2000 and
our quarterly report on Form 10-Q for the three months ended March 31, 2001 for
additional information.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Businesses Acquired
Not applicable.
(b) Unaudited Pro Forma Condensed Consolidated Financial Information
Introduction to Unaudted Pro Forma Condensed Consolidated Financial
Statements
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31,
2001
Unaudited Pro Forma Condensed Consolidated Statements of Operations for
the year ended December 31, 2001 and the three months ended March 31,
2001.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
(c) Exhibits
99.1 * Shareholding Interest Transfer Agreement by and among eLong,
Inc., eLong.com (Beijing), Ltd., Asia.com, Inc., and Easylink
Services Corporation (formerly known as Mail.com, Inc.)
(incorporated by reference to Exhibit 2 to Form 10-Q for the
three months ended March 31, 2001 filed with the SEC on May 15,
2001).
* Disclosure schedules and other attachments are omitted, but will be furnished
supplementally to the Commission upon request.
INTRODUCTION TO UNAUDTED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma condensed consolidated statements of operations
for the year ended December 31, 2000 and three months ended March 31, 2001
gives effect to the sale of the business, as if it had occurred on January
1, 2000 and January 1, 2001, respectively. The unaudited pro forma
condensed consolidated balance sheet as of March 31, 2001 gives effect to
the sale of the business as if it had occurred on March 31, 2001.
EasyLink believes the accounting used for the pro forma adjustments
provides a reasonable basis on which to present the unaudited pro forma
condensed consolidated financial statements. The pro forma adjustments do
not include any returns that we might have earned on the sale proceeds.
The unaudited pro forma condensed consolidated statements of operations
and unaudited pro forma condensed consolidated balance sheet are unaudited
and were derived by adjusting the historical consolidated financial
statements of EasyLink, which includes the results of the business. The
unaudited pro forma condensed consolidated financial statements are
provided for informational purposes only and should not be construed to be
indicative of EasyLink's consolidated financial position or results of
operations had the transaction been consummated on the date assumed and do
not project EasyLink's consolidated financial position or results of
operations for any future date or period.
The unaudited pro forma consolidated financial statements and accompanying
notes should be read in conjunction with the EasyLink's historical
consolidated financial statements and notes thereto included in EasyLink's
Annual Report on Form 10-K for the year ended December 31, 2000, as well
Form 10-Q for the three months ended March 31, 2001.
EASYLINK SERVICES CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(dollars in thousands, except share and per share amounts)
EasyLink Services Pro Forma Pro Forma
Corporation Adjustments Results
----------------- ----------- ----------
Revenues:
Messaging $ 52,698 $ -- $ 52,698
Domain development 8,524 (3,626)2 4,898
------------ ------------ ------------
Total Revenues 61,222 (3,626) 57,596
Operating expenses:
Cost of revenues
Messaging 49,201 -- 49,201
Domain development 6,531 (1,309)2 5,222
------------ ------------ ------------
Total cost of revenues 55,732 (1,309) 54,423
Sales and marketing 66,891 (5,884)2 61,007
General and administrative 45,439 (7,252)2 38,981
(794)3
Product development 19,528 (834)2 18,694
Amortization of goodwill and other intangible assets 60,763 (19,415)2 41,348
Write-off of acquired in-process technology 7,650 -- 7,650
Impairment of intangible assets 7,800 (7,800)2 --
Restructuring charges 18,388 (12,890)2 5,498
Loss on sale of Asia.com -- -- --
------------ ------------ ------------
Total operating expenses 282,191 (54,590) 227,601
------------ ------------ ------------
Loss from operations (220,969) (50,964) (170,005)
Other income (expense):
Interest income 5,194 (242)2 4,952
Interest expense (9,632) -- (9,632)
Impairment of investments (4,400) -- (4,400)
Loss on equity investment (2,100) -- (2,100)
Other, net (104) -- (104)
------------ ------------ ------------
Total other (expense) income, net (11,042) (242) (11,284)
Loss before minority interest (232,011) (50,722) (181,289)
------------ ------------ ------------
Minority interest 2,484 -- 2,484
Net loss $ (229,527) (50,722) $ (178,805)
============ ============ ============
Basic and diluted net loss per common share $ (4.01) 4 $ (3.13)
============ ============
Weighted-average basic and diluted shares outstanding 57,178,562 4 57,178,562
============ ============
See notes to unaudited pro forma condensed consolidated financial statements.
EASYLINK SERVICES CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2001
(dollars in thousands)
EasyLink Services Pro Forma Pro Forma
Corporation Adjustments Results
------------------ ------------ ----------
ASSETS
Current Assets:
Cash $ 16,577 $ (474) 2 $ 16,809
1,500 2
(794) 3
Marketable securities 21 -- 21
Accounts receivable, net 33,744 (679) 2 33,065
Prepaid expenses and other current assets 4,927 (284) 2 4,643
--------- --------- ---------
Total current assets 55,269 (731) 54,538
Property and equipment, net 54,389 (1,529) 2 52,860
Domain assets available for sale 592 -- 592
Investments 11,583 -- 11,583
Restricted investment 1,718 -- 1,718
Debt issuance costs, net 1,416 -- 1,416
Other 4,457 -- 4,457
Goodwill and other intangible assets, net 206,085 -- 206,085
--------- --------- ---------
Total assets 335,509 (2,260) 333,249
========= ========= =========
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable 25,938 (251) 2 25,687
Accrued expenses 40,169 (756) 2 39,413
Restructuring reserve 3,951 (19) 2 3,932
Current portion of notes payable 13,442 -- 13,442
Current portion of capital lease obligations 10,073 (29) 2 10,044
Current portion of deferred revenue 1,302 (156) 2 1,146
Current portion of domain asset purchase obligations 39 -- 39
Other current liabilities 3,224 (228) 2 2,996
--------- --------- ---------
Total current liabilities 98,138 (1,439) 96,699
Capital lease obligations, less current portion 12,762 (61) 2 12,701
Domain asset purchase obligations, less current portion 85 -- 85
Deferred revenue, less current portion 175 -- 175
Notes payable, less current portion 102,850 -- 102,850
--------- --------- ---------
Total liabilities 214,010 (1,500) 212,510
Minority interest 14,204 -- 14,204
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value; 160,000,000 shares authorized:
Class A - 150,000,000 shares authorized; 74,891,008 shares
issued and outstanding at March 31, 2001 749 -- 749
Class B - 10,000,000 shares authorized issued and outstanding
at March 31, 2001 with an aggregate liquidation preference of $1,000 100 -- 100
Additional paid-in capital 482,840 -- 482,840
Deferred compensation (424) -- (424)
Subscriptions receivable (33) -- (33)
Accumulated other comprehensive loss (204) -- (204)
Accumulated deficit (375,733) (1,466) 2 (376,494)
1,500 3
(794) 3
--------- --------- ---------
Total stockholders' equity 107,295 28 6,535
--------- --------- ---------
Total liabilities and stockholders' equity 335,509 (2,260) 333,249
========= ========= =========
See notes to unaudited pro forma condensed consolidated financial statements.
EASYLINK SERVICES CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(dollars in thousands, except share and per share amounts)
EasyLink Services Pro Forma Pro Forma
Corporation Adjustments Results
------------------- ------------ ----------
Revenues:
Messaging $ 19,722 $ -- $ 19,722
Domain Development 2,624 (723) 2 1,901
------------ ------------ ------------
Total Revenues 22,346 (723) 21,623
Operating expenses:
Cost of revenues
Messaging 18,134 -- 18,134
Domain development 2,904 (362) 2 2,544
------------ ------------ ------------
Total cost of revenue 21,038 (362) 20,676
Sales and marketing 12,385 (880) 2 11,505
General and administrative 11,842 (1,392) 2 11,244
(794) 3
Product development 3,462 (211) 2 3,251
Amortization of goodwill and other intangible assets 15,803 (3,097) 2 12,706
Impairment of intangible assets 3,567 -- 3,567
Restructuring charges 54,419 (39,138) 2 15,281
Loss on sale of advertising network 2,327 -- 2,327
------------ ------------ ------------
Total operating expenses 124,843 (45,874) 80,557
Loss from operations (102,497) (43,563) (58,934)
Other income (expense):
Interest income 344 -- 344
Interest expense (3,172) -- (3,172)
Impairment of investments (2,668) -- (2,668)
Other, net 74 37 2 111
------------ ------------ ------------
Total other (expense) income, net (5,422) 37 (5,385)
Loss before extraordinary gain (107,919) (43,600) (64,319)
Extraordinary gain on conversion of convertible notes 39,349 -- 39,349
------------ ------------ ------------
Net loss $ (68,570) (43,600) (24,970)
============ ============ ============
Net loss per share:
Loss before extraordinary gain $ (1.53) 4 $ (0.91)
Extraordinary gain .56 4 .56
------------ ------------ ------------
Basic and diluted net loss per share $ (0.97) 4 (0.35)
============ ============ ============
Weighted-average basic and diluted shares outstanding 70,528,374 4 70,528,374
============ ============ ============
See notes to unaudited pro forma condensed consolidated financial statements.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
(Dollars in thousands, except share and per share amounts)
(1) Pro Forma Adjustments and Assumptions
(a) For purposes of these pro forma condensed consolidated financial
statements, EasyLink has assumed that the value of the sale is as
follows:
Upon the closing of the sale, the Company:
(i) Received $1.5 million from the Buyer in cash;
(ii) Sold the assets of the business except for certain domain
names, which were retained by the Company, and certain other
assets, the value of which is not significant;
(iii) Buyer assumed up to $1.5 million in liabilities of the business
($xx.x at March 31, 2001); and
(iv) Cash proceeds from the sale will be (i) used to pay certain
other obligations of Asia.com; (ii) distributed to the minority
shareholders as per their ownership percent; and (iii)
distributed to the Company as per its ownership percent.
(b) As per (ii) and (iii) above, $678,000 in net assets have been sold or
abandoned and, accordingly, excluded from the proforma results.
(2) Represents the historical unaudited balances of the business which are
eliminated as of March 31, 2001 for balance sheet purposes and at the
beginning of the earliest periods presented for statement of operation
purposes.
(3) The following table displays the distribution of proceeds as described
in 1(iv), above, as of March 31, 2001:
Cash proceeds 1,500
Less: estimated related cash expenses 780
-----
Net proceeds available for distribution 720
-----
Company share 656
=====
Minority interest share 64
=====
(4) The pro forma basic and diluted net loss per common share is computed
by dividing the net loss by the weighted average number of
common shares outstanding. Diluted net loss per share equals
basic net loss per share, as common stock equivalents are
anti-dilutive for all pro forma periods presented.
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 hereunto duly authorized.
EasyLink Services Corporation
Date: May 18, 2001 By: /s/ Debra L. McClister
--------------------------------------
Executive Vice President and
Chief Financial Officer