Form 10-Q

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KHF69hVb4kEMcovBh1ITcMX7ErME9udIVUuZS4p4aBvtLj1vIa381aDbYOo1OG4n d3KLqD4rftWzOeLe6/IvaA== 0001193125-03-082066.txt : 20031114 0001193125-03-082066.hdr.sgml : 20031114 20031114163509 ACCESSION NUMBER: 0001193125-03-082066 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACCESS WORLDWIDE COMMUNICATIONS INC CENTRAL INDEX KEY: 0001048422 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] IRS NUMBER: 521309227 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-38845 FILM NUMBER: 031005212 BUSINESS ADDRESS: STREET 1: 4950 COMMUNICATIONS AVE CITY: BOCA RATON STATE: FL ZIP: 33431 BUSINESS PHONE: 5162265000 MAIL ADDRESS: STREET 1: 4950 COMMUNICATIONS AVE CITY: BOCA RATON STATE: FL ZIP: 33431 FORMER COMPANY: FORMER CONFORMED NAME: CULTURAL ACCESS WORLDWIDE INC DATE OF NAME CHANGE: 19971023 10-Q 1 d10q.htm FORM 10-Q Form 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ending September 30, 2003

¨	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 0-23489

Access Worldwide Communications, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware		52-1309227
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

4950 Communication Avenue, Suite 300 Boca Raton, Florida		33431
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code (561) 226-5000

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

Title of each class.		Name of each exchange on which registered.
None		None

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

Common Stock, $0.01 par value

Title of Class

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 as 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 ¨ No x

The number of shares outstanding of the registrant’s common stock, $.01 par value, as of November 14, 2003 was 9,740,501.

ACCESS WORLDWIDE COMMUNICATIONS, INC.

INDEX

		Page

Part I—Financial Information

Item 1.	Financial Statements

	Consolidated Balance Sheets – September 30, 2003 (unaudited) and December 31, 2002	1

	Consolidated Statements of Operations (unaudited) – Three and Nine Months Ended September 30, 2003 and September 30, 2002	2

	Consolidated Statement of Changes in Stockholders’ (Deficit) Equity – Nine Months Ended September 30, 2003 (unaudited)	3

	Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2003 and September 30, 2002 (unaudited)	4

	Notes to Consolidated Financial Statements	5-12

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12-16

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16

Item 4.	Controls and Procedures	16

Part II—Other Information

Item 1.	Legal Proceedings	16

Item 2.	Changes in Securities and Use of Proceeds	17

Item 3.	Defaults Upon Senior Securities	17

Item 6.	Exhibits and Reports on Form 8-K	17

	Signatures	17

	Certifications

PART I—FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

ACCESS WORLDWIDE COMMUNICATIONS, INC.

CONSOLIDATED BALANCE SHEETS

	September 30, 2003 (Unaudited)			December 31, 2002
ASSETS
Current assets:
Cash and cash equivalents	$	448,604		$	2,197,209
Restricted cash		123,000			—
Accounts receivable, net of allowance for doubtful accounts of $660,889 and $129,430, respectively		8,914,642			9,663,853
Unbilled receivables		2,059,685			3,005,335
Other assets, net		1,904,859			528,053

Total current assets		13,450,790			15,394,450
Property and equipment, net		4,176,542			4,804,536
Intangible assets, net		—			9,062,900
Restricted cash		711,000			—
Other assets, net		425,302			168,854

Total assets	$	18,763,634		$	29,430,740


LIABILITIES AND COMMON STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Current portion of indebtedness	$	3,575,836		$	5,255,559
Current portion of indebtedness – related parties		383,334			1,724,291
Accounts payable and accrued expenses		7,863,570			8,540,869
Deferred revenue		3,291,775			717,310
Accrued salaries, wages and related benefits		1,321,453			2,199,862
Accrued interest and other related party expenses		13,305			23,990

Total current liabilities		16,449,273			18,461,881
Long-term portion of indebtedness		129,567			51,564
Other long-term liabilities		286,053			314,259
Convertible Notes, net		1,448,140			—
Mandatorily redeemable preferred stock, $0.01 par value:
2,000,000 shares authorized, 40,000 shares issued and outstanding		4,000,000			4,000,000

Total liabilities		22,313,033			22,827,704


Commitments and contingencies

Common stockholders’ (deficit) equity:
Common stock, $.01 par value: voting: 20,000,000 shares authorized; 9,740,501 and 9,740,001 shares issued and outstanding, respectively		97,405			97,400
Additional paid-in capital		64,362,294			63,636,069
Accumulated deficit		(67,981,048	)		(57,130,433	)
Unearned stock compensation		(28,050	)		—

Total common stockholders’ (deficit) equity		(3,549,399	)		6,603,036


Total liabilities and common stockholders’ (deficit) equity	$	18,763,634		$	29,430,740

The accompanying notes are an integral part of these financial statements.

ACCESS WORLDWIDE COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
Revenues	$	10,770,036		$	11,246,562		$	36,969,317		$	35,510,638
Cost of revenues		6,781,065			6,689,396			24,423,376			22,406,750

Gross profit		3,988,971			4,557,166			12,545,941			13,103,888

Selling, general and administrative expenses		(4,438,705	)		(4,481,619	)		(14,396,811	)		(12,957,328	)
Impairment of intangible assets		(8,951,856	)		—			(8,951,856	)		—
Gain on extinguishment of indebtedness – related party		—			—			299,555			—
Amortization expense		(37,036	)		(60,534	)		(111,044	)		(181,602	)


(Loss) income from operations		(9,438,626	)		15,013			(10,614,215	)		(35,042	)

Interest income		3,141			9,532			12,180			26,189
Interest income—related parties		—			—			—			197,484
Interest expense—related parties		(31,459	)		(66,091	)		(99,637	)		(230,556	)
Interest expense		(344,858	)		(107,397	)		(695,147	)		(401,420	)


Loss before income tax benefit		(9,811,802	)		(148,943	)		(11,396,819	)		(443,345	)

Income tax benefit		546,204			—			546,204			—


Loss from continuing operations		(9,265,598	)		(148,943	)		(10,850,615	)		(443,345	)


Discontinued operations (Note 11):
Loss from discontinued operations, net of income tax benefit of $0 and $(107,873) for the three and nine month periods ended September 30, 2002, respectively		—			—			—			(467,838	)

Gain on disposal of segments, net of income tax expense of $45,458 and $1,594,638 for the three and nine month periods ended September 30, 2002, respectively		—			97,543			—			8,451,760

		—			97,543			—			7,983,922


Net (loss) income	$	(9,265,598	)	$	(51,400	)	$	(10,850,615	)	$	7,540,577


Basic (loss) earnings per share of common stock:
Continuing operations	$	(0.95	)	$	(0.02	)	$	(1.11	)	$	(0.05	)
Discontinued operations		0.00			0.01			0.00			0.82
Net (loss) income	$	(0.95	)	$	(0.01	)	$	(1.11	)	$	0.77
Weighted average common shares outstanding		9,740,501			9,740,001			9,740,390			9,740,001

Diluted (loss) earnings per share of common stock:
Continuing operations	$	(0.95	)	$	(0.02	)	$	(1.11	)	$	(0.05	)
Discontinued operations		0.00			0.01			0.00			0.82
Net (loss) income	$	(0.95	)	$	(0.01	)	$	(1.11	)	$	0.77
Weighted average common shares outstanding		9,740,501			9,740,001			9,740,390			9,740,001

The accompanying notes are an integral part of these financial statements.

ACCESS WORLDWIDE COMMUNICATIONS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS’ (DEFICIT) EQUITY

(UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003

	Common Stock			Additional Paid-in Capital		Accumulated Deficit			Deferred Compensation			Total
	Shares	Amount		Additional Paid-in Capital		Accumulated Deficit			Deferred Compensation			Total

Balance, December 31, 2002	9,740,001	$	97,400	$	63,636,069	$	(57,130,433	)		—		$	6,603,036

Unearned compensation expense	—		—		33,000		—		$	(33,000	)		—
Issuance of warrants in connection with Convertible Notes	—		—		546,000		—			—			546,000
Beneficial conversion feature associated with Convertible Notes	—		—		147,000		—			—			147,000
Amortization of unearned stock compensation	—		—		—		—			4,950			4,950
Stock options exercised	500		5		225		—			—			230
Net loss	—		—		—		(10,850,615	)		—			(10,850,615	)


Balance, September 30, 2003	9,740,501	$	97,405	$	64,362,294	$	(67,981,048	)	$	(28,050	)	$	(3,549,399	)

ACCESS WORLDWIDE COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30,

	2003			2002
Cash flows from operating activities:
Net (loss) income	$	(10,850,615	)	$	7,540,577
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization		1,245,092			1,365,057
Impairment of intangible assets		8,951,856			—
Gain on extinguishment of indebtedness – related party		(299,555	)		—
Amortization of deferred financing costs		246,745			229,966
Amortization of unearned stock compensation		4,950			—
Gain on disposition of discontinued operations		—			(10,046,398	)
Changes in discontinued operations		—			(694,922	)
Allowance for doubtful accounts		531,459			117,029
Accretion of discount on Convertible Notes		41,140			—
Changes in operating assets and liabilities:
Accounts receivables		217,752			(2,077,459	)
Unbilled receivables		945,650			55,475
Other assets		(1,531,978	)		2,104,750
Accounts payable and accrued expenses		(705,505	)		(1,891,347	)
Accrued interest and other related party expenses		385,876			(4,707	)
Accrued salaries, wages and related benefits		(878,410	)		527,683
Deferred revenue and customer deposits		2,574,466			(43,945	)

Net cash provided by (used in) operating activities		878,923			(2,818,241	)


Cash flows from investing activities:
Additions to property and equipment, net		(428,051	)		(577,653	)
Increase in restricted cash		(834,000	)		—
Additions to property and equipment from discontinued operations, net		—			(267,830	)
Net proceeds from sale of discontinued operations		—			31,832,681

Net cash (used in) provided by investing activities		(1,262,051	)		30,987,198


Cash flows from financing activities:
Payments of capital leases		(12,325	)		(20,607	)
Issuance of common stock		230			—
Net payments under Credit Facility and Debt Agreement		(1,667,398	)		(29,165,741	)
Proceeds from issuance of Convertible Notes		2,100,000			—
Payment of loan origination fees		(744,582	)		—
Payments on related party debt		(1,041,402	)		(1,139,773	)

Net cash used in financing activities		(1,365,477	)		(30,326,121	)


Net decrease in cash and cash equivalents		(1,748,605	)		(2,157,164	)
Cash and cash equivalents, beginning of period		2,197,209			3,373,422

Cash and cash equivalents, end of period	$	448,604		$	1,216,258

Supplemental disclosures
Non-cash investing and financing activities:
Equipment acquisitions through capital leases		78,003			—

The accompanying notes are an integral part of these financial statements.

ACCESS WORLDWIDE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.	BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Access Worldwide Communications, Inc. (“Access Worldwide,” “we,” “our,” “us,” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, we do not include therein all of the information and footnotes required by accounting principles generally accepted in the United States of America for a complete set of consolidated financial statements. For further information, refer to our consolidated financial statements and footnotes included in our Annual Report on Form 10-K as of and for the year ended December 31, 2002, filed with the Securities and Exchange Commission.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect reported amounts included in the consolidated financial statements. In our opinion, all adjustments necessary for a fair presentation of this interim financial information have been included. Such adjustments consisted only of normal recurring items. The results of operations for the nine months ended September 30, 2003 are not necessarily indicative of the results to be expected for the year ending December 31, 2003.

2.	LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2002, we were in compliance with all the financial covenants of the Credit Facility. On April 1, 2003, we notified the Bank Group of our inability to make a mandatory payment required to reduce our outstanding debt under the Credit Facility to the $5.7 million limit, which became effective April 1, 2003 and, therefore, resulted in an event of default pursuant to the Credit Facility. On April 3, 2003, we received a letter from the Bank Group which allowed us to continue to use cash proceeds generated in the ordinary course of business to fund working capital and operations and changed the interest rate to a default rate of prime plus 5% on the outstanding balance of the Credit Facility.

On April 29, 2003, we entered into the Seventh Amendment and Waiver Agreement (the “Amendment”) to the Credit Facility. The Amendment allowed the Company to continue to use cash proceeds generated in the ordinary course of business to fund working capital and operations. In addition, the Amendment increased the effective rate of interest to Bank of America’s prime rate of interest plus 5% and limited the revolving commitment line to $6.1 million through May 14, 2003, with periodic reductions thereafter. The outstanding balance on the Credit Facility was due on July 1, 2003.

In accordance with our Debt Agreement, we sold unregistered Convertible Notes to accredited investors, including Company officers and directors. The Convertible Notes were issued on July 15, 2003 in a non-public offering. The proceeds of the Convertible Notes were used to fund working capital and operations (see Note 13).

In accordance with Emerging Issues Task Force (“EITF”) No. 95-22, “Accounting for Agreements that Include Both a Subjective Acceleration Clause and a Lock-box Arrangement,” which states that agreements with both subjective acceleration clauses and a lock-box agreement should be classified as a current liability due to the financial institutions’ ability to accelerate the due date of the debt based on certain events outside of our control, we have classified the entire amount outstanding on the Debt Agreement as current portion of indebtedness in the accompanying balance sheet at September 30, 2003.

As a result of our lawsuit against MTI Information Technologies, LLC (“MTI”), we recorded bad debt expense of approximately $0.6 million during the three months ended June 30, 2003, which placed us in default of the covenants contained in our Debt Agreement. Therefore, we notified CapitalSource about the potential default of covenants on July 29, 2003, and we entered into the First Amendment (the “First Amendment”) to the Debt Agreement on August 11, 2003, which modified the financial covenants to allow for such event.

ACCESS WORLDWIDE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

2.	LIQUIDITY AND CAPITAL RESOURCES (Continued)

As of September 30, 2003, we were in default of our financial covenants contained in our Debt Agreement due to a significant decrease in revenues and profitability at our medical education division. On November 12, 2003, we entered into the Second Amendment (“Second Amendment”) to our Debt Agreement dated June 10, 2003. The Second Amendment modified the financial covenants to allow for the above mentioned events and increased the minimum additional participation fee from $250,000 to $400,050.

3.	RECLASSIFICATIONS

Certain reclassifications have been made to the 2002 consolidated financial statements to conform to the September 30, 2003 presentation. Such reclassifications did not change our net loss or total common stockholders’ equity as previously reported.

4.	RESTRICTED CASH

On June 10, 2003, we obtained a new letter of credit (“Letter of Credit”) in the amount of $834,000 to replace the original letter of credit issued to the landlord of our Maryland communication center in 2001 by the Bank Group. The Letter of Credit was collateralized by a certificate of deposit in the same amount (see Note 12). Therefore, such certificate of deposit is classified as restricted cash in the accompanying balance sheet at September 30, 2003.

The amount of the Letter of Credit and restricted cash will be reduced on each anniversary of the lease agreement through May 2011. The balance of the Letter of Credit will be reduced to the amount shown on each anniversary date as follows:

May 2003	$	834,000
May 2004		711,000
May 2005		589,000
May 2006		466,000
May 2007		343,000
May 2008 through 2010		221,000

5.	INTANGIBLE ASSETS

During the three months ended September 30, 2003, we experienced a significant reduction in revenues from our medical education division. In accordance with SFAS No. 142, “Goodwill and Other Intangibles,” we performed a two-step fair value based intangible asset assessment. The first step of the test compared the book value of our reporting unit to its estimated fair value. The estimated fair value of the reporting unit was computed using the present value of future cash flows as of September 30, 2003. In the second step of the impairment test, we compared the implied fair value of the intangible assets in accordance with the methodology prescribed by SFAS No. 142 to its book value. As a result of performing the two-step test, we determined that the division’s goodwill and intangible assets were impaired resulting in a charge of $8,951,856 during the three months ended September 30, 2003.

ACCESS WORLDWIDE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

6.	STOCK BASED COMPENSATION

In December 2002, the Financial Accounting Standards Board issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an Amendment of SFAS No. 123,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 amends the requirements of SFAS No. 123 requiring prominent disclosure in annual and interim financial statements about methods of accounting for stock-based employee compensation and the effects of the method used on reported results. We continue to use the intrinsic value method and, as a result, the implementation of SFAS No. 148 had no impact on our results of operations or financial position at adoption or during the nine months ended September 30, 2003.

Had the fair value based method been used to account for such compensation, compensation costs would have increased the net loss and loss per share for the three months ended September 30, 2003 and 2002 and the nine months ended September 30, 2003. Compensation costs would have decreased the net income and earnings per share for the nine months ended September 30, 2002.

	Three Months Ended Sept. 30, 2003			Three Months Ended Sept. 30, 2002			Nine Months Ended Sept. 30, 2003			Nine Months Ended Sept. 30, 2002
Net (loss) income, as reported	$	(9,265,598	)	$	(51,400	)	$	(10,850,615	)	$	7,540,577
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effect		(53,879	)		(41,959	)		(137,797	)		(125,877	)


Proforma net (loss) income		(9,319,477	)		(93,359	)		(10,988,412	)		7,414,700

(Loss) earnings per share:
Basic – as reported	$	(0.95	)	$	(0.01	)	$	(1.11	)	$	0.77
Basic – proforma	$	(0.96	)	$	(0.01	)	$	(1.13	)	$	0.76

Diluted – as reported	$	(0.95	)	$	(0.01	)	$	(1.11	)	$	0.77
Diluted – proforma	$	(0.96	)	$	(0.01	)	$	(1.13	)	$	0.76

7.	INCOME TAXES

The effective tax rate used by us to record an income tax benefit for the three and nine months ended September 30, 2003 differs from the federal statutory rate primarily due to the utilization of net operating loss carrybacks. The effective tax rate for the three and nine months ended September 30, 2002 differs from the federal statutory tax rate primarily due to the utilization of net operating loss carryforwards.

ACCESS WORLDWIDE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

8.	(LOSSES) EARNINGS PER COMMON SHARE

The computation of weighted average number of common and common equivalent shares used in the calculation of basic and diluted earnings (losses) per share is as follows:

	For the Three Months Ended September 30,	For the Nine Months Ended September 30,
	Shares	Shares
2003:
Weighted average number of common shares outstanding – basic	9,740,501	9,740,390
Weighted average number of common and common equivalent shares outstanding – dilutive*	9,740,501	9,740,390

	For the Three Months Ended September 30,	For the Nine Months Ended September 30,
	Shares	Shares
2002:
Weighted average number of common shares outstanding – basic	9,740,001	9,740,001
Weighted average number of common and common equivalent shares outstanding – dilutive*	9,740,001	9,740,001

Since the effects of the stock options and earn-out contingencies are anti-dilutive for both the three and nine months ended September 30, 2003 and 2002, these effects have not been included in the calculation of dilutive (losses) earnings per common share. Additionally, our dilutive losses per share computation for the three and nine months ended September 30, 2003 did not include 2.1 million shares of our common stock issuable upon conversion of our Convertible Notes, as our common stock was not issuable under the conversion provisions of this debt instrument (see Note 13).

9.	NEW ACCOUNTING PRONOUNCEMENTS

In November 2002, Financial Accounting Standards Board Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantors, Including Indirect Guarantees of Indebtedness of Others” was issued. FIN No. 45 requires recognition of an initial liability for the fair value of the guarantor’s obligation upon issuance of certain guarantees. We adopted the disclosure requirements of FIN No. 45 as of December 31, 2002. On January 1, 2003, we adopted the initial recognition and measurement provisions which were effective on a prospective basis for guarantees issued or modified after December 31, 2002. The implementation of FIN No. 45 had no impact on our results of operations or financial position at adoption or during the nine months ended September 30, 2003.

In May 2003, Statement of Financial Accounting Standards No. 150 (“SFAS No. 150”), “Accounting For Certain Financial Instruments with Characteristics of both Liabilities and Equity,” was issued. This statement improves the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. This statement requires that those instruments be classified as liabilities in the statement of financial position. This statement 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, except for mandatorily redeemable financial instruments of nonpublic entities. It is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of the statement and still existing at the beginning of the interim period of adoption. SFAS No. 150 had no impact on our results of operations or financial condition at adoption or during the nine months ended September 30, 2003.

10.

COMMITMENTS AND CONTINGENCIES

We are involved in legal actions arising in the ordinary course of our business. We believe that the ultimate resolution of these matters will not have a material adverse effect on our financial position, results of operation or cash flow except as described below.

ACCESS WORLDWIDE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

10.

COMMITMENTS AND CONTINGENCIES (Continued)

Phoenix became a subsidiary of Access Worldwide. The suit alleges that we agreed to amend the earn-out agreement. The lawsuit seeks actual damages of $0.9 million plus additional unspecified punitive damages. On August 5, 2003, the Court granted the Company’s Motion for Summary Judgment and dismissed all claims. On August 14, 2003, Messrs. Rebak and Macaluso filed an appeal of the summary judgment. The parties are attempting to reach a settlement in this matter; otherwise, we intend to vigorously defend the appeal. We cannot provide assurances as to the outcome of the litigation.

On July 18, 2003, we filed a suit against MTI Information Technologies, LLC (“MTI”) in Broward County, Florida. The lawsuit seeks enforcement of our pharmaceutical telemarketing service contract (the “Contract”) with MTI for services rendered. We performed pharmaceutical telemarketing services for MTI from November 2001 to April 2003, when services were terminated after payments due from MTI became severely delinquent. The lawsuit alleges that MTI breached its Contract with the Company by not paying for services rendered. The lawsuit seeks payment for work performed of approximately $0.6 million.

On July 21, 2003, MTI filed a suit against the Company in Bucks County, Pennsylvania, for breach of contract and tortious interference for the Company’s failure to complete telemarketing campaigns. Management asserts that these claims are not valid and intends to vigorously defend any action related to this claim and take all necessary steps to collect amounts due on account. While we believe MTI’s claims have no legal basis, we cannot provide assurances as to the outcome of the litigation.

11.

DISCONTINUED OPERATIONS

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” we reclassified as discontinued operations, the operations of our a) Cultural Access Group division (“CAG”), which provided in language, in-culture market research services and consulting services to Fortune 500 companies in a variety of industries and was sold on January 31, 2002 to Lumina Americas, Inc. for $1.2 million in cash, plus the assumption of certain liabilities and b) Phoenix, which provided pharmaceutical sample distribution services and was sold on February 25, 2002 to Express Scripts, Inc. for $33.0 million in cash, plus the assumption of certain liabilities. We realized a net gain of $8.5 million, net of income taxes and expenses incurred in connection with the transactions. Revenues and operating (loss) income for the nine months ended September 30, 2002 were $358,008 and $(370,998) for CAG and $4,207,194 and $(7,189) for Phoenix, respectively.

12.

INDEBTEDNESS

On June 10, 2003, we entered into a new Debt Agreement with CapitalSource. The Debt Agreement provides up to $10.0 million under a revolving line of credit (the “Revolver”), up to $0.5 million under a Term Loan and requires us to have initial subscriptions of at least $1.5 million of Convertible Notes on June 10, 2003, and at least $2.0 million in Convertible Notes on or before July 15, 2003 (see Note 13). The Revolver has a three year term and bears interest at the prime rate plus 2.75%. The availability on the Revolver is based on a percentage of our accounts receivable, unbilled receivables and billings in excess of cost, as defined. The Term Loan bears interest at the prime rate plus 5.75% with monthly payments of $83,333 commencing on July 1, 2003 through maturity on December 31, 2003. The Term Loan is collateralized by the personal assets of Mr. Shawkat Raslan, Chief Executive Officer of the Company.

ACCESS WORLDWIDE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

12.

INDEBTEDNESS (Continued)

The availability under the Debt Agreement was used to repay the Credit Facility with the Bank Group, settle our 6.5% subordinated promissory note with a former stockholder of AM Medica Communications Group for $0.7 million, which resulted in a gain of approximately $0.3 million and make a $50,000 payment on our 6% subordinated promissory note (the “Subordinated Note”) with a former stockholder of TMS Professional Markets Group. The terms of the Subordinated Note were amended to be subordinated to the Debt Agreement with regularly scheduled monthly payments of principal and interest not to exceed the lesser of 25% of Excess Cash Flow (as defined in the Debt Agreement) for the prior month or $63,000 per month.

The original letter of credit previously issued to the landlord of our Maryland communication center by the Bank Group was canceled in June 2003. A new Letter of Credit was issued to the landlord in June 2003 and is collateralized by a certificate of deposit in the amount of $834,000 (see Note 4).

As a result of our lawsuit against MTI in the three months ended June 30, 2003, we recorded bad debt expense of approximately $0.6 million during the three months ended June 30, 2003, which placed us in default of the covenants contained in our Debt Agreement. Therefore, we notified CapitalSource about the potential default in our covenants on July 29, 2003 and entered into the First Amendment (the “First Amendment”) to the Debt Agreement on August 11, 2003, which modified the financial covenants to allow for such event.

13.

CONVERTIBLE NOTES

In conjunction with our Debt Agreement, on July 15, 2003 (the “Effective Date”), we closed on $2.1 million of Convertible Notes that were sold to accredited investors. The proceeds of the Convertible Notes were used to fund working capital and operations. The Convertible Notes have a 39 month term, bear interest at a rate of 5% and are convertible after one year from the Effective Date of the Convertible Notes to common stock at $1.00 per share. The Convertible Notes also have 1.05 million of attached warrants with an exercise price of $0.01 per share. The warrants have a life of ten years and are exercisable commencing July 15, 2004. Interest on the Convertible Notes is paid quarterly, provided we are in compliance with the covenants of our Debt Agreement.

In the event that any interest payment is not made within 30 days of its due date, an interest rate of 8% will be retroactively applied to the effective date of the Convertible Notes. In the event of a default, as defined, a default rate of the lesser of 16% per annum or the maximum rate of interest allowable by law will be retroactively applied to the effective date of the Convertible Notes and additional warrants equaling 50% of the remaining outstanding principal balance of the Convertible Notes plus all accrued and unpaid interest will be required to be issued.

In connection with the Convertible Notes, we were required to adopt the accounting principles prescribed by Emerging Issues Task Force (“EITF”) No. 00-27, “Application of EITF Issue No. 98-5 to Certain Convertible Instruments.” In accordance with the accounting requirements of EITF No. 00-27, we have reflected $147,000 and $546,000 as a decrease to the carrying value of our Convertible Notes with a comparable increase to additional paid-in capital. The amount accreted to the Convertible Notes is calculated based on the (a) difference between the market price of our common stock at the grant date ($0.81 per share) and the effective conversion price per share available to the holders of our Convertible Notes ($0.74) multiplied by (b) the number of shares of common stock that will be issued if the shares of our Convertible Notes are ever converted. While the amount accreted to the warrants is calculated based on the relative fair value of the convertible notes and the warrants. The fair value of the warrants was determined using the Black-Sholes model. The amounts are accreted over the contractual life of the Convertible Notes as additional interest expense.

14.

UNEARNED STOCK COMPENSATION

During the three months ended March 31, 2003, the Company granted 150,000 stock options to an executive of the Company with a strike price of $0.50 per share. The Company recorded unearned stock compensation in the amount of $33,000 in connection with the grant. Such amount, which is shown as a reduction of stockholder’s equity, will be amortized as compensation expense over the related vesting period.

ACCESS WORLDWIDE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

15.

RELATED PARTY TRANSACTIONS

The Board of Directors and certain executive management have invested $950,000 in the Company’s Convertible Notes (see Note 13). In addition, a greater-than-5% shareholder has invested $75,000 in the Convertible Notes.

16.

SEGMENTS

In accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” our reportable segments are strategic business units that offer different products and services to different industries in the United States and other countries.

The table below presents information about our reportable segments for our continuing operations used by the chief operating decision-maker of the Company for the three and nine months ended September 30, 2003 and 2002. The following information about reportable segments for the three and nine months ended September 30, 2002 excludes the results of Phoenix (previously included in the Pharmaceutical Segment) and CAG (previously included in the Other Segment), as such amounts have been reclassified as discontinued operations (see Note 11):

For the three months ended September 30,

	Pharmaceutical⁽²⁾			Consumer		Segment Total			Reconciliation			Total
2003
Revenues	$	4,136,749		$	6,633,287	$	10,770,036		$	—		$	10,770,036
Gross profit		1,570,408			2,418,563		3,988,971			—			3,988,971
(Loss) income from operations		(9,071,783	)		423,714		(8,648,069	)		(790,557	)		(9,438,626	)
EBITDA⁽¹⁾		(8,935,168	)		665,046		(8,270,122	)		(760,001	)		(9,030,123	)
Depreciation expense		99,579			241,332		340,911			30,556			371,467
Amortization expense		37,036			—		37,036			—			37,036

2002
Revenues	$	5,730,129		$	5,516,433	$	11,246,562		$	—		$	11,246,562
Gross profit		2,221,392			2,335,774		4,557,166			—			4,557,166
Income (loss) from operations		297,625			602,889		900,514			(885,501	)		15,013
EBITDA⁽¹⁾		468,646			867,285		1,335,931			(866,688	)		469,243
Depreciation expense		110,487			264,396		374,883			18,813			393,696
Amortization expense		60,534			—		60,534			—			60,534

For the nine months ended September 30,

	Pharmaceutical ⁽²⁾			Consumer		Segment Total			Reconciliation			Total
2003
Revenues	$	16,290,454		$	20,678,863	$	36,969,317		$	—		$	36,969,317
Gross profit		5,021,242			7,524,699		12,545,941			—			12,545,941
(Loss) income from operations		(9,735,540	)		1,529,528		(8,206,012	)		(2,408,203	)		(10,614,215	)
EBITDA⁽¹⁾		(9,331,122	)		2,280,163		(7,050,959	)		(2,318,164	)		(9,369,123	)
Depreciation expense		293,374			750,635		1,044,009			90,039			1,134,048
Amortization expense		111,044			—		111,044			—			111,044

2002
Revenues	$	19,661,619		$	15,849,019	$	35,510,638		$	—		$	35,510,638
Gross profit		6,352,006			6,751,882		13,103,888			—			13,103,888
Income (loss) from operations		1,170,522			1,269,737		2,440,259			(2,475,301	)		(35,042	)
EBITDA⁽¹⁾		1,680,365			2,069,832		3,750,197			(2,420,182	)		1,330,015
Depreciation expense		328,241			800,095		1,128,336			55,119			1,183,455
Amortization expense		181,602			—		181,602			—			181,602

ACCESS WORLDWIDE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

16.

SEGMENTS (Continued)

⁽¹⁾

EBITDA is calculated by taking (loss) income from operations and adding depreciation and amortization expense. EBITDA is a non-GAAP measure of profitability and operating efficiency widely used by investors to evaluate and compare operating performance among different companies excluding the impact of certain non-cash charges (depreciation and amortization). We believe that EBITDA provides investors with valuable measures to compare our operating performance with the operating performance of other companies. EBITDA for the three and nine months ended September 30, 2003 and 2002 can be reconciled to the most comparable GAAP measure, income (loss) from operations, as shown above.

⁽²⁾

(Loss) income from operations and EBITDA for the Pharmaceutical Segment include a $299,555 gain on extinguishment of indebtedness – related party for the nine months ended September 30, 2003 and a $8,951,856 impairment of intangible assets charge for the three and nine months ended September 30, 2003.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of operations of the Company should be read in conjunction with our Annual Report on Form 10-K as of and for the year ended December 31, 2002.

Three Months Ended September 30, 2003 Compared to Three Months Ended September 30, 2002

Our revenues decreased $0.4 million, or 3.6%, to $10.8 million for the three months ended September 30, 2003, compared to $11.2 million for the three months ended September 30, 2002. Revenues for the Pharmaceutical Segment decreased $1.6 million, or 28.1%, to $4.1 million for the three months ended September 30, 2003, compared to $5.7 million for the three months ended September 30, 2002. The decrease was primarily due to a decrease and/or delay in the number of medical education meetings awarded to us from existing clients and the loss of certain drug lines with existing clients offset by an increase in physician and pharmacy telecommunication programs. Revenues for the Consumer Segment increased $1.1 million, or 20% to $6.6 million for the three months ended September 30, 2003, compared to $5.5 million for the three months ended September 30, 2002. The increase was primarily due to an overall increase in billable hours performed on existing programs.

Our cost of revenues increased by $0.1 million, or 1.5%, to $6.8 million for the three months ended September 30, 2003, compared to $6.7 million for the three months ended September 30, 2002. Cost of revenues as a percentage of revenues increased to 63.0% for the three months ended September 30, 2003, from 59.8% for the three months ended September 30, 2002. Cost of revenues as a percentage of revenues for the Pharmaceutical Segment for the three months ended September 30, 2003 increased to 63.4%, compared to 61.4% for the three months ended September 30, 2002. The increase was primarily due to the decrease in medical education revenues offset by an increase in productivity at our pharmaceutical telecommunication division. Cost of revenues as a percentage of revenues for the Consumer Segment increased to 63.6% for the three months ended September 30, 2003, from 58.2% for the three months ended September 30, 2002. The increase was primarily attributed to the increase in revenues which resulted in an increase in head count, non-billable training costs and additional telecommunication costs.

Our selling, general and administrative expenses decreased by $0.1 million, or 2.2%, to $4.4 million for the three months ended September 30, 2003, compared to $4.5 million for the three months ended September 30, 2002. Selling, general and administrative expenses as a percentage of revenues for the Company increased to 40.7% for the three months ended September 30, 2003, compared to 40.2% for the three months ended September 30, 2002. Selling, general and administrative expenses as a percentage of revenues for the Pharmaceutical Segment increased to 41.5% for the three months ended September 30, 2003, from 33.3% for the three months ended September 30, 2002. The increase was primarily due to the decrease in medical education revenues offset by an increase in physician and pharmacy telecommunications revenues. Selling, general and administrative expenses as a percentage of revenues for the Consumer Segment decreased slightly to 30.3% for the three months ended September 30, 2003, compared to 30.9% for the three months ended September 30, 2002.

Our net interest expense increased $0.2 million, or 100%, to $0.4 million for the three months ended September 30, 2003, compared to $0.2 million for the three months ended September 30, 2002. The increase was primarily due to higher deferred financing costs which are being amortized over 6 and 36 month periods and the accretion of the debt discount on our Convertible Notes which is recorded as interest expense (see Note 13).

Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30, 2002

Our revenues increased $1.5 million, or 4.2%, to $37.0 million for the nine months ended September 30, 2003, compared to $35.5 million for the nine months ended September 30, 2002. Revenues for the Pharmaceutical Segment decreased $3.4 million, or 17.3%, to $16.3 million for the nine months ended September 30, 2003, compared to $19.7 million for the nine months ended September 30, 2002. The decrease was primarily due to a decrease and/or delay in the number of medical education meetings awarded to us from existing clients and the loss of certain drug lines with existing clients offset by an increase in physician and pharmacy telecommunication programs. Revenues for the Consumer Segment increased by $4.9 million, or 31.0%, to $20.7 million for the nine months ended September 30, 2003, compared to $15.8 million for the nine months ended September 30, 2002. The increase was primarily due to an overall increase in billable hours performed on existing programs.

Our cost of revenues increased $2.0 million, or 8.9%, to $24.4 million for the nine months ended September 30, 2003, compared to $22.4 million for the nine months ended September 30, 2002. Cost of revenues as a percentage of revenues increased to 65.9% for the nine months ended September 30, 2003, from 63.1% for the nine months ended September 30, 2002. Cost of revenues as a percentage of revenues for the Pharmaceutical Segment for the nine months ended September 30, 2003 increased to 69.3%, compared to 67.5% for the nine months ended September 30, 2002. The increase was primarily due to the decrease in medical education revenues and a decrease in direct costs incurred by us due to client specifications. Cost of revenues as a percentage of revenues for the Consumer Segment increased to 63.8% for the nine months ended September 30, 2003, from 57.6% for the nine months ended September 30, 2002. The increase was primarily attributed to the increase in revenues which resulted in an increase in head count, non-billable training costs and additional telecommunication costs.

Our selling, general and administrative expenses increased by $1.4 million, or 10.8%, to $14.4 million for the nine months ended September 30, 2003, compared to $13.0 million for the nine months ended September 30, 2002. Selling, general and administrative expenses as a percentage of revenues for the Company increased to 38.9% for the nine months ended September 30, 2003, compared to 36.6% for the nine months ended September 30, 2002. Selling, general and administrative expenses as a percentage of revenues for the Pharmaceutical Segment increased to 36.8% for the nine months ended September 30, 2003, from 25.4% for the nine months ended September 30, 2002. The increase was primarily attributed to bad debt expenses relating to a pharmaceutical client and a decrease in medical education revenues. Selling, general and administrative expenses as a percentage of revenues for the Consumer Segment decreased to 29.0% for the nine months ended September 30, 2003, compared to 34.8% for the nine months ended September 30, 2002. The decrease was due to an increase in revenues while continuing to manage cost levels.

Our 6.5% subordinated promissory note with a former stockholder of AM Medica Communications Group was settled for $0.7 million, which resulted in a gain of approximately $0.3 million during the nine months ended September 30, 2003.

Our net interest expense increased $0.4 million, or 100%, to $0.8 million for the nine months ended September 30, 2003, compared to $0.4 million for the nine months ended September 30, 2002. The increase was due to interest income from Phoenix Marketing Group (“Phoenix”) and Cultural Access Group (“CAG”) intercompany loans for which the corresponding interest expense has been classified as discontinued operations in 2002, higher deferred financing costs being amortized over 6 and 36 month periods, accretion of the debt discount on our Convertible Notes which is recorded as interest expense (see Note 13), offset by a decrease in interest expense, as amortized, on a subordinated promissory note with a former stockholder of AM Medica Communications Group, which was settled for $0.7 million and resulted in a gain of $0.3 million.

Liquidity and Capital Resources

At September 30, 2003, we had negative working capital of $2.9 million, as compared to negative working capital of $3.1 million at December 31, 2002. Cash and cash equivalents were $0.4 million at September 30, 2003, compared to $2.2 million at December 31, 2002.

Net cash provided by operating activities during the first nine months of 2003 was $0.9 million, compared to $2.8 million net cash used in operating activities during the first nine months of 2002. The increase in net cash provided by operating activities was primarily due to an increase in deferred revenues and other assets and a decrease in accounts receivable and accrued salaries and wages.

Net cash used in investing activities was $1.3 million for the first nine months of 2003, compared to $31.0 million net cash provided by investing activities for the first nine months of 2002. The decrease in net cash provided by investing activities was primarily due to the proceeds received from the sale of our Phoenix and CAG divisions in 2002 and an increase in restricted cash in 2003.

Net cash used in financing activities was $1.4 million for the first nine months of 2003, compared to $30.3 million net cash used in financing activities for the first nine months of 2002. The decrease in net cash used in financing activities was primarily due to the net payments under our Credit Facility made in 2002 from proceeds received from the sale of Phoenix and CAG, refinancing of our Credit Facility, cash received for the future issuance of our 5% Convertible Promissory Notes (the “Convertible Notes”) and repayments of our related party debt in 2003.

On April 29, 2003, the Company entered into the Seventh Amendment and Waiver Agreement (the “Amendment”) to the Credit Facility. The Amendment allowed the Company to continue to use cash proceeds generated in the ordinary course of business to fund working capital and operations. In addition, the Amendment increased the effective rate of interest to Bank of America’s prime rate of interest plus 5% and limited the revolving commitment line to $6.1 million through May 14, 2003 with periodic reductions thereafter. The outstanding balance on the Credit Facility was due on July 1, 2003.

On June 10, 2003, we entered into a new revolving credit, term loan and security agreement (“Debt Agreement”) with CapitalSource Finance, LLC (“CapitalSource”), a commercial finance firm with expertise in the pharmaceutical industry through their healthcare finance lending unit. The Debt Agreement provides up to $10.0 million under a revolving line of credit (the “Revolver”); up to $0.5 million under a Term Loan (the “Term Loan”) and requires us to have initial subscriptions of at least $1.5 million of Convertible Notes on June 10, 2003 and at least $2.0 million in Convertible Notes on or before July 15, 2003 (see Note 13). The Revolver has a three year term and bears interest at the prime rate plus 2.75%. The availability on the Revolver is based on a percentage of our accounts receivable, unbilled receivables and billings in excess of cost, as defined. The Term Loan bears interest at the prime rate plus 5.75% with monthly payments of $83,333 commencing on July 1, 2003 through maturity on December 31, 2003. The Term Loan is collateralized by the personal assets of Mr. Shawkat Raslan, Chief Executive Officer of the Company.

On July 15, 2003, we sold $2.1 million of our 5% Convertible Promissory Notes and Warrants. The securities were offered and sold pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D as promulgated under the Securities Act. The securities were sold only to Accredited Investors, as that term is defined under Regulation D. The Convertible Notes have a 39 month term and bear interest at a rate of 5%. Interest is paid quarterly, provided we are in compliance with the covenants of our Debt Agreement. Holders of the convertible notes may convert all or any part of the principal amount into shares of the company’s common stock at any time until all principal and accrued interest thereon is paid in full, at a conversion price equal to $1.00 per share. The warrants are exercisable, at a purchase price of $0.01 per share of common stock, from one year after the maturity date through 10 years from the vesting date. Proceeds from the sale of these securities were used to fund working capital and operations.

The availability under the Debt Agreement allowed us to restructure our debt by repaying the Credit Facility with the Bank Group, settling our 6.5% subordinated promissory note with a former stockholder of AM Medica Communications Group for $0.7 million, which resulted in a gain of approximately $0.3 million and making a $50,000 payment on our 6% subordinated promissory note (the “Subordinated Note”) with a former stockholder of TMS Professional Markets Group. The Subordinated Note was amended to be subordinated to the Debt Agreement with regularly scheduled monthly payments of principal and interest not to exceed the lesser of 25% of Excess Cash Flow (as defined in the Debt Agreement) for the prior month or $63,000 per month.

In addition, a letter of credit previously issued to the landlord of our Maryland communication center by the Bank Group was canceled in June 2003. A new letter of credit was issued to the landlord in June 2003 and is collateralized by a certificate of deposit in the amount of $834,000 (see Note 4).

The auditor’s report on our financial statements included with the 2002 Annual Report on Form 10-K includes an explanatory paragraph indicating that there is substantial doubt regarding our ability to continue as a going concern. As discussed above, in June 2003, we closed on a new Debt Agreement and simultaneously paid off our Credit Facility. We believe that the new debt structure provides us with the liquidity and capital resources needed to grow the existing business and increase shareholder value. We believe that we will be able to meet the financial covenants of the Second Amendment and that our cash and cash equivalents, as well as cash provided by operations and the availability from the Debt Agreement and the Convertible Notes will be sufficient to fund our current operations for the next twelve months.

Risk Factors That May Affect Future Results

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. Those statements represent our current expectations, beliefs, future plans and strategies, anticipated events or trends concerning matters that are not historical facts. Such forward-looking statements include, among others:

•

Statements regarding proposed activities pursuant to agreements with clients;

•

Future plans relating to our business strategy; and,

•

Trends, or proposals, or activities of clients or industries which we serve.

Such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited, to the following:

•

The ability to continue as a going concern if the Company is unable to generate additional cash flow and income from continuing operations;

•

The ability to continue to comply with the financial covenants contained under the Debt Agreement;

•

Competition from other third-party providers and those clients and prospects who may decide to do the work that Access Worldwide does in-house;

•

Consolidation in the pharmaceutical, medical, telecommunications and consumer products industries which reduces the number of clients that are able to be served;

•

Potential consumer saturation reducing the need for services;

•

The Company’s ability and clients’ ability to comply with state, federal and industry regulations;

•

Reliance on a limited number of major clients and the possible loss of one or more clients;

•

The ability to develop or fund the operations of new products or service offerings;

•

Reliance on technology;

•

Reliance on key personnel and labor force;

•

The possible prolonged impact of the general downturn in the U.S. economy;

•

The volatility of the stock price; and

•

The unpredictability of the outcome of litigation in which the Company is involved.

The Company assumes no duty to update any forward-looking statements. For a more detailed discussion of these risks and others that could affect the Company’s results, see the Company’s filings with the Securities and Exchange Commission, including the risk factors section of Access Worldwide’s 2002 Annual Report on Form 10-K as of and for the year ended December 31, 2002 filed with the Securities and Exchange Commission.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks from changes in interest rates and are subject to interest rate risks on our Debt Agreement caused by changes in interest rates. Our ability to limit our exposure to market risk and interest rate risk is restricted as a result of our current cash management arrangement under the Debt Agreement. Accordingly, we are unable to enter into any derivative or similar transactions that could limit our exposure to market risk and interest rate risks. Our Debt Agreement currently provides for interest rates ranging from prime plus 2.75% to prime plus 5.75%. The prime rate is the prime rate published by the Wall Street Journal. A one percent increase in the prime interest rate would result in a pre-tax impact to us on earnings of approximately $0.05 million per year.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report in accumulating and communicating to our management, including them, material information required to be included in the reports we file or submit under the Securities Exchange Act of 1934 as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

Based on an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, there has been no change in our internal control over financial reporting during our last fiscal quarter, identified in connection with the evaluation, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II–OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

On May 29, 2001, Douglas Rebak and Joseph Macaluso filed suit against the Company in Federal District Court for the district of New Jersey. The lawsuit seeks enforcement of an alleged amendment to an earn-out agreement between the Company and Messrs. Rebak and Macaluso relating to our acquisition of Phoenix in 1997. Messrs. Rebak and Macaluso were two primary shareholders of Phoenix prior to the acquisition and became officers of the Company after Phoenix became a subsidiary of Access Worldwide. The suit alleges that we agreed to amend the earn-out agreement. The lawsuit seeks actual damages of $0.9 million plus additional unspecified punitive damages. On August 5, 2003, the Court granted the Company’s Motion for Summary Judgment and dismissed all claims. On August 14, 2003, Messrs. Rebak and Macaluso filed an appeal of the summary judgment. The parties are attempting to reach a settlement in this matter; otherwise, we intend to vigorously defend the appeal. We cannot provide assurances as to the outcome of the litigation.

On July 21, 2003, MTI filed a suit against the Company in Bucks County, Pennsylvania for breach of contract and tortious interference for the Company’s failure to complete telemarketing campaigns. Management asserts that these claims are not valid and intends to vigorously defend any action related to this claim and take all necessary steps to collect amounts due on account. While we believe MTI’s claims have no legal basis, we cannot provide assurance as to the outcome of the litigation.

ITEM 2.

CHANGES IN SECURITIES AND USE OF PROCEEDS

ITEM 3. DEFAULTS

UPON SENIOR SECURITIES

As of September 30, 2003, we defaulted on our Debt Agreement dated June 10, 2003 with CapitalSource. The default was triggered by our inability to comply with certain financial covenants contained in the Debt Agreement due to a significant decrease in revenue and profitability at our medical education division. On November 12, 2003, we entered into the Second Amendment (“Second Amendment”) to our Debt Agreement dated June 10, 2003 that modified the financial covenants resulting in a cure of the default.

ITEM 6.

EXHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits

10(bbb) First Amendment to the Revolving Credit, Term Loan and Security Agreement with Capital Source

Finance, LLC, dated August 11, 2003.

31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

32.1 Section 1350 Certification of Chief Executive Officer

32.2 Section 1350 Certification of Chief Financial Officer

(b)

Reports on Form 8-K

Current Report on Form 8-K dated August 13, 2003, and furnished on August 18, 2003, setting forth the press release containing information relating to the Company’s financial results for the three and six month periods ending June 30, 2003. This current report on Form 8-K is not deemed to be incorporated by reference in any filings made by the Company with the Securities and Exchange Commission.

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.

	ACCESS WORLDWIDE COMMUNICATIONS, INC.

Date: November 14, 2003	By:	/s/ Shawkat Raslan

		Shawkat Raslan, Chairman of the Board, President and Chief Executive Officer (principal executive officer)


Date: November 14, 2003	By:	/s/ John Hamerski

		John Hamerski, Executive Vice President and Chief Financial Officer (principal financial and accounting officer)

Exhibit Index

Exhibit No.		Description

10(bbb)		First Amendment to the Revolving Credit, Term Loan and Security Agreement with Capital Source Finance, LLC, dated August 11, 2003.

31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

32.1		Section 1350 Certification of Chief Executive Officer

32.2		Section 1350 Certification of Chief Financial Officer

EX-10.1 3 dex101.htm FIRST AMENDMENT TO THE REVOLVING CREDIT AGREEMENT First Amendment to the Revolving Credit Agreement

FIRST AMENDMENT TO REVOLVING CREDIT, TERM LOAN AND SECURITY AGREEMENT

THIS FIRST AMENDMENT TO REVOLVING CREDIT, TERM LOAN AND SECURITY AGREEMENT, dated as of August 11, 2003 (this “Amendment”), is entered into by and between ACCESS WORLDWIDE COMMUNICATIONS, INC., a Delaware corporation, ASH CREEK, INC., a Delaware corporation, AWWC NEW JERSEY HOLDINGS, INC., a Delaware corporation, TELEMANAGEMENT SERVICES, INC., a Delaware corporation, TLM HOLDINGS CORP., a Delaware corporation, (individually and collectively, the “Borrower”), and CAPITALSOURCE FINANCE LLC, a Delaware limited liability company (the “Lender”). Capitalized terms used and not otherwise defined herein are used as defined in the Agreement (as defined below).

WHEREAS, the parties hereto entered into that certain Revolving Credit, Term Loan and Security Agreement dated as of June 10, 2003 (as amended, supplemented, or otherwise modified from time to time, the “Agreement”); and

WHEREAS, Borrower has requested Lender to revise certain financial covenants set forth in the Agreement and Lender has agreed to do so in accordance with the terms and conditions contained herein;

NOW, THEREFORE, in consideration of the premises and the other mutual covenants contained herein, the receipt and sufficiency are hereby acknowledged, the parties hereto agree as follows:

SECTION 1. Amendments.

(a) Annex I of the Agreement is hereby amended by deleting it in its entirety and replacing it with Annex I attached hereto.

(b) Schedule 5.6 of the Agreement is hereby amended by deleting it in its entirety and replacing it with Schedule 5.6 attached hereto.

SECTION 2. Conditions to Effectiveness. The effectiveness of this Amendment is conditioned upon the following conditions precedent:

(a) Borrower shall have delivered to Lender the duly executed counterparts of this Amendment; and

(b) Borrower shall have paid to Lender an amendment fee of $25,000.

SECTION 3. Miscellaneous.

(a) Borrower represents and warrants that after giving effect to this Amendment and the transactions contemplated hereby, all of the representations and warranties set forth in Article V of the Agreement are true and correct in all material respects and no Default or Event of Default has occurred and is continuing as of the date hereof.

(b) Except as expressly provided herein, the Agreement shall continue in full force and effect, and the unamended terms and conditions of the Agreement are expressly incorporated herein and ratified and confirmed in all respects. This Amendment is not intended to be or to create, nor shall it be construed as, a novation or an accord and satisfaction. From and after the date hereof, references to the Agreement shall be references to the Agreement as amended hereby. This Amendment shall be deemed a

Loan Document as such term is defined and used in the Agreement.

(c) This Amendment constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. Neither this Amendment nor any provision hereof may be changed, waived, discharged, modified or terminated orally, but only by an instrument in writing signed by the parties required to be a party thereto pursuant to the Agreement.

(d) This Amendment may be executed in any number of counterparts (including by facsimile), and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instrument but all of which together shall constitute one and the same agreement.

(e) THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE CHOICE OF LAW PROVISIONS SET FORTH IN THE AGREEMENT AND SHALL BE SUBJECT TO THE WAIVER OF JURY TRIAL AND NOTICE PROVISIONS OF THE AGREEMENT.

[SIGNATURES APPEAR ON FOLLOWING PAGE]

IN WITNESS WHEREOF, the parties have caused this First Amendment to Revolving Credit, Term Loan and Security Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

BORROWER:	ACCESS WORLDWIDE COMMUNICATIONS, INC.

	By:

		John Hamerski, EVP – Chief Financial Officer

	ASH CREEK, INC.

	By:

		John Hamerski, EVP – Chief Financial Officer

	AWWC NEW JERSEY HOLDINGS, INC.

	By:

		John Hamerski, EVP – Chief Financial Officer

	TELEMANAGEMENT SERVICES, INC.

	By:

		John Hamerski, EVP – Chief Financial Officer

	TLM HOLDINGS CORP.

	By:

		John Hamerski, EVP – Chief Financial Officer

LENDER:	CAPITALSOURCE FINANCE LLC

	By:

	Name:	Dean Graham

	Its:	Managing Director

ANNEX I

FINANCIAL COVENANTS

Minimum EBITDA

Borrower shall not permit its EBITDA for the Test Period to be less than the following amounts for the months indicated:

June 2003:	($	523,000	)
July 2003:	($	282,000	)
August 2003:	($	179,000	)
September 2003:	$	444,000
October 2003:	$	1,221,000
November 2003:	$	2,031,000
December 2003:	$	2,223,000
January 2004:	$	1,544,000
February 2004:	$	773,000
March 2004:	$	293,000
April 2004:	$	405,000
May 2004:	$	652,000
June 2004:	$	825,000
July 2004:	$	696,000
August 2004:	$	473,000
September 2004:	$	689,000
October 2004:	$	1,290,000
November 2004:	$	1,290,000
December 2004:	$	1,290,000
January 2005:	$	1,544,000
February 2005:	$	773,000
March 2005:	$	293,000
April 2005:	$	405,000
May 2005:	$	652,000
June 2005:	$	825,000
July 2005:	$	696,000
August 2005:	$	473,000
September 2005:	$	689,000
October 2005:	$	1,290,000
November 2005:	$	1,290,000
December 2005:	$	1,290,000
January 2006:	$	1,544,000
February 2006:	$	773,000
March 2006:	$	293,000
April 2006:	$	405,000
May 2006:	$	652,000
June 2006 and thereafter:	$	825,000

Fixed Coverage Ratio (EBITDA/Fixed Charges)

Borrower shall not permit its Fixed Charge Coverage Ratio for the Test Period to be less than the following amount for the months indicated:

June 2003:	(1.37	)
July 2003:	(0.70	)
August 2003:	(0.41	)
September 2003:	0.80
October 2003:	1.09
November 2003:	1.20
December 2003:	1.20
January 2004:	1.26
February 2004:	1.30
March 2004:	1.00
April 2004:	1.03
May 2004:	1.09
June 2004:	1.12
July 2004:	1.09
August 2004:	1.01
September 2004:	1.09
October 2004 and thereafter:	1.22

Cash Velocity

Collections of Borrower’s Accounts shall not be less than $3,750,000 for each calendar month during the Term; provided, that upon any violation of or failure to comply with this covenant Lender shall have the right, in its sole discretion, to consider for all purposes under the Agreement as though Borrower actually collected Accounts equal to such minimum required amount.

Minimum Liquidity and Working Capital

At Closing and at all other times Borrower shall have not less than $700,000 of Available Cash on hand which Lender shall create a reserve for under the Borrowing Base.

For purposes of the covenants set forth in this Annex I, the terms listed below shall have the following meanings:

“Available Cash” shall mean, for and on any date, the sum without duplication of the following for Borrower: (a) unrestricted cash on hand on such date, (b) Cash Equivalents held on such date, and (c) the unborrowed Availability on and as of such date.

“Cash Equivalents” shall mean (a) securities issued, or directly and fully guaranteed or insured, by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than six months from the date of acquisition, (b) U.S. dollar denominated time deposits, certificates of deposit and bankers’ acceptances of (i) any domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000, or (ii) any bank (or the parent company of such bank) whose short-term commercial paper rating from Standard & Poor’s Ratings Services (“S&P”) is at least A-2 or the equivalent thereof or from Moody’s Investors Service, Inc. (“Moody’s”) is at least P-2 or the equivalent thereof in each case with maturities of not more than six months from the date of acquisition (any bank meeting the qualifications specified in clauses (b)(i) or (ii), an “Approved Bank”), (c) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (a), above, entered into with any Approved Bank, (d) commercial paper issued by any Approved Bank or by the parent company of any Approved Bank and commercial paper issued by, or guaranteed by, any industrial or financial company with a short-term commercial paper rating of at least A-2 or the equivalent thereof by S&P or at least P-2 or the equivalent thereof by Moody’s, or guaranteed by any industrial company with a long term unsecured debt rating of at least A or A2, or the equivalent of each thereof, from S&P or Moody’s, as the case may be, and in each case maturing within six months after the date of acquisition and (e) investments in money market funds substantially all of whose assets are comprised of securities of the type described in clauses (a) through (d) above.

“EBITDA” shall mean, for any Test Period, the sum, without duplication, of the following for Borrower, on a consolidated basis: Net Income determined in accordance with GAAP, plus, (a) Interest Expense, (b) taxes on income, whether paid, payable or accrued, (c) depreciation expense, (d) amortization expense, (e) all other non-cash, non-recurring charges and expenses, excluding accruals for cash expenses made in the ordinary course of business, and (f) loss from any sale of assets, other than sales in the ordinary course of business, all of the foregoing determined in accordance with GAAP, minus (a) gains from any sale of assets, other than sales in the ordinary course of business and (b) other extraordinary or non-recurring gains.

“Fixed Charge Ratio” shall mean, for Borrower collectively on a consolidated basis, the ratio of (a) EBITDA for the Test Period, to (b) Fixed Charges for the Test Period.

“Fixed Charges” shall mean, the sum of the following: (a) Total Debt Service, (b) Capital Expenditures, (c) income taxes paid in cash or accrued, and (d) dividends paid or accrued or declared.

“Interest Expense” shall mean, for any Test Period, total interest expense (including attributable to Capital Leases in accordance with GAAP) fees with respect to all outstanding Indebtedness including capitalized interest but excluding commissions, discounts and other fees owed with respect to letters of credit and bankers’ acceptance financing and net costs under Interest Rate Agreements.

“Interest Rate Agreement” shall mean any interest rate swap, cap or collar agreement or other similar agreement or arrangement designed to hedge the position with respect to interest rates.

“Net Income” shall mean, the net income (or loss) determined in conformity with GAAP, provided that there shall be excluded (i) the income (or loss) of any Person in which any other Person (other than any Borrower) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to a Borrower by such Person, (ii) the income (or loss) of any Person accrued prior to the date it becomes a Borrower or is merged into or consolidated with a Borrower or that Person’s assets are acquired by a Borrower, (iii) the income of any Subsidiary of Borrower to the extent that the declaration or payment of dividends or similar distributions of that income by that Subsidiary is not at the time permitted by operation of the terms of the charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, (iv) compensation expense resulting from the issuance of capital stock, stock options or stock appreciation rights issued to former or current employees, including officers, of a Borrower, or the exercise of such options or rights, in each case to the extent the obligation (if any) associated therewith is not expected to be settled by the payment of cash by a Borrower or any affiliate thereof, and (v) compensation expense resulting from the repurchase of capital stock, options and rights described in clause (iv) of this definition of Net Income.

“Test Period” shall mean the three most recent calendar months then ended (taken as one accounting period), or such other period as specified in the Agreement or any Annex thereto.

“Total Debt” shall mean, at any date of determination, for Borrower individually and collectively on a consolidated and consolidating basis, the total Indebtedness on such date less cash and Cash Equivalents held on such date.

“Total Debt Service” shall mean the sum of (i) scheduled or other required payments of principal on Indebtedness, and (ii) Interest Expense, in each case for such period.

EX-31.1 4 dex311.htm CERTIFICATIONS CERTIFICATIONS

Exhibit 31.1

CERTIFICATION

I, Shawkat Raslan, certify that:

I have reviewed this report on Form 10-Q of Access Worldwide Communications, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15-d-l5 (e)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2003

Signature:

/s/ Shawkat Raslan

Shawkat Raslan, Chairman of the Board, President and

Chief Executive Officer (principal executive officer)

EX-31.2 5 dex312.htm CERTIFICATIONS CERTIFICATIONS

Exhibit 31.2

CERTIFICATION

I, John Hamerski, certify that:

I have reviewed this report on Form 10-Q of Access Worldwide Communications, Inc.;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2003

Signature:

/s/ John Hamerski

John Hamerski, Executive Vice President and

Chief Financial Officer (principal financial and accounting officer)

EX-32.1 6 dex321.htm CERTIFICATIONS CERTIFICATIONS

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Access Worldwide Communications, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Shawkat Raslan, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Shawkat Raslan

Shawkat Raslan

Chairman of the Board, President and Chief Executive Officer

(principal executive officer)

November 14, 2003

EX-32.2 7 dex322.htm CERTIFICATIONS CERTIFICATIONS

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Access Worldwide Communications, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2003 as filed with the Securities and Exchange Commission on the date here of (the “Report”), I, John Hamerski, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ John Hamerski

John Hamerski

Executive Vice President and Chief Financial Officer

(principal financial and accounting officer)

November 14, 2003

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