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, FTBbe6nvk16PYpM2FoseKMf4SU2gcxNKO1gKhywyB2WdPfLXLscM9Ltu8Mj5LYtK AkN1L3aawt9R43xQlyuNaw== 0001193125-05-168710.txt : 20050815 0001193125-05-168710.hdr.sgml : 20050815 20050815171211 ACCESSION NUMBER: 0001193125-05-168710 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050815 DATE AS OF CHANGE: 20050815 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: 051027855 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

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ending June 30, 2005

¨	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 Ave., Suite 300 Boca Raton, Florida		33431
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code (571) 438-6140

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 ¨ No x

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

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

The number of share outstanding of the registrant’s common stock, $.01 par value, as of August 5, 2005 was 12,096,219.

ACCESS WORLDWIDE COMMUNICATIONS, INC.

INDEX


		Page
Part I-Financial Information

Item 1.	Financial Statements	1

	Consolidated Balance Sheets – June 30, 2005 (unaudited) and December 31, 2004	1

	Consolidated Statements of Operations (unaudited) – Three and Six Months Ended June 30, 2005 and June 30, 2004	2

	Consolidated Statement of Changes in Common Stockholders’ Deficit (unaudited) – Six Months Ended June 30, 2005	3

	Consolidated Statements of Cash Flows (unaudited) – Six Months Ended June 30, 2005 and June 30, 2004	4

	Notes to Consolidated Financial Statements	5-11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12-18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18

Item 4.	Controls and Procedures	18

Part II-Other Information		18

Item 1.	Legal Proceedings	18

Item 4.	Submission of Matters to a Vote of Security Holders	18

Item 6.	Exhibits	18

	Signatures

	Certifications

PART I—FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

ACCESS WORLDWIDE COMMUNICATIONS, INC.

CONSOLIDATED BALANCE SHEETS


	June 30, 2005 (Unaudited)			December 31, 2004
ASSETS
Current assets:
Cash and cash equivalents	$	2,418,041		$	2,570,546
Restricted cash		123,000			122,000
Accounts receivable, net of allowance for doubtful accounts of $86,795 and $776,066, respectively		8,937,296			7,567,448
Unbilled receivables		1,569,353			398,547
Other assets, net		770,492			1,001,671

Total current assets		13,818,182			11,660,212
Property and equipment, net		3,676,761			3,614,322
Restricted cash		466,000			589,000
Other assets, net		901,030			146,177

Total assets	$	18,861,973		$	16,009,711

LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND COMMON STOCKHOLDERS’ DEFICIT
Current liabilities:
Current portion of indebtedness	$	6,101,863		$	2,955,450
Current portion of indebtedness - related parties		352,334			352,334
Accounts payable		1,518,635			739,438
Accrued expenses		2,513,406			3,022,695
Grants payable		80,000			2,257,000
Accrued salaries, wages and related benefits		875,348			1,204,301
Deferred revenue		4,377,485			2,981,859
Accrued interest and other related party expenses		100,682			12,673

Total current liabilities		15,919,753			13,525,750
Long-term portion of indebtedness		143,494			135,008
Other long-term liabilities		879,975			786,386
Convertible Notes, net		1,783,712			1,427,685
Mandatorily redeemable preferred stock, $.01 par value: 2,000,000 shares authorized, 40,000 shares issued and outstanding		4,000,000			4,000,000

Total liabilities		22,726,934			19,874,829

Commitments and contingencies (Note 5)
Common stockholders’ deficit:
Common stock, $.01 par value: voting: 20,000,000 shares authorized; 12,096,219 and 10,841,719 shares issued and outstanding, respectfully		120,962			108,417
Additional paid-in capital		67,472,916			66,228,271
Accumulated deficit		(71,442,339	)		(70,182,006	)
Deferred compensation		(16,500	)		(19,800	)

Total common stockholders’ deficit		(3,864,961	)		(3,865,118	)

Total liabilities, mandatorily redeemable preferred stock and common stockholders’ deficit	$	18,861,973		$	16,009,711

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

ACCESS WORLDWIDE COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Revenues	$	9,535,225		$	13,960,350		$	19,886,019		$	26,941,212
Cost of revenues		5,593,618			7,645,882			11,103,091			15,669,831

Gross profit		3,941,607			6,314,468			8,782,928			11,271,381
Selling, general and administrative expenses		4,192,145			5,550,954			9,214,489			10,441,048

(Loss) income from operations		(250,538	)		763,514			(431,561	)		830,333
Interest income		6,609			4,148			13,111			6,766
Interest expense—related parties		(22,112	)		(21,572	)		(45,875	)		(43,916	)
Interest expense		(424,411	)		(316,833	)		(796,008	)		(639,133	)

Net (loss) income	$	(690,452	)	$	429,257		$	(1,260,333	)	$	154,050

Basic (loss) income per share of common stock	$	(0.06	)	$	0.04		$	(0.11	)	$	0.02

Weighted average common shares outstanding		11,286,219			9,839,312			11,064,969			9,789,907

Diluted (loss) income per share of common stock	$	(0.06	)	$	0.04		$	(0.11	)	$	0.01

Weighted average common shares outstanding		11,286,219			11,392,684			11,064,969			11,264,974

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

ACCESS WORLDWIDE COMMUNICATIONS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS’ DEFICIT

(UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2005


	Common Stock			Additional Paid-in Capital		Accumulated Deficit			Deferred Compensation			Total
	Shares	Amount
Balance, December 31, 2004	10,841,719	$	108,417	$	66,228,271	$	(70,182,006	)	$	(19,800	)	$	(3,865,118	)
Amortization of deferred compensation	—		—		—		—			3,300			3,300
Common stock options exercised	69,500		695		6,675		—			—			7,370
Common stock issued to pay accrued bonus	185,000		1,850		216,470		—			—			218,320
Common stock options granted for services	—		—		31,500		—			—			31,500
Common stock issued in private placement	1,000,000		10,000		990,000		—			—			1,000,000
Net loss	—		—		—		(1,260,333	)		—			(1,260,333	)

Balance, June 30, 2005	12,096,219	$	120,962	$	67,472,916	$	(71,442,339	)	$	(16,500	)	$	(3,864,961	)

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

ACCESS WORLDWIDE COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30,


	2005			2004
Cash flows from operating activities:
Net (loss) income	$	(1,260,333	)	$	154,050
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation		641,611			734,688
Amortization of deferred financing costs		41,504			88,638
Amortization of non-cash stock compensation		6,800			3,300
Accretion of discount on Convertible Notes		356,027			188,066
(Recovery) provision for doubtful accounts		(266,801	)		19,643
Changes in operating assets and liabilities:
Accounts receivable		(1,103,045	)		(319,127	)
Unbilled receivables		(1,170,806	)		109,325
Taxes receivable		—			629,687
Other assets		(537,177	)		(158,723	)
Accounts payable, grants payable and accrued expenses		(1,813,504	)		225,520
Accrued salaries, wages and related benefits		(110,633	)		763,749
Accrued interest and related party expenses		88,009			53,760
Deferred revenue		1,395,626			868,703

Net cash (used in) provided by operating activities		(3,732,722	)		3,361,279

Cash flows from investing activities:
Additions to property and equipment		(704,053	)		(761,339	)
Decrease in restricted cash		122,000			123,000

Net cash used in investing activities		(582,053	)		(638,339	)

Cash flows from financing activities:
Borrowings (payments) under capital leases		9,149			(108,050	)
Proceeds from issuance of common stock		1,000,000			6,687
Proceeds from exercise of common stock options		7,370			—
Net borrowings under Debt Agreement		3,063,483			2,012,773
Proceeds from insurance financing, net		82,268			8,392
Payment of related party debt		—			(31,000	)

Net cash provided by financing activities		4,162,270			1,888,802

Net (decrease) increase in cash and cash equivalents		(152,505	)		4,611,742
Cash and cash equivalents, beginning of period		2,570,546			472,722

Cash and cash equivalents, end of period	$	2,418,041		$	5,084,464

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

ACCESS WORLDWIDE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

We provide a variety of sales, education and communication programs to clients in the medical, pharmaceutical, telecommunications, financial services, insurance and consumer products industries through our operating subsidiaries in two business segments – Pharmaceutical Services and Business Services. Please refer to Note 12 regarding our business segments.

In our opinion, these financial statements reflect all normal, recurring adjustments necessary to provide a fair presentation of our financial position, results of operations and cash flows for the periods presented. These interim financial statements are condensed, and thus, do not include all of the information and footnotes required by United States generally accepted accounting principles (“GAAP”) for presentation of a complete set of financial statements. The balance sheet as of December 31, 2004 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for a complete set of financial statements.

These interim results are not necessarily indicative of the results that should be expected for the full year. For a better understanding of Access Worldwide Communications, Inc. and our financial statements, the condensed interim financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2004, which are included in our 2004 Annual Report on Form 10-K, filed on March 31, 2005.

2. RECLASSIFICATIONS

Certain amounts have been reclassified in our prior year consolidated financial statements to conform them to the presentation used in the current year. Such reclassifications did not change our net loss or total common stockholders’ deficit as previously reported.

3. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2005, FASB issued Statement No. 154, Accounting Changes and Error Corrections (“SFAS 154”). SFAS 154 replaces APB No. 20, Accounting Changes, and SFAS 3, Reporting Accounting Changes in Interim Financial Statements, and establishes retrospective application as the required method for reporting a change in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 applies to all voluntary changes in accounting principles and to changes required by an accounting pronouncement in the instance that the pronouncement does not include specific transition provisions. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We do not anticipate that the adoption of SFAS 154 will have a material impact on our consolidated financial position or results of operations.

In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (“FIN 47”). This Interpretation clarifies that conditional asset retirement obligations meet the definition of a liability and should be recognized when incurred if the fair value can be reasonably estimated. FIN 47 also provides guidance as to when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective for fiscal years ending after December 15, 2005. We do not expect the adoption of FIN 47 to have a material impact on our consolidated financial position or results of operations.

In December 2004, the FASB issued Statement No. 153, Exchange of Non-monetary Assets an Amendment of APB Opinion No. 29 (“SFAS No. 153”). This Statement amends APB Opinion No. 29, Accounting for Non-monetary Transactions, to eliminate the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. Under this Statement, a non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 will become effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. We do not expect the adoption of SFAS No. 153 to have a material impact on our consolidated financial position or results of operations.

In December 2004, the FASB issued Statement No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123R”). This statement is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”), and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”), and its related implementation

ACCESS WORLDWIDE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

guidance. Under SFAS No. 123R, entities are required to recognize the cost of an equity award based on its fair value at the date of grant. The cost, which is calculated in a similar manner to the pro forma calculation shown in Note 6, is recognized over the attribution period, which is the expected period of benefit. SFAS No. 123R is effective for fiscal periods beginning on or after June 15, 2005. SFAS No. 123R allows a company to choose among three different methods of adoption, which range from full restatement of prior period results to prospective application beginning in the period of adoption. We are currently in the process of assessing the impact on our consolidated financial position and results of operations of alternative fair value methodologies and alternative methods of adoption. In April 2005, the Securities and Exchange Commission (“SEC”) amended its Regulation S-X to amend the date of compliance with SFAS No. 123R to the first reporting period of the fiscal year beginning on or after June 15, 2005. We anticipate adopting SFAS No. 123R on January 1, 2006.

In December 2004, the FASB issued FASB Staff Position No. FAS 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act (the “Jobs Act”) of 2004 (“FSP No. 109-2”). FSP No. 109-2 provides accounting and disclosure guidance for a special one-time dividends received deduction allowed on the repatriation of certain foreign earnings to a U.S. taxpayer, provided certain criteria are met. This guidance could become effective for us once operations begin at our Philippines location, which is now expected to be by the end of the third quarter or the beginning of the fourth quarter of 2005. In addition, various provisions under the Internal Revenue Code have created situations that result in “deemed” dividends. We have not completed our evaluation of the potential benefits of these deductions under the Jobs Act. We anticipate completing our study in the third quarter of 2005. The law requires that we distribute the “deemed” dividends before any dividends are eligible for the tax deduction. We do not expect the impact to be material to our consolidated financial position or results of operations.

4. RESTRICTED CASH

We obtained a letter of credit (“Letter of Credit”) in the amount of $834,000 to replace the letter of credit issued to the landlord of our Maryland communication center in 2001. The Letter of Credit was collateralized by a certificate of deposit in the same amount. Therefore, such certificate of deposit is classified as restricted cash in the accompanying balance sheets at June 30, 2005 and December 31, 2004.

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 2006	$	466,000
May 2007	$	343,000
May 2008 through 2010	$	221,000

5. COMMITMENTS AND CONTINGENCIES

Employment Agreements

In connection with certain acquisitions and in the normal course of business, we entered into employment agreements with our management employees, which expire at various times through 2007, certain of whom are our stockholders. The employment agreements have terms up to five years and require annual base salary payments of $1,779,000 and bonus amounts of up to $549,000 per year, excluding $47,000 accrued severance payable to a former employee.

Litigation

We and our subsidiaries are parties to legal proceedings that we believe to be either ordinary, routine litigation incidental to the business of present and former operations or immaterial to our consolidated financial condition, results of operations or cash flows.

ACCESS WORLDWIDE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Certain of our subsidiaries are defendants or plaintiffs in lawsuits that have arisen in the normal course of business. While certain of these matters involve substantial amounts, it is management’s opinion, based on the advice of counsel, that the ultimate resolution of such litigation will not have a material adverse effect on our financial condition, results of operations or cash flows, with the exception of the following:

On September 10, 2004, Ivelisse Lamboy (the “Plaintiff”), a former employee with our AM Medica division, filed suit against us in the Supreme Court of New York, County of Bronx for wrongful termination and breach of an employment agreement. The Plaintiff seeks $0.5 million in damages which she claims is equal to 10 years of employment. We assert these claims are not valid and intend to vigorously defend any action related to these claims. The Company has filed for summary judgment and a stay of pretrial discovery until the court rules on the Summary Judgment. The Company is presently awaiting a decision from the court regarding the summary judgment. We believe the claims asserted have no legal basis; however, we cannot provide assurance as to the outcome of the litigation.

Settled Litigation

On July 18, 2003, we filed suit against MTI Information Technologies, LLC (“MTI”) in Broward County, Florida. The lawsuit was seeking enforcement of a pharmaceutical telemarketing service contract (the “Contract”) with MTI for services rendered. Services were terminated after payments due from MTI became severely delinquent. The lawsuit alleged that MTI breached its Contract with the Company by not paying for services rendered. The lawsuit was seeking payment for work performed of approximately $0.6 million. On July 21, 2003, MTI filed a counter suit against us in Bucks County, Pennsylvania for breach of contract and tortuous interference for our failure to complete telemarketing campaigns. The two cases were subsequently combined in the Circuit Court of the 17^th Judicial Circuit in Broward County, FL 03-12385. In May of 2005 the case settled out of court. The Company received the court’s final order of dismissal May 21, 2005, and as of that date the case was officially closed, resulting in a recovery of approximately $363,000 to the Company.

6. STOCK-BASED COMPENSATION

We apply APB No. 25, Accounting for Stock Issued to Employees, and related Interpretations in accounting for our stock-based compensation plans. Thus, we use the intrinsic value method to determine the compensation cost for our stock-based awards. We do not recognize compensation expense in connection with granting stock options to employees as the strike price of the option at the time of grant generally equals the fair market value of our stock at such time. Options granted under our stock-based compensation plan to non-employees are accounted for based on fair value accounting rules.

No compensation cost was recognized for options granted under our stock-based compensation plan except for a grant of 150,000 stock options to an executive of the Company with a strike price of $0.50 per share on January 2, 2003. We recorded unearned stock compensation for the intrinsic value of the award ($33,000) in connection with the grant. Such amount, which is shown as a reduction of stockholders’ equity, is being amortized as compensation expense over the related vesting period.

Had compensation cost for awards under our stock-based compensation plans been determined using the fair value method prescribed by SFAS No. 123, our net earnings and earnings per share would have been reduced to the pro forma amounts presented below:


	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Net (loss) income, as reported	$	(690,452	)	$	429,257		$	(1,260,333	)	$	154,050
Add: Stock-based employee compensation expense included in reported net (loss) income, net of related tax effect		1,650			1,650			3,300			3,300
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effect		(38,243	)		(43,687	)		(71,803	)		(85,095	)

Pro forma net (loss) income		(727,045	)		387,220			(1,328,836	)		72,255

(Loss) earnings per share:
Basic – as reported	$	(0.06	)	$	0.04		$	(0.11	)	$	0.02

Basic – pro forma	$	(0.06	)	$	0.04		$	(0.12	)	$	0.01

Diluted – as reported	$	(0.06	)	$	0.04		$	(0.11	)	$	0.01

Diluted – pro forma	$	(0.06	)	$	0.03		$	(0.12	)	$	0.01

ACCESS WORLDWIDE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

These pro forma results are not necessarily indicative of results that may be expected in future periods since additional options may be granted and the estimated fair value of the stock options is assumed to be amortized to expense over the expected option lives.

The pro forma information above was determined using the Black-Scholes option-pricing model based on the following assumptions:

- expected volatility rates of 109% for 2005 and 111% for 2004;

- risk-free interest rates of 4.18% for 2005 and 2.80% for 2004;

- expected option lives of 5 years for both years; and

- expected dividend yield of 0% for both years.

In accordance with EITF No. 00-23, Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25, Accounting for Stock Issued to Employees (“EITF 00-23”), and FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, when an employee terminates from a company but continues to provide services as a consultant, the award is remeasured under either the fair value or intrinsic value method and accounted for prospectively. We did not record any compensation expense in the first or second quarter of 2005 associated with non-employee options.

7. LOSS PER COMMON SHARE

The information required to compute net (loss) income per basic and diluted share is as follows:


2005:	For the Three Months Ended June 30,	For the Six Months Ended June 30,
Weighted average number of common shares outstanding – basic	11,286,219	11,064,969

Weighted average number of common and common equivalent shares outstanding – dilutive*	11,286,219	11,064,969


2004:	For the Three Months Ended June 30,	For the Six Months Ended June 30,
Weighted average number of common shares outstanding – basic	9,839,312	9,789,907

Potential shares exercisable under stock option plans	514,662	437,276

Potential shares upon exercise of Warrants	1,038,710	1,037,791

Weighted average number of common and common equivalent shares outstanding – dilutive*	11,392,684	11,264,974

Since the effects of the stock options, warrants, and Convertible Notes are anti-dilutive for the three and six months ended June 30, 2005, and the effects of Convertible Notes are anti-dilutive for the three and six months ended June 30, 2004, these effects have not been included in the calculation of dilutive earnings per share.

ACCESS WORLDWIDE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

8. INDEBTEDNESS

Our borrowings consist of the following:


	June 30, 2005			December 31, 2004
Revolving Credit, Term Loan and Security Agreement (collectively the “Debt Agreement”)	$	5,894,016		$	2,830,533
6% subordinated promissory note due to former stockholder of TeleManagement Services (“TMS”); interest at default rate of 10% per year. Principal and interest payments restricted per subordination agreement to the Debt Agreement		352,334			352,334
Deferred Financing		90,660			8,392
Capital leases payable in monthly installments through May 2010		260,681			251,533

		6,597,691			3,442,792
Less: current portion		(6,454,197	)		(3,307,784	)

	$	143,494		$	135,008

We paid approximately $312,000 of interest on our borrowings in the first half of 2005. Additional information regarding our long-term debt structure can be found in our 2004 Annual Report on Form 10-K, filed on March 31, 2005.

On June 10, 2005, we notified our senior lender, Capital Source, that we were in default of our financial covenants contained in our Debt Agreement, as of April 30, 2005, due to the longer than expected lead time to replace the revenues previously generated by one of our main telecommunications clients. On August 12, 2005, we entered into the Fourth Amendment (“Fourth Amendment”) to our Debt Agreement dated June 10, 2003 that modified among other things, the Minimum EBITDA and the Fixed Coverage Ratio, as defined. The Fourth Amendment also requires the Company to raise a minimum of $967,000 of net aggregate proceeds from the sale of equity capital, which is required to be maintained in a deposit account with Merrill Lynch. See Note 13 regarding the status of the private placement. The account will be pledged as collateral under the Debt Agreement and will be subject to an Account Control Agreement between the Company, Capital Source, and Merrill Lynch with withdrawals restricted to the following, unless approved in writing by Capital Source:


September 1, 2005	$	213,000
October 1, 2005		203,000
November 1, 2005		180,000
December 1, 2005		180,000
January 1, 2005		191,000

	$	967,000

As of June 30, 2005, as a result of the Fourth Amendment, we were in compliance with our financial covenants contained in our Debt Agreement.

9. CONVERTIBLE NOTES

At June 30, 2005 and December 31, 2004, the balance of our debt discounts associated with our $3.25 million Convertible Notes is approximately $1.47 million and $1.82 million, respectively. We accreted approximately $356,000 of the debt discount as interest expense during the first half of 2005. Additional information regarding our Convertible Notes can be found in our 2004 Annual Report on Form 10-K, filed on March 31, 2005.

10. PRIVATE PLACEMENT OF COMMON STOCK

On March 4, 2005, we sold subscriptions to accredited investors to purchase 1,000,000 shares of the Company’s common stock at a price per share of $1.00, for an aggregate purchase price of approximately $1.0 million. The sale of these shares was exempt from registration under the Securities Act of 1933 as a private offering to Accredited Investors under Section 4(2) of the Securities Act and Rule 506 of Regulation D. Of the 1,000,000 shares subscribed, 150,000 shares were purchased by a member of the Company’s Board of Directors, and 42,500 shares of the 1,000,000 shares were issued to the Board member or a company affiliated with the Board member on behalf of the other participants as a broker fee. The shares were issued on June 13, 2005.

ACCESS WORLDWIDE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

11. INCOME TAXES

The effective tax rate used by us for the six month periods ended June 30, 2005 and 2004 differs from the federal statutory rate primarily due to the valuation allowance recorded in connection with the Company’s deferred tax assets.

12. 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.

We currently operate as two reportable business segments, consisting of the Pharmaceuticals Services segment and the Business Services segment. The Pharmaceutical Services segment, which consists of our medical education business, Access Medica Group (“AMG”), formerly AM Medica Communications Group (“AM Medica”), and our pharmaceutical communication business, TMS Professional Markets Group (“TMS”), provides medical education, medical publishing, product detailing, physician and pharmacist profiling, patient education, disease management, pharmacy stocking, and clinical trial recruitment to the pharmaceutical and medical industries. The Business Services segment, which consists of our multilingual communication business, TelAc Teleservices Group (“TelAc”), provides telemarketing services including inbound and outbound programs to clients in the telecommunications, financial services, legal services, insurance, and consumer products industries.

The following is a summary of the significant accounts and balances by segment, reconciled to the consolidated totals, for the three and six months ended June 30, 2005 and 2004.


		Pharmaceutical		Business			Segment Total		Reconciliation			Total
Revenues
Three months ended	2005	$	6,247,995	$	3,287,230		$	9,535,225	$	—		$	9,535,225
	2004		7,390,480		6,569,870			13,960,350		—			13,960,350
Six months ended	2005		13,032,084		6,853,935			19,886,019		—			19,886,019
	2004		13,608,767		13,332,445			26,941,212		—			26,941,212
Gross profit
Three months ended	2005		2,887,613		1,053,994			3,941,607		—			3,941,607
	2004		3,697,884		2,616,584			6,314,468		—			6,314,468
Six months ended	2005		6,356,424		2,426,504			8,782,928		—			8,782,928
	2004		6,234,465		5,036,916			11,271,381		—			11,271,381
Operating (loss) income
Three months ended	2005		1,821,826		(591,647	)		1,230,179		(1,480,717	)		(250,538	)
	2004		1,402,755		465,248			1,868,003		(1,104,489	)		763,514
Six months ended	2005		2,444,216		(1,493,315	)		950,901		(1,382,462	)		(431,561	)
	2004		2,121,727		587,920			2,709,647		(1,879,314	)		830,333
EBITDA (1)
Three months ended	2005		1,948,760		(405,041	)		1,543,719		(1,475,629	)		68,090
	2004		1,525,114		688,285			2,213,399		(1,073,185	)		1,140,214
Six months ended	2005		2,712,053		(1,128,811	)		1,583,242		(1,373,192	)		210,050
	2004		2,348,762		1,033,127			3,381,889		(1,816,868	)		1,565,021
Depreciation expense
Three months ended	2005		126,934		186,606			313,540		5,088			318,628
	2004		122,359		223,037			345,396		31,304			376,700
Six months ended	2005		267,837		364,504			632,341		9,270			641,611
	2004		227,035		445,207			672,242		62,446			734,688

ACCESS WORLDWIDE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(1)

EBITDA is calculated by taking (loss) income from operations, which is before interest and taxes, 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.

13. SUBSEQUENT EVENT

As of August 12, 2005 we have received approximately $2.25 million in cash for, and are in the process of closing, a private placement for approximately $2.25 million of Convertible Notes (the “Notes”) and Warrants (“Convertible Notes III”) to Accredited Investors; as such term is defined in the Securities and Exchange Act of 1933, as amended. The Notes will be convertible at a ratio of 2 shares of common stock for $1.00 invested. The Notes will automatically convert upon the Conversion Event, which is defined as that date upon which the majority of our stockholders, pursuant to Delaware General Corporations Law, vote to amend the Amended and Restated Certificate of Incorporation of the Company, to increase the authorized shares of the Company’s Common Stock from 20 million to not less than 35 million. Should the Conversion Event not occur, the purchase price of the Convertible Notes III, and a 20% non-conversion fee, will be due and payable by the Company on the earlier of thirty six (36) months from the issuance date, or a Change of Control (as defined), upon written consent of the Company’s Senior Lender, CapitalSource. In the event of non payment upon the Maturity Date, the purchase price and 20% non-conversion fee will immediately bear interest at a rate of 15% annually, payable quarterly in arrears, provided that the Company is in compliance with its loan covenants under its Debt Agreement with CapitalSource, and that such payments will not cause the Company to violate such covenants. The proceeds of the private placement will be used to fund working capital and operations.

Each note holder will receive a warrant to purchase 2 shares of the Company’s common stock for each $1.00 invested in the Convertible Notes III. The warrants will have an exercise price of $0.75 per share, a term of ten years, and will be exercisable commencing upon the vesting date, which is defined as the completion of both (i) the date upon which the holder of the warrant pays the purchase price for the Notes, and (ii) the date of the Conversion Event.

ITEM 2.

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

Disclosure Concerning Forward-Looking Statements

In December 1995, the Private Securities Litigation Reform Act of 1995 (the “Reform Act”) was enacted by the United States Congress. The Reform Act, as amended, contains certain amendments to the Securities Act of 1933 and the Securities Exchange Act of 1934. These amendments provide protection from liability in private lawsuits for “forward-looking” statements made by public companies. We choose to take advantage of the “safe harbor” provisions of the Reform Act.

This Quarterly Report on Form 10-Q contains both historical information and other information. While we have specifically identified certain information as being forward-looking in the context of its presentation, we caution the reader that, with the exception of information that is clearly historical, all the information contained in this Quarterly Report on Form 10-Q should be considered to be “forward-looking statements” as referred to in the Reform Act. Without limitation, when we use the words “believe,” “estimate,” “plan,” “expect,” “intend,” “anticipate,” “continue,” “project,” “probably,” “should,” “will” and similar expressions, we intend to clearly express that the information deals with possible future events and is forward-looking in nature.

Forward-looking information involves risks and uncertainties. This information is based on various factors and assumptions about future events that may or may not actually come true. As a result, our operations and financial results in the future could differ substantially from those we have discussed in the forward-looking statements in this Quarterly Report and other documents that have been filed or furnished with the Securities and Exchange Commission. In particular, various economic and competitive factors, including those outside our control, such as the following, could cause our actual results during the remainder of fiscal 2005 and in future years to differ materially from those expressed in any forward-looking statement made in this Quarterly Report on Form 10-Q:

•

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

•

Our ability to successfully operate at capacity our newly opened communication center in the Philippines;

•

Unfavorable foreign currency exchange rates;

•

The unpredictability of the outcome of the litigation in which we are involved;

•

Risks associated with our Debt Agreement, including rising interest rates;

•

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

•

Industry consolidation which reduces the number of clients that we are able to serve;

•

Potential consumer saturation reducing the need for services;

•

Certain needs for our growth;

•

Our dependence on the continuation of the trend toward outsourcing;

•

Dependence on the industries we serve;

•

The effect of changes in a drug’s life cycle;

•

Our ability and our clients’ ability to comply with state, federal and industry regulations;

•

Reliance on a limited number of major clients;

•

The effects of possible contract cancellations;

•

Reliance on technology;

•

Reliance on key personnel and labor force and recent changes in management;

•

The possible impact of terrorist activity or attacks, war and other international conflicts, and a downturn in the US economy;

•

The effects of an interruption of our business;

•

The volatility of our stock price; and

•

Risks associated with our stock trading on the OTC Bulletin Board.

In addition, under the heading “Critical Accounting Policies” in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K, we describe various estimates and assumptions that we make that affect the reported amounts of assets, liabilities, sales and expenses as well as the disclosure of contingent assets and liabilities. Future revisions to these estimates and assumptions may cause these amounts, when reported, to differ materially from those expressed in any forward-looking statement made in this Quarterly Report on Form 10-Q. All subsequent written and oral forward-looking statements attributable to Access Worldwide Communications, Inc. and our subsidiaries are expressly qualified in their entirety by the foregoing factors.

Results of Operations

Overview

Access Worldwide Communications, Inc. (“we” or the “Company”) is an outsourced marketing services company that provides a variety of sales, education and communication programs to clients in the medical, pharmaceutical, telecommunications, financial services, insurance and consumer products industries. We provide services through the following two business segments:

•

Pharmaceutical Services Segment, which consists of our medical education business, Access Medica Group (“AMG”), and our pharmaceutical communication business, TMS Professional Markets Group (“TMS”), provides medical education, medical publishing, product detailing, physician and pharmacist profiling, patient education, disease management, pharmacy stocking, and clinical trial recruitment to the pharmaceutical and medical industries.

•

Business Services Segment, which consists of our multilingual communication business, TelAc Teleservices Group (“TelAc”), provides telemarketing services including inbound and outbound programs to clients in the telecommunications, financial services, legal services, insurance and consumer products industries.

In March of 2005, we entered into a lease agreement for space to establish a 350 seat communications center based in Manila, Philippines, which will provide us with an off-shore presence. This location is a part of our Business Services segment and became operational during the second quarter of 2005. We are expected to begin generating revenues out of this communications center toward the end of the third quarter or beginning of the fourth quarter of 2005.

The health of the pharmaceutical marketing and medical education industry is driven by the well-being of pharmaceutical drug manufacturers. These companies are continually impacted by developments in science and technology, the Food & Drug Administration (“FDA”), and organizational changes, most notably, substantial mergers between leading manufacturers.

Both the industry and manufacturers are also being influenced by the growing role of patients in the selection and usage of their medications. More people are walking into their doctors’ offices requesting a specific drug driven by information they gathered from Direct-to-Consumer (“DTC”) advertising such as television commercials or magazine advertisements. DTC ads can inform sufferers and their caregivers about available or new treatments, side effects and risks. They can also serve as a reminder to take or refill medications. As a result, the DTC industry has grown significantly and greater marketing programs directed to consumers are being developed.

As in the pharmaceutical marketing and medical education arena, the Business Services industry is large and has been impacted by government regulation and trade association guidelines.

The size of the industry has attracted a large number of teleservices companies, resulting in an extremely fragmented industry with hundreds of companies offering communication center management, customer service, consulting, lead generation, fulfillment or database management services. In addition to U.S. companies, we also compete with international

firms that have centers located overseas. While there are certain clients that prefer centers located in the United States that use multicultural residents to provide multilingual teleservices, which we provide, there are other clients looking for the cost savings associated with overseas involvement. As a result of this off-shore demand, we have established a presence overseas by opening a communication center in Manila, Philippines during the second quarter of 2005.

With the growth of the industry has come the proposal and passage of new teleservices legislation, in particular, a national do-not-call list and the regulation of predictive dialers. The national do-not-call list enables consumers to add their telephone number to a national registry of people who have indicated they are not interested in receiving telephone solicitations. Telemarketers are required to access the registry every quarter and may be fined $11,000 per violation. However, teleservices providers are allowed to contact consumers with whom they have an established business relationship for up to 18 months after the consumer’s last purchase, delivery or payment, even if the consumer’s telephone number is on the national do-not-call registry.

Overall

The following is a tabular presentation of our revenue, gross profit and SG&A by operating segment for the three and six months ended June 30, 2005 and 2004.


(in millions)	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
Revenue
Pharmaceutical Segment	$	6.2	$	7.4	$	13.0	$	13.6
Business Services Segment		3.3		6.6		6.9		13.3

Total Revenue	$	9.5	$	14.0	$	19.9	$	26.9

Gross Profit
Pharmaceutical Segment	$	2.9	$	3.7	$	6.4	$	6.2
Business Services Segment		1.0		2.6		2.4		5.1

Total Gross Profit	$	3.9	$	6.3	$	8.8	$	11.3

SG&A
Pharmaceutical Segment	$	1.6	$	2.3	$	3.9	$	4.1
Business Services Segment		2.0		2.2		3.9		4.4
Other		0.6		1.1		1.4		1.9

Total SG&A	$	4.2	$	5.6	$	9.2	$	10.4

Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004

Pharmaceutical Services

Revenues for the Pharmaceutical Services (“Pharmaceutical”) Segment decreased 16.2% in the three months ended June 30, 2005 compared to the three months ended June 30, 2004. The decrease was primarily attributed to the launch of a major DTC program for one of our clients in 2004 with no similar launch in 2005.

Gross profit as a percentage of revenues for the Pharmaceutical Segment for the three months ended June 30, 2005 decreased to 46.8%, compared to 50.0% for the three months ended June 30, 2004. The decrease was primarily attributed to a change in the mix of programs performed by our medical education division.

Selling, general and administrative expenses as a percentage of revenues for the Pharmaceutical Segment decreased to 25.8% for the three months ended June 30, 2005, compared to 31.1% for the three months ended June 30, 2004. The decrease was primarily attributed to the favorable settlement of our litigation against MTI for $363,000 and a net recovery from an insurance claim for flood damages at our Florida location of $215,000.

Business Services

Revenues for the Business Services (“Business”) Segment decreased 50% for the three months ended June 30, 2005 compared to the three months ended June 30, 2004. The decrease was primarily attributed to the lengthy lead time necessary for our two new business development professionals to replace the revenue lost from a prior client due to regulatory changes. We are beginning to experience an increase in new business development activity from each of these individuals.

Gross profit as a percentage of revenues for the Business Segment decreased to 30.3% for the three months ended June 30, 2005, from 39.4% for the three months ended June 30, 2004. The decrease was primarily attributed to the significant decrease in revenue.

Selling, general and administrative expenses as a percentage of revenues for the Business Segment increased 27.3% for the three months ended June 30, 2005 compared to the three months ended June 30, 2004. The increase was primarily attributed to our Maryland communication center ceasing revenue and profit generating operations, while we continue to incur overhead expenses such as rent, utilities and depreciation of fixed assets. Management continues their effort to closely manage costs without severely impacting business needs and operating efficiencies.

Interest Expense

Our net interest expense increased slightly to $0.4 million for the three months ended June 30, 2005, compared to $0.3 million for the three months ended June 30, 2004, due primarily to the accretion of the discount on Convertible Notes, along with the increase in the loan balance under the Debt Agreement.

Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004

Pharmaceutical Services

Revenues for the Pharmaceutical Segment decreased 4.4% in the six months ended June 30, 2005, compared to the six months ended June 30, 2004. The decrease was primarily attributed to a reduction of $0.6 million in our medical education revenues.

Gross profit as a percentage of revenues for the Pharmaceutical Segment for the six months ended June 30, 2005 increased to 49.2%, compared to 45.6% for the six months ended June 30, 2004. The increase was primarily attributed to an increase in productivity on our pharmacy and physician programs offset by a change in the mix of programs performed by our medical education division.

Selling, general and administrative expenses as a percentage of revenues for the Pharmaceutical Segment did not change significantly for the six months ended June 30, 2005, compared to the six months ended June 30, 2004.

Business Services

Revenues for the Business Segment decreased 48.1% in the six months ended June 30, 2005, compared to the six months ended June 30, 2004. The decrease was primarily attributed to the lead time necessary for our two new business development professionals to replace the revenue lost from a prior client due to regulatory changes. We are beginning to experience an increase in new business development activity from each of these individuals.

Gross profit as a percentage of revenues for the Business Segment decreased to 34.8% for the six months ended June 30, 2005, from 38.3% for the six months ended June 30, 2004. The decrease was primarily attributed to the significant decrease in revenue.

Selling, general and administrative expenses as a percentage of revenues for the Business Segment increased 23.4% for the six months ended June 30, 2005, compared to the six months ended June 30, 2004. The increase was primarily attributed to the fact that our Maryland communication center ceased revenue and profit generating operations, while we continue to incur overhead expenses such as rent, utilities and depreciation of fixed assets. Management continues their effort to closely manage costs without severely impacting business needs and operating efficiencies.

Interest Expense

Our net interest expense increased slightly to $0.8 million for the six months ended June 30, 2005, compared to $0.7 million for the six months ended June 30, 2004 due primarily to the accretion of the discount on Convertible Notes, along with the increase in the loan balance under the Debt Agreement.

Liquidity and Capital Resources

At June 30, 2005 and December 31, 2004, we had a working capital deficit of approximately $2.1 million and $1.8 million, respectively. Cash and cash equivalents were $2.4 million at June 30, 2005, compared to $2.6 million at December 31, 2004.

Net cash used in operating activities during the first half of 2005 was $3.7 million, compared to net cash provided by operating activities during the first half of 2004 of $3.4 million. The net decrease was primarily due to an increase in unbilled receivables of $1.3 million and a decrease in grants payable of $2.2 million. These changes were primarily the result of delays in reconciling completed projects and in collection of accounts receivable from our clients, coupled with less grant payments to be made to recipients on behalf of our clients.

Net cash used in investing activities did not change significantly during the first half of 2005 compared to the first half of 2004.

Net cash provided by financing activities was $4.2 million for the first half of 2005, compared $1.9 million for the first half of 2004. The change was primarily due to an increase in net borrowing under the Debt Agreement of $3.1 million, as well as an increase due to proceeds from a private placement of $1.0 million. The increased borrowing was primarily a result of the delays being experienced in reconciling completed projects, collections of accounts receivables, and increased working capital needs due to decreases in revenues.

On July 15, 2003, we sold $2.1 million of our 5% Convertible Promissory Notes and Warrants (“Convertible Notes I”). The securities were offered and sold pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, (the “Act”) and Rule 506 of Regulation D as promulgated under the Act. The securities were sold only to Accredited Investors, as defined under Regulation D, including Company officers and directors. The Convertible Notes I 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 beginning one year from issuance date 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 issuance date through 10 years from the vesting date. Proceeds from the sale of these securities were used to fund working capital and operations.

On January 29, 2004, the Debt Agreement with CapitalSource was amended to include an Overadvance Agreement (the “Overadvance”) with CapitalSource for a maximum amount of $0.6 million to fund the expansion of TelAc into Augusta, Maine. The Overadvance is for an 18 month period commencing on January 28, 2004 and bears interest at 11%. Monthly payments of interest only were due until August 1, 2004, when additional monthly principal payments of $50,000 commenced. The Overadvance agreement contains an Overadvance Participation Fee of the greater of $150,000 or 1.5% of the product of 5 times consolidated annualized earnings before interest, taxes, depreciation and amortization (EBITDA) if paid at maturity or the occurrence of a triggering event as defined, or the greater of $300,000 or 3% of the product of 5 times consolidated annualized EBITDA, if Overadvance is not paid in full at the maturity date or a triggering event as defined. The Overadvance is collateralized by the personal assets of Mr. Shawkat Raslan, Chief Executive Officer of the Company.

On November 12, 2004, we entered into the Third Amendment (the “Third Amendment”) to our Debt Agreement dated June 10, 2003 that modified among other things, the minimum EBITDA, the Fixed Coverage Ratio, the Minimum Cash Velocity, as defined, and extended the term of the Debt Agreement to June 10, 2009.

On December 15, 2004, we completed a private placement of $1.15 million of Convertible Notes and warrants (“Convertible Notes II”) to purchase up to 1.15 million shares of our common stock that were sold to accredited investors, as such term is defined in the Security Agreement. The proceeds of the Convertible Notes II were used to fund working capital and operations. The Convertible Notes II have a 39 month term, bearing interest at a rate of 5% and are convertible after one year from the Effective Date of the Convertible Notes II to common stock at $1.00 per share. The warrants have an exercise price of $0.01 per share, a term of ten years, and are exercisable commencing December 15, 2005. Interest on the Convertible Notes II is paid quarterly, provided we are in compliance with the covenants of our Debt Agreement. Principal is payable on the earliest of the 39 month term or a Change of Control (as defined); in either case, only after (i) all amounts due under our Debt Agreement have been paid or (ii) CapitalSource has consented to the payment.

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 I and II. In the event of a default, as defined, the following will occur: (i) 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 I and II, (ii) additional warrants equaling 50% of the remaining outstanding principal balance of the Convertible Notes I and II will become exercisable, and (iii) all accrued and unpaid interest will be required to be issued. We will take all reasonable efforts to file a registration statement so as to permit a public offering and sale by the holders of Convertible Notes II under the Securities Act within 395 days from the Effective Date.

On March 4, 2005, we sold subscriptions to issue to accredited investors 1,000,000 shares of Access Worldwide Communications, Inc. common stock at a price per share of $1.00, for an aggregate purchase price of approximately $1 million. The sale of these shares was exempt from registration under the Securities Act of 1933 as a private offering to accredited investors under Section 4(2) of the Securities Act and Rule 506 of Regulation D. The shares were issued on June 13, 2005.

On June 10, 2005, we notified Capital Source that we were in default of our financial covenants contained in our Debt Agreement, as of April 30, 2005, due to the longer than expected lead time to replace the revenues previously generated by one of our main telecommunications client. On August 12, 2005, we entered into the Fourth Amendment (“Fourth Amendment”) to our Debt Agreement. The Fourth Amendment modified the financial covenants, as defined. The Fourth Amendment also requires the Company to raise a minimum of $967,000 of net aggregate proceeds from the sale of equity capital, which is required to be maintained in a deposit account with Merrill Lynch. The account will be pledged as collateral under the Debt Agreement and will be subject to an Account Control Agreement between the Company, Capital Source, and Merrill Lynch with withdrawals restricted to the following, unless approved in writing by Capital Source:


September 1, 2005	$	213,000
October 1, 2005		203,000
November 1, 2005		180,000
December 1, 2005		180,000
January 1, 2005		191,000

	$	967,000

As of June 30, 2005, as a result of the Fourth Amendment, we were in compliance with all of our debt covenants under the Debt Agreement. We expect to meet our short-term liquidity requirements through net cash provided by operations, the release of restricted cash as collateral under lease arrangement (see Note 3 in our Notes to the Consolidated Financial Statements), borrowings under the Debt Agreement, Convertible Notes I and II and funds raised through the Convertible Notes III private placement. We believe that these sources of cash will be sufficient to meet the Company’s operating needs and planned capital expenditures for at least the next twelve months.

The following is a chart of the Company’s approximate contractual cash payment obligations, which have been aggregated to facilitate a basic understanding of the Company’s commitments as of June 30, 2005:


	Payments Due by Period
	Total		1 year		2-4 years		5 years		After 5 years
Long-term debt	$	6,246,000	$	6,246,000	$	—	$	—	$	—
Convertible debt		3,250,000		—		3,250,000		—		—
Capital lease obligations¹		1,221,000		264,000		939,000		18,000		—
Operating leases²		9,315,000		2,284,000		5,301,000		1,013,000		717,000
Purchase obligation		308,000		308,000		—		—		—

Total contractual obligations	$	20,340,000	$	9,102,000	$	9,490,000	$	1,031,000	$	717,000

Includes capital lease obligation payments of approximately $37,000 per month through May 2008 under the capital equipment lease entered into on May 27, 2005, as disclosed in Form 8-K filed on June 2, 2005, for which a liability will not be recorded until equipment installation is complete, which is expected to occur during the third or fourth quarter of 2005.

²	Includes the minimum rental payments required under our operating lease for our Philippines communication center. The rent amount of approximately Php $1,125,000 is to be paid monthly in Philippines pesos. We have included this amount, converted to US dollars at a rate of 0.0178.

We have no off-balance sheet arrangements. The debt and lease obligations in the above table do not included accrued interest.

Transactions with Related Parties

During the first quarter of 2005, we entered into a Consulting Agreement with a member of our board of directors to provide consulting services with regard to all matters and activities we are performing in the Philippines. The Consulting Agreement provides among other things (i) a term through February 29, 2008 with an option to renew on a month-by-month basis thereafter, (ii) the payment of US $5,000 a month for the remainder of the term, (iii) a designated percent commission on all Qualifying Sales as defined in the Consulting Agreement throughout the remainder of the term, and (iv) a one-time receipt of 50,000 stock options priced at fair market value.

On March 29, 2005 we entered into an operating lease agreement for our communications center in the Philippines from a realty company that is majority owned by the immediate family of a member of our board of directors. The lease has a term of five years with minimum rent payments of approximately $20,000 per month. Additionally, we have approximately $41,000 of cash in a Philippines bank account with a bank that is also majority owned by the immediate family of a member of our board of directors.

Critical Accounting Policies

The Company’s significant accounting policies are disclosed in the notes of the Company’s consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2004. On an on-going basis, the Company evaluates its estimates and assumptions, including those related to valuation of percentage of completion revenues, allowance for doubtful accounts, allowances on net deferred tax assets and the useful lives of long lived assets, which includes property and equipment, and accrued expenses. Since the date of the last Annual Report, there have been no material changes to the Company’s significant accounting policies.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of doing business, we are exposed to market risk from changes in interest rates and are subject to interest rate risk 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 arrangements 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 an interest rate of the greater of 7.0% or prime plus 2.75%. The prime rate is the prime rate published by the Wall Street Journal. A one percent change in the prime interest rate would result in a pre-tax impact to us on earnings of approximately $0.05 million.

ITEM 4. CONTROLS AND PROCEDURES

We carried out an evaluation under the supervision and with the participation of our management, including the Chief Executive Officer and the 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 on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective for recording, processing and summarizing the information we are required to disclose in the reports we file under the Securities Exchange Act of 1934, within the time periods specified in the SEC’s rules and forms. Our management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which by their nature can provide only reasonable assurance regarding management’s control objectives. There has been no change in our internal control over financial reporting during our last quarter, identified in connection with the evaluation referred to above, 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

Settled Litigation

On July 18, 2003, we filed suit against MTI Information Technologies, LLC (“MTI”) in Broward County, Florida. The lawsuit was seeking enforcement of a pharmaceutical telemarketing service contract (the “Contract”) with MTI for services rendered. Services were terminated after payments due from MTI became severely delinquent. The lawsuit alleged that MTI breached its Contract with the Company by not paying for services rendered. The lawsuit was seeking payment for work performed of approximately $0.6 million. On July 21, 2003, MTI filed a counter suit against us in Bucks County, Pennsylvania for breach of contract and tortuous interference for our failure to complete telemarketing campaigns. The two cases were subsequently combined in the Circuit Court of the 17th Judicial Circuit in Broward County, FL 03-12385. In May of 2005 the case settled out of court. The Company received the court’s final order of dismissal May 21, 2005, and as of that date the case was officially closed, resulting in a recovery of approximately $363,000 to the Company.

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

On May 25 2004, the Company held an annual meeting of the stockholders of the Common Stock to vote on the following matters: (1) to elect eight persons to the Company’s Board of Directors, and (2) ratify the selection of BDO Seidman, LLP as the independent registered public accounting firm for the fiscal year ending December 31, 2005.

The following table sets forth the votes for, against or withheld with respect to the election of the directors (Total shares outstanding 10,841,719):


Director Nominee	Votes Cast For	Votes Withheld
Liam S. Donohue	7,409,137	650
Michael Dornemann	7,299,237	110,550
Shawkat Raslan	7,295,437	114,350
Orhan Sadik-Khan	7,409,237	550
Frederick Thorne	7,299,237	110,550
Carl Tiedemann	7,299,237	110,550
Charles Henri Weil	7,409,237	550
Alfonso Yuchengco, III	7,298,987	110,800

With respect to the ratification of the selection of BDO Seidman, LLP as the independent registered public accounting firm, 7,408,687 votes were cast for this matter (68.33% of outstanding), 1,050 votes were cast against this matter (0.01% of outstanding) and there were 50 (0.00% of outstanding) abstentions.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits



10(hhhh)		Fourth Amendment to the Revolving Credit, Term Loan and Security Agreement dated August 12, 2005.

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

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: August 15, 2005	By:	/s/ SHAWKAT RASLAN
		Shawkat Raslan, Chairman of the Board, President and Chief Executive Officer (principal executive officer)

Date: August 15, 2005	By:	/s/ RICHARD A. LYEW
		Richard A. Lyew, Executive Vice President and Chief Financial Officer (principal financial and accounting officer)

Exhibit Index


Exhibit Number		Description

10(hhhh)		Fourth Amendment to the Revolving Credit, Term Loan and Security Agreement dated August 12, 2005.

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.HHHH 2 dex10hhhh.htm FOURTH AMENDMENT TO THE REVOLVING CREDIT, TERM LOAN AND SECURITY AGREEMENT Fourth Amendment to the Revolving Credit, Term Loan And Security Agreement

Exhibit 10 (hhhh)

FOURTH AMENDMENT TO REVOLVING CREDIT, TERM LOAN AND SECURITY AGREEMENT

THIS FOURTH AMENDMENT TO REVOLVING CREDIT, TERM LOAN AND SECURITY AGREEMENT, dated as of August 12, 2005 (this “Amendment”), is entered into by and between ACCESS WORLDWIDE COMMUNICATIONS, INC., a Delaware corporation (“Access”), 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 by that certain First Amendment to Revolving Credit, Term Loan and Security Agreement dated as of August 11, 2003, by that certain Second Amendment to Revolving Credit, Term Loan and Security Agreement dated as of November 13, 2003, and by that certain Third Amendment to Revolving Credit, Term Loan and Security Agreement dated as of November 12, 2004 (as so amended and as amended, supplemented, or otherwise modified from time to time, the “Agreement”); and

WHEREAS, Borrower has requested that Lender revise certain financial covenants set forth in the Agreement, and make certain other amendments, 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) Section VIII(i) of the Agreement is hereby amended by deleting it in its entirety and replacing it with the following Section VIII(i):

(i) (i) any Change of Control occurs or any agreement or commitment to cause or that may result in any such Change of Control is entered into, (ii) any Material Adverse Effect, or Material Adverse Change occurs or is reasonably expected to occur, or (iii) Borrower or Guarantor ceases a material portion of its business operations as currently conducted;

(b) The Agreement is hereby amended by adding a new Section 7.11 reading in its entirety as follows:

Section 7.11 Merrill Lynch Account

Borrower agrees that it will deposit a minimum of $967,000 in account number 737-07056 (the “Merrill Account”) with Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill”) which deposit account is pledged to Lender as Collateral under this Agreement and which deposit account is subject to an Account Control Agreement among Borrower, Lender and Merrill. Borrower further agrees and acknowledges that it may not withdraw any funds at any time from the Merrill Account without the prior written consent of Lender, except in accordance with the schedule set forth on Exhibit A attached hereto.

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

SECTION 2. Conditions to Effectiveness. This Amendment shall be effective on the date upon which the following conditions precedent are satisfied:

(a) Borrower shall have delivered to Lender an executed original copy of this Amendment, and each other agreement, document or instrument reasonably requested by the Lender in connection with this Amendment, each in form and substance reasonably satisfactory to Lender.

(b) Lender shall have received evidence satisfactory to it that Borrower has raised at least $967,000 of net aggregate proceeds from the sale of its equity securities, and that such amount in on deposit with Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill”) in account number 737-07056 (the “Merrill Account”).

(c) Lender shall have received an original of an executed Pledged Collateral Account Control Agreement by and among Lender, Borrower and Merrill (the “Merrill Account Control Agreement”) pursuant to which Lender’s security interest in the Merrill Account and any amounts deposited therein shall be perfected, in form and substance satisfactory to Lender.

(d) Lender shall have received all fees, charges and expenses payable to Lender as required by this Amendment and in connection with this Amendment and the documentation related hereto, including, but not limited to, (i) a fee in the amount of $40,000 in consideration of this Amendment, and (ii) legal fees and out-of-pocket costs (including in-house counsel fees and expenses).

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 Fourth 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:
		Richard Lyew, Executive Vice President

	ASH CREEK, INC.

	By:
		Richard Lyew, Executive Vice President

	AWWC NEW JERSEY HOLDINGS, INC.

	By:
		Richard Lyew, Executive Vice President

	TELEMANAGEMENT SERVICES, INC.

	By:
		Richard Lyew, Executive Vice President

	TLM HOLDINGS CORP.

	By:
		Richard Lyew, Executive Vice President


LENDER:		CAPITALSOURCE FINANCE LLC

		By:
		Name:
		Its:

EXHIBIT A


Withdrawal Date		Maximum Withdrawal Amount
September 1, 2005		$213,000
October 1, 2005		$203,000
November 1, 2005		$180,000
December 1, 2005		$180,000
January 1, 2006		$191,000

EXHIBIT B

ANNEX I

FINANCIAL COVENANTS

1) Minimum EBITDA

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


September 2004:	$	(210,000	)
October 2004:	$	(333,000	)
November 2004:	$	(391,000	)
December 2004:	$	(112,000	)
January 2005:	$	(1,000	)
February 2005:	$	121,000
March 2005:	$	156,000
April 2005:	$	308,000
May 2005:	$	386,000
June 2005:	$	(190,000	)
July 2005:	$	(149,000	)
August 2005:	$	(621,000	)
September 2005:	$	(375,000	)
October 2005:	$	(416,000	)
November 2005:	$	(9,000	)
December 2005:	$	363,000
January 2006:	$	600,000
February 2006:	$	626,000
March 2006:	$	561,000
April 2006:	$	549,000
May 2006:	$	600,000
June 2006:	$	600,000
July 2006:	$	700,000
August 2006:	$	628,000
September 2006:	$	700,000
October 2006:	$	800,000
November 2006:	$	1,000,000
December 2006 and thereafter:	$	1,000,000

2) 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:


September 2004 through December 2005:		Waived
January 2006		1.0
February 2006		1.0
March 2006 and thereafter:		1.0

EX-31.1 3 dex311.htm SECTION 302 CEO CERTIFICATION Section 302 CEO Certification

Exhibit 31.1

CERTIFICATION

I, Shawkat Raslan, certify that:

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

Based on my knowledge, this quarterly report does not contain any untrue statement of 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 the quarterly report;

Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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-14 and 15-d-l4) for the registrant and we have:

designed such disclosure controls and procedures 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 quarterly report is being prepared;

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of the end of the period covered by this quarterly report (the “Evaluation Date”); and

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent function):

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weakness in internal controls; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: August 15, 2005

Signature:

/s/ SHAWKAT RASLAN

Shawkat Raslan,

Chairman of the Board,

President and Chief Executive Officer

(principal executive officer)

EX-31.2 4 dex312.htm SECTION 302 CFO CERTIFICATION Section 302 CFO Certification

Exhibit 31.2

CERTIFICATION

I, Richard A. Lyew, certify that:

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

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of the end of the period covered by this quarterly report (the “Evaluation Date”); and

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date: August 15, 2005

Signature:

/s/ RICHARD A. LYEW

Richard A. Lyew,

Executive Vice President and Chief Financial Officer

(principal financial and accounting officer)

EX-32.1 5 dex321.htm SECTION 906 CEO CERTIFICATION Section 906 CEO Certification

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 June 30, 2005 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)

August 15, 2005

EX-32.2 6 dex322.htm SECTION 906 CFO CERTIFICATION Section 906 CFO Certification

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 June 30, 2005 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/ RICHARD A. LYEW

Richard A. Lyew

Executive Vice President and Chief Financial Officer

(principal financial and accounting officer)

August 15, 2005

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