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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ending March 31, 2003

For the transition period from                      to                     

Commission file number 0-23489

Access Worldwide Communications, Inc.

(Exact Name of Registrant as Specified in its Charter)

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

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

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

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 May 13, 2003 was 9,740,501.

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ACCESS WORLDWIDE COMMUNICATIONS, INC.

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PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ACCESS WORLDWIDE COMMUNICATIONS, INC.

CONSOLIDATED BALANCE SHEETS

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

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ACCESS WORLDWIDE COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31,

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

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ACCESS WORLDWIDE COMMUNICATIONS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS’ EQUITY

(UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2003

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

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ACCESS WORLDWIDE COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31,

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

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ACCESS WORLDWIDE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(UNAUDITED)

1.     BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Access Worldwide Communication, 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.

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 three months ended March 31, 2003 are not necessarily indicative of the results to be expected for the year ending December 31, 2003.

2.     RECLASSIFICATIONS

Certain reclassifications have been made to the March 31, 2002 consolidated financial statements to conform to the March 31, 2003 presentation. Such reclassifications did not change our net loss or total common stockholders’ equity, as previously reported.

3.     INCOME TAX

The effective tax rate used by us to record income tax expense for the three months ended March 31, 2003 differs from the federal statutory rate primarily related to the valuation allowance recorded in connection with the Company’s deferred tax assets. The effective tax rate for the three months ended March 31, 2002 differs from the federal statutory rate primarily due to the utilization of net operating loss carryforwards.

4.     (LOSSES) EARNINGS PER COMMON SHARE

(Losses) earnings per common share are calculated as follows:

* Since the effects of the stock options and earnout contingencies are anti-dilutive for the three months ended March 31, 2003 and 2002, these effects have not been included in the calculation of dilutive EPS.

5.     ACCOUNTING PRONOUNCEMENTS

In November 2002, Financial Accounting Standard 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 45 as of December 31, 2002. On January 1, 2003, we adopted the initial recognition and measurement provisions which are 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 three months ended March 31, 2003.

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6.    STOCK BASED COMPENSATION

In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (“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 three months ended March 31, 2003.

Had the fair value based method been used to account for such compensation, compensation costs would have increased net (loss) and decreased net income and earnings per share for the three months ended March 31:

7.     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.

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 Marketing Group (“Phoenix”) in 1997. Messrs. Rebak and Macaluso were two majority 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 $850,000, plus additional unspecified punitive damages. We have denied the allegations of the complaint and intend to defend vigorously. While we believe the claims have no legal basis, we cannot provide assurances as to the outcome of the litigation.

8.     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 $8.2 million, net of income taxes and expenses incurred in connection with the transactions. Revenues and operating (loss) income for the three months ended March 31, 2002 were $358,008 and $(370,998) for CAG and $4,207,194 and $(7,189) for Phoenix, respectively.

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9. INDEBTEDNESS

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 allows us to continue to use cash proceeds generated in the ordinary course of business to fund working capital and operations and changes the interest rate to a default rate of prime plus 5% on the outstanding balance of the Credit Facility.

On April 29, 2003, the Company entered into the Seventh Amendment and Waiver Agreement (the “Amendment”) to the Credit Facility. The Amendment allows 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 increases the effective rate of interest to Bank of America’s prime rate of interest plus 5% and limits the revolving commitment line to $6.1 million through May 14, 2003, with periodic reductions thereafter, including $6.0 million from May 15, 2003 to May 31, 2003, and $5.8 million from June 1, 2003 to June 30, 2003. The outstanding balance on the Credit Facility becomes due on July 1, 2003.

10. 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 months ended March 31, 2003 and 2002. The following information about reportable segments for the period ended March 31, 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 8).

11. 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.

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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 for the year ended December 31, 2002.

Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002

Our revenues increased $2.9 million, or 31.2%, to $12.2 million for the three months ended March 31, 2003, compared to $9.3 million for the three months ended March 31, 2002. Revenues for the Pharmaceutical Segment increased $1.2 million, or 26.1%, to $5.8 million for the three months ended March 31, 2003, compared to $4.6 million for the three months ended March 31, 2002. The increase was primarily attributed to an increase in programs performed for existing customers and an increase in programs for new customers, which was offset by the reduction or completion of programs being performed for existing customers. Revenues for the Consumer Segment increased $1.8 million or 38.3% to $6.5 million for the three months ended March 31, 2003, compared to $4.7 million for the three months ended March 31, 2002. The increase was primarily attributed to an increase in programs performed for one of our existing customers which was offset by a decrease in programs performed for one of our existing customers.

Our cost of revenues increased $2.5 million, or 43.1%, to $8.3 million for the three months ended March 31, 2003, compared to $5.8 million for the three months ended March 31, 2002. Cost of revenues as a percentage of revenues increased to 68.0% for the three months ended March 31, 2003, from 62.4% for the three months ended March 31, 2002. Cost of revenues as a percentage of revenues for the Pharmaceutical Segment for the three months ended March 31, 2003 increased to 70.7%, compared to 69.6% for the three months ended March 31, 2002. The increase was primarily attributed to an increase in head count of teleservice representatives to meet clients’ existing and new programs. Cost of revenues as a percentage of revenues for the Consumer Segment increased to 64.6% for the three months ended March 31, 2003, from 55.3% for the three months ended March 31, 2002. The increase was attributed to costs incurred to retrain existing employees and train new employees for two weeks instead of one week as required by certain clients.

Our selling, general and administrative expenses increased by $0.1 million, or 2.3%, to $4.5 million for the three months ended March 31, 2003, compared to $4.4 million for the three months ended March 31, 2002. Selling, general and administrative expenses as a percentage of revenues for the Company decreased to 36.9% for the three months ended March 31, 2003, compared to 47.3% for the three months ended March 31, 2002. Selling, general and administrative expenses as a percentage of revenues for the Pharmaceutical Segment decreased to 32.8% for the three months ended March 31, 2003, from 37.0% for the three months ended March 31, 2002. The decrease was primarily attributed to an increase in revenues as well as severance expenses recorded in the first quarter of 2002. Selling, general and administrative expenses as a percentage of revenues for the Consumer Segment decreased to 29.2% for the three months ended March 31, 2003, compared to 40.4% for the three months ended March 31, 2002. The decrease was primarily attributed to the increase in revenues.

Our amortization expense decreased $0.02 million, or 33.3%, to $0.04 million for the three months ended March 31, 2003, compared to $0.06 million for the three months ended March 31, 2002. The decrease was primarily due to certain intangible assets being fully amortized in 2002.

Our net interest expense increased $0.17 million, or 567%, to $0.2 million net interest expense for the three months ended March 31, 2003, compared to $0.03 million net interest expense for the three months ended March 31, 2002. The increase was attributed to activities for the three months ended March 31, 2002, including interest income from Phoenix Marketing Group division (“Phoenix”) and Cultural Access Group division (“CAG”) intercompany loans for which the corresponding interest expense has been classified as discontinued operations.

In accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” we reclassified as discontinued operations, the operations of our a) 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 $8.2 million, net of income taxes and expenses incurred in connection with the transactions. Revenues and operating (loss) income for period ended March 31, 2002 were $358,008 and $(370,998) for CAG and $4,207,194 and $(7,189) for Phoenix, respectively.

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Liquidity and Capital Resources

At March 31, 2003, we had negative working capital of $3.5 million, as compared to $3.1 million at December 31, 2002. Cash and cash equivalents were $0.6 million at March 31, 2003, compared to $2.2 million at December 31, 2002.

Net cash used in operating activities during the first quarter of 2003 was $1.0 million, compared to $0.7 million used in operating activities during the first quarter of 2002. The increase in net cash used in operating activities was primarily due to a decrease in accounts receivable and billings in excess of costs offset by a decrease in accounts payable and deferred revenues.

Net cash used in investing activities was $0.1 million for the first quarter of 2003, compared to net cash provided by investing activities of $31.3 million for the first quarter of 2002. The decrease was principally attributed to the net proceeds received from the sale of our Phoenix and CAG divisions in the first quarter of 2002.

Net cash used in financing activities was $0.5 million for the first quarter of 2003, compared to net cash used in financing activities of $28.6 million for the first quarter of 2002. The decrease was primarily due to the pay down of our Credit Facility with the net proceeds received from the sale of our Phoenix and CAG divisions in the first quarter of 2002.

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 allows us to continue to use cash proceeds generated in the ordinary course of business to fund working capital and operations and changes the interest rate to a default rate of prime plus 5% on the outstanding balance of the Credit Facility.

On April 29, 2003, the Company entered into the Seventh Amendment and Waiver Agreement (the “Amendment”) to the Credit Facility. The Amendment allows 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 increases the effective rate of interest to Bank of America’s prime rate of interest plus 5% and limits the revolving commitment line to $6.1 million through May 14, 2003, with periodic reductions thereafter, including $6.0 million from May 15, 2003 to May 31, 2003, and $5.8 million from June 1, 2003 to June 30, 2003. The outstanding balance on the Credit Facility becomes due on July 1, 2003.

We can provide no assurance that the Bank Group will continue to allow us to use cash proceeds generated in the ordinary course of business to fund working capital and operations. Also we have been actively taking steps to renegotiate or refinance the Credit Facility with the Bank Group or other lenders. However, we cannot assure you that we will be able to obtain any such negotiated terms or refinancing that is acceptable to the Company or at all.

We believe that our cash and cash equivalents, as well as cash provided by operations and the availability of funding under the Credit Facility as a result of the Bank Group allowing us to continue to use cash proceeds generated in the ordinary course of business to fund working capital and operations, will be sufficient to fund our current operations through the maturity date of the Credit Facility on July 1, 2003.

We believe that to the extent that our outstanding balance on the Credit Facility is not refinanced prior to maturity, we will be required to find sources other than operations to repay the outstanding balance on the Credit Facility at maturity. If we are unable to refinance the Credit Facility on acceptable terms or find a source of repayment for the Credit Facility other than operations, then our business and financial condition could be materially and adversely impacted. We cannot assure our stockholders that we will be able to obtain any such refinancing or other sources that would otherwise provide funds to repay our Credit Facility.

The auditors’ report on our financial statements included with the 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. If we are not able to renegotiate or refinance our Credit Facility or we are not able to improve our results from continuing operations or our working capital position, we may not be able to continue as a going concern.

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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 Credit Facility caused by changes in interest rates. Our ability to limit our exposure to market risk and interest risk is restricted as a result of our current cash management arrangement under the Credit Facility. 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 Credit Facility is currently at an interest rate of prime, plus 5%. The prime rate is the prime rate published by Bank of America, N.A. 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 per year.

ITEM 4. CONTROLS A ND PROCEDURES

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic filings under the Exchange Act.

Since the Evaluation Date, there have not been any significant changes in the Company’s internal controls or in other factors that could significantly affect such controls.

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. These 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:

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:

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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 Annual Report on Form 10-K for the year ended December 31, 2002 filed with the Securities and Exchange Commission.

PART II–OTHER INFORMATION

Item 6. Ex hibits and Reports on Form 8-K

* Management contract or compensatory plan or arrangement.

None

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.

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CERTIFICATION

I, Shawkat Raslan, certify that:

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CERTIFICATION

I, John Hamerski, certify that:

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Index to Exhibits