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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ending September 30, 2004

OR

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

The number of shares outstanding of the registrant’s common stock, $0.01 par value, as November 15, 2004 was 9,921,219.

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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 financial statements.

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ACCESS WORLDWIDE COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

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

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ACCESS WORLDWIDE COMMUNICATIONS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS’ DEFICIT

(UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004

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

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ACCESS WORLDWIDE COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30,

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

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ACCESS WORLDWIDE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Access Worldwide Communications, Inc. (“Access Worldwide,” “we,” “our,” “us,” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, we do not include therein all of the information and footnotes required by accounting principles generally accepted in the United States of America for a complete set of consolidated financial statements. For further information, refer to our consolidated financial statements and footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2003, filed with the Securities and Exchange Commission.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect reported amounts included in the consolidated financial statements; however the actual results experienced by the Company may differ from management’s estimates and assumptions. In our opinion, all adjustments necessary for a fair presentation of this interim financial information have been included. Such adjustments consisted only of normal recurring items. The results of operations for the nine months ended September 30, 2004 are not necessarily indicative of the results to be expected for the year ending December 31, 2004.

2. RECLASSIFICATIONS

Certain reclassifications have been made to the 2003 consolidated financial statements to conform to the September 30, 2004 presentation. Such reclassifications did not change our net loss or total common stockholders’ deficit as previously reported.

3. RESTRICTED CASH

On June 10, 2003, we obtained a new letter of credit (“Letter of Credit”) in the amount of $834,000 to replace the original letter of credit issued to the landlord of our Maryland communication center in 2001. The Letter of Credit was collateralized by a certificate of deposit in the same amount, which was reduced accordingly on the anniversary date of the lease agreement, as described below. Therefore, such certificate of deposit is classified as restricted cash in the accompanying balance sheets at September 30, 2004 and December 31, 2003.

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

4. STOCK BASED COMPENSATION

Options granted under our stock based compensation plan to employees are accounted for using the intrinsic value method. 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 the 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 has been 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. The Company recorded unearned stock compensation for the intrinsic value of the award ($33,000) in connection with the grant. Such amount, which is shown as an increase of stockholders’ deficit, is being amortized as compensation expense over the related vesting period.

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4. STOCK BASED COMPENSATION - Continued

Had the fair value based method been used to account for such compensation, compensation costs would have increased net loss and loss per share for the three and nine months ended September 30, 2004 and 2003 to the following pro forma amounts:

5. INCOME TAXES

The effective tax rate used by us to record income tax expense for the three and nine months ended September 30, 2004 and 2003 differs from the federal statutory rate primarily due to the valuation allowance recorded in connection with the Company’s deferred tax assets.

6. LOSS PER COMMON SHARE

Basic loss per share is based on the weighted average number of shares of common stock outstanding during the period. Diluted loss per share includes the dilutive effect of potential common stock.

The following is a reconciliation of basic net loss per share and diluted net loss per share for the three and nine months ended September 30, 2004:

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7. COMMITMENTS AND CONTINGENCIES

We are involved in legal actions arising in the ordinary course of our business. With the exception of the following, 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.

On October 5, 2004, Ivelisse Lamboy (the “Plaintiff”) filed suit against the Company at the Supreme Court of New York, Bronx County. The Plaintiff is claiming damages of $470,000 for having relied on a letter offering employment from a subsidiary of the Company. Plaintiff’s employment was terminated a few weeks after being hired and Plaintiff believes she should be paid damages for ten years of employment. Management believes there is no merit to the claim and intends to vigorously defend, although no assurances can be given as to the outcome of this matter

8. INDEBTEDNESS

On January 29, 2004, the Revolving Term Loan and Security Agreement (the “Debt Agreement”) with CapitalSource Finance, LLC (“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 Teleservices Group (“TelAc”) into Augusta, Maine. The Overadvance is for an 18 month period commencing on January 28, 2004 and bears interest at 11% per annum. 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 the Overadvance is not paid in full at the maturity date or a trigging event as defined. The Overadvance is collateralized by the personal assets of Mr. Shawkat Raslan, Chief Executive Officer of the Company. As of September 30, 2004, $0.5 million was outstanding on the Overadvance.

On November 2, 2004, we entered into discussions with Capital Source regarding non-compliance of our Minimum EBITDA and Fixed Coverage Ratio covenants, as defined in our Debt Agreement, as of September 30, 2004. 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.

9. SEGMENTS

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

The table below presents information about our reportable segments for our continuing operations used by the chief operating decision-maker of the Company for the three and nine months ended September 30, 2004 and 2003.

For the three months ended September 30,

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For the nine months ended September 30,

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of operations of the Company should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2003.

Corporate Overview

We are an outsourced marketing services company that provides a variety of sales, education and communication programs to clients in the medical, pharmaceutical, telecommunications, and consumer products industries. We provide services through the following two business segments:

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We seek to provide specialized marketing programs, supported by technological systems, in an effort to differentiate us in the highly fragmented outsourced marketing services industry.

Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003

Our revenues decreased $0.9 million, or 8.3%, to $9.9 million for the three months ended September 30, 2004, compared to $10.8 million for the three months ended September 30, 2003. Revenues for the Pharmaceutical Segment increased $0.8 million, or 19.5%, to $4.9 million for the three months ended September 30, 2004, compared to $4.1 million for the three months ended September 30, 2003. The increase was primarily due to an increase in inbound business which includes our Direct to Consumer (“DTC”) programs which was offset by a decrease in our medical education revenues. Revenues for the Business Segment decreased $1.6 million, or 24.2%, to $5.0 million for the three months ended September 30, 2004, compared to $6.6 million for the three months ended September 30, 2003. The decrease was primarily due to a decrease in programs and hours performed on behalf of a major client due to a regulatory change and the resulting suspension of several campaigns.

Our gross profit increased $0.2 million, or 5.0%, to $4.2 million for the three months ended September 30, 2004, compared to $4.0 million for the three months ended September 30, 2003. Gross profit as a percentage of revenues increased to 42.4% for the three months ended September 30, 2004, compared to 37.0% for the three months ended September 30, 2003. Gross profit as a percentage of revenues for the Pharmaceutical Segment increased to 51.0% for the three months ended September 30, 2004, compared to 39.0% for the three months ended September 30, 2003. The increase was primarily due to the increase in our inbound business, offset by the decrease in medical education revenues, and the reduction in medical education personnel costs. Gross profit as a percentage of revenues for the Business Segment decreased to 34.0% for the three months ended September 30, 2004, compared to 36.4% for the three months ended September 30, 2003. The decrease as a percentage of revenues was primarily attributed to the decrease in revenues and payroll costs.

Our selling, general and administrative expenses increased by $0.4 million, or 9.1%, to $4.8 million for the three months ended September 30, 2004, compared to $4.4 million for the three months ended September 30, 2003. Selling, general and administrative expenses as a percentage of revenues for the Company increased to 48.5% for the three months ended September 30, 2004, compared to 40.7% for the three months ended September 30, 2003. Selling, general and administrative expenses as a percentage of revenues for the Pharmaceutical Segment increased to 42.9% for the three months ended September 30, 2004, compared to 41.5% for the three months ended September 30, 2003. The increase was primarily due to an increase in management personnel to service the increase in revenues. Selling, general and administrative expenses as a percentage of revenues for the Business Segment increased to 42.0% for the three months ended September 30, 2004, compared to 30.3% for the three months ended September 30, 2003. The increase as a percentage of revenues was primarily attributed to the decrease in revenues.

During the three months ended September 30, 2003, we experienced a significant reduction in revenues from our medical education division. In accordance with SFAS No. 142, “Goodwill and Other Intangibles,” we performed a two-step fair value based intangible asset assessment. The first step of the test compared the book value of our reporting unit to its estimated fair value. The estimated fair value of the reporting unit was computed using the present value of future cash flows as of September 30, 2003. In the second step of the impairment test, we compared the implied fair value of the intangible assets in accordance with the methodology prescribed by SFAS No. 142 to its book value. As a result of performing the two-step test, we determined that the division’s goodwill and intangible assets were impaired resulting in a charge of $9.0 million during the three months ended September 30, 2003.

Our net interest expense decreased by $0.1 million, or 25.0%, to $0.3 million for the three months ended September 30, 2004, compared to $0.4 million for the three months ended September 30, 2003.

Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003

Our revenues decreased $0.2 million, or 0.5%, to $36.8 million for the nine months ended September 30, 2004, compared to $37.0 million for the nine months ended September 30, 2003. Revenues for the Pharmaceutical Segment increased $2.2 million, or 13.5%, to $18.5 million for the nine months ended September 30, 2004, compared to $16.3 million for the nine months ended September 30, 2003. This increase was primarily due to an increase in inbound business which includes our DTC programs offset by a decrease in our medical education revenues. Revenues for the Business Segment decreased by $2.4 million, or 11.6%, to $18.3 million for the nine months ended September 30, 2004, compared to $20.7 million for the nine months ended September 30, 2003. The decrease was primarily due to a continued decrease in programs and hours performed on behalf of a major client due to a regulatory change and the resulting suspension of several campaigns. Management is working diligently at replacing these programs and hours with new business, and has hired additional sales staff

Our gross profit increased $3.2 million, or 25.6%, to $15.7 million for the nine months ended September 30, 2004, compared to $12.5 million for the nine months ended September 30, 2003. Gross profit as a percentage of revenues increased to 42.7% for the nine months ended September 30, 2004, compared to 33.8% for the nine months ended September 30, 2003. Gross profit as a percentage of revenues for the Pharmaceutical Segment increased to 48.1% for the nine months ended September 30, 2004, compared to 30.7% for the nine months ended September 30, 2003. The increase was primarily due to the increase in our inbound business, offset by the decrease in medical education revenues, and the reduction in medical education personnel costs. Gross profit as a percentage of

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revenues for the Business Segment increased to 36.6% for the nine months ended September 30, 2004, compared to 36.2% for the nine months ended September 30, 2003. The increase was primarily attributed to a reduction in variable cost personnel as revenues declined.

Our selling, general and administrative expenses increased by $1.0 million, or 6.9%, to $15.4 million for the nine months ended September 30, 2004, compared to $14.4 million for the nine months ended September 30, 2003. Selling, general and administrative expenses as a percentage of revenues for the Company increased to 41.8% for the nine months ended September 30, 2004, compared to 38.9% for the nine months ended September 30, 2003. Selling, general and administrative expenses as a percentage of revenues for the Pharmaceutical Segment decreased to 34.6% for the nine months ended September 30, 2004, compared to 37.4% for the nine months ended September 30, 2003. The decrease was primarily due to a non-recurring bad debt expense recorded in the second quarter of 2003 with no similar charge in 2004 offset by a smaller increase in personnel and related compensation costs, commissions and travel expenses due to the increase in revenues. Selling, general and administrative expenses as a percentage of revenues for the Business Segment increased to 36.1% for the nine months ended September 30, 2004, compared to 29.0% for the nine months ended September 30, 2003. The increase was primarily due to the decrease in revenues and the expansion of the customer sales and service facilities in Arlington, Virginia and Augusta, Maine which resulted in higher rent expense and personnel costs.

During the nine months ended September 30, 2003, we experienced a significant reduction in revenues from our medical education division. In accordance with SFAS No. 142, “Goodwill and Other Intangibles,” we performed a two-step fair value based intangible asset assessment. The first step of the test compared the book value of our reporting unit to its estimated fair value. The estimated fair value of the reporting unit was computed using the present value of future cash flows as of September 30, 2003. In the second step of the impairment test, we compared the implied fair value of the intangible assets in accordance with the methodology prescribed by SFAS No. 142 to its book value. As a result of performing the two-step test, we determined that the division’s goodwill and intangible assets were impaired resulting in a charge of $9.0 million during the nine months ended September 30, 2003.

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

Our net interest expense increased $0.2 million, or 25.0%, to $1.0 million for the nine months ended September 30, 2004, compared to $0.8 million for the nine months ended September 30, 2003. The increase was primarily due to the accretion of the discount on Convertible Notes.

Liquidity and Capital Resources

At September 30, 2004 and December 31, 2003, we had negative working capital of $2.7 million and $2.9 million, respectively. Cash and cash equivalents were $1.0 million at September 30, 2004, compared to $0.5 million at December 31, 2003.

Net cash provided by operating activities during the first nine months of 2004 was $4.0 million, compared to $0.9 million during the first nine months of 2003. The increase in net cash provided by operating activities was primarily due to a decrease in accounts receivables, taxes receivable, unbilled receivables and accounts payable and accrued expenses for the nine months ended September 30, 2004, compared to an increase in deferred revenues and other assets and a decrease in accounts payable and accrued salaries and wages for the nine months ended September 30, 2003.

Net cash used in investing activities was $0.7 million for the first nine months of 2004, compared to $1.3 million for the first nine months of 2003. The decrease in net cash used in investing activities was primarily due to the increase in fixed asset purchases for the expansion of the customer sales and service facilities in Arlington, Virginia and Augusta, Maine offset by a decrease in restricted cash in 2004.

Net cash used in financing activities was $2.8 million for the first nine months of 2004, compared to $1.4 million for the first nine months of 2003. The increase in net cash used in financing activities was primarily due to increased payments made on our Debt Agreement during the 2004 period, and the $2.1 million of proceeds from Convertible Notes received in the 2003 period.

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 Teleservices Group (“TelAc”) into Augusta, Maine. The Overadvance is for an 18 month period commencing on January 28, 2004 and bears interest at 11% per annum. 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 the Overadvance is not paid in full at the maturity date or a trigging event as defined. The Overadvance is collateralized by the personal assets of Mr. Shawkat Raslan, Chief Executive Officer of the Company. As of September 30, 2004, $0.5 million was outstanding on the Overadvance.

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On November 2, 2004, we entered into discussions with Capital Source regarding non-compliance of our Minimum EBITDA and Fixed Coverage Ratio covenants, as defined in our Debt Agreement as of September 30, 2004. 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.

We expect to meet our short-term liquidity requirements through net cash provided by operations, and borrowings under the Debt Agreement as amended and the Overadvance. 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 liquidity as of September 30, 2004:

Contractual Cash Obligations

Risk Factors That May Affect Future Results

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

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, 2003 filed with the Securities and Exchange Commission.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks from changes in interest rates and are subject to interest rate risks on our Debt Agreement caused by changes in interest rates. Our ability to limit our exposure to market risk and interest rate risk is restricted as a result of our current cash management arrangement under the Debt Agreement. Accordingly, we are unable to enter into any derivative or similar transactions that could limit our exposure to market risk and interest rate risks. Our Debt Agreement currently provides interest rates ranging from 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 increase in the prime interest rate would result in a pre-tax impact on earnings of approximately $0.02 million per year.

ITEM 4. CONTROLS AND 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 the end of the period covered by 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.

PART II–OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are involved in legal actions arising in the ordinary course of our business. With the exception of the following, 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.

On October 5, 2004, Ivelisse Lamboy (the “Plaintiff”) filed suit against the Company at the Supreme Court of New York, Bronx County. The Plaintiff is claiming damages of $470,000 for having relied on a letter offering employment from a subsidiary of the Company. Plaintiff’s employment was terminated a few weeks after being hired and Plaintiff believes she should be paid damages for ten years of employment. Management believes there is no merit to the claim and intends to vigorously defend. While we believe the claim has no legal basis, we cannot provide assurance as to the ultimate outcome.

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ITEM 6. EXHIBITS

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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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Exhibit Index

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