Access Worldwide Communications (AWWC) 10-Q 2007 Q3 Quarterly report

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 September 30, 2007

OR

¨ 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.)

1820 North Fort Myer Drive Arlington, Virginia	22209
(Address of principal executive offices)	(Zip Code)

(703) 292-5210

(Registrant’s telephone number, including area code)

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

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

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value

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 that 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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  x

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

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

Class	Outstanding at November 14,2007
Common Stock, $0.01 par value per share	31,029,146 shares

ACCESS WORLDWIDE COMMUNICATIONS, INC.

INDEX

		Page
Part I-Financial Information
Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets – As of September 30, 2007 (unaudited) and December 31, 2006	1
	Condensed Consolidated Statements of Operations – For The Three and Nine Months Ended September 30, 2007 and September 30, 2006 (unaudited)	2
	Condensed Consolidated Statement of Changes in Common Stockholders’ Equity (Deficit) – For The Nine Months Ended September 30, 2007(unaudited)	3
	Condensed Consolidated Statements of Cash Flows – For The Nine Months Ended September 30, 2007 and September 30, 2006 (unaudited)	4
	Notes to Condensed Consolidated Financial Statements	5-10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11-14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14
Item 4.	Controls and Procedures	14
Part II-Other Information
Item 1A	Risk Factors	14
Item 6	Exhibits	15
	Signatures	16

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ACCESS WORLDWIDE COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2007 (Unaudited)			December 31, 2006
ASSETS
Current assets:
Cash and cash equivalents	$	942,690		$	2,836,980
Restricted cash		123,000			123,000
Accounts receivable, net of allowance for doubtful accounts of $24,715 and $99,130, respectively		6,658,389			6,956,218
Unbilled receivables		—			7,750
Other assets, net		613,828			831,958
Total current assets		8,337,907			10,755,906
Property and equipment, net		4,101,041			3,374,575
Restricted cash		220,000			343,000
Other assets, net		521,441			386,127
Total assets	$	13,180,389		$	14,859,608
LIABILITIES AND COMMON STOCKHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Revolving line of credit (“Revolver”)	$	2,203,428			—
Note payable—related parties		—			1,750,000
Capital lease obligation – short-term		480,903			438,866
Accounts payable		421,417			1,315,785
Accrued expenses		433,015			654,140
Accrued salaries, wages and related benefits		899,598			586,107
Accrued interest		16,433			—
Customer deposits		969,296			1,210,146
Deferred revenue		139,033			669,290
Total current liabilities		5,563,123			6,624,334
Capital lease obligation – long-term		288,506			259,256
Other long-term liabilities		427,494			530,992
Convertible Notes, net		—			4,625,490
Mandatorily redeemable preferred stock, $0.01 par value: 1,000,000 shares authorized, 40,000 shares issued and outstanding		4,000,000			4,000,000
Total liabilities		10,279,123			16,040,072
Commitments and contingencies
Common stockholders’ equity (deficit):
Common stock, $0.01 par value: voting: 100,000,000 and 40,000,000 shares authorized, respectively; 31,029,146 and 17,340,065 shares issued and outstanding, respectively		310,291			173,401
Additional paid-in capital		78,857,250			71,362,793
Accumulated (deficit)		(76,266,275	)		(72,716,658	)
Total common stockholders’ equity (deficit)		2,901,266			(1,180,464	)
Total liabilities and common stockholders’ equity (deficit)	$	13,180,389		$	14,859,608

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

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ACCESS WORLDWIDE COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	For The Three Months Ended September 30,						For the Nine Months Ended September 30,
	2007			2006			2007			2006
Revenues	$	8,175,282		$	7,405,356		$	25,608,003		$	19,244,916
Cost and expenses:
Cost of revenues		6,736,630			5,521,763			20,077,104			14,977,570
Selling, general and administrative expenses		1,622,312			1,628,561			4,955,755			4,722,464
Depreciation expense		395,881			249,744			1,063,480			791,058
Total costs and expenses		8,754,823			7,400,068			26,096,339			20,491,094
(Loss) income from operations		(579,541	)		5,288			(488,336	)		(1,246,176	)
Interest income		18,038			24,741			78,365			65,154
Interest expense – related parties		(60,000	)		(25,250	)		(1,079,680	)		(96,573	)
Interest expense		(51,613	)		(1,805,720	)		(1,949,304	)		(2,749,006	)
(Loss) from continuing operations		(673,116	)		(1,800,941	)		(3,438,955	)		(4,026,601	)
Discontinued operations
Income (loss) from discontinued operations		8,584			13,510			(110,662	)		(605,090	)
Gain on disposal of segment, net of income tax expense of $0					8,199,620						8,199,620
		8,584			8,213,130			(110,662	)		7,594,530
Net (loss) income	$	(664,532	)	$	6,412,189		$	(3,549,617	)	$	3,567,929
Basic and diluted (loss) income per share of common stock:
Continuing operations	$	(0.02	)	$	(0.10	)	$	(0.11	)	$	(0.23	)
Discontinuing operations		0.00			0.47			0.00			0.44
Net (loss) income	$	(0.02	)	$	0.37		$	(0.11	)	$	0.21
Weighted average common shares outstanding		31,029,146			17,340,065			31,029,146			17,193,204

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

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ACCESS WORLDWIDE COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED

STATEMENT OF CHANGES IN COMMON STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 (UNAUDITED)

	Common Stock			Additional Paid-in Capital		Accumulated Deficit			Total
	Shares	Amount
Balance, December 31, 2006	17,340,065	$	173,401	$	71,362,793	$	(72,716,658	)	$	(1,180,464	)
Common stock warrants exercised	1,724,000		17,240		—		—			17,240
Common stock issued for Board fees	141,521		1,415		80,835					82,250
Common stock issued for upon exercise of stock options	5,000		50		1,200		—			1,250
Common stock issued upon conversion of Convertible Notes	11,818,560		118,185		7,164,371		—			7,282,556
Value of warrants issued in connection with issuance of note payable to related party	—		—		171,750		—			171,750
Share based compensation expense	—		—		76,301		—			76,301
Net loss, January 1, 2007 to September 30, 2007	—		—		—		(3,549,617	)		(3,549,617	)
Balance, September 30, 2007	31,029,146	$	310,291	$	78,857,250	$	(76,266,275	)	$	2,901,266

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

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ACCESS WORLDWIDE COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For The Nine Months Ended
	2007			2006
Cash flows from operating activities:
Net (loss) income	$	(3,549,617	)	$	3,567,929
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization		1,063,480			791,941
Amortization of deferred financing costs		198,374			510,273
Amortization of deferred compensation		7,875			7,875
Accretion of discount on Convertible Notes		1,009,510			565,536
Interest expense converted to common shares		1,647,556			—
Allowance for doubtful accounts		(74,106	)		90,454
Share based compensation expense		76,301			84,190
Gain on sale of discontinued operations		—			(8,199,620	)
Common stock issued for Board of Directors’ fees and bonuses		82,250			122,073
Changes in assets and liabilities from discontinued operations		(112,703	)		(83,233	)
Changes in operating assets and liabilities:
Accounts receivable		217,897			(2,717,646	)
Other assets		169,264			(134,037	)
Accounts payable and accrued expenses		(1,095,986	)		(478,697	)
Accrued salaries, wages and related benefits		317,975			468,790
Accrued interest expenses		16,433			(46,911	)
Deferred revenue and customer deposits		(578,649	)		(310,510	)
Net cash used in operating activities		(604,146	)		(5,761,593	)
Cash flows from investing activities:
Additions to property and equipment, net		(1,548,832	)		(196,362	)
Additions to property and equipment from discontinued operations, net		4,994			(187,549	)
Net proceeds from sale of discontinued operations		—			9,751,470
Increase in restricted cash		123,000			314,000
Net cash (used in) provided by investing activities		(1,420,838	)		9,681,559
Cash flows from financing activities:
Payments on capital leases		(182,368	)		(262,749	)
Proceeds from exercise of common stock options and warrants		18,490			5,535
Net borrowings (payments) under Revolver and Debt Agreement		2,203,428			(4,454,388	)
Loan origination fees		(145,334	)		(140,000	)
Proceeds from issuance of Convertible Notes		—			1,500,000
(Payments) proceeds on equipment and insurance financing, net		(13,522	)		15,175
(Payments) proceeds from note payable from related party		(1,750,000	)		2,000,000
Payment of subordinated note from discontinued operations		—			(352,334	)
Payment on capital leases from discontinued operations		—			(12,474	)
Net cash provided by (used in) financing activities		130,694			(1,701,235	)
Net (decrease) increase in cash and cash equivalents		(1,894,290	)		2,218,731
Cash and cash equivalents, beginning of period		2,836,980			1,755,926
Cash and cash equivalents, end of period	$	942,690		$	3,974,657

Non-Cash investment and financing activities:

Equipment acquisition through capital lease	$	267,177	$	20,455
Issuance of warrants on Note		171,750		84,000
Conversion of Convertible Notes with interest	$	5,635,000	$	—

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

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ACCESS WORLDWIDE COMMUNICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(UNAUDITED)

1. BASIS OF PRESENTATION

We prepared the condensed consolidated balance sheets as of September 30, 2007 and December 31, 2006, the condensed consolidated statements of operations for the three and nine months ended September 30, 2007 and 2006, the condensed consolidated statements of stockholders’ equity (deficit) for the nine months ended September 30, 2007 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2007 and 2006, without an audit. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to fairly present our financial position, results of operations and cash flows as of September 30, 2007 and for all periods presented have been made.

We prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted. We recommend that you read these unaudited condensed consolidated financial statements together with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006. The results of operations for the period ended September 30, 2007 are not necessarily indicative of the results of operations for the full 2007 fiscal year.

The condensed consolidated financial statements present our financial position and results of operations, including all subsidiaries. All intercompany balances and transactions have been eliminated.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

2. CONCENTRATION OF RISK

We potentially are subjected to concentration of credit risks through our cash and cash equivalents and accounts receivable. Cash and cash equivalents are deposited or managed by major financial institutions and at times are in excess of FDIC insurance limits.

We extend credit to our customers in the normal course of business and our accounts receivable are concentrated in a relatively few number of customers, a significant change in the liquidity or financial position of any of these customers could have a material adverse impact on the collectability of our accounts receivable and our future operating results. We continuously monitor accounts receivable balances and payments from our customers and maintain an allowance for doubtful accounts based upon historical experience and any specific customer collection issues that we have identified. For the period ended September 30, 2007 and December 31, 2006, we maintain allowance for doubtful accounts of $24,715 and $99,130, respectively. While such bad debt expenses have historically been within our expectations and the allowances established, we cannot guarantee that we will continue to experience the same collectability rates that we have in the past. Management’s assessment and judgment are vital requirements in assessing the ultimate realization of accounts receivable, including the credit-worthiness, financial stability and effects of market conditions on each client.

Our revenues are dependent on clients in the telecommunications, financial services, retail/catalog and media industries, and a material decrease in demand for outsourced services in these industries could result in decreased revenues. Additionally, we have significant operations in the Philippines and are subject to risk associated with operating in the Philippines including political, social and economic instability and increased security concern, fluctuation in currency exchange rates and exposure to different legal standards.

We maintain operational and technical facilities for our global operations, including maintaining a relationship with three significant vendors that provide maintenance of our main technology equipment and data. Any significant events leading to systems and operations unavailability before our contingency plans can be deployed could potentially lead to a disruption of services and associated financial impact.

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3. 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) income or total common stockholders’ equity (deficit) as previously reported.

4. RESTRICTED CASH

We have restricted cash of $0.3 million in the form of a certificate of deposit which secured a letter of credit issued to the landlord of our Maryland communication center. The restriction decreases each anniversary year of the lease agreement by $0.1 million through 2008 and then remains at $0.2 million through 2010.

5. (LOSS) INCOME PER COMMON SHARE

Basic (loss) earnings per share is based on the weighted average number of common shares outstanding and diluted (loss) earnings per share is based on the weighted average number of common shares outstanding and all potentially dilutive common shares outstanding.

The following is a summary of the number of shares or securities outstanding during the respective periods that have been excluded from the calculation because their effects on net (loss) income would have been anti-dilutive:

	As of September 30, 2007
Warrants	5,272,500
Stock options	1,459,890
Total	6,732,390

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

	For the Three Months Ended September 30,	For the Nine Months Ended September 30,
2007:
Weighted average number of common shares outstanding—basic	31,029,146	31,029,140
Weighted average number of common and common equivalent shares outstanding – dilutive*	23,612,434	24,013,187
2006:
Weighted average number of common shares outstanding—basic	17,340,065	17,193,204
Weighted average number of common and common equivalent shares outstanding – dilutive*	17,340,065	17,193,204

* Since the effects of the stock options and warrants are anti-dilutive for the three and nine months ended September 30, 2007 these effects have not been included in the calculation of dilutive earnings per share. For the three and nine months ended September 30, 2007 the common shares excluded are 370,274 and 400,752, respectively.

6. INDEBTEDNESS

Our borrowings consist of the following:

	As of
	September 30, 2007			December 31, 2006
Revolving line of credit (“Revolver”) with Manufacturers and Traders Trust Company	$	2,203,427			—
Subordinated unsecured promissory note payable to related party, constant maturity of four months and 200,000 warrants for each four month period		—		$	1,750,000
Deferred financing		—			13,521
Capital leases payable in monthly installments through May 2010		769,410			684,601
		2,972,837			2,448,122
Less: current portion of indebtedness		(2,684,331	)		(2,188,866	)
	$	288,506		$	259,256

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On May 24, 2006, we entered into a $2.0 million subordinated unsecured promissory note agreement (the “Note”) with Charles Henri-Weil, a member of our board of directors and one of our stockholders. The Note had a constant maturity of four months which required us to issue a warrant to purchase 200,000 shares of our common stock for each of the four month periods the Note remained unpaid. The warrants were fully vested upon issuance and had an exercise price of $0.01 per share and a term of ten years. As of September 30, 2007, we issued four warrants totaling 725,000 shares of our common stock. We estimated these warrants to have a fair value of $335,000 using a Black-Scholes pricing model, which was recorded as loan origination fees, and was amortized to interest expense over each four month period. On August 8, 2007, in conjunction with the execution of our revolving line of credit, the Note was repaid in full and all loan origination fees associated with the note were recognized as interest expense.

On August 8, 2007, we entered into a Loan and Security Agreement (the “Agreement”) with Manufacturers and Traders Trust Company for an $8.0 million revolving line of credit (the “Revolver”). The Revolver bears an interest rate of the prime rate plus a margin of 1.25%. The margin is adjustable based on our total liabilities to net worth as defined in the Agreement. Loans made under the Revolver are secured by a pledge of (i) all of our domestic assets and (ii) 65% of our common stock of our international subsidiary. All principal and unpaid interest on the Revolver is due and payable in full on August 7, 2010. We were required to pay loan origination fees, commitment fees, an unused facility fee, collateral management fees and adhere to certain financial covenants.

During the third quarter of 2007, we notified M&T of the loss of one of our most profitable programs due to our client’s budgetary cuts and that we would not be able to make our fixed charge coverage covenant for the third and fourth quarters of 2007.

On November 15, 2007, M&T agreed to waive the default of the fixed charge coverage covenant for the three months ended September 30, 2007 and eliminate the remaining fixed charge coverage covenants for 2007. These covenants were replaced by a monthly cash flow covenant from October 31, 2007 to March 31, 2007 and an amended and reset fixed charge coverage covenant for 2008 and 2009.

We expect to meet our short-term liquidity requirements through net cash provided by operations, cash and cash equivalents and our Revolver. 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.

Aggregate annual principal maturities for indebtedness as of September 30, 2007 are as follows:

2007	$	2,682,274
2008		186,248
2009		104,315
	$	2,972,837

7. CONVERTIBLE NOTES

On July 15, 2003 (the “Effective Date”), we completed a private placement of $2.1 million of Convertible Notes and warrants (“Convertible Notes I) to purchase up to 1.05 million shares of our common stock that were sold to accredited investors. The proceeds of the Convertible Notes I were used to fund working capital and operations. The Convertible Notes I had a 39 month term, bore interest at a rate of 5% and were convertible after one year from the Effective Date of the Convertible Notes I into our common stock at $1.00 per share. The warrants had an exercise price of $0.01 per share, a term of ten years, and were exercisable commencing July 15, 2004. Interest on the Convertible Notes I was paid quarterly. Principal was payable on October 15, 2006.

We have recorded a debt discount of approximately $1,281,000 consisting of the intrinsic value of the beneficial conversion option of $441,000 and the portion of the proceeds allocated to the warrants of $840,000, using the Black-Scholes option pricing model, based on the relative fair values of the warrants and the Convertible Notes I. The debt discount was amortized over the contractual life of the Convertible Notes I as additional interest expense using the effective interest method.

During the third quarter of 2006, we contacted the Holders of Convertible Note I (the “Holders”) and offered each, the following options: (a) to convert their Convertible Note I to shares of our common stock, (b) to receive a payout of principal and any accrued interest, or (c) to reinvest their Convertible Note I with us for another 36 months in return for an increased conversion rate from one

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(1) share of our common stock per dollar invested, to two (2) shares of common stock per dollar invested. On October 13, 2006, approximately $1.985 million of the Holders agreed to reinvest in Convertible Notes I (henceforth referred to as “Amended Convertible I”) and Convertible Notes I was amended. Amended Convertible I was scheduled to mature on October 1, 2009, and all or any part of the principal amount may be converted at any time at a conversion rate of $0.50 per share.

We recorded a debt discount of approximately $600,385 using the Black-Scholes option pricing model. The debt discount will be amortized over the contractual life of Convertible I as additional interest expense using the effective interest method.

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. The proceeds of the Convertible Notes II were used to fund working capital and operations. The Convertible Notes II had a 39 month term, bore interest at a rate of 5% and were convertible beginning after one year from the Effective Date, as defined, of the Convertible Notes II into common stock at $1.00 per share. The warrants had an exercise price of $0.01 per share, a term of ten years, and were immediately exercisable. Interest on the Convertible Notes II was paid quarterly. Principal was payable on March 15, 2008.

We have recorded a debt discount of approximately $1,104,000 consisting of the intrinsic value of the beneficial conversion option of $494,500 and the portion of the proceeds allocated to the warrants of $609,500, using the Black-Scholes option pricing model, based on the relative fair values of the warrants and the Convertible Notes II. The debt discount is being amortized over the contractual life of the Convertible Notes II as additional interest expense using the effective interest method.

On March 17, 2006, we completed a private placement of $2.5 million of Convertible Notes (“Convertible Notes IV”) to purchase up to 5.0 million shares of our common stock that were sold to accredited investors. The proceeds of the Convertible Notes IV were used to fund working capital and operations. The Convertible Notes IV had a 36 month term, bore interest at a rate of 5% and were immediately convertible into common stock at a rate of 2 shares per dollar invested, as defined. Interest on the Convertible Notes IV was paid quarterly. Principal was payable on March 17, 2009.

Under the terms of registration rights granted to the holders of Amended Convertible I, and Convertible Notes II, III and IV for the shares into which the notes are convertible, and common shares into which the related warrants are exercisable, we have committed to take all reasonable efforts to file a registration statement to register and maintain registration of such shares for a period of two years from the effective date of the registration statement.

On June 29, 2007, all holders of Amended Convertible I, and Convertible Notes II and IV (collectively, the “Convertible Notes”) agreed to convert their Convertible Notes to common stock, par value $0.01, at the conversion rates presented below:

Notes	Amount Outstanding		Accrued Interest		Total Value ($)		Share issued for Early Conversion	Conversion Rate
Convertible I	$	1,985,000	$	248,533	$	2,233,533	4,218,533	1.8887
Convertible Note II		1,150,000		54,822		1,204,822	2,354,822	1.9545
Convertible Note IV		2,500,000		245,205		2,745,205	5,245,205	1.9107
Total	$	5,635,000		548,560		6,183,560	11,818,560

8. INCOME TAXES

The effective tax rate used by us for the three and nine month periods ended September 30, 2007 and 2006 differs from the federal statutory rate primarily due to the valuation allowance recorded in connection with the our deferred tax assets.

9. DISCONTINUED OPERATIONS

In accordance with SFAS 144, Accounting for the Impairment or Disposal of Long Lived Assets, we have reclassified as discontinued operations, the operations of our TMS Professional Markets Group (“TMS”), a provider of professional pharmaceutical marketing services in a variety of therapeutic categories and our AM Medica Communications Group (“AMG”), a provider of professional pharmaceutical educations and meeting management services.

TMS was sold on August 3, 2006 for $10.5 million less $0.4 million for the settlement of a subordinated note with the former stockholder of TeleManagement Services, accrued interest and a $0.8 million holdback for the working capital settlement in 90 days,

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as defined in the Asset Purchase Agreement. We realized a net gain, including operations through July 31, 2006, of $7.8 million on the disposal of the segment, net of income tax expense and expenses incurred in connection with the transaction as of December 31, 2006. On March 27, 2007, we settled the working capital settlement with TMS for $0.3 million.

In addition, the Board of Directors approved a plan to terminate our medical education and meeting management services as of December 31, 2006 and focus its attention to the rapidly growing business process outsourcing industry. This action resulted in AMG being reclassified to discontinued operations.

Revenues and operating profit for TMS and AMG for the three and nine month period ended September 30, 2007 and 2006 were as follows:

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2007		2006			2007			2006
TMS:
Revenues		—		1,184,763			—		$	8,617,564
Operating income (loss)		—		97,295			—			(315,512	)
Net income (loss) per share		—	$	0.01			—		$	(0.02	)
AMG:
Revenues		—		750,665			89,686		$	1,223,620
Operating income (loss)		8,584		(81,402	)		(110,662	)		(274,011	)
Net income (loss) per share	$	0.00	$	(0.01	)	$	0.00		$	(0.01	)

10. SEGMENTS

Our reportable segments are strategic business units that offer our products and services out of different geographical regions. Our reportable segments consist of U.S. Segment which provides customer management services within the U.S. and Philippines Segment which provides customer management services within the Philippines.

We evaluate the performance of our segments and allocate resources based on revenues and operating (loss) income. The tables below present information about our reportable segments for our continuing operations used by our chief operating decision-maker:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2007		2006		2007		2006
Revenues
United States	5,430,318		5,948,152		18,363,825		15,972,335
Philippines	2,744,964		1,457,204		7,244,178		3,272,581
Total	8,175,282		7,405,356		25,608,003		19,244,916
Operating (loss) income
United States	(793,638	)	(143,017	)	(1,222,706	)	(1,465,446	)
Philippines	214,097		148,305		734,370		219,272
Total	(579,541	)	5,288		(488,336	)	(1,246,176	)
Depreciation expense
United States	129,643		132,553		396,635		463,688
Philippines	266,238		117,191		666,845		327,370
Total	395,881		249,744		1,063,480		791,058

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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 2007 and in future years to differ materially from those expressed in any forward-looking statement made in this Quarterly Report on Form 10-Q:

• The availability and adequacy of our cash flow to meet our requirements, including payment of loans;

• Our ability to continue as a going concern;

• Competition from other third-party providers and those of our clients and prospects who may decide to do the work that we do in-house;

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

• Our dependence on the continuation of the trend toward outsourcing;

• Dependence on the industries we serve;

• 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 recent changes in management;

• Reliance on our labor force;

• 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;

• Risks associated with our stock trading on the OTC Bulletin Board;

• Our inability to successfully operate our communication center in the Philippines; and

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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 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

The following table sets forth, for the periods indicated, certain statements of operations data by segment obtained from our consolidated statements of operations.

Three Months Ended September 30, 2007 Compared to the Three Months Ended September 30, 2006

	United States								International
	2007			2006			Change		2007		2006		Change
	(in thousands)
Statements of Operations Data:
Revenues	$	5,430		$	5,948		(518	)	$	2,745	$	1,457	1,288
Cost of services		5,012			4,734		278			1,724		788	936
Selling, general and administrative expenses		1,083			1,225		(142	)		540		404	136
Depreciation expense		129			133		(4	)		265		117	148
Operating (loss) income	$	(794	)	$	(144	)	650		$	215	$	148	67

Revenues

Our revenues for the quarter ended September 30, 2007 increased $0.8 million, or 10.8%, to $8.2 million, compared to $7.4 million for the quarter ended September 30, 2006. Revenues for the U.S. Segment decreased $0.5 million, or 8.5%, to $5.4 million for the quarter ended September 30, 2007, compared to $5.9 million for the quarter ended September 30, 2006. The decrease was attributed to an 6.0% decrease in production hours produced coupled with a decrease in our average billing rate. Revenues for the International Segment increased $1.2 million, or 80.0%, to $2.7 million for the quarter ended September 30, 2007, compared to $1.5 million for the quarter ended September 30, 2006. The increase in revenues is primarily attributed to organic growth resulting in a 173% increase in production hours produced. The increase was attributed to our primary client in the Philippines growing by 496.0% offset by smaller reductions in production hours with our other clients.

Cost of Services

Our cost of services increased $1.2 million, or 21.8%, to $6.7 million for the quarter ended September 30, 2007, compared to $5.5 million for the quarter ended September 30, 2006. Cost of services as a percentage of revenues increased to 81.7% for the quarter ended September 30, 2007, compared to 74.3% for the quarter ended June 30, 2006. Cost of revenues as a percentage of revenues for the U.S. Segment increased to 92.6% for the quarter ended September 30, 2007, compared to 79.7% for the quarter ended September 30, 2006. The increase is attributed to several factors, among them, (a) the loss of one of our most profitable programs due to our client’s budgetary cuts, (b) increased costs associated with additional hiring and training resulting from a request by the client to increase production for two programs, and (c) higher attrition across our U.S. operations. Cost of services as a percentage of revenues for the International Segment increased to 63.0% for the quarter ended September 30, 2007, compared to 53.3% for the quarter ended September 30, 2006. The increase is primarily attributed an increase payroll expenses as we ramp up in personnel to execute the increased production hours and an increase in equipment maintenance cost for our core information systems servicing our international operations.

Selling, General and Administrative

Our selling, general and administrative expenses remained the same for the quarter ended September 30, 2007, compared to the quarter ended September 30, 2006. Selling, general and administrative expenses as a percentage of revenues decreased to 19.5% for the quarter ended September 30, 2007, compared to 21.6% for the quarter ended September 30, 2006. Selling, general and administrative expenses as a percentage of revenues for the U.S. Segment increased slightly to 20.4% for the quarter ended September 30, 2007, compared to 20.3% for the quarter ended September 30, 2006. Selling, general and administrative expenses as a percentage of revenues for the International Segment decreased to 18.5% for the quarter ended September 30, 2007, compared to 26.7% for the quarter ended September 30, 2006. The decrease in is attributed to increase revenues, which translated into the increased utilization of the second communication center in the Philippines.

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Depreciation Expense:

Our depreciation expense increased $0.2 million, or 100.0% to $0.4 million for the quarter ended September 30, 2007, compared to $0.2 million for the quarter ended September 30, 2006. Depreciation expense for the U.S. Segment remained the same at $0.1 million for quarter ended September 30, 2007 and 2006. Depreciation expense for the International Segment increased $0.2 million or 200%, to $0.3 million for the quarter ended September 30, 2007, compared to $0.1 million for the quarter ended September 30, 2006. The increase was primarily attributed to the purchase of additional fixed assets to support our revenue growth.

Nine Months Ended September 30, 2007 Compared to the Nine Months Ended September 30, 2006

	United States								International
	2007			2006			Change		2007		2006		Change
	(in thousands)
Statements of Operations Data:
Revenues	$	18,364		$	15,972		2,392		$	7,244	$	3,272	3,972
Cost of services		15,703			13,210		2,493			4,374		1,767	2,607
Selling, general and administrative expenses		3,487			3,763		(276	)		1,469		959	510
Depreciation expense		397			464		(67	)		667		327	340
Operating (loss) income	$	(1,223	)	$	(1,465	)	242		$	734	$	219	515

Revenues

Our revenues for the nine months ended September 30, 2007 increased $6.4 million, or 33.3%, to $25.6 million, compared to $19.2 million for the nine months ended September 30, 2006. Revenues for the U.S. Segment increased $2.4 million, or 15.0%, to $18.4 million for the nine months ended September 30, 2007, compared to $16.0 million for the nine months ended September 30, 2006. The increase was attributed to a 17.0% increase in production hours produced coupled with a decrease in our average billing rate. Revenues for the International Segment increased $3.9 million, or 118.2%, to $7.2 million for the nine months ended September 30, 2007, compared to $3.3 million for the nine months ended September 30, 2006. The increase in revenues is primarily attributed to organic growth resulting in a 171.0% increase in production hours produced. The increase was attributed to our primary client in the Philippines growing by 240.0% offset by smaller reductions in production hours with our other clients.

Cost of Services

Our cost of services increased $5.1 million, or 34.0%, to $20.1 million for the nine months ended September 30, 2007, compared to $15.0 million for the nine months ended September 30, 2006. Cost of services as a percentage of revenues increased to 78.5% for the nine months ended September 30, 2007, compared to 78.1% for the nine months ended September 30, 2006. Cost of revenues as a percentage of revenues for the U.S. Segment increased to 85.3% for the nine months ended September 30, 2007, compared to 82.5% for the nine months ended September 30, 2006. The increase resulted from several factors, among them, (a) the loss of one of our most profitable programs due to our client’s budgetary cuts, (b) increased costs associated with additional hiring and training resulting from a request by the client that we increase production for two programs, and (c) higher attrition across our U.S. operations. Cost of services as a percentage of revenues for the International Segment increased to 61.1% for the nine months ended September 30, 2007, compared to 54.6% for the nine months ended September 30, 2006. The increase is primarily attributed to an increase in payroll expenses as we ramp up in personnel to execute increased production hours requested by our client, along with an increase in telecommunication cost and equipment maintenance cost for our core systems servicing our international operations.

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Selling, General and Administrative

Our selling, general and administrative expenses increased $0.3 million, or 6.4%, to $5.0 million for the nine months ended September 30, 2007, compared to $4.7 million for the nine months ended September 30, 2006. Selling, general and administrative expenses as a percentage of revenues decreased to 19.5% for the nine months ended September 30, 2007, compared to 24.5% for the nine months ended September 30, 2006. Selling, general and administrative expenses as a percentage of revenues for the U.S. Segment decreased to 19.0% for the nine months ended September 30, 2007, compared to 23.8% for the nine months ended September 30, 2006. The decrease is primarily attributed to the increase in revenues and a decrease in facilities rent as we did not renew our lease for the 8th floor at our Virginia Facility and other reduced operating costs. Selling, general and administrative expenses as a percentage of revenues for the International Segment decreased to 20.8% for the nine months ended September 30, 2007, compared to 30.3% for the nine months ended September 30, 2006. The decrease is primarily attributed to the increase in revenues offset by an increase in rent and utilities expense due to our second communication center currently not fully utilized.

Depreciation Expense:

Our depreciation expense increased $0.3 million, or 37.5% to $1.1 million for the nine months ended September 30, 2007, compared to $0.8 million for the nine months ended September 30, 2006. Depreciation expense for the United States Segment decreased $0.1 million or 20.0%, to $0.4 million for the nine months ended September 30, 2007, compared to $0.5 million for the nine months ended September 30, 2006. The decrease was primarily attributed to assets becoming fully depreciated without any current replacement needs. Depreciation expense for the International Segment increased $0.3 million or 100%, to $0.7 million for the nine months ended September 30, 2007, compared to $0.3 million for the nine months ended September 30, 2006. The increase was primarily attributed to the opening of our second communication center in the Philippines and the purchase of fixed assets to support our revenue growth.

LIQUIDITYAND CAPITAL RESOURCES

The following table summarizes our cash flow by category for the nine months ended September 30, (in thousands):

	2007			2006			Change			% Change
Net cash (used in) operating activities	$	(604	)	$	(5,762	)	$	5,158		89.5	%
Net cash (used in) provided by investing activities	$	(1,421	)	$	9,682		$	(11,103	)	(114.7	)%
Net cash provided by (used in) provided by financing activities	$	131		$	(1,701	)	$	1,832		107.7	%

Our primary cash requirements include the funding of the following:

• operating expenses

• capital expenditures for new and ongoing communication centers

• interest payments and the repayment of principal on our debt

Our primary source of liquidity has been cash and cash equivalents, restricted cash, cash flow from operations and our Revolver. At September 30, 2007 and December 31, 2006, we had cash and cash equivalents of $0.9 million and $2.8 million, respectively and working capital of $2.7 million and $4.2 million, respectively.

During the third quarter of 2007, we notified M&T of the loss of one of our most profitable programs due to our client’s budgetary cuts and that we would not be able to make our fixed charge coverage covenant for the third and fourth quarters of 2007. On November 15, 2007, M&T agreed to waive the default of the fixed charge coverage covenant for the three months ended September 30, 2007 and eliminate the remaining fixed charge coverage covenants for 2007. These covenants were replaced by a monthly cash flow covenant from October 31, 2007 to March 31, 2007 and an amended and reset fixed charge coverage covenant for 2008 and 2009.

We are in the process of executing a plan to quickly realign revenues with operating costs. The plan includes, among other things, (i) consolidation of our U.S. operations into two communication centers; (ii) sublease our third U.S communication center and (iii) the refinement of operating processes and procedures.

As we execute our plan, liquidity and capital resources will be negatively impacted in the short term and we expect to meet these liquidity requirements through cash and cash equivalents, net cash provided by operations and our Revolver,

Net cash used in operating activities for the nine months ended September 30, 2007 was $0.6 million, compared to $5.8 million net cash used in operating activities for the nine months ended September 30, 2006. The net decrease was primarily due to a decrease in accounts payables as we got caught up with most of our vendors.

Net cash used in investing activities for the nine months ended September 30, 2007 was $1.4 million, compared to $9.7 million net cash provided by investing activities for the nine months ended September 30, 2006. The decrease was primarily attributed a net gain of $9.8 million on the sale of discontinued operation for the nine months ended September 30, 2006 with no similar transaction for the nine months ended September 30, 2007. For the nine months ended September 30, 2007 we incurred capital expenditures related to the opening of our second communication center in the Philippines and a co-location site for our IT equipment offset by the release of restricted cash in accordance with our lease agreement for our Maryland communication center.

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Net cash provided by financing activities for the nine months ended September 30, 2007 was $0.1 million, compared to $1.7 million net cash used in financing activities for the nine months ended September 30, 2006. The increase was primarily due to net borrowing under our Revolver offset by the repayment of our note payable with one of our Board members.

Contractual Obligations and Off Balance Sheet Arrangements

The following is a chart of our approximate contractual cash payment obligations, which have been aggregated to facilitate a basic understanding of our liquidity as of September 30, 2007:

Contractual Cash Obligations

	Payments Due by Period
	Total		1 year		2-4 years		5 years		After 5 years
Long-term debt	$	2,203,000	$	2,203,000	$	—	$	—	$	—
Capital lease obligations		770,000		479,000		291,000		—		—
Operating leases		6,850,000		2,633,000		4,217,000		—		—
Total contractual obligations	$	9,823,000	$	5,315,000	$	4,508,000	$	—	$	—

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our results of operation and cash flows are subject to fluctuations due to changes in foreign currency exchange rate, in particularly, the Philippines peso. For the three and nine months ended September 30, 2007 and 2006, approximately 18.0% and 10.0% and 15.3% and 7.6%, respectively, of our expenses were generated in the Philippines. We measure all of our revenues in U.S. dollars. A 10% increase in the value of the U.S. dollar relative to the Philippines peso would reduce the expenses associated with the operations of our overseas operation by approximately $0.4 million where as a 10% decrease in the relative value of the dollar would increase the cost associated with these operations by approximately $0.4 million. Expenses related to our operations outside of the United States increased for the three and nine months ended September 30, 2007 when compared to the three and nine months ended September 30, 2006 due to increased cost associated with higher revenue generation and a decrease in the value of the U.S. dollar relative to the Philippine peso.

We have cash and cash equivalents and restricted cash equivalents totaling $1.3 million at September 30, 2007. These amounts were primarily invested in money market funds and certificate of deposits. The cash and cash equivalents are held for working capital requirements, expansion and general corporate purposes. We do not enter into investments for trading or speculative purposes. We believe that we have no material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates.

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 1A. Risk Factors

During the period covered by this Report, there have been no material changes from our risk factors as previously disclosed in our Form 10-K for the year ended December 31, 2006.

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ITEM 6. Exhibits

Exhibits No.	Description
10(vvvvv)	First Amendment To Loan and Security Agreement dated November 15, 2007, by and between Access Worldwide Communications, Inc. (the “Borrower”) and Manufacturers and Traders Trust Company (the “Lender”)
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

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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.

	ACCESS WORLDWIDE COMMUNICATIONS, INC.
Date: November 16, 2007	By:	/s/ SHAWKAT RASLAN
		Shawkat Raslan, Chairman of the Board, President and Chief Executive Officer (principal executive officer)
Date: November 16, 2007	By:	/s/ RICHARD A. LYEW
		Richard A. Lyew, Executive Vice President and Chief Financial Officer (principal financial and accounting officer)

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Exhibit Index

Exhibit Number	Description
10(vvvvv)	First Amendment to Loan and Security Agreement dated November 15, 2007, by and between Access Worldwide Communications, Inc. (the “Borrower”) and Manufacturers and Traders Trust Company (the “Lender”)
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