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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ending March 31, 2000
[_]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 (I.R.S. Employer Identification No.)
Incorporation or organization)
4950 Blue Lake Drive, Suite 300
Boca Raton, Florida 33431
_____________________________________ _____________________________________
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code 1 (800) 437-5200
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
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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 the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
9,740,001 shares of Common Stock, $.01 par value, as of May 5, 2000
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ACCESS WORLDWIDE COMMUNICATIONS, INC.
INDEX
Page
----
Part I--Financial Information
Item 1. Financial Statements........................................... 1-5
Consolidated Balance Sheets--March 31, 2000 and December 31,
1999........................................................... 1
Consolidated Statements of Operations--Three Months Ended March
31, 2000 and March 31, 1999................................... 2
Consolidated Statements of Cash Flows--Three Months Ended March
31, 2000 and March 31, 1999................................... 3
Notes to Consolidated Financial Statements..................... 4-5
Management's Discussion and Analysis of Financial Condition and
Item 2. Results of Operations.......................................... 6-8
Part II--Other Information.............................................. 9
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACCESS WORLDWIDE COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2000 1999
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents......................... $ 2,676,285 $ 4,706,380
Accounts receivable, net of allowance for doubtful
accounts of $120,144 and $113,082, respectively.. 19,541,563 15,940,988
Unbilled receivables.............................. 4,705,743 2,954,899
Other assets, net................................. 1,766,068 2,026,216
------------ ------------
Total current assets.............................. 28,689,659 25,628,483
Property and equipment, net....................... 11,085,804 11,435,983
Other assets, net................................. 877,826 941,291
Intangible assets, net............................ 70,732,321 71,518,273
------------ ------------
Total assets...................................... $111,385,610 $109,524,030
============ ============
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of indebtedness................... $ 3,023,606 $ 3,028,873
Current portion of indebtedness--related parties.. 1,990,000 1,990,000
Accounts payable and accrued expenses............. 9,302,827 6,762,870
Accrued interest and other related party
expenses......................................... 1,479,310 1,296,672
Accrued salaries, wages and related benefits...... 1,532,252 2,046,665
Deferred revenue.................................. 2,509,494 2,335,705
------------ ------------
Total current liabilities......................... 19,837,489 17,460,785
Long-term portion of indebtedness................. 37,564,083 37,566,384
Long-term portion of indebtedness--related
parties.......................................... 3,802,334 3,802,334
Mandatorily redeemable preferred stock, $.01 par
value:
2,000,000 shares authorized, 40,000 shares issued
and outstanding at March 31, 2000 and
December 31, 1999................................ 4,000,000 4,000,000
------------ ------------
Total liabilities and mandatorily redeemable
preferred stock.................................. 65,203,906 62,829,503
Commitments and contingencies
Common stockholders' equity:
Common stock, $.01 par value: voting: 20,000,000
shares authorized; 9,528,478 shares issued and
outstanding at March 31, 2000 and December 31,
1999............................................. 95,285 95,285
Additional paid-in capital........................ 63,003,343 62,932,033
Accumulated deficit............................... (16,916,924) (16,332,791)
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Total common stockholders' equity................. 46,181,704 46,694,527
------------ ------------
Total liabilities, mandatorily redeemable
preferred stock and common stockholders' equity.. $111,385,610 $109,524,030
============ ============
The accompanying notes are an integral part of these financial statements.
1
ACCESS WORLDWIDE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31,
2000 1999
----------- -----------
Revenues............................................. $25,464,786 $22,743,022
Cost of revenues (exclusive of depreciation)......... 16,243,595 14,199,884
----------- -----------
Gross profit........................................ 9,221,191 8,543,138
Selling, general and administrative expenses
(selling, general and administrative expenses paid
to related parties are $185,715, and $220,523,
respectively)....................................... 7,775,350 7,083,322
Amortization expense................................. 785,952 767,032
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Income from operations.............................. 659,889 692,784
Interest income...................................... 47,524 33,912
Interest expense-related parties..................... (181,136) (74,227)
Interest expense..................................... (1,241,688) (459,084)
----------- -----------
(Loss) income before income taxes and extraordinary
charge............................................. (715,411) 193,385
Income tax benefit (expense)......................... 131,278 (86,443)
----------- -----------
(Loss) income before extraordinary charge........... (584,133) 106,942
Extraordinary charge on extinguishment of debt (net
of applicable income
taxes of $82,195)................................... -- (101,686)
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Net (loss) income................................... $ (584,133) $ 5,256
=========== ===========
(Loss) earnings per share of common stock
Basic:
(Loss) income before extraordinary charge.......... $ (0.06) $ 0.01
Extraordinary charge............................... $ (0.00) $ (0.01)
Net (loss) income.................................. $ (0.06) $ 0.00
Diluted (loss) earnings per share of common stock... $ (0.06) $ 0.00
The accompanying notes are an integral part of these financial statements.
2
ACCESS WORLDWIDE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31,
2000 1999
----------- -----------
Cash flows from operating activities:
Net (loss) income.................................... $ (584,133) $ 5,256
Adjustments to reconcile net (loss) income to net
cash used in operating activities:
Depreciation and amortization........................ 1,467,163 1,239,376
Extraordinary charge, net of applicable income
taxes............................................... -- 101,686
Income tax effect of extraordinary charge............ -- 82,195
Stock based compensation............................. 71,310 --
Allowance for doubtful accounts receivable........... 7,062 82,441
Changes in operating assets and liabilities,
excluding effects from acquisitions:
Accounts receivable.................................. (3,607,637) (3,585,164)
Unbilled receivables................................. (1,750,844) (95,563)
Other assets......................................... 323,613 (82,193)
Accounts payable and accrued expenses................ 2,539,957 545,115
Accrued interest and related party expenses.......... 182,638 (236,753)
Accrued salaries, wages and related benefits......... (514,413) 93,405
Deferred revenue..................................... 173,789 1,869,602
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Net cash (used in) provided by operating
activities......................................... (1,691,495) 19,403
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Cash flows from investing activities:
Additions to property and equipment, net............. (331,032) (2,643,508)
Business acquisitions, net of cash acquired.......... -- (2,801,124)
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Net cash used in investing activities................ (331,032) (5,444,632)
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Cash flows from financing activities:
Deferred stock issuance and loan origination fees.... -- (704,390)
Payments on capital leases........................... (7,568) (23,037)
Net borrowings under line of credit facility......... -- 11,304,390
Repayment of related party debt...................... -- (478,061)
Repurchase of preferred stock........................ -- (2,500,000)
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Net cash (used in) provided by financing activities.. (7,568) 7,598,902
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Net (decrease) increase in cash and cash
equivalents......................................... (2,030,095) 2,173,673
Cash and cash equivalents, beginning of period........ 4,706,380 1,912,219
----------- -----------
Cash and cash equivalents, end of period.............. $ 2,676,285 $ 4,085,892
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
ACCESS WORLDWIDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete consolidated financial statements. For further
information, refer to the consolidated financial statements and footnotes
included in the Company's Annual Report on Form 10-K.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts included in the consolidated
financial statements. In the opinion of management, 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, 2000 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2000.
2. Reclassifications
Certain reclassifications have been made to the March 31, 1999 consolidated
financial statements to conform with the March 31, 2000 presentation.
3. Income Taxes
The Company's effective tax rate of 18.35% in the first quarter of 2000
differs from the Federal statutory rate primarily due to meals and
entertainment, officer's life insurance, state income taxes and non-deductible
goodwill amortization.
4. (Loss) Earnings Per Common Share
(Loss) earnings per common share are calculated as follows:
For the Three Months Ended March
31,
--------------------------------
(Loss) Per
Income Shares Share
(Numerator) (Denominator) Amount
----------- ------------- ------
2000:
Basic......................................... $(584,133) 9,528,478 $(0.06)
--------- --------- ------
Loss per share of common stock--dilutive **... $(584,133) 9,528,478 $(0.06)
========= ========= ======
1999:
Basic......................................... $ 5,256 9,027,730 $ 0.00
Effect of dilutive securities:
Stock options............................... -- 154,374 --
Earnout contingency......................... -- 500,743 --
--------- --------- ------
Earnings per share of common stock--dilutive.. $ 5,256 9,682,847 $ 0.00
========= ========= ======
- --------
** Since the effects of the stock options and earnout contingencies are anti-
dilutive for the three months ended March 31, 2000, these effects have not
been included in the calculation of dilutive EPS.
4
ACCESS WORLDWIDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Segments
In accordance with Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information, the
Company's reportable segments are strategic business units that offer
different products and services to different industries throughout the United
States.
The table below presents information about net loss/income and segments used
by the chief operating decision-maker of the Company for the three months
ended March 31, 2000 and 1999.
Segment
Pharmaceutical Consumer Other Total Reconciliation Total
-------------- ---------- ---------- ----------- -------------- -----------
2000:
Revenues................ $15,488,188 $9,105,302 $ 871,296 $25,464,786 $ -- $25,464,786
Gross Profit............ 5,138,576 3,562,557 520,058 9,221,191 -- 9,221,191
EBIT.................... 1,273,331 384,793 (29,272) 1,628,852 (968,963) 659,889
Depreciation expense.... 329,464 327,433 13,356 670,253 10,958 681,211
Amortization expense.... 679,516 84,641 21,795 785,952 -- 785,952
1999:
Revenues................ $12,465,092 $9,010,453 $1,267,477 $22,743,022 $ -- $22,743,022
Gross Profit............ 5,157,155 2,807,710 578,273 8,543,138 -- 8,543,138
EBIT.................... 1,819,424 (84,980) 21,209 1,755,653 (1,062,869) 692,784
Depreciation expense.... 201,952 248,583 12,419 462,954 9,390 472,344
Amortization expense.... 660,596 84,641 21,795 767,032 -- 767,032
5
ACCESS WORLDWIDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31,
1999
Revenues for the Company increased $2.8 million, or 12.3%, to $25.5 million
for the three months ended March 31, 2000, compared to $22.7 million for the
three months ended March 31, 1999. Revenues for the Pharmaceutical Segment
increased $3.0 million, or 24.0%, to $15.5 million for the three months ended
March 31, 2000, compared to $12.5 million for the three months ended March 31,
1999. The increase in revenues was primarily due to higher sample fulfillment
volumes and American Medical Association ("AMA") database license renewals, as
well as higher revenues on medical meeting programs. Revenues for the Consumer
Segment increased $0.1 million or 1.1% to $9.1 million for the three months
ended March 31, 2000, compared to $9.0 million for the three months ended
March 31, 1999.
Cost of revenues for the Company increased $2.0 million, or 14.1%, to $16.2
million for the three months ended March 31, 2000, compared to $14.2 million
for the three months ended March 31, 1999. Cost of revenues as a percentage of
revenues increased slightly to 63.5% for the three months ended March 31,
2000, from 62.6% for the three months ended March 31, 1999. Cost of revenues
as a percentage of revenues for the Pharmaceutical Segment for the three
months ended March 31, 2000 increased to 66.5%, compared to 58.4% for the
three months ended March 31, 1999. The increase was mainly due to a change in
the mix of business, with more international medical education meetings which
had higher costs, and increased AMA database license renewals. Cost of
revenues as a percentage of revenues for the Consumer Segment decreased to
60.4% for the three months ended March 31, 2000, from 68.9% for the three
months ended March 31, 1999. The decrease primarily reflected higher labor,
training and overtime costs incurred due to technical systems issues during
the three months ended March 31, 1999.
Selling, general and administrative expenses for the Company increased $0.7
million, or 9.9%, to $7.8 million for the three months ended March 31, 2000,
compared to $7.1 million for the three months ended March 31, 1999. Selling,
general and administrative expenses as a percentage of revenues for the
Company decreased slightly to 30.6% for the three months ended March 31, 2000,
compared to 31.3% for the three months ended March 31, 1999. Selling, general
and administrative expenses as a percentage of revenues for the Pharmaceutical
Segment decreased to 20.6% for the three months ended March 31, 2000, from
21.6% for the three months ended March 31, 1999. Selling, general and
administrative expenses as a percentage of revenues for the Consumer Segment
increased to 34.1% for the three months ended March 31, 2000, from 31.1% for
the three months ended March 31, 1999. This reflects a decrease in revenues
generated at the Arlington teleservices locations combined with a need to hold
fixed costs to maintain operating performance. This decrease was offset by
improved selling, general and administrative expenses as a percentage of
revenues at the Boca Raton Business to Business operation which was
established in the third quarter of 1999.
Net interest expense for the Company increased $0.9 million or 180% to $1.4
million for the three months ended March 31, 2000, compared to $0.5 million
for the three months ended March 31, 1999. The increase was primarily
attributed to an increase in the borrowing rate from 6% to 12% for the three
months ended March 31, 1999 and 2000, respectively, in accordance with the
Amendment Agreement and Waiver (the "Amendment Agreement"), dated April 14,
2000, to the Credit Facility.
The extraordinary charge for the three months ended March 31, 1999 was due
to the write-off of loan origination fees related to the $30,000,000 committed
line of credit obtained from NationsBank on January 20, 1998 which was
extinguished on March 12, 1999.
6
ACCESS WORLDWIDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Liquidity and Capital Resources
At March 31, 2000, the Company had working capital of $8.9 million, an
increase from $8.1 million at December 31, 1999. Cash and cash equivalents
were $2.7 million at March 31, 2000, compared to $4.7 million at December 31,
1999.
Net cash used in operating activities during the first quarter of 2000 was
$1.7 million, compared to net cash provided by operating activities of $19,403
during the first quarter of 1999. The increase was primarily driven by an
increase in unbilled receivables of approximately $1.7 million and a decrease
in deferred revenues of $1.7 million, offset by an increase in accounts
payable and accrued expenses of $2.0 million compared to quarter ended March
31, 1999.
Net cash used in investing activities during the first quarter of 2000 was
$0.3 million, compared to $5.4 million during the first quarter of 1999. The
decrease of $5.1 million reflected $2.3 million of capital expenditures for
the expansion of the Company's facilities and upgrading of computer and
telephone systems and approximately $2.8 million of additional purchase price
payments due to former owners of acquired businesses during the first quarter
of 1999.
Net cash used in financing activities was $7,568 for the first quarter of
2000, compared to net cash provided by financing activities of $7.6 million
for the first quarter of 1999. In 1999, the Company borrowed approximately
$11.3 million under the Credit Facility to finance $5.4 million of certain
investing activities described above, $0.7 million in loan organization fees,
$0.5 million in related party debt, and to repurchase 25,000 shares of the
Company's preferred stock, Series 1998, for $2.5 million.
On March 12, 1999, the Company entered into a Credit Facility with a
syndicate of financial institutions (the "Bank Group"). The Credit Facility
consisted of (i) a revolving line of $40,000,000, with a sublimit of
$5,000,000 for the issuance of standby letters of credit and a sublimit of
$5,000,000 for swingline loans, and (ii) a term loan facility of $25,000,000.
At the end of the second quarter of 1999, the Company was in violation of
certain financial covenants of this Credit Facility. In an attempt to resolve
this technical default, the Company entered into a forbearance agreement with
the Bank Group on September 28, 1999. However, as of December 31, 1999, the
Company remained in default, and under the covenants of the Credit Facility
was required to pay the maximum interest rate of approximately 11% and was
prevented from making payments on its subordinated promissory notes.
On April 14, 2000, the Company entered into an Amendment Agreement and
Waiver (the "Amendment") to the Credit Facility. The Amendment requires the
Bank Group to waive the previous events of default and adjusts certain
provisions relating to the financial covenants. Additionally, the Amendment
limits the revolving line to $17 million, increases the interest rate on the
outstanding Credit Facility to prime plus 3.0%, and allows certain future
payments to be made by the Company on its subordinated promissory notes. In
return for the Amendment, the Bank Group requires payment of a monitoring and
amendment fee equal to approximately 1.0% of the sum of the aggregate
revolving committed amount and the outstanding principal balance of the term
loan. The Amendment expires on July 1, 2001.
The Company expects to meet its short term liquidity requirements through
net cash provided by operations. The Company's primary sources of liquidity
consist of cash and cash equivalents and accounts receivable. Management
believes 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.
7
ACCESS WORLDWIDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Year 2000 Issue
The Company experienced no significant computer system failures or
disruptions as a result of the changeover from 1999 to 2000 ("the Year 2000
issue"), and the Year 2000 issue had no material adverse affects on the
results of operations, liquidity or financial condition of the Company.
Risk Factors That May Affect Future Results
This report contains certain forward-looking statements which are based on
management's current views and assumptions. These statements are qualified by
reference to "Forward-Looking Statements" in the Company's Annual Report on
Form 10-K, as well as other SEC filings which list important factors that
could cause actual results to differ materially from those discussed in this
report.
8
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
9
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.
Date:
Access Worldwide Communications,
Inc.
By /s/ Michael Dinkins
-----------------------------------
Michael Dinkins, Chairman, President
and Chief Executive Officer
(principal executive officer)
Date:
By /s/ Richard A. Lyew
-----------------------------------
Richard A. Lyew, Vice President and
Corporate Controller
(principal financial and accounting
officer)
10