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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
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 (I.R.S. Employer Identification No.)
Incorporation or organization)
2200 Clarendon Blvd., 12th Floor
Arlington, Virginia 22201
__________________________________ _________________________________________
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (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
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference
to the price at which the stock was sold, or the average bid and asked prices
of such stock, as of a specified date within 60 days prior to the date of the
filing.
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 15, 1999 was approximately $44,263,873.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
The number of shares outstanding of the registrant's Common Stock, $.01 par
value, as of March 15, 1999 was 9,027,730 shares.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents, all or portions of which are incorporated by
reference herein, and the Part of the Form 10-K into which the document is
incorporated:
Part III incorporates information by reference from the Registrant's Proxy
Statement to be filed with respect to the 1999 Annual Meeting of Stockholders
scheduled to be held on or about April 27, 1999.
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TABLE OF CONTENTS
Part I
1. Business............................................................. 1
2. Properties........................................................... 9
3. Legal Proceedings.................................................... 9
4. Submission of Matters to a Vote of Security Holders.................. 9
Part II
5. Market for Registrant's Common Equity and Related Shareholder
Matters.................................................................. 10
6. Selected Financial Data.............................................. 11
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 12
7A. Quantitative and Qualitative Disclosures about Market Risk............ 18
8. Financial Statements and Supplementary Data.......................... 18
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..................................................... 41
Part III
10. Directors and Executive Officers of the Registrant................... 41
11. Executive Compensation............................................... 41
12. Security Ownership of Certain Beneficial Owners and Management....... 41
13. Certain Relationships and Related Transactions....................... 41
Part IV
14. Exhibits, Financial Statement Schedules and Reports on Form 10-K...... 41
Signatures.............................................................. 43
Index to Exhibits....................................................... 45
PART I
Item 1. Business
General
Access Worldwide Communications, Inc. ("Access Worldwide" or the "Company")
is a leading provider of outsourced sales, marketing and medical education
services to Fortune 500 companies in the pharmaceutical, telecommunications,
financial services and consumer products industries. The Company offers a
broad, integrated array of targeted sales, marketing and customer support
services designed to achieve an attractive return on investment ("ROI") for
its clients. In the sales and marketing area, these services include market
research, database management, direct marketing programs, tele-detailing and
tele-sales, sample fulfillment and sales force automation. In the medical
education area, the Company provides comprehensive medical education services
including scientific symposia, medical meetings management and patient
education program development. Leveraging its portfolio of capabilities, the
Company, on behalf of its clients, has a proven record of accessing and
influencing high-value and hard-to-reach audiences including physicians,
pharmacists, and patients in the healthcare arena and multicultural consumers
("Hispanic, Asian and African-American"). The Company believes that it is a
leader in developing multicultural marketing programs that target the
approximately 30% of the U.S. population represented by minorities.
Founded in 1983, the Company has many long-standing customer relationships
with the world's largest pharmaceutical companies and an extensive blue-chip
customer list that includes large and mid-sized pharmaceutical companies,
biotechnology companies, specialty and generic pharmaceutical companies,
medical devices companies and retail pharmacists. The Company's pharmaceutical
customers include Astra Pharmaceuticals, Knoll Pharmaceuticals Inc., Johnson &
Johnson, Novartis Pharmaceutical Corp., Parke-Davis SPA, Pfizer Inc., Procter
& Gamble Co., Roche Pharmaceutical Division of Roche Holding Ltd. and
Schering-Plough Corp. Through its consumer capabilities and multicultural
expertise, the Company also provides services to Fortune 500
telecommunications, financial services and consumer goods companies, of which
Sprint Corp. ("Sprint") is its largest customer.
The Company provides clients with innovative marketing programs, systems and
technologies that help generate incremental sales, market share and profit
growth. These programs are designed to target the Pharmaceutical Marketing
Services Segment ("Pharmaceutical") as well as the Consumer and Business
Services Segment ("Consumer"). For financial information about the Company's
segment reporting, see Note 18 to the Company's Financial Statements.
Forward-looking Statements
This report contains forward-looking statements (within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended), representing
the Company's current expectations and beliefs concerning future events. When
used in this report, the words "believes," "estimates," "plans," "expects,"
"intends," "anticipates," and similar expressions as they relate to the
Company or its management are intended to identify forward-looking statements.
The actual results of the Company could differ materially from those indicated
by the forward-looking statements because of various risks and uncertainties
related to and including, without limitation, the Company's effective and
timely initiation and development of new client relationships and programs,
the maintenance of existing client relationships and programs (particularly
since the Company's agreements with its clients generally do not assure the
Company that it will generate a specific level of revenue, do not designate
the Company as the exclusive service provider and are terminable on short
notice), the successful marketing of the Company's sales, marketing and
medical education services, the achievement of satisfactory levels of both
gross and operating margins, the recruitment and retention of qualified
personnel, the continued enhancement of telecommunications, computer and
information technologies and operational and financial systems, the
achievement by the Company and its suppliers and customers of Year 2000
compliance in a timely and cost efficient manner, the continued and
anticipated growth in industry trends towards outsourcing sales, marketing and
medical education services, changes in competition and the forms of direct
sales and marketing techniques, customer interest in, and use of, the
Company's clients' products and services, general
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economic conditions, costs of telephone services, financing and leasing of
equipment, the adequacy of cash flows from operations and available financings
to fund capital needs and future growth, changes in governmental rules and
regulations applicable to the Company, and other risks set forth in this
report and in the Company's other filings with the Securities and Exchange
Commission. These risks and uncertainties are beyond the ability of the
Company to control, in many cases, the Company cannot predict the risks and
uncertainties that could cause actual results to differ materially from those
indicated by the forward-looking statements.
Pharmaceutical Marketing Services Segment
The Company's broad scope of services and capabilities enables it to
influence physicians, inform pharmacists, involve patients and impact sales.
Specific services are described below:
.Market Research and Database Management. Access Worldwide specializes in
collecting physician and pharmacy data to help its clients better target their
marketing efforts. This data includes physician office information, optimal
sales call times and locations, frequency of procedures performed and pharmacy
personnel. Its data collection and reporting capabilities enhance customers'
productivity.
Access Worldwide is one of a limited number of companies that has a long-
term licensing agreement to access the American Medical Association ("AMA")
master database of 840,000 physicians in the United States. Access Worldwide
provides enhanced database management services to pharmaceutical companies
using its licensed AMA data, along with its proprietary files, state license
files, and Drug Enforcement Administration ("DEA") files. This Medical
Professional Library houses over seven million records, and is used to improve
the performance of pharmaceutical sales force operations.
The Company believes that it has the most comprehensive and accurate
pharmacy database in the United States, comprising 24,000 independent
pharmacists. With this data, Access Worldwide can deliver essential access to
those often uncovered pharmacies that fill approximately 30% of retail
prescriptions in the United States.
.Physician and Pharmacy Direct Marketing. Access Worldwide has exclusive
rights to market and distribute National Football League-branded and
Professional Golf Association Tour-branded single source, direct marketing
publications to healthcare and insurance audiences. The Company's
pharmaceutical clients use these single source publications for targeted
marketing messages to their customers.
The second component of the Company's direct marketing business is its
personalized physician mail programs, used by pharmaceutical sales forces as a
follow-up to physician sales calls. These high-volume letter programs involve
detailed messages to the physician about precise product indications. The
Company mailed in excess of 400,000 letters on behalf of pharmaceutical sales
representatives in the last 12 months.
.Physician and Pharmacy Tele-detailing. The Company communicates with an
average of 15,000 physicians and 24,000 pharmacists every week with targeted
physician and pharmacy telemarketing and direct marketing, vacant territory
management and remote physician coverage programs that influence target
physician prescribing habits and increase market share. This capability is
essential to pharmaceutical companies who are increasingly compelled to
dedicate their field force coverage to a narrower group of blockbuster drugs.
In addition, Access Worldwide plays a critical role in detailing pharmacists
on new products and new indications for existing products. The Company's tele-
driven pharmacy programs reach non-warehousing chain pharmacies, as well as
regional chains, hospitals, nursing home providers and independent retail
pharmacies. Key program components include professional product detailing
presentations, clinical information and literature delivery. The Company
believes that its new product stocking programs are more comprehensive than
any autoship or autocheck program, securing distribution in two-to-four times
the number of pharmacies than traditional wholesaler programs. All orders are
shipped through the pharmacist's preferred wholesaler or, on multi-source
products, the generic distributor. Every pharmacy stocking order is followed-
up and verified as received by the ordering pharmacy.
Access Worldwide simplifies vacant territory management without disruption
of targeted field sales force activities. Pharmaceutical drug representatives
on average miss four to six weeks of work each year due to maternity leave,
temporary reassignments, illnesses, etc. To maintain coverage during these
absences, pharmaceutical companies hire Access Worldwide to provide qualified,
well-trained representatives to
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telephonically replace absent drug representatives. The Company's dedicated
tele-detailing teams are proficient in making product presentations that
provide effective remote coverage, with full reporting and follow-through.
.Ethical Drug Sample and Literature Fulfillment. In 1998, the Company
shipped more than 10 million ethical drug product samples to physicians. It
has the nation's largest outsourced Prescription Drug Marketing Act of 1987
("PDMA") compliant and DEA approved sample fulfillment center in the United
States, located in Lincoln Park, New Jersey. Access Worldwide's customers
benefit from sophisticated sample fulfillment services that dramatically
reduce sample turnaround time, while providing comprehensive accountability
and tracking programs. A recent client audit found zero defaults and zero
unaccounted for samples. The Company also ships large volumes of product
literature to pharmaceutical sales representatives in the field. The Company's
Electronic Territory Management System ("ETMS") technology links to its
product sample and literature fulfillment operations to deliver fully
integrated sales support systems.
.Sales Force Productivity Systems. Access Worldwide improves the efficiency
of its clients' sales forces by providing them with a variety of outsourced
sales services as well as an integrated technological infrastructure and
support system designed to maximize sales force productivity in the field. The
Company's ETMS system allows geographically dispersed pharmaceutical sales
forces to report and track their efforts electronically. The ETMS system is
integrated into the Company's product sample and fulfillment facility,
physician database management systems, and direct mail systems. These
integrated field force automation systems typically require the Company to be
also integrated into the systems and sales force management structure of the
client's organization, thus raising the switching costs for the Company's
clients.
Access Worldwide also provides vacant territory management and remote
physician coverage to prevent disruption of planned field sales force
activities. The Company's dedicated tele-detailing teams are proficient in
making product presentations that assure effective and efficient virtual field
force coverage, with full reporting and follow-through.
. Medical Education Services. As the globalization of the healthcare
industry in this era of electronic communications redefines the pace of
scientific interchange, the Company's international experience and
capabilities are particularly valuable. Access Worldwide is highly experienced
in successful scientific program development, program planning, faculty
recruitment and support, meeting logistics, management and audience
generation.
The Company's scientific and medical expertise creates access to opinion
leaders in medicine. The Company has conducted more than 250 international
medical education meetings in more than 30 countries. With medical education
clients that include five of the top ten pharmaceutical companies, the Company
is knowledgeable about the changing regulatory requirements in countries
around the world.
The Company has excellent communications with medical societies and
journals, and has established relationships with medical schools and
continuing medical education offices. The Company delivers medical education
services in these varied meeting venues:
. Scientific Symposia
. Interactive Workshops
. University Programs
. Fellows Programs
. Investigator/Research Meetings
. Roundtables
. Advisory Board Meetings
. Sales Training Programs
.Patient Education Program Development. The Company develops patient
education communications programs in key therapeutic categories as part of its
medical education and medical publishing services.
.Patient Profiling and Data Collection. Access Worldwide has the capability
to capture product usage, frequency and satisfaction data from patient and
consumer contacts. The Company also captures patient data from its two new
patient prescription starter programs, which are described below.
3
.Prescription Starter Programs. The Company recently added two new
proprietary patient prescription starter programs to the Company's family of
product sample systems: FirstRx(TM), a direct-to-patient product starter
program; and ScriptBuilder(TM), a coupon-based patient starter system that
delivers free trial starters to patients at the pharmacy. Both systems are
used to correctly begin patient treatment and compliance. These two programs
are already being used by three of the Company's pharmaceutical customers.
.Crisis Management Services. The Company provides crisis response
communications services for its pharmaceutical clients. The Company recently
managed an extensive product recall program for one of its medical device
clients, connecting directly to the client's website to update patient product
use information. The Company responds to patient questions and interfaces
electronically with its customers' databases to update patient files.
.Patient Customer Service and Support. Access Worldwide's inbound tele-
services capabilities can support patient information services, and the
delivery of resource information for patients and their families who are
enrolled in patient care and caregiver support programs. In addition, the
Company has arranged the replacement of medical devices, updating client
databases with patient product information.
Consumer and Business Services Segment
The Company delivers innovative marketing programs, systems and technologies
in the consumer and business services arena which enable its clients to access
new markets, acquire new customers, and activate current customers. Specific
services include the following:
.Consumer and Business Sales and Promotion Programs. The Company performs
targeted, consumer marketing and sales programs to improve customer
acquisition, customer retention and customer win-back performance for its
clients. The Company leverages its systems and technologies to improve
customer satisfaction and to support key sales and customer care needs.
.Customer Service and Support. Access Worldwide's inbound technology
infrastructure enables the Company to provide customer service and support
service to its clients on an outsourced basis. On behalf of its clients, the
Company responds to customer service inquiries, resolves customer billing
issues, registers consumers in media-driven promotional programs, and arranges
for replacement products when required.
.Multicultural Marketing Services. In light of the continued growth of
multicultural populations in the United States, the Company's multicultural
and multilingual expertise, resources and technology represent a powerful
differentiator to its telecommunications, financial services and consumer
products clients. Access Worldwide provides analysis and strategic direction
as to how its clients should most effectively target and approach high-
potential customers in high-value market segments. Strategic planning is
supported by the Company's research capabilities, which offer detailed
definitions and analyses of the market segments targeted by its clients,
including pharmaceutical companies and healthcare providers. The Company's
research group has been recognized by American Demographics Magazine as one of
the Best 100 Sources of Marketing Information.
The Company conducts qualitative and quantitative market research throughout
North and South America. The Company's research services encompass market area
profiles, target audience segmentation, marketing and advertising
effectiveness, culture market opportunity assessment, new product concepting
and testing, awareness, attitude and usage studies, opinion polling,
readership and viewership studies, and customer satisfaction surveys.
The Company also has significant expertise in collecting, analyzing,
organizing and communicating data. The Company has proprietary Hispanic and
Asian surname algorithm that its customers use to analyze their current
customer and prospect files. The Company works with data owned or acquired by
its clients for its patient and consumer services programs.
The Company's multicultural and multilingual staff executes consumer
services programs in over 15 non-English languages, including Arabic,
Cantonese, French, German, Hindi, Japanese, Khmer, Korean, Mandarin,
Portuguese, Russian, Spanish, Tagalog, Urdu and Vietnamese. For its healthcare
clients, the Company has the capability to deliver in-language, in-culture
direct-to-patient communications programs as well as patient monitoring and
compliance programs.
4
Recent Developments
On June 15, 1998, the Company moved from the Fort Lauderdale facility into a
34,500 square foot facility located in Boca Raton, FL.
On August 13, 1998, the Company moved from the Dallas facility into a 26,000
square foot facility located in Plano, TX.
On October 24, 1998, the Company acquired all of the outstanding capital
stock of A M Medica Communications Ltd. ("A M Medica"). In consideration for
such stock, the Company paid to the stockholder of A M Medica $22.2 million in
cash, 122,045 shares of the Company's common stock, $.01 par value ("Common
Stock"), and a three year 6.5% subordinated promissory note in the principal
amount of $5.5 million. In addition, the purchase agreement called for cash in
excess of certain financial thresholds to be measured at various intervals
throughout 1998 and 1999. Any cash in excess of the financial thresholds is to
be paid to the original stockholder.
On November 2, 1998, the Company changed its name from
CulturalAccessWorldwide, Inc. to Access Worldwide Communications, Inc. and its
trading symbol from "CAWW" to "AWWC".
On February 23, 1999, the Company agreed to pay down $2.5 million of the
outstanding $6.5 million owed to holders of the mandatorily redeemable
preferred stock, series 1998 upon the closing of the new bank Credit Facility
described below.
On March 12, 1999, the Company entered into a three year, $65 million
revolving line of credit and term loan facility with a syndicate of banks led
by NationsBank, N.A. ("NationsBank") (the "Credit Facility"). The syndicate of
banks is also comprised of Fleet Bank, N.A., European American Bank and Summit
Bank. The Credit Facility bears interest at formula rates ranging from either
(i) the higher of (a) the Federal Funds Effective Rate plus 0.50% and (b) the
prime lending rate charged by NationsBank, N.A. from time to time, plus an
applicable margin ranging from 0.0% to 1.0% or (ii) LIBOR, plus an applicable
margin ranging from 1.25% to 2.50%. The Company is required to pay a
commitment fee on the unused portions of the Credit Facility. The Credit
Facility is secured by substantially all of the assets of the Company.
Industry Overview
The pharmaceutical outsourced marketing and the consumer and business
outsourced marketing services industries in which Access Worldwide operates
are high growth, high opportunity business environments driven by favorable
business trends. Key external growth drivers in these industries are:
.Growth in Outsourcing. The demand for outsourced marketing services is
growing rapidly as pharmaceutical companies look to outside service
organizations to supplement their internal product marketing, product sales
and direct-to-consumer activities. Outsourcing has proven to enable
pharmaceutical marketers to focus on core competencies, gain market share more
quickly, avoid incremental infrastructure costs and evaluate programs that
might be too costly to test internally. As companies outsource their marketing
or sales activities, they tend to develop dependent relationships with
outsourced marketing services firms. These relationships and high switching
costs tend to deter companies from moving such functions in-house.
In addition, recent regulatory changes in the pharmaceutical industry have
created a window of opportunity for growth-minded companies, leading them to
outsource marketing services to enhance their competitive position. For
example, industry consolidation and changes in Food and Drug Administration
("FDA") regulations regarding advertising directly to consumers have
drastically increased the amount of outsourced marketing services. In the
telecommunications industry, where large companies compete fiercely for
customers, increased outsourcing has allowed these companies to react nimbly
to competitive pressures in order to capture and maintain market share.
. Growth in Pharmaceutical Marketing Spending. Industry analysts project
that worldwide sales and marketing spending by pharmaceutical companies is
expected to increase from $5 billion in 1995 to approximately $8 billion in
2000, a 60% increase. Concurrently, outsourced sales and marketing by
pharmaceutical companies is expected to increase from $400 million in 1995 to
almost $1.5 billion in 2000, a 300% increase. The growth in pharmaceutical
industry outsourcing is driven in part by the desire for cost-effective,
measurable sales and marketing programs.
5
.Growth in Multicultural Healthcare and Pharmaceutical Outreach Programs
Focused on High-Risk Disease Conditions. Presently, almost one-third of the
U.S. population is comprised of ethnic minorities and the number will continue
to grow according to the U.S. Census Bureau. Importantly, pharmaceutical and
healthcare marketers are recognizing that among the fastest growing segments
for their products and services in the United States are the Hispanic and
Asian populations. The U.S. Census Bureau has projected that the Hispanic and
Asian populations in the United States, which were comprised of approximately
27.8 million and 9.1 million people, respectively, in 1996, will grow at rates
of approximately 48% and 57%, respectively, by 2010, compared to a 12% growth
rate for the general population during the same period.
Leading pharmaceutical companies have introduced disease management programs
focused specifically on the Hispanic and African-American patient populations,
which tend to be at higher risk for conditions such as diabetes, hypertension,
stroke, coronary heart disease, certain forms of cancer, asthma, and seasonal
allergies. In addition, managed care organizations and hospitals have an
increasing need to reach their multilingual patients with in-language patient
education and follow-up programs to maintain their patients' confidence and
compliance with prescribed treatment. Access Worldwide's capabilities in
multilingual patient communications add value to managed care organizations,
hospitals and pharmaceutical companies who have embarked upon multilingual
patient disease management and outreach programs.
.Growth in Demand for Pharmaceutical and Healthcare Marketing Services that
Demonstrate a Clear and Measurable Return on Investment. Throughout the
pharmaceutical and healthcare industry, marketing executives are under
intensified pressure to prove that their plans and programs are cost-
effective. This pressure, coupled with the ability to measure results, has
been instrumental in the dramatic growth in the utilization of direct
marketing, direct-to-patient communications programs, sample fulfillment and
telesales/services.
The Direct Marketing Association ("DMA") reports that U.S. direct marketing
driven sales in 1992 were approximately $830.4 billion. By 1997, the DMA set
this figure at an estimated $1,226.2 billion with an annualized increase of
8%. That growth is expected to accelerate by the year 2002, increasing 8.7% a
year to $1,858.7 billion. Pharmaceutical marketers are increasing their
utilization of direct marketing services. In 1997, according to Dain Rauscher
Wessels, the pharmaceutical industry spent approximately $7.0 billion
promoting, marketing and selling its products through direct channels. This
spending is projected to grow at approximately 10% per year through the end of
the decade.
Growing pressures within companies in these industries to demonstrate a high
return on their marketing and sales investments have forced them to seek
outsourced services that provide a high level of accountability and
measurability. Outsourced marketing services firms that offer highly
measurable, database-driven direct marketing services and programs, including
teleservices and product sample fulfillment, are benefiting from this growing
need for corporate accountability.
.Growth in Importance of Customer Service and Loyalty Programs. Companies
operating in marketing-intensive industries are focused on protecting their
existing customer base and growing the lifetime value of individual customer
relationships as a means of improving both revenue growth and profitability.
There is an increasing recognition of the fundamental need to speak the
language of the customer in order to improve customer sales, retention and
win-back performance.
Quality Assurance
Access Worldwide uses its proprietary software and systems to monitor
carefully the progress of client projects. For example, management maintains
an ongoing oversight of the duration of customer teleservices presentations,
time between presentations, response time, number of queries resolved after
the first call and other statistics important in measuring and enhancing
productivity and service levels. Clients have daily access to a variety of
measures of service performance tracked by the Company's technology and can
monitor presentations directly through the Company's remote monitoring
systems. The Company's pharmaceutical sample dispensing and tracking systems
are designed to verify order accuracy and to audit data integrity.
6
Contractual Arrangements
The Company operates under both multi-year and month-to-month contractual
relationships.
In the pharmaceutical/healthcare business, the compensation system is
divided into long-term and short-term programs. The long-term ("multi-year")
programs generate monthly fees and occasionally, bonuses based on specific
performance criteria such as market share increases or prescription order
growth. The short-term programs are primarily billed on a completed unit of
service basis, such as presentations delivered or pharmaceutical samples
forwarded. The medical education and meetings programs are invoiced with
progress billings.
In the multicultural teleservices business, hourly rate structures reflect
the specialized nature of the multilingual skills that exist throughout the
organization, as well as the extensive systems integration that the Company
has created with its clients.
Sprint is the only client that represented over 10% of the Company's total
revenues. The Company currently has a master service agreement with Sprint,
supported by numerous work orders each with their own pricing terms. The
Company's work for Sprint is spread throughout several different divisions of
Sprint ranging from outbound telemarketing to inbound customer service. The
master contract with Sprint expires on June 30, 1999 and is automatically
renewable for additional 12-month periods provided each party to the contract
remains satisfied with the contract terms. The Company was recently awarded
additional business to help Sprint grow and maintain its Asian-American market
share.
Competition
Access Worldwide competes in the outsourced marketing services industry,
which is highly competitive and fragmented. It competes with other outsourced
marketing services firms, ranging in size from very small firms offering
specialized applications or short-term projects to large independent firms.
The industry is beginning to consolidate and, as a result of competitive
pressures, factors such as quality of service, responsiveness to client
issues, reliability, flexibility, reputation and record of timeliness are
becoming increasingly important. While many companies provide outsourced
marketing services, management believes that no single company dominates the
industry.
The highly fragmented outsourced marketing services industry in which the
Company operates includes many independent and captive direct marketing
providers. In the direct marketing industry, no single company dominates the
market and many of the participants offer limited services. Conversely, in the
pharmaceutical teleservices industry alone, industry analysts have estimated
that there are relatively few providers who reach physicians and pharmacists.
Other areas in which the Company competes such as market research, medical
education and medical meetings management are particularly fragmented.
Alternatively, the ethical drug sample fulfillment industry is highly
specialized, with a limited number of quality competitors due to the high cost
and regulatory requirements for entry. Currently, there is a trend toward
consolidation, and Access Worldwide is capitalizing on this trend through
strategic acquisitions. These acquisitions increase the Company's ability to
provide Fortune 500 companies with integrated outsourced marketing solutions
for high-growth market segments.
The Company believes that it competes successfully based on its ability to
deliver an effective combination of resources, people, expertise, systems,
data and technologies that provide innovative, measurable and cost-effective
services which increase client sales, market share and profits. The Company
provides differentiated value-added services that help its clients attract new
customers, protect existing client relationships and increase the lifetime
value of all customer relationships. The Company believes that its ability to
provide both strategic and tactical solutions, supported by systems and
technology, differentiates it in the highly fragmented marketing services
industry.
7
Government Regulation
Several industries in which the Company's clients operate are subject to
varying degrees of governmental regulation, particularly the pharmaceutical,
healthcare and telecommunications industries. Generally, compliance with these
regulations is the responsibility of the Company's clients. However, the
Company could be subject to a variety of enforcement or private actions for
its failure or the failure of its clients to comply with such regulations.
Pharmaceutical companies, in particular, and the healthcare industry, in
general, are subject to significant federal and state regulation. The
Company's handling and distribution of samples of pharmaceutical products are
subject to regulation by its clients, the DEA, the FDA and other applicable
federal, state and local laws and regulations, including the PDMA. Currently,
the healthcare industry is monitoring potential passage of new regulations
under the PDMA which would impose even stricter requirements in the areas of
storage, inventory control and lot number tracking.
In addition, the Company must comply with regulations promulgated by
professional associations such as the AMA. The AMA has established ethical
guidelines which govern receipts of gifts to physicians from health related
entities, including any items received during peer-to-peer meetings and
symposia sponsored by pharmaceutical companies.
The pharmaceutical industry is also subject to federal regulation by the
FDA. The Federal Food, Drug and Cosmetics Act regulates the approval,
labeling, advertising, promotion, sales and distribution of drugs, which
includes the distribution of product samples to physicians. The FDA also
regulates all promotional activities involving prescription drugs. There can
be no assurance that additional federal or state legislation regulating the
pharmaceutical or healthcare industries would not limit the scope of the
Company's product sampling services or significantly increase the cost of
regulatory compliance.
The Federal Communications Commission ("FCC") rules under the Federal
Telephone Consumer Act of 1991, limit the hours during which telemarketers may
call consumers and prohibit the use of automated telephone dialing equipment
to call certain telephone numbers. The Federal Telemarketing and Consumer
Fraud and Abuse Protection Act of 1994 ("TCFAPA") broadly authorizes the
Federal Trade Commission ("FTC") to issue regulations prohibiting
misrepresentation in telephone sales. In August 1995, the FTC issued
regulations under the TCFAPA, which, among other things, require telemarketers
to make certain disclosures when soliciting sales. The Company believes its
operating procedures comply with the telephone solicitation rules of the FCC
and FTC. However, there can be no assurance that additional federal or state
legislation, or changes in regulatory implementation, would not limit the
activities of the Company or its clients in the future or significantly
increase the cost of regulatory compliance.
Two bills recently introduced in Congress included provisions requiring
parental consent to any sale of lists of minors. Though neither of these bills
was reported out of committee, there can be no assurance that similar
legislation will not be passed in the future at the federal or state level.
Any substantial legal restriction on the use or sale of marketing lists could
have a material adverse effect on the Company.
One of the significant regulations of the FCC applicable to long distance
carriers, such as Sprint, prohibits the unauthorized switching of subscribers'
long distance carriers, known in the industry as "slamming." A fine of up to
$100,000 may be imposed by the FCC for each instance of slamming. In order to
prevent unauthorized switches, federal law requires that switches authorized
over the telephone, such as through the Company's teleservices, be verified
contemporaneously by a third party. The Company believes its procedures comply
with this third-party verification requirement.
Third-party verification generally is not required for switches obtained in
person, such as those obtained by members of a direct field sales force. The
Company's training and other procedures are designed to prevent
8
unauthorized switching. However, as with any sales force, the Company cannot
completely ensure that each employee will always follow the Company's mandated
procedures. Accordingly, it is possible that employees may in some instances
engage in unauthorized activities, including slamming. The Company
investigates customer complaints reported to it by its telecommunications
clients and reports the results to such clients. To the Company's knowledge,
no FCC complaint has been brought against any of its clients as a result of
the Company's services, although the Company believes that the FCC is
examining the sales activities of long distance telecommunications providers,
including the Company's clients, and the activities of outside vendors, such
as the Company, used by such providers. If any complaints were brought, the
Company's client might assert that such complaints constituted a breach of its
agreement with the Company and, if material, seek to terminate the contract.
Any termination by Sprint would be likely to have a material adverse effect on
the Company. If such complaints resulted in fines being assessed against a
client of the Company, the client could seek to recover such fines from the
Company.
Employees
As of December 31, 1998, the Company had approximately 1,400 employees. None
of the Company's employees is represented by a labor union and the Company is
not aware of any current activity to organize any of its employees. Management
considers relations between the Company and its employees to be good.
Item 2. Properties
Access Worldwide's principal executive offices are located in Arlington,
Virginia. The Company's segments operate in California, Florida, New York, New
Jersey, Texas and Virginia.
Approx.
Location Principal Use Square Feet
---------------- ----------------------------------------------- -----------
Arlington, VA Corporate Offices 5,000
Consumer and Business Services Segment:
Arlington, VA Customer Sales and Service Programs 25,300
Plano, TX Customer Sales and Service Programs 21,400
Pharmaceutical Marketing Services Segment:
Physician and Pharmacy Tele-detailing;
Boca Raton, FL Patient/Customer Services 34,500
Lincoln Park, NJ Ethical Drug Sample and Literature Fulfillment,
Sales Force Productivity Systems 120,000
New York, NY Medical Education Services 7,000
Market Research:
Los Altos, CA Market Research 4,088
Los Angeles, CA Market Research 1,395
Item 3. Legal Proceedings
From time to time, the Company is party to certain claims, suits and
complaints which arise in the ordinary course of business. Currently, there
are no such claims, suits or complaints which, in the opinion of management,
would have a material adverse effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the quarter
ended December 31, 1998.
9
Part II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
(a) Market Information
On February 13, 1998, the Company completed the initial public offering
("Offering") of its Common Stock at an initial public offering price of $12.00
per share. The Common Stock trades on the NASDAQ National Market ("Nasdaq")
under the symbol "AWWC." The following table sets forth the high and low
closing sale prices for the Company's Common Stock as reported by Nasdaq for
the periods indicated:
Market Prices
-------------
1998 Fiscal Quarters High Low
-------------------- -------------
First Quarter............................................... 16.00 10.88
Second Quarter.............................................. 16.38 8.13
Third Quarter............................................... 10.13 3.00
Fourth Quarter.............................................. 9.75 2.63
(b) Holders
The number of holders of Common Stock as of March 15, 1999 was approximately
1,750. The Company included individual participants in security position
listings in calculating the number of holders.
(c) Dividends
The Company did not pay cash dividends on its Common Stock during the year
ended December 31, 1998 and does not anticipate paying cash dividends on its
Common Stock in the foreseeable future. The Company's Credit Facility
prohibits the payment of cash dividends.
Recent Sales of Unregistered Securities
1. Simultaneously with the consummation of the Company's Offering on
February 13, 1998, Abbingdon Venture Partners Limited Partnership-II and
Abbingdon Venture Partners Limited Partnership-III (collectively, the
"Partnerships") (x) exchanged (a) 18,000 shares of 8% Cumulative Preferred
Stock and (b) 18,000 shares of 8% Preferred Stock, Series 1997 and (y)
converted $2.9 million of the principal amount of promissory notes due to the
Partnerships for an aggregate of 65,000 shares of Preferred Stock, Series 1998
(the "1998 Preferred Stock"). The shares of 1998 Preferred Stock were issued
exclusively at the time to existing security holders of the Company where no
commission or other remuneration was paid and such issuance was therefore made
in reliance on Section 3(a)(9) of the Securities Act of 1933 (the "Securities
Act").
2. On July 28, 1998, as part of the contingent payments due to the seller of
certain assets of the TeleManagement Services business, which the Company
acquired in January 1997, the Company issued an aggregate of 70,851 shares of
Common Stock. Registration under the Securities Act of the Common Stock issued
in this transaction was not required because such securities were issued in a
transaction not involving any "public offering" within the meaning of Section
4(2) of the Securities Act, in reliance on Rule 506 under the Securities Act.
In connection therewith, the Company has obtained a representation from the
stockholder to the effect that it was an "accredited investor" as defined in
Rule 501(a) under the Securities Act. In addition, there was no general
solicitation or general advertising in connection with such issuance.
3. On October 24, 1998, as part of the purchase price for all of the common
stock of A M Medica, the Company issued 122,045 shares of Common Stock out of
the treasury of the Company to the sole stockholder of A M Medica.
Registration under the Securities Act of the Common Stock issued in this
transaction was not required because such securities were issued in a
transaction not involving any "public offering" within the meaning of Section
4(2) of the Securities Act, in reliance on Rule 506 under the Securities Act.
In connection therewith, the Company has obtained a representation from the
stockholder to the effect that she was an "accredited investor" as defined in
Rule 501(a) under the Securities Act. In addition, there was no general
solicitation or general advertising in connection with such issuance.
10
Item 6. Selected Financial Data (In Thousands Except for Per Share Data)
The selected statement of operations data for the quarters ended March 31,
June 30, and September 30, 1998 and 1997 have been derived from unaudited
Financial Statements of the Company, included in Forms 10-Q filed by the
Company. December 31, 1998 and 1997 statement of operations data have been
derived from audited Financial Statements of the Company included elsewhere in
this Report on Form 10-K. The following selected financial data should be read
in conjunction with the Financial Statements and the Notes thereto of the
Company, and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this Form 10-K.
Quarters Ended
---------------------------------------------
June
March 31, 30, September 30, December 31,
1998 1998 1998 1998
--------- ------- ------------- ------------
Statements of Operations Data:
Revenues........................ $15,691 $15,325 $16,381 $25,837
Cost of revenues................ 9,110 8,491 8,652 14,839
------- ------- ------- -------
Gross profit.................... 6,581 6,834 7,729 10,998
Selling, general and
administrative................. 4,804 4,678 5,551 6,550
Amortization expense............ 400 309 368 654
------- ------- ------- -------
Income from operations.......... 1,377 1,847 1,810 3,794
Interest (expense) income....... (466) (116) 117 (293)
Other income.................... -- -- -- 4
------- ------- ------- -------
Income before income taxes...... 911 1,731 1,927 3,505
Tax expense..................... 398 767 845 1,542
------- ------- ------- -------
Net income...................... $ 513 $ 964 $ 1,082 $ 1,963
======= ======= ======= =======
Earnings per share
Basic......................... $ 0.07 $ 0.11 $ 0.12 $ 0.22
======= ======= ======= =======
Diluted....................... $ 0.07 $ 0.11 $ 0.12 $ 0.21
======= ======= ======= =======
Quarters Ended
---------------------------------------------
June
March 31, 30, September 30, December 31,
1997 1997 1997 1997
--------- ------- ------------- ------------
Statements of Operations Data:
Revenues........................ $ 6,962 $ 8,063 $ 9,013 $12,615
Cost of revenues................ 4,064 4,766 5,605 7,378
------- ------- ------- -------
Gross profit.................... 2,898 3,297 3,408 5,237
Selling, general and
administrative................. 1,392 1,910 2,029 3,578
Amortization expense............ 209 147 191 354
------- ------- ------- -------
Income from operations.......... 1,297 1,240 1,188 1,305
Interest (expense).............. (577) (507) (393) (851)
Other (expense) income.......... (300) (156) 153 6
------- ------- ------- -------
Income before income taxes...... 420 577 948 460
Tax expense..................... 241 253 447 240
------- ------- ------- -------
Net income...................... $ 179 $ 324 $ 501 $ 220
======= ======= ======= =======
Earnings per share
Basic......................... $ 0.04 $ 0.07 $ 0.11 $ 0.06
======= ======= ======= =======
Diluted....................... $ 0.04 $ 0.07 $ 0.10 $ 0.05
======= ======= ======= =======
11
The selected statement of operations data and the selected balance sheet
data have been derived from the audited Financial Statements of the Company.
The following selected financial data should be read in conjunction with the
Financial Statements and the Notes thereto of the Company and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this Form 10-K.
Five Months
Year Ended Ended Years Ended December 31,
July 31, December 31, ---------------------------------------------------
1994 1994 1995 1996 1997 1998
---------- ------------ ------------ ------------ ------------ ------------
Statement of Operations
Data:
Revenues................ $4,397 $2,728 $9,047 $16,286 $36,653 $73,234 (2)
Cost of revenues........ 1,720 1,437 4,396 8,639 21,813 41,091
------ ------ ------ ------- ------- --------
Gross profit............ 2,677 1,291 4,651 7,647 14,840 32,143
Selling, general and
administrative......... 2,715 807 4,540 7,754 9,810 23,315
------ ------ ------ ------- ------- --------
Income (loss) from
operations............. (38) 484 111 (107) 5,030 8,828
Interest (expense)
income................. (3) (2) 24 (101) (2,327) (759)
Other income (expense).. -- -- 5 (200) (297) 4
------ ------ ------ ------- ------- --------
Income (loss) before
income taxes........... (41) 482 140 (408) 2,406 8,073
Tax (expense)
benefit(1)............. -- -- -- 88 (1,181) (3,552)
------ ------ ------ ------- ------- --------
Net (loss) income....... $ (41) $ 482 $ 140 $ (320) $ 1,225 $ 4,521
------ ------ ------ ------- ------- --------
Net income (loss) per
common share
-- basic(3)............ $ (0.07) $ 0.26 $ 0.52
======= ======= ========
Net income (loss) per
common share
-- diluted(3).......... $ (0.07) $ 0.26 $ 0.51
======= ======= ========
As of
---------------------------------------------------------------------------
July 31, December 31, December 31, December 31, December 31, December 31,
1994 1994 1995 1996 1997 1998
---------- ------------ ------------ ------------ ------------ ------------
Balance Sheet Data:
Current assets.......... $1,110 $ 994 $2,463 $16,963 $12,384 $ 23,914
Total assets............ 1,240 1,152 2,749 29,454 52,680 104,422
Current liabilities..... 996 429 2,159 16,757 17,336 21,945
Long-term debt, less
current maturities..... 10 6 -- 16,201 34,319 29,847
Mandatorily redeemable
preferred stock........ -- -- -- 1,800 3,888 6,500
Common stockholders'
equity (deficit)....... 234 717 590 (5,304) (2,863) 46,130
- --------
(1) In December 1996, the Company became a C Corporation for income tax
purposes. Prior to that, the Company was an S Corporation.
(2) On October 24, 1998, the Company acquired all of the outstanding capital
stock of A M Medica in a transaction accounted for as a purchase.
(3) The earnings per share information has been excluded for the years ended
July 31, 1994 and December 31, 1995 and the five months ended December 31,
1994. Prior to the Recapitalization on December 6, 1996, the information
is not meaningful.
Item 7. 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 Selected
Financial Data and the Financial Statements and the Notes thereto included
elsewhere in this Form 10-K.
12
OVERVIEW
Access Worldwide Communications, Inc., formerly known as
CulturalAccessWorldwide, Inc. and /or CulturalAccess, is an outsourced
marketing services company that assists more than 100 clients in the
pharmaceutical, telecommunications, financial services and consumer products
industries. The Company designs and delivers innovative, data-driven sales and
marketing solutions that maximize clients' sales and profits. The Company has
particular expertise in reaching key pharmaceutical audiences--physicians,
pharmacists and patients--and targeted consumer groups. Access Worldwide's
resources include proprietary databases of targeted consumers, physicians and
pharmacies; strategic planning and market research services; medical
education; medical meetings management; medical publications; inbound and
outbound teleservices in 15 different languages; ETMS and DEA approved drug
sample fulfillment and direct mail capabilities. Access Worldwide has over
1,400 employees and representatives in offices throughout the United States.
REVENUES
The Company provides a variety of services for a diverse client base. The
major forms of revenue collection and recognition are as follows:
. The Company leases ETMS equipment to clients on a per salesperson basis.
Revenues are recognized either under an operating or sales-type lease.
. For customized or non-standard database projects, the Company bills
either on a fixed fee or on a per item basis, and revenues are
recognized upon delivery of data. Monthly or scheduled data services are
billed and revenue recognized upon delivery of data.
. For sampling and fulfillment activities, the Company bills and
recognizes revenue on a per item basis.
. For teleservices projects, the Company bills clients and recognizes
revenue on one of the following bases: production hours, completed
presentations, phone calls placed or received, and sales made per hour
or a fixed monthly fee. Revenues are recognized as the services are
completed.
. For medical education and meeting programs, the Company generally bills
and collects fixed project fees over the life of the project including a
percentage of the total project cost at the execution of the work order.
Revenues are recognized on the percentage of completion method.
. For market research projects, the Company generally bills and collects
fixed project fees in periodic installments over the life of the project
including a percentage of the total project costs at the execution of a
contract. Revenues are recognized on the percentage of completion
method.
COST OF REVENUES
Cost of revenues consists of expenses specifically associated with client
service revenues. The cost of revenues includes salaries and benefits,
commissions paid to sales personnel, purchased services for clients and
telephone charges.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses include staff functions such as
accounting, information technology and human resources, as well as expenses
not directly linked to client service revenues, such as depreciation,
amortization and rental expenses.
RESULTS OF OPERATIONS BY SEGMENT FOR 1998 AND 1997
The following table sets forth, for the periods indicated, certain
statements of operations data by segment obtained from the Company's
statements of operations. See Note 18 of the Notes to the Company's Financial
Statements for the definition of the segments. There can be no assurance that
trends in operating results will continue in the future.
13
Consumer Pharmaceutical
---------------------- -----------------------
1997 1998 Change 1997 1998 Change
------- ------- ------ ------- ------- -------
Statements of Operations Data
in Thousands:
Revenues....................... $23,527 $30,033 $6,506 $12,349 $39,747 $27,398
Cost of revenues............... 14,648 17,654 3,006 6,811 21,916 15,105
------- ------- ------ ------- ------- -------
Gross profit................... 8,879 12,379 3,500 5,538 17,831 12,293
Selling, general and
administrative................ 4,472 7,301 2,829 3,033 9,305 6,272
Amortization expense........... 333 339 6 539 1,309 770
------- ------- ------ ------- ------- -------
Operating profit............... $ 4,074 $ 4,739 $ 665 $ 1,966 $ 7,217 $ 5,251
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues for the Company increased $36.6 million, or 99.8%, to $73.2 million
for the year ended December 31, 1998, compared to $36.6 million for the year
ended December 31, 1997. Revenues for the Consumer Segment increased $6.5
million, or 27.6%, to $30.0 million for the year ended December 31, 1998,
compared to $23.5 million for the year ended December 31, 1997. The increase
in the Consumer Segment is primarily the result of continued growth in the
business with Sprint. Revenues for the Pharmaceutical Segment increased $27.4
million, or 222%, to $39.7 million for the year ended December 31, 1998,
compared to $12.3 million, for the year ended December 31, 1997. The increase
in revenues for the Pharmaceutical Segment is primarily the result of twelve
months of revenues included in 1998 for Phoenix Marketing Group ("Phoenix") as
compared to two months in 1997, and the acquisition of A M Medica in October
1998. Approximately $25.1 million of the $27.4 million increase in revenues
for the Pharmaceutical Segment was the result of the acquisitions of Phoenix
and A M Medica.
Cost of revenues for the Company increased $19.3 million, or 88.4%, to $41.1
million for 1998, compared to $21.8 million in 1997. Cost of revenues as a
percentage of revenues for the Company declined to 56.1% for 1998, from 59.5%
for 1997. Cost of revenues as a percentage of revenues for the Consumer
Segment declined to 58.8% for 1998, from 62.3% for 1997. The decrease was the
result of better utilization of the Company's existing work force because of
improved facilities and work practices changes. Cost of revenues as a
percentage of revenues for the Pharmaceutical Segment for 1998 compared to
1997 did not materially change. However, a decrease of 4.8% resulted primarily
due to reductions in the existing work force at the Florida telemarketing
facility, and the decrease in the ratio of supervisory personnel to total
telemarketers. The decrease of 4.8% was offset primarily by the acquisition of
A M Medica.
Selling, general and administrative expenses for the Company increased $12.7
million, or 142.3%, to $21.6 million for 1998, compared to $8.9 million for
1997. Selling, general and administrative expenses as a percentage of revenues
increased to 29.5% for 1998, when compared to 24.3% for 1997. Selling, general
and administrative expenses as a percentage of revenues for the Consumer
Segment increased to 24.3% for 1998, from 19.0% for 1997. The increase was
primarily the result of increases in personnel related costs needed to support
the growth of this segment. Selling, general and administrative expenses as a
percentage of revenues for the Pharmaceutical Segment decreased slightly to
23.4% for 1998, compared to 24.6% for 1997. The acquisition of A M Medica
resulted in a decrease of 5.7% in the selling, general and administrative
expenses as a percentage of revenues. The decrease of 5.7% was partially
offset by an increase in the selling, general and administrative expenses as a
percentage of revenues due to the acquisition of the Company's sample
fulfillment/sales productivity business, which has a different cost structure
than the other businesses, and the expansion of the Florida telemarketing
facility. Corporate expenses as a percentage of revenues increased to 4.6% in
1998, from 2.8% in 1997. The increase is due to the creation of the corporate
infrastructure in the later part of 1997, needed to support the Company's
future growth.
Amortization expense for the Company increased $831,000, or 92.2%, to $1.7
million for 1998, from $901,000 for 1997. The Consumer Segment amortization
expense did not materially increase from 1997 to 1998. Amortization expense
for the Pharmaceutical Segment increased by approximately $770,000.
Approximately
14
$416,000 of the increase is due to the acquisition of Phoenix that did not
occur until October 1997. The acquisition of A M Medica in October 1998
resulted in additional amortization expense of approximately $287,000.
Net interest expense for the Company decreased $1.6 million, to $759,000 for
1998 compared with interest expense of $2.3 million for 1997 as proceeds from
the Offering were used to reduce borrowings.
The income tax provision for the Company for 1998 increased to $3.6 million,
from $1.2 for 1997. The increase is due primarily to the increase in pretax
earnings, allowing the Company to benefit from an effective tax rate of 44%
for 1998, as opposed to 48% for 1997.
RESULTS OF OPERATIONS BY SEGMENT FOR 1997 AND 1996
The following table sets forth, for the periods indicated, certain
statements of operations data for the Consumer Segment obtained from the
Company's statements of operations. The table excludes the Pharmaceutical
Segment since it was established in 1997 and did not exist in 1996. See Note
18 of the Company's Financial Statements for the definition of the segments.
There can be no assurance that trends in operating results will continue in
the future.
Consumer
-----------------------
1996 1997 Change
------- ------- ------
Statements of Operations Data in Thousands:
Revenues.............................................. $16,286 $23,527 $7,241
Cost of revenues...................................... 8,640 14,648 6,008
------- ------- ------
Gross profit.......................................... 7,646 8,879 1,233
Selling, general and administrative................... 7,727 4,472 (3,255)
Amortization expense.................................. 27 333 306
------- ------- ------
Operating (loss) profit............................... $ (108) $ 4,074 $4,182
======= ======= ======
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues for the Company increased $20.4 million, or 125.1%, from $16.3
million for the year ended December 31, 1996 to $36.7 million for the year
ended December 31, 1997. Revenues for the Consumer Segment increased $7.2
million, or 44.5%, from $16.3 million for 1996 to $23.5 million in 1997. The
increase was primarily the result of continued growth in the demand for
services from existing clients for whom the Company markets long distance
services to residential customers in certain multicultural groups. The
Pharmaceutical Segment was established during 1997 with the acquisitions of
Telemanagement Services, Inc. ("TMS") and Phoenix. The revenues contributed by
this Segment during 1997 were approximately $12.3 million.
Cost of revenues for the Company increased $13.2 million, or 152.5%, from
$8.6 million in 1996 to $21.8 million in 1997. Cost of revenues as a
percentage of revenues increased from 53.0% for 1996 to 59.5% for 1997. Cost
of revenues as a percentage of revenues for the Consumer Segment increased to
62.3% in 1997, from 53.1% in 1996. This increase was primarily due to the
addition of new and temporary employees to support the Company's expanded
programs. In addition, short lead times on new projects required the Company
to utilize overtime and higher-priced contract labor to complement existing
personnel. The Pharmaceutical Segment cost of revenues as a percentage of
revenues for 1997 was approximately 55.1%. The establishment of this Segment
resulted in a decrease in the cost of revenues as a percentage of revenues for
the Company of approximately 2.2%.
Selling, general and administrative expenses for the Company increased $2.1
million, or 26.5%, from $7.8 million for 1996 to $9.8 million for 1997.
Selling, general and administrative expenses as a percentage of revenues
decreased from 47.6% for 1996 to 26.8% for 1997. Selling, general and
administrative expenses as a
15
percentage of revenues for the Consumer Segment decreased from 47.6% for 1996,
to 20.4% for 1997. Prior to the Recapitalization (see Note 2 of Notes to the
Company's Financial Statements), many of the services used by the Consumer
Segment, were provided by related-party companies. The Company has since
entered into new contracts that have reduced the costs of such services.
Interest expense increased to $2.3 million for 1997, compared with interest
expense of $101,000 for 1996, primarily due to interest expense related to
certain indebtedness incurred to finance the Recapitalization (see Note 2 of
Notes to the Company's Financial Statements) and the acquisitions of TMS,
Cultural Access Group ("CAG"), and Phoenix.
Income tax expense for 1997 was $1.2 million. Prior to December 31, 1996,
the Company had elected to be subject to taxation under Subchapter S of the
Internal Revenue Code of 1986, as amended, and, therefore, no federal income
tax expense was recorded for the year ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had working capital of $2.0 million, an
increase of $7.0 million from ($5.0) million at December 31, 1997. As
described below, substantially all of the Company's working capital resulted
from the completion of its Offering in February 1998. The Company's primary
resources of liquidity consist of cash and cash equivalents, and accounts
receivable.
Net cash provided by operating activities during 1998 was $5.5 million,
compared to $2.4 provided by operating activities during 1997. Accounts
receivable increased by $11.9 million to $20.0 million for 1998, compared to
$8.1 million for 1997. The increase in accounts receivable is primarily the
result of the increase in sales and the acquisition of A M Medica's accounts
receivable of $7.0 million. The Company's accounts receivable turnover
averaged 57 days for the year ended December 31, 1998, compared to 58 days for
the year ended December 31, 1997. Accounts payable and accrued expenses as of
December 31, 1998, increased to $11.8 million, compared to $2.8 million as of
December 31, 1997. The increase in accounts payable and accrued expenses is
primarily related to the A M Medica acquisition. A M Medica's accounts payable
and accrued expenses at December 31, 1998 were approximately $7.6 million.
Net cash used in investing activities for 1998 was $42.6 million, compared
to $6.8 million in 1997. Cash of approximately $5.7 million was used for the
expansion of the Company's facilities, and for upgrading computer and
telephone systems. During 1998, the Company used approximately $33.2 million
for the acquisition of A M Medica. In addition, the Company recorded
approximately $3.7 million of additional purchase price due to former owners
of acquired businesses because specified financial criteria indicated in the
purchase agreements were attained during 1998.
Net cash provided by financing activities was $36.9 million for 1998,
compared to $6.1 million in 1997. During 1998, the Company raised additional
capital of $44.6 million in the Offering. Approximately $36.4 million of the
proceeds was used to retire long term related party debt. In addition, the
Company drew approximately $25.6 million against the prior Credit Facility (as
defined in Note 8 of the Notes to the Company's Financial Statements)
established in January, 1998. Approximately $22.0 million of the $25.6 million
draw was used to finance the acquisition of A M Medica, and the remainder was
used to finance the expansion of the facilities and fund working capital.
The Company expects to meet its short term liquidity requirements through
net cash provided by operations and borrowing under the new Credit Facility
(as defined in Note 20 of the Notes to the Company's Financial Statements)
entered into on March 12, 1999. 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.
MARKET RISK
Access Worldwide is exposed to certain market risks arising from
transactions that are entered into in the normal course of business or from
acquisitions made. The primary market risk to which the Company is exposed
16
is interest rate changes. The Company's objective in managing its exposure to
interest rate changes is to limit the impact of these changes on earnings and
cash flow. The Company manages interest rate exposure through the debt to
equity ratio required by the loan covenants in its credit agreements and its
ability to convert interest rate from the banks Base Rate to the Eurodollar
rate (see Notes 8 and 20 of Notes to the Company's Financial Statements). A
10% increase in interest rates would affect the Company's debt obligations and
reduce future earnings by approximately $167,000. However, a 10% reduction in
interest rates would increase the future earnings by approximately the same
amount.
YEAR 2000 ISSUE
As a rapidly growing outsourced marketing service company, the Company is
dependent on computer systems and applications to conduct its business. Some
computer systems and applications include programming code in which calendar
year data is abbreviated to only two digits. As a result of this design
decision, some of these systems could fail to operate or fail to produce
correct results if "00" is interpreted to mean 1900, rather than 2000. These
problems are commonly referred to as the "Millennium Bug" or "Year 2000
Problem."
The Company has developed and is currently executing a comprehensive risk-
based plan designed to make its computer systems, applications and facilities
Year 2000 ready. The plan covers four stages including (i) identification,
(ii) assessment, (iii) remediation, and (iv) testing.
The Company has completed the process of identifying all of the major
computers, software applications, and related equipment used in connection
with its internal operations that must be modified, upgraded, or replaced to
minimize the possibility of a material disruption to its business. The Company
is currently in the process of the assessment and remediation stages of
modifying, upgrading, and replacing major systems that have been identified as
adversely affected, and expects to complete this process before the end of the
second quarter of 1999. The testing stage is projected to be completed by the
third quarter of 1999.
In addition to computers and related systems, the operation of office
equipment, such as fax machines, photocopiers, telephone switches, security
systems, elevators and other common devices may be affected by the Year 2000
Problem. The Company continues to assess the potential effects of, and cost of
remediating, the Year 2000 Problem on its office equipment.
The Company has incurred costs to date of $98,000 and estimates the total
cost of any required modifications, upgrades, or replacements of its internal
systems to be $200,000. While the estimated cost of these efforts is not
expected to be material to the Company's financial position or any year's
results of operations, there can be no assurance to this effect. The estimated
cost will be monitored and will be revised as additional information becomes
available.
The Company is communicating with its major clients and suppliers to
determine the extent to which the Company's interface systems are vulnerable
to those third parties' failure to remediate their own Year 2000 Problems.
There can be no assurance that these clients and suppliers will resolve any or
all Year 2000 Problems with their systems before the occurrence of a material
disruption to the business of the Company. Any failure of these clients and
suppliers to resolve Year 2000 Problems with their systems in a timely manner
could have a material adverse effect on the Company's business, financial
condition, and results of operations.
The Company expects to identify and resolve all Year 2000 Problems that
could materially adversely affect its business operations. However, since the
number of devices that could be effected and the interactions among these
devices are numerous, management believes that it is not possible to determine
with complete certainty that all Year 2000 Problems affecting the Company have
been identified or corrected.
The Company is developing contingency plans to be implemented as part of its
efforts to identify and correct Year 2000 Problems affecting its internal
systems. The Company expects to complete its contingency plans by second
quarter 1999. Depending on the systems affected, these plans could include
accelerated
17
replacement of affected equipment or software, short to medium-term use of
backup equipment and software, increased work hours for Company personnel or
use of contract personnel to correct on an accelerated schedule any Year 2000
Problems that arise or to provide manual workarounds for information systems,
and similar approaches. If the Company is required to implement any of these
contingency plans, it could have a material adverse effect on the Company's
financial condition and results of operations.
The discussion of the Company's efforts, and management's expectations,
related to Year 2000 compliance are forward-looking statements. The Company's
ability to achieve Year 2000 compliance and the level of incremental costs
associated therewith, could be adversely impacted by, among other things, the
availability and cost of programming and testing resources, vendors' ability
to modify proprietary software, and unanticipated problems identified in the
ongoing compliance review.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
None.
Item 8.Financial Statements and Supplementary Data
Index to Financial Statements
Page
----
Report of Independent Accountants..................................... 19
Balance Sheets........................................................ 20
Statements of Operations.............................................. 21
Statements of Changes in Common Stockholders' Equity (Deficit)........ 22
Statements of Cash Flows.............................................. 23
Notes to Financial Statements......................................... 24
18
Report of Independent Accountants
To the Board of Directors and Stockholders of Access Worldwide Communications,
Inc.
In our opinion, the financial statements listed in the index appearing under
Item 14(a)(1) and (2) on page 41 present fairly, in all material respects, the
financial position of Access Worldwide Communications, Inc. and its
subsidiaries at December 31, 1998 and 1997 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PriceWaterhouseCoopers LLP
Philadelphia, PA
February 24, 1999
19
ACCESS WORLDWIDE COMMUNICATIONS, INC.
BALANCE SHEETS
(See Note 1 regarding Basis of Presentation)
As of December 31,
1998 1997
---- ----
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 1,912,219 $ 2,014,711
Accounts receivable, net of allowance for doubtful
accounts of
$184,801, and $279,935, respectively.............. 20,046,495 8,077,462
Deferred issuance costs............................ -- 1,350,594
Other assets....................................... 1,955,322 941,686
------------ -----------
Total current assets............................... 23,914,036 12,384,453
Property and equipment, net........................ 8,565,188 4,171,806
Other assets....................................... 917,197 265,110
Intangible assets, net............................. 71,025,795 35,858,750
------------ -----------
Total assets....................................... $104,422,216 $52,680,119
============ ===========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Amount due on line of credit facility.............. $ -- $ 5,810,000
Current portion of indebtedness.................... 63,431 69,940
Current portion of indebtedness--related parties... 2,421,770 3,203,819
Accounts payable and accrued expenses.............. 11,787,231 2,831,463
Accrued interest and other related party expenses.. 3,623,293 2,974,661
Accrued salaries, wages and related benefits....... 2,007,827 1,308,446
Due to related parties............................. 42,303 471,925
Deferred revenue................................... 1,998,486 666,082
------------ -----------
Total current liabilities.......................... 21,944,341 17,336,336
Long-term portion of indebtedness.................. 25,609,170 80,013
Long-term portion of indebtedness--related
parties........................................... 4,238,310 34,238,666
Mandatorily redeemable preferred stock, $.01 par
value: 8%
cumulative as of February 10, 1998 and December 31,
1997,
respectively, 2,000,000 shares authorized, 65,000
shares and
36,000 shares issued and outstanding,
respectively...................................... 6,500,000 3,888,000
------------ -----------
Total liabilities and mandatorily redeemable
preferred stock................................... 58,291,821 55,543,015
------------ -----------
Commitments and contingencies (Notes 9 and 16)
Common stockholders' equity (deficit):
Common stock, $.01 par value: voting: 20,000,000
shares
authorized; 9,043,185 and 4,264,000 shares issued,
at December 31,
1998 and 1997, respectively; 9,027,730 and
4,261,500 shares outstanding at December 31, 1998
and 1997, respectively............................ 90,432 42,640
Common stock, $.01 par value: non-voting: 500,000
shares authorized, issued and outstanding ........ -- 5,000
Additional paid-in capital......................... 58,490,848 14,013,092
Accumulated deficit................................ (12,392,763) (16,913,595)
Less: cost of treasury stock 15,455 and 2,500
shares, respectively.............................. (52,530) (143)
Deferred compensation.............................. (5,592) (9,890)
------------ -----------
Total common stockholders' equity (deficit)........ 46,130,395 (2,862,896)
------------ -----------
Total liabilities, mandatorily redeemable preferred
stock and
common stockholders' equity (deficit)............. $104,422,216 $52,680,119
============ ===========
The accompanying notes are an integral part of these financial statements.
20
ACCESS WORLDWIDE COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
(See Note 1 regarding Basis of Presentation)
For the Years Ended December 31,
1998 1997 1996
---- ---- ----
Revenues................................ $73,234,285 $36,652,889 $16,286,280
Cost of revenues (exclusive of
depreciation).......................... 41,091,313 21,812,960 8,639,578
----------- ----------- -----------
Gross profit........................... 32,142,972 14,839,929 7,646,702
Selling, general and
administrative expenses (selling,
general and administrative expenses to
related parties are $1,020,702,
$258,665, and $2,196,094,
respectively).......................... 21,583,716 8,909,475 7,727,072
Amortization expense.................... 1,731,372 900,696 27,055
----------- ----------- -----------
Income (loss) from operations.......... 8,827,884 5,029,758 (107,425)
Interest income......................... 193,985 113,204 --
Interest expense-related party.......... (569,538) (1,999,009) (100,733)
Interest expense........................ (382,953) (440,453) --
Other expense-related party............. -- (301,841) --
Other income (expense).................. 3,537 4,757 (200,322)
----------- ----------- -----------
Income (loss) before income taxes...... 8,072,915 2,406,416 (408,480)
Income tax (expense) benefit............ (3,552,083) (1,181,484) 87,533
----------- ----------- -----------
Net income (loss)...................... $ 4,520,832 $ 1,224,932 $ (320,947)
=========== =========== ===========
Earnings (loss) per share of common
stock
Basic.................................. $ 0.52 $ 0.26 $ (0.07)
=========== =========== ===========
Diluted................................ $ 0.51 $ 0.26 $ (0.07)
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
21
ACCESS WORLDWIDE COMMUNICATIONS, INC.
STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (DEFICIT)
(See Note 1 regarding Basis of Presentation)
For the Years Ended December 31, 1996, 1997 and 1998.
Common Stock Additional
------------------- Paid-in Treasury Retained Earnings/ Deferred
Shares Amount Capital Stock Accumulated (Deficit) Compensation Total
---------- ------- ----------- ----------- --------------------- ------------ -----------
Balance, December 31,
1995.................... 2,000 $ 2,000 $ 217,000 $ -- $ 370,820 $ -- $ 589,820
Stock split effective
December 6, 1996........ 4,298,000 41,000 (41,000) -- -- -- --
Merger of TelAc, Inc and
Telephone Access, Inc... -- -- 11,170,882 -- -- -- 11,170,882
Assumption of net
liabilities by Former
Principal
Stockholders............ -- -- 936,500 -- -- -- 936,500
Sale of common stock to
management.............. 130,000 1,300 6,110 -- -- -- 7,410
Sale of common stock to
Investors............... 3,500,000 35,000 277,000 -- -- -- 312,000
Purchase of common
shares.................. -- -- -- (18,000,000) -- -- (18,000,000)
Retirement of treasury
stock................... (3,500,000) (35,000) (147,420) 18,000,000 (17,817,580) -- --
Revocation of S
Corporation status...... -- -- 370,820 -- (370,820) -- --
Net loss for the year
ended December 31,
1996.................... -- -- -- -- (320,947) -- (320,947)
---------- ------- ----------- ----------- ------------ ------- -----------
Balance, December 31,
1996.................... 4,430,000 44,300 12,789,892 -- (18,138,527) -- (5,304,335)
Sale of common stock to
management.............. 234,000 2,340 25,588 -- -- (9,890) 18,038
Purchase of TMS by TLM
(Note 1)................ -- -- 164,500 -- -- -- 164,500
Purchase of common
stock................... -- -- -- (143) -- -- (143)
Merger of TLM and Access
Worldwide (Note 1)...... 100,000 1,000 1,033,112 -- -- -- 1,034,112
Net income for the year
ended December 31,
1997.................... -- -- -- -- 1,224,932 -- 1,224,932
---------- ------- ----------- ----------- ------------ ------- -----------
Balance, December 31,
1997.................... 4,764,000 47,640 $14,013,092 (143) (16,913,595) (9,890) (2,862,896)
Common stock issued at
Offering................ 4,000,000 40,000 41,335,532 -- -- -- 41,375,532
Convertible promissory
note converted to common
stock................... 208,334 2,083 2,497,917 -- -- -- 2,500,000
Contingent payments made
in the form of common
stock................... 70,851 709 694,347 -- -- -- 695,056
Purchase of common
stock................... -- -- -- (602,812) -- -- (602,812)
Issuance of treasury
stock................... -- -- (50,040) 550,425 -- -- 500,385
Amortization of deferred
compensation............ -- -- -- -- -- 4,298 4,298
Net income for the year
ended December 31,1998.. -- -- -- -- 4,520,832 -- 4,520,832
---------- ------- ----------- ----------- ------------ ------- -----------
Balance, December 31,
1998.................... 9,043,185 $90,432 $58,490,848 $ (52,530) $(12,392,763) $(5,592) $46,130,395
========== ======= =========== =========== ============ ======= ===========
The accompanying notes are an integral part of these financial statements.
22
ACCESS WORLDWIDE COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
(See Note 1 regarding Basis of Presentation)
For the Years Ended December 31,
1998 1997 1996
----------- ------------ ------------
Cash flows from operating activities
Net income (loss)................... $ 4,520,832 $ 1,224,932 $ (320,947)
Adjustments to reconcile net income
(loss)
to net cash provided by operating
activities:
Depreciation and amortization....... 3,131,788 1,330,159 184,056
Deferred tax provision.............. (740,979) 92,115 (87,533)
Interest expense on mandatorily
redeemable
preferred stock.................... 46,142 288,000 --
Loss on disposition of property..... -- -- 200,238
Changes in operating assets and
liabilities,
excluding effects from
acquisitions:
Accounts receivable................ (12,105,461) (2,088,329) (2,351,438)
Due to related parties and
affiliates......................... (407,411) 1,603,990 288,438
Other assets........................ (1,830,700) (865,375) 186,596
Accounts payable and accrued
expenses........................... 11,459,644 315,949 2,573,539
Deferred revenue.................... 1,467,635 496,244 --
----------- ------------ ------------
Net cash provided by operating
activities........................ 5,541,490 2,397,685 672,949
----------- ------------ ------------
Cash flows from investing activities:
Additions to property and equipment,
net................................ (5,672,131) (1,545,518) (1,045,073)
(Funding) use of letter of credit... -- 15,000,000 (15,000,000)
Business acquisitions, net of cash
acquired........................... (36,904,338) (20,238,495) (60,000)
----------- ------------ ------------
Net cash used in investing
activities........................ (42,576,469) (6,784,013) (16,105,073)
----------- ------------ ------------
Cash flows from financing activities:
Deferred stock issuance and debt
issuance costs..................... (2,128,191) (892,211) --
Payments on capital lease........... (74,109) (220,494) (6,186)
Proceeds from notes payable......... 11,000,000 15,446,248 13,021,000
Distribution to former principal
stockholders....................... -- -- (175,000)
Proceeds from sale of common and
preferred stock.................... 45,135,802 1,999,500 2,119,410
Net borrowings under line of credit
facility........................... 19,986,952 5,810,000 --
Repayment of related party debt..... (36,385,155) (16,042,248) --
Purchase of common shares........... (602,812) (143) --
----------- ------------ ------------
Net cash provided by financing
activities........................ 36,932,487 6,100,652 14,959,224
----------- ------------ ------------
Net (decrease) increase in cash.... (102,492) 1,714,324 (472,900)
Cash and cash equivalents, beginning
of period.......................... 2,014,711 300,387 773,287
----------- ------------ ------------
Cash and cash equivalents, end of
period............................. $ 1,912,219 $ 2,014,711 $ 300,387
=========== ============ ============
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest........................... $ 1,903,931 $ 651,822 $ 8,335
=========== ============ ============
Income taxes....................... $ 2,438,299 $ 1,296,000 $ --
=========== ============ ============
The accompanying notes are an integral part of these financial statements.
23
ACCESS WORLDWIDE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Business Description and Significant Accounting Policies
Business Description
Access Worldwide Communications, Inc. ("Access Worldwide" or the "Company"),
formerly known as CulturalAccessWorldwide, Inc. and /or CulturalAccess, is an
outsourced marketing services company that assists more than 100 clients in
the pharmaceutical, telecommunications, financial services and consumer
products industries. The Company designs and delivers innovative, data-driven
sales and marketing solutions that maximize clients' sales and profits. The
Company has particular expertise in reaching key pharmaceutical audiences--
physicians, pharmacists and patients--and targeted consumer groups. Access
Worldwide's resources include proprietary databases of targeted consumers,
physicians and pharmacists; strategic planning and market research services;
medical education; medical meetings management; medical publications; inbound
and outbound teleservices in 15 different languages; ETMS; and DEA approved
drug sample fulfillment and direct mail capabilities. Access Worldwide has
over 1,400 employees and representatives in offices throughout the United
States.
Basis of Presentation
The financial statements present the financial position and results of
operations of Access Worldwide Communications, Inc. and its subsidiaries.
Access Worldwide (formerly Telephone Access, Inc.), was incorporated in
Delaware in 1983, and operates in Arlington, Virginia. Access Worldwide was
formed and was wholly owned by several individuals (the "Former Principal
Stockholders"). In addition, certain of the Former Principal Stockholders
formed and owned the majority of another corporation, TelAc, Inc., which
operated in Dallas, Texas. On December 6, 1996, the Company and TelAc, Inc.
were merged. The merger was effected through a one-for-one share exchange,
with the stockholders of TelAc, Inc. receiving one Access Worldwide share for
every TelAc, Inc. share. The fair value of the consideration paid was based on
the fair value of shares of Access Worldwide, which was determined based on
the price being paid by third parties, at the time, to acquire shares of
Access Worldwide. The merger was accounted for using the purchase method of
accounting. TelAc, Inc. is included on a combined basis with the Company from
the date of its inception (July 1995) through December 6, 1996 due to common
ownership, common management and the integrated nature of business
activities/operations. All intercompany operations have been eliminated in the
Company's combined financial statements.
On December 6, 1996, the Company was recapitalized. The recapitalization
(the "Recapitalization") was effected by (i) the Company's issuance of common
and preferred shares to a group of investors, previously unaffiliated with the
Company (the "Investors"), for $2,100,000; (ii) the Company's issuance of
common shares to the then current management of the Company for $7,410; (iii)
the Company's borrowing of $13,000,000 from the Investors; and (iv) the
purchase and cancellation of common shares from the individuals owning common
shares before the Recapitalization (the Former Principal Stockholders) for
$18,000,000. After the Recapitalization, the Former Principal Stockholders of
the Company retained 18% of the outstanding common shares. See Note 2 for a
more complete description of these transactions.
On January 1, 1997, TLM Holdings Corp. ("TLM"), an inactive corporation with
no assets, liabilities or operations, was formed by the Investors to purchase,
through a subsidiary, certain assets and assume certain liabilities of
TeleManagement Services, Inc. ("TMS") for $7.8 million. In connection with the
initial capitalization of TLM, the Investors purchased (a) 3,500,000 shares of
common stock of TLM for an aggregate purchase price of $199,500 and (b) 18,000
shares of mandatorily redeemable preferred stock of TLM for an aggregate
purchase price of $1,800,000. Since Access Worldwide and TLM were commonly
controlled companies effective with the acquisition on January 1, 1997, the
financial statements as of and for the year ended December 31, 1997 are
presented on a combined basis. All intercompany transactions and balances have
been eliminated.
24
ACCESS WORLDWIDE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
1. Business Description And Significant Accounting Policies -- (Continued)
On October 21, 1997, the Investors merged their interests in Access
Worldwide and TLM. As part of the merger, the Investors made a capital
contribution to the Company of the 3,500,000 shares of TLM common stock which
the Investors held. In addition, the 18,000 shares of TLM mandatorily
redeemable preferred stock held by the Investors were converted into 18,000
shares of Access Worldwide mandatorily redeemable preferred stock. The
remaining TLM stockholders received a one-for-one share exchange of 100,000
shares of TLM voting common stock for Access Worldwide voting common stock.
The merger of commonly controlled interests, was accounted for using the
historical costs of the respective businesses in a manner similar to a pooling
of interests. The acquisition of the minority interest in TLM was accounted
for using the purchase method.
Based on the merger of commonly controlled interests, the Company's
financial statements as of December 31, 1998 have been consolidated and all
intercompany transactions and balances have been eliminated.
Cash and Cash Equivalents
All highly liquid investments with maturities of three months or less when
purchased are considered cash and cash equivalents.
Deferred Revenues and Issuance Costs
Deferred revenues represent customer deposits for services that have been
contracted for but have not been fully performed. Deferred issuance costs are
costs incurred directly related to the Company's initial public offering,
which occurred on February 13, 1998, and were netted against the proceeds
received.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets ranging from three to seven years. Leasehold
improvements are amortized over the remaining term of the facilities' lease.
When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the period. Expenditures for maintenance and repairs
are expensed as incurred, while expenditures for major renewals that extends
the useful lives are capitalized.
Computer Software
The Company has developed certain computer software and technically derived
procedures intended to maximize the quality and efficiency of its services.
Costs of purchased internal-use computer and telephone software are
capitalized and costs of internally developed internal-use computer software
are expensed as incurred.
Intangible Assets
Assets and liabilities acquired in connection with business combinations are
accounted for under the purchase method of accounting and are recorded at
their respective fair values. The excess of the purchase price over the fair
value of net assets acquired consists of noncompete agreements, customer
lists, assembled workforce and goodwill (the intangible assets). The
intangible assets are amortized on a straight-line basis over the estimated
useful lives of the assets, which range from three to thirty-five years. The
Company reviews the recoverability of its long-lived assets, including
intangible assets, when events or changes in circumstances occur that indicate
that the carrying value of the assets may not be recoverable in accordance
with Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of.
25
ACCESS WORLDWIDE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
1. Business Description and Significant Accounting Policies -- (Continued)
Treasury Stock
The Company's treasury stock was accounted for using the cost basis method
of accounting.
On September 10, 1998, the Board of Directors approved a 300,000 common
stock buyback program. At December 31, 1998, the Company had 165,000 shares of
common stock left to be repurchased under this program.
Revenue Recognition
Revenues received from database analysis, strategic planning, tele-
sales/services, direct mail, sales force support systems, sales territory
management and product sampling, fulfillment and medical education services
are recognized when the services are rendered. Revenues received from market
research and contract services are recognized using the percentage of
completion method as services are delivered. Expenses related to marketing and
contract services are recognized on the accrual basis of accounting. Revenues
received from medical education and medical meetings management services are
recognized using the percentage of completion method as milestones are
achieved. Expenses related to medical education and medical meetings
management services are recognized using standard cost accounting. The Company
does not require collateral or other security to support credit sales.
Income Taxes
Beginning August 1, 1994 and through December 7, 1996, the Company elected
to be taxed as an S Corporation for Federal and State income tax purposes. As
a result, the stockholders paid taxes on their respective shares of taxable
income, even if such income was not distributed. Accordingly, no taxes or
income tax provision has been recorded for the period ended December 6, 1996
(see Note 7).
Effective December 7, 1996, the Company discontinued its election to be
treated as an S Corporation and elected to be treated as a C Corporation. The
Company began to account for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes.
Accordingly, deferred tax assets and liabilities are recognized at applicable
income tax rates based upon future tax consequences of temporary differences
between the tax basis and financial reporting basis.
Earnings Per Share
Earnings per share are calculated in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS
No. 128). SFAS No. 128 requires the Company to report both basic earnings per
share, which is based on the weighted-average number of common shares
outstanding, and diluted earnings per share, which is based on the weighted
average number of common shares outstanding and all potentially dilutive
common shares outstanding.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
based Compensation ("FASB Statement No. 123") encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to account for its
stock-based compensation plan using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB 25") and its related Interpretations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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 revenue and expenses during the
reporting period. Actual results could differ from those estimates.
26
ACCESS WORLDWIDE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
1. Business Description and Significant Accounting Policies -- (Continued)
Reclassifications
Certain reclassifications have been made to the December 31, 1997 and 1996
financial statements to conform to the December 31, 1998 presentation.
2. Leveraged Recapitalization
On December 6, 1996, the Company consummated a leveraged Recapitalization
pursuant to the Recapitalization and Investment Agreement (the "Agreement"),
with the Company, the Former Principal Stockholders and the Investors. The
principal elements of the Recapitalization included the following:
. Amendments to the certificate of incorporation to provide that the
authorized capital consists of 1,000,000 shares of $.01 par value
preferred stock of which 18,000 shares shall be designated as
cumulative mandatorily redeemable preferred stock; 19,500,000 shares of
$.01 par value voting common stock; and 500,000 shares of $.01 par
value non-voting common stock.
. The 2,000 shares of voting common stock held by the Former Principal
Stockholders were split at a rate of 2,150 shares for each share held
which resulted in 4,300,000 voting common shares issued and
outstanding.
. The sale of newly issued shares of common stock (3,000,000 shares of
voting stock and 500,000 shares of non-voting stock) and preferred
stock (18,000 shares of 8% cumulative redeemable stock) for cash of
$2,000,000 to the Investors. In addition, the Investors contributed
$112,000 to the Company.
. The borrowing of $13,000,000 in 8% subordinated promissory notes from
the Investors.
. The repurchase and cancellation of 3,500,000 shares of voting common
stock (out of 4,300,000 voting common shares) from the Former Principal
Stockholders for $15,000,000 promissory notes due January 2, 1997 and
$3,000,000 in 6% convertible subordinated notes. The Company
collateralized the promissory notes with an irrevocable letter of
credit and fully funded the letter of credit on December 6, 1996. The
$15,000,000 was paid to the Former Principal Stockholders on January 2,
1997.
3. Purchase Business Combinations
1997
Effective January 1, 1997, the Investors formed an inactive corporation,
TLM, to purchase, through a subsidiary, certain assets and to assume certain
liabilities of TMS. (See Note 1)
Effective October 1, 1997, the Company purchased all the outstanding and
issued shares of Hispanic Market Connections, Inc. (subsequently renamed
Cultural Access Group ("CAG")), a California company. The purchase price was
$1,500,000 in cash, $240,000 in the form of a 6.5% subordinated promissory
note, and specified contingent payments based on certain net revenues and pre-
tax earnings goals over the three full calendar year periods subsequent to the
date of acquisition. The cash portion of this purchase was funded by debt
financing provided by the Investors.
On October 21, 1997, the Investors merged their interests in Access
Worldwide and TLM. The acquisition of the 3% minority interest in TLM was
accounted for using the purchase method of accounting. The fair value of the
consideration paid was based on the fair value of shares of Access Worldwide
at that time.
27
ACCESS WORLDWIDE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
3. Purchase Business Combinations -- (Continued)
Effective November 1, 1997, the Company purchased assets and liabilities of
Phoenix Marketing Group, Inc. ("Phoenix"), a New Jersey company. The purchase
price was $10,000,000 in cash (including an assumption of $1,000,000 in debt),
a $2,500,000 redeemable note at 6.0% interest, a $2,500,000 convertible note
at 6.0% interest automatically convertible into 208,334 shares of common stock
at the closing of the Company's initial public offering (see Note 4), and
specified contingent payments based on certain net revenues and pre-tax
earnings goals over the three full calendar year periods subsequent to the
date of acquisition. The cash portion of this purchase was funded by debt
financing provided by the Investors.
1998
Effective October 1, 1998, Access Worldwide acquired all the outstanding
capital stock of A M Medica Communications, Ltd. ("A M Medica"), a New York
company. The purchase price was $22,512,700 in cash, 122,045 shares of the
Company's common stock, and a three year 6.5% subordinated promissory note in
the principal amount of $5,500,000. The purchase price also includes certain
future contingent payments of cash and shares of the Company's common stock
dependent on the achievement of certain financial goals by A M Medica. The
ultimate amount of cash to be paid and the ultimate number of shares of common
stock to be issued cannot be determined until the earn-out periods terminate
and achievement of criteria is established.
These acquisitions were accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to assets and
liabilities acquired based on their estimated fair values. The financial
statements reflect the results of the acquisitions from their respective dates
of acquisition.
Information with respect to businesses acquired in purchase transactions is
as follows:
For the For the
Year Ended Year Ended
December 31, December 31,
1998 1997
------------ ------------
Fair value of consideration......................... $ -- $ 1,100,000
Cash paid (net of cash acquired).................... 22,512,700 21,276,183
Stock issued........................................ 500,000 --
Notes issued........................................ 5,500,000 6,540,000
Liabilities assumed................................. 9,794,042 3,992,522
----------- -----------
38,306,742 32,908,705
Fair value of tangible assets acquired.............. 10,140,715 7,513,086
----------- -----------
Cost in excess of fair value of tangible assets
acquired........................................... $28,166,027 $25,395,619
=========== ===========
Certain purchase agreements require additional payments if certain financial
goals are achieved. Of the aggregated amounts payable under these agreements,
70,851 shares of the Company's common stock, valued at $695,056 and $695,056
in cash was paid during 1998. As of December 31, 1998, the Company accrued
$8,474,698 as additional payments in accordance with the above purchase
agreements.
28
ACCESS WORLDWIDE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
3. Purchase Business Combinations -- (Continued)
December 31,
Useful Life ------------------------
In Years 1998 1997
----------- ----------- -----------
Goodwill.............................. 35 $69,335,377 $33,758,710
Customer lists........................ 5 2,009,494 1,153,200
Assembled workforce................... 3 1,471,844 721,391
Noncompete agreements................. 7 874,034 1,153,200
----------- -----------
73,690,749 36,786,501
Less: Accumulated amortization........ (2,664,954) (927,751)
----------- -----------
Intangible assets, net................ $71,025,795 $35,858,750
=========== ===========
The unaudited results of operations on a pro forma basis as if each of the
acquisitions had been made as of the beginning of the year is as follows:
Years Ended December
31,
1998 1997
----------- -----------
(Unaudited) (Unaudited)
Revenues............................................... $92,238,844 $66,579,642
Income from operations................................. 11,708,370 8,024,007
Net income............................................. 5,304,201 1,678,401
Earnings per share of common stock
Basic................................................. $0.61 $0.34
Diluted............................................... $0.59 $0.34
4. Initial Public Offering
On February 13, 1998, the Company's initial public offering (the "Offering")
of 4,000,000 shares of common stock became effective. The proceeds received
from the initial public offering were used to retire the following long term
debt and associated accrued interest which was outstanding as of December 31,
1997:
8% subordinated promissory notes due to the Investors on
December 1, 2006.............................................. $13,021,000
8% subordinated promissory notes due to the Investors on
January 15, 2007 ............................................. 6,500,000
6% convertible subordinated promissory notes due to the Former
Principal Stockholders on December 1, 2000.................... 3,000,000
6% subordinated promissory note due to the former stockholders
of Phoenix.................................................... 2,500,000
8% subordinated promissory note due to the Investors on October
15, 2007 ..................................................... 13,546,000
Uncommitted line of credit facility............................ 1,490,000
Unpaid interest due............................................ 2,032,000
Also, in conjunction with the Offering, the following occurred: (i) the 6%
convertible subordinated promissory note due to the former stockholders of
Phoenix for $2,500,000 was converted into 208,334 shares of common stock; (ii)
the Company's 36,000 shares of series 1996 preferred stock were converted into
Series 1998 preferred stock with terms as follows: $0.01 par value; 65,000
shares authorized, dividends payable per share in cash and non cash
distributions equal to the product of (x) 8.33 and (y) any per share dividends
and distributions paid on shares of common stock; mandatorily redeemable by
the Company at a price of $100 per share upon any other public offering, a
change in control, or the Company's achievement of net income of $10 million
over any four consecutive quarters; (iii) $2,900,000 of 8% subordinated
promissory notes due to the Investors on December 1, 2006 was converted into
29,000 shares of series 1998 preferred stock; (iv) the Company paid $299,000
in accrued interest on the series 1996 preferred stock and (v) the 500,000
shares of non-voting common stock were converted into 500,000 shares of voting
common stock on a share-for-share basis.
29
ACCESS WORLDWIDE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
5. Property and Equipment
Property and equipment are carried at cost less accumulated depreciation and
consist of the following:
December 31,
Useful Life -----------------------
In Years 1998 1997
------------- ----------- ----------
Furniture and fixtures............... 7 $ 1,640,792 $ 894,793
Telephone and office equipment....... 7 3,353,205 1,103,624
Computer equipment................... 3-5 3,471,321 2,125,299
Leasehold improvements. ............. Life of lease 2,004,692 630,268
----------- ----------
10,470,010 4,753,984
Less: Accumulated depreciation....... (1,904,822) (582,178)
----------- ----------
Property and equipment, net.......... $ 8,565,188 $4,171,806
=========== ==========
Depreciation expense (including property and equipment held under capital
leases) was $1,248,073, $429,463 and $157,001 for the years ended December 31,
1998, 1997 and 1996, respectively.
6. Revenue From Significant Customer
A substantial portion of the Company's revenue is derived from one customer
which is included in the Consumer Segment (see Note 18). For the years ended
December 31, 1998, 1997 and 1996, revenues from that customer amounted to
approximately 36%, 59% and 96% of revenues, respectively. At December 31,
1998, 1997 and 1996, amounts due from that customer included in accounts
receivable amounted to approximately 21%, 39% and 83% of accounts receivable,
respectively.
7. Income Taxes
As discussed in Note 1, beginning August 1, 1994 and through December 7,
1996, the Company had elected to be treated as an S Corporation for federal
and state income tax purposes. Accordingly, the financial statements do not
reflect a provision for federal income taxes from August 1, 1994 through
December 7, 1996.
The provision for income taxes consists of the following:
For the Years Ended December
31,
-------------------------------
1998 1997 1996
---------- ---------- --------
Current tax expense:
Federal................................. $2,374,376 $1,228,697 $ --
State................................... 436,728 132,435 --
---------- ---------- --------
2,811,104 1,361,132 --
---------- ---------- --------
Deferred tax (benefit) expense:
Federal................................. 631,139 (155,622) (74,604)
State................................... 109,840 (24,026) (12,929)
---------- ---------- --------
740,979 (179,648) (87,533)
---------- ---------- --------
$3,552,083 $1,181,484 $(87,533)
========== ========== ========
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
30
ACCESS WORLDWIDE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
7. Income Taxes -- (Continued)
Deferred tax assets (liabilities) are comprised of the following:
December 31,
-------------------
1998 1997
--------- --------
Gross deferred tax assets:
Accrued vacations..................................... $ 43,494 $ --
Accrued expenses...................................... 50,665 --
Depreciation.......................................... -- 1,602
Allowance for doubtful accounts....................... 15,902 179,389
Other................................................. -- 47,517
--------- --------
110,061 228,508
--------- --------
Gross deferred tax liabilities:
Amortization of intangible assets..................... (383,565) (48,860)
Depreciation.......................................... (451,208) --
Other................................................. (18,596) --
--------- --------
(853,369) (48,860)
--------- --------
Net deferred tax (liabilities) assets................... $(743,308) $179,648
========= ========
The effective tax rate was different from the federal statutory rate as
follows:
For the Years
Ended December
31,
----------------
1998 1997 1996
---- ---- ----
Statutory rate.............................................. 34% 34% 34%
Income taxed directly to shareholders....................... -- -- (16)
Meals and entertainment and officers' life insurance........ 1 -- --
State income taxes, net of federal benefit.................. 7 4 4
Preferred stock dividend treated as interest expense........ -- 4 --
Amortization of goodwill.................................... 1 6 --
Other items, net............................................ 1 -- 1
--- ---- ---
44% 48% 23%
=== ==== ===
31
ACCESS WORLDWIDE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
8. Indebtedness
December 31,
------------------------
1998 1997
----------- -----------
Short-term borrowings consist of the following:
Uncommitted line of credit facility in the amount of
$6,000,000, short-term borrowings due to PNC Bank,
on demand, bearing an interest rate at the option
of the Company at (a) the greater of (x) PNC Bank's
prime rate (8.5% at December 31, 1997) or (y) the
Federal funds rate (6.07% at December 31, 1997)
plus 0.5% or (b) the Eurodollar rate (7.94% at
December 31, 1997 at the 30 day rate) plus 2%...... $ -- $ 5,810,000
=========== ===========
Long-term debt consists of the following:
Committed line of credit facility in the amount of
$30,000,000, long-term borrowings due to
NationsBank, due in full on February 27, 2001,
bearing a variable interest rate, depending on
certain financial ratios equal to (a) the LIBOR
rate plus 1.25% to 2.00% or (b) the lead bank's
prime rate plus 0% to 0.375%....................... 25,588,089 --
6% subordinated promissory note due to the former
sole shareholder of AM Medica; principal due in
annual installments of $1,833,333 beginning October
24, 1999 and due in full on October 24, 2001;
interest at 6.5% per year payable semi-annually.... 5,500,000 --
8% subordinated promissory notes due to the
Investors; principal due December 1, 2006; interest
at 8% per year payable quarterly beginning at the
earlier of the date of the closing of the initial
public offering of the Company's common stock or
December 1, 2000................................... -- $13,021,000
8% subordinated promissory notes due to the
Investors; principal due January 15, 2007 or, at
the option of the holder, upon the date of the
closing of the initial public offering of the
Company's common stock............................. -- 1,500,000
6% convertible subordinated promissory note due to
stockholders; principal due in three equal
installments of $60,000 beginning April 1, 1998 and
due in full on April 1, 2000; interest at 6% per
year payable quarterly............................. 120,000 180,000
6% subordinated promissory note due to former
stockholder of TMS; principal due in two annual
installments of $433,333 beginning January 15, 1998
and due in full on January 15, 2000; interest at 6%
per year payable annually.......................... 866,667 1,300,000
6% convertible subordinated promissory notes due to
Former Principal Stockholders; principal (and any
outstanding accrued interest) due at the request of
the payee either: (i) ten days after the closing of
the initial public offering of the Company's common
stock or (ii) December 1, 2000; interest at 6% per
year payable quarterly............................. -- 3,000,000
Amount due to former stockholder of TMS; principal
due in monthly payments of $12,500 plus interest at
8% through February 1, 1999........................ 13,437 155,237
6.5% subordinated promissory note due to the former
sole stockholder of CAG; principal due in quarterly
installments of $20,000 beginning January 1, 1998
and due in full on October 1, 2000; interest at
6.5% per year payable quarterly.................... 160,000 240,000
8% subordinated promissory note due to Investors;
principal due October 15, 2007; interest at 8% per
year payable quarterly beginning the earlier of the
date of the initial public offering of the
Company's common stock or December 1, 2000......... -- 13,046,248
6% convertible subordinated promissory note due to
former stockholders of Phoenix; payable in full on
December 31, 2000 or convertible at the closing of
the initial public offering of the Company's common
stock; interest at 6% per year payable semi-
annually commencing April 1, 1998.................. -- 2,500,000
6% redeemable subordinated promissory note due to
former stockholders of Phoenix; principal payable
at the earlier of the date of the closing of the
initial public offering of the Company's common
stock or December 31, 1998; interest at 6% per year
payable in full at the same date as the principal
payment............................................ -- 2,500,000
Capital leases payable in monthly installments of up
to $2,029 through November 2000.................... 61,812 95,967
Restrictive covenant payable in monthly installments
of $2,942 through August 1999...................... 22,676 53,986
----------- -----------
32,332,681 37,592,438
Less: current portion............................... (2,485,201) (3,273,759)
----------- -----------
$29,847,480 $34,318,679
=========== ===========
32
ACCESS WORLDWIDE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
8. Indebtedness -- (Continued)
The $180,000 6% convertible subordinated promissory note is convertible into
shares of common stock at a price of $15 per share if the net revenues of the
applicable acquired firm's business for the years ending December 31, 1997
through 1999 exceed a specified target amount. The targeted amounts were not
exceeded during 1998 and 1997 and no conversion was effected in either year.
The 6% convertible subordinated promissory note of $2,500,000 automatically
converted into 208,334 shares of common stock upon the closing of the initial
public offering of the Company's common stock. See Note 4.
On January 20, 1998, the Company received a commitment from a bank for a
committed line of credit facility for $30,000,000. The credit agreement
provides for interest at a variable rate, depending on certain financial
ratios, equal to (a) the LIBOR rate plus 1.25% to 2.00% or (b) the lead bank's
prime rate plus 0% to 0.375%. Loans made under the credit facility will be
secured by a pledge of all of ( i ) the Company's interest in the common stock
of its subsidiaries and ( ii ) the assets of the Company and its subsidiaries.
All principal and unpaid interest due on the credit facility is payable in
full on February 27, 2001. The Company is required to pay a loan origination
fee and a quarterly commitment fee, and adhere to certain financial covenants.
As of December 31, 1998, the interest rates on loans made on the credit
facility ranged from 6.431%-7.75%. In addition, the Company was in compliance
with all financial covenants as of December 31, 1998.
Aggregate annual principal maturities for indebtedness are as follows:
Years Ending
December 31,
------------
1999......................................................... $ 2,485,201
2000......................................................... 2,425,449
2001......................................................... 27,422,031
-----------
$32,332,681
===========
9. Operating Leases
The Company leased office space and operating equipment under non-cancelable
operating leases with terms ranging from three to ten years and expiring at
various dates through June 2008. Rent expense under operating leases was
$2,081,597, $1,002,223 and $334,651 for the years ended December 31, 1998,
1997 and 1996, respectively.
The Company leased office and warehouse facilities under a long-term
operating lease from a partnership comprised of stockholders and certain
former stockholders expiring November 2007. Rent expense under this agreement
totaled $630,460 and $56,447 for the years ended December 31, 1998 and 1997,
respectively. The Company has receivables from this partnership in the amount
of $4,845 and $16,000 at December 31, 1998 and 1997, respectively.
Aggregate minimum annual rentals under the operating leases as of December
31, 1998 are as follows:
1999.......................................................... $ 2,430,989
2000.......................................................... 2,492,001
2001.......................................................... 2,071,064
2002.......................................................... 1,708,102
2003.......................................................... 1,441,908
Thereafter.................................................... 2,372,463
-----------
$12,516,527
===========
33
ACCESS WORLDWIDE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
10. Sales-Type Leases
The Company leased equipment to customers under sales-type leases as defined
in Statement of Financial Accounting Standards No. 13, Accounting for Leases.
The current portion of the net investment in sales-type leases is included in
current other assets and the long-term portion is included in non-current
other assets. The components of the net investment in sales-type leases are as
follows:
Minimum rental receivables...................................... $475,127
Less: unearned interest income.................................. (14,333)
--------
Net investment in sales-type leases............................. $460,794
========
Minimum rental receivables under existing leases as of December 31, 1998
were as follows:
1999............................................................. $267,294
2000............................................................. 193,500
--------
Total.......................................................... $460,794
========
Under these leases, the Company also leases Company developed software and
is obligated to provide maintenance services.
11. Access Worldwide Capital Structure
COMMON STOCK
Prior to the Recapitalization on December 6, 1996 (see Note 2), the
Company's authorized, issued and outstanding capital included 1,000 shares of
$1 par value common stock at July 31, 1994 and December 31, 1994. At December
31, 1995, the Company's authorized capital included 2,000 shares of $1 par
value common stock, of which 1,670 shares were issued and outstanding and 330
shares were subscribed.
Subsequent to the Recapitalization on December 6, 1996 (see Note 2), the
Company's authorized capital includes 20,000,000 shares of common stock, $.01
par value per share, of which 19,500,000 are voting and 500,000 are non-
voting. Each share of non-voting common stock was convertible at the option of
the holder into a share of voting common stock at the rate of one share of
voting common stock for each share of non-voting common stock. The 500,000
non-voting shares were issued to the Investors as part of the Recapitalization
and converted to voting shares at the closing of the Offering.
34
ACCESS WORLDWIDE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
11. Access Worldwide Capital Structure-- (Continued)
EARNINGS PER SHARE
For the Years Ended December 31,
-------------------------------------
Income (loss) Shares Per Share
(Numerator) (Denominator) Amount
------------- ------------- ---------
1998
Basic................................ $4,520,832 8,645,076 $ 0.52
Effect of dilutive securities:
Stock options...................... -- 75,802 --
Earnout contingency................ -- 159,755 --
---------- --------- ------
Earnings per share of common stock--
diluted............................. $4,520,832 8,880,633 $ 0.51
========== ========= ======
1997
Basic................................ $1,224,932 4,762,333 $ 0.26
Effect of dilutive securities:
Stock options...................... -- 67,098 --
Convertible debt................... 19,375 43,403 --
---------- --------- ------
Earnings per share of common stock--
diluted............................. $1,244,307 4,872,834 $ 0.26
========== ========= ======
1996
Earnings per share common stock
Basic and diluted.................... $ (320,947) 4,321,667 $(0.07)
========== ========= ======
MANDATORILY REDEEMABLE PREFERRED STOCK
Subsequent to the Recapitalization (see Note 2), Access Worldwide had the
authority to issue 1,000,000 shares of preferred stock, $.01 par value per
share.
The first series of preferred stock designated in 1996 by Access Worldwide
is 18,000 shares of non-voting cumulative mandatorily redeemable preferred
stock, $.01 par value ("series 1996"). The holders of this stock were entitled
to receive dividends in cash, when and as declared by the Board of Directors,
at a rate of $8.00 per share per year payable quarterly commencing on March
31, 1997. Dividends were cumulative on these shares (See Note 4).
The second series of preferred stock designated in 1997 by Access Worldwide
was 18,000 shares of non-voting 8% cumulative mandatorily redeemable preferred
stock, $.01 par value ("Series 1997").
See Note 4 which describes the conversion of both series of preferred stock
into a new series upon the completion of the Offering of the Company's common
stock.
12. TLM Capital Structure
TLM's authorized capital includes 20,000,000 voting shares of common stock,
$.01 par value per share. Prior to the merger of Access Worldwide and TLM on
October 21, 1997, 3,600,000 shares were authorized, issued, and outstanding.
These shares were converted into Access Worldwide shares upon the merger and
3,500,000 shares were contributed back to the Company (See Note 1).
35
ACCESS WORLDWIDE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
12. TLM Capital Structure -- (Continued)
MANDATORY REDEEMABLE PREFERRED STOCK
TLM had the authority to issue 1,000,000 shares of preferred stock, $.01 par
value per share.
The first series of preferred stock designated in 1996 by TLM was 18,000
shares of non-voting, cumulative mandatorily redeemable preferred stock, $.01
par value. TLM had the right to redeem all or part of the outstanding shares
of the 8% cumulative preferred stock at any time at a price of $100 per share
plus all accrued dividends. Prior to the merger of Access Worldwide and TLM on
October 21, 1997, 18,000 shares were authorized, issued and outstanding. These
shares were converted into Access Worldwide series 1997 preferred stock upon
the merger. See Note 1 and Note 4.
13. Stock Option Plan
Effective May 1, 1997, the Company adopted the 1997 Stock Option Plan ("the
Plan") which is administered by the Compensation Committee of the Board of
Directors of the Company. The aggregate maximum number of shares of common
stock available for award under the Plan is 800,000. The exercise price of
each option must equal or exceed the fair market value of the Company's stock
on the date of the grant. An option's maximum term is 10 years. Vesting terms
are determined by the Compensation Committee at the time of grant. The Plan
terminates effective May 1, 2007.
The Company applies APB 25 and related Interpretations in accounting for the
Plan. Accordingly, no compensation cost has been recognized for options
granted under the Plan. Had compensation cost for the Plan been determined
based on the fair value at the grant dates for awards under the Plan
consistent with the method of FASB Statement No. 123, excluding options with
performance conditions, the Company's net income and earnings per share would
have been reduced to the pro forma amounts of:
Years Ended
December 31,
1998 1997
---------- ----------
Net income
As reported.......................................... $4,520,832 $1,224,932
Pro forma............................................ 3,942,821 1,218,877
Earnings per share
As reported
Basic.............................................. $ 0.52 $ 0.26
Diluted............................................ $ 0.51 $ 0.26
Pro forma
Basic.............................................. $ 0.46 $ 0.26
Diluted............................................ $ 0.44 $ 0.26
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions used for
grants in the year ended December 31, 1998: dividend yield of 0%; expected
volatility of 80%; risk-free interest rate at a weighted average of 5.25%;
expected option term of 5 years; and nominal option term of 10 years.
36
ACCESS WORLDWIDE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
13. Stock Option Plan -- (Continued)
A summary of the status of the Plan, excluding options with performance
conditions, as of December 31, 1998 and 1997 and changes during the years then
ended is presented below.
1998 1997
--------------------- -----------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
------- --------- ------- ---------
Outstanding at beginning of year.. 185,000 $6.53 -- --
Granted........................... 597,250 (1) 9.00(1) 185,000 $6.53
Exercised......................... -- -- -- --
Forfeited......................... (18,800)(1) 7.70(1) -- --
------- ----- ------- -----
Outstanding at end of year........ 763,450 $8.43 185,000 $6.53
======= ===== ======= =====
Options exercisable at year-end... 125,640 --
======= ======= =====
Weighted-average fair value of
options granted during the year.. $6.08 $1.56
- --------
(1) Includes 6,100 shares subject to options granted in which the exercise
price was contingent upon the initial public offering that were forfeited
during fiscal 1998.
The following table summarizes information about stock options outstanding
at December 31, 1998:
Options Outstanding Options Exercisable
- ----------------------------------------- -----------------------------------
Weighted-
Average Weighted Weighted-
Range of Remaining Average Average
Exercise Number of Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- ------------- ----------- ----------- -------- ----------- ---------
$ 0.25-$ 7.99 409,000 9.46 years $ 5.86 26,800 $ 5.09
$ 8.00-$10.99 43,050 9.26 $ 8.15 4,460 $ 8.00
$11.00-$12.00 311,400 8.80 $11.86 94,380 $12.00
- ------------- ------- ---------- ------ ------- ------
$ 0.25-$12.00 763,450 9.18 years $ 8.43 125,640 $10.38
============= ======= ========== ====== ======= ======
14. Related Party Transactions
The Company paid consulting fees to a company owned by a stockholder's
brother totaling $216,432 and $155,799 for the years ended December 31, 1997
and 1996, respectively.
The Company paid management fees of $1,175,000 to a partnership related by
common interest during the year ended December 31, 1996.
For the year ended December 31, 1996, the Company paid professional fees and
equipment rental fees of $342,000 and $462,662, respectively, to companies
owned by Former Principal Stockholders.
For the year ended December 31, 1998 and 1997, the Company paid payroll
processing fees of $359,663 and $215,674, respectively, to an affiliated
company.
The Company paid a $750,000 fee to the Investors for their assistance in
effecting the initial public offering of the Company's common stock,
contingent upon the occurrence of the Offering of the Company. This fee was
charged against the proceeds of the Company's Offering (see Note 4).
37
ACCESS WORLDWIDE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
14. Related Party Transactions -- (Continued)
The Company subleases a portion of its leased office space to a stockholder-
controlled corporation on a month-to-month basis for $13,200 for the year
ended December 31, 1998. There were no amounts due from the stockholder-
controlled corporation at December 31, 1998.
The Company paid $15,400 in consulting fees to a member of the Board of
Directors for services rendered during 1998.
15. Defined Contribution Plans
The Company has a defined contribution employee benefit plan which covers
substantially all employees of a specific subsidiary. The Company may make
discretionary contributions to the plan. During 1998, $184,754 was contributed
to the plan. No amounts were contributed to the plan for the years ended
December 31, 1997 and 1996.
The Company also sponsors a defined contribution Profit Sharing Plan
covering full-time employees of a specific subsidiary. Contributions are made
at the discretion of the Company. Plan contributions for the years ended
December 31, 1998 and 1997 totaled $322,862 and $15,826, respectively. No
contributions were made for the year ended December 31, 1996.
16. Commitments and Contingencies
EMPLOYMENT AGREEMENTS
In connection with the acquisitions referred to in Note 3, the Company has
entered into employment agreements with management employees, certain of whom
are stockholders of the Company, which expire at various times through 2001.
The employment agreements have terms of four years and require annual payments
of $2,985,000 with bonus amounts of up to $654,500 per year.
CONTINGENT CONSIDERATION IN BUSINESS ACQUISITIONS
In connection with the acquisitions referred to in Notes 1 and 3, the
Company has entered into contractual arrangements whereby shares of Company
common stock and cash may be issued to former owners of acquired businesses
upon attainment of specified financial criteria over three-five years as set
forth in the respective agreements. The amount of shares and cash to be issued
cannot be fully determined until the periods expire and the attainment of
criteria is established. If the criteria are attained, but not exceeded, the
amount of shares which could be issued and cash which could be paid subsequent
to December 31, 1998 under all agreements is 1,136,000 shares and $14,871,000,
respectively. If the targets are exceeded by 10%, the amount of shares which
could be issued and cash which could be paid subsequent to December 31, 1998
under all agreements is 1,297,000 shares and $16,358,000, respectively. The
Company accounts for this additional consideration, when the specified
financial criteria are achieved and it is probable it will be paid, as
additional purchase price for the related acquisition.
17. Fair Value of Financial Instruments
The carrying amount of accounts receivable, other assets, accounts payable,
accrued expenses, capital lease obligations, amount due under line of credit
facility and deferred revenue approximate fair value.
The fair value of the Company's long-term debt is determined by calculating
the present value of expected future cash outlays associated with the debt
instruments. The discount rate used is equivalent to the current rate offered
to the Company for debt of the same maturities at December 31, 1998. The fair
value of the Company's long-term indebtedness approximates the carrying value.
38
ACCESS WORLDWIDE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
18. 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 Company's reportable segments are as follows:
-- Pharmaceutical Marketing Service Segment ("Pharmaceutical")--provides
outsourced services to the pharmaceutical industry.
-- Consumer and Business Services Segment ("Consumer")--provides consumer
and multilingual tele-marketing services to the telecommunications and
financial services industry.
--Other Segment--provides quantitative and qualitative research to various
corporations worldwide.
The Pharmaceutical Segment consists of three business units: TMS
Professional Markets Group, Phoenix Marketing Group and A M Medica.
The Company's accounting policies for these segments are the same as those
described in the summary of Significant Accounting Policies, except that
income tax expense is not allocated to each segment. In addition, Access
Worldwide evaluates the performance of its segments and allocates resources
based on gross margin, earnings before interest and taxes ("EBIT") and net
income/loss. There are no intersegment revenues.
The table below presents information about net income/loss and segments used
by the chief operating decision-maker of Access Worldwide as of and for the
years ended December 31, 1998, 1997 and 1996:
1998:
Segment
Pharmaceutical Consumer Other Total Reconciliation Total
-------------- ----------- ---------- ----------- -------------- ------------
Revenues................ $39,747,370 $30,032,901 $3,450,953 $73,231,224 $ 3,061 $ 73,234,285
Gross profit............ 17,830,837 12,378,692 1,930,382 32,139,911 3,061 32,142,972
EBIT.................... 7,217,351 4,738,536 234,557 12,190,444 (3,362,560) 8,827,884
Depreciation expense.... 678,511 507,838 36,029 1,222,378 25,695 1,248,073
Amortization expense.... 1,308,666 338,743 83,964 1,731,373 152,342 1,883,715
Total assets............ 79,479,981 22,203,576 2,586,517 104,270,074 152,142 104,422,216
1997:
Revenues................ $12,348,689 $23,526,859 $ 777,341 $36,652,889 $ 0 $ 36,652,889
Gross profit............ 5,538,083 8,879,315 422,531 14,839,929 0 14,839,929
EBIT.................... 1,963,230 4,074,220 27,624 6,065,074 (1,035,316) 5,029,758
Depreciation expense.... 152,479 276,087 -- 428,566 897 429,463
Amortization expense.... 539,401 333,307 27,988 900,696 -- 900,696
Total assets............ 31,674,262 18,808,595 2,183,447 52,666,304 13,815 52,680,119
1996:
Revenues................ $ -- $16,286,280 $ -- $16,286,280 $ -- $ 16,286,280
Gross profit............ -- 7,646,702 -- 7,646,702 -- 7,646,702
EBIT.................... -- (107,425) -- (107,425) -- (107,425)
Depreciation expense.... -- 157,001 -- 157,001 -- 157,001
Amortization expense.... -- 27,055 -- 27,055 -- 27,055
Total assets............ -- 29,453,659 -- 29,453,659 -- 29,453,659
39
ACCESS WORLDWIDE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
19. Subsequent Events
Credit Facility
On March 12, 1999, the Company received from a syndicate of financial
institutions (including NationsBank, N.A.) (the "Lenders"), which was arranged
by NationsBanc Montgomery Securities LLC, a revolving credit facility (the
"Credit Facility") 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. All of the
foregoing bears interest at formula rates ranging from either (i) the higher
of (a) the Federal Funds Effective Rate plus 0.50% and (b) the prime lending
rate charged by the NationsBank, N.A. from time to time, plus an applicable
margin ranging from 0.0% to 1.0% or (ii) LIBOR, plus an applicable margin
ranging from 1.25% to 2.50%. The Company is required to pay a commitment fee
on the unused portions of the Credit Facility. The Credit Facility is secured
by substantially all of the assets of the Company.
Preferred Stock
As of March 12, 1999, the Company will redeem 25,000 shares of its preferred
stock, Series 1998, at a price of $100 per share.
Acquisition
The Company signed a Memorandum of Understanding on February 17, 1999 to
purchase a medical education company. The Company expects to fund this
acquisition by issuing shares of common stock and by utilizing the existing
Credit Facility.
Stock Options
On February 23, 1999, the Board of Directors approved an amendment to the
Company's stock option plan increasing the number of options which may be
issued under the plan by an additional 500,000 options.
40
Item 9. Changes In and Disagreements with Accountant's on Accounting and
Financial Disclosures
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information appearing under the captions "Directors and Executive
Officers" in the registrant's definitive proxy statement related to the Annual
Meeting of Stockholders to be held on or about April 27, 1999 is incorporated
by reference.
Item 11. Executive Compensation
The information appearing under the caption "Executive Compensation" in the
registrant's definitive proxy statement relating to the Annual Meeting of
Stockholders to be held on or about April 27, 1999 is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
This information appearing under the caption "Principal and Management
Stockholders" in the registrant's definitive proxy statement relating to the
Annual Meeting of Stockholders to be held on or about April 27, 1999 is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information appearing under the caption "Certain Transactions" in the
registrant's definitive proxy statement relating to the Annual Meeting of
Stockholders to be held on or about April 27, 1999 is incorporated herein by
reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 10-K
(a)(1) Financial Statements.
Page
----
Report of Independent Accountants....................................... 19
Balance Sheets.......................................................... 20
Statements of Operations................................................ 21
Statements of Changes in Common Stockholders' Equity (Deficit).......... 22
Statements of Cash Flows................................................ 23
Notes to Financial Statements........................................... 24
(a)(2) Schedules.
Schedule II--Valuation and Qualifying Accounts
41
Schedule II: Valuation and Qualifying Accounts
Years Ended December 31, 1996, 1997 and 1998
Balance At Balance At
Beginning Charged to End
Of Period Expense Deductions Of Period
---------- ---------- ---------- ----------
Year ended December 31, 1998:
Allowance for doubtful
accounts...................... $279,935 $(28,428) $(66,706) $184,801
Year ended December 31, 1997
Allowance for doubtful
accounts...................... 182,604 506,202 (408,871) 279,935
Year ended December 31, 1996
Allowance for doubtful
accounts...................... $ 18,000 $164,604 $ -- $182,604
All other schedules have been omitted because they are not applicable
or are not required under Regulation S-X.
(3) The exhibits required to be filed as part of this Annual Report on Form
10-K are contained in the attached Index to Exhibits.
(b) Reports on Form 8-K.
During the Company's fiscal quarter ended December 31, 1998, the
Company filed:
(i) The Company's Current Report on Form 8-K dated October 24, 1998.
42
POWER OF ATTORNEY
The Registrant and each person whose signature appears below hereby appoint
John Fitzgerald and Michael Dinkins as attorneys-in-fact with full power of
substitution, severally, to execute in the name and on behalf of the
Registrant and each such person, individually and in each capacity stated
below, one or more amendments to the annual report which amendments may make
such changes in the report as the attorney-in-fact acting in the premises
deems appropriate and to file any such amendment to the report with the
Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 24, 1999
Access Worldwide Communications,
Inc.
By /s/ John Fitzgerald
-----------------------------------
John Fitzgerald, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Stephen F. Nagy Chairman of the Board and March 24, 1999
______________________________________ Director
(Stephen F. Nagy)
/s/ John Fitzgerald President and Chief March 24, 1999
______________________________________ Executive Officer and
(John Fitzgerald) Director (principal
executive officer)
/s/ Michael Dinkins Chief Financial Officer March 24, 1999
______________________________________ and Senior Vice President
(Michael Dinkins) (principal financial and
accounting officer)
/s/ Peter D. Bewley Director March 24, 1999
______________________________________
(Peter D. Bewley)
/s/ Liam S. Donohue Director March 24, 1999
______________________________________
(Liam S. Donohue)
/s/ Lee H. Edelstein Director March 24, 1999
______________________________________
(Lee H. Edelstein)
43
Signature Title Date
--------- ----- ----
/s/ John H. Foster Director March 24, 1999
______________________________________
(John H. Foster)
/s/ Shawkat Raslan Director March 24, 1999
______________________________________
(Shawkat Raslan)
44
Index to Exhibits
Exhibit
Number Page
------- ----
2(a) Agreement and Plan of Merger, dated as of December 6, 1996, by
and between the Company and TelAc, Inc. (incorporated by
reference to Exhibit 2(a) to the Company's Registration
Statement on Form S-1 (Registration No. 333-38845) filed with
the Commission on October 27, 1997).
2(b) Recapitalization and Investment Agreement, dated December 6,
1996, by and among Telephone Access, Inc., the shareholders of
Telephone Access, Inc. Abbingdon Venture Partners Limited
Partnership ("Abbingdon-I"), Abbingdon Venture Partners Limited
Partnership II ("Abbingdon-II") and Abbingdon Venture Partners
Limited Partnership III ("Abbingdon-III") (incorporated by
reference to Exhibit 2(b) to the Company's Registration
Statement on Form S-1 (Registration No. 333-38845) filed with
the Commission on October 27, 1997).
2(c) Agreement of Purchase and Sale, dated as of January 1, 1997, by
and among TeleManagement Services, Inc., Lee H. Edelstein and
TLM Holdings Corp. (incorporated by reference to Exhibit 2(c)
to the Company's Registration Statement on Form S-1
(Registration No. 333-38845) filed with the Commission on
October 27, 1997).
2(d) Agreement of Purchase Sale, dated as of September 1, 1997, by
and among Hispanic Market Connections, Inc., M. Isabel Valdes
and the Company (incorporated by reference to Exhibit 2(d) to
the Company's Registration Statement on Form S-1 (Registration
No. 333-38845) filed with the Commission on October 27, 1997).
2(e) Agreement of Purchase and Sale, dated as of October 1, 1997 by
and among Phoenix Marketing Group, Inc., Douglas Rebak, Joseph
Macaluso and the Company (incorporated by reference to Exhibit
2(e) to the Company's Registration Statement on Form S-1
(Registration No. 333-38845) filed with the Commission on
October 27, 1997).
2(f) Agreement of Purchase and Sale dated as of October 24, 1998, by
and among AM Medica Communications, Ltd., Ann Holmes and the
Company (incorporated by reference to Exhibit 2(a) to the
Company's Current Report on Form 8-K dated October 24, 1998).
3(a) Amended and Restated Certificate of Incorporation of the
Company, as amended to date (incorporated by reference to
Exhibit 3(a) to the Company's Registration Statement on Form S-
1 (Registration No. 333-38845) filed with the Commission on
October 27, 1997).
3(b) By-Laws of the Company (incorporated by reference to Exhibit
3(b) to the Company's Registration Statement on Form S-1
(Registration No. 333-38845) filed with the Commission on
October 27, 1997).
3(c) Certificate of Ownership and Merger of Access Worldwide
Communications, Inc. into the Company.
4(a) The Company's 1997 Stock Option Plan (incorporated by reference
to Exhibit 4 to the Company's Registration Statement on Form S-
1 (Registration No. 333-38845) filed with the Commission on
October 27, 1997).
4(b) Preferred Stock, Series 1998 Agreement by and between the
Company and Abbingdon-I and Abbingdon-II.
10(a) Credit Agreement dated April 9, 1998, by and among the Company,
NationsBank, National Association and the other lenders party
thereto (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998).
10(b) Credit Agreement dated March 12, 1999 by and among the Company,
certain subsidiaries of the Company as guarantors, NationsBank,
N.A., as lender and agent and the other lenders party thereto.
45
Exhibit
Number Page
------- ----
10(c) 6% Convertible Subordinated Promissory Note of the Company,
dated October 17, 1997, payable to the order of Phoenix
Marketing Group, Inc. (incorporated by reference to Exhibit
10(i) to the Company's Registration Statement on Form S-1
(Registration No. 333-38845) filed with the Commission on
October 27, 1997).
10(d) 6% Redeemable Subordinated Promissory Note of the Company,
dated October 17, 1997, payable to the order of Phoenix
Marketing Group, Inc. (incorporated by reference to
Exhibit 10(j) to the Company's Registration Statement on Form
S-1 (Registration No. 333-38845) filed with the Commission on
October 27, 1997).
10(e) Stock Purchase Agreement, dated December 6, 1996, by and
between the Company and John E. Jordan (incorporated by
reference to Exhibit 10(k) to the Company's Registration
Statement on Form S-1 (Registration No. 333-38845) filed with
the Commission on October 27, 1997).
10(f) Stock Purchase Agreement, dated January 15, 1997, between TLM
Holdings Corp. and Lee H. Edelstein (incorporated by reference
to Exhibit 10(l) to the Company's Registration Statement on
Form S-1 (Registration No. 333-38845) filed with the Commission
on October 27, 1997).
10(g) Stock Purchase Agreement, dated April 1, 1997, by and between
the Company and John Fitzgerald (incorporated by reference to
Exhibit 10(m) to the Company's Registration Statement on Form
S-1 (Registration No. 333-38845) filed with the Commission on
October 27, 1997).
10(h) Employment Agreement dated December 6, 1996, by and between the
Company and John E. Jordan (incorporated by reference to
Exhibit 10(n) to the Company's Registration Statement on Form
S-1 (Registration No. 333-38845) filed with the Commission on
October 27, 1997).
10(i) Employment Agreement, dated January 15, 1997, by and between
TLM Holdings Corp. and Lee Edelstein (incorporated by reference
to Exhibit 10(o) to the Company's Registration Statement on
Form S-1 (Registration No. 333-38845) filed with the Commission
on October 27, 1997).
10(j) Employment Letter Agreement, dated April 1, 1997, by and
between the Company and John Fitzgerald (incorporated by
reference to Exhibit 10(p) to the Company's Registration
Statement on Form S-1 (Registration No. 333-38845) filed with
the Commission on October 27, 1997).
10(k) Employment Agreement, dated August 1, 1997, by and between the
Company and Michael Dinkins (incorporated by reference to
Exhibit 10(q) to the Company's Registration Statement on Form
S-1 (Registration No. 333-38845) filed with the Commission on
October 27, 1997).
10(l) Employment Agreement, dated October 17, 1997, by and between
the Company and Douglas Rebak (incorporated by reference to
Exhibit 10(r) to the Company's Registration Statement on Form
S-1 (Registration No. 333-38845) filed with the Commission on
October 27, 1997).
10(m) Agreement, effective January 1, 1997, by and between the
Company and Sprint/United Management Company, together with
contract orders related thereto (incorporated by reference to
Exhibit 10(s) to the Company's Registration Statement on Form
S-1 (Registration No. 333-38845) filed with the Commission on
October 27, 1997).
10(n) Database Licensee Agreement for the AMA Physician Professional
Data, effective January 1, 1996, between the Company and the
American Medical Association (incorporated by reference to
Exhibit 10(t) to the Company's Registration Statement on Form
S-1 (Registration No. 333-38845) filed with the Commission on
October 27, 1997).
46
Exhibit
Number Page
------- ----
10(o) 6.5% Subordinated Promissory Note of the Company dated October
24, 1998, payable to the order of Ann Holmes (incorporated by
reference to Exhibit 2(b) to the Company's Current Report on
Form 8-K dated October 24, 1998).
10(p) Employment Agreement dated October 24, 1998 by and between the
Company and Ann Holmes (incorporated by reference to Exhibit 10
to the Company's Current Report on Form 8-K dated October 24,
1998).
10(q) Employment Agreement dated January 15, 1997 by and between TLM
Acquisition Corp. (a subsidiary of the Company) and Mary
Sanchez (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998).
10(r) Employment Agreement dated September 24, 1997 by and between
the Company and Isabel Valdes.
21 Subsidiaries of the Company.
22 Powers of Attorney (see Power of Attorney in Form 10-K).
27 Financial Data Schedules.
47