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Previous: MARINEMAX INC, 10-Q, 1998-08-13 |
Next: IVI CHECKMATE CORP, 10-Q, 1998-08-13 |
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C><C> <C>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------ ---------- ------------ ------------
1998 1997 1998 1997
------------ ---------- ------------ ------------
NET REVENUE $99,475 $70,045 $179,526 $129,081
COST OF REVENUE 84,126 64,178 152,848 119,212
------------ ---------- ------------ ------------
GROSS MARGIN 15,349 5,867 26,678 9,869
OPERATING EXPENSES
Selling, general and administrati 18,990 13,206 34,367 22,035
Depreciation and amortization 4,433 1,669 7,911 2,466
------------ ---------- ------------ ------------
Total operating expenses 23,423 14,875 42,278 24,501
LOSS FROM OPERATIONS (8,074) (9,008) (15,600) (14,632)
INTEREST EXPENSE (9,605) (526) (16,780) (677)
INTEREST INCOME 2,886 474 5,270 1,259
OTHER INCOME (EXPENSE) - 230 - 349
------------ ---------- ------------ ------------
LOSS BEFORE INCOME TAXES (14,793) (8,830) (27,110) (13,701)
INCOME TAXES - 45 - 81
------------ ---------- ------------ ------------
NET LOSS ($14,793) ($8,875) ($27,110) ($13,782)
=========== ========= =========== ===========
BASIC AND DILUTED NET
LOSS PER COMMON SHARE ($0.68) ($0.50) ($1.30) ($0.78)
=========== ========= =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 21,829 17,779 20,779 17,779
=========== ========= =========== ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Index
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance sheets - December 31, 1997 and June 30, 1998 3
Statements of operations Three months ended June 30, 1997 and
1998; Six months ended June 30, 1997 and 1998; For the period
from November 22, 1996 (inception) through June 30, 1998 5
Statements of cash flows - Six months ended June 30, 1997 and
1998; For the period from November 22, 1996 (inception) through
June 30, 1998 6
Notes to financial statements June 30, 1998 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes In Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 17
</TABLE>
2
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
--------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $3,850,440 $ 30,654,071
Available-for-sale securities - 16,532,987
Accounts receivable, less allowance of $150,000 in 1998 17,400 4,221,010
Due from landlords for tenant allowances 1,427,525 1,002,852
Other receivables 574,807 39,000
Prepaid expenses 25,066 156,723
---------------------------------
Total current assets 5,895,238 52,606,643
Property and equipment
Furniture and fixtures 1,271,930 2,763,542
Computer equipment and software 2,723,993 9,794,731
Leasehold improvements 4,727,830 9,383,793
---------------------------------
8,723,753 21,942,066
Accumulated depreciation and amortization (388,483) (2,034,345)
---------------------------------
8,335,270 19,907,721
Other assets 279,881 378,334
---------------------------------
Total assets $ 14,510,389 $ 72,892,698
=================================
</TABLE>
3
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------------------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 2,065,436 $4,906,427
Borrowings from Sylvan 3,000,000 -
Interest payable to Sylvan 301,784 -
Accrued dividends payable 995,000 68,720
Current portion of deferred tenant allowances 208,014 316,118
Current portion of capital lease obligations due to related party 615,895 2,508,158
----------------------------
Total current liabilities 7,186,129 7,799,423
Management fee payable to Sylvan 2,880,500 333,334
Deferred tenant allowances, less current portion 1,226,935 1,810,540
Capital lease obligations due to related party, less current portion 3,417,181 11,051,575
8% Series A Redeemable Convertible Preferred Stock, $.01
par value; 2,442,513 shares authorized, issued and
outstanding in 1997, 0 in 1998 10,000,000 -
6% Series B Redeemable Junior Convertible Preferred Stock,
$.01 par value; 1,227,393 shares authorized, issued and
outstanding in 1997, 0 in 1998 1,300,000 -
Commitments and contingencies - -
Stockholders' equity (deficit)
6% Non-Voting Convertible Preferred Stock, $.01 par
value; 5,167,328 shares authorized, issued and
outstanding in 1998 - 51,674
Class A Common Stock, $.01 par value:
Authorized shares -- 42,800,000; issued and
outstanding shares of 3,829,986 in 1997, 0 in 1998 38,300 -
Class B Common Stock, $.01 par value:
Authorized, issued and outstanding shares --
5,167,328 in 1997, 0 in 1998 51,674 -
Common Stock, $.01 par value:
Authorized shares -- 50,000,000 shares; issued and
outstanding shares of 12,293,642 in 1998 - 122,937
Additional paid-in capital 9,975,334 83,078,843
Subscription receivable (5,364,358) -
Deficit accumulated during the development stage (16,201,306) (31,355,628)
----------------------------
Total stockholders' equity (deficit) (11,500,356) 51,897,826
----------------------------
Total liabilities and stockholders' equity (deficit) $ 14,510,389 $ 72,892,698
============================
</TABLE>
See accompanying notes.
4
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
For the period
November 22,1996
(inception)
through
Three Months Ended June 30, Six Months Ended June 30, June 30,
1997 1998 1997 1998 1998
---------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C>
Service fee revenue $ - $ 3,352,030 $ - $ 4,233,218 $ 4,233,218
Management fee from Sylvan 298,234 427,500 313,834 855,000 2,054,293
---------------------------- --------------------------- ------------
298,234 3,779,530 313,834 5,088,218 6,287,511
Cost and expenses:
Operating expenses 1,209,746 7,752,132 1,209,746 13,650,582 20,784,326
Management fees to Sylvan 600,000 500,000 1,100,000 1,000,001 3,880,501
Other selling, general and administrative
expenses 1,482,597 2,002,561 2,532,957 4,937,001 11,473,147
---------------------------- --------------------------- ------------
3,292,343 10,254,693 4,842,703 19,587,584 36,137,974
Other income (expense):
Interest income 152,489 386,859 306,635 414,296 950,396
Interest expense (51,012) (450,805) (88,535) (784,840) (1,176,152)
---------------------------- --------------------------- ------------
101,477 (63,946) 218,100 (370,544) (225,756)
---------------------------- --------------------------- ------------
Net loss (2,892,632) (6,539,109) (4,310,769) (14,869,910) (30,076,219)
Dividends accrued on redeemable preferred
stock 199,000 85,409 398,000 284,409 1,279,409
---------------------------- --------------------------- ------------
Net loss attributable to common stockholders $(3,091,632) $(6,624,518) $(4,708,769) $(15,154,319) $(31,355,628)
============================= =========================== ============
Basic and diluted loss per common share
attributable to common stockholders $ (0.35) $ (0.60) $ (0.54) $ (1.51) $ (3.39)
============================ =========================== ============
</TABLE>
See accompanying notes.
5
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the period
November 22,1996
(inception) through
Six Months Ended June 30, June 30,
1997 1998 1998
-----------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (4,310,769) $ (14,869,910) $ (30,076,219)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 25,650 1,645,862 2,034,345
Non-cash compensation 66,668 - 115,000
Negative amortization of capital lease obligations
charged to interest expense - 484,969 572,026
Amortization of deferred tenant allowances recorded
as a reduction of rent expense - (5,374) (5,374)
Changes in operating assets and liabilities:
Accounts receivable (22,586) (4,203,610) (4,193,010)
Other receivables 28,000 (4,878) (59,390)
Prepaid expenses (21,489) (131,657) (156,723)
Accounts payable and accrued expenses related to
operating expenses 464,122 2,840,988 3,832,521
Management fee payable to Sylvan 1,100,942 (2,547,166) 333,334
Interest payable to Sylvan 88,535 (301,784) -
-----------------------------------------------------------
Net cash used in operating activities (2,580,927) (17,092,560) (27,603,490)
INVESTING ACTIVITIES
Purchases of property and equipment (701,328) (3,908,184) (8,152,883)
Purchase of available-for-sale securities - (16,532,987) (16,532,987)
Proceeds from sale-leaseback of property and equipment - 540,685 540,685
Proceeds from deferred tenant allowances - 1,121,756 1,121,756
Increase in other assets (22,871) (98,453) (378,334)
-----------------------------------------------------------
Net cash used in investing activities (724,199) (18,877,183) (23,401,763)
FINANCING ACTIVITIES
Initial issuance of stock for cash - - 13,000,000
Issuance of common stock in initial public offering, - 61,738,146 61,738,146
net of offering costs
Borrowings from Sylvan 1,110,297 - 3,000,000
Repayments to Sylvan - (3,000,000) (3,000,000)
Issuance of Class A common stock 250,308 150,000 400,308
Payment of subscription receivable - 5,364,358 8,000,000
Payment of capital lease obligations - (268,445) (268,445)
Payment of accrued dividends on preferred stock - (1,210,685) (1,210,685)
-----------------------------------------------------------
Net cash provided by financing activities 1,360,605 62,773,374 81,659,324
-----------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,944,521) 26,803,631 30,654,071
Cash and cash equivalents, beginning of period 13,000,000 3,850,440 -
-----------------------------------------------------------
Cash and cash equivalents, end of period $ 11,055,479 $30,654,071 $30,654,071
===========================================================
</TABLE>
6
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and six month periods ended June 30, 1998 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. For further information, refer to the financial
statements for the year ended December 31, 1997 included in the Company's
registration statement on Form S-1, File No. 333-47565, filed March 10, 1998, as
amended (the "Registration Statement").
The Company since inception has devoted most of its efforts to raising capital,
developing markets and recruiting and training personnel. Accordingly, minimal
revenue has been generated from planned principal operations, and the Company is
considered a development stage company at June 30, 1998.
7
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. LOSS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
For the period
November 22,1996
(inception)
through
Three Months Ended June 30, Six Months Ended June 30, June 30,
1997 1998 1997 1998 1998
---------------------------- --------------------------- -----------------
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss $(2,892,632) $ (6,539,109) $(4,310,769) $(14,869,910) $ (30,076,219)
Preferred stock dividends (199,000) (85,409) (398,000) (284,409) (1,279,409)
--------------------------- --------------------------- -------------
$(3,091,632) $ (6,624,518) $(4,708,769) $(15,154,319) $ (31,355,628)
Denominator:
Weighted average number of shares of
common stock outstanding during the
period 8,755,284 11,062,219 8,631,857 9,957,849 9,107,617
Shares of common stock issued for a
nominal value 147,471 55,100 147,471 101,030 133,127
--------------------------- --------------------------- -------------
Denominator for loss per share 8,902,755 11,117,319 8,779,328 10,058,879 9,240,744
Basic and diluted loss per share $ (0.35) $ (0.60) $ (0.54) $ (1.51) $ (3.39)
</TABLE>
Loss per share is based upon the average number of shares of common stock
outstanding during each period. As required by the Securities and Exchange
Commission in Staff Accounting Bulletin No. 98, all securities issued by the
Company for a nominal value have been included in the computations as if they
were outstanding for all periods prior to the Company's initial public offering
of Common Stock in May 1998.
Diluted loss per common share is equal to basic loss per common share because if
potentially dilutive securities were included in the computation the result
would be anti-dilutive.
8
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
For the period
November 22,1996
(inception)
through
Six Months Ended June 30, June 30,
1997 1998 1998
-------------------------------- ----------------
<S> <C> <C> <C>
Non-cash investing and financing activities:
Equipment acquired under capital lease $ - $9,310,133 $13,256,153
Dividends accrued on Series A and 6% Non-Voting
Convertible Preferred Stock 398,000 284,409 1,279,409
</TABLE>
4. CAPITAL LEASES
MCI Communications Corporation, a stockholder of the Company has agreed to
provide an aggregate of $20.0 million in lease financing or lease guarantees
for the purchase of furniture and equipment.
Property and equipment includes the following amounts for leases that have been
capitalized at June 30, 1998:
<TABLE>
<S> <C>
Furniture and fixtures $ 632,265
Computer equipment and software 9,285,485
Leasehold improvements 3,338,403
-----------
13,256,153
Less: accumulated amortization (1,261,945)
-----------
$11,994,208
===========
</TABLE>
9
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
4. CAPITAL LEASES (CONTINUED)
Amortization of leased assets is included in depreciation and amortization
expense.
Future minimum payments under capital lease obligations consist of the following
at June 30, 1998:
<TABLE>
<S> <C>
Through December 31, 1998 $ 1,566,662
1999 4,154,754
2000 4,154,754
2001 4,060,953
2002 1,415,672
Thereafter 989,038
-----------
Total minimum lease payments 16,341,833
Amounts representing interest (2,782,100)
-----------
Present value of net minimum lease payments (including current
portion of $2,508,158) $13,559,733
===========
</TABLE>
5. STOCKHOLDERS' EQUITY
On April 10, 1998, the Company declared a 1.2274-for-1 stock split of all
classes of common and preferred stock outstanding. Accordingly, all share and
per share data have been restated in the financial statements retroactively to
reflect the stock split.
In May 1998, the Company completed an initial public offering of its Common
Stock. The net proceeds to the Company from the sale of the 4,500,000 shares of
Common Stock offered therein were approximately $58.2 million. Also during May
1998, the Underwriters of the initial public offering exercised their over-
allotment option in full. The net proceeds to the Company from this sale of an
additional 275,000 shares of its Common Stock were approximately $3.6 million.
The initial public offering of Common Stock met the criteria for the automatic
conversion of the outstanding 8% Series A Redeemable Convertible Preferred Stock
and Series B Redeemable Junior Convertible Preferred Stock into Common Stock and
the repayment of all accrued and unpaid dividends on the 8% Series A Redeemable
Convertible Preferred Stock and the payment by Sylvan Learning Systems, Inc.
("Sylvan") of the balance of its subscription receivable.
10
<PAGE>
Also in May 1998, the Company completed a recapitalization effective upon
closing of the initial public offering referred to above. The Company's charter
was amended to authorize a single class of Common Stock, $0.01 par value, for
which all shares of Class A Common Stock were exchanged on a share-for-share
basis, and a series of 6% Non-Voting Convertible Preferred Stock, for which all
shares of Class B Common Stock were exchanged on a share- for-share basis.
Each share of the 6% Non-Voting Convertible Preferred Stock is convertible into
one share of Common Stock at the option of the holder at any time after the two
year anniversary of its issuance, subject to earlier rights of conversion under
certain circumstances. Dividends of $60,000 per year are cumulative and are
first payable in May 1999.
The following is a rollforward of stockholders' equity from January 1, 1998 to
June 30, 1998:
<TABLE>
<CAPTION>
6% Non-Voting Class A Class B
Convertible Common Common
Preferred Stock Stock Stock
--------------- -------- --------
<S> <C> <C> <C>
Balance at January 1, 1998 $ - $ 38,300 $ 51,674
Issuance of 18,750 shares of Class A Common Stock 188
Conversion of 3,848,736 shares of Class A Common Stock (38,488)
into 3,848,736 shares of Common Stock
Conversion of 5,167,328 shares of Class B Common Stock 51,674 (51,674)
into 5,167,328 shares of 6% Non-Voting
Convertible Preferred Stock
Conversion of 2,442,513 shares of 8% Series A
Redeemable Convertible Preferred Stock into
2,442,513 shares of Common Stock
Conversion of 1,227,393 shares of Series B Redeemable Junior
Convertible Preferred Stock into 1,227,393 shares of
Common Stock
Payment of stock subscription
Issuance of 4,775,000 shares of Common Stock, net of offering
costs of $432,354
Net loss for six month period ended June 30, 1998
Dividends accrued on 8% Series A Convertible Preferred Stock
and 6% Non-Voting Convertible Preferred Stock
------------------------------------
Balance at June 30, 1998 $51,674 $ - $ -
====================================
<CAPTION>
Deficit
Accumulated Total
Common Additional Subscription During the Stockholders'
Stock Paid In Capital Receivable Development Stage Equity
------- --------------- ------------ ----------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1998 $ - $9,975,334 $(5,364,358) $(16,201,309) $(11,500,359)
Issuance of 18,750 shares of Class A Common Stock 149,812 150,000
Conversion of 3,848,736 shares of Class A Common 38,488 -
Stock into 3,848,736 shares of Common Stock
Conversion of 5,167,328 shares of Class B Common
Stock into 5,167,328 shares of 6% Non-Voting
Convertible Preferred Stock
Conversion of 2,442,513 shares of 8% Series A 24,425 9,975,575 10,000,000
Redeemable Convertible Perferred
Stock into 2,442,513 shares of Common Stock
Conversion of 1,227,393 shares of Series B 12,274 1,287,726 1,300,000
Redeemable Junior Convertible Preferred Stock
into 1,227,393 shares of Common Stock
Payment of stock subscription 5,364,358 5,364,358
Issuance of 4,775,000 shares of Common Stock, net 47,750 61,690,396 61,738,146
of offering costs of $432,354
Net loss for six month period ended June 30, 1998 (14,869,910) (14,869,910)
Dividends accrued on 8% Series A Convertible (284,409) (284,409)
Preferred Stock and 6% Non-Voting
Convertible Preferred Stock
-------------------------------------------------------------------------------
Balance at June 30, 1998 $122,937 $83,078,843 $ - $(31,355,628) $51,897,826
===============================================================================
</TABLE>
11
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, reported in a separate component of stockholders'
equity. The amortized costs of debt securities in this category are adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization is included in interest income. Realized gains and losses and
declines in value judged to be other than temporary on available-for-sale
securities are included in interest income. The cost of securities sold is based
on the specific identification method. Interest and dividends on securities
classified as available-for-sale are included in interest income.
At June 30, 1998, available-for-sale securities consisted of commercial
paper, the cost of which approximates fair value. The Company has not had
significant realized or unrealized gains or losses on its investments during the
periods presented. These investments are classified as current as all maturities
are less than one year.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
ALL STATEMENTS CONTAINED HEREIN THAT ARE NOT HISTORICAL FACTS, INCLUDING BUT NOT
LIMITED TO STATEMENTS REGARDING THE ANTICIPATED IMPACT OF UNCOLLECTIBLE ACCOUNTS
RECEIVABLE ON FUTURE LIQUIDITY, EXPENDITURES TO LEASE PROPERTY AND EQUIPMENT FOR
THE CALIBER CAMPUSES, FUTURE CAPITAL REQUIREMENTS, AND THE COMPANY'S FUTURE
DEVELOPMENT PLANS ARE BASED ON CURRENT EXPECTATIONS. THESE STATEMENTS ARE
FORWARD LOOKING IN NATURE AND INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES.
ACTUAL RESULTS MAY DIFFER MATERIALLY. AMONG THE FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY ARE THE FOLLOWING: CHANGES IN THE FINANCIAL
RESOURCES OF THE COMPANY'S CLIENTS; TIMING AND EXTENT OF ACCEPTANCE BY
UNIVERSITIES, FACULTY, CORPORATIONS, AND WORKING ADULTS OF THE CALIBER LEARNING
NETWORK AS AN APPROPRIATE WAY TO PROVIDE QUALITY EDUCATION AND TRAINING; AMOUNT
OF REVENUES GENERATED BY THE COMPANY'S OPERATIONS; THE AVAILABILITY OF
SUFFICIENT CAPITAL TO FINANCE THE COMPANY'S BUSINESS PLAN ON TERMS SATISFACTORY
TO THE COMPANY; GENERAL BUSINESS AND ECONOMIC CONDITIONS; AND OTHER RISK FACTORS
DESCRIBED IN THE COMPANY'S REGISTRATION STATEMENT (FORM S-1, NO. 333-47565) AND
SUBSEQUENT REPORTS FILED FROM TIME TO TIME WITH THE COMMISSION. THE COMPANY
CAUTIONS READERS NOT TO PLACE UNDUE RELIANCE ON ANY SUCH FORWARD LOOKING
STATEMENTS, WHICH STATEMENTS ARE MADE PURSUANT TO THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 AND, AS SUCH, SPEAK ONLY AS OF THE DATE MADE.
OVERVIEW
Since its organization in November 1996, the Company has devoted substantially
all of its efforts to raising capital, developing the Caliber network,
recruiting and training personnel and establishing relationships with
universities, corporations and suppliers. The Company has incurred cumulative
net losses since its inception and expects to incur additional losses for at
least the next two years, due primarily to additional start-up costs related to
the expansion of the Caliber network and costs associated with the development
and marketing of products and services. The Company expects that losses will
fluctuate from quarter to quarter and that the fluctuations may be substantial.
As of June 30, 1998, the Company had accumulated net losses of $30.1 million.
RESULTS OF OPERATIONS
Since inception, the Company has generated $6.3 million of revenue. A total of
$4.2 million of revenue, all of which was generated in the first two quarters of
1998, resulted primarily from the Company's agreements to provide corporate
training programs through its satellite-linked network of campuses. The
remaining $2.1 million of this revenue resulted from the Testing Center
Management and CBT Services Agreement with Sylvan. Under this agreement, Caliber
manages 29 Sylvan Technology Centers ("STCs") that may be converted to Caliber
Campuses in the future. The Company receives a fixed fee per month to manage
these centers, a fee per test delivered above a specified number of tests and
50% of any profits to Sylvan from Sylvan's digital fingerprinting joint venture
with Identix Corporation. Caliber pays all operating expenses for these 29
centers. Since inception, operating expenses exceeded the revenue received from
Sylvan for Caliber's management of the 29 centers.
13
<PAGE>
Since inception, the Company has incurred $20.8 million of operating expenses.
Operating expenses include costs associated with the following: the
opening of 40 Caliber Campuses in 1997 and 1998, 29 STCs managed by Caliber and
costs associated with the development and marketing of products and services.
Since inception, the Company has incurred $3.9 million in management fees
payable to Sylvan for office space and management, administrative, legal,
accounting and financial services provided by Sylvan under a Management
Agreement between Sylvan and the Company.
Since inception, the Company has incurred $11.5 million of other selling,
general and administrative expenses. As of June 30, 1998, the Company employed
66 management, sales and administrative personnel, which has increased from 14
at March 31, 1997. Since inception, the Company has incurred approximately
$1.1 million of non-recurring expenses related to executive recruiting and
relocation.
Since inception, the Company has incurred net interest expense of $0.2 million.
The Company generated $1.0 million of interest income from the temporary
investment of cash received from its initial capitalization and from the
proceeds of its initial public offering that was completed in the second quarter
of 1998. Interest expense of $1.2 million has resulted from interest on capital
lease obligations, borrowings on the $3.0 million loan from Sylvan, and interest
accrued on the unpaid management fee payable to Sylvan. The loan and unpaid
management fee to Sylvan through April 1998 were paid during the second quarter
of 1998 concurrent with the company's initial public offering.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has used $ 27.6 million of cash in operating
activities and $23.4 million for investing activities, consisting principally of
developing and implementing the Caliber network and the acquisition of property
and equipment. These cash needs have been primarily financed through the initial
capitalization of $13.0 million, the Sylvan loan of $3.0 million, a Common Stock
subscription from Sylvan of $8.0 million and the net proceeds from the Company's
initial public offering in May 1998 of $61.7 million. As of June 30, 1998, the
Company had cash and available-for-sale securities of $47.2 million and $6.7
million available under the $20.0 million Lease and Guarantee Commitment from
MCI Communications Corporation, one of the Company's stockholders. The Company
believes that these resources will be sufficient capital for implementation of
the Caliber network and to fund negative cash flow through at least 1999.
However, there can be no assurance that the Company's cash resources will be
sufficient to fund the Company's negative cash flow and expected capital
expenditures through 1999. The Company may need to obtain additional equity or
debt financing during this period. There can be no assurance that the Company
will be able to obtain the additional financing to satisfy its cash requirements
or to implement its growth strategy successfully.
14
<PAGE>
YEAR 2000
The Company has initiated discussions with its significant suppliers, large
customers and financial institutions to ensure that those parties have
appropriate plans to remediate Year 2000 issues where their systems interface
with the Company's systems or otherwise impact its operations. The Company is
assessing the extent to which its operations are vulnerable should those
organizations fail to remediate properly their computer systems.
The Company's comprehensive Year 2000 initiative is being managed by a team of
internal staff and outside consultants. The team's activities are designed to
ensure that there is no adverse effect on the Company's core business operations
and that transactions with customers, suppliers, and financial institutions are
fully supported. The Company is well under way with these efforts, which are
scheduled to be completed in early 1999. While the Company believes its
planning efforts are adequate to address its Year 2000 concerns, there can be no
guarantee that the systems of other companies on which the Company's systems and
operations rely will be converted on a timely basis and will not have a material
effect on the Company. The cost of the Year 2000 initiatives is not expected to
be material to the Company's results of operation or financial position.
15
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The company is not a party to any material legal proceedings.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
(a)-(c) None.
(d) The Company filed its first registration statement under the
Securities Act effective May 4, 1998, File No. 333-47565. To the
extent not previously reported, the information required by
Item 2(d) of Part II with respect to the offering is as follows:
<TABLE>
<S> <C>
AGGREGATE OFFERING PRICE OF AMOUNT
SOLD FOR THE ACCOUNT OF ISSUER $66,850,000
OFFERING EXPENSES:
Underwriting discounts and commissions $ 4,679,500
Other expenses 432,000
-----------
NET OFFERING PROCEEDS TO ISSUER $61,738,500
USE OF PROCEEDS:
Property and equipment $ 485,000
Working capital $ 5,801,500
Repayment of indebtedness (1) $ 7,054,000
Temporary investments:
Cash and cash equivalents $30,654,000
Marketable securities $16,533,000
Other purposes:
Payment of accrued dividends (2) $ 1,211,000
-----------
Total $61,738,500
===========
</TABLE>
NOTES
-----
(1) Payments were made to Sylvan Learning Systems, Inc., an
affiliate of the issuer and the beneficial owner of ten
percent (10%) or more of the issuer's issued and outstanding
Common Stock and all of the issuer's issued and outstanding
6% Non-Voting Convertible Preferred Stock.
(2) Payments were made to MCI Communications Corporation, an
affiliate of the issuer and the beneficial owner of ten
percent (10%) or more of the issuer's issued and outstanding
Common Stock.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
As previously reported, by written consent dated April 6, 1998, in lieu
of a special meeting, the stockholders of the Company unanimously
ratified and approved the following matters:
16
<PAGE>
a) The adoption of the Articles of Amendment and Restatement, in the
form of Exhibit 3.01 hereto, as and for the charter of the Company
effective upon the consummation of the initial public offering of
the Company.
b) The amendment of the 1997 Stock Option Plan of the Company in the
form of Exhibit 10.01(a) hereto, effective December 31, 1997, to
increase the number of shares of Common Stock available for
issuance thereunder to 1,227,400 shares.
c) The termination of the 1997 Stock Option Plan (except with respect
to grants made under the plan prior to February 17, 1998) and the
adoption of the 1998 Stock Incentive Plan of the company, in the
form of exhibit 10.01(b) hereto, effective as of February 17,
1998.
Item 5. Others Information
------------------
None.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(A) Exhibits.
--------
3.01 Articles of Amendment and Restatement of the Charter*
3.02 Bylaws*
4.01 Specimen Common Stock Certificate*
10.01(A) 1997 Stock Option Plan*
10.01(B) 1998 Stock Incentive Plan*
10.03 Warrant issued to MCI Communications Corporation, dated as of
November 22, 1996, as amended*
10.04 Agreement between Caliber Learning Network, Inc. and The Johns
Hopkins University, dated as of January 29, 1998*
10.05 Agreement between Caliber Learning Network, Inc. and MCI
Systemhouse Corp. dated March 2, 1998*
10.06 Agreement between Caliber Learning Network, Inc. and Macmillian
Computer Publishing USA, Dated February 2, 1998*
10.07 Agreement between Caliber Learning Network, Inc. and Compaq
Computer Corporation, dated December 22, 1997*
10.08 Letter Agreement and Line of Credit Promissory Note dated as of
December 1, 1996 between Caliber Learning Network, Inc. and
Sylvan Learning Systems, Inc.*
10.09 Agreement between Caliber Learning Network, Inc. and MCI
Systemhouse Corp., dated July 1, 1997*
10.10 Management Agreement between Caliber Learning Network, Inc. and
Sylvan Learning Systems, Inc. dated January 1, 1998*
17
<PAGE>
10.11 Testing Center Management and CBT Services Agreement, as
amended, between Caliber Learning Network, Inc. and Sylvan
Learning Systems, Inc. dated May 1, 1997*
27.01 Financial Data Schedule
* Incorporated by reference to the Company's Registration
Statement on Form S-1, as amended (File No. 333-47565).
(b) Reports on Form 8-K.
-------------------
No reports on Form 8-K were filed during the quarter for which this
report is filed.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CALIBER LEARNING NETWORK, INC.
------------------------------
(Registrant)
Date: August 13, 1998 /s/ Rick P. Frier
-------------------
Rick P. Frier
Vice President and Chief Financial
Officer (Principal
Financial and Accounting Officer)
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's unaudited quarterly financial statements and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 30,654,071
<SECURITIES> 16,532,987
<RECEIVABLES> 4,371,010
<ALLOWANCES> 150,000
<INVENTORY> 0
<CURRENT-ASSETS> 52,606,643
<PP&E> 21,942,066
<DEPRECIATION> 2,034,345
<TOTAL-ASSETS> 72,892,698
<CURRENT-LIABILITIES> 7,799,423
<BONDS> 13,559,733
0
51,674
<COMMON> 122,937
<OTHER-SE> 51,723,215
<TOTAL-LIABILITY-AND-EQUITY> 72,892,698
<SALES> 0
<TOTAL-REVENUES> 5,088,218
<CGS> 0
<TOTAL-COSTS> 13,650,582
<OTHER-EXPENSES> 5,937,002
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 784,840
<INCOME-PRETAX> (14,869,910)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,869,910)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,869,910)
<EPS-PRIMARY> (1.51)
<EPS-DILUTED> (1.51)
</TABLE>
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