<PAGE>
(CALIBER COMMENTS ON PRELIMINARY DRAFT)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarter ended MARCH 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 0-22844
----------------
CALIBER LEARNING NETWORK, INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 52-2001020
- ------------------------------------------ -------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3600 CLIPPER MILL ROAD, SUITE 300, BALTIMORE, MARYLAND 21211
- ------------------------------------------------------ ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (410) 843-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ]. No [X]. (The registrant became
subject to such filing requirements on May 4, 1998.)
The registrant had 12,293,642 shares of Common Stock outstanding as of May 29,
1998.
<PAGE>
Index
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
PAGE NO.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
<S> <C>
Balance sheets - December 31, 1997 and March 31, 1998 3
Statements of operations - Three months ended March 31, 1997 and 1998; For
the period from November 22, 1996 (inception) through March 31, 1998
5
Statements of cash flows - Three months ended March 31, 1998 and 1997; For
the period from November 22, 1996 (inception) through March 31, 1998
6
Notes to financial statements - March 31, 1998 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 14
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 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 18
</TABLE>
2
<PAGE>
Part I. Financial Information
Caliber Learning Network, Inc.
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, MARCH 31, MARCH 31,
1997 1998 1998
------------------------------------------------------------
(Unaudited) (Unaudited -
Note 5)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,850,440 $ 341,770 $ 655,239
Accounts receivable, less allowance of $50,000 in 1998 17,400 1,046,242 1,046,242
Due from landlords for tenant allowances 1,427,525 1,702,324 1,702,324
Other receivables 574,807 1,154,887 1,154,887
Prepaid expenses 25,066 25,066 25,066
------------------------------------------------------------
Total current assets 5,895,238 4,270,289 4,583,758
Property and equipment:
Furniture and fixtures 1,271,930 2,461,917 2,461,917
Computer equipment and software 2,723,993 7,327,854 7,327,854
Leasehold improvements 4,727,830 8,260,569 8,260,569
------------------------------------------------------------
8,723,753 18,050,340 18,050,340
Accumulated depreciation and amortization (388,483) (997,421) (997,421)
------------------------------------------------------------
8,335,270 17,052,919 17,052,919
Other assets 279,881 344,958 344,958
------------------------------------------------------------
Total assets $14,510,389 $21,668,166 $21,981,635
============================================================
</TABLE>
3
<PAGE>
Caliber Learning Network, Inc.
(A Development Stage Company)
Balance Sheets (continued)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, MARCH 31, MARCH 31,
1997 1998 1998
----------------------------------------------------------
(Unaudited) (Unaudited -
Note 5)
<S> <C> <C> <C>
Liabilities and DEFICIENCY OF ASSETS
Current liabilities:
Accounts payable and accrued expenses $ 2,065,436 $ 4,997,365 $ 4,997,365
Borrowings from Sylvan 3,000,000 3,000,000 3,000,000
Interest payable to Sylvan 301,784 471,430 471,430
Accrued dividends payable 995,000 1,194,000
Current portion of deferred tenant allowances 208,014 302,338 302,338
Current portion of capital lease obligations 615,895 1,771,833 1,771,833
----------------------------------------------------------
Total current liabilities 7,186,129 11,736,966 10,542,966
Management fee payable to Sylvan 2,880,500 3,380,501 3,380,501
Deferred tenant allowances, less current portion 1,226,935 1,780,251 1,780,251
Capital lease obligations, less current portion 3,417,181 9,493,716 9,493,716
8% Series A Redeemable Convertible Preferred Stock, $.01 par value;
2,442,513 shares authorized, issued and outstanding in 1997 and
1998, 0 pro forma; $9,999,750 aggregate liquidation preference 10,000,000 10,000,000 -
Series B Redeemable Junior Convertible Preferred Stock, $.01 par
value; 1,227,393 shares authorized, issued and outstanding in 1997
and 1998, 0 pro forma; $1,000,000 aggregate liquidation preference 1,300,000 1,300,000 -
Commitments and contingencies - - -
Deficiency of assets:
6% Non-Voting Convertible Preferred Stock, $0.01 par value;
5,167,328 shares authorized, issued and outstanding in pro forma - - 51,674
Class A Common Stock, $.01 par value:
Authorized shares -- 42,800,000; issued and outstanding shares of
3,829,986 in 1997, 3,848,736 in 1998 and 0 in pro forma 38,300 38,488 -
Class B Common Stock, $.01 par value:
Authorized, issued and outstanding shares 5,167,328 in 1997 and
1998, 0 in pro forma 51,674 51,674 -
Common Stock, $.01 par value:
Authorized shares 50,000,000 shares; pro forma issued and
outstanding shares of 7,518,642 - - 75,187
Additional paid-in capital 9,975,334 10,125,146 21,388,447
Subscription receivable (5,364,358) (1,507,469) -
Deficit accumulated during the development stage (16,201,306) (24,731,107) (24,731,107)
----------------------------------------------------------
Total deficiency of assets (11,500,356) (16,023,268) (3,215,799)
----------------------------------------------------------
Total liabilities and deficiency of assets $ 14,510,389 $ 21,668,166 $ 21,981,635
==========================================================
</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 MARCH 31 MARCH 31,
1997 1998 1998
-----------------------------------------------------------
<S> <C> <C> <C>
Service fee revenue $ $ 881,188 $ 881,188
Management fee from Sylvan 15,600 427,500 1,626,793
-----------------------------------------------------------
15,600 1,308,688 2,507,981
Costs and expenses:
Campus operating expenses - 5,898,450 13,032,194
Management fees to Sylvan 500,000 500,001 3,380,501
Other selling, general and
administrative expenses 1,050,360 2,934,440 9,470,583
-----------------------------------------------------------
1,550,360 9,332,891 25,883,278
Other income (expense):
Interest income 154,146 27,437 563,537
Interest expense (37,523) (334,035) (725,347)
-----------------------------------------------------------
116,623 (306,598) (161,810)
-----------------------------------------------------------
Net loss (1,418,137) (8,330,801) (23,537,107)
Dividends accrued on redeemable preferred
stock 199,000 199,000 1,194,000
-----------------------------------------------------------
Net loss attributable to common
stockholders $(1,617,137) $(8,529,801) $(24,731,107)
===========================================================
Basic and diluted loss per common share
attributable to common stockholders $ (0.19) $ (0.95) $ (2.78)
===========================================================
Pro forma basic and diluted loss per
common share attributable to common
stockholders $ (0.66)
============
</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
THREE MONTHS ENDED MARCH 31 MARCH 31,
1997 1998 1998
-------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss $(1,418,137) $(8,330,801) $(23,537,107)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,004 608,937 997,420
Non-cash compensation - - 115,000
Negative amortization of capital lease obligations
charged to interest expense - 192,258 279,315
Amortization of deferred tenant allowances recorded
as a reduction of rent expense - (49,442) (49,442)
Changes in operating assets and liabilities:
Accounts receivable (15,600) (1,028,842) (1,018,242)
Other receivables - (51,485) (105,997)
Prepaid expenses - - (25,066)
Accounts payable and accrued expenses related to
operating expenses 418,227 1,914,710 2,906,243
Management fee payable to Sylvan 500,942 500,001 3,380,501
Interest payable to Sylvan 37,523 169,646 471,430
-------------------------------------------------------------------
Net cash used in operating activities (476,041) (6,075,018) (16,585,945)
Investing activities
Purchases of property and equipment (87,508) (2,275,677) (6,520,379)
Proceeds from sale-leaseback of property and equipment - 540,685 540,685
Proceeds from deferred tenant allowances - 422,285 422,285
Increase in other assets - (65,077) (344,958)
-------------------------------------------------------------------
Net cash used in investing activities (87,508) (1,377,784) (5,902,367)
FINANCING ACTIVITIES
Initial issuance of stock for cash - - 13,000,000
Borrowings from Sylvan 318,015 - 3,000,000
Issuance of Class A common stock - 150,000 400,308
Payment of subscription receivable - 3,856,889 6,492,531
Payment of capital lease obligations - (62,757) (62,757)
-------------------------------------------------------------------
Net cash provided by financing activities 318,015 3,944,132 22,830,082
-------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (245,534) (3,508,670) 341,770
Cash and cash equivalents at beginning of period 13,000,000 3,850,440 -
-------------------------------------------------------------------
Cash and cash equivalents at end of period $12,754,466 $ 341,770 $ 341,770
===================================================================
</TABLE>
See accompanying notes.
6
<PAGE>
Caliber Learning Network, Inc.
(A Development Stage Company)
Notes to Financial Statements (Unaudited)
March 31, 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 months ended March 31, 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 incorporated by reference to 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 March 31, 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)
THREE MONTHS ENDED through
MARCH 31 MARCH 31
1997 1998 1998
-------------------------------------------------------
Numerator:
<S> <C> <C> <C>
Net loss $(1,418,137) $(8,330,801) $(23,537,107)
Preferred stock dividends (199,000) (199,000) (1,194,000)
$(1,617,137) $(8,529,801) $(24,731,107)
=======================================================
Denominator:
Weighted average number of shares of
common stock outstanding during the
period 8,508,430 8,852,968 8,751,387
Shares of common stock issued for a
nominal value 147,471 147,471 147,471
-------------------------------------------------------
8,655,901 9,000,439 8,898,858
=======================================================
Basic and diluted loss per common share $ (0.19) $ (0.95) $ (2.78)
=======================================================
</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 presented.
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)
2. LOSS PER SHARE (CONTINUED)
Pro forma basic and diluted net loss per common share attributable to common
stockholders is presented to disclose the effect on loss per share of the
assumed conversion of convertible securities which converted into common stock
upon the closing of the Company's initial public offering in May 1998. For
purposes of the pro forma computation, the convertible securities are assumed to
have been converted on January 1, 1998 or the issuance date, whichever date is
later.
The following table summarizes the computations of pro forma basic and diluted
loss per share presented in the accompanying statements of operations:
<TABLE>
<CAPTION>
Three months ended
MARCH 31, 1998
--------------------
Numerator:
<S> <C>
Net loss $(8,330,801)
====================
Denominator:
Shares used in historical calculation 9,000,439
Add:
Pro forma conversion of Series A Preferred Stock 2,442,513
Pro forma conversion of Series B Preferred Stock 1,227,393
--------------------
Denominator for pro forma loss per share 12,670,345
====================
Pro forma basic and diluted loss per common share $ (0.66)
====================
</TABLE>
9
<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)
THREE MONTHS ENDED THROUGH
MARCH 31 MARCH 31
1997 1998 1998
----------------------------------------------------
Non-cash investing and financing
activities:
<S> <C> <C> <C>
Equipment acquired under capital lease $ - $7,102,972 $11,048,992
Increase in other receivables for
proceeds due on sale-leaseback of
property and equipment - 1,069,281 1,069,281
Increase in accounts payable and
accrued expenses for purchases of
property and equipment - 1,017,219 1,017,219
Dividends accrued on Series A
Redeemable Convertible Preferred Stock
199,000 199,000 1,194,000
</TABLE>
4. CAPITAL LEASES
The holder of the 8% Series A Redeemable Convertible Preferred Stock 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 March 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Furniture and fixtures $ 632,265
Computer equipment and software 7,195,693
Leasehold improvements 3,221,034
-----------
11,048,992
Less: accumulated amortization (574,670)
-----------
$10,474,322
===========
</TABLE>
10
<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 March 31, 1998:
<TABLE>
<S> <C>
Through December 31, 1998 $ 1,508,426
1999 3,398,181
2000 3,398,181
2001 3,305,285
2002 1,198,681
Thereafter 974,330
----------------
Total minimum lease payments 13,783,084
Amounts representing interest (2,517,535)
----------------
Present value of net minimum lease payments (including current
portion of $1,771,833) $11,265,549
================
</TABLE>
5. PRO FORMA BALANCE SHEET AND RECAPITALIZATION
As discussed in Note 6, in May 1998, the Company completed an initial public
offering of Common Stock that 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.
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.
11
<PAGE>
Caliber Learning Network, Inc.
(A Development Stage Company)
Notes to Financial Statements (Unaudited) (Continued)
5. PRO FORMA BALANCE SHEET AND RECAPITALIZATION (CONTINUED)
The following table summarizes the components of the pro forma balance sheet
after giving effect to (1) the conversion of 2,442,513 shares of 8% Series A
Redeemable Convertible Preferred Stock into 2,442,513 shares of Common Stock;
(2) the conversion of 1,227,393 shares of Series B Redeemable Junior Convertible
Preferred Stock into 1,227,393 shares of Common Stock; (3) the conversion of
5,167,328 shares of Class B Common Stock into 5,167,328 shares of 6% Non-Voting
Convertible Preferred Stock; (4) the payment by Sylvan of the $1,507,469 balance
due on the subscription receivable; and (5) the payment by the Company of
$1,194,000 of accrued dividends (in thousands):
<TABLE>
<CAPTION>
Historical Assumed Pro Forma
March 31, 1998 Conversion and March 31, 1998
Recapitalization
-----------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 342 $ 313 $ 655
Other current assets 3,928 - 3,928
-----------------------------------------------------------
Total current assets 4,270 313 4,583
Property and equipment, net 17,053 - 17,053
Other assets 345 - 345
-----------------------------------------------------------
Total assets $ 21,668 $ 313 $ 21,981
===========================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 4,997 $ - $ 4,997
Dividends payable 1,194 (1,194) -
Other current liabilities 5,546 - 5,546
-----------------------------------------------------------
Total current liabilities 11,737 (1,194) 10,543
Non-current liabilities 14,654 - 14,654
Series A Preferred Stock 10,000 (10,000) -
Series B Preferred Stock 1,300 (1,300) -
Stockholders' equity:
Non-Voting Preferred Stock - 52 52
Class A Common Stock 38 (38) -
Class B Common Stock 52 (52) -
Common Stock 75 75
Additional paid-in capital 10,125 11,263 21,388
Subscription receivable (1,507) 1,507 -
Deficit accumulated during development stage (24,731) - (24,731)
-----------------------------------------------------------
Total deficiency of assets (16,023) 12,807 (3,216)
-----------------------------------------------------------
Total liabilities and deficiency of assets $ 21,668 $ 313 $ 21,981
===========================================================
</TABLE>
12
<PAGE>
Caliber Learning Network, Inc.
(A Development Stage Company)
Notes to Financial Statements (Unaudited) (Continued)
6. SUBSEQUENT EVENTS
In April 1998, the Company declared a 1.2274-for-1 stock split of all classes of
common and preferred stock outstanding on April 10, 1998. 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 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.
13
<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 (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 March 31, 1998, the Company had accumulated net losses of $23.5 million.
RESULTS OF OPERATIONS
Since inception, the Company has generated $2.5 million of revenue. A total of
$1.6 million of this revenue resulted from the Testing Center Management and CBT
Services Agreement with Sylvan. Under this agreement, Caliber manages 32 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 32 centers. Since
inception, operating expenses exceeded the revenue received from Sylvan for
Caliber's management of the 32 centers. The remaining $0.9 million of revenue,
all of which was generated in the first quarter of 1998, resulted from the
Company's agreements to provide corporate training programs through its
satellite-linked network of campuses.
14
<PAGE>
Since inception, the Company has incurred $13.0 million of campus operating
expenses. Campus operating expenses include costs associated with the
following: the opening of 33 Caliber Campuses in 1997 and 1998, eight Caliber
Campuses that were in various stages of development and 32 STCs managed by
Caliber.
Since inception, the Company has incurred $3.4 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 $9.5 million of other selling, general
and administrative expenses. As of March 31, 1998, the Company employed 64
management, sales and administrative personnel, which has increased from 14 at
March 31, 1997. Since inception, the Company has incurred approximately $0.9
million of non-recurring expenses related to executive recruiting and relocation
as well as start-up costs related to the implementation of distance learning
technologies.
Since inception, the Company has incurred net interest expense of $0.2 million.
The Company generated $0.6 million of interest income from the temporary
investment of cash received from its initial capitalization. Interest expense of
$0.7 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.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has used $16.6 million of cash in operating
activities and $5.9 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 million, the Sylvan loan of $3.0 million and a portion of
a subscription receivable from Sylvan of $6.5 million. As of March 31, 1998, the
Company had cash and cash equivalents of $0.3 million, $1.5 million unpaid under
the $8.0 million Sylvan subscription and $9.0 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,
together with the $3.0 million of available borrowings under the Sylvan loan and
the approximately $61.6 million of net proceeds from the Company's initial
public offering of Common Stock completed in May 1998 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.
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) - (b) None.
(c) On March 16, 1998, the Company issued to Rick P. Frier, Vice
President, Chief Financial Officer of the Company, 18,750 shares of
Common Stock for $150,000 in cash. This issuance was exempt from
registration pursuant to Section 4(2) of the Securities Act of
1933.
(d) The Company filed its first registration statement under the
Securities Act effective May 4, 1998, File No. 333-47565. The
offering commenced May 5, 1998, and terminated May 22, 1998 upon
the sale of all securities registered. The managing underwriters
were BT Alex. Brown Incorporated and NationsBanc Montgomery
Securities LLC. The security registered is Common Stock, par value
$.01 per share. The amount registered, the aggregate price of the
offering amount registered, the amount sold and the aggregate
offering price of the amount sold to date, as to the Company and
the sole selling stockholder, respectively, are as follows:
FOR THE ACCOUNT OF THE COMPANY
Amount registered 4,775,000
Aggregate price of offering amount registered $66,850,000
Amount sold 4,775,000
Aggregate offering price of amount sold $66,850,000
FOR THE ACCOUNT OF THE SELLING STOCKHOLDER
Amount registered 1,780,000
Aggregate price of offering amount registered $24,920,000
Amount registered 1,780,000
Aggregate offering price of amount sold $24,920,000
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
1. By written consent dated January 15, 1998, in lieu of the 1998
annual meeting of stockholders, the stockholders of the Company
unanimously elected the following persons directors of the Company,
each to hold office until the next annual meeting of the
stockholders of the Company and until his or her successor is
elected and qualified:
Douglas L. Becker
R. Christopher Hoehn-Saric
Susan Mayer
John P. Hill
Janeen M. Armstrong
The foregoing persons constitute all of the directors of the
Company.
2. 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:
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 1,000,000 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. Other Information
-----------------
None.
16
<PAGE>
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*
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.
17
<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: May 29, 1998 /s/ Rick P. Frier
-----------------------------------------------------
Rick P. Frier
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
18
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 341,770
<SECURITIES> 0
<RECEIVABLES> 1,096,242
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