CALIBER LEARNING NETWORK INC, 10-K, 1999-03-31

CALIBER LEARNING NETWORK INC
10-K, 1999-03-31
EDUCATIONAL SERVICES

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
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
.
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COMMISSION FILE NUMBER 0-22844

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CALIBER LEARNING NETWORK, INC.
(Exact name of registrant as specified in its charter)

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MARYLAND 52-2001020
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)

3600 CLIPPER MILL ROAD, SUITE 300, 21211
BALTIMORE, MARYLAND (Zip Code)
(Address of principal executive offices)
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Registrant's telephone number, including area code: (410) 843-1000

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

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Title of each class Name of each exchange on which Registered
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COMMON STOCK, PAR VALUE $.01 NASDAQ
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /

Indicate by check mark 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. / /

The aggregate market value of voting Common Stock held by non-affiliates of
the registrant was approximately $15,921,774 as of March 23, 1999.

The registrant had 12,303,285 shares of Common Stock outstanding as of March
23, 1999.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information in Caliber Learning Network, Inc.'s definitive Proxy
Statement for its 1999 Annual Meeting of Shareholders, which will be filed with
the Securities and Exchange Commission pursuant to Regulation 14A no later than
April 30, 1999, is incorporated by reference in Part III of this Form 10-K.

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INDEX

PART I.

Item 1. Business................................................................................... 3
Item 2. Properties................................................................................. 13
Item 3. Legal Proceedings.......................................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders........................................ 14

PART II.

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...................... 15
Item 6. Selected Financial Data.................................................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk................................. 21
Item 8. Financial Statements and Supplementary Data................................................ 21
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure....... 21

PART III.

Items 10., are incorporated by reference from Caliber Learning Network, Inc.'s definitive Proxy
11., 12. Statement which will be filed with the Securities and Exchange Commission, pursuant to
and 13. Regulation 14A, no later than April 30, 1999............................................. 22

PART IV.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................... 22

SIGNATURES
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PART I

ITEM 1. BUSINESS

Caliber Learning Network, Inc. (the "Company" or "Caliber") owns and
operates a state-of-the-art distance learning network designed to deliver
post-secondary education and training for prominent universities, major
corporations, and working adults. The Company has three principal lines of
business: Academic Services, which primarily distributes executive education,
management training, and graduate coursework to working adults in alliance with
prominent universities; Corporate Services, through which the Company makes its
network and related services available to corporations to provide nationwide
distribution of corporate communications and professional development and
training programs; and Other Products and Services, including a variety of
center-based training solutions, classroom rental, computer-based test
administration, and other non-network services.

Caliber was incorporated in March 1996 under the laws of the state of
Maryland. The Company was organized as a joint initiative of Sylvan Learning
Systems, Inc. ("Sylvan") and MCI Communications Corporation ("MCI"), bringing
together the educational services expertise of Sylvan and the telecommunications
and technology expertise of MCI. The Company completed its initial public
offering of common stock in May 1998.

INDUSTRY OVERVIEW

Expenditures in the post-secondary education market were approximately $220
billion in 1996-1997, compared to approximately $135 billion in 1989-1990.
Corporations budgeted approximately $60 billion in 1996 to provide training for
their employees, compared to $46 billion in 1990. The Company believes that an
increasing need for technical skills in the workforce is the primary reason for
growth in the training market. Corporations also spend significant amounts each
year on corporate communications programs, such as product introductions and
customer training. The U.S. Department of Education predicts that by the year
2000, approximately 85% of all U.S. jobs will require post-secondary education
or equivalent skills training.

LIFELONG LEARNING PROGRAMS. "Lifelong learning" refers to programs directed
primarily toward working adults. Increasing numbers of working adults have
concluded that graduate level education is necessary for career advancement. The
Company believes working adults generally prefer to obtain this education from
prominent universities because the prestige of these universities increases the
value of the credentials earned. Practical constraints, however, often force
working adults to choose local universities or conventional distance learning
rather than attend prominent institutions farther from home.

Most universities currently use a traditional learning method characterized
by (i) on-campus classroom instruction, (ii) semester-long courses and (iii)
weekday course offerings. Universities prefer the classroom environment because
of its live, interactive nature. Universities generally believe the traditional
classroom model is needed to maintain consistent, high quality instruction and
admissions standards. Some universities wish to serve the growing population of
working adults but the physical location and limited capacity of their campuses
and faculty limits their ability to teach more students in the conventional
manner. At the same time, many universities have been slow to embrace distance
education, believing that conventional distance learning methods compromise the
quality of their instruction and the integrity of the institution's credentials.
According to the National Center for Education Statistics, those traditional
higher education institutions that are interested in distance education have
been reluctant to offer these programs because of program development and
equipment costs and limited technological infrastructure.

Working adults with post-graduate educational needs have thus traditionally
been limited to local two-year and four-year colleges and conventional distance
learning methods, such as printed course materials, videotaped presentations,
and one-way broadcast instruction. The latter methods address the problems of
time and location but does not provide the benefits of traditional classroom
learning. In recent

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years, for-profit educational organizations, such as Apollo Group's University
of Phoenix, Strayer University and DeVry's Keller School of Management, have
succeeded by focusing on the practical needs of working adults, offering
job-related courses in a classroom environment at convenient times and
locations; however, both the quality of instruction and the credentials offered
by these for-profit organizations may have less perceived value than those
obtained from prominent universities.

CORPORATE COMMUNICATIONS AND TRAINING. Corporations are spending increasing
amounts on communicating with and training their employees, dealers and
customers. Transporting corporate trainers to remote offices or transporting
employees, dealers or customers to central training facilities is costly, time
consuming, and difficult to coordinate. The corporate trainer is typically an
intermediary between the expert and the employees, which may lower the quality
of the training. In addition, the shortage of qualified training personnel
causes many businesses to be unable to produce effective training programs.
Communications technology can enhance the quality and reduce the cost of
corporate training programs; however, most businesses do not have the in-house
expertise or infrastructure to establish their own technology-based distance
learning programs.

THE CALIBER LEARNING SOLUTION

The Caliber Learning Network was designed to combine the best elements of
the traditional classroom with the convenience of distance learning. Caliber
Learning Campuses feature professional classrooms, on-site facilitators,
state-of-the-art satellite transmission, videoconferencing, wide-area network
("WAN") computing and Internet technologies. These features give working adults
access to live, expert instruction, real-time two-way interactivity with the
instructor, and the ability to collaborate with other course participants. In
addition, Caliber integrates personal computing and the Internet to enhance
student-teacher interactivity and to extend the learning experience beyond the
classroom.

Caliber addresses the practical constraints of working adults by providing
high quality courses from prominent universities and professional development
and training programs at convenient times and locations; enables prominent
universities to extend the market for their educational products without
sacrificing academic control or high-quality instruction; and permits
corporations to distribute communications and training rapidly and effectively
through a single expert addressing its workforce, customers, and/or dealers
across the country at the same time. Caliber believes it is well positioned to
manage collaboration between universities and corporations to produce customized
professional development and training programs. Gaining control of the content
and quality of their professional development and training programs will improve
corporations' return on their tuition reimbursement plans and training
expenditures.

THE CALIBER LEARNING NETWORK

The Caliber Learning Network is a network of interactive, state-of-the-art
classroom facilities linked to specially equipped production studios and to each
other by satellite transmission, videoconferencing, WAN computing and Internet
technologies. As of March 1999, the Company had 42 Caliber Learning Campuses
open in 40 markets throughout the United States. Campuses are located in upscale
commercial properties or upscale suburban malls. These locations provide
students with secure evening and weekend access and ample parking. Most Campuses
have three classrooms which can be configured into one large room by retracting
movable, soundproof walls. This flexibility gives Caliber the ability to serve
large or small groups and to designate a space which is physically and
economically appropriate for the size of the group. The average classroom can
seat up to 24 students and has 12 multi-media computers embedded into the
workstations. Each Campus also has a multi-purpose office center and
videoconferencing room. At the front of each classroom is a large rear-screen
projection television, which enables each student to have an unobstructed view
of the presentation.

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THE CALIBER LEARNING EXPERIENCE. In a typical program, a Caliber-trained
facilitator greets students entering a Caliber Learning Campus and directs the
students to their appropriate classrooms. In each classroom, the facilitator
distributes course materials to the students and familiarizes them with the
facilities, including the PCs embedded in their workstations, before instruction
begins. The class instructor is located at a remote production studio, together
with one or more teaching assistants, and a Caliber studio technical
coordinator, who is trained to operate the various technologies. Teaching
assistants can also be located at any Caliber Learning Campus. The instructor
stands or sits in front of a large color monitor in the studio which always
displays the videoconference image of one classroom. The technical coordinator
typically sits just off-camera in the studio, and helps the instructor
coordinate transmission of the instruction and presentation materials to the
desktop. The technical coordinator manages the communications technologies so
that students in all Caliber Learning Campuses can interact with the instructor
and teaching assistants throughout the presentation. The technical coordinator
allows the instructor to focus on the teaching. When the instructor begins, the
studio transmits the satellite image of the instructor to the classrooms
participating in the program. Students view the instructor on a large
rear-screen projection television located at the front of each classroom.
Instructional graphics may be delivered either to the PC desktop or to the large
screen television. In either case, they are synchronized with the instructional
delivery.

At any time during the broadcast, the instructor can interact with a
classroom using videoconferencing so that the instructor can see and talk
directly to students in that classroom while students in other classrooms view
the exchange. Students can also interact with the instructor or teaching
assistants by sending questions to the studio through their PCs. The teaching
assistants read the questions and type and send responses immediately to the
students' PCs. They may choose to forward frequently asked questions to the
instructor so the instructor can address those questions to all locations
simultaneously. They may also choose to forward pertinent question-and-answers
to a list of Previously Asked Questions available to all students. Students can
communicate with others in their classroom and students in other classrooms
through their PCs during or after the instructor's presentation. Between
classes, students can typically access the course's own web page to review
course materials and a log of frequently-asked questions.

CALIBER BROADCAST ORIGINATION. Programming over the Caliber Learning
Network can originate from any location with appropriate ISDN connectivity and
access to a satellite signal "backhaul" connecting the studio to Caliber's
contracted uplink facility in Raleigh, North Carolina. Caliber typically
originates from television broadcast studios for better quality audio and video
signals; however, any production studio with dedicated ISDN and backhaul can be
used for origination once Caliber's proprietary Broadcast Origination Support
System has been installed. This system has been designed for easy integration
with standard production studio equipment. It can be packed, shipped and
installed in less than a day, allowing Caliber to originate programming from
locations convenient to clients. In 1998, Caliber originated programs from ten
different studios in eight cities across the country.

ACADEMIC SERVICES

Through its Academic Services division, Caliber distributes lifelong
learning programs to working adults through alliances with prominent
universities. Caliber's content strategy is to focus on fields characterized by
(i) large, dispersed and changing professional populations; (ii) rapid changes
in subject matter; and (iii) requirements for continuing education or
professional development. Caliber has focused initially on establishing
alliances with universities having national reputations in the fields of health
care, management development, information technology/engineering, and education.
Caliber offers universities the facilities and marketing expertise to distribute
course content to a large number of working adults without sacrificing academic
control.

Caliber currently has program development agreements with The Johns Hopkins
University; the University of Pennsylvania's Wharton School; Teachers College at
Columbia University; and the Marshall School of Business at the University of
Southern California. Under these agreements, the university is

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responsible for providing course content and instruction. Caliber is responsible
for programming and production services and providing the network infrastructure
for delivery of the courses. Caliber assists faculty members in adapting course
content into effective presentations which take full advantage of Caliber's
interactive delivery capabilities. Caliber is primarily responsible for
marketing the programs. New and untested programs are generally subject to a
market feasibility study prior to launch. Revenues from academic programs are
generally applied first to reimburse the parties for their respective expenses,
with any remaining revenues being distributed according to mutually agreed upon
percentages.

During 1998, Caliber devoted the resources of its Academic Services division
to launching its first academic programs and to establishing new relationships
with prominent universities. While enrollments in the limited number of current
programs have thus far been below expectations, the Company is using this
valuable experience to further refine its approach to the academic market.
Programs that do not result in college credit are in many cases not pre-approved
for corporate tuition reimbursement. The market for non-credit programs may
therefore be narrower than would otherwise be the case, and a longer sales cycle
may be involved. The Company's experience also suggests that for-credit courses
may be more attractive if they are part of a full suite of distance learning
courses leading to a graduate degree. As a result, Caliber is focusing its
resources on university programs resulting in transferable credit or full
degrees and/or tailored to the needs of specific corporations and industry
groups. Pre-launch market-feasibility studies are an integral part of Caliber's
market-focused and product-driven approach to new university alliances.

THE JOHNS HOPKINS UNIVERSITY. Under a five-year agreement with Caliber
expiring in January 2003, The Johns Hopkins School of Medicine and School of
Continuing Studies is currently offering through Caliber a four-course program
known as the "Hopkins Business of Medicine" program. This program is a distance
learning version of a popular program Johns Hopkins has offered for some time in
a traditional classroom setting on the campus of its medical school. The Hopkins
Business of Medicine program teaches doctors the fundamental business skills
needed to manage their practices effectively in the current managed care
environment. The program consists of a cohort of four courses, each delivered
over a ten-week period. The courses are Managed Care: Perspectives and
Practices; Accounting for Decision-Making in Medicine; Managerial Finance for
Medical Services; and Leadership and Organizational Behavior in Medical
Settings. Doctors who complete the program receive 12 graduate credits and a
graduate certificate from Johns Hopkins in addition to 120 Category 1 Continuing
Medical Education (CME) credits.

Johns Hopkins began delivering the Hopkins Business of Medicine program in
April 1998. A second offering of the program began in September 1998.
Participants have been drawn from 28 markets. The parties anticipate delivering
a third offering of the program beginning in September 1999.

THE WHARTON SCHOOL. In addition to its traditional degree programs, the
Wharton School also offers non-degree courses targeted toward business
executives. Under a five-year agreement with Caliber expiring March 2003, the
Wharton School is currently delivering through Caliber distance learning courses
under a program known as Wharton Direct. Wharton Direct is a series of
non-credit courses targeted toward business executives, each focusing on a
different business process. Currently, there are four courses being offered
under Wharton Direct: Building a Business Case; Using Financial Statements;
Managing the Workplace; and Global Marketplace: People, Teamwork, and
Leadership.

The first course in the Wharton Direct series, Building a Business Case, was
offered twice during 1998, in September and November. Participants were drawn
from 28 markets. The parties anticipate delivering the first offerings of Using
Financial Statements and Managing the Workplace, respectively, by the end of the
second quarter of 1999.

TEACHERS COLLEGE, COLUMBIA UNIVERSITY. Under a five-year agreement expiring
in July 2003, Caliber and Teachers College are studying the market feasibility
of various programs for post-graduate teacher education. The parties are
currently focusing on a certificate program in technology leadership, including

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instruction on software, multimedia and other information technology, and the
uses of such technology to design effective curricula. The proposed program
would consist of five three-credit-hour courses, three core and two elective
courses, for which students would earn 15 credits. Absent corporate sponsorship
or other outside funding, it is unclear whether market demographics will support
the program at current proposed tuition levels.

THE MARSHALL SCHOOL OF BUSINESS, UNIVERSITY OF SOUTHERN CALIFORNIA. In
March 1999, Caliber signed a seven-year program development agreement with the
University of Southern California's Marshall School of Business. Under the
agreement, the parties are currently studying the market feasibility of a
masters degree program in accountancy, a masters degree program in business
administration, and various executive education programs.

FUTURE UNIVERSITY PROGRAMS. The Company intends to continue to pursue
alliances with universities in areas where there is significant demand among
working adults interested in advancing their careers and maintaining their
professional certifications or licensure. Caliber is currently in advanced
discussions with several prominent universities interested in forming alliances
to deliver graduate-level courses in such disciplines as hotel management,
E-commerce, nursing, public health, accounting, international relations, the
management of technology, international business, and software development.

YEAR 2000 PROGRAMS. As part of its package of Academic Services, Caliber
has developed instructional courses for training information technology
personnel to identify and solve technical problems with computer operating
systems associated with the Year 2000. Caliber's Year 2000 training may be
delivered remotely by means of the Caliber Learning Network or in a conventional
manner using live classroom instruction. Under an agreement entered into in
February 1999, the Automotive Industry Action Group has retained Caliber to
deliver Caliber's one-day Business Contingency Planning course on an as-needed
basis through March 2000. Under an agreement with the University System of
Maryland ("USM") expiring December 2003, Caliber has agreed to provide Year 2000
training on behalf of USM in connection with the Chancellor's Year 2000
Fellowship Initiative.

CORPORATE SERVICES

Caliber's corporate services include providing the network infrastructure
and related delivery services for corporate communications and training as well
as pre-event programming and production services to assist corporations in
reformatting traditional classroom-based programs for network delivery to take
full advantage of Caliber's telecommunications and computing technologies.
Clients provide underlying program content. In the future, Caliber hopes to use
its developing relationships with prominent universities to enhance
collaboration between corporations and universities to develop high quality,
effective professional development programs with content specifically tailored
to the corporations' needs.

Under its standard program delivery agreement, Caliber charges a
nonrefundable pre-event programming and production fee for course conversion,
production and other services in advance of the program, and a network usage fee
for actual satellite time and use of the network infrastructure. Caliber
encourages clients to commit to multiple programs. Under Caliber's pilot-plus
agreement, first-time clients can commit to multiple programs but retain the
right to exit the agreement after one or more pilot programs if the client is
dissatisfied for any reason with network performance.

Caliber is aggressively marketing the Caliber Learning Network to Fortune
1000 corporations as a solution to their corporate communications, professional
development and training needs. The Company's first network event took place
February 5, 1998. Since that time, during 1998, the Company delivered programs
to 18 different corporate clients on a wide variety of subjects, including:

- Reseller sales certification, new product launch and internal training for
Compaq Computer Corporation.

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- Custom training for Deloitte & Touche, LLP tax professionals.

- Live, interactive sessions for investment professionals affiliated with
Fidelity Investments, Inc.

- A national forum on educational software solutions from Microsoft
Corporation.

- Financial consultant training for Salomon Smith Barney, Inc.

In February 1999, Primedia Workplace Learning, Inc., a division of Primedia
Inc. and the successor to Westcott Communications, announced the discontinuance
its IDTN line of corporate distance learning services. IDTN had been a
competitor of Caliber in the corporate arena. Primedia has agreed to assist
Caliber in the conversion of IDTN accounts to Caliber in exchange for certain
commissions on converted IDTN business. As a result, the Company has initiated
high-level sales contacts with former Primedia clients.

During 1998, Caliber delivered the initial program in its planned "IT
Insight" series, a series of monthly technical seminars open to the public on
new Microsoft products and other leading software products. The initial program
consisted of a technical briefing on a specialized Microsoft programming
language. Based on the results of this program, Caliber made the strategic
decision to discontinue further development and deployment of IT Insight at the
this stage in the Company's development. The Company believes its resources are
better focused at this time on its core business of delivering high-quality
custom programs for corporations with specialized training and communications
needs.

The Company's Corporate Services business was adversely affected in 1998 by
Macmillan Computer Publishing USA's decision to discontinue software training
initiatives under a three-year contract with Caliber to distribute, through the
Caliber Learning Network, training courses on widely-used software application
programs. Caliber believes the sale of Macmillan in 1998 to the British media
group Pearsons PLC contributed to Macmillan's decision. The Macmillan contract
is the subject of an ongoing legal dispute between the parties. See Part I, Item
3, "Legal Proceedings".

OTHER PRODUCTS AND SERVICES

Caliber's Other Products and Services comprise, principally, training
services and test administration services, as well as a developing portfolio of
non-network solutions designed to maximize the revenue generating capabilities
of the Caliber Learning Network and achieve the fullest possible utilization of
Caliber's infrastructure and personnel.

TRAINING SERVICES. Under its Training Services line of business, Caliber
rents classroom facilities on a daily basis to corporations and national
training organizations for local, non-network events. Training Services clients
use Caliber's classroom facilities but not the satellite broadcast
infrastructure or WAN inter-connectivity of the Caliber Learning Network as a
whole. Caliber's high-end, nationally uniform, PC- and LAN-equipped classrooms
eliminate the need of corporations and training organizations to rent local
conference rooms on an ad-hoc basis and to ship PC equipment around the country
to support local events. For the client, these efficiencies result in reduced
logistical requirements, lower cost, and greater consistency across events for
the client's end-users.

During 1998, over 25,000 trainees participated in Training Services events,
primarily for software training. Representative clients included Fannie Mae,
which provided training on its Desktop Originator-Registered Trademark- and
Desktop Underwriter-Registered Trademark- software, and SPSS, Inc., which
provided training on software applications relating to statistical analysis and
market segmentation techniques.

TEST ADMINISTRATION SERVICES. Under a Testing Center Management and CBT
Services Agreement between Caliber and Sylvan, (the "CBT Services Agreement")
Caliber has assumed management and responsibility for all obligations and
operations of certain Sylvan Testing Centers ("STCs") and to deliver
computer-based testing services on behalf of Sylvan at those STCs through
December 31, 2000. These facilities may be converted into classrooms capable of
receiving Caliber programs. The Company receives a

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fixed amount per month to manage these STCs and an additional fee per test
delivered above a specified number of tests. Separately, the Company receives
50% of the earnings from Sylvan's digital fingerprint joint venture with Identix
Corporation.

CALIBER TECHNOLOGY

The Caliber Learning Network features select telecommunication and computing
technologies, such as digital satellite broadcasting, PCs with
Pentium-Registered Trademark-processors, Internet and intranet technologies and
room-based videoconferencing. The Caliber Learning Network is a PC-based, open
architecture network, composed of state-of-the-art components which can be
replaced or upgraded without redesigning the network.

MCI NETWORK MANAGEMENT AGREEMENT. At its inception, Caliber decided to seek
a strategic partner to whom it could outsource the design, supply and support of
the infrastructure of the Caliber Learning Network. Accordingly, in July 1997,
Caliber entered into a four-year Enterprise Management Agreement with MCI
Systemhouse. Under this agreement, MCI Systemhouse agreed to design the
network's infrastructure and supply and support the infrastructure's components
(other than the satellite system), including the Caliber Data Center, and
Caliber agreed to purchase all of these components through MCI Systemhouse.
Support services include individual component maintenance, network fault and
performance monitoring and help desk services.

STUDIO TECHNOLOGY. University professors and training instructors broadcast
from production studios that Caliber has leased and upgraded with the
Company-designed Broadcast Origination Support System ("BOSS") as well as other
telecommunications technology. The broadcast team consists of the Caliber
technical coordinator, the instructor and one or more teaching assistants, and a
studio crew. The team uses the BOSS system to coordinate the broadcast of the
presentation by satellite to Caliber Campuses and to facilitate interaction with
students in all locations during and after the presentation through two-way
video conferencing and Internet interfaces. The Caliber Learning Network uses
digital satellite technology to deliver broadcast-quality video and audio. The
BOSS system consists of advanced PCs and video conferencing units configured in
a local area network ("LAN"). A WAN connection links the BOSS system to the
Caliber Data Center. The video conferencing units use two-way video and audio
signals, enabling an instructor to see and talk with students at any Caliber
Campus while broadcasting the conversation to all other Campuses. The PC
interfaces are part of a proprietary software system call the Caliber Online
Response Environment ("CORE"). CORE enables the instructor to present visual
aids, such as PowerPoint-TM- slides simultaneously on all classroom PCs or the
large classroom screens. Through CORE, the instructor can ask students written
questions through their PCs, students can answer through their PCs and answers
can be immediately tabulated and presented both to the instructor and the
students. The CORE system's PC interface also allows the instructor to track all
questions that have been asked during the course. The CORE system's Internet
interface enables the instructor and students to communicate asynchronously
beyond the classroom, by asking questions, reviewing notes, distributing
assignments and reprinting the text of presentations for students who have
missed a class.

DATA CENTER. The Caliber Data Center consists of multiple PC file servers,
WAN equipment and high-speed data communications lines. Caliber uses a high-end
PC file server as the production control server for the intranet application
that controls all interactions during a course. The Data Center hosts PC Web
servers to provide participants access to course materials and learning
activities from outside Campuses.

CAMPUS TECHNOLOGY. Each Caliber Learning Campus is equipped with
telecommunications equipment and computing technology. Principal components
include satellite dishes, control PCs linked to the Caliber intranet,
videoconferencing units, a computer-controlled audio/video projection and
lighting system, desktop PCs configured to the Internet and Caliber's
proprietary classroom instruction software system. Each classroom contains PCs
with Pentium-Registered Trademark- processors and a local web server connected
to a

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Microsoft NT LAN and linked to the Caliber Data Center via a dedicated 56
kilobit frame relay line. Each classroom has a videoconferencing unit linked to
each Caliber studio and a large rear-screen projection TV through which the
course is delivered. Caliber's classroom instruction software system allows
students, through their PCs, to review course materials, chat via e-mail with
students at other sites, ask and respond to questions from the instructor, take
notes, review frequently asked questions, receive individualized instruction
from teaching assistants and run other software applications.

PROPRIETARY SOFTWARE. Caliber developed its own intranet and Internet
software and the CORE application to control and deliver its distance learning
courses. In addition to the normal "pull" functionality of Internet
applications, CORE adds a series of "push" functions that allow instructors to
control the activities of participants. Caliber has designed its system to allow
instructors to deliver an activity to the students' workstations within five
seconds. Caliber has tested its application and believes that this level of
performance can be achieved with up to 5,000 workstations in over 100 Campuses
within the Caliber intranet.

CORE has a subset of the major functions used for asynchronous distance
learning. Caliber intends to extend the Internet functions of its software to
include the major functions of most asynchronous distance learning tools to be
able to fully support participants both when they are in the Campuses and when
they are between sessions. Caliber's intent is to extend and maintain its
software internally.

MARKETING AND SALES

Caliber's principal marketing strategy is to establish long-term strategic
alliances with prominent universities and with major corporations.

ALLIANCES WITH PROMINENT UNIVERSITIES. Caliber's strategy is to establish
long term contractual relationships with prominent universities, institutions
and other specialized content providers. Caliber's Vice President of Academic
Services and the content acquisitions team is responsible for the partner
selection and negotiations process. Universities or specific colleges with
academic leadership in a specific discipline are identified and approached by
the team. Negotiations typically begin at the provost or dean level or through a
centralized office of distance learning.

Caliber's standard university contract contains a feasibility study process
for each potential program which allows for study of the target market and
financial viability of the program. Once a specific program has been identified
and worked through the feasibility process, it is then marketed and launched
regionally or nationally.

ALLIANCES WITH CORPORATIONS. Caliber's initial marketing focus is on
Fortune 1000 companies in the professional services, financial services,
IT/engineering and pharmaceutical industries because these companies tend to
have (i) geographically dispersed employees, dealers and customers, (ii)
significant training requirements and (iii) the need for rapid dissemination of
information. Caliber targets senior management and others with responsibility
for professional development and training. Caliber uses a consultative direct
sales approach, believing that the Caliber network can be a solution to a
corporation's training and communications needs only after Caliber has assessed
those needs.

MARKETING AND SALES TO WORKING ADULTS. Caliber assumes primary
responsibility for marketing university programs to working adults. Caliber
builds program awareness through targeted direct mail, direct response
advertising, direct sales, public relations, outbound telemarketing and
web-based marketing. Caliber uses affinity marketing to members of professional
associations within its target industries. Caliber markets across its business
lines to leverage individual and corporate relationships into multi-faceted
opportunities.

MARKETING AND SALES PERSONNEL. Caliber currently has 55 employees and
representatives dedicated to sales and marketing, more than double the resources
of a year ago. Caliber established a telemarketing

10
<PAGE>
operation in March 1998 that now consists of 20 sales representatives as well as
customer service and system administration personnel. Telemarketing
representatives are responsible for outbound telemarketing and for the
enrollment of individuals who respond to Caliber's direct marketing campaigns.

EMPLOYEES

The Company's staff includes technical integration personnel responsible for
maintaining and extending the Company's network; instructional design and video
production personnel; sales and marketing staff; and on-site facilitators who
assist in the delivery of courses at Caliber Learning Campuses. Each Caliber
Learning Campus is staffed by several facilitators. Caliber has a regional
management staff that recruits and trains Campus facilitators. As of March 1999,
Caliber had 192 full-time employees and 78 full-time and part-time facilitators.
The Company considers its relationship with its employees to be good.

COMPETITION

The Company believes its principal competitors are prominent universities
located in the markets served by Caliber Learning Campuses; two-year and
four-year colleges which have their own continuing education and graduate level
programs in localities served by Caliber; and for-profit educational
organizations, such as the Apollo Group's University of Phoenix, Strayer
University and DeVry's Keller School of Management, that provide lifelong
learning programs targeted to working adults using live classroom instruction.
Caliber may also compete with distance learning companies that offer self-paced
correspondence courses, videos, audiocassettes, and CD-ROM and Internet-based
instruction. If the Caliber distance learning concept proves successful, Caliber
expects other competitors to enter the market. For example, businesses that have
facilities in multiple markets that could be linked by satellite, such as major
hotel and movie theater chains, could decide to establish networks of distance
learning facilities to compete with Caliber. The Company also competes against a
significant number of third-party training companies that provide various
training programs to corporations.

GOVERNMENT REGULATION

STATE LICENSURE. Many states require universities and other entities
providing learning programs to obtain licenses to operate in those states. Some
states accept accreditation as evidence of meeting minimum state standards for
licensing. Other states impose their own standards, including, in some
instances, standards for distance learning. These standards may limit the number
of courses that may be offered through distance learning, require specified
levels of student support services, set minimum graduation requirements and
otherwise restrict distance learning programs.

Universities are typically subject to some state licensing requirements. The
state in which a university is primarily located may require the university to
obtain approval to offer distance learning programs, even if delivered in
another state. Moreover, the state receiving the university's distance learning
program often requires that the university obtain a license to deliver the
program in that state.

To the extent the Company provides only a delivery system for university
courses rather than its own educational content, the Company believes that it is
not subject to most state educational licensure requirements. State requirements
for distance learning are rapidly evolving, however, and some jurisdictions may
in the future require Caliber to obtain one or more educational licenses
depending on the number of Caliber Learning Campuses in that jurisdiction.

Corporations generally are not required to obtain state licenses to deliver
training and professional development courses within their own organizations.

ACCREDITATION. The Company contracts with universities accredited by
recognized accreditation organizations. In some instances, specific programs
offered by those universities may be accredited by specialized accreditation
organizations. Some accreditation organizations have developed guidelines for

11
<PAGE>
distance learning programs, which address such aspects of distance learning as
curriculum and instruction, evaluation and assessment, library and learning
resources, student services and facilities and finances. As required by federal
law, the institutional accreditation organization may view the offering of
distance learning as a substantive change to the university's operations,
requiring prior written approval by the accreditation organization. If
universities are required to seek approval for, and undergo monitoring of,
distance learning by accreditation organization, the Company may be unable to
deliver courses when or as planned.

THE HEA AND FEDERAL STUDENT FINANCIAL AID. The Higher Education Act of
1965, as amended ("HEA"), authorizes various federal student financial aid
programs. Most universities with which Caliber contracts and intends to contract
participate in those programs. The HEA imposes numerous restrictions on
institutions participating in federal student financial aid programs, including
limitations on the number of courses that an institution of higher education may
offer through telecommunications and on the number of students that may be
enrolled in these courses. If the universities with which the Company contracts
exceed those limitations, the institutions could lose their eligibility to
participate in federal student financial aid programs.

In 1998, Congress amended the HEA to waive regulations that largely deny
eligibility for aid to students participating in distance learning programs.
Initially, the waiver will take effect at 15 colleges or consortia of colleges
to be chosen by the United States Department of Education on the basis of
certain criteria set forth in the HEA, and at 35 other colleges or consortia for
the third year after enactment of the law.

Failure of an otherwise eligible institution to comply with state licensing
requirements could render that institution ineligible to participate in federal
financial aid programs. If a university fails to obtain necessary state approval
for distance learning, it could be liable to the Department of Education for
student financial aid to students in the program or other penalties.
Furthermore, the HEA restricts the ability of institutions to contract with
third parties for educational programs. Because the Company will be providing
only a delivery system for university courses rather than its own educational
programming, the Company believes that these restrictions will not apply to its
arrangements with universities.

Programs that do not result in the granting of a degree, such as those
currently offered by Johns Hopkins and the Wharton School, are not eligible for
federal student financial aid. If degree programs are offered in the future
through the Caliber Learning Network, students may become eligible for federal
student financial aid.

STUDENT AFFAIRS. Individuals enrolled in university programs offered
through the Caliber Learning Network will be students of the university offering
the program. As such, the students will generally have the same rights and
responsibilities as other students enrolled at that university. Among other
legal obligations to students, universities are subject to federal and state
laws protecting the privacy of student records and are likely to require the
Company also to abide by those laws. These laws may limit the Company's ability
to obtain and/or use student information or images for marketing or other
purposes. In addition, a university may be required, and may require the
Company, to make reasonable accommodations for otherwise qualified disabled
students to take courses through the Caliber Learning Network.

PROPRIETARY RIGHTS

The Company relies upon a combination of nondisclosure and other contractual
arrangements and trade secret, copyright and trademark laws to protect its
proprietary rights.

The Company has filed a comprehensive patent application with the U.S.
Patent and Trademark Office ("PTO") covering certain features of the Caliber
Learning Network which Caliber believes to be proprietary. The application
describes the Caliber Learning Network as a distance learning system which
emulates a classroom setting using satellite links, two-way videoconferencing, a
PC-based network for

12
<PAGE>
directly linking each student to the instructor, BOSS technology and hardware,
particular design features of the Caliber classrooms and furniture and certain
unique control and switching mechanisms.

The Caliber Learning Network employs a combination of proprietary and
non-proprietary software. The Company considers proprietary certain applications
software used to create the user-interface of the PC network. The Company may
include the proprietary software in the patent application or, in the
alternative, seek separate copyright protection for the software.

"Caliber," "Caliber Learning Network," and the Caliber mountain peak logo
are registered service marks of the Company. Applications by the Company to
register "BOSS," "Caliber Learning Campus," and certain other service marks of
the Company are currently pending before the PTO.

ITEM 2. PROPERTIES

The Company currently utilizes approximately 27,000 square feet of space in
Baltimore, Maryland, for its corporate and administrative offices. Sylvan leases
this space and charges the Company for its use as part of an Intercompany
Management and Facility Use Agreement between Caliber and Sylvan (the "Sylvan
Management Agreement"). The Company expects to move its offices during 1999 to
another similarly sized location in Baltimore. This space will also be leased by
Sylvan on the Company's behalf.

As of March 1999, there were 42 Caliber Learning Campuses open in 40 markets
throughout the United States. The Company leases all of these facilities. The
average size of a Caliber Learning Campus is between 4,000 and 5,000 square
feet. Campus leases have terms ranging from five to ten years. The Company also
utilizes certain affiliate sites noted below. Affiliate sites are single Caliber
classrooms co-located on third-party premises for which Caliber pays a fee based
on actual usage. Currently, there are Caliber Learning Campuses and affiliate
sites located in each of the following cities:

<TABLE>
<S> <C> <C>
Atlanta Los Angeles Rochester
Austin Miami Sacramento
Baltimore Milwaukee Salt Lake City
Boston Minneapolis San Diego
Charlotte Nashville San Francisco
Chicago New Orleans San Jose
Cincinnati New York City Seattle
Cleveland Oklahoma City St. Louis
Dallas Orlando Tampa
Denver Paramus Washington, DC
Detroit Philadelphia Montreal*
Houston Phoenix Toronto*
Indianapolis Pittsburgh Vancouver*
Jacksonville Portland Chicago*
Kansas City Raleigh Culver City*
Long Island Richmond Santa Ana*
</TABLE>

*Affiliate site.

ITEM 3. LEGAL PROCEEDINGS

From time to time, the Company may be a party to routine litigation
incidental to its business. Currently, the Company is the plaintiff and
counterclaim defendant in a legal proceeding pending in the United States
District Court for the Southern District of Indiana, Cause No. IP98-1710C--M/S.
The Company filed this lawsuit against Macmillan Computer Publishing USA
("Macmillan") in December 1998 to recover damages arising from Macmillan's
breach of a three-year contract to distribute, through the Caliber Learning
Network, training courses on widely-used software application programs.

13
<PAGE>
Caliber contends and believes that Macmillan wrongfully failed to pay monies due
for certain minimum program commitments under the agreement and failed to
reimburse the Company for marketing expenses incurred on behalf of Macmillan.
Macmillan has denied the allegations and asserted a counterclaim against
Caliber. The Company believes Macmillan's defenses and counterclaims are without
merit.

At this time the Company is not a party, either as plaintiff or defendant,
in any other material litigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter ended December 31, 1998.

14
<PAGE>
PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The Company's common stock has been publicly traded on the NASDAQ National
Market since May 5, 1998 under the symbol "CLBR". The quarterly ranges of prices
per share since May 5, 1998 are as follows:

<TABLE>
<CAPTION>
FISCAL 1998 HIGH LOW
- ----------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Second Quarter (from May 5, 1998)............................................ $ 18 3/4 $ 15 1/8
Third Quarter................................................................ 15 7/8 4 3/8
Fourth Quarter............................................................... 5 15/16 3 7/8
</TABLE>

As of March 23, 1999 the approximate number of security holders of record
was 39.

The company has never declared or paid any cash dividends on its common
stock and does not expect to pay any cash dividends in the foreseeable future.

The Company filed its first registration statement under the Securities Act
effective May 4, 1998. File No. 333-47565. From the effective date of the
registration statement to December 31, 1998, the company's use of net proceeds
from the offering of securities covered thereby was as follows:

<TABLE>
<S> <C>
NET OFFERING PROCEEDS TO ISSUER......... $61,458,500

USE OF PROCEEDS:

Plant, building and facilities.......... $ 3,382,000
Working capital......................... $17,678,500
Repayment of indebtedness (1)........... $ 7,054,000
Temporary investments:
Cash and cash equivalents........... $23,879,000
Marketable securities............... $ 8,254,000
Other expenses:
Payment of accrued dividends (2).... $ 1,211,000
-----------
Total................................... $61,458,500
</TABLE>

- ------------------------

(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 6. SELECTED FINANCIAL DATA

15
<PAGE>
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 22, 1996
(DATE OF
INCEPTION) THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998
------------------ ----------------- -----------------
<S> <C> <C> <C>
1,635,171 14,915,216 44,413,806
Other income (expense):
Interest income...................................... -- 536,100 1,571,078
Interest expense..................................... -- (391,312) (1,396,864)
------------------ ----------------- -----------------
-- 144,788 174,214
------------------ ----------------- -----------------
Net loss............................................... (1,635,171) (13,571,135) (28,824,514)
Dividends accrued on preferred stock................... (199,000) (796,000) (314,409)
------------------ ----------------- -----------------
Net loss attributable to common stockholders........... $ (1,834,171) $ (14,367,135) $ (29,138,923)
------------------ ----------------- -----------------
------------------ ----------------- -----------------
Basic and diluted loss per common share attributable to
common stockholders.................................. $ (0.21) $ (1.62) $ (2.61)
------------------ ----------------- -----------------
------------------ ----------------- -----------------
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------
<S> <C> <C> <C>
1996 1997 1998
------------------ ----------------- -----------------
BALANCE SHEET DATA:
Cash and available-for-sale securities................. $ 13,000,000 $ 3,850,440 $ 32,132,975
Current assets......................................... 13,028,000 5,895,238 37,380,844
Net property, plant and equipment...................... 29,629 8,335,270 24,395,378
Total assets........................................... 13,057,629 14,510,389 62,158,955
Current liabilities.................................... 1,411,800 7,186,129 9,909,734
Long-term debt, less current portion................... -- 3,417,181 13,040,854
Stockholder's equity................................... (134,171) (11,500,356) 37,614,809
</TABLE>

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<PAGE>
ITEM 7. 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

Caliber Learning Network, Inc. (the "Company") was incorporated on March 28,
1996 under the laws of the state of Maryland for the purpose of providing adults
with university-quality continuing education using multimedia technology. The
Company was organized by Sylvan Learning Systems, Inc. ("Sylvan") and MCI
Communications Corporation ("MCI") bringing together the educational services
expertise of Sylvan and the technology and telecommunications expertise of MCI.
The Company contracts with nationally recognized universities and corporations
to provide high-quality courses through a multi-site, satellite-linked network
of campuses throughout the nation. Effective May 1, 1997, the Company entered
into an agreement with Sylvan to manage the operations of certain certification
centers located throughout the United States which administer computer-based
tests for major corporations, professional associations and government agencies.
These centers may be converted into centers capable of receiving Caliber
programs.

REVENUE

Revenue is generated primarily from the distribution of graduate level
learning and professional development and training programs, hourly classroom
rental and related services. Revenue from university programs is recognized
ratably over the period that the courses are delivered. Some university
contracts provide for the university to recover its course development costs
prior to allocation of any tuition revenue to the Company. Contracts with
corporations for professional development and training programs provide for
Caliber to receive specific program fees for pre-event services and for the
facilities used during a network event. The Company recognizes revenue for the
pre-event services at the time those services are complete. The Company
recognizes the revenue for the facilities used at the time of the event. The
Company also generates revenue from hourly classroom rental, which is recognized
when the service is provided. Management fees under an agreement with Sylvan to
manage certain computer-based certification centers are calculated based on a
fixed amount per month, plus an additional fee per test delivered above a
specified number of test examinations. These fees are recognized as revenue upon
delivery of the examination.

COSTS AND EXPENSES

The Company incurs operating costs and expenses related to campus operating
expenses, marketing costs, programming and productions costs, management fees
payable to Sylvan and selling, general and administrative expenses. Campus
operating expenses consist primarily of payroll, lease expense, depreciation and
telecommunications costs associated with the Caliber campuses.

17
<PAGE>
Since its organization in November 1996, Caliber has relied on Sylvan for
certain resources, systems and personnel for management, administrative, legal,
accounting and financial functions. Additionally, Sylvan provides office space
for the Company's operations. Under the Sylvan Management Agreement, the Company
agreed to pay Sylvan $4.9 million of management fees incurred from November 22,
1996 through December 31, 1998. The Company has agreed to pay Sylvan $2.0
million annually for these services through 1999. During the next year, the
Company intends to develop its own systems to replace those currently provided
by Sylvan.

Since Caliber's inception, selling, general and administrative expenses have
consisted primarily of payroll and employee benefits, travel, marketing costs
and consulting fees. The Company expenses all start-up costs related to program
development and campus development when incurred. Course production costs
related to the creation of various media and course materials are expensed as
incurred. Advertising and marketing costs are expensed when incurred.

RESULTS OF OPERATIONS

FISCAL 1998 COMPARED TO FISCAL 1997

Caliber generates revenues from three business segments: Academic, Corporate
and Other Products and Services. The following table sets forth information on
the Company's reportable segments:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------
OTHER PRODUCTS
ACADEMIC CORPORATE AND SERVICES TOTAL
----------- ---------- -------------- ------------
<S> <C> <C> <C> <C>
Revenues....................................... 3,699,309 7,818,798 3,896,971 15,415,078
Direct costs................................... 6,574,784 4,603,622 1,837,516 13,015,922
----------- ---------- -------------- ------------
Segment operating income (loss)................ (2,875,475) 3,215,176 2,059,455 2,399,156
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------
OTHER PRODUCTS
ACADEMIC CORPORATE AND SERVICES TOTAL
----------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Revenues........................................ -- -- 1,199,293 1,199,293
Direct costs.................................... -- -- -- --
----------- ---------- -------------- ----------
Segment operating income (loss)................. -- -- 1,199,293 1,199,293
</TABLE>

Revenues in 1998 were $15.4 million, an increase of $14.2 million from the
$1.2 million in 1997. The increase in revenues in 1998 resulted from the
Company's efforts to develop and implement its corporate, academic and training
services businesses. As the Company was in its early stages of development
during 1997, all revenues generated were related to the CBT Services Agreement
with Sylvan.

Direct costs for the segments were $13.0 million in 1998 compared to $0 in
1997. The increase in direct costs resulted from the Company's efforts to
develop and implement the corporate, academic and training services businesses
and consist primarily of payroll, marketing, consulting and programing and
production costs. The Academic operating loss of $2.9 million reflects
enrollments not yet supportive of the start-up and development costs of payroll,
marketing and programming and production for the various programs.

Other operating expenses that are not directly attributable to the operating
segments are not allocated. These unallocated operating expenses in 1998
increased to $18.6 million, an increase of $14.2 million from the $4.4 million
in 1997. The increase resulted mainly from increased operating lease expense,
depreciation and amortization expense, and field payroll expense due to the
growth in the number of Caliber campuses. At December 31, 1998, 42 Caliber
campuses were operational compared to only 19 at the end of 1997. In addition,
1998 operating expenses reflect a full year of campus operating expenses for the
19 campuses open at the end of 1997 as compared to a partial year in 1997.

18
<PAGE>
Management fees payable to Sylvan decreased to $2.0 million, a decrease of
$400,000 from the $2.4 million in 1997. This decrease is the result of
contractually negotiated terms between Caliber and Sylvan.

Selling, general and administrative expenses in 1998 increased to $10.8
million, an increase of $2.7 million from the $8.1 million in 1997. The increase
supported the growth of the business and reflects an increase in the Company's
allowance for doubtful accounts. During the fourth quarter of 1998, the Company
fully reserved for the receivable due from Macmillan due to the pending
litigation between the two companies. See Item 3, "Legal Proceedings". In
addition, the Company established a general allowance for doubtful accounts to
coincide with the growth in revenues in 1998.

Interest income in 1998 was $1.6 million, an increase of $1.1 million from
the $536,000 in 1997. This increase is due to the income earned on the Company's
short-term investments purchased from the proceeds received from the Company's
initial public offering in May 1998. Interest expense in 1998 was $1.4 million,
an increase of $1.0 million from the $391,000 in 1997. The increase is due
primarily to interest expense incurred on $13.4 million of new lease obligations
in 1998 and the effect of a full year's interest on obligations originating in
1997.

The Company recorded a net deferred tax asset of $17.0 million as of
December 31, 1998. This deferred tax asset was principally from the allowance
for doubtful accounts and net operating loss carryforwards. Income tax
regulations contain provisions which may limit the use of net operating loss
carryforwards in any given year if certain events occur, including changes in
ownership of the Company. The Company has established a valuation allowance for
the entire amount of its net deferred tax asset due to uncertainties regarding
future taxable income.

FISCAL 1997 COMPARED TO FISCAL 1996

In 1997, the Company generated $1.2 million of revenue compared to $0 in
1996. All of this revenue resulted from the CBT Services Agreement with Sylvan.

In 1997, Caliber incurred $4.4 million of operating expenses compared to $0
in 1996. Operating expenses include costs associated with the opening of 19
Caliber campuses in 1997, 13 Caliber campuses that were in various stages of
development and 32 STCs managed by Caliber.

Management fees payable to Sylvan increased to $2.4 million, an increase of
$1.9 million from the $480,000 in 1996 due to Caliber only having two months of
operations in 1996.

Selling, general and administrative expenses in 1997 increased to $8.1
million, an increase of $6.9 million from the $1.2 million in 1996. The increase
is primarily attributable to increased staffing and to Caliber only having two
months of operations in 1996.

During 1997, net interest income was $145,000. The Company generated
$536,000 of interest income from the temporary investment of cash received from
Caliber's initial capitalization. Interest expense of $391,000 resulted from
borrowings on the $3.0 million Sylvan loan and interest on capital lease
obligations.

The Company recorded a net deferred tax asset of $5.9 million as of December
31, 1997. This deferred tax asset consisted principally of start-up costs
capitalized for income tax purposes and net operating loss carryforwards. Income
tax regulations contain provisions which may limit the use of net operating loss
carryforwards in any given year if certain events occur, including changes in
ownership of the Company. The Company has established a valuation allowance for
the entire amount of its net deferred tax asset due to uncertainties regarding
future taxable income.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities increased to $28.3 million in 1998
compared to $9.3 million in 1997. This increase is primarily attributable to
increased operating costs in 1998, an increase in accounts

19
<PAGE>
receivable resulting from increased revenues and repayment of the management fee
to Sylvan. These cash outflows were offset by an increase in accounts payable,
depreciation and amortization expenses.

Net cash used in investing activities increased to $12.6 million in 1998
compared to $4.5 million in 1997. This increase is primarily attributable to the
purchase of property and equipment to support the Company's infrastructure
buildout and the purchase of available-for-sale securities, offset by proceeds
received from the Company's landlords to fund buildout costs at Caliber
Campuses.

Net cash provided by financing activities increased to $61.0 million in 1998
compared to $4.7 million in 1997. This increase is primarily attributable to the
net proceeds of the Company's initial public offering in May 1998 of $61.4
million and the receipt of $5.4 million from Sylvan for stock. These inflows
were offset by the repayment of $3.0 million for the Sylvan loan and the $1.2
million payment of accrued dividends on preferred stock to MCI concurrent with
the Company's initial public offering, as well as $1.8 million of principal
payments under the Company's capital lease obligations.

As of December 31, 1998, the Company had cash and cash equivalents of $23.9
million, available-for-sale securities of $8.3 million and $2.7 million
available under the $20.0 million MCI Lease and Guarantee Commitment. The
Company believes that these resources will be sufficient to fund the acquisition
of property and equipment and to fund negative cash flow from operations through
June 2000. However, there can be no assurance that the Company's cash resources
will be sufficient to fund the Company's negative cash flow from operations and
expected capital expenditures through June 2000. The Company, therefore, 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 COMPLIANCE

The Year 2000 (Y2K) issue is the result of computer programs written using
two digits (rather than four) to define the applicable year. Absent corrective
actions, programs with date-sensitive logic may recognize "00" as 1900 rather
than 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, production
difficulties, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.

Caliber has put in place a corporate-wide Year 2000 task force with
representatives from all departments. This task force has conducted a
comprehensive review of Caliber's systems to identify the systems that could be
affected by the Year 2000 issue and has developed an implementation plan to
resolve them. The process involves five phases:

PHASE I--INVENTORY AND DATA COLLECTION. This phase involves conducting a
comprehensive inventory of its information systems which includes but is not
limited to telecommunications systems, computer hardware, software and networks
as well as building infrastructure such as HVAC, elevators and security systems.
The identification of key third party vendors is also involved. During this
phase, all new systems are required to have passed Year 2000 compliance testing
before being purchased and implemented. The Company commenced this phase in the
first quarter of 1998 and is now complete.

PHASE II--ASSESSMENT / DATE IMPACT. In this phase systems identified during
the inventory phase are reviewed to determine what impact, if any, does the year
2000 have on the operation of these systems. This phase also identifies the
effects of the Year 2000 being a leap year. This phase is now complete.

PHASE III--REMEDIATION. This phase involves modifying, replacing or
upgrading the systems that have failed during the assessment phase. The Company
expects to complete this phase by the end of the second quarter of 1999. This
phase is now 70% complete.

PHASE IV--TESTING. This phase involves review of all systems for compliance
and re-testing as necessary. The Company expects to complete this phase by the
end of the second quarter of 1999. This phase is now 70% complete.

20
<PAGE>
PHASE V--IMPLEMENTATION. This phase involves implementing the systems after
they have been successfully remediated and tested. This is the final step in
assuring that the systems are Year 2000 compliant. The Company expects to
complete this phase by the end of the second quarter of 1999. This phase is now
70% complete.

Currently, the Company believes that its major systems are Year 2000
compliant. This substantial compliance has been achieved without the need to
acquire significant new hardware, software, or systems other than in the
ordinary course of business. The Company is not aware of any material
non-compliance that would require repair or replacement that would have a
material effect on its financial position. As part of the Year 2000 process,
formal communication with the Company's suppliers, customers and other support
services has been initiated and efforts will continue until positive statements
of readiness have been received from all third parties. To date, the Company is
not aware of any non-compliance by its customers or suppliers that would have
material impact on the Company's business. Nevertheless, there can be no
assurance that unanticipated non-compliance will not occur, and such
non-compliance could require material costs to repair or could cause material
disruptions if not repaired. The Company is in the process of developing a
strategy to address these potential consequences that may result from unresolved
Y2K issues, which will include the development of one or more contingency plans
by the end of the third quarter of 1999.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following discussion about the Company's market risk disclosures
involves forward looking statements. Actual results could differ materially from
those projected in the forward looking statements.

The Company is exposed to market risk related to changes in interest rates.
Interest expense and interest income is most sensitive to changes in the general
level of U.S. interest rates. The Company's investments consist principally of
high quality corporate debt instruments and commercial paper. Generally, these
instruments have maturities of less than six months which mitigates their
sensitivity to changes in interest rates. The Company does not use derivative
financial instruments to manage exposure to interest rate changes.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements of the Company are included on pages 25 through 40
of the report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There were no changes in accountants, disagreements, or other events
requiring reporting under this item.

21
<PAGE>
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF CALIBER LEARNING NETWORK, INC.

Information required is set forth under the caption "Election of Directors"
in the Proxy Statement relating to the 1999 Annual Meeting of Shareholders,
which is incorporated by reference.

Information required pertaining to compliance with Section 16 (a) of the
Securities and Exchange Act of 1934 is set forth under the caption "Election of
Directors" in the Proxy Statement relating to the 1999 Annual Meeting of
Shareholders, which is incorporated by reference.

ITEM 11. EXECUTIVE COMPENSATION

Information required is set forth under the caption "Executive Compensation"
in the Proxy Statement relating to the 1999 Annual Meeting of Shareholders,
which is incorporated by reference.

ITEM 12. SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information required is set forth under the caption "Security Ownership" in
the Proxy Statement relating to the 1999 Annual Meeting of Shareholders, which
is incorporated by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required is set forth under the caption "Certain Transactions"
in the Proxy Statement relating to the 1999 Annual Meeting of Shareholders,
which is incorporated by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as a part of this Report:

1. FINANCIAL STATEMENTS

The response to this portion of Item 14 is submitted as a separate
section of this Report.

2. FINANCIAL STATEMENT SCHEDULES

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
CALIBER LEARNING NETWORK, INC.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Beginning balance....................................................... $ -- $ -- $ --
Provision for bad debts................................................. -- -- 2,676,000
Writeoffs............................................................... -- -- --
------------ ------------ ------------
Ending Balance.......................................................... $ -- $ -- $ 2,676,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.

(b) Reports on Form 8-K:

The Registrant did not file any reports on Forms 8-K and 8-K/A during
the fourth quarter ended December 31, 1998.

22
<PAGE>
3. EXHIBITS

(a) Exhibits:

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ------------------------------------------------------------------------------------------------
<C> <S>

3.01 Articles of Amendment and Restatement of the Charter*

3.02 Bylaws *

4.01 Specimen Common Stock Certificate*

4.02 Warrant issued to MCI Communications Corporation, dated as of November 22, 1996, as amended*

10.01(a) 1997 Stock Option Plan*

10.01(b) 1998 Stock Incentive Plan*

10.10 Intercompany Management and Facility Use 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*

23.01 Consent of Ernst & Young LLP

27.01 Financial Data Schedule for the year ended December 31, 1998
</TABLE>

*Incorporated by reference to the Company's Registration Statement on
Form S-1, as amended (File No. 333-47565).

23
<PAGE>
SIGNATURES

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 on March 31, 1999.

CALIBER LEARNING NETWORK, INC.

BY: /S/ CHRIS L. NGUYEN
-----------------------------------------
Chris L. Nguyen
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 on March 31, 1999.

SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------

/s/ R. CHRISTOPHER Chairman of the Board of
HOEHN-SARIC Directors
- ------------------------------ March 31, 1999
R. Christopher Hoehn-Saric

/s/ DOUGLAS L. BECKER Vice Chairman of the Board
- ------------------------------ of Directors March 31, 1999
Douglas L. Becker

President and Chief
/s/ CHRIS L. NGUYEN Executive Officer
- ------------------------------ (Principal Executive March 31, 1999
Chris L. Nguyen Officer)

Vice President and Chief
/s/ RICK P. FRIER Financial Officer
- ------------------------------ (Principal Financial and March 31, 1999
Rick P. Frier Accounting Officer)

/s/ ERNEST ANASTASIO Director
- ------------------------------ March 31, 1999
Ernest Anastasio

/s/ SUSAN MAYER Director
- ------------------------------ March 31, 1999
Susan Mayer

/s/ JOHN P. HILL Director
- ------------------------------ March 31, 1999
John P. Hill

/s/ JANEEN M. ARMSTRONG Director
- ------------------------------ March 31, 1999
Janeen M. Armstrong

24
<PAGE>
REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Caliber Learning Network, Inc.

We have audited the accompanying balance sheets of Caliber Learning Network,
Inc. as of December 31, 1997 and 1998, and the related statements of operations,
stockholders' equity (deficit) and cash flows for the period November 22, 1996
(date of inception) through December 31, 1996, and for the years ended December
31, 1997 and 1998. Our audits also included the financial statement schedule
listed in the Index at Item 14. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Caliber Learning Network,
Inc. at December 31, 1997 and 1998, and the results of its operations and its
cash flows for the period November 22, 1996 (date of inception) through December
31, 1996, and for the years ended December 31, 1997 and 1998, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

ERNST & YOUNG LLP

Baltimore, Maryland
February 22, 1999

25
<PAGE>
CALIBER LEARNING NETWORK, INC.
BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31
<S> <C> <C>
1997 1998
----------- -----------
Assets
Current assets:
Cash and cash equivalents............................................................ $ 3,850,440 $23,878,801
Available-for-sale securities........................................................ -- 8,254,174
Accounts receivable, less allowance of $0 in 1997 and $2,676,000 in 1998............. 17,400 4,956,455
Due from landlords for tenant allowances............................................. 1,427,525 54,586
Other receivables.................................................................... 574,807 12,869
Prepaid expenses..................................................................... 25,066 223,959
----------- -----------
Total current assets................................................................... 5,895,238 37,380,844

Property and equipment:
Furniture and fixtures............................................................... 1,271,930 2,956,803
Computer equipment and software...................................................... 2,723,993 15,988,614
Leasehold improvements............................................................... 4,727,830 10,045,476
----------- -----------
8,723,753 28,990,893
Accumulated depreciation and amortization............................................ (388,483) (4,595,515)
----------- -----------
8,335,270 24,395,378
Other assets........................................................................... 279,881 382,733
----------- -----------
Total assets........................................................................... $14,510,389 $62,158,955
----------- -----------
----------- -----------

Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable and accrued expenses................................................ $ 2,065,436 $ 5,875,791
Borrowings from Sylvan............................................................... 3,000,000 --
Interest payable to Sylvan........................................................... 301,784 --
Accrued dividends payable............................................................ 995,000 98,720
Current portion of deferred tenant allowances........................................ 208,014 362,370
Current portion of capital lease obligations due to related party.................... 615,895 3,572,853
----------- -----------
Total current liabilities.............................................................. 7,186,129 9,909,734

Management fee payable to Sylvan....................................................... 2,880,500 --
Deferred tenant allowances, less current portion....................................... 1,226,935 1,593,558
Capital lease obligations due to related party, less current portion................... 3,417,181 13,040,854
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; Authorized
shares--5,167,328; issued and outstanding shares of 0 in 1997 and 5,167,328 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 --
Convertible 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; issued and outstanding shares of 0 in 1997 and
12,299,654 in 1998................................................................... -- 122,997
Additional paid-in capital........................................................... 9,975,334 82,780,367
Subscription receivable.............................................................. (5,364,358) --
Accumulated deficit.................................................................. (16,201,306) (45,340,229)
----------- -----------
Total stockholders' equity (deficit)................................................... (11,500,356) 37,614,809
----------- -----------
Total liabilities and stockholders' equity (deficit)................................... $14,510,389 $62,158,955
----------- -----------
----------- -----------
</TABLE>

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

26
<PAGE>
CALIBER LEARNING NETWORK, INC.
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 22, 1996
(DATE OF INCEPTION)
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998
------------------------ ----------------- -----------------
<S> <C> <C> <C>
Revenues:
Service fee revenue............................ $ -- $ -- $ 13,348,828
Management fee from Sylvan..................... -- 1,199,293 2,066,250
----------- ----------------- -----------------
-- 1,199,293 15,415,078
Cost and expenses:
Operating expenses............................. -- 4,442,880 31,575,532
Management fees to Sylvan...................... 480,000 2,400,500 2,000,000
Other selling, general and administrative
expenses..................................... 1,155,171 8,071,836 10,838,274
----------- ----------------- -----------------
1,635,171 14,915,216 44,413,806
Other income (expense):
Interest income................................ -- 536,100 1,571,078
Interest expense............................... -- (391,312) (1,396,864)
----------- ----------------- -----------------
-- 144,788 174,214
----------- ----------------- -----------------
Net loss......................................... (1,635,171) (13,571,135) (28,824,514)
Dividends accrued on preferred stock............. (199,000) (796,000) (314,409)
----------- ----------------- -----------------
Net loss attributable to common stockholders..... $ (1,834,171) $ (14,367,135) $ (29,138,923)
----------- ----------------- -----------------
----------- ----------------- -----------------
Basic and diluted loss per common share
attributable to common stockholders.............. $ (0.21) $ (1.62) $ (2.61)
----------- ----------------- -----------------
----------- ----------------- -----------------
</TABLE>

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

27
<PAGE>
CALIBER LEARNING NETWORK, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
6% NON-VOTING CLASS A CLASS B ADDITIONAL
CONVERTIBLE COMMON COMMON COMMON PAID-IN SUBSCRIPTION
PREFERRED STOCK STOCK STOCK STOCK CAPITAL RECEIVABLE
---------------- ---------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Initial issuance of 3,436,702 shares of Class
A Common Stock and 5,167,328 shares of
Convertible Class B Common Stock........... $ -- $ 34,367 $ 51,674 $ -- $ 9,613,959 $(8,000,000)
Loss for the period November 22, 1996 (date
of inception) through December 31, 1996.... -- -- -- -- -- --
Dividends on 8% Series A Convertible
Preferred Stock............................ -- -- -- -- -- --
------- ---------- ---------- ---------- ------------- -------------
Balance at December 31, 1996................. -- 34,367 51,674 -- 9,613,959 (8,000,000)
Issuance of 245,813 shares of Class A Common
Stock for cash............................. -- 2,457 -- -- 247,851 --
Issuance of 147,471 shares of Class A Common
Stock to employees as compensation......... -- 1,476 -- -- 98,524 --
Stock options to purchase 36,820 shares of
Class A Common Stock granted to
non-employees.............................. -- -- -- -- 15,000 --
Payment of stock subscription................ -- -- -- -- -- 2,635,642
Loss for the year ended December 31, 1997.... -- -- -- -- -- --
Dividends on 8% Series A Convertible
Preferred Stock............................ -- -- -- -- -- --
------- ---------- ---------- ---------- ------------- -------------
Balance at December 31, 1997................. -- 38,300 51,674 -- 9,975,334 (5,364,358)
Issuance of 18,750 shares of Class A Common
Stock...................................... -- 188 -- -- 149,812 --
Conversion of 3,848,736 shares of Class A
Common Stock into 3,848,736 shares of
Common Stock............................... -- (38,488) -- 38,488 -- --
Conversion of 5,167,328 shares of Class B
Common Stock into 5,167,328 shares of 6%
Non-Voting Convertible Preferred Stock..... 51,674 -- (51,674) -- -- --
Conversion of 2,442,513 shares of Series B
Redeemable Convertible Preferred Stock into
2,442,513 shares of Common Stock........... -- -- -- 24,425 9,975,575 --
Conversion of 1,227,393 shares of Series B
Redeemable Junior Convertible Preferred
Stock into 1,227,393 shares of Common
Stock...................................... -- -- -- 12,274 1,287,726 --
Payment of stock subscription................ -- -- -- -- -- 5,364,358
Issuance of 4,775,000 shares of common stock,
net of offering costs of $738,278.......... -- -- -- 47,750 61,384,472 --
Proceeds from exercise of stock options...... -- -- -- 60 7,448 --
Loss for the year ended December 31, 1998.... -- -- -- -- -- --
Dividends on 8% Series A Convertible
Preferred Stock and 6% Non-Voting
Convertible Preferred Stock................ -- -- -- -- -- --
------- ---------- ---------- ---------- ------------- -------------
Balance at December 31, 1998................. $ 51,674 $ -- $ -- $ 122,997 $ 82,780,367 $ --
------- ---------- ---------- ---------- ------------- -------------
------- ---------- ---------- ---------- ------------- -------------

<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY (DEFICIT)
-------------- ----------------
<S> <C> <C>
Initial issuance of 3,436,702 shares of Class
A Common Stock and 5,167,328 shares of
Convertible Class B Common Stock........... $ -- $ 1,700,000
Loss for the period November 22, 1996 (date
of inception) through December 31, 1996.... (1,635,171) (1,635,171)
Dividends on 8% Series A Convertible
Preferred Stock............................ (199,000) (199,000)
-------------- ----------------
Balance at December 31, 1996................. (1,834,171) (134,171)
Issuance of 245,813 shares of Class A Common
Stock for cash............................. -- 250,308
Issuance of 147,471 shares of Class A Common
Stock to employees as compensation......... -- 100,000
Stock options to purchase 36,820 shares of
Class A Common Stock granted to
non-employees.............................. -- 15,000
Payment of stock subscription................ -- 2,635,642
Loss for the year ended December 31, 1997.... (13,571,135) (13,571,135)
Dividends on 8% Series A Convertible
Preferred Stock............................ (796,000) (796,000)
-------------- ----------------
Balance at December 31, 1997................. (16,201,306) (11,500,356)
Issuance of 18,750 shares of Class A Common
Stock...................................... -- 150,000
Conversion of 3,848,736 shares of Class A
Common 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 Series B
Redeemable Convertible Preferred Stock into
2,442,513 shares of Common Stock........... -- 10,000,000
Conversion of 1,227,393 shares of Series B
Redeemable Junior Convertible Preferred
Stock into 1,227,393 shares of Common
Stock...................................... -- 1,300,000
Payment of stock subscription................ -- 5,364,358
Issuance of 4,775,000 shares of common stock,
net of offering costs of $738,278.......... -- 61,432,222
Proceeds from exercise of stock options...... -- 7,508
Loss for the year ended December 31, 1998.... (28,824,514) (28,824,514)
Dividends on 8% Series A Convertible
Preferred Stock and 6% Non-Voting
Convertible Preferred Stock................ (314,409) (314,409)
-------------- ----------------
Balance at December 31, 1998................. $ (45,340,229) $ 37,614,809
-------------- ----------------
-------------- ----------------
</TABLE>

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

28
<PAGE>
CALIBER LEARNING NETWORK, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 22,1996
(DATE OF INCEPTION)
THROUGH YEAR ENDED DECEMBER 31
DECEMBER 31, ------------------------------
1996 1997 1998
------------------------ -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................... $ (1,635,171) $ (13,571,135) $ (28,824,514)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................ -- 388,483 4,207,032
Non-cash compensation................................ -- 115,000 --
Negative amortization of capital lease obligations
charged to interest expense........................ -- 87,057 968,216
Amortization of deferred tenant allowances recorded
as a reduction of rent expense..................... -- -- (176,109)
Changes in operating assets and liabilities:
Accounts receivable................................ -- 10,600 (4,939,055)
Other receivables.................................. (28,000) (26,512) 21,253
Prepaid expenses................................... -- (25,066) (198,893)
Accounts payable and accrued expenses related to
operating expenses............................... -- 991,533 3,810,355
Management fee payable to Sylvan................... 480,000 2,400,500 (2,880,500)
Interest payable to Sylvan......................... -- 301,784 (301,784)
------------ -------------- --------------
Net cash used in operating activities.................. (1,183,171) (9,327,756) (28,313,999)
INVESTING ACTIVITIES
Purchases of property and equipment.................... (29,629) (4,215,073) (6,866,873)
Purchase of available-for-sale securities.............. -- -- (8,254,174)
Proceeds from sale-leaseback of property and
equipment............................................ -- -- 540,690
Proceeds from deferred tenant allowances............... -- -- 2,070,022
Increase in other assets............................... -- (279,881) (102,852)
------------ -------------- --------------
Net cash used in investing activities.................. (29,629) (4,494,954) (12,613,187)
FINANCING ACTIVITIES
Initial issuance of stock for cash..................... 13,000,000 -- --
Issuance of common stock in initial public offering,
net of offering costs of $738,278.................... -- -- 61,432,222
Borrowings from Sylvan................................. 1,212,800 1,787,200 --
Repayments of loan from Sylvan......................... -- -- (3,000,000)
Issuance of Class A common stock....................... -- 250,308 150,000
Proceeds from exercise of stock options................ -- -- 7,508
Payment of subscription receivable..................... -- 2,635,642 5,364,358
Payment of capital lease obligations................... -- -- (1,787,852)
Payment of accrued dividends on preferred stock........ -- -- (1,210,689)
------------ -------------- --------------
Net cash provided by financing activities.............. 14,212,800 4,673,150 60,955,547
------------ -------------- --------------
Net increase (decrease) in cash and cash equivalents... 13,000,000 (9,149,560) 20,028,361
Cash and cash equivalents, beginning of period......... -- 13,000,000 3,850,440
------------ -------------- --------------
Cash and cash equivalents, end of period............... $ 13,000,000 $ 3,850,440 $ 23,878,801
------------ -------------- --------------
------------ -------------- --------------
</TABLE>

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

29
<PAGE>
CALIBER LEARNING NETWORK, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1998

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Caliber Learning Network, Inc. (the "Company") was incorporated on March 28,
1996 under the laws of the state of Maryland for the purpose of providing adults
with university-quality continuing education using multimedia technology. The
Company was organized by Sylvan Learning Systems, Inc. ("Sylvan") and MCI
Communications Corporation ("MCI") to bring together the educational services
expertise of Sylvan and the technology and telecommunications expertise of MCI.
The Company contracts with nationally recognized universities and corporations
to provide high-quality courses through a multi-site, satellite-linked network
of campuses throughout the nation. For all periods presented prior to 1998, the
Company was considered a development stage company.

Effective May 1, 1997, the Company entered into an agreement with Sylvan to
manage the operations of certain certification centers located throughout the
United States which administer computer-based tests for major corporations,
professional associations and government agencies. These centers may be
converted into centers capable of delivering Caliber programs. Sylvan owns all
of the outstanding shares of Series B Redeemable Junior Convertible Preferred
Stock.

RECLASSIFICATION

Certain amounts in the accompanying 1997 financial statements have been
reclassified to conform to the presentation used in 1998.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts and related disclosures. Actual results
could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

INVESTMENTS

Available-for-sale securities are carried at fair value with the unrealized
gains and losses, net of tax, reported as other comprehensive 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 December 31, 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.

30
<PAGE>
CALIBER LEARNING NETWORK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT

Property and equipment is stated at cost. Depreciation is computed for owned
assets using the straight-line method over the estimated useful lives of the
assets. Assets capitalized under capital leases are amortized using the
straight-line method over the lesser of the lease terms or the estimated useful
lives of the assets. No depreciation expense was recognized during the period
from November 22, 1996 through December 31, 1996, as the assets were not placed
in service until the end of that period.

DEFERRED TENANT ALLOWANCES

Payments made by landlords to the Company as incentives under operating
leases are recorded as liabilities and recognized as reductions in rental
expense ratably over the terms of the leases.

REVENUE RECOGNITION

ADVERTISING

Costs of advertising are expensed as incurred. Advertising expense totaled
$0, $259,687 and $4,071,549 in 1996, 1997 and 1998, respectively.

STOCK OPTIONS GRANTED TO EMPLOYEES

The Company records compensation expense for all stock-based compensation
plans using the intrinsic value method prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees". The Financial Accounting Standards
Board Statement No. 123, "Accounting for Stock-Based Compensation" ("Statement
No. 123") encourages companies to recognize expense for stock-based awards based
on their estimated value on the date of grant. Statement No. 123 requires the
disclosure of pro forma income and earnings per share data in the notes to the
financial statements if the fair value method is not elected. The Company has
supplementally disclosed in these financial statements the required pro forma
information as if the fair value method had been elected.

31
<PAGE>
CALIBER LEARNING NETWORK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

2. LOSS PER SHARE

The following table sets forth the computation of basic and diluted loss per
share:

<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 22, 1996
(DATE OF INCEPTION)
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998
------------------------ ----------------- -----------------
<S> <C> <C> <C>
Numerator:
Net loss....................................... $ (1,635,171) $ (13,571,135) $ (28,824,514)
Preferred stock dividends...................... (199,000) (796,000) (314,409)
----------- ----------------- -----------------
Net loss attributable to common stockholders... $ (1,834,171) $ (14,367,135) $ (29,138,923)
----------- ----------------- -----------------
----------- ----------------- -----------------
Denominator:
Weighted average number of shares of common
stock outstanding during the period.......... 8,604,074 8,747,300 11,127,121
Shares of common stock issued for a nominal
value........................................ 147,471 147,471 50,643
----------- ----------------- -----------------
Denominator for loss per share................... 8,751,545 8,894,771 11,177,764
----------- ----------------- -----------------
----------- ----------------- -----------------
Basic and diluted loss per share................. $ (0.21) $ (1.62) $ (2.61)
----------- ----------------- -----------------
----------- ----------------- -----------------
</TABLE>

Basic 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. These potentially dilutive securities consist of
convertible preferred stock and stock options, as described in Note 8.

3. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 22, 1996
(DATE OF INCEPTION)
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998
------------------------ ----------------- -----------------
<S> <C> <C> <C>
Non-cash investing and financing activities:
Equipment acquired under capital lease......... $ -- $ 3,946,019 $ 13,400,271
Dividends accrued on Series A Redeembable
Convertible Preferred Stock and 6% Non-Voting
Convertible Preferred Stock.................. 199,000 796,000 314,409
Interest paid.................................. -- -- 1,788,176
</TABLE>

32
<PAGE>
CALIBER LEARNING NETWORK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

4. MANAGEMENT FEE PAYABLE TO SYLVAN

During all periods presented, the Company purchased under a management and
facility use agreement with Sylvan specified management, accounting and
administrative services. In addition, this agreement provides for the use by the
Company of certain office space under lease to Sylvan. For the period from
inception through December 31, 1997, the Company was charged $2,880,500 under
the agreement. Annual management fees in 1998 were $2.0 million, and $2.0
million will be payable in 1999.

5. BORROWINGS FROM SYLVAN

At December 31, 1997, Sylvan had loaned $3.0 million to the Company under a
line of credit bearing interest at 1% above the prime rate as published by a
defined commercial bank. During the year ended December 31, 1998 and 1997, the
Company recorded interest expense of $159,972 and $301,784, respectively,
related to the borrowings from Sylvan. The principal and all accrued interest on
these borrowings was repaid in full concurrent with the Company's initial public
offering in May 1998.

6. 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 December 31, 1998:

<TABLE>
<S> <C>
Furniture and fixtures.......................................... $ 632,265
Computer equipment and software................................. 13,375,622
Leasehold improvements.......................................... 3,338,403
----------
17,346,290
Less: Accumulated amortization.................................. (2,762,522)
----------
$14,583,768
----------
----------
</TABLE>

Amortization of leased assets is included in depreciation and amortization
expense.

33
<PAGE>
CALIBER LEARNING NETWORK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

6. CAPITAL LEASES (CONTINUED)
Future minimum payments under capital lease obligations consist of the
following at December 31, 1998:

<TABLE>
<S> <C>
1999........................................................... $4,889,709
2000........................................................... 5,558,588
2001........................................................... 5,464,786
2002........................................................... 2,786,467
2003........................................................... 926,765
Thereafter..................................................... --
----------
Total minimum lease payments................................... 19,626,315
Amounts representing interest.................................. (3,012,608)
----------
Present value of net minimum lease payments (including current
portion of $3,572,853)....................................... $16,613,707
----------
----------
</TABLE>

7. INITIAL PUBLIC OFFERING AND RECAPITALIZATON

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 was 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.

Additionally, 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. In connection with the issuance of 2,442,513
shares of Series A Preferred Stock to MCI for $10.0 million, the Company issued
to MCI a warrant to purchase 923,850 shares of Class A Common Stock at an
exercise price of $4.094 per share ("the Warrant"), subject to certain
antidilution provisions.

34
<PAGE>
CALIBER LEARNING NETWORK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

8. STOCK COMPENSATION PLAN

Effective April 30, 1997, the Company adopted the Caliber Learning Network,
Inc. 1997 Stock Option Plan (the "1997 Plan") which is administered by the Board
of Directors. The 1997 Plan provides for the granting of either qualified or
non-qualified options to purchase an aggregate of up to 1,227,400 shares of
common stock to eligible employees, officers, and consultants of the Company.

Effective February 17, 1998, the Company adopted the Caliber Learning
Network, Inc. 1998 Stock Incentive Plan (the "1998 Plan") which is administered
by the Board of Directors. The 1998 Plan provides for the granting of either
qualified or non-qualified options to purchase an aggregate of up to 1,043,290
shares of common stock to eligible employees, officers, directors and
consultants of the Company.

A summary of the Company's stock option activity, and related information
for the years ended December 31, 1997 and 1998 is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1998
------------------------------- -------------------------------
NUMBER OF WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------------ ----------------- ------------ -----------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year................... -- $ -- 1,070,047 $ 1.07
Granted.......................................... 1,127,735 1.07 206,165 7.62
Excercised....................................... -- -- (6,994) 1.07
Forfeited........................................ (57,688) 1.02 (92,819) 1.05
------------ ----- ------------ -----
Outstanding, end of year......................... 1,070,047 $ 1.07 1,176,399 $ 2.21
------------ ----- ------------ -----
------------ ----- ------------ -----
Excercisable at end of year...................... -- 195,420
------------ ------------
------------ ------------
Weighted average grant-date fair value of options
granted during the year........................ $ 0.26 $ 3.31
------------ ------------
------------ ------------
</TABLE>

Exercise prices for options outstanding as of December 31, 1998 ranged from
$1.02 to $14.31 as follows:

<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
WEIGHTED-AVERAGE REMAINING WEIGHTED-AVERAGE
EXCERCISE PRICES CONTRACTUAL LIFE EXERCISE PRICES
OPTIONS OF OPTIONS OF OPTIONS OPTIONS OF OPTIONS
RANGE OF EXERCISE PRICES OUTSTANDING OUTSTANDING OUTSTANDING EXCERCISABLE EXCERCISABLE
- -------------------------------- ----------- ----------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$1.02-$ 4.81.................... 1,053,742 $ 1.19 9.61 195,420 $ 1.07
$8.00-$14.31.................... 122,657 $ 10.91 8.64 -- $ --
</TABLE>

To determine the pro forma data required by Statement No. 123 for 1998 and
1997, the Company used option pricing models to measure the fair value of
options at the date of grant. For all option grants prior to May 5, 1998 (the
initial public offering date), the Company used the minimum value method to
calculate pro forma compensation expense. For all grants after May 5, 1998, the
Company used the Black-Scholes option pricing model.

The minimum value method calculates the fair value of options as the excess
of the estimated fair value of the underlying stock at the date of grant over
the present value of both the exercise price and the expected dividend payment,
each discounted at the risk-free rate, over the expected life of the option. In
determining the estimated fair value of granted stock options under the minimum
value method, the

35
<PAGE>
CALIBER LEARNING NETWORK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

8. STOCK COMPENSATION PLAN (CONTINUED)
risk-free interest rate was assumed to be 5.5%, the dividend yield was estimated
to be 0% and the expected life of granted options varied from one to five years
depending upon the vesting period.

Options valued using the Black-Scholes option pricing model assumed the
following: risk-free interest rate of 5.5%, dividend yields of 0%, volatility
factors of the expected market price of the Company's common stock of 1.04 and
an expected life of the granted options which varied from one to five years
depending upon the vesting period.

The Black-Scholes option pricing model and other models were developed for
use in estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions, including the expected stock
price volatility. Because the Company's stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma net loss attributable to common stockholders is $14.4 million and
$29.3 million for the year ended December 31, 1997 and 1998, respectively. Pro
forma basic and diluted loss per share attributable to common stockholders is
$(1.62) and $(2.62) for the year ended December 31, 1997 and 1998, respectively.
The effect of compensation expense from stock options on 1997 pro forma net
income reflects only the vesting of 1997 awards which vest over a one to five
year period. Pro forma net income in 1998 reflects additional vesting of 1997
awards and the first year of vesting of the 1998 awards. Because most of the
options vest over a five-year period, not until 2002 is the full effect of
recognizing compensation expense for stock options representative of the
possible effects on pro forma net income for future years.

9. INCOME TAXES

At December 31, 1998 the Company had net operating loss carryforwards for
income tax purposes of approximately $43.3 million which will begin to expire in
2011. Income tax regulations contain provisions which may limit the net
operating loss carryforwards available to be used in any given year if certain
events occur, including changes in ownership interest.

36
<PAGE>
CALIBER LEARNING NETWORK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

9. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
are as follows:

<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------
1996 1997 1998
----------- ------------- --------------
<S> <C> <C> <C>
Net operating loss carryforwards...................................... $ 356,556 $ 5,706,282 $ 16,723,624
Start-up costs capitalized for tax purposes........................... 267,585 236,367 182,850
Allowance for doubtful accounts....................................... -- -- 1,033,471
Deferred revenue...................................................... -- -- 93,396
Other................................................................. 4,729 193 114,118
----------- ------------- --------------
Total deferred tax assets........................................... 628,870 5,942,842 18,147,459
----------- ------------- --------------
Tax over book depreciation............................................ 1,045 73,947 1,135,182
Other................................................................. -- 11,075 34,339
----------- ------------- --------------
Total deferred tax liabilities...................................... 1,045 85,022 1,169,521
----------- ------------- --------------
Net future income tax benefit......................................... 627,825 5,857,820 16,977,938
Valuation allowance for deferred tax assets........................... (627,825) (5,857,820) (16,977,938)
----------- ------------- --------------
Net deferred tax assets............................................... $ -- $ -- $ --
----------- ------------- --------------
----------- ------------- --------------
</TABLE>

The reconciliation of the reported income tax benefit to the amount that
would result by applying the U.S. federal statutory tax rate to the reported net
loss is as follows:

<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------
1996 1997 1998
----------- ------------- -------------
<S> <C> <C> <C>
Tax benefit at U.S. federal statutory rate............................ $ (555,958) $ (4,614,186) $ (9,800,335)
Effect of permanent differences....................................... 3,678 11,177 11,910
State income taxes.................................................... (75,545) (626,986) (1,331,693)
Increase in valuation allowance....................................... 627,825 5,229,995 11,120,118
----------- ------------- -------------
Total............................................................... $ -- $ -- $ --
----------- ------------- -------------
----------- ------------- -------------
</TABLE>

10. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of accounts receivable. The
Company maintains an allowance for losses on receivables based on the
collectibility of all amounts owed. The Company generally does not require
collateral for trade receivables. At December 31, 1998, 56% of accounts
receivable was due from two customers. These customers represented 17% and 13%
of revenues for the year ended December 31, 1998.

11. OPERATING LEASES

The Company conducts all of its operations from leased facilities under
operating leases that have terms of up to ten years and generally contain
renewal options and rental escalation clauses. The rental payments under certain
leases are based on minimum fixed rentals plus a percentage of revenues earned
at the location.

37
<PAGE>
CALIBER LEARNING NETWORK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

11. OPERATING LEASES (CONTINUED)
Future minimum payments under noncancelable operating leases with initial
terms of one year or more consisted of the following at December 31, 1998:

<TABLE>
<S> <C>
1999........................................................... $4,186,635
2000........................................................... 4,149,609
2001........................................................... 4,108,026
2002........................................................... 3,721,730
2003........................................................... 2,337,176
Thereafter..................................................... 2,113,806
----------
Total.......................................................... $20,616,982
----------
----------
</TABLE>

The Company incurred rent expense of $5,194,910 and $1,132,320 in 1998 and
1997, respectively.

12. DEFINED CONTRIBUTION RETIREMENT PLAN

Employees of the Company are eligible to participate in a defined
contribution retirement plan sponsored by Sylvan. The provisions of the plan
allow for voluntary employee contributions, subject to certain annual
limitations, and discretionary contributions by the employer, which are
allocated to eligible participants based upon compensation. All employees are
eligible after meeting certain age and service requirements. The Company made
contributions of $5,534 for the year ended December 31, 1998, and made no
contributions during the period ended December 31, 1997 and 1996, respectively.

13. BUSINESS SEGMENT INFORMATION

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("Statement No. 131"). Statement No. 131
supercedes Financial Accounting Standards Board Statement No. 14, "Financial
Reporting for Segments of a Business Enterprise", and establishes new standards
for the way that public business enterprises report selected information about
operating segments in annual and interim financial statements. It also
established standards for related disclosures about products and services,
geographical areas, and major customers. Statement No. 131 is effective for
financial statements for fiscal years beginning after December 15, 1997. The
Company adopted Statement 131 in 1998, and accordingly, the disclosures for all
periods have been presented to conform to Statement 131 requirements.

DESCRIPTION OF SEGMENTS

The Company provides high-quality continuing educational services through
three distinct operating segments. A description of each segment is provided
below:

ACADEMIC

Caliber distributes lifelong learning programs to working adults through
alliances with prominent universities. Caliber has focused initially on
establishing alliances with universities having national reputations in the
fields of health care, management development, information technology,
engineering and education.

38
<PAGE>
CALIBER LEARNING NETWORK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

13. BUSINESS SEGMENT INFORMATION (CONTINUED)
CORPORATE

The Company markets the Caliber network to Fortune 1000 corporations, as a
solution to their corporate communications, professional development and
training needs. Caliber makes its network available to corporations to provide
nationwide distribution of corporate communications, professional development
and training programs.

OTHER PRODUCTS AND SERVICES

Caliber's Other Products and Services principally consist of training
services and test administration services, as well as a developing portfolio of
solutions designed to maximize the revenue generating capabilities of the
Caliber Learning Network and achieve the fullest possible utilization of the
network infrastructure and company personnel.

MEASUREMENT OF SEGMENT PROFIT OR LOSS

The Company evaluates the performance of its operating segments and
allocates resources based on an internally defined measure of operating income.
Operating income is defined as revenue less certain direct costs that are
directly attributable to the activities of the operating segment. These direct
costs include labor, production and delivery costs to develop and facilitate
various programs, and costs to market the services provided by each operating
segment. Unallocated expenses, consisting principally of lease, deprecation and
amortization, and payroll are not directly attributable to the operating
segments and are not otherwise allocated. The Company does not allocate assets
to its reportable segments as assets are not specifically attributable to any
particular segment. Accordingly, asset information by reportable segment is not
presented. The accounting policies used by the reportable segments are the same
as those used by the Company as described in Note 1 of the financial statements.
There are no significant intersegment sales or transfers.

FACTORS MANAGEMENT USES TO IDENTIFY THE COMPANY'S REPORTABLE SEGMENTS

The Company's reportable segments are business lines that offer distinct
products and services. The segments are managed separately as they have
different customer bases.

39
<PAGE>
CALIBER LEARNING NETWORK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

13. BUSINESS SEGMENT INFORMATION (CONTINUED)
The following table sets forth information on the Company's reportable
segments:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------
<S> <C> <C> <C> <C>
OTHER PRODUCTS
ACADEMIC CORPORATE AND SERVICES TOTAL
------------- ------------ -------------- -------------
Revenues............................................. $ 3,699,309 $ 7,818,798 $ 3,896,971 $ 15,415,078
Direct costs......................................... 6,574,784 4,603,622 1,837,516 13,015,922
------------- ------------ -------------- -------------
Segment operating income (loss)...................... (2,875,475) 3,215,176 2,059,455 2,399,156
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------
<S> <C> <C> <C> <C>
OTHER PRODUCTS
ACADEMIC CORPORATE AND SERVICES TOTAL
------------- ------------ -------------- -------------
Revenues............................................. $ -- $ -- $ 1,199,293 $ 1,199,293
Direct costs......................................... -- -- -- --
------------- ------------ -------------- -------------
Segment operating income............................. -- -- 1,199,293 1,199,293
</TABLE>

For the period from November 22, 1996 (date of inception) through December
31, 1996, the Company generated no revenue and all expenses incurred were the
result of the Company's development stage activities. Accordingly, no segment
information is presented for this period.

The following table reconciles the reported information on segment operating
income to net loss as reported in the statements of operations for the year
ended December 31, 1997 and 1998.

<TABLE>
<CAPTION>
1997 1998
-------------- --------------
<S> <C> <C>
Segment operating income...................................... $ 1,199,293 $ 2,399,156
Unallocated operating expenses:
Operating lease expense..................................... (1,132,320) (5,194,910)
Depreciation and amortization............................... (388,483) (4,207,032)
Field payroll expense....................................... (2,480,223) (5,344,185)
Other....................................................... (441,854) (3,813,483)

General and administrative expenses........................... (8,071,836) (10,838,274)
Management fee payable to Sylvan.............................. (2,400,500) (2,000,000)
Other income (expense)........................................ 144,788 174,214
-------------- --------------
Income before income taxes.................................... $ (13,571,135) $ (28,824,514)
-------------- --------------
-------------- --------------
</TABLE>

Substantially all of the revenues and assets of the Company's reportable
segments are located in the United States. Note 10 to the financial statements
contains information about major customers and concentrations of credit risk.

14. COMMITMENT AND CONTINGENCIES

From time to time, the Company is involved in legal proceedings that have
arisen in the ordinary course of business. Management, after consultation with
legal counsel, is of the opinion that the outcome of such matters will not have
a material impact on the financial position of the Company.

<PAGE>
EXHIBIT 23.01

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-61089) pertaining to the Caliber Learning Network, Inc. 1998
Stock Incentive Plan, of our report dated February 22, 1999, with respect to the
financial statements and schedule of Caliber Learning Network, Inc. included in
the Annual Report (Form 10-K) for the year ended December 31, 1998.

ERNST & YOUNG LLP

Baltimore, Maryland
March 31, 1999

<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements contained in Item 8 of the Company's Form 10-K
and is qualified in its entirety by reference to such financial statements.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> DEC-31-1997
<PERIOD-END> DEC-31-1998
<CASH> 23,878,801
<SECURITIES> 8,254,174
<RECEIVABLES> 7,632,455
<ALLOWANCES> 2,676,000
<INVENTORY> 0
<CURRENT-ASSETS> 37,380,844
<PP&E> 28,990,893
<DEPRECIATION> 4,595,515
<TOTAL-ASSETS> 62,158,955
<CURRENT-LIABILITIES> 9,909,734
<BONDS> 14,634,412
0
51,674
<COMMON> 122,997
<OTHER-SE> 37,440,138
<TOTAL-LIABILITY-AND-EQUITY> 62,158,955
<SALES> 0
<TOTAL-REVENUES> 15,415,078
<CGS> 0
<TOTAL-COSTS> 31,575,532
<OTHER-EXPENSES> 12,838,274
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,396,864
<INCOME-PRETAX> (28,824,514)
<INCOME-TAX> 0
<INCOME-CONTINUING> (28,824,514)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (28,824,514)
<EPS-PRIMARY> (2.61)
<EPS-DILUTED> (2.61)

</TABLE>