<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarter ended JUNE 30, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to
__________.
COMMISSION FILE NUMBER 0-22844
-------
CALIBER LEARNING NETWORK, INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 52-2001020
------------------------------- ----------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3600 CLIPPER MILL ROAD, SUITE 300, BALTIMORE, MARYLAND 21211
------------------------------------------------------ -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (410) 843-1000
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X]. No [ ].
The registrant had 12,335,882 shares of Common Stock outstanding as of
August 12, 1999.
<PAGE>
Index
CALIBER LEARNING NETWORK, INC.
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Balance sheets - December 31, 1998 and June 30, 1999 3
Statements of operations - Three months ended June 30, 1998 and 1999;
six months ended June 30, 1998 and 1999 4
Statements of cash flows - Six months ended June 30, 1998 and 1999 5
Notes to financial statements - June 30, 1999 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Part II. Other Information
Item 1. Legal Proceedings 15
Item 2. Changes In Securities and Use of Proceeds 15
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
2
<PAGE>
Part I. Financial Information
CALIBER LEARNING NETWORK, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,878,801 $ 18,224,560
Available-for-sale securities 8,254,174 3,349,986
Accounts receivable, net of allowance of $2,676,000 and $2,896,244
in 1998 and 1999, respectively 4,956,455 4,670,093
Due from landlords for tenant allowances 54,586 --
Other receivables 12,869 15,878
Prepaid expenses 223,959 262,437
------------ ------------
Total current assets 37,380,844 26,522,954
Property and equipment:
Furniture and fixtures 2,956,803 3,047,193
Computer equipment and software 15,988,614 16,819,484
Leasehold improvements 10,045,476 10,440,716
------------ ------------
28,990,893 30,307,393
Accumulated depreciation and amortization (4,595,515) (7,868,838)
------------ ------------
24,395,378 22,438,555
Other assets 382,733 397,562
------------ ------------
Total assets $ 62,158,955 $ 49,359,071
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 5,875,791 $ 6,878,561
Accrued dividends payable 98,720 128,720
Current portion of deferred tenant allowances 362,370 362,370
Current portion of capital lease obligations due to related party 3,572,853 4,413,390
------------ ------------
Total current liabilities 9,909,734 11,783,041
Deferred tenant allowances, less current portion 1,593,558 1,409,367
Capital lease obligations due to related party, less current portion 13,040,854 10,785,159
Commitments and contingencies -- --
Stockholders' equity:
6% Non-Voting Convertible Preferred Stock, $.01 par
value; Authorized shares -- 5,167,328; issued and
outstanding shares of 5,167,328 in 1998 and 1999 51,674 51,674
Common stock, $.01 par value:
Authorized shares -- 50,000,000; issued and
outstanding shares of 12,299,654 in 1998 and 12,335,882 in 1999 122,997 123,359
Additional paid-in capital 82,780,367 82,812,579
Accumulated deficit (45,340,229) (57,606,108)
------------ ------------
Total stockholders' equity 37,614,809 25,381,504
------------ ------------
Total liabilities and stockholders' equity $ 62,158,955 $ 49,359,071
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
CALIBER LEARNING NETWORK, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1999 June 30, 1998 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Service fee revenue $ 3,352,030 $ 5,786,564 $ 4,233,218 $ 9,560,576
Management fee from Sylvan 427,500 783,750 855,000 1,567,500
------------ ------------ ------------ ------------
3,779,530 6,570,314 5,088,218 11,128,076
Cost and expenses:
Operating expenses 7,752,132 9,666,499 13,650,582 17,875,047
Management fees to Sylvan 500,000 500,000 1,000,001 1,000,000
Other selling, general and administrative
expenses 2,002,561 2,456,272 4,937,001 4,462,693
------------ ------------ ------------ ------------
10,254,693 12,622,771 19,587,584 23,337,740
Other income (expense):
Interest income 386,859 305,072 414,296 683,324
Interest expense (450,805) (346,700) (784,840) (709,539)
------------ ------------ ------------ ------------
(63,946) (41,628) (370,544) (26,215)
------------ ------------ ------------ ------------
Net loss (6,539,109) (6,094,085) (14,869,910) (12,235,879)
Dividends accrued on preferred stock (85,409) (15,000) (284,409) (30,000)
------------ ------------ ------------ ------------
Net loss attributable to common stockholders $ (6,624,518) $ (6,109,085) $(15,154,319) $(12,265,879)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic and diluted loss per common share
attributable to common stockholders $ (0.60) $ (0.50) $ (1.51) $ (1.00)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
CALIBER LEARNING NETWORK, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998 June 30, 1999
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(14,869,910) $(12,235,879)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,645,862 3,273,323
Negative amortization of capital lease obligations
charged to interest expense 484,969 --
Amortization of deferred tenant allowances recorded
as a reduction of rent expense (5,374) (184,191)
Changes in operating assets and liabilities:
Accounts receivable, net (4,203,610) 286,362
Other receivables (4,878) (3,009)
Prepaid expenses (131,657) (38,478)
Accounts payable and accrued expenses related to
operating expenses 2,840,988 1,002,770
Management fee payable to Sylvan (2,547,166) --
Interest payable to Sylvan (301,784) --
------------ ------------
Net cash used in operating activities (17,092,560) (7,899,102)
INVESTING ACTIVITIES
Purchases of property and equipment (3,908,184) (1,316,500)
Purchases of available-for-sale securities (16,532,987) --
Proceeds from available-for-sale securities -- 4,904,188
Proceeds from sale-leaseback of property and equipment 540,685 --
Proceeds from deferred tenant allowances 1,121,756 54,586
Increase in other assets (98,453) (14,829)
------------ ------------
Net cash (used in) provided by investing activities (18,877,183) 3,627,445
FINANCING ACTIVITIES
Issuance of common stock in initial public offering, net of 61,738,146 --
offering costs
Repayments to Sylvan (3,000,000) --
Issuance of Class A common stock 150,000 --
Proceeds from exercise of stock options -- 32,574
Payment of subscription receivable 5,364,358 --
Payment of accrued dividends on preferred stock (1,210,685) --
Payment of capital lease obligations (268,445) (1,415,158)
------------ ------------
Net cash provided by (used in) financing activities 62,773,374 (1,382,584)
------------ ------------
Net decrease in cash and cash equivalents 26,803,631 (5,654,241)
Cash and cash equivalents, beginning of period 3,850,440 23,878,801
------------ ------------
Cash and cash equivalents, end of period $ 30,654,071 $ 18,224,560
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
Caliber Learning Network, Inc.
Notes to Financial Statements (Unaudited)
JUNE 30, 1999
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three-month period and six month period ended June 30,
1999 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1999. For further information, refer to the financial
statements for the year ended December 31, 1998 included in the Company's annual
report on Form 10-K, filed March 31, 1999.
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 pre-event services when the 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 are 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.
6
<PAGE>
Caliber Learning Network, Inc.
Notes to Financial Statements (Unaudited) (Continued)
2. LOSS PER SHARE
The following table sets forth the computation of basic and diluted loss per
share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1999 June 30, 1998 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Numerator:
Net loss $ (6,539,109) $ (6,094,085) $(14,869,910) $(12,235,879)
Preferred stock dividends (85,409) (15,000) (284,409) (30,000)
------------ ------------ ------------ ------------
Net loss attributable to common stockholders $ (6,624,518) $ (6,109,085) $(15,154,319) $(12,265,879)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Denominator:
Weighted average number of shares of
common stock outstanding during the
period 11,062,219 12,318,872 9,957,849 12,311,380
Shares of common stock issued for a
nominal value 55,100 -- 101,030 --
------------ ------------ ------------ ------------
Denominator for loss per share 11,117,319 12,318,872 10,058,879 12,311,380
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic and diluted loss per share $ (0.60) $ (0.50) $ (1.51) $ (1.00)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</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.
3. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998 June 30, 1999
------------- -------------
<S> <C> <C>
Non-cash investing and financing activities:
Equipment acquired under capital lease $9,310,133 $ --
Dividends accrued on Series A Redeembable
Convertible Preferred Stock and 6% Non-
Voting Convertible Preferred Stock 284,409 30,000
Interest paid 1,086,624 709,539
</TABLE>
4. 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 June 30, 1999, 40% of accounts receivable
was due from three customers. Only one of these customers represented greater
than 10% of revenues for the three month and six month periods ended June 30,
1999.
5. BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999
--------------------------------------------------------------
Other Products
Academic Corporate and Services Total
---------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $ 840,708 $ 3,683,347 $ 2,046,259 $ 6,570,314
Direct costs 1,787,054 1,665,184 687,167 4,139,405
---------- ----------- ----------- -----------
Segment operating income (loss) $ (946,346) $ 2,018,163 $ 1,359,092 $ 2,430,909
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998
----------------------------------------------------------------
Other Products
Academic Corporate and Services Total
------------ ----------- ------------ ---------
<S> <C> <C> <C> <C>
Revenues $ 541,266 $ 2,565,389 $ 672,875 $ 3,779,530
Direct costs 1,632,308 1,114,243 494,725 3,241,276
------------ ----------- --------- ---------
Segment operating income (loss) $ (1,091,042) $ 1,451,146 $ 178,150 $ 538,254
------------ ----------- --------- ---------
------------ ----------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
---------------------------------------------------------------
Other Products
Academic Corporate and Services Total
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $ 1,534,352 $ 5,552,464 $ 4,041,260 $ 11,128,076
Direct costs 3,453,521 2,583,048 1,247,448 7,284,017
------------ ----------- ----------- -----------
Segment operating income (loss) $ (1,919,169) $ 2,969,416 $ 2,793,812 $ 3,844,059
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998
---------------------------------------------------------------
Other Products
Academic Corporate and Services Total
------------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
Revenues $ 541,266 $ 3,337,962 $ 1,208,990 $ 5,088,218
Direct costs 2,448,750 1,944,063 864,218 5,257,031
------------ ----------- --------- ----------
Segment operating income (loss) $ (1,907,484) $ 1,393,899 $ 344,772 $ (168,813)
------------ ----------- --------- ----------
------------ ----------- --------- ----------
</TABLE>
The following table reconciles the reported information on segment operating
income (loss) to net loss as reported in the statements of operations for the
three months and six months ended June 30, 1998 and 1999.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------------------------------------------
June 30, 1998 June 30, 1999 June 30, 1998 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Segment operating income (loss) $ 538,254 $ 2,430,909 $ (168,813) $ 3,844,059
Unallocated operating expenses:
Operating lease expense (1,247,903) (1,151,885) (2,450,795) (2,265,245)
Depreciation and amortization (1,036,925) (1,658,094) (1,645,862) (3,273,323)
Field payroll expense (1,079,205) (1,348,182) (2,415,739) (2,574,499)
Other (1,146,823) (1,368,933) (1,881,155) (2,477,963)
General and administrative expenses (2,002,561) (2,456,272) (4,937,001) (4,462,693)
Management fee payable to Sylvan (500,000) (500,000) (1,000,001) (1,000,000)
Other income (expense) (63,946) (41,628) (370,544) (26,215)
------------ ------------ ------------- -------------
Loss before income taxes $ (6,539,109) $ (6,094,085) $ (14,869,910) $ (12,235,879)
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
</TABLE>
Substantially all of the revenues and assets of the Company's reportable
segments are located in the United States. Note 4 to the financial statements
contains information about major customers and concentrations of credit risk.
6. COMMITMENTS 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.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
ALL STATEMENTS CONTAINED HEREIN THAT ARE NOT HISTORICAL FACTS, INCLUDING BUT NOT
LIMITED TO STATEMENTS REGARDING THE ANTICIPATED IMPACT OF UNCOLLECTIBLE ACCOUNTS
RECEIVABLE ON FUTURE LIQUIDITY, EXPENDITURES TO LEASE PROPERTY AND EQUIPMENT FOR
THE CALIBER CAMPUSES, FUTURE CAPITAL REQUIREMENTS, AND THE COMPANY'S FUTURE
DEVELOPMENT PLANS ARE BASED ON CURRENT EXPECTATIONS. THESE STATEMENTS ARE
FORWARD LOOKING IN NATURE AND INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES.
ACTUAL RESULTS MAY DIFFER MATERIALLY. AMONG THE FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY ARE THE FOLLOWING: CHANGES IN THE FINANCIAL
RESOURCES OF THE COMPANY'S CLIENTS; TIMING AND EXTENT OF ACCEPTANCE BY
UNIVERSITIES, FACULTY, CORPORATIONS, AND WORKING ADULTS OF THE CALIBER LEARNING
NETWORK AS AN APPROPRIATE WAY TO PROVIDE QUALITY EDUCATION AND TRAINING; AMOUNT
OF REVENUES GENERATED BY THE COMPANY'S OPERATIONS; THE AVAILABILITY OF
SUFFICIENT CAPITAL TO FINANCE THE COMPANY'S BUSINESS PLAN ON TERMS SATISFACTORY
TO THE COMPANY; GENERAL BUSINESS AND ECONOMIC CONDITIONS; AND OTHER RISK FACTORS
DESCRIBED IN THE COMPANY'S REGISTRATION STATEMENT (NO. 333-47565) AND SUBSEQUENT
REPORTS FILED FROM TIME TO TIME WITH THE COMMISSION. THE COMPANY CAUTIONS
READERS NOT TO PLACE UNDUE RELIANCE ON ANY SUCH FORWARD LOOKING STATEMENTS,
WHICH STATEMENTS ARE MADE PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995 AND, AS SUCH, SPEAK ONLY AS OF THE DATE MADE.
OVERVIEW
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 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 centers 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.
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
pre-event services when the 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 are 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.
8
<PAGE>
COSTS AND EXPENSES
The Company incurs operating costs and expenses related to center operating
expenses, marketing costs, programming and production costs, management fees
payable to Sylvan and selling, general and administrative expenses. Center
operating expenses consist primarily of payroll, lease expense, depreciation and
telecommunications costs associated with the Caliber campuses.
Since its organization in November 1996, Caliber has relied on Sylvan for
certain resources, systems and personnel for management, administrative, legal,
and accounting functions. Additionally, Sylvan provides office space for the
Company's operations. Under the Intercompany Management and Facility Use
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 for these services in 1999. During 1999, the
Company intends to develop its own systems to replace those currently provided
by Sylvan, however, the Company intends to lease space from Sylvan for the
foreseeable future.
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 center development when incurred. Course production costs
related to the creation of various media and course materials are expensed when
incurred. Advertising and marketing costs are expensed when incurred.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Caliber generates revenues from three business segments: Academic, Corporate and
Other Products and Services. The following tables sets forth information on the
Company's reportable segments:
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999
-----------------------------------------------------------
Other Products
Academic Corporate and Services Total
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue $ 840,708 $3,683,347 $2,046,259 $6,570,314
Direct Costs 1,787,054 1,665,184 687,167 4,139,405
--------- ---------- ---------- ----------
Segment Operating Income (Loss) $(946,346) $2,018,163 $1,359,092 $2,430,909
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998
-------------------------------------------------------------
Other Products
Academic Corporate and Services Total
----------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Revenue $ 541,266 $2,565,389 $672,875 $3,779,530
Direct Costs 1,632,308 1,114,243 494,725 3,241,276
----------- ---------- -------- ----------
Segment Operating Income (Loss) $(1,091,042) $1,451,146 $178,150 $ 538,254
</TABLE>
9
<PAGE>
Revenues for the quarter ended June 30, 1999 were $6.6 million, an increase of
$2.8 million from the $3.8 million in 1998. The increase in revenues in 1999 was
a result of revenue increases of $299,000, $1.1 million and $1.4 million in the
Company's Academic, Corporate and Other Products and Services business segments,
respectively. Each of these business lines grew substantially from the prior
year due to the increase in the number of events in each segment.
Direct costs for the segments were $4.1 million in the second quarter of 1999,
an increase of $898,000 when compared to $3.2 million in the second quarter of
1998. This increase was primarily attributable to the $551,000 increase in
Corporate direct costs related to increased labor, marketing and consulting
costs to support a greater number of Corporate programs. The Academic operating
loss of $946,000 reflects enrollments not yet supportive of the start-up and
development costs of payroll, marketing and programming and production for these
various programs.
Other operating costs that are not directly attributable to the operating
segments are not allocated. These unallocated operating expenses in the second
quarter of 1999 increased to $5.5 million, an increase of $1.0 million when
compared to the $4.5 million in the second quarter of 1998. This increase was
mainly attributable to the $621,000 increase in depreciation and amortization
expense related to a much larger fixed asset base in existence in the second
quarter of 1999 when compared to 1998. This fixed asset base has grown
substantially during the last year as the Company expanded the number of
classrooms in the Caliber Learning Network.
Selling, general and administrative expenses in the second quarter of 1999
increased to $2.5 million, an increase of $454,000 from the $2.0 million in the
second quarter of 1998. This increase is primarily attributable to an increase
in the Company's provision for bad debts in the second quarter of 1999.
Management fees to Sylvan remained flat at $500,000 due to the contractually
negotiated terms between Caliber and Sylvan.
Interest income in the second quarter of 1999 was $305,000, a decrease of
$82,000 compared to the $387,000 in the second quarter of 1998. This decrease is
due to the decrease in the balance of the Company's short-term investments
received in the Company's initial public offering in May 1998. Interest expense
in the second quarter of 1999 was $347,000, a decrease of $104,000 compared to
the $451,000 in the second quarter of 1998. The decrease is due primarily to no
interest being incurred on borrowings from Sylvan in 1999 as these borrowings
were repaid in full concurrent with the Company's initial public offering in May
1998 offset by interest expense being incurred on a larger capital lease balance
in 1999.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Caliber generates revenues from three business segments: Academic, Corporate and
Other Products and Services. The following tables sets forth information on the
Company's reportable segments:
10
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
---------------------------------------------------------------
Other Products
Academic Corporate and Services Total
----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Revenue $ 1,534,352 $5,552,464 $4,041,260 $11,128,076
Direct Costs 3,453,521 2,583,048 1,247,448 7,284,017
----------- ---------- ---------- -----------
Segment Operating Income (Loss) $(1,919,169) $2,969,416 $2,793,812 $ 3,844,059
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998
---------------------------------------------------------------
Other Products
Academic Corporate and Services Total
----------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
Revenue $ 541,266 $3,337,962 $1,208,990 $5,088,218
Direct Costs 2,448,750 1,944,063 864,218 5,257,031
----------- ---------- ---------- ---------
Segment Operating Income (Loss) $(1,907,484) $1,393,899 $ 344,772 $(168,813)
</TABLE>
Revenues for the first six months of 1999 were $11.1 million, an increase of
$6.0 million from the $5.1 million in 1998. The increase in revenues in 1999 was
a result of revenue increases of $993,000, $2.2 million and $2.8 million in the
Company's Academic, Corporate and Other Products and Services business segments,
respectively. Each of these business lines grew substantially from the prior
year due to the increase in the number of events in each segment.
Direct costs for the segments were $7.3 million in the first six months of 1999,
an increase of $2.0 million when compared to $5.3 million in the first six
months of 1998. This increase was primarily attributable to the $1.0 million
increase in Academic direct costs and an increase of $639,000 in Corporate
direct costs related to increased labor, marketing and consulting costs to
support a greater number of programs in each of these segments. The Academic
operating loss of $1.9 million reflects enrollments not yet supportive of the
start-up and development costs of payroll, marketing and programming and
production for these various programs.
Other operating costs that are not directly attributable to the operating
segments are not allocated. These unallocated operating expenses in the first
six months of 1999 increased to $10.6 million, an increase of $2.2 million when
compared to the $8.4 million in the first six months of 1998. This increase was
mainly attributable to the $1.6 million increase in depreciation and
amortization expense related to a much larger fixed asset base in existence in
the first six months of 1999 when compared to 1998. This fixed asset base has
grown substantially during the last year as the Company expanded the number of
sites in the Caliber Learning Network.
Selling, general and administrative expenses in the first six months of 1999
decreased to $4.5 million, a decrease of $474,000 from the $4.9 million in the
first six months of 1998. This decrease is primarily attributable to the Company
incurring development stage costs for consulting and programming and production
in the first quarter of 1998, offset by an increase in the Company's provision
for bad debts in the second quarter of 1999.
11
<PAGE>
Management fees to Sylvan remained flat at $1.0 million due to the contractually
negotiated terms between Caliber and Sylvan.
Interest income in the first six months of 1999 was $683,000, an increase of
$269,000 compared to the $414,000 in the first six months of 1998. This increase
is due to the income earned on the Company's short-term investments for a full
six months in 1999 compared to only two months in 1998 on the funds received
from the Company's initial public offering in May 1998. Interest expense in the
first six months of 1999 was $710,000, a decrease of $75,000 compared to the
$785,000 in the first six months of 1998. The decrease is due primarily to no
interest being incurred on borrowings from Sylvan in 1999 as these borrowings
were repaid in full concurrent with the Company's initial public offering in May
1998 offset by interest expense being incurred on a larger capital lease balance
in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities decreased to $7.9 million in the first
six months of 1999 compared to $17.1 million in the first six months of 1998.
This decrease is primarily attributable to a smaller net loss before
depreciation and amortization in 1999 of $4.3 million and the repayment of
management fees and interest to Sylvan of $2.8 million in 1998.
Net cash provided by investing activities was $3.6 million in the first six
months of 1999 compared to net cash used in investing activities of $18.9
million in the first six months of 1998. This change was due primarily to
proceeds from the sale of available-for-sale securities in 1999 versus the
purchase of available-for-sale securities in 1998 and a lower amount of
purchases of property and equipment in 1999 when compared to 1998.
Net cash used in financing activities was $1.4 million in the first six months
of 1999 compared to net cash provided by financing activities of $62.8 million
in the first six months of 1998. This change was primarily attributable to the
receipt of $61.7 million in proceeds of the Company's initial public offering in
May 1998 and higher payments of capital lease obligations in 1999 when compared
to 1998.
As of June 30, 1999, the Company had cash and cash equivalents of $18.2 million,
available-for-sale securities of $3.3 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
12
<PAGE>
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 it 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. This phase is now
complete.
PHASE IV - TESTING. This phase involves review of all systems for compliance and
re-testing as necessary. This phase is now complete.
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 complaint. The Company expects to
complete this phase by the middle of the third quarter of 1999. This phase is
now 95% 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 Y2K 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
13
<PAGE>
include the development of one or more contingency plans by the end of the third
quarter of 1999.
14
<PAGE>
Part II. Other Information
Item 1. LEGAL PROCEEDINGS
There were no material developments in the Macmillan case, Cause
No. IP98-1710C-M/S, during the reporting period.
At this time the Company is not a party, either as plaintiff or defendant, in
any other material litigation.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a)- (c) None.
(d) The Company filed its first registration statement under the
Securities Act effective May 4, 1998, File No. 333-47565. From
the effective date of the registration statement to June 30,
1999, the company's use of net offering proceeds was as
follows:
<TABLE>
<S> <C>
NET OFFERING PROCEEDS TO ISSUER $ 61,458,500
USE OF PROCEEDS:
Plant, building and facilities $ 4,698,000
Working capital $ 26,920,500
Repayment of indebtedness (1) $ 7,054,000
Temporary investments:
Cash and cash equivalents $ 18,225,000
Marketable securities $ 3,350,000
Other expenses:
Payment of accrued dividends (2) $ 1,211,000
------------
Total $ 61,458,500
</TABLE>
NOTES
(1) Payments were made to Sylvan Learning Systems, Inc.,
an affiliate of the issuer and the beneficial owner
of ten percent (10%) or more of the issuer's issued
and outstanding Common Stock and all of the issuer's
issued and outstanding 6% Non-Voting Convertible
Preferred Stock.
15
<PAGE>
(2) Payments were made to MCI, an affiliate of the issuer
and the beneficial owner of ten percent (10%) or more
of the issuer's issued and outstanding Common Stock.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders in Baltimore, Maryland, on
May 20, 1999. At the meeting, the shareholders were asked to vote on the
election of directors, the ratification and approval of the Company's Employee
Stock Purchase Plan and the ratification of the selection of Ernst & Young
LLP as the independent auditors for the Company for the fiscal year ending
December 31, 1999.
ELECTION OF DIRECTORS. At the meeting, the shareholders reelected Janneen M.
Armstrong and Ernest Anastasio for three-year terms expiring at the Company's
2002 Annual Meeting of Stockholders. The votes cast for Ms. Armstrong and Mr.
Anastasio were as follows:
<TABLE>
<S> <C> <C>
Janeen M. Armstrong 11,214,849 For
147,808 Withheld
0 Broker Non-Votes
Ernest Anastasio 11,226,874 For
135,783 Withheld
0 Broker Non-Votes
</TABLE>
The names of the other directors of the Company whose terms of office continued
after the meeting, are as follows:
R. Christopher Hoehn-Saric
Douglas L. Becker
Susan Mayer
John P. Hill
EMPLOYEE STOCK PURCHASE PLAN. At the meeting, the shareholders ratified and
approved the Company's Employee Stock Purchase Plan approved by the Board of
Directors on March 8, 1999. The Employee Stock Purchase Plan is an employee
benefit plan that offers eligible employees the opportunity to purchase shares
of Caliber Common Stock through regular payroll deductions. The Plan is intended
to encourage all Corporation employees to acquire an equity interest in the
Corporation so that employees share in the Corporation's future growth and so
that their individual financial interests are aligned with long-term stockholder
value. The number of shares available for purchase by employees under the Plan
is 200,000. The number of votes cast for approval of Plan was 11,355,251 and the
number of votes against or withheld was 7,406. There were no broker non-votes.
16
<PAGE>
INDEPENDENT AUDITORS. At the meeting, the shareholders ratified and
approved the selection of Ernst & Young LLP to serve as the independent auditors
for the Company for the fiscal year ending December 31, 1999. The number of
votes cast for approval was 11,331,456 and the number of votes against or
withheld was 31,201. There were no broker non-votes.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
3.01 Articles of Amendment and Restatement of the Charter*
3.02 Bylaws *
4.01 Specimen Common Stock Certificate*
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*
27.01 Financial Data Schedule
* Incorporated by reference to the Company's
Registration Statement on Form S-1, as amended (File
No. 333-47565).
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the quarter for which
this report is filed.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CALIBER LEARNING NETWORK, INC.
------------------------------
(Registrant)
Date: August 12, 1999 /s/ Rick P. Frier
-------------------------------------------
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's unaudited quarterly financial statements and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> DEC-31-1998
<PERIOD-END> JUN-30-1999
<CASH> 18,224,560
<SECURITIES> 3,349,986
<RECEIVABLES> 7,566,337
<ALLOWANCES> 2,896,244
<INVENTORY> 0
<CURRENT-ASSETS> 26,522,954
<PP&E> 30,307,393
<DEPRECIATION> 7,868,838
<TOTAL-ASSETS> 49,359,071
<CURRENT-LIABILITIES> 11,783,041
<BONDS> 12,194,526
0
51,674
<COMMON> 123,359
<OTHER-SE> 25,206,471
<TOTAL-LIABILITY-AND-EQUITY> 49,359,071
<SALES> 0
<TOTAL-REVENUES> 11,128,076
<CGS> 0
<TOTAL-COSTS> 17,875,047
<OTHER-EXPENSES> 5,462,693
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 709,539
<INCOME-PRETAX> (12,235,879)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,235,879)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,235,879)
<EPS-BASIC> (1.00)
<EPS-DILUTED> (1.00)
</TABLE>
