<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 MARCH 31, 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 12,307,630 shares of Common Stock outstanding as of May 13,
1999.
<PAGE>
INDEX
CALIBER LEARNING NETWORK, INC.
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Balance sheets - December 31, 1998 and March 31, 1999 3
Statements of operations - Three months ended March 31, 1998 and 1999 4
Statements of cash flows - Three months ended March 31, 1998 and 1999 5
Notes to financial statements - March 31, 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 13
Item 2. Changes In Securities and Use of Proceeds 13
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
2
<PAGE>
Part I. Financial Information
CALIBER LEARNING NETWORK, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
----------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,878,801 $ 19,579,051
Available-for-sale securities 8,254,174 7,277,551
Accounts receivable, net of allowance of $2,676,000 and $3,145,716, respectively 4,956,455 4,549,341
Due from landlords for tenant allowances 54,586 36,739
Other receivables 12,869 17,869
Prepaid expenses 223,959 145,864
----------------------------------
Total current assets 37,380,844 31,606,415
Property and equipment:
Furniture and fixtures 2,956,803 2,989,605
Computer equipment and software 15,988,614 16,241,775
Leasehold improvements 10,045,476 10,211,549
----------------------------------
28,990,893 29,442,929
Accumulated depreciation and amortization (4,595,515) (6,210,744)
----------------------------------
24,395,378 23,232,185
Other assets 382,733 381,413
----------------------------------
Total assets $ 62,158,955 $ 55,220,013
----------------------------------
----------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 5,875,791 $ 5,866,681
Accrued dividends payable 98,720 113,720
Current portion of deferred tenant allowances 362,370 362,370
Current portion of capital lease obligations due to related party 3,572,853 3,988,776
----------------------------------
Total current liabilities 9,909,734 10,331,547
Deferred tenant allowances, less current portion 1,593,558 1,501,460
Capital lease obligations due to related party, less current portion 13,040,854 11,925,236
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 12,307,630 in 1999 122,997 123,034
Additional paid-in capital 82,780,367 82,784,085
Accumulated deficit (45,340,229) (51,497,023)
----------------------------------
Total stockholders' equity 37,614,809 31,461,770
----------------------------------
Total liabilities and stockholders' equity $ 62,158,955 $ 55,220,013
----------------------------------
----------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
CALIBER LEARNING NETWORK, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1999
--------------------------------------------
<S> <C> <C>
Revenues:
Service fee revenue $ 881,188 $ 3,774,012
Management fee from Sylvan 427,500 783,750
--------------------------------------------
1,308,688 4,557,762
Cost and expenses:
Operating expenses 5,898,450 8,208,548
Management fees to Sylvan 500,001 500,000
Other selling, general and administrative
expenses 2,934,440 2,006,421
--------------------------------------------
9,332,891 10,714,969
Other income (expense):
Interest income 27,437 378,252
Interest expense (334,035) (362,839)
--------------------------------------------
(306,598) 15,413
--------------------------------------------
Net loss (8,330,801) (6,141,794)
Dividends accrued on preferred stock (199,000) (15,000)
--------------------------------------------
Net loss attributable to common stockholders $ (8,529,801) $ (6,156,794)
--------------------------------------------
--------------------------------------------
Basic and diluted loss per common share
attributable to common stockholders $ (0.95) $ (0.50)
--------------------------------------------
--------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
CALIBER LEARNING NETWORK, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1999
---------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (8,330,801) $ (6,141,794)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 608,937 1,615,229
Negative amortization of capital lease obligations
charged to interest expense 192,258 -
Amortization of deferred tenant allowances recorded
as a reduction of rent expense (49,442) (92,098)
Changes in operating assets and liabilities:
Accounts receivable, net (1,028,842) 407,114
Other receivables (51,485) (5,000)
Prepaid expenses - 78,095
Accounts payable and accrued expenses related to
operating expenses 1,914,710 (9,110)
Management fee payable to Sylvan 500,001 -
Interest payable to Sylvan 169,646 -
---------------------------------------------
Net cash used in operating activities (6,075,018) (4,147,564)
INVESTING ACTIVITIES
Purchases of property and equipment (2,275,677) (452,036)
Proceeds from available-for-sale securities - 976,623
Proceeds from sale-leaseback of property and equipment 540,685 -
Proceeds from deferred tenant allowances 422,285 17,847
Increase in other assets (65,077) 1,320
---------------------------------------------
Net cash (used in) provided by investing activities (1,377,784) 543,754
FINANCING ACTIVITIES
Issuance of Class A common stock 150,000 -
Proceeds from exercise of stock options - 3,755
Payment of subscription receivable 3,856,889 -
Payment of capital lease obligations (62,757) (699,695)
---------------------------------------------
Net cash provided by (used in) financing activities 3,944,132 (695,940)
---------------------------------------------
Net decrease in cash and cash equivalents (3,508,670) (4,299,750)
Cash and cash equivalents, beginning of period 3,850,440 23,878,801
---------------------------------------------
Cash and cash equivalents, end of period $ 341,770 $ 19,579,051
---------------------------------------------
---------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
CALIBER LEARNING NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 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 ended March 31, 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
significant 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 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 examinations.
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
MARCH 31, 1998 MARCH 31, 1999
---------------------------------------------
<S> <C> <C>
Numerator:
Net loss $ (8,330,801) $ (6,141,794)
Preferred stock dividends (199,000) (15,000)
---------------------------------------------
Net loss attributable to common stockholders $ (8,529,801) $ (6,156,794)
---------------------------------------------
---------------------------------------------
Denominator:
Weighted average number of shares of
common stock outstanding during the
period 8,852,968 12,303,887
Shares of common stock issued for a
nominal value 147,471 -
---------------------------------------------
Denominator for loss per share 9,000,439 12,303,887
---------------------------------------------
---------------------------------------------
Basic and diluted loss per share $ (0.95) $ (0.50)
---------------------------------------------
---------------------------------------------
</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>
THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1999
--------------------------------------------
<S> <C> <C>
Non-cash investing and financing
activities:
Equipment acquired under capital lease $ 7,102,972 $ -
Increase in other receivables for proceeds due
on sale-leaseback of property and equipment 1,069,281 -
Increase in accounts payable and accrued
expenses for purchases of property and
equipment 1,017,219 -
Dividends accrued on Series A Redeemable
Convertible Preferred Stock and 6% Non-
Voting Convertible Preferred Stock 199,000 15,000
Interest paid - 362,839
</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 March 31, 1999, 63% of accounts receivable
was due from three customers. Only one of these customers represented greater
than 10% of revenues for the three months ended March 31, 1999.
5. BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
---------------------------------------------------------------------------
OTHER PRODUCTS
ACADEMIC CORPORATE AND SERVICES TOTAL
-------- --------- -------------- -----
<S> <C> <C> <C> <C>
Revenues $ 693,644 $ 1,869,117 $ 1,995,001 $ 4,557,762
Direct costs 1,666,467 917,864 560,281 3,144,612
---------------------------------------------------------------------------
Segment operating income (loss) $ (972,823) $ 951,253 $ 1,434,720 $ 1,413,150
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
---------------------------------------------------------------------------
OTHER PRODUCTS
ACADEMIC CORPORATE AND SERVICES TOTAL
------------------ --------- -------------- -----------
<S> <C> <C> <C> <C>
Revenues $ - $ 772,573 $ 536,115 $ 1,308,688
Direct costs 816,442 829,820 369,493 2,015,755
---------------------------------------------------------------------------
Segment operating income (loss) $ (816,442) $ (57,247) $ 166,622 $ (707,067)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</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 ended March 31, 1998 and 1999.
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Segment operating income (loss) $ (707,067) $ 1,413,150
Unallocated operating expenses:
Operating lease expense (1,202,892) (1,113,360)
Depreciation and amortization (608,937) (1,615,229)
Field payroll expense (1,336,534) (1,226,317)
Other (734,332) (1,109,030)
General and administrative expenses (2,934,440) (2,006,421)
Management fee payable to Sylvan (500,001) (500,000)
Other income (expense) (306,598) 15,413
--------------------------------------
Loss before income taxes $ (8,330,801) $ (6,141,794)
--------------------------------------
--------------------------------------
</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 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
significant 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
8
<PAGE>
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 examinations.
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.
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 campus 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 MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 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 MARCH 31, 1999
---------------------------------
OTHER PRODUCTS
ACADEMIC CORPORATE AND SERVICES TOTAL
-------- --------- -------------- -----
<S> <C> <C> <C> <C>
Revenue $693,644 $1,869,117 $1,995,001 $4,557,762
Direct Costs 1,666,467 917,864 560,281 3,144,612
--------- --------- ----------- ----------
Segment Operating Income (Loss) $(972,823) $951,253 $1,434,720 $1,413,150
--------- --------- ----------- ----------
--------- --------- ----------- ----------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998
---------------------------------
Other Products
9
<PAGE>
<TABLE>
<CAPTION>
ACADEMIC CORPORATE AND SERVICES TOTAL
-------- --------- ------------ -----
<S> <C> <C> <C> <C>
Revenue $ --- $772,573 $536,115 $1,308,688
Direct Costs 816,442 829,820 369,493 2,015,755
--------- -------- -------- ----------
Segment Operating Income (Loss) $(816,442) $(57,247) $166,622 $ (707,067)
--------- -------- -------- ----------
--------- -------- -------- ----------
</TABLE>
Revenues for the quarter ended March 31, 1999 were $4.6 million, an increase of
$3.3 million from the $1.3 million in 1998. The increase in revenues in 1999 was
a result of revenue increases of $694,000, $1.1 million and $1.5 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 as the Company did not begin producing revenues from its primary business
lines until February 1998.
Direct costs for the segments were $3.1 million in the first quarter of 1999, an
increase of $1.1 million when compared to $2.0 million in the first quarter of
1998. This increase was primarily attributable to the $850,000 increase in
Academic direct costs related to increased labor, marketing and consulting costs
to support a greater number of academic programs. The Academic operating loss of
$973,000 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 first
quarter of 1999 increased to $5.1 million, an increase of $1.2 million when
compared to the $3.9 million in the first quarter of 1998. This increase was
mainly attributable to the $1.0 million increase in depreciation and
amortization expense related to a much larger fixed asset base in existence in
the first quarter of 1999 when compared to 1998. This fixed asset base grew
substantially during the last year as the Company expanded the number of sites
in the Caliber Learning Network.
Management fees to Sylvan remained flat at $500,000 due to the contractually
negotiated terms between Caliber and Sylvan.
Selling, general and administrative expenses in the first quarter of 1999
decreased to $2.0 million, a decrease of $928,000 from the $2.9 million in the
first quarter of 1998. The decrease is primarily attributable to the Company
incurring development stage costs for consulting and programming and production
in the first quarter of 1998.
Interest income in the first quarter of 1999 was $378,000, an increase of
$351,000 compared to the $27,000 in the first quarter of 1998. This increase is
due to the income earned on the Company's short-term investments on the funds
received in the Company's initial public offering in May 1998. Interest expense
in the first quarter of 1999 was $363,000, an increase of $29,000 compared to
the $334,000 in the first quarter of 1998. The increase is due primarily to
interest expense incurred on a larger capital lease balance in 1999 when
compared to 1998. This increase was offset by 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.
LIQUIDITY AND CAPITAL RESOURCES
10
<PAGE>
Net cash used in operating activities decreased to $4.1 million in the first
quarter of 1999 compared to $6.1 million in the first quarter of 1998. This
decrease is primarily attributable to a smaller net loss in 1999, a decrease
in net loss before depreciation and amortization of $3.2 million, offset by
changes in working capital accounts.
Net cash provided by investing activities was $544,000 in the first quarter of
1999 compared to net cash used in investing activities of $1.4 million in the
first quarter of 1998. This change was due primarily to proceeds from the sale
of available-for-sale securities in 1999 and a lower amount of purchases of
property and equipment in 1999 when compared to 1998.
Net cash used in financing activities was $696,000 in the first quarter of 1999
compared to net cash provided by financing activities of $3.9 million in the
first quarter of 1998. This change was primarily attributable to higher payments
of capital lease obligations in 1999 when compared to 1998 and the receipt of
$3.9 million under a stock subscription from Sylvan received in 1998.
As of March 31, 1999, the Company had cash and cash equivalents of $19.6
million, available-for-sale securities of $7.3 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 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
11
<PAGE>
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. 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.
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 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 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 include the
development of one or more contingency plans by the end of the third quarter of
1999.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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. 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 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 March 31,
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 $ 3,834,000
Working capital $ 22,502,500
Repayment of indebtedness (1) $ 7,054,000
Temporary investments:
Cash and cash equivalents $ 19,579,000
Marketable securities $ 7,278,000
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.
13
<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
None.
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.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CALIBER LEARNING NETWORK, INC.
------------------------------
(Registrant)
Date: May 13, 1999 /s/ Rick P. Frier
---------------------------------------------
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
15
<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> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 19,579,051
<SECURITIES> 7,277,551
<RECEIVABLES> 7,749,665
<ALLOWANCES> 3,145,716
<INVENTORY> 0
<CURRENT-ASSETS> 31,606,415
<PP&E> 29,442,929
<DEPRECIATION> 6,210,744
<TOTAL-ASSETS> 55,220,013
<CURRENT-LIABILITIES> 10,331,547
<BONDS> 13,426,696
0
51,674
<COMMON> 123,034
<OTHER-SE> 31,287,062
<TOTAL-LIABILITY-AND-EQUITY> 55,220,013
<SALES> 0
<TOTAL-REVENUES> 4,557,762
<CGS> 0
<TOTAL-COSTS> 8,208,548
<OTHER-EXPENSES> 2,506,421
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 362,839
<INCOME-PRETAX> (6,141,794)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,141,794)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,141,794)
<EPS-PRIMARY> (0.50)
<EPS-DILUTED> (0.50)
</TABLE>
