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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

           (Mark One)

[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended                      March 31, 2003                     

OR

[    ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from            Not Applicable           to                                           

Commission File Number                           0-17840                           

NEW HORIZONS WORLDWIDE, INC.
(Exact name of registrant as specified in its charter)

 Delaware   22-2941704
  
(State or other jurisdiction   (I.R.S. Employer Identification No.)
of incorporation or organization)    

1900 S. State College Boulevard, Anaheim, CA 92806
(Address of principal executive offices)

           (714)940-8000          
(Registrant’s telephone number, including area code)

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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes      X       No           

        APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Number of shares of common stock outstanding at March 31, 2003: 10,572,657

PART I. ITEM 1
FINANCIAL STATEMENTS

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, 2003 and December 31, 2002
(Dollars in thousands, except per share data)

  March 31, December 31,
  2003 2002
 
  (unaudited)  
 Assets    
 Current assets:
         Cash and cash equivalents $     3,887  $     5,085 
         Restricted cash 3,500  3,500 
         Accounts receivable, net 18,393  19,627 
         Inventories 1,347  1,334 
         Prepaid expenses 9,697  8,886 
         Refundable income taxes 5,766  5,459 
         Deferred tax assets 2,210  2,209 
         Other current assets 989  874 
             Total current assets 45,789  46,974 
     
 Property, plant and equipment, net 16,332  17,278 
 Goodwill 18,368  18,368 
 Cash surrender value of life insurance 1,154  1,154 
 Deferred tax assets, net 23,061  23,061 
 Other assets 2,617  2,472 
 Total Assets $ 107,321  $ 109,307 
 Liabilities and Stockholders' Equity
 Current Liabilities:
         Current portion of long-term debt $     3,000  $     6,504 
         Accounts payable 4,613  5,072 
         Deferred revenue 22,188  21,855 
         Other current liabilities 20,297  18,228 
             Total current liabilities 50,098  51,659 
     
Long-term debt, excluding current portion 7,189  7,952 
Deferred rent 2,072  1,952 
Other long-term liabilities 426  374 
             Total liabilities 59,785  61,937 
Commitments and contingencies --  -- 
     
 Stockholders' equity:
         Preferred stock, no par value, 2,000,000 shares authorized, no shares issued or outstanding --  -- 
         Common stock, $.01 par value, 20,000,000 shares authorized; 10,572,657 shares issued and
             outstanding at March 31, 2003 and December 31, 2002 106  106 
         Additional paid-in capital 48,204  48,204 
         Retained earnings 524  358 
         Treasury stock at cost - 185,000 shares at March 31, 2003 and December 31, 2002 (1,298) (1,298)
             Total stockholders' equity 47,536  47,370 
Total Liabilities and Stockholders' Equity $ 107,321  $ 109,307 

        See accompanying notes to condensed consolidated financial statements

2

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (Unaudited)

Three months ended March 31, 2003 and 2002
(Dollars in thousands except per share data)

            Three months ended March 31,
             2003            2002
 
 Revenues:    
    Franchising
        Franchise fees     $                304      $                158 
        Royalties 4,245  4,791 
        Courseware sales and other 5,030  4,659 
 
        Total franchising revenues 9,579  9,608 
    Company-owned training centers 26,248  24,933 
 
         Total revenues 35,827  34,541 
     
 Cost of revenues 20,010  19,631 
 Selling, general and administrative expenses 15,374  14,404 
 
 Operating income 443  506 
 Investment income 42  63 
 Interest expense (208) (446)
 
 Income before taxes 277  123 
 Provision for income taxes 111  49 
 
 Net income     $                166      $                  74 
 
 Weighted average number of common and common
    equivalent shares outstanding - Basic 10,387,657  10,223,168 
     
 Weighted average number of common and common
    equivalent shares outstanding - Diluted 10,387,657  10,531,420 
     
Earnings Per Share - Basic     $           0.02          $           0.01     
 
Earnings Per Share - Diluted     $           0.02          $           0.01     
 

        See accompanying notes to condensed consolidated financial statements

3

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

Three months ended March 31, 2003 and 2002
(Dollars in thousands)

Three months ended March 31,
2003 2002
 
Cash flows from operating activities            
       Net income   $ 166   $ 74  
       Adjustments to reconcile net income to net cash and cash  
       equivalents provided by operating activities:  
              Depreciation    1,744    1,945  
              Gain on disposal    (14 )  --  
              Cash provided (used) from the change in:  
                     Accounts receivable    1,233    2,503  
                     Inventories    (13 )  (159 )
                     Prepaid expenses and other assets    (1,071 )  (1,903 )
                     Income taxes    (306 )  (420 )
                     Accounts payable    (459 )  (289 )
                     Deferred revenue    333    1,571  
                     Other liabilities    2,104    576  
                     Deferred rent    120    194  
 
                              Net cash provided by operating activities    3,837    4,092  
 
Cash flows from investing activities  
              Additions to property, plant and equipment    (821 )  (1,113 )
              Proceeds from sale of property, plant and equipment    36    --  
 
                              Net cash used in investing activities    (785 )  (1,113 )
 
Cash flows from financing activities:  
              Proceeds from exercise of stock options    --    --  
              Proceeds from issuance of debt    10,939    --  
              Principal payments on debt obligations    (15,189 )  (5 )
 
                              Net cash (used in) provided by financing activities    (4,250 )  233  
 
Net (decrease) increase in cash and cash equivalents    (1,198 )  3,212  
     
Cash and cash equivalents at beginning of period    8,585    6,077  
 
Cash and cash equivalents at end of period   $ 7,387   $ 9,289  
 
Supplemental disclosure of cash flow information  
              Cash paid for:  
                     Interest   $ 236   $ 505  
 
                     Income taxes   $ 159   $ 349  
 
              Non-cash investing and financing activities:  
                     Income tax benefit from exercise of stock options  
                        and warrants   $ --   $ 82  
 

        See accompanying notes to condensed consolidated financial statements

4

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2003
(Dollars in Thousands)
(unaudited)

      1. Description of Business
   
  New Horizons Worldwide, Inc. (“New Horizons,” or the “Company”) owns and franchises computer training centers. The Company’s training centers provide application software and technical certification training to a wide range of individuals and employer-sponsored individuals from national and international public and private corporations, service organizations and government agencies. Additionally, the Company supplies externally licensed curriculum and courseware materials to its franchisees. As of March 31, 2003, the Company and its franchisees delivered training in 25 company-owned and 245 franchised locations in 54 countries around the world.
   
      2. Basis of Presentation
   
  In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (all of which are normal and recurring) necessary to present fairly the financial position of the Company at March 31, 2003 and the results of operations for the three month periods ended March 31, 2003 and 2002. The statements and notes should be read in conjunction with the financial statements and notes thereto included in the Company’s annual report for the year ended December 31, 2002.
   
  Certain items have been reclassified to conform to the 2003 presentation.
   
    3. Stock–Based Compensation
   
  The Company accounts for stock-based employee compensation as prescribed by APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and, effective December 31, 2002, adopted Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” that amends the disclosure and transition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”. SFAS No. 148 requires pro forma disclosures of net income and net income per share as if the fair value based method of accounting for stock-based awards had been applied for both employee and non-employee grants. It also requires disclosure of option status on a more prominent and frequent basis. Such disclosure for the three-month periods ended March 31, 2003 and 2002 are presented below. The Company accounts for stock options and warrants issued to non-employees based on the fair value method, but has elected the intrinsic value method for grants to employees. Under the fair value based method, compensation cost is recorded based on the value of the award at the grant date and is recognized over the service period.
   
  At March 31, 2003, the Company has two stock-based employee compensation plans. No stock-based employee compensation cost is reflected in the results of operations, as all options granted under those plans had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant.

5

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2003
(Dollars in Thousands)
(unaudited)

Three months ended March 31,
2003 2002
 
  Net income, as reported     $ 166   $ 74  
  Deduct: Total stock-based employee compensation expense             
         determined under fair value based method for all awards,    
         net of related tax effects      (878 )   (895 )
       
  Pro forma net loss    $ (712 ) $ (821 )
       
  Pro forma net loss per common share - Basic    $ (0.07 ) $ (0.08 )
 
  Pro forma net loss per common share - Diluted    $ (0.07 ) $ (0.08 )
 
  The fair value of each option grant was estimated as of the grant date using the Black-Scholes option pricing model assuming a risk-free interest rate of 2.3%, volatility of 67%, and zero dividend yield for 2003 grants, a risk-free interest rate of 4.2%, volatility of 67%, and zero dividend yield for 2002 grants.
   
      4. Business Segment Information
   
  The Company’s business units have been aggregated into two reportable segments, company-owned locations and franchising operations. The two segments are managed separately due to differences in the source of revenues and the services offered. The company-owned training centers segment operates wholly owned computer training centers in the United States and earns revenues from the delivery of computer based training classes. The franchising segment franchises domestic and international computer training centers and provides computer training instruction, sales, and management concepts to franchisees. The franchising segment earns revenues from initial franchise fees, on-going royalties from franchise operations, and the sale of courseware and other products to franchisees.
   
  Summarized financial information concerning the Company’s reportable segments is shown in the following tables:

6

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2003
(Dollars in Thousands)
(unaudited)

                      For the three months ended March 31, 2003:

  Company-owned   Executive  
  Centers Franchising Office Consolidated
 
  Revenues from external     $ 26,248   $ 9,579   $ --   $ 35,827  
      customers  
  Inter-segment revenues    --    2,156    --    2,156  
  Net income (loss) before    (700 )  977    --    277  
      income taxes  
  Provision (benefit) for income    (258 )  369    --    111  
      taxes  
  Interest expense    208    --    --    208  
  Interest income    21    21    --    42  
  Net income (loss)    (442 )  608    --    166  
  Total assets    72,899    21,326    13,096    107,321  
  Capital expenditures    586    235    --    821  

                      For the three months ended March 31, 2002:

  Company-owned   Executive  
  Centers Franchising Office Consolidated
 
  Revenues from external     $ 24,933   $ 9,608   $ --   $ 34,541  
      customers  
  Inter-segment revenues    --    1,483    --    1,483  
  Net income (loss) before    (1,934 )  2,057    --    123  
      income taxes  
  Provision (benefit) for income    (720 )  769    --    49  
      taxes  
  Interest expense    439    7    --    446  
  Interest income    28    35    --    63  
  Net income (loss)    (1,214 )  1,288    --    74  
  Total assets    124,251    27,072    11,947    163,270  
  Capital expenditures    422    691    --    1,113  

      5. Earnings Per Share
   
  The Company computes earnings per share based on Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (EPS). SFAS No. 128 requires the Company to report Basic EPS, as defined therein, which assumes no dilution from outstanding stock options, and Diluted EPS, as defined therein, which assumes dilution from outstanding stock options. Earnings per share amounts for all periods presented have been calculated to conform to the requirements of SFAS No. 128.
   
  The computation of Basic EPS is based on the weighted average number of shares outstanding during the period. The computation of Diluted EPS is based upon the weighted average number of shares outstanding, plus shares that would have been outstanding assuming the exercise of all “in-the-money” outstanding options and warrants, computed using the treasury stock method.

7

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2003
(Dollars in Thousands)
(unaudited)

  Securities that could potentially dilute basic EPS in the future that were not included in the computation of diluted EPS because to do so would have been anti-dilutive for the quarter ended March 31, 2003 totaled 2,289,549.

      6. Debt
   
  On February 27, 2003, the Company consummated a long-term credit agreement with Wells Fargo Bank, National Association (the Wells Fargo Credit Agreement). Upon execution of the Wells Fargo Credit Agreement, the available funds under the facility totaled $12,139, consisting of a term loan of $10,639 and revolving loans of $1,500. As of March 31, 2003, the term loan had a total commitment equal to its outstanding balance of $9,889. Quarterly principal payments of $750 for the term loan commenced on March 31, 2003 and continue through the term loan’s maturity. The revolving loan had a total commitment of $1,500 under which loans are available through maturity and which $300 is outstanding as of March 31, 2003. Any unpaid principal and interest balances associated with the term and revolving loans was due upon maturity of the loans on February 15, 2005. The revolving loan also includes a $1,000 sub-limit for the issuance of standby and commercial letters of credit. Two standby letters of credit were outstanding under the revolving loan as of March 31, 2003 totaling $710.
   
  At March 31, 2003, $490 was available under the Wells Fargo Credit Agreement.
   
  Interest related to the Wells Fargo Credit Agreement is paid monthly, bimonthly, or quarterly and is based on the “Base Rate” or “Eurodollar Base Rate,” whichever is applicable to the loan, plus margins based on Adjusted EBITDA, as defined in the agreement. The Base Rate is a daily fluctuating rate per annum equal to the higher of the Prime Rate or the Federal Funds Rate plus 0.5%. The Eurodollar Base Rate is the rate per annum for United States dollar deposits equal to the Inter-Bank Market Offered Rate, which approximates the London Inter-Bank Market rate. Commitment fees, not exceeding 0.5%, are paid quarterly for any unused portion of the revolving loan commitment. The effective rates of the term and revolving loans as of March 31, 2003 were 5.125% and 5.75%, respectively.
   
  The Wells Fargo Credit Agreement requires the maintenance of certain financial ratios and contains other restrictive covenants, including restrictions on the occurrence of additional indebtedness, acquisitions, and the maintenance of a minimum of $3,500 in cash at the end of each fiscal quarter. As of March 31, the Company was in compliance with all covenants per the agreement.
   
  The Wells Fargo Credit Agreement is secured by the Company's cash and cash equivalents, accounts receivable, intangible assets, and investments, if any.
   
  Upon the closing of the Wells Fargo Credit Agreement, the Company drew $10,639 against the term loan and $300 against the revolving loan. The loan proceeds from the Wells Fargo Credit Agreement plus an additional $3,500 of cash on-hand were utilized to repay all outstanding principal and interest balances on the Company’s former credit facility, with Bank of America, N.A. as agent, dated April 25, 2001, and amended January 31, 2002.

8

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2003
(Dollars in Thousands)
(unaudited)

      7. Other Current Liabilities
   
  Other current liabilities consist of:
  March 31, December 31,
  2003 2002
 
  Accounts payable to franchises   $     5,094   $     6,028  
  Accrued wages and commissions  2,440   3,165  
  Royalties and fees payable to courseware partners  5,413   3,209  
  Accrued operating expenses and other  7,350   5,826  
 
     $   20,297   $   18,228  
 

      8. Refundable Income Taxes
   
  Refundable income taxes represent excess estimated federal and state income tax payments and income tax refunds due to the Company as a result of applying net operating loss carrybacks related to the net loss incurred during fiscal year 2002. The Company has filed a quick federal income tax return for the 2002 fiscal year and anticipates the collection of $4,300 of the federal income tax refund during the second quarter of 2003. The Company expects the remainder of the estimated refundable income taxes of $1,466 will be received subsequent to the filing of complete federal and state income tax returns in the latter half of 2003.
   
      9. Recent Accounting Pronouncements
   
  In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”. SFAS No. 145 rescinds SFAS No. 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. Upon adoption of SFAS No. 145, the Company will be required to apply the criteria in APB Opinion No. 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions”, in determining the classification of gains and losses resulting from the extinguishment of debt. Additionally, SFAS No. 145 amends SFAS No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. SFAS No. 145 will be effective for fiscal years beginning after May 15, 2002 with early adoption of the provisions related to the rescission of SFAS No. 4 encouraged. Upon adoption, companies must reclassify prior period items that do not meet the extraordinary item classification criteria in APB Opinion No. 30. The adoption of SFAS No. 145 did not have a material impact on the Company.
   
  In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit and Disposal Activities”. SFAS No. 146 nullifies Emerging Issues Task Force (EITF) Issue 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". Under EITF Issue 94-3, a liability for an exit cost is recognized at the date of an entity’s commitment to an exit plan. Under SFAS No. 146, the liabilities associated with an exit or disposal activity will be measured at fair value and recognized when the liability is incurred and meets the definition of a liability in the conceptual framework of the FASB. This statement is effective for exit or disposal activities initiated after December 31, 2002. The adoption of SFAS No. 146 did not have a material impact on the Company.

9

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2003
(Dollars in Thousands)
(unaudited)

  In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”, an amendment of SFAS No. 123, “Accounting for Stock-Based Compensation”. SFAS No. 148 amends the disclosure requirements for stock-based compensation for annual periods ending after December 15, 2002 and for interim periods beginning after December 15, 2002. The disclosure requirements apply to all companies, including those that continue to recognize stock-based compensation under the intrinsic value provisions of APB Opinion 25. SFAS No. 148 also provides three alternative transition methods for companies that choose to adopt the fair value measurement provisions of SFAS No. 123. The Company adopted the pro forma disclosure requirements of SFAS No. 148 during the year ended December 31, 2002.
   
  In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, which addresses the disclosure to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. The disclosure requirements are effective for interim and annual financial statements ending after December 15, 2002. Interpretation No. 45 also requires the recognition of a liability by a guarantor at the inception of certain guarantees. Interpretation No. 45 requires the guarantor to recognize at the inception of the guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions are effective for all guarantees within the scope of Interpretation No. 45 issued or modified after December 31, 2002. The adoption of Interpretation No. 45 did not have a material effect on the Company.
   
  In February 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities”, which addresses the consolidation by business enterprises of variable interest entities, which have one or both of the following characteristics: (1) the equity investment at risk is not sufficient to permit the entity to finance its activities without additional financial support from other parties, or (2) the equity investors lack one or more of the following essential characteristics of a controlling financial interest: (a) the direct or indirect ability to make decisions about the entity’s activities through voting or similar rights, (b) the obligation to absorb the expected losses of the entity if they occur, or (c) the right to receive the expected residual returns of the entity if they occur. Interpretation No. 46 will have a significant effect on existing practice because it requires existing variable interest entities to be consolidated if those entities do not effectively disburse risks among parties involved. Interpretation No. 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. Interpretation No. 46 may be applied prospectively with a cumulative-effect adjustment as of the date on which it is first applied or by restating previously issued financial statements for one or more years with a cumulative-effect adjustment as of the beginning of the first year restated. The adoption of Interpretation No. 46 is not expected to have a material impact on the Company.
   
  In November 2002, the FASB issued Emerging Issues Task Force (EITF) Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables”. Issue No. 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. Specifically, Issue No. 00-21 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting. In applying Issue No. 00-21, separate contracts with the same entity or related parties that are entered into at or near the same time are presumed to have been negotiated as a package and should, therefore, be evaluated as a single arrangement in considering whether there are one or more units of accounting. That presumption may be overcome if there is sufficient evidence to the contrary. Issue No. 00-21 also addresses how arrangement consideration should be measured and allocated to the separate units of accounting in the arrangement. Issue No. 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of EITF Issue No. 00-21 is not expected to have a material impact on the Company.

10

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                 OF OPERATIONS

The following discussion should be read in conjunction with the March 31, 2003 Condensed Consolidated Financial Statements and related notes and the December 31, 2002 annual report.

(Dollars in thousands)

GENERAL

The Company owns and operates computer-training centers in the United States and franchises computer training centers in the United States and abroad.

The Company’s earns revenues from its company-owned training centers and franchising business segments. Company-owned training center revenues are earned from the operation of company-owned training centers. Franchising revenues are earned through initial franchise fees, on-going franchise royalties, the sale of courseware and other revenues from franchised operations.

In addition to company-owned training center and franchising revenues, management also analyzes system-wide revenues, which are defined as revenues from all New Horizons computer training centers, both company-owned and franchised. Management believes system-wide revenues gauge the growth rate of the entire New Horizons training network.

Company-owned training centers revenues are earned through the delivery of computer related training to its customers. Training is delivered primarily through instructor–led classes and through the Company’s proprietary OnLine LIVE and OnLine ANYTIME products. Company-owned training centers cost of revenues consists primarily of instructor costs, rent, utilities, classroom equipment, courseware costs, and computer hardware, software and peripheral expenses. Included in selling, general and administrative expenses are personnel costs associated with technical and facilities support, scheduling, training, accounting and finance, and sales.

Franchising revenues are earned from initial franchise fees paid by franchisees for the purchase of specific franchise territories and franchise rights, franchise royalties and advertising fees based on a percentage of each franchise’s gross training revenues, and the sale of courseware. Revenues earned from the Company’s Enterprise Learning Services (ELS) initiative, a program designed to facilitate the delivery of information technology (IT) training to large corporate customers at company-owned and franchised training centers, are also included within franchising revenues. Cost of revenues consists primarily of costs associated with courseware procurement and franchise support personnel who provide system guidelines and advice on daily operating issues including sales, marketing, instructor training, and general business problems. Included in selling, general and administrative expenses are technical support, accounting and finance support, ELS support, advertising expenses, and franchise sales expenses.

CRITICAL ACCOUNTING POLICIES

Goodwill

Effective January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Intangible Assets”, which revises the accounting for purchased goodwill and intangible assets. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer amortized but are tested for impairment annually and also in the event of an impairment indicator.

The last valuation of goodwill was performed as of December 31, 2002. The fair value of reporting segments was determined through the use of a third party valuation consultant. No impairment indicators were noted in the first quarter of 2003.

11

Accounts Receivable
Accounts receivable are shown net of allowances for uncollectible accounts. The Company’s management makes estimates of the collectibility of trade receivables based on historical bad debts, customer concentrations, customer credit-worthiness, current economic trends, and geographic location.

The Company records an allowance for bad debt separately for its franchising and company-owned centers segments. The franchising segment records an allowance for bad debt each period based upon a percentage of revenues. The applicable percentage is dependent upon revenue classification and the geographic location of the customer and is estimated based upon historical experience of bad debts. On a periodic basis, management specifically identifies uncollectible receivables and adjusts the allowance for bad debt appropriately.

The company-owned centers segment records an allowance for bad debt based upon a percentage of outstanding receivables. The percentage applied differs by each of the individual centers within the company-owned centers segment and is estimated based on each center’s historical experience.

At March 31, 2003, the Company’s accounts receivable balance was $18.4 million, which is net of allowance for doubtful accounts of $1.4 million.

Revenue Recognition
The Company earns revenue through its franchising operations and from the delivery of instructor-led and eLearning training courses by its company-owned training centers.

Franchising Operations
Franchising revenues are earned from initial franchise fees, royalties from franchisees, courseware sales, delivery fees for eLearning courses, and administration fees for courses delivered pursuant to the Company’s ELS initiative, a program to service large corporate customers.

Initial franchise fees are charged to unit and master franchisees. Unit franchises receive the exclusive right to own and operate franchises within a certain territory. Master franchises receive a territory in which the master franchisee is required to operate at least one unit franchise and is able to award unit sub-franchises. Initial fees under unit and master franchise agreements are not refundable under any circumstance. Initial franchise fees for unit franchises are recognized upon the completion of the franchisee’s two-week initial franchise training, after which the Company’s obligations to the franchisee are perfunctory. Initial fees for master franchises are based upon the expected number of sub-franchises to be sold in the licensed territory and are recognized ratably as unit sub-franchises are sold.

Unit franchisees and master franchisees are obliged to remit certain percentages of their gross revenue to the Company for continuing royalties, advertising fees, and marketing and distribution fees. These fees are recognized as the underlying unit and master franchisee recognize revenue.

The Company sells licensed courseware materials and curriculum to the franchisees. Courseware sales are recognized upon shipment. The Company utilizes a third party for the production of courseware items and fulfillment of orders placed by the franchisees. The franchisees may order courseware products through the Company or directly through the fulfillment house. In cases where the Company acts as a principal in the transaction, takes title to the products, and has the risks and rewards of ownership, such as the risk of loss for collection, delivery and returns, revenue is recognized on a gross basis. In cases where the Company acts as an agent or broker and is compensated on a commission or fee basis, revenue is recognized on a net basis.

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Per-student fees are charged to the franchisees for eLearning courses delivered through the Online LIVE and Online ANYTIME formats. Online LIVE courses are synchronous, interactive virtual classrooms that feature instructor-facilitated classes delivered over the Internet. Fees related to the sale of Online LIVE courses are recognized upon the delivery of the course. Online ANYTIME courses are asynchronous, self-paced training courses which are similar in content to classroom instruction. Online ANYTIME courses are delivered over the Internet over a period of one year. Fees related to the sale of Online ANYTIME courses are recognized on a straight-line basis over one year.

The Company’s ELS facilitates training for large organizations that have locations and training needs throughout the world. The Company recognizes revenue, derived as a percentage of the training business, as the training is delivered.

Company-Owned Training Centers
Company-owned locations earn revenue from the delivery of instructor-led and eLearning computer training courses to public and private corporations, service organizations, government agencies and municipalities and individual students.

Instructor-led learning programs allow students to choose from several options, including training vouchers, club memberships, technical certification programs, and individual classes.

Training vouchers allow the customer to send one attendee per voucher to an instructor-led class over a finite period of time for a fixed price. Revenue associated with training vouchers is recognized over the period of time the voucher is valid using rates that represent the historical utilization of the training vouchers.

Club memberships allow the club member to attend as many classes as they choose over a finite period of time for a fixed price. Revenue associated with club memberships is recognized over the membership period using rates that historically approximate the manner in which courses are taken by club members.

Technical certification programs are a number of courses designed to allow the customers to attend the classes necessary to prepare them to pass the required tests to reach a certain technical certification. Revenue associated with technical certification programs are recognized over a period of time based on rates that historically approximate the manner in which the technical certification programs are delivered.

Individual classes allow students to take single classes at a fixed price. Revenue for individual classes is recognized upon delivery. eLearning programs are delivered through the Company’s Online LIVE and Online ANYTIME products. Online LIVE courses are synchronous, interactive virtual classrooms delivered over the Internet. Online LIVE course revenue is recognized upon delivery.

Online ANYTIME courses are asynchronous, self-paced classes that are delivered over the Internet over a period of one year. Online ANYTIME course revenue is recognized on a straight-line basis over one year.

The revenue recognition rates utilized for training vouchers, club memberships, and technical certification programs are based on the results of student attendance analyses performed by the Company. The Company’s student attendance analyses have been derived from historical experience over a period of several years in which the learning programs have been in place. Where the Company has less than two years of historical experience, revenues are recognized on a straight-line basis over the duration of the programs.

Generally, the student attendance analyses indicate a greater percentage of attendance in the earlier months and the last month of the time periods associated with training vouchers, club memberships, and technical certification programs. Thus, a greater percentage of revenues are recognized in these periods than if the straight-line method were applied. Factors that may affect student attendance patterns include the demand for information technology professionals and the value consciousness of corporate customers, who may opt for longer term club memberships.

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Deferred Costs

The Company defers those direct and incremental costs associated with the sale of products and services for which revenue is deferred. Direct and incremental costs associated with the sale of products and services for which revenue is deferred include commissions paid to sales persons and technology and hosting costs associated with the Company's eLearning products. Deferred costs are recorded to earnings at the same rate that the associated product revenues are recorded to earnings.

Accounting for Income Taxes

As part of the process of preparing the consolidated financial statements, the Company is required to estimate its income taxes for federal and state purposes. This process involves estimating the actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheets. The Company must then assess the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes that recovery is not likely, must establish a valuation allowance. To the extent a valuation allowance is established or this allowance is increased in a period, an expense must be included within the tax provision in the consolidated statements of operations. Based upon projected financial results, the Company has determined that no valuation allowance is necessary.

Off-balance Sheet Financings

The Company does not have any off-balance sheet financings. The Company has no majority-owned subsidiaries that are not included in the financial statements, nor does it have any interests in or relationships with any special purpose entities or variable interest entities.

RESULTS OF OPERATIONS

Revenues

Revenues totaled $35,827 for the three months ended March 31, 2003, an increase of $1,286, or 4%, from $34,541 for the three months ended March 31, 2002. The revenue growth is the result of the net effect of a revenue increase at company-owned training centers of $1,315 and a decrease in franchising revenue of $29.

Company-Owned Training Centers
Company-owned training centers earned revenue of $26,248 during the first quarter of 2003, an increase of $1,315, or 5%, from $24,933 during the first quarter of 2002. The increase in company-owned training center revenue is due to increased business-to-consumer and eLearning product sales, partially offset by weak demand in the business-to-business market. Increases in consumer sales are attributable to the success of the Company’s Consumer Segment initiative, which has focused on the creation of courses of study specifically designed to enable consumers to learn skills necessary to become employable as IT professionals, as well as the development and implementation of marketing strategies targeting consumers. Company-owned locations also experienced strong sales of its eLearning products during the quarter ended March 31, 2003. Revenues associated with the Company’s eLearning products, including OnLine LIVE and OnLine ANYTIME, increased $1,135, or 180%, from the first quarter of 2002, due to further market penetration. These increases were partially offset by reduced demand for training in the business-to-business market resulting from the continued weakness in the domestic economy. The continued weakness in the domestic economy has manifested in reduced IT capital expenditures and reduced commercial spending on IT training for employees, and fewer available IT positions for which personnel require specialized training.

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Franchising
Franchising revenues totaled $9,579 during the first quarter of 2003, a decrease of $29 from $9,608 during the same period in 2002. The decrease in franchising revenues resulted from increases in initial franchise fees and eLearning products, net against decreases in franchise royalties and courseware sales. Initial franchise fees increased $146, primarily due to the renegotiation of a master franchise contract, resulting in a reduction in the development schedule of the master franchise’s licensed territory. Revenues associated with the sale of the Company’s eLearning products to franchises, including OnLine LIVE and OnLine ANYTIME, increased $935, or 433%. Increases in eLearning product revenues are the result of continued market penetration. Franchise royalties and sales of courseware decreased $546 and $553, respectively. Both decreases are the result of decreased system-wide revenues and lesser demand for IT training domestically.

Cost of Revenues

Cost of revenues increased $379 or 2% for the first quarter of 2003 compared to the same period in 2002. As a percentage of revenues, cost of revenues decreased to 56% in the first quarter of 2003 from 57% in the first quarter of 2002. The increase in the cost of revenues in absolute dollars was a result of increased revenues, as discussed above. The decrease in cost of revenues as a percentage of revenues is due to a change in sales mix, as courseware sales, as a percentage of revenues, decreased 2.0%. Gross margin on courseware sales is typically less than gross margins earned on the Company’s other revenue sources.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $970 or 7% for the first quarter of 2003 as compared to the first quarter of 2002. As a percentage of revenues, selling, general and administrative expenses increased to 43% for the first quarter of 2003 from 42% for the same period in 2002. The increase in selling, general and administrative expenses in absolute dollars and as a percentage of revenue was due to expenses incurred in the ELS initiative and an increase in the reserve for bad debts as compared to the same period in 2002. The increases in these costs were partially offset by decreases in advertising expenses and cost reduction initiatives executed in the fourth quarter of 2002 which reduced employee headcount.

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Interest Expense

Interest expense totaled $208 for the first quarter of 2003, a decrease of $238 from $446 recorded in the first quarter of 2002. The decrease is due to lesser amounts of outstanding debt in 2003 as compared to 2002 and decreased effective interest rates on the Company’s floating rate debt facilities.

Liquidity and Capital Resources

As of March 31, 2003, the Company’s working capital was negative $4,309 and its cash and cash equivalents, including restricted cash, totaled $7,387. Working capital as of March 31, 2003 reflected an increase of $376 from negative $4,685 as of December 31, 2002.

On February 27, 2003, the Company consummated a long-term credit agreement with Wells Fargo Bank, National Association (the Wells Fargo Credit Agreement). Upon execution of the Wells Fargo Credit Agreement, the available funds under the facility totaled $12,139, consisting of a term loan of $10,639 and revolving loans of $1,500. As of March 31, 2003, the term loan had a total commitment equal to its outstanding balance of $9,889. Quarterly principal payments of $750 for the term loan commenced on March 31, 2003 and continue through the term loan’s maturity. The revolving loan had a total commitment of $1,500 under which loans are available through maturity and which $300 was outstanding as of March 31, 2003. Any unpaid principal and interest balances associated with the term and revolving loans are due upon maturity of the loans on February 15, 2005. The revolving loan also includes a $1,000 sub-limit for the issuance of standby and commercial letters of credit. Two standby letters of credit were outstanding under the revolving loan as of March 31, 2003 totaling $710.

At March 31, 2003, $490 was available under the Wells Fargo Credit Agreement.

The nature of the information technology and training industry requires substantial cash commitments for the purchase of computer equipment, software, and training facilities. During the first three months of 2003 the Company made capital expenditures of approximately $821. Capital expenditures for 2003 are expected to total approximately $5,000.

Management believes that its current working capital position and cash flows from operations, along with its credit facility, will be adequate to support its current and anticipated capital and operating expenditures and its strategies to grow its computer-based training business for the foreseeable future.

INFORMATION ABOUT FORWARD-LOOKING STATEMENTS

The statements made in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements. Such statements are based on current expectations but involve risks, uncertainties, and other factors which may cause actual results to differ materially from those contemplated by such forward-looking statements. All statements that address operating performance, events or developments that management anticipates will occur in the future, including statements relating to future revenue, profits, expenses, income and earnings per share or statements expressing general optimism about future results, are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). In addition, words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” variations of such words, and similar expressions are intended to identify forward-looking statements. Forward-looking statements are subject to safe harbors created in the Exchange Act.

Important factors which may result in variations from results contemplated by such forward-looking statements include, but are by no means limited to: (1) the Company’s ability to respond effectively to potential changes in the manner in which computer training is delivered, including the increasing acceptance of technology-based training which could have more favorable economics with respect to timing and delivery costs; (2) the Company’s ability to attract and retain qualified instructors; (3) the rate at which new software applications are introduced by manufacturers and the Company’s ability to keep up with new applications and enhancements to existing applications; (4) the level of expenditures devoted to upgrading information systems and computer software by customers; (5) the Company’s ability to compete effectively with low cost training providers who may not be authorized by software manufacturers; and (6) the Company’s ability to manage the growth of its business.

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The Company’s strategy focuses on enhancing revenues and profits at current locations, and also includes the possible opening of new company-owned locations, the sale of additional franchises, the selective acquisition of existing franchises in the United States which have demonstrated the ability to achieve above average profitability while increasing market share, and the acquisition of companies in similar or complementary businesses. The Company’s growth strategy is premised on a number of assumptions concerning trends in the information technology training industry. These include the continuation of growth in the market for information technology training and the trend toward outsourcing. To the extent that the Company’s assumptions with respect to any of these matters are inaccurate, its results of operations and financial condition could be adversely affected.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk related to changes in interest rates. It monitors the risks associated with interest rates and financial instrument positions.

The Company’s primary interest rate risk exposure results from floating rate debt on its line of credit. As of March 31, 2003, the Company’s total bank debt consisted of floating rate debt. If interest rates were to increase 100 basis points (1.0%) from March 31, 2003 rates, and assuming no changes in bank debt from the March 31, 2003 levels, the additional annual expense would be approximately $110 on a pre-tax basis. The Company currently does not hedge its exposure to floating interest rate risk.

The Company’s revenue derived from international operations is paid by its franchisees in United States dollars and, accordingly, the foreign currency exchange rate fluctuation is not material.

ITEM 4.  CONTROLS AND PROCEDURES

Within 90 days prior to the filing date of this Report (the "Evaluation Date"), the Company's principal executive officer ("CEO") and principal financial officer ("CFO") carried out an evaluation of the effectiveness of the Company's disclosure controls and procedures. Based on those evaluations, as of the Evaluation Date, the Company's CEO and CFO believe:

  (i) that the Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to the Company's management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure; and
  (ii) that the Company's disclosure controls and procedures are effective.

As previously disclosed, in connection with their audit of the Company's financial statements as of and for the year ended December 31, 2002. Deloitte & Touche LLP (D&T) advised the Company that it had identified certain deficiencies in the Company's internal control procedures that D&T considered to be a "material weakness" under standards established by the American Institute of Certified Public Accountants. D&T advised the Audit Committee on March 6, 2003, that it identified certain deficiencies in the Company's ability to timely and accurately produce data that supports its revenue recognition rates for certain of its learning programs. These matters were discussed by D&T with the Audit Committee of the Board of Directors of the Company.

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To address the weakness, the Company has devoted additional resources and made certain additional procedural changes. The Company has developed and implemented a plan whereby student attendance analyses will be completed on a quarterly basis, beginning with the second quarter of 2003. Appropriate revisions to the revenue recognition rates will be made on a timely basis. Additionally, the Company is allocating additional resources to the student attendance analyses, including one full-time Staff Accountant, one full-time temporary employee, and an Accounting Manager, who will devote roughly 90% of her time to the analyses. The student attendance analyses are being conducted under the direction of the Director of Finance. In addition, at the Audit Committee's request, the Chief Financial Officer and the Director of Finance are working with the Chief Information Officer to develop the appropriate Information Technology tools to determine the revenue recognition on a specific identification bases, as much as the products will allow.

PART II.   OTHER INFORMATION

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

c)      Recent Sale of Unregistered Securities

No securities of the Company that were not registered under the Securities Act of 1933 have been issued or sold by the Company for the period covered by this Quarterly Report on Form 10-Q.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K
The Company filed or furnised Current Reports on Form 8-K on January 15, 2003, February 19, 2003 and February 27, 2003.

SIGNATURE

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 thereto duly authorized.

    NEW HORIZONS WORLDWIDE, INC
    (Registrant)
     
     
Date:  May 20, 2003 By: /s/ Robert S. McMillan                                    
    Robert S. McMillan
    NEW HORIZONS WORLDWIDE, INC
    Chief Financial Officer

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CERTIFICATIONS

I, Thomas J. Bresnan certify that:

  1. I have reviewed this annual report on Form 10-Q of New Horizons Worldwide, Inc.;

  2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

  3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

  4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

  a).   designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

  b).   evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

  c).   presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

  5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

  a).   all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weakness in internal controls; and

  b).   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

  6. The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

  NEW HORIZONS WORLDWIDE, INC.

  /s/Thomas J. Bresnan

Date: May 20, 2003

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CERTIFICATIONS

I, Robert S. McMillan certify that:

  1. I have reviewed this quarterly report on Form 10-Q of New Horizons Worldwide, Inc.;

  2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

  3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

  4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

  a).   designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

  b).   evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

  c).   presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

  5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

  a).   all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weakness in internal controls; and

  b).   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

  6. The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

  NEW HORIZONS WORLDWIDE, INC.

  /s/Robert S. McMillan

Date: May 20, 2003

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