UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

|ý                                              | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|---------------------------------------------- | ----------------------------------------------------------------------------------------
|For the fiscal year ended December 31, 2007 OR
|o                                              | 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 000-17840

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

|Delaware(State of other jurisdiction of
incorporation or organization)                            |  | 22-2941704(I.R.S. Employer Identification No.)
|------------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|1900 S. State College Blvd., Suite 650, Anaheim, CA 92806(Address of principal executive offices)

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

Securities
registered pursuant to Section 12(b) of the Act:None

Securities
registered pursuant to Section 12(g) of the Act:Common Stock, $.01 par value per share

Indicate by check mark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o    No ý.

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 o    No ý.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

|Large accelerated filer o |  | Accelerated filer o |  | Non-accelerated filer o (Do not check if a smaller reporting company) |  | Smaller reporting company ý
|------------------------- |  | ------------------- |  | --------------------------------------------------------------------- |  | ---------------------------

Indicate
by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the
Act) Yes o    No ý.

The aggregate value of voting common stock of the registrant held by non-affiliates was approximately $7,210,570 (based upon the closing price of $1.60
per share of the of the registrant's common stock on the OTC "Pink Sheets" as of March 10, 2008. For purposes of making this calculation, the registrant has defined affiliates as including all
executive officers, directors and beneficial owners of more than 10% of the common stock of the registrant.

The
number of shares of the registrant's common stock outstanding as of March 10, 2008 was 11,260,269.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement for the 2008 annual meeting of stockholders to be filed within 120 days after the end of the period covered by
this Annual Report on Form 10-K are incorporated by reference into Part III of this Annual Report on Form 10-K.



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NEW HORIZONS WORLDWIDE, INC.

INDEX TO ANNUAL REPORT
ON FORM 10K

|               |  | Information About Forward-Looking Statements                                                                 |  | 1 
|-------------- |  | ------------------------------------------------------------------------------------------------------------ |  | --
|PART I         |  |                                                                                                             
|Item 1.        |  | Business                                                                                                     |  | 1 
|Item 1A.       |  | Risk Factors                                                                                                 |  | 11
|Item 1B.       |  | Unresolved Staff Comments                                                                                    |  | 15
|Item 2.        |  | Properties                                                                                                   |  | 15
|Item 3.        |  | Legal Proceedings                                                                                            |  | 15
|Item 4.        |  | Submission of Matters to a Vote of Security Holders                                                          |  | 16
|PART II        |  |                                                                                                             
|Item 5.        |  | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 17
|Item 7.        |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                        |  | 18
|Item 8.        |  | Financial Statements and Supplementary Data                                                                  |  | 26
|Item 9.        |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 72
|Item 9A.       |  | Controls and Procedures                                                                                      |  | 72
|PART III       |  |                                                                                                             
|Item 10.       |  | Directors and Executive Officers of the Registrant                                                           |  | 74
|Item 11.       |  | Executive Compensation                                                                                       |  | 74
|Item 12.       |  | Security Ownership of Certain Beneficial Owners and Management                                               |  | 74
|Item 13.       |  | Certain Relationships and Related Transactions                                                               |  | 74
|Item 14.       |  | Principal Accountant Fees and Services                                                                       |  | 74
|PART IV        |  |                                                                                                             
|Item 15.       |  | Exhibits, Financial Statement Schedules And Reports                                                          |  | 75
|Signatures     |  | 76                                                                                                          
|Exhibit Index  |  | 77                                                                                                          
|Certifications |  | 83                                                                                                          

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Information About Forward-Looking Statements

This Annual Report on Form 10-K contains "forward-looking statements", within the meaning of the Private Securities Reform Act of 1995, which
involve risks and uncertainties. Any statements about expectations, beliefs, plans, objectives, assumptions, future events or performance are not historical facts and are forward-looking statements.
These statements are often, but not always, preceded by words or phrases such as "may," "should," "could," "predict," "potential," "believe," "will likely result," "expect," "will continue,"
"anticipate," "estimate," "intend," "plan," "projection," "would," "outlook" and other similar expressions. The forward-looking statements in this report are based upon beliefs, assumptions and
expectations of the Company's management as to the Company's future operations and economic performance, taking into account the information currently available. Forward-looking statements in this
report include but are not limited to:



These
statements are not statements of historical fact. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Readers should
not place undue reliance on these forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and the Company undertakes no obligation to update
any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. Forward-looking
statements involve certain factors, including risks and uncertainties, that may cause actual results to differ materially from those contained in any forward-looking statements. These factors include
but are not limited to those risks and uncertainties described under the heading "Risk Factors," and other risks and uncertainties detailed from time to time in our public announcements and filings
with the Securities and Exchange Commission (the "SEC").

PART I

Item 1.    Business

General

New Horizons Worldwide, Inc. and its various wholly-owned subsidiaries (collectively, the "Company" or "New Horizons") own and franchise computer training
centers.

The
Company was incorporated in Delaware on December 15, 1988, and its principal executive offices are located 1900 S. State College Blvd, Suite 650, Anaheim, California
92806. The Company maintains a website athttp://www.newhorizons.com. On this website, or through links on the "Investor Relations" section of this
website, the Company makes available free of charge its annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on
Form 8-K, and any amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. Such material is made
available through the Company's website as soon as reasonably practicable after the Company electronically files or furnishes the material with the SEC.

The
Company's common stock trades on the Pink Sheets under the symbol "NEWH.PK."

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The
Company operates and franchises computer-training centers. The Company has two reporting units: Company-owned training centers and franchising operations, both of which operate
principally within the information technology ("IT") training industry. As of December 31, 2007, the Company-owned training centers reporting unit operated two wholly-owned computer training
centers within the continental United States, generating revenue through the sale and delivery of personal computing ("PC") applications training, technical software training, business skills and
healthcare information management courses. The franchising operations reporting unit earns revenue through the sale of New Horizons master and unit franchises within the United States and abroad,
on-going royalties in return for providing franchises with systems of instruction, sales, and management concepts concerning computer training, and the sale of courseware materials and
e-learning products. The franchising operations reporting unit has places of business in Anaheim, California; Conshohocken, Pennsylvania; and Singapore.

Industry Overview

The IT training industry is highly fragmented. The market is served by in-house training departments; hardware and software firms that have created IT
training products and deliver follow-up support and training; consulting firms/systems integrators; value-added resellers; and independent training providers, such as New Horizons.

Independent
training providers include those that deliver classroom-based instruction and e-learning. In addition, the consumer market is served by accredited academic
institutions, both non-profit and for profit.

Customer Base

For 26 years, New Horizons global network of training centers has followed a business-to-business sales strategy to secure millions
of customers in the small to medium business, large business, enterprise business and government market segments. The Company has also developed and implemented strategies to expand its customer base
to individual consumers.

Each
market segment has distinctly different characteristics. Consumers or non-employer sponsored individuals need general business skills, computer application skills,
technical certifications and vendor specific skills to obtain employment in the IT industry. Small, medium and large businesses need IT solutions to solve specific business problems. Government
agencies and enterprise customers also require IT solutions that are aligned with organizational needs, as well as logistical support in the coordination of delivery of IT training in multiple
locations using a variety of training modalities.

In
order to effectively sell into the consumer, small, medium and large business, governmental and enterprise customer segments, the Company has developed a specific sales force for each
segment consisting of seasoned professionals trained to understand the diverse and complex training requirements of their respective customer base. Each distinct sales force has gone through a
tailored training program to ensure sales personnel have the necessary skills to generate leads, identify customer needs and recommend solutions for the specific market segment to which they are
assigned.

Research
was completed by the Company in 2006 to gain a better understanding of the spending trends of the Company's top customers. Using a structured process, the Company collected
information through comprehensive buyer interviews providing insight into their buying criteria and buying processes. Top customers were also surveyed to understand the perceptions they have of the
Company and the value associated with the Company's brand. Company franchise owners at different levels of maturity, customers in various markets around the world, vendors and partners were also
surveyed. The following key findings were concluded from this research:



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The Information Technology Education and Training Market

The Company believes several developments will positively impact the technology training market, including:



New Horizons Business Model

The business model of the Company centers on selling franchises, providing continuous support of franchised locations and, to a less significant extent, operating
Company-owned training centers. The Company has created two reporting units to devote attention to these activities, franchise operations and Company-owned training centers. The goal of each New
Horizons training center, whether Company-owned or franchised, is to provide practical and innovative training solutions that help companies maximize the value of their IT investments and help
individuals maximize their IT related career pursuits.

During
the second half of 2006, New Horizons initiated a comprehensive strategy planning phase. During this phase, the Company took an in-depth look at its own strengths,
weaknesses, opportunities and competitive threats, in order to identify critical issues facing New Horizons over the next five years. This allowed the Company to establish specific goals and
objectives as well as identify opportunities for

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the
Company's brand and the strategies necessary to achieve the most successful outcome. The Company determined through this process that its core strengths are as follows:

Delivery Modalities

The Company offers a mix of teaching approaches to match the accelerated pace of learning required of IT professionals as well as the accelerated business value
that clients seek from their IT investments.

The
Company started training in 1982 with traditional classroom training and continues to offer the industry's largest number of technical training and desktop applications courses. The
Company also provides e-learning solutions through self-paced Online ANYTIME web-based and computer-based training and Online LIVE, an instructor-facilitated
training delivered live over the internet. The Company also offers customized training solutions which can be offered at a Company-owned location, franchise or on-site at the customer's
place of business.

The
Company has expanded its learning offerings to include Mentored Learning, a revolutionary approach to learning that incorporates tools, technologies and a mentor in the education and
training process. It is a premium training solution incorporating one-on-one instruction, hands-on lab exercises, multi-sensory tools, individual learning paths and
extremely flexible scheduling.

Mentored
Learning represents one of the fastest growing areas of opportunity for the Company. A number of the Company's learning centers have built a strong and profitable business
around Mentored Learning. The Company has built a comprehensive model for the proper implementation of this learning method that has proven successful. A core initiative of the Company is to replicate
this model in all centers worldwide over the next 12 to 18 months.

Curriculum

The Company's size and scope provide it with the means to select, develop and deploy high quality, practical content. The Company offers over 2,000 courses for
office productivity, information technology and business skills. The Company also provides customized training for customers' proprietary software applications and can tailor curriculum to meet
specific customer needs. As customer needs evolve, the Company has added to its course offerings. In addition to traditional IT training courses, the Company has developed course offerings in health
information management. Furthermore, the Company has continued to develop additional IT product offerings and certification programs, most notably its Network Security Expert programs.

Many
of the industry's major software vendors do not offer training, but support their products through independent training companies using a system of standards and performance
criteria. The Company is closely aligned with the IT industry in order to support ever-changing software programs, all of which require user training. Our partners include: Microsoft,
Cisco, Citrix, Novell, Adobe, CompTIA, EC Council, SCP, ISC2, Element K, Prometric and Vue.

The
Company holds the designation of largest training network for many of our technical and certification vendor partner programs and is the largest training network of:



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Furthermore,
New Horizons is one of the world's largest providers of vendor-neutral CompTIA certification training and also offers subject-specific content that covers a multitude of
software vendors and open software systems architecture.

In
addition to multiple learning options, Mentored Learning, certified instructors, broad curriculum and numerous delivery locations, the Company's training centers are designed to
provide their customers immediate and practical value. The Company training centers feature: (i) product offerings including technical tracks, clubs and boot-camps that allow
customers to attend a series of classes for a discounted price; (ii) skills assessment for standard software; (iii) flexible scheduling, including evening and weekend classes;
(iv) professional certification training; (v) the Enterprise Learning Solutions program which coordinates a national/international referral system and a delivery network of training for
major clients who have training requirements in multiple locations; and (vi) post-class resources that assess, reinforce, support and validate the transfer of knowledge and skill to
the student.

Locations

New Horizons has the ability to deliver IT training throughout the world via its Company-owned and franchised training centers. As of December 31, 2007,
the Company owned and operated two training centers, both within the continental United States. The New Horizons franchise network consists of 297 centers in 55 countries making New Horizons the
largest independent IT training company in the world per the 2007 industry report from International Data Corporation ("IDC"), a global provider of market intelligence and research in the information
technology market.

The
Company's global footprint enables it to meet the needs of international and multi-national clients. It also has the critical mass, experience and resources to deliver a successful
training program to a geographically dispersed audience.

Franchising Operations Business Model

New Horizons operates a global network of independent franchises that provide IT training and related services to their customers. The Company initially offered
franchises for sale in 1991 and sold its first franchise in 1992. The Company had 164 franchises plus satellite locations operating at the end of 2007 of which 100 were in North America and 64
were abroad. New Horizons franchisees are given a "limited exclusive" license and are franchised to participate in and use the Company's business model and sales system. The territory is a "limited
exclusive" territory in that New Horizons agrees not to own or franchise any other New Horizons training centers within the same area, provided the franchisee operates in compliance with the terms of
its franchise agreement.

North America

Initial Franchise Fees

A franchisee in the United States and Canada is charged an initial franchise fee and pays ongoing monthly royalties, which become effective at a specified period
of time shortly after the center begins operation. The initial franchise fee is based on the size of the territory granted, as defined in the

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respective
franchise agreement. In the United States and Canada, the size of a territory, and resulting initial franchise fee, is measured by the estimated population within the territory as follows:

Initial Franchise FeeTerritory Classification

Territory Population

Start-Up Franchise

Conversion FranchiseType 1

1,000,000 or more

$
75,000

$
56,250Type 2

600,000 - 999,999

$
60,000

$
45,000Type 3

400,000 - 599,999

$
40,000

$
30,000Type 4

Less than 400,000

$
25,000

$
20,000


Entrepreneurs
converting an existing training center to a New Horizons center receive a 25% reduction in the initial fee as a conversion allowance.

The
initial franchise fee is payable upon execution of the respective franchise agreement and is not refundable under any circumstances.

Royalties

In addition to the initial franchise fee, franchisees typically pay the following fees to the Company:



Franchise Agreement

Franchise agreements govern the relationship between the Company and its franchisees. Franchisees are granted territories in which to operate computer training
facilities for a defined period of time. The territory and the geographic boundaries of a territory are determined by United States Postal Service zip codes. Unless a franchise agreement terminates or
is amended by mutual agreement, a territory is not altered. Franchisees are expected to market their business exclusively to customers located within the defined territory.

Each
franchise agreement has an initial term of ten years and is renewable in five-year increments. The franchise is exclusive for instructor-led training within
the specific defined territory and is subject to a number of limitations and conditions placed on the franchise. These limitations and conditions include, but are not limited to: (i) staffing
requirements, including a general manager and a minimum number of salespeople ("Account Executives") based on the territory type; (ii) a minimum number of classrooms depending on the territory
type; (iii) full-time and continuous operations; (iv) a pre-defined minimum required curriculum; (v) computer equipment and system requirements;
(vi) signage and display material requirements; (vii) minimum insurance requirements; and (viii) record keeping requirements. New Horizons reserves the exclusive right to deliver
New Horizons branded e-learning within all territories on behalf of the franchise network. New Horizons and its franchisees have revenue sharing arrangements for sales of New Horizons
e-learning offerings sold in a franchisee's territory. In addition, there are certain restrictions on the franchisees' rights to transfer the franchise license. New Horizons also maintains
a "right of first refusal" if a transfer effects a change of control of the franchise. The agreement also contains default and termination remedies.

The
franchise agreement includes non-competition restrictions which prohibit franchisees for one year after termination from: (i) competing with New Horizons during
the term of the franchise agreement and for one year after termination of the franchise within a 25 mile radius of any New Horizons center; (ii) diverting or attempting to divert any customer
or business of the franchise business to any competitor; (iii) performing any act that is injurious or prejudicial to the goodwill

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associated
with New Horizons service marks or operating system; and (iv) soliciting any person who is at that time employed by New Horizons or any of its affiliated corporations to leave his or
her employment.

Franchisees
generally have six months from the date of the execution of the franchise agreement to open a center and to commence operations.

International

Initial Franchise Fees

Initial franchisee fees and territories for international franchises are market/country specific. Internationally, the Company has unit franchises and master
franchises. Master franchise agreements provide franchisees with the right to award subfranchises to other parties within a particular region.
The master franchisee pays an initial master franchise fee based upon the expected number of subfranchises to be sold and the size of the market.

The
initial franchise fee is payable upon execution of the franchise agreement and is not refundable under any circumstances. Unit franchise agreements have substantially the same terms
as the master franchise agreements.

Royalties

In addition to the initial franchise fee, international franchisees typically pay the following fees to New Horizons:



Master Franchise Agreement

Master franchise agreements govern the relationship between the Company and its master franchisees. Upon the execution of a master franchise agreement, a master
franchisee receives a territory, which is typically a country or a region encompassing multiple countries. The territory is a "limited exclusive" territory in that New Horizons agrees not to own or
franchise any other New Horizons training center, provided the franchisee operates in compliance with the terms of its respective master franchise agreement. Unless the master franchise agreement
terminates or is amended by mutual agreement, a territory is not altered. Franchises are expected to market their business exclusively to customers located within the defined territory. Under the
master franchise agreement, the master franchisee may license and service a number of third party unit subfranchises operated by persons other than the master franchisee, as specified in the master
franchise agreement, and own and operate at least one New Horizons location under a separate unit franchise agreement. The master franchisee is responsible for the pre-opening and ongoing
support of the subfranchises. The Company shares in the proceeds of the subsequent sub-franchises sales with the master franchisee. Each master franchise agreement runs for an initial term
of ten years and is renewable for one additional ten-year term. The master franchisee is expected to: (i) grant unit subfranchises in a form
of subfranchise agreement as approved by New Horizons; (ii) perform and enforce against each unit subfranchise the terms of any unit subfranchise agreement it enters into; (iii) provide
the initial training in the New Horizons system to each unit subfranchise; and (iv) provide ongoing support, consulting and assistance to each Unit Subfranchise after the initial training. For
these obligations the master franchisee retains 60% of the initial franchise fees and the ongoing royalties received from its unit subfranchises.

Franchisees
generally have six months from the date of the execution of the franchise agreement to open a center and to commence operations.

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Franchise Support

In return for the initial franchise fee and monthly royalty fees, the Company provides franchisees with the following services, products, and managerial support:
(i) two weeks of initial franchise training at the Company's location in Anaheim, California, or Conshohocken, Pennsylvania, and one week of field training at the franchisee's location;
(ii) franchise and sales system information contained in the Company's Confidential Operations Manual and other training manuals; (iii) ongoing operating support via on-site
visits from Regional Franchise Support Managers; (iv) access to troubleshooting and business planning assistance; (v) access to the Enterprise Learning Solutions ("ELS") program which
coordinates a national/international referral system and delivery network of training for major clients, which have training requirements in multiple locations; (vi) periodic regional and
international meetings and conferences; (vii) advisory councils and monthly communications; (viii) periodic training sessions delivered over the Internet for franchise staff;
(ix) periodic classroom training events for franchise staff delivered at a corporate location; (x) product, program or operational support via telephone from New Horizons personnel; and
(xi) access to Company developed and maintained Center Management System ("CMS") business support IT system, corporate web page and other proprietary processes.

Courseware Sales and Other

The Company earns revenue from the sale of courseware to franchises, administrative fees from the management of the ELS program, and application service provider
fees and/or license fees for the Center Management System software program.

Customers

The Company's customers are predominantly employer-sponsored individuals from a wide range of public and private corporations, service organizations and
governmental entities and municipalities seeking to improve and/or maintain the IT skills of their employees and consumers who are looking to gain additional skills to grow their career or change
their career by gaining new IT skills.

The
Company has segmented its customers into the following categories: consumers, small-sized businesses (companies with revenues between $10 and $100 million and
50 - 100 employees), medium businesses (companies with revenues between $100 million and $1 billion and 500 - 5,000 employees), enterprise-sized
businesses (companies with revenue over $1 billion and over 5,000 employees) and governmental entities. Each segment has distinctly different selection criteria for training. Consumers
primarily need certification training for software and operating systems and technology training for the advanced technologist to gain employment in the IT industry or grow his or her IT career.
Businesses require technology training for the advanced technologist as well as certification training but also require desktop applications training. Businesses also require training solutions that
are aligned with the businesses' strategic goals. These solutions can range from the relatively simple to very complex. Both consumers and business rate quality of instructors and content, client
service and successful outcomes as the main criteria when selecting a learning provider. Enterprise and government clients also require training solutions that can be successfully implemented on a
global scale.

No
single customer accounted for more than 10% of New Horizons revenues in 2007.

Sales and Marketing

The Company utilizes a consultative sales model in order to fully understand client business and training issues. This collaborative approach with clients allows
the sales representative to identify opportunities for solving these issues through the many training offerings the Company provides. This sales model also serves to build relationships with clients,
garnering repeat business by not only selling training but providing client service throughout the entire training project. According to a client survey

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conducted
in the second half of 2006, client service is a key selection criterion when selecting a training vendor. In order to further penetrate each market segment, the Company will continue to
expand its client service capabilities with strategies, tools, technology, processes and resources that further increase the ease of doing business with the Company.

The
target sales areas for sales and marketing representatives are primarily local and regional. Sales opportunities that involve national and international accounts, and involve
delivery of training at multiple locations, are supported by sales personnel within the Company's ELS program.

The
ELS program is designed to market computer training services to governmental entities and commercial customers that have dispersed domestic and/or international facilities and
training needs. This program provides New Horizon's national and international customers with a single point of contact to the entire New Horizon's network of training and support services.

All
sales functions are supported by a wide breadth of marketing tools including web sites, printed material, email marketing, event marketing tools, public relations and trade show
support.

Competition

The IT training industry is highly competitive, highly fragmented, has low barriers to entry and has no single competitor which accounts for a dominant share of
the market. The Company competes with in-house training departments, independent education and training organizations, computer retailers, computer resellers and others. The emergence of
technology-based training has segmented the IT training industry between entities that offer e-learning products, instructor-led training, or blended solutions like those
offered by the Company.

Periodically,
some of these competitors offer instruction and course content similar to those offered by New Horizons at lower prices. In addition, some of these competitors may have
greater financial strength and resources than New Horizons. The Company recognizes that the emergence of technology-based training, primarily consisting of e-learning and computer-based
training, is an important and growing competitive development in the industry.

In-House Training Departments

In-house training departments provide companies with the highest degree of control over the delivery and content of IT training, allowing for
customized instruction tailored to specific needs. However, according to IDC, the demand for outsourced training is expected to grow as more companies switch to outside training organizations for
their real-time training needs and course development, to broaden the range of content available to their employees, and to control overhead costs of in-house instructors'
salaries and benefits.

Independent Training Organizations

Independent training organizations are generally small and focus on local or regional markets. The Company competes directly with these firms, as well as national
and international firms and networks in the instructor-led training market. The larger national and international firms or networks include Learning Tree, Global Knowledge, Azlan, NIIT,
Aptech, Informatics and United Training. These firms or networks provide similar curriculum and operate in many of the same markets as New Horizons.

Technology-Based Training

In 2001, the Company introduced its e-learning product offering with Online LIVE, its synchronous virtual classroom product (i.e., webinar
training), and Online ANYTIME, its asynchronous self-paced product. The Company's primary competitors in the e-learning environment include Skillsoft, AXZO Press and Element K.

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The
Company believes its future success depends on, among other factors, the market's continued acceptance of instructor-led training as the preferred delivery method for IT
training and the Company's ability to successfully capitalize on the potential of blended solutions that combine instructor-led training with technology-based training delivery methods. An
offering that the Company believes addresses this market need is the Company's proprietary Mentored Learning Program. The combination of the Company's market presence, the depth and breadth of its
course offerings, its ability to provide multiple delivery options, its centralized control of contracting with and delivery to national or international customers, its status as the world's largest
network of Gold Microsoft Partners for Learning Solutions, and its organized and disciplined sales system distinguishes the Company from its competitors.

Employees

As of December 31, 2007, the Company employed a total of 182 individuals in its corporate operations and Company-owned facilities. Of these employees, 26
are instructors, 17 are account executives and 139 are administrative and executive personnel. New Horizons also utilizes the services of outside contract instructors to teach certain primarily
technical certification programs that require certified instructors with specialized skills.

None
of New Horizons's employees are represented by labor organizations or covered by collective bargaining agreements. New Horizons has not experienced work stoppages and considers
relations with its employees to be good.

Regulations

The offer and sale of franchises and business opportunities are subject to regulation by the United States Federal Trade Commission, as well as many state and
foreign jurisdiction regulations. Numerous state laws also regulate the ongoing relationships between franchisors and franchisees, including the termination, transfer, and renewal of franchise rights.

The
failure to comply with these laws and regulations could adversely affect the Company's operations.

Insurance

The Company maintains liability insurance in amounts it believes to be adequate based on the nature of its business.

While
the Company believes that it operates its business safely and prudently, there can be no assurance that liabilities incurred with respect to a particular claim will be covered by
insurance or, if covered, that the dollar amount of such liabilities will not exceed coverage limits.

Trademarks

The Company has trademark registrations for the trademark "New Horizons"and for other trademarks incorporating
the words "New Horizons", including"New Horizons Classroom Learning", "New Horizons Online Live Learning", "New Horizons Online
Anytime Learning", and"New Horizons Integrated Learning."Additionally, the Company has pending trademark applications for "Mentored
Learning","Online Live"and"Learning Port".The Company believes that the New Horizons name and trademarks are important to its business. The Company is not aware of any pending or threatened claims of infringement or challenges to the
Company's right to use the New Horizons name and trademarks in its business. However, the Company has been previously advised that it cannot register the trademark "New
Horizons" in certain foreign countries. The Company believes that the inability to

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register
certain of its trademarks in certain foreign countries will not have a material adverse effect on its financial condition or results of operations.

Item 1A.    Risk Factors

The following is a discussion of certain significant risk factors that could potentially negatively impact our financial condition, performance and prospects. In
addition to the other information contained in this report, the reader should carefully consider the following factors in evaluating the Company.

Risks Related to our Business and Operations

If we do not generate a sufficient amount of cash, which depends on many factors beyond our control, our liquidity and our ability to service our indebtedness and fund our
operations would be harmed.

We have substantial debt service obligations, working capital needs and contractual commitments. We cannot assure you that our business will generate sufficient
cash flow from operations, that our anticipated revenue growth will be realized or that future borrowings will be available to us under credit facilities in amounts sufficient to enable us to pay our
existing indebtedness, fund our expansion efforts or fund our other liquidity needs. In addition, substantially all our assets are encumbered.

We may not be able to remain profitable in the future.

We incurred significant losses in 2005 and 2006. Although the Company returned to profitability in 2007, future revenues and profits, if any, will depend upon
various factors, including continued market acceptance of our products and services. Since 2002, we have experienced a significant decrease in revenues. In addition, we continue to incur significant
fixed costs, including expenses for facility leases, instructors, sales and marketing, product development, and personnel. We cannot assure our shareholders that our business will continue to improve
or when or if revenues will increase. From 2001 through 2006, we experienced recurring losses and we have an accumulated deficit.

Fluctuations in our quarterly results may adversely affect the implementation of our business strategy.

Our revenues and profitability may fluctuate as a result of many factors, including the size, timing, and product mix of orders and the training spending patterns
of our customers. The timing of our revenues is difficult to forecast because our sales cycle is relatively long and our services are affected by the financial conditions and management decisions of
our clients, as well as general economic conditions.

We
follow specific and detailed guidelines in determining the proper amount of revenue to be recorded; however, certain judgments such as the timing of the delivery of training to
customers, affect our revenue recognition policy. Revenue results are difficult to predict, and any shortfall in revenue or delay in recognizing revenue could cause our operating results to vary
significantly from quarter to quarter.

Competition in our industry is intense and could adversely affect our performance.

Our industry is intensely competitive, rapidly evolving, and subject to technological change. Demand for particular courseware products, systems hardware, and
services may be adversely affected by the increasing number of competitive products from which a prospective customer may choose. We compete primarily against other organizations offering educational
and training software and services. Our competitors include several large companies with substantially greater financial, technical, and marketing resources than ours such as comprehensive curriculum
software publishers, companies providing single-title retail products, Internet content and service providers, and computer hardware

11

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companies.
Existing competitors may broaden their product lines and potential competitors may enter the market and/or increase their focus on e-learning, resulting in greater competition
for us. Increased competition in our industry could result in price reductions, reduced operating margins, or loss of market share, which could seriously harm our business, cash flows, and operating
results.

Failure to retain our key executives or attract and retain qualified technical personnel could harm our business and operating results.

The loss of one or more of our executive officers or other key personnel could inhibit the development of our business and, accordingly, harm our business and
operating results. Our future success depends in large part on the continued service of our key managerial, technical, marketing, and sales personnel and on our ability to continue to attract,
motivate, and retain highly qualified employees. Our key employees may terminate their employment with us at any time. There is competition within the
industry for such employees and the process of locating key technical and management personnel with suitable skills may be difficult and expensive.

Our future success will depend on our ability to adapt to technological changes and meet evolving industry standards.

We may encounter difficulties responding to technological changes that could delay our introduction of products and services or other existing products and
services. Our industry is characterized by rapid technological change and obsolescence, frequent product introduction and evolving industry standards. Our future success will depend, to a significant
extent, on our ability to enhance our existing products, develop and introduce new products and training methods, satisfy an expanded range of customer needs, and achieve market acceptance. We may not
have sufficient resources to make the necessary investments to develop and implement the technological advances required to maintain our competitive position.

Unless we maintain a strong brand identity, our business may not grow and our financial results may be adversely impacted.

We believe that maintaining and enhancing the value of the New Horizons brand is critical to attracting customers. Our success in maintaining brand awareness will
depend on our ability to continuously provide technology educational programs which students value. We cannot guarantee that we will be successful in maintaining our brand equity. In addition, to
attract and retain customers and to promote and maintain the New Horizons brand, we have spent and may need to continue spending significant resources on a brand-enhancement strategy, which includes
promotional programs and efforts by our field sales team and marketing staffs. Incremental revenues from these activities may be insufficient to offset associated costs.

Misuse or misappropriation of our proprietary rights could adversely affect our results of operations.

Our success depends in part on our intellectual property rights to the products and services that we develop. We rely primarily on a combination of statutory and
common law copyright, trademark and trade secret laws, customer licensing agreements, employee and third-party nondisclosure agreements, and other methods to protect our proprietary rights. Third
parties may assert infringement claims against us in the future. We may be required to modify our products, services or technologies or obtain a license to permit our continued use of those rights. We
may not be able to do so in a timely manner or upon reasonable terms and conditions. Failure to do so could harm our business and operating results.

12

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Failure to achieve and maintain effective internal control over financial reporting could have a material adverse effect on our business, operating results and stock price.

We continued the implementation of several initiatives that have materially affected, in a positive manner, our internal control over financial reporting.
Specifically, we improved our internal control over financial reporting by adhering to a financial closing timeline that permitted us adequate time to analyze our results at a departmental and segment
level to ensure that our financial records captured all activity for the quarter and fiscal year-end. In addition, our senior management, including our chief executive officer and chief
financial officer, have reviewed our financial results in comparison to budget and prior year to determine the presence of inconsistencies and inaccuracies in financial reporting. Finally, we have
completed SEC Form 10-Q and SEC Form 10-K checklists published by a leading publisher of business and corporate compliance literature to ensure our filings comply
with rules and regulations promulgated by the SEC for interim and year-end reporting. These improvements notwithstanding, the Company's internal control systems contain weaknesses and will
continue to require the commitment of managerial attention and financial resources.

Legal proceedings may have a material adverse impact on our results of operations or cash flows in future periods.

From time to time, we become subject to various legal proceedings, the resolution of which could have a material adverse impact on our results of operations or
cash flows in future periods.

The Company is susceptible to business and political risks from international operations that could result in reduced revenues or earnings.

We market our services worldwide. We operate franchises in many countries outside the United States, located throughout North and South America, Europe, the
Middle East and the Asia Pacific regions. We expect to continue franchise expansion in additional countries. Expansion of its existing international operations and entry into additional countries will
require management attention and financial resources. In addition, there are certain risks inherent in conducting business internationally including: exposure to currency fluctuations, longer payment
cycles, greater difficulties in accounts receivable collection, difficulties in complying with foreign laws, unexpected changes in legal or regulatory requirements, difficulties in staffing and
managing foreign operations, political instability and
potentially adverse tax consequences. To the extent that we do not manage our international operations successfully, our business could be adversely affected and its revenues and earnings could be
reduced.

Risks Relating to Ownership of Our Common Stock

The trading price of our common stock may be volatile and could decline.

The market price for our common stock is volatile and may decline in the future for a variety of reasons, including:



13

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In
addition, the stock market and the Pink Sheets in particular, have experienced significant price and volume fluctuations that have affected the market prices of companies in recent
years. These fluctuations may continue to occur and disproportionately impact the price of our common stock. In the past, following periods of volatility in the market price of a company's securities,
securities class-action litigation has often been instituted. This type of litigation could result in substantial costs and a diversion of management's attention and resources, which could materially
affect our business, financial condition, cash flows, or results of operations.

Our charter documents and Delaware law may discourage an acquisition of New Horizons that could deprive our shareholders of opportunities to sell their shares of our common
stock at prices higher than prevailing market prices.

Provisions of our certificate of incorporation, by-laws and Delaware law could make it more difficult for a third party to acquire us, even if doing
so would be beneficial to our shareholders. We have issued, and may hereafter issue, shares of preferred stock without shareholder approval and upon such terms as our board of directors have
negotiated. Our issuance of preferred stock could have the effect of making it more difficult for a third party to acquire, or discourage a third party from acquiring, a majority of our outstanding
stock and potentially prevent the payment of a premium to shareholders in an acquisition. Our certificate of incorporation and by-laws provide that special shareholders meetings may be
called only by our board of directors. As such, any third-party takeover not supported by the board of directors could be subject to significant delays and difficulties. Further, our certificate of
incorporation provides for special voting and other requirement for business combinations with parties owning 15% or more of our common stock. Such provisions also inhibit takeover efforts of third
parties.

The ability for investors to buy and sell our common stock is severely limited.

Our common stock was delisted by the NASDAQ Global Market on July 22, 2005 for failure to satisfy a continued listing rule or standard. As a result, the
ability of investors to buy and sell our common stock is severely restricted.

There is only a limited market for our Common Stock as a "Penny Stock."

A limited public market currently exists for our common stock on the Pink Sheets. In the future, there can be no assurance that a more active public market for
our common stock will ever develop or be sustained. Our common stock is also subject to the penny stock rules. The term "penny stock" generally refers to low-priced, speculative securities
of very small companies. Before a broker-dealer can sell a penny stock, SEC rules require the broker-dealer to first approve the customer for the transaction and receive from the customer a written
agreement for the transaction. The broker-dealer must furnish the customer with a document describing the risks of investing in penny stocks. The broker-dealer must tell the customer the current
market quotation, if any, for the penny stock and the compensation the broker-dealer and its broker will receive for the trade. Finally, the broker-dealer must send monthly account statements showing
the market value of each penny stock held in the customer's account. These requirements make penny stocks more difficult to trade.

Since
our Common Stock is subject to the penny stock rules, the market liquidity of our Common Stock may be adversely affected.

14

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Item 1B.    Unresolved Staff Comments

None

Item 2.    Properties

We lease approximately 20,000 square feet of office space in Anaheim, California for our corporate headquarters under a lease that expires in July 2008. We lease
approximately 8,000 square feet of office space in Conshohocken, Pennsylvania for our corporate executives, accounting and IT services under a lease that expires in 2014. In addition, we lease
facilities for our international operations in Singapore.

As
of December 31, 2007, New Horizons operated training centers at 5 leased facilities in Colorado and Indiana, with leases that expire from 2008 to 2011. The total leased office
space of these centers is approximately 25,000 square feet.

The
Company is a sublessor in four of the Company-owned training centers that were sold with total leased space of approximately 40,000 square feet. One sublease expires in March 2008,
another sublease was expires in August 2008. The other two subleases expire in June 2011 and December 2011. Three of the leases for Company-owned training centers that were sold in 2006 terminated in
2007.

The
Company believes that its facilities are well maintained and are adequate to meet current requirements and that suitable substitute space will be available as needed to accommodate
any expansion of operations and for additional training centers or offices, if necessary.

Item 3.    Legal Proceedings

(All
dollars in thousands)

On
October 16, 2007, the Company executed a settlement agreement with Edusoft, Ltd., ("Edusoft") which resolved disputes involving a certain licensing agreement between
Edusoft and the Company for English language training materials. The settlement provides, among other things, that the Company will pay Edusoft $375 in installments over a two-year period
and issue Edusoft 37,500 restricted shares of the Company's common stock.

On
February 24, 2006, the Company reached a settlement in the amount of $850 with a plaintiff who was a former employee of the Company. The settlement was paid in installments
during 2006. The Company's insurance carrier contributed $192 to the settlement.

The
Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not
have a material adverse effect on the Company's consolidated financial position or results of operations. See also Note 14 "Commitments and Contingencies" to the Company's consolidated
financial statements.

15

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Item 4.    Submission Of Matters To A Vote Of Security Holders

A special meeting of our stockholders was held on November 6, 2007. At the special meeting:



For approval:

6,733,842For approval (preferred):

346,736Against approval:

1,899,585Abstain:

303,106Non-votes:

1,207,279




For approval:

9,548,431For approval (preferred):

346,736Against approval:

292,275Abstain:

303,106Non-votes:






Curtis Lee Smith

9,089,469Mark A. Miller

9,075,019William H. Heller

9,098,219Richard L. Osborne

9,098,219David L. Warnock (preferred Series B)

174,693Donald W. Hughes (preferred Series B)

174,693Alwaleed Aldryaan (preferred Series B)

174,693Robert L. Orley (preferred Series C)

172,043Arnold M. Jacob (preferred Series C)

172,043




For approval:

6,093,097For approval (preferred):

346,736Against approval:

2,252,273Abstain:

591,163Non-votes:

1,207,279




For approval:

9,138,919For approval (preferred):

346,736Against approval:

1,582Abstain:

1,004,311Non-votes:




16

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PART II

Item 5.    Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company's common stock is traded on the Pink Sheets under the symbol "NEWH.PK." The following table sets forth the quarterly range of high and low closing
quotations per share of common stock from January 1, 2006, through December 31, 2007, as reported on the Pink Sheets. The quotations below do not reflect the retail mark-up,
markdown or commissions and may not represent actual transactions.

2006



High

Low1st Quarter

(January 1 - March 31)

$
0.72

$
0.562nd Quarter

(April 1 - June 30)

$
1.01

$
0.553rd Quarter

(July 1 - September 30)

$
1.25

$
0.754th Quarter

(October 1 - December 31)

$
1.15

$
0.52


|
|

2007



High

Low1st Quarter

(January 1 - March 31)

$
1.15

$
0.802nd Quarter

(April 1 - June 30)

$
1.00

$
0.843rd Quarter

(July 1 - September 30)

$
1.90

$
0.904th Quarter

(October 1 - December 31)

$
2.25

$
1.55


Holders

As of March 10, 2008, the Company's common stock was held by 411 holders of record.

Dividend Policy

The Company has never declared or paid cash dividends on its common stock and has no intention to declare or pay cash dividends on its common stock in the
foreseeable future. The Company currently intends to retain any future earnings to finance the growth of the Company.

Securities Authorized for Issuance Under Equity Compensation Plans

|Plan Category                                              |  | (a)
Number of
securities to be
issued upon exercise
of outstanding
options, warrants
and rights |  | (b)
Weighted-
average
exercise price of
outstanding
options, warrants
and rights |      | (c)
Number of
securities remaining
available for
future issuance
under equity
compensation
plans (excluding securities
reflected in column (a))
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------- | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------
|Equity compensation plans approved by security holders(1)  |  | 1,340,500                                                                                       |  | $                                                                                | 2.01 |                                                                                                                                                
|Equity compensation plans approved by security holders(2)  |  | 2,000,000                                                                                       |  | $                                                                                | 0.00 |                                                                                                                                                
|Equity compensation plans not approved by security holders |  |                                                                                                |  |                                                                                  |     |                                                                                                                                                
|                                                           |  |                                                                                                 |  |                                                                                  |      |                                                                                                                                                
|Total                                                      |  | 3,340,500                                                                                       |  | $                                                                                | 2.01 |                                                                                                                                                
|                                                           |  |                                                                                                 |  |                                                                                  |      |                                                                                                                                                

---

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Recent Sales of Unregistered Securities(All numbers in thousands, except per share data)

During
the twelve months ended December 31, 2007, the Company issued a total of 242,666 shares of common stock upon the exercise of stock options. The exercises took place between
May 15, 2007 and November 7, 2007 at exercise prices ranging from $0.67 to $0.80 per share. The Company received proceeds of $175 for the exercise of these stock options and intends to
use the proceeds for general working capital activities.

In
August 2006, the Company sold 108,695 shares of common stock at $0.92 per share which represented the Pink Sheet's market price of our common stock on the date of sale. The sale was
made to the Company's Chief Executive Officer per the terms of his employment agreement dated July 5, 2006.

Item 7.    Management's Discussion And Analysis Of Financial Condition And Results Of Operations

The following table sets forth certain consolidated income statement data as a percentage of net revenues:

|                                                      |                                        | 2007                       |    | 2006 |    | 2005 |   
|----------------------------------------------------- | -------------------------------------- | -------------------------- | -- | ---- | -- | ---- | --
|Revenues                                              |                                        |                            |    |      |    |      |   
|                                                      | Franchising                            |                            |    |      |    |      |   
|                                                      |                                        | Franchise fees             |    | 2    | %  | 1    | % 
|                                                      |                                        | Royalties                  |    | 37   | %  | 22   | % 
|                                                      |                                        | Courseware sales and other |    | 8    | %  | 14   | % 
|                                                      |                                        |                            |    |      |    |      |   
|                                                      |                                        | Total franchising revenues |    | 47   | %  | 37   | % 
|                                                      | Company-owned training center revenues |                            | 53 | %    | 63 | %    | 70
|                                                      |                                        |                            |    |      |    |      |   
|                                                      |                                        | Total revenues             |    | 100  | %  | 100  | % 
|Cost of revenues                                      |                                        | 47                         | %  | 59   | %  | 61   | % 
|Selling, general and administrative expenses          |                                        | 45                         | %  | 43   | %  | 43   | % 
|Impairment of property and equipment                  |                                        | 0                          | %  | 1    | %  | 2    | % 
|                                                      |                                        |                            |    |      |    |      |   
|Operating income (loss)                               |                                        | 8                          | %  | (3   | )% | (6   | )%
|Other income/(loss)                                   |                                        | 0                          | %  | (1   | )% | 0    | % 
|Gain/(loss) on sale of Company-owned training centers |                                        | 5                          | %  | 2    | %  | 0    | % 
|Interest expense                                      |                                        | (1                         | )% | 0    | %  | 0    | % 
|Investment income                                     |                                        | 0                          | %  | 0    | %  | 0    | % 
|                                                      |                                        |                            |    |      |    |      |   
|Income (loss) before income tax provision             |                                        | 12                         | %  | (2   | )% | (6   | )%
|Income tax provision                                  |                                        | (2                         | )% | (1   | )% | (1   | )%
|                                                      |                                        |                            |    |      |    |      |   
|Net income (loss)                                     |                                        | 10                         | %  | (3   | )% | (7   | )%
|                                                      |                                        |                            |    |      |    |      |   

Balances
of less than 1% of revenues are not disclosed in this table.

Results Of Operations 2007 Versus 2006(in thousands)

Revenues

Revenues totaled $51,637 during the year ended December 31, 2007, a decrease of $25,043, or 33%, from $76,680 in 2006. The decrease in revenue is the
result of a decrease in Company-owned location revenue of $21,113 and a decrease in franchising revenues of $3,930.

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Company-owned Training Centers

Company-owned training centers earned revenue of $27,604 for the year ended December 31, 2007, a decrease of $21,113, or 43%, from $48,717 in 2006. The
decrease is primarily due to the Company's sale and refinancing of Company-owned training centers, reducing the number of Company-owned training centers from six to two, and increasing the number of
franchised operations by the same number. In 2006, the Company had decided to reduce significantly the number of Company-owned training centers and to refocus its resources and managerial energies on
its franchising operations. Consumer sales accounted for approximately 19% and 17% of Company-owned training centers sales in 2007 and 2006, respectively, and corporate sales accounted for
approximately 81% and 83% of Company-owned training centers sales in 2007 and 2006, respectively.

Franchising Operations

Franchising revenues totaled $24,033 during the year ended December 31, 2007, a decrease of $3,930, or 14%, from $27,963 in 2006. The decrease in
franchising revenues resulted from a decline in courseware sales partially offset by an increase in franchise fees and royalties.

Franchise
fees totaled $975 during the year ended December 31, 2007, an increase of $159, or 19%, from $816 in 2006. The increase is primarily due to increased franchise sales in
both domestic and international markets.

Franchise
royalties totaled $19,150 during the year ended December 31, 2007, an increase of $2,454, or 15%, from $16,696 in 2006. The increase is due to an increase in North
American royalties, due to market growth, as a result of refranchising Company-owned training centers, increasing royalty rates
and minimums required under terms of the franchise agreements, the recognition of deferred revenue on the Company-owned training centers that were refranchised during 2006 and 2007, and an increase in
international royalties.

Courseware
sales and other revenues totaled $3,908 during the year ended December 31, 2007, a decrease of $6,543, or 63%, from $10,451 in 2006. Courseware sales and other revenues
are comprised primarily of revenues from the sale of licensed software training courseware, e-Learning and non e-Learning products, and other revenues and fees. The decrease is
primarily due to the cancellation of the Company's main courseware reseller content in June 2006.

System-wide Revenues

System-wide revenues, comprised of total Company revenue and total non-consolidated franchise revenue, totaled $382,124 during the year
ended December 31, 2007, an increase of $18,846, or 5%, from $363,278 in 2006. The increase in revenue was experienced across the network including the United States and internationally.
System-wide revenues are defined as the revenues from Company-owned training centers and revenues reported to the Company by its domestic and international franchises.

Cost of Revenues

Cost of revenues totaled $24,115, or 47% of revenue, during the year ended December 31, 2007, a decrease of $21,076, or 47%, from $45,191, or 59% of
revenue, in 2006. The decrease is primarily due to the sale of eleven Company-owned training centers since March 1, 2006 and cancellation of the Company's courseware reseller contract in 2006.

Selling, General and Administrative Expenses

Selling, general and administrative expenses totaled $23,299, or 45% of revenue, during the year ended December 31, 2007, a decrease of $10,214, or 31%,
from $33,513, or 43% of revenue, in 2006.

19

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The
decrease is primarily due to the sale of 11 Company-owned training centers since March 1, 2006 and savings achieved from cost cutting initiatives undertaken in 2006 and 2007.

Impairment of Fixed Assets

Impairment testing was performed during 2007 and no further impairment charge was considered necessary for the Company-owned training centers.

Impairment of Goodwill

Effective January 1, 2002, the Company adopted SFAS No. 142, "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 or earlier, in the event of an impairment indicator. Impairment testing was performed for the years ended
December 31, 2007 and 2006 and no impairment charge was recorded for either year. See also Note 6 "Goodwill" to the Company's consolidated financial statements.

Gain on Sale of Company-owned Training Centers

Gain on sale of Company-owned training centers totaled $2,681 for the year ended December 31, 2007, an increase of $561, or 27%, from $2,120 in 2006. The
2007 gain related to the sale of the Chicago, Cleveland, Anaheim, and New York Company-owned training centers. See Note 15 "Gain/Loss on Sale of Company-owned Training Centers" to the Company's
consolidated financial statements.

Interest Expense

Interest expense totaled $604 for the year ended December 31, 2007, an increase of $300, or 99%, from $304 in 2006. The increase is primarily due a higher
average debt balance maintained during the current year and an increase in interest expense incurred on consumer refunds.

Investment Income

Investment income totaled $129 for the year ended December 31, 2007, a decrease of $164, or 56%, from $293 in 2006. The decrease is primarily the result of
lower average cash balances during 2007 compared to 2006.

Income Tax Expense

Provision for income tax expense totaled $1,097 for the year ended December 31, 2007, an increase of $78 from $1,019 in 2006. The majority of income tax
expense represents foreign source withholding taxes on royalties remitted to the Company by its international franchisees. See also Note 7 "Income Taxes" to the Company's consolidated financial
statements.

Results Of Operations 2006 Versus 2005(in thousands)

Revenues

Revenues totaled $76,680 during the year ended December 31, 2006, a decrease of $29,741, or 28%, from $106,421 in 2005. The decrease in revenue is the
result of a decrease in Company-owned location revenue of $26,327 and a decrease in franchising revenues of $3,414.

20

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Company-owned Training Centers

Company-owned training centers earned revenue of $48,717 for the year ended December 31, 2006, a decrease of $26,327, or 35%, from $75,044 in 2005. The
decrease is primarily due to a decrease in the number of Company-owned training centers from 13 to six at year-end 2006, decreased consumer sales resulting from difficulty in obtaining
third party financing solutions, and lower corporate spending on IT training. The Company has decided to reduce significantly the number of Company-owned training centers and to refocus its resources
and managerial energies on its franchising operations. Consumer sales accounted for approximately 17% and 21% of Company-owned training center sales in 2006 and 2005, respectively, and corporate sales
accounted for approximately 83% and 79% of Company-owned training center sales in 2006 and 2005, respectively.

Franchising Operations

Franchising revenues totaled $27,963 during the year ended December 31, 2006, a decrease of $3,414, or 11%, from $31,377 in 2005. The decrease in
franchising revenues resulted primarily from a decline in courseware sales and franchise fees partially offset by an increase in royalties.

Franchise
fees totaled $816 during the year ended December 31, 2006, a decrease of $291, or 26%, from $1,107 in 2005. The decrease is primarily due to decreased franchise sales in
international markets offset by fees from refranchising Company-owned training centers during 2006.

Franchise
royalties totaled $16,696 during the year ended December 31, 2006, an increase of $1,297, or 8%, from $15,399 in 2005. The increase is due to an increase in North
American royalties as a result of refranchising seven Company-owned training centers during 2006 and increasing royalty rates and minimums required under terms of respective franchise agreements.
International royalties in 2006 were unchanged from 2005. The North American IT training market has remained soft as corporate spending on IT training and infrastructure has been weak and available
consumer training financing on acceptable terms has been limited. The number of North America reporting franchise locations increased from 83 in 2005 to 93 in 2006, including the seven centers
refranchised during 2006. The number of international franchises decreased from 111 reporting locations in 2005 to 108 locations during 2006.

Courseware
sales and other revenues totaled $10,451 during the year ended December 31, 2006, a decrease of $4,420, or 30%, from $14,871 in 2005. Courseware sales and other
revenues are comprised primarily of revenues from licensed software training courseware, e-learning and non e-learning products, and other revenues and fees. The decrease is
primarily due to the mid-year 2006 loss of the Company's main licensed software training courseware contract, pricing pressure and commoditization of self-paced asynchronous
e-learning products, partially offset by growth in synchronous, facilitated virtual classroom events.

System-wide Revenues

System-wide revenues, totaled $363,278 during the year ended December 31, 2006, a decrease of $5,018, or 1%, from $368,296 in 2005. The
decrease in system-wide revenues is primarily due to a decrease in North American system-wide revenues offset by increases in international system-wide revenues.
System-wide revenues are defined as the revenues from Company-owned training centers and revenues reported to the Company by its domestic and international franchises.

Cost of Revenues

Cost of revenues totaled $45,191, or 59% of revenue, during the year ended December 31, 2006, a decrease of $19,231, or 30%, from $64,422, or 61% of
revenue, in 2005. The decrease is primarily due to the decrease in the number of Company-owned training centers during the year from 13 to six, lower

21

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training
activity at the remaining Company-owned training centers and the Company's continued cost reduction efforts including headcount reductions, occupancy costs, and consolidation of training
events.

Selling, General and Administrative Expenses

Selling, general and administrative expenses totaled $33,513, or 44% of revenue, during the year ended December 31, 2006, a decrease of $12,358, or 27%,
from $45,871, or 43% of revenue, in 2005. The decrease is primarily due to the decrease in the number of Company-owned training centers during the year from 13 to six, the Company's cost reduction
efforts including reductions in leased space, decreases in headcount, employee related expenses and in commissions due to lower sales volumes.

Impairment of Fixed Assets

In 2006, the Company recorded a non-cash impairment charge of $391 against computer software used by the network which is being phased out and
replaced with more current software. This compares to a non-cash impairment charge of $2,351 incurred during 2005 against fixed assets at the Company's Chicago, Cleveland and New York City
Company-owned training centers. The charges were pursuant to Statement of Financial Accounting Standards ("SFAS") No. 144 "Accounting for the Impairment or Disposal of Long-Lived
Assets." The 2005 non-cash impairment charge is the result of continued operating and cash flow losses arising from these locations and a resulting decrease in the estimated fair value of
each Company-owned training center. The estimated fair value of each Company-owned training center was determined based on the greater of the estimated discounted cash flows of the Company-owned
training center or recent sales of comparable training centers within the Company's franchise network. Impairment testing was performed during 2006 and no further impairment charge was considered
necessary at the Company-owned training centers. See also Note 5 "Property and Equipment" to the Company's consolidated financial statements.

Impairment of Goodwill

Effective January 1, 2002, the Company adopted SFAS No. 142, "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 or earlier, in the event of an impairment indicator. Impairment testing was performed for the years ended
December 31, 2006 and 2005 and no impairment charge was recorded for either year. See also Note 6 "Goodwill" to the Company's consolidated financial statements.

Gain on Sale of Company-owned Training Centers

Gain on sale of Company-owned training centers totaled $2,120 for the year ended December 31, 2006, an increase from a $329 loss in 2005. The increase is
attributable to gains from the sales of the San Antonio, Charlotte, Memphis, Nashville, Atlanta, Hartford and Albuquerque Company-owned training centers in 2006. See Note 15 "Gain/Loss on Sale
of Company-owned Training Centers" to the Company's consolidated financial statements.

Interest Expense

Interest expense totaled $304 for the year ended December 31, 2006, an increase of $81, or 36%, from $223 in 2005. The increase is primarily due to a
higher average debt balances maintained during the year.

22

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Investment Income

Investment income totaled $293 for the year ended December 31, 2006, a decrease of $78, or 21%, from $371 in 2005. The decrease is primarily the result of
lower average cash balances during the 2006 compared to 2005.

Income Tax Expense

Provision for income tax expense totaled $1,019 for the year ended December 31, 2006, an increase of $169 from $850 in 2005. The majority of income tax
expense represents foreign source withholding taxes on royalties remitted to the Company by its international franchisees. See also Note 7 "Income Taxes" to the Company's consolidated financial
statements.

Critical Accounting Policies and Management's Estimates

The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States of America. Preparation of
financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and revenues and expenses
during the reporting period. The following critical accounting policies include: (a) accounting estimates made by management that were highly uncertain at the time of estimation, and
(b) accounting estimates in which there were a range of potential reasonable estimates the Company could have used in the current period and changes in these estimates are reasonably likely to
occur from period to period. On an ongoing basis, management evaluates its estimates and judgments in these areas based on its historical experience and other relevant factors.
The Company's estimates as of the date of the financial statements reflect its best judgment giving consideration to all currently available facts and circumstances. As such, these estimates may
require adjustment in the future, as additional facts become known or as circumstances change. Changes in these estimates could potentially have a material impact on the Company's financial position
or results of operations.

Revenue Recognition

The Company earns revenue through its franchising operations and from the delivery of instructor-led, mentored learning, and e-learning
training courses by its Company-owned training centers.

The
Company receives monthly continuing royalties from unit franchisees, a percentage of royalties from master franchisees that they receive from their subfranchises, and a course
materials and proprietary computer-based training products surcharge. These royalties are recognized in the month in which the franchisee generates the related revenue.

A
unit franchisee is charged an initial franchise fee upon execution of the Franchise Agreement which is not refundable under any circumstances. This fee is recognized upon the
franchisees' completion of two weeks of initial franchise training at the Company's location in Anaheim, California or Conshohocken, Pennsylvania.

A
master franchise fee provides international franchisees with the right to award subfranchises to other parties within a particular region. The fee is payable upon execution of the
Franchise Agreement and is not refundable under any circumstances. This fee is based upon the expected number of subfranchises to be sold. The master franchise fee is earned ratably as the
subfranchises are sold.

The
Company recognizes revenues from its Company-owned training center operations for training vouchers, club memberships, and technical certification tracks. Revenue is recognized based
on estimates of the time period required to deliver training to customers over the service period. These estimates differ from the straight-line method. Combined, these products comprise a
material amount

23

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of
the Company's consolidated revenues. Management has determined that historical student attendance rates are the best estimate of how the Company will deliver training and recognize revenue to
customers in the future.

The
Company performs historical student attendance analyses on a quarterly basis. In these analyses, the Company reviews approximately 15% of the sales transactions for these products,
selected randomly, to determine the number of courses delivered under each arrangement and the time period between each course date and the invoice date. Based on this data, the Company is able to
determine the historical rates at which customers have attended class for each product type. In order to provide customers with adequate time to take courses, the Company allows a period of
one-year from the date of sale before performing student attendance analyses. Historical student attendance data from the past eight quarterly analyses, or two years of trailing data, are
combined to determine the estimates used in revenue recognition.

Due
to the use of estimated delivery rates rather than actual delivery, revenue recognition for training vouchers, technical tracks and programs, and club arrangements based on estimated
delivery rates could differ materially from that of actual course delivery. Additionally, the Company's estimates based on historical student attendance patterns may not accurately forecast future
attendance patterns. 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 time periods than if a straight-line method were applied.

The
continual revision of estimated student attendance rates results in cumulative adjustments to revenue recognized for sales transactions consummated in prior periods.

Change in Estimate

Revenue recognition rates utilized for certain 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 the past eight quarterly analyses, or two years of trailing
data. For training vouchers, club memberships and technical certification programs for which the Company does not perform student attendance analysis, the Company recognizes revenue on a
straight-line basis. 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 time periods than if the straight-line method were
applied. The continual revision of estimated student attendance rates results in cumulative adjustments to revenue recognized for sales transactions consummated in prior periods. Upon completion of
the historical student attendance analyses in the fourth quarters of 2007 and 2006, the Company adjusted its revenue recognition rates. The adjustments resulted in an increase in the deferred revenue
balance and a decrease in revenue of $217 for the fourth quarter of 2007 and a decrease in the deferred revenue balance and an increase in revenue of $150 for the fourth quarter of 2006. For the
twelve months ended December 31, 2005, the Company recorded a decrease in deferred revenue and an increase in revenue of $381.

Although
the Company believes its current revenue recognition rates are consistent with current student attendance patterns, no assurance can be given that such rates will not change in
the future.

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

24

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and
hosting costs associated with the Company's e-learning products. Deferred costs are charged to earnings at the same rate that the associated product revenues are recorded to earnings.
At December 31, 2007 and 2006, the Company's deferred costs totaled $232 and $582, respectively, and is reported in prepaid expenses in the accompanying Consolidated Balance Sheet.

Accounts Receivable

Accounts receivable are shown net of allowances for doubtful accounts. The Company records an allowance for bad debts based on the age of individual invoices. For
the Company-owned training centers, the percentage applied reflects each center's historical experience of bad debts and mix of business. At December 31, 2007 and 2006, the Company's allowance
for doubtful accounts was $1,313 and $1,697, respectively.

Deferred Tax Asset

In 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 taxes together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue or the allowance for doubtful accounts, 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.

The
Company regularly analyzes the future recovery of its deferred tax assets based on its best estimates of future taxable income. In the recovery analysis, recent cumulative losses are
provided greater weight than current or estimated future profitability. As a result, in the absence of significant positive evidence indicating future taxable income is imminent, there is a
presumption that a valuation allowance is required during periods of recent cumulative losses. The Company performed an analysis of the deferred income tax assets and liabilities for the years ended
December 31, 2006 and 2005 and determined that the additional net deferred tax asset generated in those years of $629 and $2,681, respectively, required an equal valuation allowance, which
brought the total valuation allowance at December 31, 2006 and 2005 to $34,848 and $34,219, respectively. During 2007, $11,514 of deferred tax asset was realized, resulting in an equal
reduction to the valuation allowance at December 31, 2007. See also Note 7 "Income Taxes" to the Company's consolidated financial statements.

Accounting for Goodwill

The goodwill balances attributable to the Company's franchising and Company-owned locations reporting units are tested for impairment annually as of
December 31 of each year and on an interim basis in the event of an impairment indicator. The Company utilizes an outside valuation consultant in determining the fair value of its reporting
units. The consultant utilizes both the income approach and the market approach in determining fair value. The consultant's fair value estimates using the income approach utilize the Company's best
estimates of future operating performance.

The
Company engaged an outside consultant to perform the annual goodwill impairment testing as of December 31, 2007 and 2006. No impairment was indicated. See also Note 6
"Goodwill" to the Company's consolidated financial statements.

Liquidity And Capital Resources

The Company's cash and cash equivalents was $4,101 as of December 31, 2007 compared to $795 as of December 31, 2006. The increase is due to $3,802
in net proceeds from the issuance of Series C

25

---



Convertible
Preferred Stock to private investors, improved operating results and the sale of four Company-owned training centers in 2007.

Cash
provided by operations was $27 for the year ended December 31, 2007, compared to cash used by operations of $7,049 in the prior year. The improvement is primarily due to
increased net operating income of $4,223 being generated in 2007 versus a net operating loss of $2,415 being generated in 2006.

Cash
used in investing activities was $698 for the year ended December 31, 2007, compared to cash provided by investing activities of $939 in the prior year. The increase is
primarily due to an increase in the purchase of property and equipment of $318, and a decrease in the proceeds from the sale of Company-owned training centers of $1,307.

Net
cash provided by financing activities was $3,977 for the year ended December 31, 2007, $870 above the amount provided in 2006. This increase is the result of principal
payments made on debt obligations in the prior year compared to no principal debt payments made in the current year. In the prior year, the Company paid all amounts owed under a credit agreement with
Wells Fargo Bank, National Association and entered into a new credit agreement with several investors (see Note 4 "Debt" in the Company's Notes to Consolidated Financial Statements).

As
stated above, during the year ended December 31, 2007, the Company received $3,802 of net proceeds from the issuance of Series C convertible preferred stock (see
Note 13 "Shareholder's Equity (Deficit)"). The Company intends to use the proceeds of the sale primarily for general working capital. Management believes that the additional capital, combined
with improved financial results, will sustain the Company for the next twelve months.

Off-Balance Sheet Arrangements and Contractual Obligations

The Company's off-balance sheet arrangements and contractual obligations consist principally of various building and equipment operating leases.

The
Company has $513 in restricted cash comprised of the following. The Company has deposited $263 with state agencies to guarantee performance in various states in respect to providing
training to consumers. In the event the Company were to abandon training in a state, the state agency could draw against the deposits to satisfy undelivered training obligations. In addition, the
Company has deposited $250 with a bank to comply with contractual obligations.

The
Company sold its Chicago, Cleveland, Anaheim, and New York Company-owned training centers in 2007. From time to time, the Company may evaluate other acquisition or divestiture
opportunities that appear to fit within its overall business strategy.

Item 8.    Financial Statements And Supplementary Data

Page 24 includes management's assessment of internal control over financial reporting as of December 31, 2007, page 25 through 52 includes
the report of our independent registered public accounting firm, Squar, Milner, Peterson, Miranda & Williamson, LLP on our consolidated financial statements, and the Consolidated Financial
Statements of the Company along with applicable notes and supplementary financial information specified by Item 302 of Regulation S-K.

26

---



MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. Our system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Company's assets that could have a material effect on the financial statements.

Management
performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2007 based upon criteria in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on this assessment, management determined that the Company's
internal control over financial reporting was effective as of December 31, 2007, based on the criteria in Internal Control-Integrated Framework issued by COSO.

This
annual report does not include a report of management's assessment regarding internal control over financial reporting or an attestation report of the Company's registered public
accounting firm due to a transition period established by rules of the Securities and Exchange Commission for certain public companies.

This
report shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section.
Further, this report shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

|/s/MARK A. MILLER                                   |  | /s/CHARLES J. MALLON                                                  
|--------------------------------------------------- |  | ----------------------------------------------------------------------
|Mark A. Miller Chairman and Chief Executive Officer |  | Charles J. Mallon Executive Vice President and Chief Financial Officer
|March 24, 2008                                      |  | March 24, 2008                                                        

27

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Shareholders
New Horizons Worldwide, Inc. and Subsidiaries
Anaheim, California

We
have audited the consolidated balance sheets of New Horizons Worldwide, Inc. and its Subsidiaries (collectively the "Company") as of December 31, 2007 and 2006 and the
related consolidated statements of operations, shareholders' equity (deficit) and cash flows for each of the years in the three year period ended December 31, 2007. These financial statements
are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of New Horizons Worldwide, Inc. and its
Subsidiaries as of December 31, 2007 and 2006, and the consolidated results of their operations and their cash flows for each of the
years in the three year period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

As
discussed in Note 1, the Company changed its method of accounting for income tax uncertainties to conform to FASB Interpretation No. 48 "Accounting for Uncertainty in
Income Taxesan interpretation of FASB Statement 109" ("FIN 48").

|/s/ SQUAR, MILNER, PETERSON, MIRANDA, & WILLIAMSON, LLP |  | 
|------------------------------------------------------- |  | 
|Newport Beach, California
March 18, 2008                |  | 

28

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NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES        Consolidated Balance Sheets        December 31, 2007 and 2006        (Dollars in thousands, except share and per share data)

|                                               |                                                                                                                                                                                                                                               | 2007                                                 |   | 2006*   |       
|---------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | - | ------- | ------
|Assets                                         |                                                                                                                                                                                                                                               |                                                      |   |         |       
|Current assets:                                |                                                                                                                                                                                                                                               |                                                      |   |         |       
|                                               | Cash and cash equivalents                                                                                                                                                                                                                     |                                                      | $ | 4,101   |       
|                                               | Accounts receivable, net                                                                                                                                                                                                                      |                                                      |   | 4,772   |       
|                                               | Prepaid expenses                                                                                                                                                                                                                              |                                                      |   | 650     |       
|                                               | Refundable income taxes                                                                                                                                                                                                                       |                                                      |   | 238     |       
|                                               | Other current assets                                                                                                                                                                                                                          |                                                      |   | 90      |       
|                                               |                                                                                                                                                                                                                                               |                                                      |   |         |       
|                                               |                                                                                                                                                                                                                                               | Total current assets                                 |   |         | 9,851 
|                                               | Property and equipment, net                                                                                                                                                                                                                   |                                                      |   | 2,631   |       
|                                               | Restricted cash                                                                                                                                                                                                                               |                                                      |   | 513     |       
|                                               | Goodwill, net                                                                                                                                                                                                                                 |                                                      |   | 11,408  |       
|                                               | Other assets                                                                                                                                                                                                                                  |                                                      |   | 873     |       
|                                               |                                                                                                                                                                                                                                               |                                                      |   |         |       
|                                               |                                                                                                                                                                                                                                               | Total assets                                         |   | $       | 25,276
|                                               |                                                                                                                                                                                                                                               |                                                      |   |         |       
|Liabilities and shareholders' equity (deficit) |                                                                                                                                                                                                                                               |                                                      |   |         |       
|Current liabilities:                           |                                                                                                                                                                                                                                               |                                                      |   |         |       
|                                               | Accounts payable                                                                                                                                                                                                                              |                                                      | $ | 2,305   |       
|                                               | Deferred revenue                                                                                                                                                                                                                              |                                                      |   | 4,169   |       
|                                               | Other current liabilities                                                                                                                                                                                                                     |                                                      |   | 8,416   |       
|                                               |                                                                                                                                                                                                                                               |                                                      |   |         |       
|                                               |                                                                                                                                                                                                                                               | Total current liabilities                            |   |         | 14,890
|                                               | Long-term debt                                                                                                                                                                                                                                |                                                      |   | 4,000   |       
|                                               | Deferred rent                                                                                                                                                                                                                                 |                                                      |   | 737     |       
|                                               | Other long-term liabilities                                                                                                                                                                                                                   |                                                      |   | 235     |       
|                                               |                                                                                                                                                                                                                                               |                                                      |   |         |       
|                                               |                                                                                                                                                                                                                                               | Total liabilities                                    |   |         | 19,862
|                                               | Commitments and contingencies                                                                                                                                                                                                                 |                                                      |   |        |       
|Shareholders' equity (deficit):                |                                                                                                                                                                                                                                               |                                                      |   |         |       
|                                               | Convertible preferred stock Series C, no par value, 200,000 shares authorized, 172,043 shares issued and outstanding at December 31, 2007. No shares issued and outstanding at December 31, 2006. Liquidation
preference of $23.25 per share. |                                                      |   | 3,802   |       
|                                               | Convertible preferred stock Series B, no par value, 200,000 shares authorized, 174,693 shares issued and outstanding at December 31, 2007 and 2006, respectively. Liquidation preference of $37.50 per
share.                                 |                                                      |   | 5,611   |       
|                                               | Common stock, $.01 par value, 30,000,000 and 20,000,000 shares authorized, 11,445,269 and 10,745,353 shares issued; 11,260,269 and 10,560,353 shares outstanding at December 31, 2007 and 2006, respectively                                  |                                                      |   | 114     |       
|                                               | Additional paid-in capital                                                                                                                                                                                                                    |                                                      |   | 49,498  |       
|                                               | Accumulated deficit                                                                                                                                                                                                                           |                                                      |   | (52,313 | )     
|                                               | Treasury stock at cost185,000 shares at December 31, 2007 and 2006                                                                                                                                                                           |                                                      |   | (1,298  | )     
|                                               |                                                                                                                                                                                                                                               |                                                      |   |         |       
|                                               |                                                                                                                                                                                                                                               | Total shareholders' equity (deficit)                 |   |         | 5,414 
|                                               |                                                                                                                                                                                                                                               |                                                      |   |         |       
|                                               |                                                                                                                                                                                                                                               | Total liabilities and shareholders' equity (deficit) |   | $       | 25,276
|                                               |                                                                                                                                                                                                                                               |                                                      |   |         |       

---

See accompanying notes to consolidated financial statements.

29

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NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES        Consolidated Statements of Operations        Years ended December 31, 2007, 2006, and 2005        (Dollars in thousands,
except share and per share data)

|                                                              |                                        | 2007                       |        | 2006*      |        | 2005*  |           
|------------------------------------------------------------- | -------------------------------------- | -------------------------- | ------ | ---------- | ------ | ------ | ----------
|Revenues                                                      |                                        |                            |        |            |        |        |           
|                                                              | Franchising                            |                            |        |            |        |        |           
|                                                              |                                        | Franchise fees             |        | $          | 975    |        | $         
|                                                              |                                        | Royalties                  |        |            | 19,150 |        |           
|                                                              |                                        | Courseware sales and other |        |            | 3,908  |        |           
|                                                              |                                        |                            |        |            |        |        |           
|                                                              |                                        | Total franchising revenues |        |            | 24,033 |        |           
|                                                              | Company-owned training center revenues |                            |        | 27,604     |        |        | 48,717    
|                                                              |                                        |                            |        |            |        |        |           
|                                                              |                                        | Total revenues             |        |            | 51,637 |        |           
|Cost of revenues                                              |                                        |                            | 24,115 |            |        | 45,191 |           
|Selling, general and administrative expenses                  |                                        |                            | 23,299 |            |        | 33,513 |           
|Impairment of property and equipment                          |                                        |                            |       |            |        | 391    |           
|                                                              |                                        |                            |        |            |        |        |           
|Operating income (loss)                                       |                                        |                            | 4,223  |            |        | (2,415 | )         
|Other loss                                                    |                                        |                            |       |            |        | (704   | )         
|Gain/(loss) on sale of Company-owned training centers         |                                        |                            | 2,681  |            |        | 2,120  |           
|Interest expense, net                                         |                                        |                            | (604   | )          |        | (304   | )         
|Investment income                                             |                                        |                            | 129    |            |        | 293    |           
|                                                              |                                        |                            |        |            |        |        |           
|Income (loss) before income tax provision                     |                                        |                            | 6,429  |            |        | (1,010 | )         
|Income tax provision                                          |                                        |                            | (1,097 | )          |        | (1,019 | )         
|                                                              |                                        |                            |        |            |        |        |           
|Net income (loss)                                             |                                        |                            | 5,332  |            |        | (2,029 | )         
|Dividends payable on preferred stock                          |                                        |                            | (604   | )          |        | (204   | )         
|Deemed dividend on preferred stock                            |                                        |                            | (2,963 | )          |        |       |           
|                                                              |                                        |                            |        |            |        |        |           
|Net income (loss) attributable to common shareholdersbasic   |                                        | $                          | 1,765  |            | $      | (2,233 | )         
|Dividends payable on preferred stock addback                  |                                        |                            | 604    |            |        |       |           
|                                                              |                                        |                            |        |            |        |        |           
|Net income (loss) attributable to common shareholdersdiluted |                                        | $                          | 2,369  |            | $      | (2,233 | )         
|                                                              |                                        |                            |        |            |        |        |           
|Net income (loss) per share:                                  |                                        |                            |        |            |        |        |           
|                                                              | Basic                                  |                            | $      | 0.17       |        | $      | (0.21     
|                                                              | Diluted                                |                            | $      | 0.13       |        | $      | (0.21     
|Weighted average shares outstanding:                          |                                        |                            |        |            |        |        |           
|                                                              | Basic                                  |                            |        | 10,675,565 |        |        | 10,678,349
|                                                              | Diluted                                |                            |        | 18,667,814 |        |        | 10,678,349

---

See
accompanying notes to consolidated financial statements.

30

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NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES        Consolidated Statements of Cash Flows        Years ended December 31, 2007, 2006, and 2005        (Dollars in thousands)

|                                                                                                                           |                                                         | 2007                              |                                                     | 2006*  |        | 2005*  |       
|-------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------- | --------------------------------- | --------------------------------------------------- | ------ | ------ | ------ | ------
|Cash flows from operating activities:                                                                                      |                                                         |                                   |                                                     |        |        |        |       
|                                                                                                                           | Net income (loss)                                       |                                   | $                                                   | 5,332  |        | $      | (2,029
|Adjustments to reconcile net income (loss) to net cash and cash equivalents provided by (used in) by operating activities: |                                                         |                                   |                                                     |        |        |        |       
|                                                                                                                           | Depreciation and amortization                           |                                   |                                                     | 615    |        |        | 1,726 
|                                                                                                                           | (Gain) loss on sale of Company-owned training centers   |                                   |                                                     | (2,681 | )      |        | (2,120
|                                                                                                                           | Stock-based compensation                                |                                   |                                                     | 561    |        |        | 86    
|                                                                                                                           | Director's fees paid with the issuance of common stock  |                                   |                                                     | 115    |        |        |      
|                                                                                                                           | Legal settlement paid with the issuance of common stock |                                   |                                                     | 82     |        |        |      
|                                                                                                                           | Impairment of property and equipment                    |                                   |                                                     |       |        |        | 391   
|                                                                                                                           | Provision for losses on doubtful accounts               |                                   |                                                     | 258    |        |        | 850   
|                                                                                                                           | Cash (used in) provided by the change in:               |                                   |                                                     |        |        |        |       
|                                                                                                                           |                                                         | Restricted cash                   |                                                     |        | 988    |        |       
|                                                                                                                           |                                                         | Accounts receivable               |                                                     |        | (667   | )      |       
|                                                                                                                           |                                                         | Prepaid expenses and other assets |                                                     |        | 504    |        |       
|                                                                                                                           |                                                         | Refundable income taxes           |                                                     |        | 153    |        |       
|                                                                                                                           |                                                         | Accounts payable                  |                                                     |        | (907   | )      |       
|                                                                                                                           |                                                         | Deferred revenue                  |                                                     |        | (496   | )      |       
|                                                                                                                           |                                                         | Other liabilities                 |                                                     |        | (3,595 | )      |       
|                                                                                                                           |                                                         | Deferred rent                     |                                                     |        | (235   | )      |       
|                                                                                                                           |                                                         |                                   |                                                     |        |        |        |       
|                                                                                                                           |                                                         |                                   | Net cash provided by (used in) operating activities |        |        | 27     |       
|                                                                                                                           |                                                         |                                   |                                                     |        |        |        |       
|Cash flows from investing activities:                                                                                      |                                                         |                                   |                                                     |        |        |        |       
|                                                                                                                           | Additions to property and equipment                     |                                   |                                                     | (838   | )      |        | (520  
|                                                                                                                           | Proceeds from sale of property and equipment            |                                   |                                                     |       |        |        | 12    
|                                                                                                                           | Proceeds from sale of training centers                  |                                   |                                                     | 140    |        |        | 1,447 
|                                                                                                                           | Proceeds from cash surrender value of life insurance    |                                   |                                                     |       |        |        |      
|                                                                                                                           |                                                         |                                   |                                                     |        |        |        |       
|                                                                                                                           |                                                         |                                   | Net cash (used in) provided by investing activities |        |        | (698   | )     
|                                                                                                                           |                                                         |                                   |                                                     |        |        |        |       
|Cash flows from financing activities:                                                                                      |                                                         |                                   |                                                     |        |        |        |       
|                                                                                                                           | Proceeds from exercise of stock options                 |                                   |                                                     | 175    |        |        |      
|                                                                                                                           | Proceeds from issuance of common stock to officer       |                                   |                                                     |       |        |        | 100   
|                                                                                                                           | Proceeds from issuance of preferred stock               |                                   |                                                     | 4,000  |        |        |      
|                                                                                                                           | Proceeds from issuance of debt                          |                                   |                                                     |       |        |        | 4,000 
|                                                                                                                           | Costs from issuance of debt/equity                      |                                   |                                                     | (198   | )      |        | (13   
|                                                                                                                           | Principal payments on debt obligations                  |                                   |                                                     |       |        |        | (980  
|                                                                                                                           |                                                         |                                   |                                                     |        |        |        |       
|                                                                                                                           |                                                         |                                   | Net cash provided by financing activities           |        |        | 3,977  |       
|                                                                                                                           |                                                         |                                   |                                                     |        |        |        |       
|Net increase (decrease) in cash and cash equivalents                                                                       |                                                         |                                   | 3,306                                               |        |        | (3,003 | )     
|Cash and cash equivalents at beginning of period                                                                           |                                                         |                                   | 795                                                 |        |        | 3,798  |       
|                                                                                                                           |                                                         |                                   |                                                     |        |        |        |       
|Cash and cash equivalents at end of period                                                                                 |                                                         | $                                 | 4,101                                               |        | $      | 795    |       
|                                                                                                                           |                                                         |                                   |                                                     |        |        |        |       
|Supplemental disclosure of cash flow information                                                                           |                                                         |                                   |                                                     |        |        |        |       
|                                                                                                                           | Cash paid for:                                          |                                   |                                                     |        |        |        |       
|                                                                                                                           |                                                         | Interest                          |                                                     | $      | 601    |        | $     
|                                                                                                                           |                                                         |                                   |                                                     |        |        |        |       
|                                                                                                                           |                                                         | Income taxes                      |                                                     | $      | 964    |        | $     
|                                                                                                                           |                                                         |                                   |                                                     |        |        |        |       
|Noncash investing and financing activities:                                                                                |                                                         |                                   |                                                     |        |        |        |       
|                                                                                                                           | Stock dividends and deemed dividends on preferred stock |                                   | $                                                   | 3,567  |        | $      | 204   
|                                                                                                                           |                                                         |                                   |                                                     |        |        |        |       

---

See accompanying notes to consolidated financial statements.

31

---





NEW HORIZONS WORDWIDE, INC. AND SUBSIDIARIES        Consolidated Statements of Shareholders' Equity (Deficit)        Years ending December 31, 2007, 2006, and 2005    
(Dollars in thousands, except share data)

|                                                                      |  | Convertible
Preferred Stock Series C |  | Convertible
Preferred Stock Series B |       | Convertible
Preferred Stock Series A |         |  |   |       |  |            |   |   |     |   |            |  |   |     | 
|--------------------------------------------------------------------- |  | ------------------------------------ |  | ------------------------------------ | ----- | ------------------------------------ | ------- |  | - | ----- |  | ---------- | - | - | --- | - | ---------- |  | - | --- | 
|
|
|
|Balance at January 1, 2005                                            |  |                                     |  | $                                    |      |                                      |        |  | $ |      |  |           |   | $ |    |   | 10,636,658 |  | $ | 106 | 
|Issuance of Series A preferred stock, net of offering costs           |  |                                     |  |                                      |      |                                      |        |  |   |      |  | 1,600,000  |   |   | 16  |   |           |  |   |    | 
|Beneficial conversion feature on issuance of Series A preferred stock |  |                                     |  |                                      |      |                                      |        |  |   |      |  |           |   |   |    |   |           |  |   |    | 
|Deemed dividend on issuance of Series A preferred stock               |  |                                     |  |                                      |      |                                      |        |  |   |      |  |           |   |   |    |   |           |  |   |    | 
|Dividends on Series A preferred stock                                 |  |                                     |  |                                      |      |                                      |        |  |   |      |  | 38,398     |   |   |    |   |           |  |   |    | 
|Payment on note from director                                         |  |                                     |  |                                      |      |                                      |        |  |   |      |  |           |   |   |    |   |           |  |   |    | 
|Net loss                                                              |  |                                     |  |                                      |      |                                      |        |  |   |      |  |           |   |   |    |   |           |  |   |    | 
|                                                                      |  |                                      |  |                                      |       |                                      |         |  |   |       |  |            |   |   |     |   |            |  |   |     | 
|Balance at December 31, 2005                                          |  |                                     |  |                                      |      |                                      |        |  |   |      |  | 1,638,398  |   |   | 16  |   | 10,636,658 |  |   | 106 | 
|Conversion of Series A preferred stock to Series B preferred stock    |  |                                     |  |                                      |      |                                      | 174,693 |  |   | 5,611 |  | (1,638,398 | ) |   | (16 | ) |           |  |   |    | 
|Stock-based compensation expense                                      |  |                                     |  |                                      |      |                                      |        |  |   |      |  |           |   |   |    |   |           |  |   |    | 
|Sale of common stock to officer                                       |  |                                     |  |                                      |      |                                      |        |  |   |      |  |           |   |   |    |   | 108,695    |  |   | 1   | 
|Forgiveness of officer note                                           |  |                                     |  |                                      |      |                                      |        |  |   |      |  |           |   |   |    |   |           |  |   |    | 
|Net loss                                                              |  |                                     |  |                                      |      |                                      |        |  |   |      |  |           |   |   |    |   |           |  |   |    | 
|                                                                      |  |                                      |  |                                      |       |                                      |         |  |   |       |  |            |   |   |     |   |            |  |   |     | 
|Balance at December 31, 2006*                                         |  |                                     |  |                                      |      |                                      | 174,693 |  |   | 5,611 |  |           |   |   |    |   | 10,745,353 |  |   | 107 | 
|Issuance of Series C preferred stock, net of offering costs           |  | 172,043                              |  |                                      | 3,802 |                                      |        |  |   |      |  |           |   |   |    |   |           |  |   |    | 
|Stock-based compensation                                              |  |                                     |  |                                      |      |                                      |        |  |   |      |  |           |   |   |    |   |           |  |   |    | 
|Director fees paid in stock                                           |  |                                     |  |                                      |      |                                      |        |  |   |      |  |           |   |   |    |   | 74,750     |  |   | 1   | 
|Share options exercised                                               |  |                                     |  |                                      |      |                                      |        |  |   |      |  |           |   |   |    |   | 242,666    |  |   | 3   | 
|Stock issued as part of legal settlement                              |  |                                     |  |                                      |      |                                      |        |  |   |      |  |           |   |   |    |   | 37,500     |  |   |    | 
|Vested restricted stock                                               |  |                                     |  |                                      |      |                                      |        |  |   |      |  |           |   |   |    |   | 345,000    |  |   | 3   | 
|Net income                                                            |  |                                     |  |                                      |      |                                      |        |  |   |      |  |           |   |   |    |   |           |  |   |    | 
|                                                                      |  |                                      |  |                                      |       |                                      |         |  |   |       |  |            |   |   |     |   |            |  |   |     | 
|Balance at December 31, 2007                                          |  | 172,043                              |  | $                                    | 3,802 |                                      | 174,693 |  | $ | 5,611 |  |           |   | $ |    |   | 11,445,269 |  | $ | 114 | 
|                                                                      |  |                                      |  |                                      |       |                                      |         |  |   |       |  |            |   |   |     |   |            |  |   |     | 

---

See accompanying notes to consolidated financial statements.

32

---





NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES        Notes to Consolidated Financial Statements        December 31, 2007, 2006 and 2005        (Dollars in thousands, except
share and per share data)

1. Organization and Summary of Significant Accounting Policies



New Horizons Worldwide, Inc. ("New Horizons" or the "Company") owns and franchises computer-training centers. The Company has two reporting units:
Company-owned training centers and franchising operations, both of which operate principally within the information technology ("IT") training industry. As of December 31, 2007, the
Company-owned training center reporting unit operated two wholly-owned computer training centers within the continental United States and generated revenue through the sale and delivery of training
for personal computing ("PC") applications, technical software, business skills and healthcare information management. The franchising operations reporting unit earns revenue through the sale of New
Horizons master and unit franchises within the United States and internationally, on-going royalties received in return for providing franchises with systems of instruction, sales and
management concepts concerning computer training, and the sale of courseware materials, and e-learning products. The franchising operations reporting unit has places of business in
Anaheim, California; Conshohocken, Pennsylvania; and Singapore. The Company's headquarters are located in Conshohocken, Pennsylvania.



The Company has experienced recurring losses and has an accumulated deficit and negative working capital. The Company has incurred losses in 2006 and prior years
and has an accumulated deficit of $52,313 as of December 31, 2007, and substantially all of the Company's assets are encumbered. On July 2, 2007, the Company completed $3,802 of new
financing through the sale and issuance of Series C convertible preferred stock. Management believes that the additional capital, combined with improved financial results and cost controls,
will sustain the Company for the next twelve months.



The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All significant inter-company
balances and transactions have been eliminated in consolidation.



The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").



Certain items previously reported by the Company with respect to December 31, 2006 and 2005 balances have been reclassified to conform to the presentation
of such items for December 31, 2007. Specifically, the Company reflected a reclassification of expenses from selling, general and administration expenses to cost of revenues of $3,350 and
$6,118 for the years ended December 31, 2006 and 2005, respectively. For the years ended December 31, 2006 and 2005, cash paid for income

33

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

1. Organization and Summary of Significant Accounting Policies (Continued)

taxes
on the Consolidated Statements of Cash Flows was increased by $679 and $734, respectively, to include cash withheld at source for foreign income taxes. For the year ended December 31,
2006, capital lease payments of $31 on the Consolidated Statements of Cash Flows has been reclassed to Other Liabilities as an increase to cash used in operating activities. Prior to
December 31, 2006, inventories were stated at the lower of cost or market using the first-in, first-out ("FIFO") method. At December 31, 2007 all inventory was
expensed due to immateriality and inventory balances at December 31, 2006 were reclassified to Other Current Assets. The Consolidated Balance Sheet at December 31, 2006, reflects a
reclassification of $5,611 from Additional paid-in capital to Convertible preferred stock Series B to reflect the carrying amount of these shares.



The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. The Company believes its estimates related to revenue recognition, deferred costs, and allowance for doubtful accounts to be the most
sensitive estimates impacting financial position and results of operations. Other significant estimates by management include: impairment analysis of long-lived assets, goodwill and
deferred tax assets. On an ongoing basis, management evaluates its estimates and judgments in these areas based on its historical experience and other relevant factors. The Company believes its
estimates as of the date of the consolidated financial statements reflect management's best judgment giving consideration to all currently available facts and circumstances. As such, these estimates
may require adjustment in the future, as additional facts become known or as circumstances change. Changes in estimates could potentially have a material impact on the presentation of the Company's
financial position or results of operations. Actual results could differ materially from these estimates.



Cash and cash equivalents include short-term investments with an original maturity of less than 90 days. The carrying amounts of cash and cash
equivalents approximate their fair values due to their short term maturities.



Accounts receivable are shown net of allowances for doubtful accounts. The Company records an allowance for bad debts based on the age of individual invoices and
historical rates. For the Company-owned training centers, the percentage applied reflects each center's historical experience of bad debts and mix of business.



Financial instruments that subject the Company to credit risk consist primarily of cash and cash equivalents and accounts receivable. At December 31, 2007,
the Company had $4,311 (of which $163 was restricted cash) in accounts in excess of the Federal Deposit Insurance Corporation insurance

34

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

1. Organization and Summary of Significant Accounting Policies (Continued)

coverage
limit. The Company has not experienced any losses in these accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

The
Company issues credit to a significant number of customers that are diversified over a wide geographic area. The Company monitors the payment histories of its customers and maintains
an allowance for doubtful accounts which is reviewed for adequacy on a quarterly basis. The Company does not require collateral from its customers. For the years ended December 31, 2007, 2006
and 2005, no single customer accounted for greater than 10% of consolidated revenues or consolidated accounts receivable.



The Company earns revenue through its franchising operations and from the delivery of instructor-led, mentored learning, and e-Learning
training courses by its Company-owned training centers.



Franchising revenues are earned from initial franchise fees, royalties from franchisees, courseware sales, delivery fees for e-Learning courses, and
administration fees for courses delivered pursuant to the Company's Enterprise Learning Solutions ("ELS") initiative, a program to service large corporate customers.

Initial
franchise fees are charged to unit and master franchisees. Unit franchisees receive the exclusive right to own and operate franchises within a certain territory. Master
franchisees receive an exclusive
right to operate within a specific territory in which the master franchisee is able to award unit sub-franchises. Initial franchise fees for master and unit franchises are recognized when
all related franchise training and all material conditions or services related to the sale have been performed or satisfied by the Company. Initial fees under unit and master franchise agreements are
not refundable under any circumstance.

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 recognizes revenue.

The
Company sells both licensed and internally developed courseware materials and curriculum to its franchisees. Courseware revenues are recognized upon shipment. The Company utilizes a
third party for the production of courseware items and fulfillment of orders placed by franchisees. Franchisees may order courseware materials and curriculum through the Company or directly through
the fulfillment house. In transactions where the Company acts as a principal, 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, the Company recognizes only the net
commissions or fees as revenue.

35

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

1. Organization and Summary of Significant Accounting Policies (Continued)

Per-student
fees are charged to the franchisees for e-Learning 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. Student 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. Student 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 from fees based on a
percentage of the covered training, when the ELS program is sold.



Company-owned training centers earn revenue from the delivery of instructor-led and e-Learning computer training courses to individuals
and employer-sponsored individuals from domestic and international, public and private corporations, service organizations and government agencies worldwide. Instructor-led learning
programs allow students to choose from several options, including training vouchers, club memberships, technical certification programs, individual classes, and bootcamps.

Revenue
associated with training vouchers, club memberships, technical certifications and bootcamps are recognized over time as the services are delivered, net of estimated returns and
refunds.

Revenue
recognition rates utilized for certain training vouchers, club memberships, technical certification and bootcamp 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 the past eight quarterly analyses, or two years of trailing data. For training
vouchers, club memberships, technical certification and bootcamp programs for which the Company does not perform student attendance analysis, the Company recognizes revenue on a
straight-line basis. 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 time periods than if the straight-line method were
applied.

The
continual revision of estimated student attendance rates results in cumulative adjustments to revenue recognized for sales transactions consummated in prior periods. Upon completion
of the historical student attendance analyses in the fourth quarter of 2007, the Company adjusted its revenue recognition rates and recorded an increase in deferred revenue and a decrease in revenue
of $217. Upon completion of the historical student attendance analyses in the fourth quarter of 2006, the Company adjusted its revenue recognition rates and recorded a decrease in deferred revenue and
an increase in revenue of $150. Upon completion of the historical student attendance analysis in the fourth quarter of 2005, the Company adjusted its revenue recognition rates and recorded a decrease
in deferred revenue and an increase in revenue of $381.

36

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

1. Organization and Summary of Significant Accounting Policies (Continued)

Although
the Company believes its current revenue recognition rates are consistent with current student attendance patterns, no assurance can be given that such rates will not change in
the future.



Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed on a straight-line basis, based
upon the estimated useful lives of the various asset classes.

The
estimated useful lives are as follows:

Computer equipment and software

3 to 5 yearsFurniture and fixtures

5 to 10 yearsLeasehold improvements

Useful life or term of lease, if shorter


Costs
incurred related to repairs and maintenance that do not improve or extend the life of the assets are expensed as incurred. The cost and accumulated depreciation on property and
equipment sold, retired, or otherwise disposed of is removed from the respective accounts and the resulting gains and losses are reflected in other income.



Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 144"Accounting for the Impairment or Disposal of Long-Lived
Assets," ("SFAS No. 144"), the Company performs impairment tests on its long-lived assets if an event or circumstance indicates that the carrying amount of the
long-lived assets may not be recoverable. During the years ended December 31, 2006 and 2005, the Company recorded long-lived asset impairment charges related to fixed
assets held for use at its Company-owned training centers totaling $391 and $2,351, respectively. The Company did not have impairment charges in 2007. The fair value
of each impaired asset group was determined to be the greater of the estimated discounted cash flows of the Company-owned training center or the current sales price of like asset groups, which was
based on historical sales by the Company. See also Note 5 "Property and Equipment" to the Company's consolidated financial statements for additional discussion.



The Company has $513 in restricted cash comprised of the following. The Company has deposited $263 with state agencies to guarantee performance in various states
in respect to providing training to consumers. In the event the Company were to abandon training in a state, the state agency could draw against the deposits to satisfy undelivered training
obligations. In addition, the Company has deposited $250 with a bank to comply with contractual obligations.

37

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

1. Organization and Summary of Significant Accounting Policies (Continued)



Pursuant to SFAS No. 142 "Goodwill and Other Intangible Assets," the Company ceased amortizing goodwill as of January 1, 2002. Goodwill balances,
when is attributable to the Company's franchising reporting unit, is tested for impairment annually as of December 31 of each year and on an interim basis if events or circumstances exist which
suggest that goodwill may be impaired. Factors the Company considers important which could trigger an impairment review include significant underperformance relative to expected historical or
projected future operating results, significant changes in the manner of use of acquired assets or the strategy for the overall business, and significant negative industry or economic trends. The
Company utilizes an outside valuation consultant in determining the fair value of its reporting units on an annual basis. Both the income approach and the market approach are utilized.

No
impairment was recorded related to the franchising reporting unit during 2007, 2006 or 2005. See also Note 6 "Goodwill" to the Company's consolidated financial statements for
additional discussion.



The Company accounts for income taxes under SFAS No. 109, "Accounting for Income Taxes." Under the asset and liability method of SFAS No. 109,
deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A
valuation allowance is recorded against deferred tax assets to the extent the Company believes it is more likely than not that those assets will not be realized through future taxable income.

The
Company regularly analyzes the future recovery of its deferred tax assets based on its best estimates of future taxable income. In the recovery analysis, recent cumulative losses are
provided greater weight than current or estimated future profitability, there is a presumption that a valuation allowance is required during periods of recent cumulative losses. As a result, the
Company concluded that a valuation allowance was required as of December 31, 2007 and 2006 was appropriate. The Company continually monitors its tax position. See also Note 6 "Income
Taxes" to the Company's consolidated financial statements for additional discussion.

In
June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxesan interpretation of FASB
Statement 109" ("FIN 48"). FIN 48 establishes a single model to address accounting for uncertain tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a
minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on de-recognition, measurement,
classification, interest and penalties, accounting in interim periods, disclosure and transition.

38

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

1. Organization and Summary of Significant Accounting Policies (Continued)

The
Company adopted the provisions of FIN 48 on January 1, 2007. Upon adoption, the Company recognized no adjustment in the amount of unrecognized tax benefits. As of the
date of adoption, the Company had no increase to the asset for unrecognized tax benefits. The Company's policy is to recognize interest and penalties that would be assessed in relation to the
settlement value of unrecognized tax benefits as a component of income tax expense. The Company has recognized no interest or penalties since the adoption of FIN 48.

The
Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. With few exceptions, the Company is no longer
subject to U.S. federal income tax examinations for years before 2004; state and local income tax examinations before 2003; and foreign income tax examinations before 2002. However, to the extent
allowed by law, the tax authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the net
operating loss carry-forward amount. See also Note 7 "Income Taxes" to the Company's consolidated financial statements for additional discussion.



Effective January 1, 2006, the Company adopted SFAS No. 123(R), "Share-Based Payments" ("SFAS 123R"), using the modified prospective
application transition method. The modified prospective application transition method requires compensation cost to be recognized beginning on the effective date (a) based on the requirements
of SFAS 123R for all share-based payments granted after the effective date and (b) based on the requirements of SFAS 123R for all awards granted to employees prior to the
effective date of SFAS 123R that remain unvested on the effective date. All Company option awards granted prior to January 1, 2006 were fully vested.

For
the year ended December 31, 2007, the Company recognized approximately $561 of share-based compensation expense. For the year ended December 31, 2006, the Company
recognized approximately $86 of share-based compensation.

In
calculating the compensation expense related to stock options, the weighted average fair value of each employee option grant was estimated on the date of the grant using the
Black-Scholes-Merton option pricing model with the following weighted-average assumptions used for grants during fiscal years 2007 and 2006:

2007

2006Expected volatility

99.0
%
99.0%Expected life (years)

3.0

1.0 - 3.0Risk-free interest rate

4.5
%
4.9%Expected dividends

None

None


The
compensation expense related to the restricted common stock for 2007 and 2006 was calculated based on the market price of the Company's common stock on the grant date of the
restricted shares.

39

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

1. Organization and Summary of Significant Accounting Policies (Continued)

Unrecognized
compensation expense for stock options and restricted common stock granted was as follows:

December 31,2007

2006Unrecognized compensation cost:Stock options

$
431

$
299Restricted stock

$
360

$
280Weighted-average remaining periods for recognition (years):Stock options


2.26


2.78Restricted stock


1.50


4.50


For
the year ended December 31, 2007, 242,666 stock options were exercised resulting in proceeds to the Company of $175.

The
Company has a net operating loss carry-forward as of December 31, 2007 and 2006, and no excess tax benefits for the tax deductions related to stock-based awards were
recognized in the Consolidated Statements of Operations for the years ended December 31, 2007 and 2006. Additionally, no incremental tax benefits were recognized from stock options exercised in
2007 or 2006 that would have resulted in a reclassification to reduce net cash provided by operating activities with an offsetting increase in net cash provided by financing activities.

Prior
to January 1, 2006, the Company elected to follow the intrinsic value based method of accounting for stock options consistent with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and to provide the pro forma disclosures of net income and earnings per share as if the fair value based method had been
applied. Under the fair value based method, compensation cost is recorded based on the fair value of the award at the grant date and is recognized over the service period. No stock-based employee
compensation expense related to stock options was reflected in net income prior to January 1, 2006.

40

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

1. Organization and Summary of Significant Accounting Policies (Continued)

Had
compensation expense been recognized in 2005, net loss and loss per share would have been adjusted to the pro forma amounts indicated below:

2005Net loss, as reported

$
(7,280
)Less: Stock dividend and deemed dividend on Series A PreferredStock


(2,131
)Net loss attributable to common shareholders


(9,411
)Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects


(1,302
)Net loss, pro forma

$
(10,713
)Basic Loss Per Common ShareAs reported

$
(0.90
)Pro forma

$
(1.03
)Diluted Loss Per Common ShareAs reported

$
(0.90
)Pro forma

$
(1.03
)


The
fair value of each option grant was calculated using the Black-Scholes-Merton option-pricing model assuming risk-free interest rates of 4.5%, volatility of 98% and zero
dividend yield for 2005.

The
Company provides for the grant of stock options and the award of restricted common stock to key employees and non-employee directors under its 1998 Omnibus Equity Plan. A
summary of award activity is described in further detail below.



On August 24, 2007, the Company's Chief Executive Officer ("CEO"), was granted stock options in the amount of 240,000 shares at an exercise price of $1.53
per share. The stock options vest over three years and expire in ten years. Also during 2007, two other stock option grants totaling 100,000 shares were made by the Company to senior management
employees with exercise prices ranging from $1.00 to $1.07 per share, vesting over three years and expiring in ten years.

41

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

1. Organization and Summary of Significant Accounting Policies (Continued)



A summary of restricted stock award activity as of December 31, 2007 and changes during the year then ended is presented as follows:

Number of
Shares

Weighted
Average Grant
Date Fair ValueRestricted stock outstanding at December 31, 2006

350,000

$
0.80Granted

340,000

$
1.54Vested

(345,000
)
$
1.17Forfeited



$
Restricted stock outstanding at December 31, 2007

345,000

$
1.17


The
following supplemental disclosures are provided with respect to the Company's stock options and restricted stock awards:

2007

2006

2005Weighted average grant date fair value of options and restricted stock granted (per share)

$
1.44

$
0.92

$
3.90Intrinsic value of options exercised

$
209

$


$



On
August 24, 2007, the Company granted a total of 340,000 shares of restricted common stock to its CEO and three of its senior management employees. Under the terms of these
Restricted Stock Agreements if the Company reaches an Adjusted EBITDA (as defined in the Restricted Stock Agreements) of $3,357 for the consecutive twelve month period ending December 31, 2007,
170,000 shares of the restricted shares will vest. If the Company reaches its performance target of $7,565 in Adjusted EBITDA for the consecutive twelve month period ending December 31, 2008,
an additional 170,000 shares of the restricted shares will vest. Unvested shares will be held by the Company in escrow and the individuals will be entitled to vote and receive dividends on such
escrowed shares.

As
of December 31, 2007, 170,000 of these restricted shares had vested and $262 of compensation expense has been recognized in the consolidated financial statements.

In
July 2006, the Company granted 350,000 shares of restricted common stock to its CEO. Under the terms of this Restricted Stock Agreement, if the Company reaches an Adjusted EBITDA (as
defined in this Restricted Stock Agreement) of (i) $5,000 in any consecutive twelve month period ending on or before June 30, 2009, or (ii) $1,250 during the three months ending
June 30, 2009, 175,000 of the restricted shares will vest. If the Company reaches its performance target of $7,000 in Adjusted EBITDA during any consecutive twelve month period ending on or
before June 30, 2011, an additional
175,000 shares of the Restricted Shares will vest. Unvested shares will be held by the Company in escrow, and the CEO will be entitled to vote and receive dividends on such escrowed shares.

42

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

1. Organization and Summary of Significant Accounting Policies (Continued)

As
of December 31, 2007, 175,000 shares of the restricted stock had vested and $140 of compensation expense has been recognized in the Company's consolidated financial statements.



Earnings per share is computed in accordance with SFAS No. 128, "Earnings per Share." Basic earnings (loss) per common share ("Basic EPS") is computed by
dividing net income attributable to common stockholders by the weighted average number of common shares outstanding during the period. Shares issued and shares reacquired during the period are
weighted for the portion of the period they were outstanding.

Diluted
earnings (loss) per common share ("Diluted EPS") is computed similarly to Basic EPS except that the weighted average number of shares outstanding is increased to include the
number of additional shares of common stock that would have been outstanding if potentially dilutive shares had been issued. The Company's potentially dilutive common shares consist of shares issuable
upon the conversion of the Company's convertible preferred stock, the exercise of unexercised stock options and warrants, and the achievement of targets related to vesting of restricted stock.

43

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

1. Organization and Summary of Significant Accounting Policies (Continued)

The
following data show the amounts used in computing the loss per share and the effect on income and the weighted average number of shares of common stock:

|                                                       |                                                                           | For the Year Ended December 31, |      
|------------------------------------------------------ | ------------------------------------------------------------------------- | ------------------------------- | -----
|
|
|Net income (loss)                                      |                                                                           | $                               | 5,332
|                                                       | Less: Series A preferred dividends                                        |                                 |      
|                                                       | Less: Series A deemed preferred dividend on beneficial conversion feature |                                 |      
|                                                       | Less: Series B preferred dividends                                        |                                 |      
|                                                       | Less: Series C preferred dividends                                        |                                 |      
|                                                       | Less: Series C deemed preferred dividend on beneficial conversion feature |                                 |      
|                                                       | Less: Deemed dividend from the amended warrants for Series A and Series B |                                 |      
|                                                       |                                                                           |                                 |      
|Basic income (loss) available to common shareholders   |                                                                           | $                               | 1,765
|                                                       |                                                                           |                                 |      
|                                                       | Add: Preferred dividends                                                  |                                 |      
|                                                       | Add: Dilutive impact of preferred stock                                   |                                 |      
|                                                       | Add: Impact of expired and exercised options                              |                                 |      
|                                                       | Add: Dilutive impact of options and warrants                              |                                 |      
|                                                       |                                                                           |                                 |      
|Diluted income (loss) available to common shareholders |                                                                           | $                               | 2,369
|                                                       |                                                                           |                                 |      

The
computation of Diluted earnings per share does not assume conversion, exercise or contingent issuance of securities that may have an anti-dilutive effect
on earnings per share. As a result of the loss available to common stockholders for the year ended December 31, 2006 and 2005, the same amount of shares are used to calculate both basic and
diluted loss per share. Adding the effect of the Company's potentially dilutive common shares would be anti-dilutive. Convertible preferred stock, stock

44

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

1. Organization and Summary of Significant Accounting Policies (Continued)

options,
warrants and restricted stock that have not been included in the diluted income per share computation totaled 1,206,516, 8,727,190, and 3,207,664 for the years ended December 31, 2007,
2006, and 2005, respectively.



The Company's consolidated balance sheets include the following financial instruments: accounts receivable, accounts payable and long-term debt. The
Company considers the carrying amounts in the financial statements to approximate fair value of these financial instruments due to the relatively short period of time between the origination of the
instruments and their expected realization.



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
e-Learning products. At December 31,
2007 and 2006, deferred costs included in the Company's consolidated balance sheets totaled $232 and $582 as Other Assets. Deferred costs are recorded to results of operations at the same rate that
the associated product revenues are recorded to earnings.



In accordance with SFAS No. 13, "Accounting for Leases," the Company recognizes rent expense on a straight-line basis and records deferred rent
during periods of free-rent based on the difference between cash paid and contractual amounts.



The Company's North American franchise network contributes approximately 1% of their gross revenues to an advertising fund (0.2% outside of North America), which
is used by the Company to market and promote the services provided by the franchise network. All advertising expenses paid for by the fund are presented net against advertising expenses within the
Company's consolidated financial statements. In addition, the Company is entitled to retain approximately 15% of the fees collected to offset the internal costs of administering and accounting for the
fund.

In
addition, the Company incurred advertising expense of $875, $1,767 and $2,822 for the years ended December 31, 2007, 2006 and 2005, respectively.



In September 2006, the FASB issued SFAS No. 157,"Fair Value Measures"("SFAS 157"). SFAS 157
defines fair value, establishes a framework for measuring fair value in GAAP, expands disclosures about fair value measurements, and how SFAS 157 applies to other accounting pronouncements that
require or permit fair value measurements. SFAS 157 does not require any new fair value measurements. However, the FASB anticipates that for some entities, the application of SFAS 157
will change current practice. SFAS 157 is effective for financial statements issued for fiscal

45

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

1. Organization and Summary of Significant Accounting Policies (Continued)

years
beginning after November 15, 2007. SFAS 157 is not expected to have a material impact on our financial position, results of operations, and cash flows.

In
September 2006, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 108 (Topic 1N),"Quantifying Misstatements in
Current Year Financial Statements,"("SAB 108"). SAB 108 addresses how the effect of prior-year uncorrected misstatements should be considered when
quantifying misstatements in current-year financial statements. It indicates that the current-year correction of a material error that includes prior-year effects
may result in the need to correct prior-year financial statements even if the misstatement in the prior year or years is considered immaterial. Any prior-year financial
statements found to be materially misstated in years subsequent to the issuance of SAB 108 would be restated in accordance with SFAS No. 154,"Accounting Changes
and Error Corrections."SAB 108 is not expected to have a material impact on our financial position, results of operations, and cash flows.

In
February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities"("SFAS 159"). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to
improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to
apply complex hedge accounting provisions. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. SFAS 159 is not expected to
have a material impact on our financial position, results of operations, and cash flows.

The
Sarbanes-Oxley Act of 2002 ("the Act") introduced new requirements regarding corporate governance and financial reporting. Among the many requirements of the Act is for management to
annually assess and report on the effectiveness of its internal control over financial reporting under Section 404(a) and for its registered public accountant to attest to this report under
Section 404(b). The SEC has modified the effective date and adoption requirements of Section 404(a) and Section 404(b) implementation for non-accelerated filers
multiple times, such that we are first required to issue our management report on internal control over financial reporting in this annual report on
Form 10-K for the fiscal year ending December 31, 2007. We will not be required to have our auditor attest to management's assessment until our fiscal year ending
December 31, 2009.

Other
recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants and the SEC did not or are
not believed by management to have a material impact on the Company's present or future financial statements.

2. Change in Estimates

Revenue recognition rates utilized for certain 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 the past eight quarterly analyses, or two years of trailing
data. For training vouchers, club memberships and technical certification programs for which the Company does not perform student attendance analysis, the Company recognizes revenue on a
straight-line basis. Generally, the student attendance analyses indicate a greater percentage of attendance in the earlier months and the last

46

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

2. Change in Estimates (Continued)

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 time periods than if
the straight-line method were applied. The continual revision of estimated student attendance rates results in cumulative adjustments to revenue recognized for sales transactions
consummated in prior periods. Upon completion of the historical student attendance analyses in the fourth quarters of 2007 and 2006, the Company adjusted its revenue recognition rates. The adjustments
resulted in an increase in the deferred revenue balance and a decrease in revenue of $217 for the fourth quarter of 2007 and a decrease in the deferred revenue balance and an increase in revenue of
$150 for the fourth quarter of 2006.

Although
the Company believes its current revenue recognition rates are consistent with current student attendance patterns, no assurance can be given that such rates will not change in
the future.

3. Allowance For Doubtful Accounts

Accounts receivable are carried net of an allowance for doubtful accounts. The allowance for doubtful accounts includes the following activity for years ended
December 31:

2007

2006

2005Balance, beginning of year

$
1,697

$
2,917

$
1,731Provisions


258


850


2,596Reduction due to sale of Company-owned training centers


(305
)

(120
)

(2
)Write offs


(337
)

(1,950
)

(1,408
)Balance, end of year

$
1,313

$
1,697

$
2,917


4. Debt

On July 19, 2006, the Company entered into a Credit Agreement among the Company, Camden Partners Strategic III, LLC ("Camden LLC"), as
administrative agent, Camden Partners Strategic Fund III, L.P. ("Camden III"), Camden Partners Strategic Fund III-A, L.P. ("Camden III-A", with
Camden LLC and Camden III, "Camden"), George S. Rich and Alkhaleej Training and Education Corporation ("Alkhaleej"), (collectively, "the Lenders"). See Note 10 "Related Party
Transactions" for additional discussion.

The
Credit Agreement provides for a $4,000 term loan, comprised of a single advance from each of the Lenders, which matures on July 19, 2009 (the "Financing"). Under the terms of
the Credit Agreement, interest is paid quarterly, at the annual rate of 10% per year. Concurrent with the execution of the Credit Agreement, the Company converted all outstanding Preferred
Series A Stock ("Series A Shares") and accrued dividends and interest into 174,693 shares of Preferred Series B Stock ("Series B Shares"). In the event that any payment is
not made when due, all outstanding obligations under the Credit Agreement will accrue interest at the default rate equal to 12% per year. Accrued and unpaid interest on past due amounts will compound
monthly. The indebtedness may be required to be prepaid in the event of certain receipts by the Company. No prepayment shall be required upon the disposition of any location owned by the Company. All
or any portion of the outstanding principal may

47

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

4. Debt (Continued)

be
prepaid in whole or in part subject to restrictions. As of December 31, 2006, the Company was in default of various covenants of the Credit Agreement including the failure to file financial
reports and excess capital expenditures and capital lease obligations. The Company has obtained a waiver of these events of default. See Note 13 "Stockholders' Equity (Deficit)" for additional
discussion.

On
July 3, 2007, the Company entered into Amendment No. 1 to its existing Credit Agreement (the "Credit Amendment"). The Credit Amendment has revised definitions for
certain terms, amends and restates certain sections, and required the Company to file preliminary proxy materials concerning a meeting of the Company's stockholders with the SEC, which materials were
filed on October 5, 2007 and which meeting was held on November 6, 2007. At December 31, 2007, the Company was in compliance with the amended Credit Agreement.



On February 27, 2003, the Company consummated a credit agreement with Wells Fargo Bank, National Association. On May 3, 2006, the Company paid in
full all amounts owed under this credit agreement.

5. Property and Equipment

Property and equipment are comprised of the following:

2007

2006Computer equipment and software

$
5,957

$
6,540Furniture and fixtures


117


355Leasehold improvements


796


2,0806,870


8,975Less: accumulated depreciation and amortization


(4,239
)

(5,967
)Total

$
2,631

$
3,008


The
Company did not have a non-cash impairment charge in 2007. During 2006, the Company recorded a non-cash impairment charge of $391 against fixed assets at the
Company's corporate location. During 2005, the Company recorded a non-cash impairment charge of $2,351 against fixed assets at the Chicago, Cleveland and New York City Company-owned
training center. The non-cash impairment charge is the result of continued operating and cash flow losses arising from the respective training centers and a decrease in the estimated fair
value of each Company-owned training center. The estimated fair value of each Company-owned training center was determined based on the greater of the estimated discounted cash flows of the
Company-owned training centers or recent sales of comparable locations within the Company's franchise network.

Depreciation
expense was $615, $1,726 and $2,713 for the years ended December 31, 2007, 2006 and 2005, respectively.

48

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

6. Goodwill

No impairment was recorded related to the franchising reporting unit during 2007, 2006 or 2005.

7. Income Taxes

Income tax expense for the periods below differs from the amounts computed by applying the United States federal income tax rate of 34% to pretax income as a
result of the following:

2007

2006

2005Computed "expected" tax (benefit) expense

$
2,152

$
(343
)
$
(2,186
)State and local tax expense (benefit), net of federal income tax effect


285


109


(296
)Foreign taxes


528


522


583Valuation allowance for deferred tax assets


(1,946
)

629


2,681Other


78


102


68Income tax expense from continuing operations

$
1,097

$
1,019

$
850Effective rates


18.69
%

(100.91
)%

(13.22
)%


|
|

|                                              |                 | 2007     |       | 2006 |     | 2005  |    
|--------------------------------------------- | --------------- | -------- | ----- | ---- | --- | ----- | ---
|Income tax expense consists of:               |                 |          |       |      |     |       |    
|                                              | Federal:        |          |       |      |     |       |    
|                                              |                 | Deferred |       | $    |    |       | $  
|                                              |                 | Current  |       |      |    |       |    
|                                              | State and local |          |       |      |     |       |    
|                                              |                 | Deferred |       |      |    |       |    
|                                              |                 | Current  |       |      | 382 |       |    
|                                              | Foreign         |          |       | 715  |     |       | 791
|                                              |                 |          |       |      |     |       |    
|Income tax expense from continuing operations |                 | $        | 1,097 |      | $   | 1,019 |    
|                                              |                 |          |       |      |     |       |    

49

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

7. Income Taxes (Continued)

The
tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2007 and 2006, are presented below:

|                          |                                                                             | 2007 |         | 2006   |  
|------------------------- | --------------------------------------------------------------------------- | ---- | ------- | ------ | -
|Deferred tax assets:      |                                                                             |      |         |        |  
|                          | Accounts receivable, principally due to allowance for doubtful accounts     |      | $       | 634    |  
|                          | Reserve for uninsured losses and litigation                                 |      |         |       |  
|                          | Accrued expenses                                                            |      |         | 767    |  
|                          | Property and equipment, principally due to differences in depreciation      |      |         | 12     |  
|                          | Net operating loss                                                          |      |         | 11,388 |  
|                          | Deferred rent                                                               |      |         | 284    |  
|                          | Goodwill                                                                    |      |         | 9,831  |  
|                          | Other                                                                       |      |         | 422    |  
|                          |                                                                             |      |         |        |  
|                          |                                                                             |      | 23,338  |        |  
|Deferred tax liabilities: |                                                                             |      |         |        |  
|                          | Prepaid expenses                                                            |      |         | (5     | )
|                          | Excess of net assets over cost of acquired companies                        |      |         |       |  
|                          | Property, plant & equipment, principally due to differences in depreciation |      |         |       |  
|Valuation allowance       |                                                                             |      | (23,333 | )      |  
|                          |                                                                             |      |         |        |  
|Net deferred income taxes |                                                                             | $    |        |        | $
|                          |                                                                             |      |         |        |  

The
Company regularly analyzes the future recovery of its deferred tax assets based on its best estimates of future taxable income. In the recovery analysis, a decline in the Company's
business since 2001 combined with decreasing revenues and recent cumulative losses are provided greater weight than estimated future profitability. As a result, due to the absence of significant
positive evidence indicating that future taxable income is imminent, the Company concluded that a full valuation allowance is required as of December 31, 2007 and 2006. The valuation allowance
decreased by approximately $11,514 primarily due to net operating losses that will expire without becoming available for utilization.

As
of December 31, 2007 and 2006, the Company had federal and state net operating loss carryforwards of approximately $15,862 and $57,604, respectively, which will begin to expire
in 2023 and 2008 respectively, unless utilized. As a result of the adoption of SFAS 123R, the Company will recognize excess tax benefits associated with the exercise of stock options as an
increase to stockholder's equity only when realized. Accordingly, deferred tax assets are not recognized for net operating loss
carryforwards resulting from excess tax benefits. As of December 31, 2007, deferred tax assets do not include $168 of excess tax benefits from employee stock option exercises that are a
component of the Company's net operating loss carryforwards.

Utilization
of the net operating losses ("NOL") carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred
or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), as well as similar state and foreign provisions. These ownership
changes may limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income and tax,

50

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

7. Income Taxes (Continued)

respectively.
In general, an "ownership change" as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an
ownership change of more than 50 percentage points of the market value of a company by certain stockholders or public groups. Since the Company's formation, the Company has raised capital
through the issuance of preferred stock on several occasions which has resulted in such an ownership change.

Consequently,
the Company's utilization of the NOL carryforwards are subject to an annual limitation under Section 382 of the Code, which is determined by first multiplying the
value of the Company's stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments, as required.
Due to the existence of the valuation allowance, future changes in the Company's unrecognized tax benefits will not impact its effective tax rate. Any carryforwards that will expire prior to
utilization as a result of such limitations will be removed from deferred tax assets with a corresponding reduction of the valuation allowance.

The
Company adopted the provisions of FIN No. 48 on January 1, 2007. As of the date of the adoption, there were no unrecognized tax benefits. The adoption of FIN
No. 48 did not result in any unrecognized tax benefits. During the year ended December 31, 2007, there were no changes to the Company's uncertain tax benefits. The Company will recognize
interest and penalties related to unrecognized tax benefits as a component of income tax expense.

The
Company is subject to U.S. federal and state income tax. The Company is no longer subject to U.S. federal and state income tax examinations for the years before 2004 and 2003,
respectively. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses or tax credits were generated and carried forward, and
make adjustments up to the amount of the net operating loss or credit carryforward amount. The Company is not currently under Internal Revenue Service or state tax examinations.

8. Prepaid Expenses

Prepaid expenses are comprised of the following:

2007

2006Deferred costs

$
232

$
582Prepaid expenses


231


312Prepaid rent


187


422Total

$
650

$
1,316


The
decrease in prepaid expenses is the result of the sale of the four Company-owned training centers in 2007 and general working capital activities.

51

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

9. Other Assets

Other assets are comprised of the following:

2007

2006Notes receivable from franchisees, net of allowance

$
81

$
188Security deposits


691


696Other


182


417954


1,301Less: Current portion of notes receivable


(81
)

(145
)Total other assetslong term

$
873

$
1,156


Notes
receivable from franchisees is shown net of an allowance for loan losses of $240 and $349 as of December 31, 2007 and 2006, respectively.

10. Related Party Transactions

A note receivable from an officer, dated August 31, 1999, totaling $300 relates to a non-interest bearing term loan, was due and payable on
August 31, 2007. The note was issued in connection with such officer's relocation expenses. Per the agreement dated February 7, 2006 between the Company and the officer, the note balance
of $300 was forgiven effective July 31, 2006. There was no impact to stockholders' equity.

In
addition to Board of Director fees, one of the Company's directors is a lender on the Credit Agreement and was paid $187 in interest payments in 2007. This individual's company is
also an international master franchise owner which paid to the Company $1,572 in royalty revenues in 2007.

11. Other Current Liabilities

Other current liabilities are comprised of the following:

2007

2006Accounts payable to franchisees

$
1,766

$
3,575Salaries, wages and commissions payable


2,993


2,448Royalties and fees payable to courseware partners


48


337Deferred revenue


836


1,694Accrued operating expenses and other liabilities


2,773


7,189Total

$
8,416

$
15,243


The
decrease in other current liabilities is a result of the sale of four Company-owned training centers in 2007 and general working capital activities.

52

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

12. Employee Savings Plan

The Company established the New Horizons Worldwide, Inc. 401(k) Retirement Savings Plan (the "Plan") on January 1, 1995. All full-time
employees of the Company are eligible to participate in the Plan beginning with the first month of the next quarterly period after their hire date. While the Plan provides for a discretionary match of
employee contributions, the Company did not match such contributions in 2007, 2006 or 2005.

13. Shareholders' Equity (Deficit)

On
July 2, 2007, the Company completed a $4,000 sale of Series C preferred stock and warrants to private investors (the "Series C Stockholders") under the
Series C Stock and Warrant Purchase Agreement (the "Series C Purchase Agreement"). The Series C Stockholders purchased (i) 172,043 shares of Series C Convertible
Preferred Stock, without par value ("Series C Shares"), convertible into 5,333,333 shares of common stock, $.01 par value ("Common Shares") of the Company and (ii) 1,066,667 warrants to
purchase common stock at $0.75 per share (the "Series C Warrants") for the aggregate amount of $4,000. The Company intends to use the proceeds of the sale primarily for general working capital.

As
contemplated by the Series C Purchase Agreement, an amendment to the Company's Restated Certificate of Incorporation, as amended, was approved at a meeting of the Company's
stockholders on November 6, 2007. This amendment increases the number of authorized common stock of the Company from 20,000,000 to 30,000,000 shares (the "Certificate Amendment"). Following the
filing of the Certificate Amendment with the Secretary of State of the State of Delaware, the Company has agreed to reserve and keep available out of its authorized but unissued shares of common
stock, not less than the maximum number of shares that would then be issuable upon conversion of all outstanding Series C Shares and exercise of the Series C Warrants.



The Series C Warrants to purchase an aggregate of 1,066,667 shares of the Company's common stock (the "Series C Warrant Shares") entitle the holder
to exercise the warrants from and after July 3, 2007, until July 3, 2012, at an exercise price of $0.75 per common share. The exercise price is subject to adjustment under certain
circumstances as specified in the terms of the Series C Warrants. The Series C Warrants are not exercisable and are subject to cancellation in whole or in part commencing
January 1, 2010 and ending three months prior to their expiration if the market value of the common stock for which such warrants are exercisable exceeds certain amounts as specified in terms
of the Series C Warrants.

The
holders of Series C Warrant Shares are entitled to registration rights under the Second Amended and Restated Registration Rights Agreement. The holders of Series C
Warrant Shares are also subject to the voting obligations and transfer restrictions set forth in the Second Amended and Restated Stockholders' Agreement. These amended agreements also impact the
registration rights and voting obligations of the holders of Series B preferred stock. Registration rights are accounted for

53

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

13. Shareholders' Equity (Deficit) (Continued)

pursuant
to the guidance FSP EITF 00-19-2 which requires amounts to be accrued if probable and subject to estimation.



In order to secure waivers from the Lenders (as defined below) and to induce the Lenders to agree to the Credit Amendment, and in order to satisfy certain
anti-dilution adjustments set forth in the Company's Series A Warrants and Series B Warrants issued pursuant to the Credit Agreement,
(i) the Series A Warrants and the Series B Warrants have been amended to reduce the price per common stock share at which the warrants can be exercised from $1.50 to $0.90, and
(ii) 1,135,153 additional warrants have been issued at an exercise price of $.90 per common stock share, has a term of five years, and is subject to cancellation as provided for in the terms
thereof. The difference in the fair value of these securities before and after these amendments totaled $1,010. The Company recognized this amount as a deemed dividend to preferred shareholders. To
value these securities, the Company used the Black-Scholes-Merton option-pricing model, and used a risk free rate of return of 4.5%, an expected term of 3 years, and an expected volatility
percentage of 99%.



On July 3, 2007, the Company entered into a Voting Agreement (the "Voting Agreement") with certain stockholders listed therein whereby each stockholder who
is a party to the Voting Agreement agreed to vote all of its shares entitled to vote at a meeting of the Company's stockholders in favor of the Certificate Amendment.



On July 2, 2007, the Company filed a Certificate of Designation, Preferences and Rights of Series C Convertible Preferred Stock (the
"Series C Certificate of Designation"), pursuant to which the Series C Shares are entitled to receive cumulative quarterly dividends at a rate of 4% per annum on the last day of March,
June, September and December of each year, if declared by the Board of Directors. Upon any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the Series C
Shares are entitled to a liquidation preference in an amount per share equal to $23.25 per share, plus any cumulative but unpaid dividends. The Series C Shares are convertible at any time and
from time to time after the Certificate Amendment shall have become effective, at the option of each holder of Series C Shares, into fully paid and non-assessable common stock.
Initially, the conversion rate is 31 shares of common stock for one Series C Share, subject to adjustment in certain events. Until the holders of Series C Shares own less than 50% of the
Series C Shares originally issued, the Company cannot take certain actions without obtaining the approval of the holders of a majority of the outstanding Series C Shares, including the
issuance, creation, designation or authorization of any securities having rights or preferences senior to or on parity with the Series C Shares, incur indebtedness in excess of $5,000, effect
any single capital expenditure equal to or in excess of $2,500, or enter into an acquisition or joint venture for which the consideration is equal to or in excess of $2,500.

54

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

13. Shareholders' Equity (Deficit) (Continued)

The
rights of holders of common stock have been materially affected by the issuance of the Series C Shares. The Company encourages the reader to refer to these documents filed as
exhibits to the Company's current report on Form 8-K dated July 2, 2007, for a full explanation of the rights and obligations of these preferred stockholders.



As a result of the issuance of the Series C Shares and Series C Warrants at a conversion price and exercise price, respectively, of $0.75, the
anti-dilution provisions of the Series B Shares as set forth in the Series B Certificate of Designation caused the conversion price of the Series B Shares to be
reduced from $1.80 to $1.54 and the conversion rate to be increased from 20.8333 to 24.3506. As a result, the number of shares of common stock into which the Series B Stockholders may convert
their Series B Shares increased from 3,639,432 to 4,253,879.



In accordance with Emerging Issues Task Force ("EITF") Issue 98-5, "Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios" ("EITF 98-5"), as amended by EITF 00-27, "Application of Issue No. 98-5 to certain Convertible
Instruments" ("EITF 00-27"), the Company evaluated the Series C Shares and Series C Warrants and determined that each had a beneficial conversion feature. The market
value of the Company's common stock on the date the Series C Shares and Series C Warrants were issued and sold was $1.00 per share, while the effective conversion and warrant price was
$0.75 per share. The Company calculated the effect of EITF 98-5 and EITF 00-27 on the issuance and determined on a relative fair value basis that of the $3,802
net proceeds, $3,183 was attributable to sale of the Series C Shares and $619 was attributable to the sale of the Series C Warrants. The Company calculated the beneficial conversion
feature for both the Series C Shares and Series C Warrants to be $1,953.

In
accordance with EITF 98-5 and EITF 00-27, the intrinsic value of the beneficial conversion feature is considered a deemed dividend to the
preferred shareholders and is to be amortized over the period of the security's earliest conversion date. As a result, the beneficial conversion feature for the Series C Shares and
Series C Warrants was recognized immediately as all securities were convertible, at the option of the holder beginning the day after issuance. Accordingly, the Company recognized a deemed
dividend of $1,953 related to these securities.

To
value the Series C Warrants, the Company used the Black-Scholes-Merton option-pricing model, and used a risk free rate of return of 4.5%, an expected term of 3 years,
and an expected volatility percentage of 99%.



The Company has not declared or paid any cash dividends on its common stock or on its Series B Shares and Series C Shares. At December 31,
2007, cumulative, undeclared and unaccrued dividends on the Series B Shares and Series C Shares totaled $763 and $80, respectively.

55

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

13. Shareholders' Equity (Deficit) (Continued)



On July 19, 2006, the Company entered into a Credit Agreement (the "Credit Agreement") among the Company, Camden Partners Strategic III, LLC
("Camden LLC"), as administrative agent, Camden Partners Strategic Fund III, L.P. ("Camden III"), Camden Partners Strategic Fund III-A, L.P.
("Camden III-A", with Camden LLC and Camden III, "Camden"), George S. Rich and Alkhaleej Training and Education Corporation ("Alkhaleej"), (collectively, "the
Lenders")

The
Credit Agreement provides for a $4,000 term loan, comprised of a single advance from each of the Lenders, which matures on July 19, 2009 (the "Financing"). Under the terms of
the Credit Agreement, interest is paid quarterly, at the annual rate of 10% per year. Concurrent with the execution of the Credit Agreement, the Company converted all outstanding Preferred
Series A Stock ("Series A Shares") and accrued dividends and interest into 174,693 shares of Preferred Series B Stock. See Note 4 "Debt" to the Company's consolidated
financial statements for additional discussion.

In
connection with the Financing discussed in Note 4, "Debt", the Company entered into an Amended and Restated Stockholders' Agreement with Camden, Alkhaleej, and the holders of
Warrants (the "Warrant Holders"), dated as of July 19, 2006 (the "Amended Stockholders' Agreement"). The Amended Stockholders' Agreement amends and restates the Stockholders' Agreement, dated
as of February 7, 2005, and filed as Exhibit 10.2 to the Company's Current Report on Form 8-K dated February 11, 2005. Pursuant to the Amended Stockholders'
Agreement and the Certificate of Designation, the Series B Stockholders are entitled to elect three directors to the Board of Directors (the "Series B Preferred Directors"). In addition,
holders of the Preferred Series C Shares are entitled to vote with the Common Stock as a single class at shareholder's meetings, on an as-converted basis. Pursuant to the Amended
Stockholders' Agreement, for so long as the Series B Stockholders are entitled to elect Series B Preferred Directors, the Company, each Series B Stockholder and each Warrant
Holder are required to take certain actions, including, without limitation, to establish the size of the Board at nine directors, to elect the Series B Preferred Directors, with such directors
initially being Donald W. Hughes, David L. Warnock and Alwaleed Aldryann, and,
within eighteen (18) months of the date of the Amended Stockholders' Agreement, to elect an independent director to replace an incumbent director. Additionally, Camden is required to vote all
of its shares in favor of the Common Directors proposed by the Board of Directors' Governance Committee. Under the terms of the Amended Stockholders' Agreement, for as long as the loan is outstanding
or Alkhaleej beneficially holds not less than seventy-five percent (75%) of the Series A Warrants issued, or the Common Stock issued pursuant to the Warrants, the Company, the
holders of Series B Shares and Alkhaleej shall take all steps necessary to retain Mr. Aldryann as a Director. The Amended Stockholders' Agreement also provides that so long as Camden
holds at least 25% of the Series B Shares, it will have board observation rights. Under the terms of the Amended Stockholders' Agreement, the Series B Stockholders may transfer
Series B shares subject to a right of first refusal by the Company. Under the terms of the Amended Stockholders' Agreement, the Company granted preemptive rights with respect to future
issuances of equity securities by the Company to each holder of at 10,000 Series B Shares and each Warrant Holder, subject to customary exceptions.

56

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

13. Shareholders' Equity (Deficit) (Continued)



In connection with the Credit Agreement, the Company entered into an Amended and Restated Registration Rights Agreement, dated July 19, 2006, by and among
the Company, Camden, Alkhaleej and the Warrant Holders (the "Amended Registration Rights Agreement"). The Amended Registration Rights Agreement amends and restates the Registration Rights Agreement,
dated as of February 8, 2005, and filed as Exhibit 10.3 to the Company's Current Report on Form 8-K dated February 11, 2005. Pursuant to the terms of the
Amended Registration Rights Agreement, the Company agreed to register the resale of the shares of Common Stock issuable upon conversion of the Series B Shares and the Warrants under the
Securities Act of 1933, as amended (the "Securities Act") under certain circumstances. These rights include two opportunities to require registration by the Company, at any time after the Company is
eligible to file a registration statement on Form S-3, as well as the right to participate in other registrations initiated by the Company or other stockholders. The Amended
Registration Rights Agreement provides for customary indemnifications between the Company, Camden and the Warrant Holders. Under the Amended Registration Rights Agreement, the Company agreed not to
grant registration rights with respect to Common Stock to any other person unless such rights are subordinate to those granted under the Amended Registration Rights Agreement. The Company has
concluded that the registration rights agreement does not meet the definition of a derivative because it does not require the Company to have the registration statement declared effective by the end
of a specified period or pay liquidating damages to the Series B shares if the registration statement is not declared effective or effectiveness is not maintained for a prescribed period. In
reaching its conclusion, the Company utilized the guidance in FASB Staff Position No. EITF 00-19-2, "Accounting for Registration Payment Arrangements".



In connection with the Exchange, on July 10, 2006, the Company filed a Certificate of Decrease relating to the Certificate of Designation, Preferences and
Rights of Series A Convertible Preferred Stock of the Company (the "Certificate of Decrease") with the Secretary of State of the State of Delaware to decrease the number of designated shares of
Series A Preferred from 2,000,000 shares to 1,638,398 shares.



Subsequent to filing the Certificate of Decrease, on July 10, 2006, the Company filed a Certificate of Designation, Preferences and Rights of
Series B Convertible Preferred Stock (the "Certificate of Designation"), pursuant to which the Series B Shares are entitled to receive cumulative quarterly dividends at an initial rate
of 8% per annum when, as and if declared by the Company's Board of Directors. On the fourth anniversary of the date of issuance, the dividend rate will increase to 12% per annum. Upon any liquidation,
dissolution or winding up of the corporation, either voluntary or involuntary, the Series B Shares are entitled to a liquidation preference in an amount equal to $37.50 per share, plus any
accrued but unpaid dividends. At December 31, 2007, cumulative, undeclared and unaccrued dividends equaled approximately $524. A Change of Control (as defined in the Certificate of Designation)
will be considered a liquidation event, unless a majority of the outstanding Series B

57

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

13. Shareholders' Equity (Deficit) (Continued)

Shares
elect otherwise. The Series B Shares are convertible at any time, at the option of each holder of Preferred Series B Shares, into fully paid and non-assessable shares
of Common Stock, initially at the conversion rate is 20.8333 shares of Common Stock for one Series B Share. The conversion price of the Series B Shares is subject to adjustment in the
event of a consolidation, merger subdivision or combination of shares or the issuance of stock dividends, in the event that the Company issues additional shares of Common Stock at a price per share
which is less than the conversion price, or in the event that the Company issues warrants, options or other stock purchase rights for which the purchase price for the Common Stock is less than the
conversion price. The Company has concluded that the embedded conversion feature in the Series B Shares does not qualify for bifurcation as it meets the scope exception of paragraph 11
as of SFAS No. 133, "Derivatives and Hedging Activities". The conversion feature is indexed to the Company's own common stock and meets the criteria of
EITF 00-19- Issue No. 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock". At any
time after February 7, 2007, the Company may convert all the Series B Shares into shares of Common Stock at the then-applicable conversion price; provided that the Common
Stock meets certain requirements with respect to trading volume and price on the market or exchange on which the Common Stock is trading, or if none, by a nationally recognized quotation reporting
service, and there is then in effect a registration statement permitting the resale of the Common Stock received upon conversion of the Series B Shares. At any time after February 7,
2009, the Company may convert fifty percent (50%) of the Series B Shares into shares of Common Stock at the then-applicable conversion price; provided that the Common Stock meets a
certain requirement with respect to its trading price on the market or exchange on which the Common Stock is trading, or if none, by a nationally recognized quotation reporting service, and there is
then in effect a registration statement permitting the resale of the Common Stock received upon conversion of the Series B Shares. The Company may convert all Preferred Series B Shares
not previously converted any time after February 7, 2011; provided that the Common Stock meets a certain trading price requirement on the market or exchange on which the Common Stock is
trading, or if none, by a nationally recognized quotation reporting service and there is then in effect a registration statement permitting the resale of the Common Stock received upon conversion of
the Series B Shares. At any time after the sixth anniversary of the date that Series B Shares are first issued, the Company may redeem the Series B Shares, in whole or in part, at
a redemption price equal to 2.25 times the original issue price of the Series B Shares, $37.50, plus an amount equal to the accrued but unpaid dividends thereon. Until the holders of
Series B Shares own less than 50% of the Series B Shares originally issued, the Company cannot take certain actions without obtaining the approval of the holders of a majority of the
outstanding Series B Shares, including the issuance, creation, designation or authorization of any new equity securities having rights or preferences senior to or on parity with the
Series B Shares, incur indebtedness in excess of $5 million, effect a single capital expenditure in excess of $2,500, or enter into an acquisition or joint venture for which the
consideration is in excess of $2,500. As long as at least fifty percent (50%) of the Series B Shares issued upon the closing of the Exchange Agreement remain outstanding, the holders thereof
shall be entitled to elect, at a meeting of such stockholders, three Series B Directors, who will not serve a classified term with the directors elected by the holders of Common Stock together
with the holders of any other class or series of capital stock entitled to vote thereon. In addition, holders of the Preferred Series B Shares are entitled

58

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

13. Shareholders' Equity (Deficit) (Continued)

to
vote with the Common Stock as a single class at stockholders' meetings, on an as-converted basis. The rights of the Series A Shares have been eliminated and replaced by the
rights granted under the Series B Shares. The rights of the Common Stock have been materially limited by the issuance of the Series B Shares. The general effect of the issuance of the
Series B Shares upon the rights of the holders of the Common Stock is more fully described in the Certificate of Designation, as described above.



On July 20, 2006, the Company filed with the Secretary of State of the State of Delaware a Certificate of Elimination of Series A Convertible
Preferred Stock to eliminate all matters set forth in the Certificate of Designation with respect to the Series A Shares from the Company's Certificate of Incorporation.



On February 7, 2005, the Company entered into the Series A Stock Purchase Agreement (the "Purchase Agreement") with Camden Partners Strategic
Fund III, L.P. and Camden Partners Strategic Fund III-A, L.P (together "Camden Partners") to issue and sell in an offering exempt from registration under the
Securities Act of 1933, as amended, 1,600,000 shares of its Series A Convertible Preferred Stock ("Series A Shares"), without par value, at a per share price of $3.75, for an aggregate
offering price of $6,000. The Series A Shares were issued on February 8, 2005. In connection with the Series A Share offering, the Company entered into a Stockholders' Agreement
with Camden Partners, dated February 8, 2005. Both of these agreements have been amended and the Series A Shares exchanged as per the Credit Agreement dated July 19, 2006 as
discussed above.



The Series A Preferred Stock Shares contain a beneficial conversion feature. In accordance with the FASB's EITF Issue No. 00-27,
"Application of EITF 98-5 to Certain Convertible Instruments", the Company recorded an imputed dividend to the Series A Preferred shareholders as a reduction of additional
paid in capital of $1,808 during the quarter ended March 31, 2005 because the conversion price was below the fair value of the Company's common stock at issuance. The Series A preferred
shares were exchanged per the Credit Agreement as noted above.

59

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NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

13. Shareholders' Equity (Deficit) (Continued)

A
summary of restricted stock award activity as of December 31, 2007 and changes during the twelve months then ended is presented as follows:

Number of
Shares

Weighted
Average Grant
Date Fair ValueRestricted stock outstanding at December 31, 2006

350,000

$
0.80Granted

340,000

$
1.54Vested

(345,000
)
$
1.17Forfeited



$
Restricted stock outstanding at December 31, 2007

345,000

$
1.17


On
August 24, 2007, the Company granted a total of 340,000 shares of restricted common stock to its CEO and three of its senior management employees. Under the terms of these
Restricted Stock Agreements, if the Company reaches an Adjusted EBITDA (as defined in the Restricted Stock Agreements) of $3,357 for the consecutive twelve month period ending December 31,
2007, 170,000 shares of the restricted shares will vest. If the Company reaches its performance target of $7,565 in Adjusted EBITDA for the consecutive twelve month period ending December 31,
2008, an additional 170,000 shares of the restricted shares will vest. Unvested shares will be held by the Company in escrow and the individuals will be entitled to vote and receive dividends on such
escrowed shares. As of December 31, 2007, 345,000 shares of the restricted stock had vested and $444 of compensation expense has been recognized in the Company's consolidated financial
statements.

The
following supplemental disclosures are provided with respect to the Company's stock options and restricted stock awards:

2007

2006

2005Weighted average grant date fair value of options and restricted stock granted (per share)

$
1.44

$
0.92

$
3.90Intrinsic value of options exercised

$
209

$


$



The
Company issued Edusoft, Ltd. ("Edusoft") 37,500 restricted shares of the Company's common stock as part of a settlement agreement. Edusoft shall not sell or transfer these
restricted shares for a period
of three years and during this time Edusoft shall vote the shares in favor of all matters supported by the Company's management which are brought before a vote of stockholders.

On
November 6, 2007, the Company 2007 Omnibus Equity Plan ("2007 Plan"), which provides for the issuance of non-qualified options, incentive stock options, and stock
appreciation rights. The 2007 Plan provides for the granting of options to purchase up to 2,000,000 shares of common stock. Incentive stock options are exercisable for up to ten years, at an option
price of not less than the fair market value on the date the option is granted, or at a price of not less than 110% of the fair market

60

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NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

13. Shareholders' Equity (Deficit) (Continued)

price
in the case of an option granted to an individual who, at the time of grant, owns more than 10% of the Company's common stock. Non-qualified stock options may be issued at such
exercise price and on such other terms and conditions as the Compensation Committee of the Board of Directors may determine. Optionees may also be granted stock appreciation rights under which they
may, in lieu of exercising an option, elect to receive cash or common stock, or a combination thereof, equal to the excess of the fair market value of the common stock over the option price at the
date of exercise. All options were granted at the average of the Company's opening and closing price of its common stock as of the date of grant. As of December 31, 2007, no grants have been
issued under this plan and therefore the 2,000,000 shares of common stock are not reflected in the tables below.

The
Company also maintains a 1998 Omnibus Equity Plan ("1998 Plan"), which provides for the issuance of non-qualified options, incentive stock options, and stock appreciation
rights. The 1998 Plan provides for the granting of options to purchase up to 2,250,000 shares of common stock. Incentive stock options are exercisable for up to ten years, at an option price of not
less than the fair market value on the date the option is granted, or at a price of not less than 110% of the fair market price in the case of an option granted to an individual who, at the time of
grant, owns more than 10% of the Company's common stock. Non-qualified stock options may be issued at such exercise price and on such other terms and conditions as the Compensation
Committee of the Board of Directors may determine. Optionees may also be granted stock appreciation rights under which they may, in lieu of exercising an option, elect to receive cash or common stock,
or a combination thereof, equal to the excess of the fair market value of the common stock over the option price at the date of exercise. All options were granted at the average of the Company's
opening and closing price of its common stock as of the date of grant.

Independent
directors of the Company hold options to acquire a total of 161,666 shares of common stock all of which were issued prior to 2006. Options were not issued to directors during
2007 or 2006. The exercise price under all such options was equal to the average of the Company's opening and closing price of its common stock as of the date of grant.

61

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

13. Shareholders' Equity (Deficit) (Continued)

Changes
in shares and disclosures required under SFAS 123R, under the 1998 Plan and other arrangements, for the year ended December 31, 2007 and 2006 are summarized as
follows:

|                                                                        |                       | Shares    |           | Weighted
Average
Price |      | Weighted
Average
Contractual
Period (Yrs) |      | Aggregate
Intrinsic
Value
($ in thousands)
|----------------------------------------------------------------------- | --------------------- | --------- | --------- | ---------------------- | ---- | ----------------------------------------- | ---- | ------------------------------------------
|Options outstanding at January 1, 2006 (1,569,266 shares exercisable)   |                       | 1,569,266 |           | $                      | 6.85 |                                           |      |                                           
|                                                                        | Granted               |           | 1,151,000 |                        | $    | 0.98                                      |      |                                           
|                                                                        | Exercised             |           |          |                        | $    |                                          |      |                                           
|                                                                        | Forfeited and expired |           | (649,175  | )                      | $    | 6.25                                      |      |                                           
|                                                                        |                       |           |           |                        |      |                                           |      |                                           
|Options outstanding at December 31, 2006 (1,080,091 shares exercisable) |                       | 2,071,091 |           | $                      | 3.77 |                                           |      |                                           
|                                                                        | Granted               |           | 340,000   |                        | $    | 1.38                                      |      |                                           
|                                                                        | Exercised             |           | (242,666  | )                      | $    | 0.72                                      |      |                                           
|                                                                        | Forfeited and expired |           | (827,925  | )                      | $    | 6.54                                      |      |                                           
|                                                                        |                       |           |           |                        |      |                                           |      |                                           
|Options outstanding at December 31, 2007                                |                       | 1,340,500 |           | $                      | 2.01 |                                           | 7.74 |                                           
|                                                                        |                       |           |           |                        |      |                                           |      |                                           
|Vested and expected to vest                                             |                       | 1,166,896 |           | $                      | 2.13 |                                           | 7.56 |                                           
|                                                                        |                       |           |           |                        |      |                                           |      |                                           
|Exercisable at December 31, 2007                                        |                       | 523,170   |           | $                      | 3.22 |                                           | 5.75 |                                           
|                                                                        |                       |           |           |                        |      |                                           |      |                                           

The
aggregate intrinsic value in the table above represents the difference between the Company's closing stock price on the last trading day of the year (December 31, 2007) and
the exercise price, multiplied by the number of in-the-money options outstanding, whether vested or not vested.

The
total fair value of stock options granted was $686, $379 and $1,230 during the years ended December 31, 2007, 2006 and 2005, respectively. At December 31, 2007,
unrecognized compensation cost related to stock options outstanding as of December 31, 2007 was $447 ($268 after income taxes), which is expected to be recognized over a weighted average
remaining vesting period of approximately 2 years. At December 31, 2006, unrecognized compensation cost related to stock options outstanding as of December 31, 2006 was $299 ($179
after income taxes), which is expected to be recognized over a weighted average remaining vesting period of approximately 2 years.

62

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

13. Shareholders' Equity (Deficit) (Continued)

Changes
in shares and disclosures required under APB 25, under the 1998 Plan and other arrangements, for year ended December 31, 2005 is summarized as follows:

2005

Shares

Weighted
Average
PriceOutstanding, beginning of year

1,728,666

$
8.55Granted

407,500


3.90Exercised




Canceled

(566,900
)

9.71Outstanding, end of year

1,569,266

$
6.85Options exercisable, end of year

1,569,266

$
6.85Weighted average fair value of all options granted during the year



$
3.19


Outstanding
stock options at December 31, 2007 under the 1998 Plan consist of the following:

|                |  | Options Outstanding |  | Options Exercisable
|--------------- |  | ------------------- |  | -------------------
|
|$0.67 - $0.67   |  | 90,000              |  | 8.03               
|$0.80 - $0.80   |  | 175,334             |  | 8.51               
|$1.00 - $1.07   |  | 100,000             |  | 9.29               
|$1.10 - $1.10   |  | 190,000             |  | 8.99               
|$1.50 - $1.50   |  | 263,000             |  | 8.51               
|$1.53 - $1.53   |  | 240,000             |  | 9.65               
|$3.48 - $3.48   |  | 10,000              |  | 6.78               
|$3.85 - $3.85   |  | 142,500             |  | 4.68               
|$4.62 - $10.93  |  | 124,666             |  | 1.83               
|$12.06 - $12.06 |  | 5,000               |  | 1.15               
|                |  |                     |  |                    
|$0.67 - $12.06  |  | 1,340,500           |  | 7.74               
|                |  |                     |  |                    

As
of December 31, 2007, there were 666,834 shares of common stock under the 1998 Plan that were available for future grant. The 1998 Plan will expire and no further shares will
be granted under this plan after the 2008 fiscal year.

On
November 6, 2007, the Board of Directors approved the 2007 Plan that made 2,000,000 shares of common stock available for future grants. As of December 31, 2007, no
shares have been granted under this plan.

63

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NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

13. Shareholders' Equity (Deficit) (Continued)

The Company issued to its Board of Directors 74,750 shares of the Company's common stock in lieu of payment for Board of Director fees.

On
December 12, 2005, the Board of Directors of the Company upon the recommendation of the Board's Compensation Committee, approved the acceleration of the vesting of all
outstanding stock options granted under the Company's stock option plans held by employees and officers, that were both unvested and "out-of-the-money" as of
December 12, 2005. As a result of the decision to accelerate vesting, options to purchase 539,675 shares, representing approximately 32% of total options outstanding of the Company's common
stock, which would have vested from time to time over the next four years, became immediately exercisable. The number of shares, exercise prices, and remaining terms of the Options subject to the
acceleration remain unchanged.

The
accelerated options included 266,250 options held by the Company's executive officers and 273,425 options held by employees. The acceleration did not impact options held by the
Company's non-employee directors. Based on the Company's closing stock price of $0.79 per share on December 12, 2005, all of the accelerated options had exercise prices above the
closing stock price at that time. The accelerated options had exercise prices ranging from $2.15 to $13.75 per share. The weighted average exercise price of all accelerated options was $5.33 per
share. There was no incremental cost upon acceleration under SFAS No. 123R.



The Company issued Series A Warrants (the "Series A Warrants") to the Lenders to purchase, in the aggregate, 2,000,000 shares of common stock of the
Company. The Series A Warrants entitle the warrant holder to exercise the warrant to purchase common shares beginning after July 19, 2006, until July 19, 2011, at an exercise
price of $1.50 per common share. The exercise price is subject to adjustment under certain circumstances specified in the Series A Warrants. In conjunction with the Series C Preferred
Stock Offering described above, the Series A Warrants have been amended and restated to reduce the exercise price per common share to $0.90 and to issue additional warrants.



The Company issued Series B Warrants (the "Series B Warrants" and together with the Series A Warrants, the "Warrants") to the Lenders to
purchase, in the aggregate, 666,667 shares of common stock of the Company. The Series B Warrant entitles the warrant holder to exercise the warrant to purchase common shares (the
"Series B Warrant Shares") beginning August 15, 2007, until July 19, 2011, at an exercise price of $1.50 per share. In conjunction with the Series C Preferred Stock
Offering described above, the Series B Warrants have been amended and restated to reduce the exercise price per common share to $0.90 and to issue additional warrants.

64

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NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

13. Shareholders' Equity (Deficit) (Continued)



The Series C Warrants to purchase an aggregate of 1,066,667 shares of the Company's common stock (the "Series C Warrant Shares") entitle the holder
to exercise the warrants from and after July 3, 2007, until July 3, 2012, at an exercise price of $0.75 per common share. The exercise price is subject to adjustment under certain
circumstances as specified in the terms of the Series C Warrants. The Series C Warrants are not exercisable and are subject to cancellation in whole or in part commencing
January 1, 2010 and ending three months prior to their expiration if the market value of the common stock for which such warrants are exercisable exceeds certain amounts as specified in terms
of the Series C Warrants.

The
holders of Series C Warrant Shares are entitled to registration rights under the Second Amended and Restated Registration Rights Agreement. The holders of Series C
Warrant Shares are also subject to the voting obligations and transfer restrictions set forth in the Second Amended and Restated Stockholders' Agreement. These amended agreements also impact the
registration rights and voting obligations of the holders of Series B preferred stock.

14. Commitments and Contingencies



The Company leases its offices, training facilities and certain equipment under operating lease obligations. Operating leases expire on various dates through
2015.

The
future minimum lease payments under the non-cancelable operating leases are as follows:

2008

$
7,2522009


5,8532010


4,7012011


3,3922012


1,9372013 and thereafter


2,939Total

$
26,074


Rent
expense was $3,701, $7,381, and $10,295 for the years ended 2007, 2006, and 2005, respectively.

65

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NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

14. Commitments and Contingencies (Continued)

The
future minimum sublease receipts under the non-cancelable operating leases are as follows:

2008


1,3102009


1,2132010


1,0532011


8022012


2013 and thereafter


Total

$
4,378




Effective July 1, 2004, the Company entered into an Amended and Restated Content License Agreement with a vendor that terminates on December 31,
2006 and obligates the Company to purchase $15 million of such products and services over the term of the Agreement. The Company has satisfied this agreement as of December 31, 2006.
This Agreement was not renewed in 2007.



On October 16, 2007, the Company executed a settlement and mutual release agreement with Edusoft, Ltd. ("Edusoft"). This settlement agreement
provides for the termination of the licensing agreement between the Company and Edusoft under which the Company had the right to use certain proprietary educational materials related to Edusoft's
English Language teaching program. Pursuant to the terms of this agreement, all but three of the Company's franchises will discontinue using these Edusoft teaching programs. The Company will pay
Edusoft a total of $375 payable over the next two years and issue Edusoft 37,500 restricted shares of the Company's common stock. Expense totaling $75 was recognized with respect to these shares.
Edusoft shall not sell or transfer these restricted shares for a period of three years and during this time Edusoft shall vote the shares in favor of all matters supported by the Company's management
which are brought before a vote of stockholders.

On
February 24, 2006, the Company reached a settlement in the amount of $850 with a plaintiff who was a former employee of the Company. The settlement was paid in installments
during 2006. The Company's insurance carrier contributed $192 to the settlement. In connection with this case, the Company accrued a loss on legal settlement of $658 in 2005.

During
the fourth quarter of 2004, the Company agreed to settle a putative class action lawsuit filed by two former employees of the Company. The Company settled the matter with a class
comprised of persons employed by the Company as instructors during the class period from July 29, 1998 through December 31, 2002. The Company paid a settlement amount of $1,700 on
May 20, 2005 to the class members in consideration of the full and final compromise, settlement and dismissal with prejudice of the litigation and all claims that have been or could have been
asserted therein, on and subject to the terms and conditions of a Settlement Agreement entered into on December 29, 2004.

66

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NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

14. Commitments and Contingencies (Continued)

The
Company also is involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters
will not have a material adverse effect on the Company's consolidated financial position or results of operations.



The Company has made guarantees and indemnities, under which it may be required to make payments to a guaranteed or indemnified party. The Company has deposited
$263 as of December 31, 2007 to guarantee performance in various states with respect to providing training to consumers. In the event the Company were to abandon training in a state, the state
agency could draw against the deposits to satisfy undelivered training obligations. In addition, the Company has deposited $250 with a bank to comply with contractual obligations. The Company has
agreed to indemnify its franchisees against any trademark infringement claims that may arise out of their use of the New Horizons' trademark. The Company has also agreed to indemnify its directors and
officers to the maximum extent permitted under the laws of the State of Delaware. The Company has not recorded any liability for these guarantees and indemnities in the accompanying consolidated
balance sheets.



The Company had an outstanding letter of credit in the amount of $650, under which it may be required to make payments to a guaranteed or indemnified party. The
letter of credit was cancelled in April 2006.



Due to the substantial time and effort management devoted to the completion of the tasks required for completing the 2004, 2005 and 2006 audits, management was
unable to perform the control procedures and develop the financial information necessary to prepare the information required to be included in the Company's Quarterly Reports on
Form 10-Q for the quarterly periods ended March 31, 2005, June 30, 2005 and September 30, 2005. In addition, the Company was late in filing
Form 10-Q for the quarterly periods ended March 31, 2006, June 30, 2006 and September 30, 2006, and filed those Forms concurrently with its Annual Report on
Form 10-K for 2006. The Company was also late in filing its Form 10-Q for the quarterly period ended March 31, 2007, and filed it during the third quarter
of 2007. In addition, the Company was unable to file timely the Annual Report on Form 10-K for the years ended December 31, 2005 and 2004. The Company has been timely with
its periodic SEC Report filings since the second quarter of 2007.



On July 20, 2005, the Company received notification from The Nasdaq Stock Market, Inc. ("Nasdaq") that the Company's securities were being delisted
from the Nasdaq Global Market, effective with the open of business on Friday, July 22, 2005. The Company has been unable to timely

67

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

14. Commitments and Contingencies (Continued)

file
its Annual Report on Form 10-K for the fiscal year ended December 31, 2004 and its Quarterly Report on Form 10-Q for the quarter ended
March 31, 2005. The Company's failure to timely file these periodic reports violates Nasdaq Marketplace Rule 4310(c)(14) for continued listing on Nasdaq.

Quotations
for the Company's common stock appear in the National Daily Quotations Journal, often referred to as the "pink sheets," where subscribing dealers can submit bid and ask prices
on a daily basis.



In conjunction with the Company's license renewal process in New York, the State Education Department reviewed both school and student files in the New York
Company-owned location in 2005 and 2006. The review noted violations of the state's education law during the years ended 2005 and 2006.

As
a result, the Company was fined $75 by the Education Department for violations occurring during 2005 and $200 for violations occurring in 2006. Under the terms of a payment
arrangement with the state, the Company paid $75 in August 2005. The $200 was paid in 2006 and 2007. Management is not aware of non-compliance issues in any other states.

15. Gain/Loss on Sale of Company-owned Training Centers

During 2007, the Company sold and re-franchised its Company-owned training centers in Chicago, Cleveland, Anaheim and New York pursuant to asset sale
agreements pursuant to which the buyers assumed net liabilities of $2,541. In addition, the buyers paid $300 of franchise fees and prepaid $850 of royalties to be earned over the term of the franchise
agreements. The Company determined that the sale of these centers did not meet all necessary criteria to be classified as discontinued operations within the Company's consolidated financial statements
at any time during the twelve months ended December 31, 2007. In addition, due to significant continuing involvement between the Company and these re-franchised centers, the Company
deferred $1,269 of the gross gain on the sale of these centers. The deferred gain at the date of sale consisted of a discount to the buyer on royalty revenue over a defined term in each respective
agreement. Subsequent to the sales, a portion of the deferred royalty revenue related to these four sales and sales made in prior years was earned and recognized totaling $979 through
December 31, 2007.

During
2006, the Company sold and re-franchised its wholly owned Company-owned training centers in San Antonio, Charlotte, Memphis, Nashville, Atlanta, Hartford and
Albuquerque pursuant to asset sale agreements for $1,650 in cash and notes plus assumption of liabilities of $2,439. The unsecured notes receivable totaled $203, bear interest at rates of 6% to 8% per
annum and have maturity dates over the next 12 to 24 months. The Company also disposed of fixed assets as a result of a relocation of its corporate facilities. The Company determined that the
sale of these centers did not meet all necessary criteria to be classified as discontinued operations within the Company's consolidated financial statements at any time during the year ended
December 31, 2006. Due to significant continuing involvement between the Company and these re-franchised centers, the Company deferred a portion of the gross gain on the sale of
these centers of $1,374. The sale of fixed assets

68

---



NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

15. Gain/Loss on Sale of Company-owned Training Centers (Continued)

related
to the Company's relocation of its corporate offices resulted in a net loss of approximately $195.

During
2005, the Company sold its wholly owned Company-owned training center in Sacramento pursuant to an asset sale agreement for $75 in cash. As a result of this sale, the Company
recorded a loss on sale of $329 as of December 2005.

16. Other Income/Loss

In 2006, the Company recorded a loss of $704 primarily incurred to terminate the Company's corporate Anaheim office lease.

17. Segment Reporting

In accordance with SFAS 131, "Disclosures about Segments of an Enterprise and Related Information", the
Company's business units have been segregated into two reportable segments, Company-owned locations and franchising. The two segments are managed separately due to differences in their sources of
revenues and services offered. At December 31, 2007, the Company-owned locations segment operates wholly-owned computer training centers in two metropolitan areas (six metropolitan areas at
December 31, 2006) within the continental United States and generates revenue through the sale and delivery of training for PC applications and technical software training courses and business
skills courses. The franchising segment earns revenue through the sale of New Horizons master and unit franchises within the continental United States and internationally, on-going
royalties received in return for providing franchises with systems of instruction, sales and management concepts concerning computer training and the sale of courseware materials and
e-learning products.

Summarized
financial information concerning the Company's reportable segments is shown in the following tables:

For
the year ended and at December 31, 2007:

Franchising

Company-owned
training centers

ConsolidatedTotal revenuesdomestic

$
17,298

$
27,604

$
44,902Total revenuesinternational


6,735





6,735Depreciation and amortization


392


223


615Interest expense, net


411


193


604Investment income


(126
)

(3
)

(129
)Income (loss) before income taxes


2,859


3,570


6,429Income tax provision


(891
)

(206
)

(1,097
)Net income (loss)

$
1,968

$
3,364

$
5,332Total assets

$
22,551

$
2,725

$
25,276


69

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NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

17. Segment Reporting (Continued)

For
the year ended and at December 31, 2006:

Franchising

Company-owned
training centers

ConsolidatedTotal revenuesdomestic

$
22,016

$
48,717

$
70,733Total revenuesinternational


5,947





5,947Depreciation and amortization


1,209


517


1,726Fixed asset impairment


391





391Interest expense, net


197


107


304Investment income


(283
)

(10
)

(293
)Income (loss) before income taxes


5,356


(6,366
)

(1,010
)Income tax provision


(846
)

(173
)

(1,019
)Net income (loss)

$
4,510

$
(6,539
)
$
(2,029
)Total assets

$
19,280

$
8,330

$
27,610


For
the year ended and at December 31, 2005:

Franchising

Company-owned
training centers

ConsolidatedTotal revenuesdomestic

$
24,724

$
75,044

$
99,768Total revenuesinternational


6,653





6,653Depreciation and amortization


1,659


1,383


3,042Fixed asset impairment





2,351


2,351Interest expense, net


217


6


223Investment income


(370
)

(1
)

(371
)Income (loss) before income taxes


1,850


(8,280
)

(6,430
)Income tax provision


(830
)

(20
)

(850
)Net income (loss)

$
1,020

$
(8,300
)
$
(7,280
)Total assets

$
25,707

$
13,546

$
39,253


70

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NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2007, 2006 and 2005

(Dollars in thousands, except share and per share data)

18. Quarterly Financial Data (Unaudited)

Summarized quarterly financial data for 2007 and 2006 is as follows:

|                                                                      |  | First Quarter |        | Second Quarter |   | Third Quarter |   | Fourth Quarter |       
|--------------------------------------------------------------------- |  | ------------- | ------ | -------------- | - | ------------- | - | -------------- | ------
|Year ended December 31, 2007                                          |  |               |        |                |   |               |   |                |       
|Revenues                                                              |  | $             | 14,838 |                | $ | 13,309        |   | $              | 11,901
|Gross profit                                                          |  |               | 7,439  |                |   | 7,078         |   |                | 6,641 
|Operating income                                                      |  |               | 977    |                |   | 1,354         |   |                | 1,620 
|Gain (loss) on sale of Company-owned training centers                 |  |               | 555    |                |   | 585           |   |                | (180  
|Provision for income taxes                                            |  |               | (180   | )              |   | (293          | ) |                | (664  
|Net income (loss) attributable to common shareholders                 |  | $             | 1,086  |                | $ | 1,367         |   | $              | (2,482
|Basic earnings (loss) per share attributable to common shareholders   |  | $             | 0.12   |                | $ | 0.14          |   | $              | (0.23 
|Diluted earnings (loss) per share attributable to common shareholders |  | $             | 0.11   |                | $ | 0.14          |   | $              | (0.23 
|Year ended December 31, 2006                                          |  |               |        |                |   |               |   |                |       
|Revenues                                                              |  | $             | 23,131 |                | $ | 22,873        |   | $              | 15,590
|Gross profit                                                          |  |               | 8,725  |                |   | 9,819         |   |                | 6,231 
|Fixed asset impairment                                                |  |               |       |                |   |              |   |                |      
|Gain (loss) on sale of Company-owned training centers                 |  |               | 611    |                |   | 1,725         |   |                | (12   
|Operating income (loss)                                               |  |               | (1,973 | )              |   | 1,357         |   |                | (1,102
|Provision for income taxes                                            |  |               | (185   | )              |   | (321          | ) |                | (224  
|Net income (loss) attributable to common shareholders                 |  | $             | (1,656 | )              | $ | 2,665         |   | $              | (1,359
|Basic earnings (loss) per share attributable to common shareholders   |  | $             | (0.16  | )              | $ | 0.25          |   | $              | (0.13 
|Diluted earnings (loss) per share attributable to common shareholders |  | $             | (0.16  | )              | $ | 0.25          |   | $              | (0.13 

During
the fourth quarter of 2007, the Company sold and re-franchised its Company-owned training center in New York for a gain of $1,721. See Note 15 "Gain/Loss on
Sale of Company-owned Training Centers for additional discussion. During the fourth quarter of 2006, the Company recorded a non-cash impairment of fixed assets charge of $391, against
fixed assets at the Company's corporate location. During the first and second quarter of 2005, the Company recorded a non-cash impairment charge totaling $64 and $2,287 respectively,
against fixed assets of Company-owned training centers. See Note 5 "Property and Equipment" for additional discussion.

71

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Item 9.    Changes In And Disagreements With Accountants On Accounting And Financial Disclosure

None.

Item 9A.    Controls And Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act 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 management, including our
chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management
recognized that any system of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed
to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

In
connection with the preparation of this Annual Report on Form 10-K, an evaluation was performed under the supervision and with the participation of our management,
including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Exchange Act). Based on that evaluation, our chief executive officer and chief financial officer concluded that our
disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K to ensure that the information required to be disclosed by
us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and to ensure that the
information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief
financial officer, as appropriate, to allow timely decisions regarding required disclosures.

Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f)
under the Exchange Act. Our internal control system is designed to provide reasonable assurance to our management regarding the preparation and fair presentation of published financial statements. All
internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Management
has assessed the effectiveness of our internal control over financial reporting as of December 31, 2007. In making such assessment, management used the criteria set
forth inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").
Management has concluded that, as of December 31, 2007, our internal control over financial reporting was effective based on these criteria.

The
report of management on our internal control over financial reporting is set forth in Item 8 of this annual report on Form 10-K.

This Annual Report does not include an attestation report of the Company's registered public accounting firm regarding the effectiveness of internal control over
financial reporting. Pursuant to temporary rules of the Securities and Exchange Commission, such attestation report is not required to

72

---



be included in this filing; the Company is only required to provide management's report in this Annual Report.

Changes in Internal Control Over Financial Reporting

There were no significant changes in the Company's internal controls over financial reporting that occurred during our most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

73

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PART III

Item 10.    Directors and Executive Officers of the Registrant

The information required by this Item 10 of Form 10-K will be set forth in our definitive proxy statement, to be filed within
120 days after the end of the fiscal year covered by this Annual Report on Form 10-K and is incorporated by reference.

Item 11.    Executive Compensation

The information required by this Item 11 of Form 10-K will be set forth in our definitive proxy statement, to be filed within
120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is incorporated by reference.

Item 12.    Security Ownership of Certain Beneficial Owners and Management

The information required by this Item 12 of Form 10-K will be set forth in our definitive proxy statement, to be filed within
120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is incorporated by reference.

Item 13.    Certain Relationships and Related Transactions

The information required by this Item 13 of Form 10-K will be set forth in our definitive proxy statement, to be filed within
120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is incorporated by reference.

Item 14.    Principal Accountant Fees and Services

The information required by this Item 14 of Form 10-K will be set forth in definitive proxy statement, to be filed within
120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is incorporated by reference.

74

---





PART IV

Item 15.    Exhibits, Financial Statement Schedules And Reports

Financial Statements

The Consolidated Financial Statements of the Registrant and its subsidiaries are included in Part II, Item 8 of this Annual Report on
Form 10-K.

Exhibits

See the Exhibit Index on page 77 of this Annual Report on Form 10-K

75

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Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

March 24,
2008

| |  | By: | /s/MARK A. MILLERMark A. Miller President, Chief Executive
Officer and Director
| |  | --- | -------------------------------------------------------------------------------

Pursuant
to the requirements of the Securities Exchange Act of 1934 as amended, this report has been signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:

|Signature                                     |  | Title                                                                                             |  | Date          
|--------------------------------------------- |  | ------------------------------------------------------------------------------------------------- |  | --------------
|                                              |  |                                                                                                   |  |               
|/s/MARK A. MILLERMark A. Miller               |  | President, Chief Executive Officer and Director (Principal Executive Officer)                     |  | March 24, 2008
|/s/CHARLES J. MALLONCharles J. Mallon         |  | Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |  | March 24, 2008
|/s/CURTIS LEE SMITH, JR.Curtis Lee Smith, Jr. |  | Chairman of the Board of Directors                                                                |  | March 24, 2008
|/s/ALWALEED ALDRYANNAlwaleed Aldryann         |  | Director                                                                                          |  | March 23, 2008
|/s/ARNOLD M. JACOBArnold M. Jacob             |  | Director                                                                                          |  | March 24, 2008
|/s/WILLIAM H. HELLERWilliam H. Heller         |  | Director                                                                                          |  | March 26, 2008
|/s/DONALD W. HUGHESDonald W. Hughes           |  | Director                                                                                          |  | March 24, 2008
|/s/RICHARD L. OSBORNERichard L. Osborne       |  | Director                                                                                          |  | March 24, 2008
|/s/ROBERT H. ORLEYRobert H. Orley             |  | Director                                                                                          |  | March 25, 2008
|/s/DAVID L. WARNOCKDavid L. Warnock           |  | Director                                                                                          |  | March 24, 2008

76

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Exhibit Index:

|Exhibit No. |  | Description                                                                                                                                                                                                                                                         |  |     
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|3.1         |  | Restated Certificate of Incorporation of the Company                                                                                                                                                                                                                |  | (F) 
|3.2         |  | Amended and Restated By-laws of the Company                                                                                                                                                                                                                         |  | (JJ)
|3.3         |  | Certificate of Amendment to Restated Certificate of Incorporation of New Horizons Worldwide, Inc.                                                                                                                                                                   |  | (KK)
|4.1         |  | Specimen Certificate for Share of Common Stock, $.01 par value, of the Company                                                                                                                                                                                      |  | (C) 
|4.2         |  | Amendment No. 1, dated December 16, 2003 to the Credit Agreement between the Company and Wells Fargo Bank, N.A.                                                                                                                                                     |  | (H) 
|4.3         |  | Second Amendment to Credit Agreement, dated February 7, 2005, to the Credit Agreement between the Company and Wells Fargo Bank, N.A.                                                                                                                                |  | (J) 
|4.4         |  | Third Amendment to Credit Agreement, dated July 25, 2005, to the Credit Agreement between the Company and Wells Fargo Bank, N.A.                                                                                                                                    |  | (K) 
|4.5         |  | Certificate of Designation, Preferences and Rights of Series A Preferred Convertible Stock of the Company, dated February 7, 2005                                                                                                                                   |  | (J) 
|4.6         |  | Specimen Certificate for Share of Series A Convertible Preferred Stock, $.01 par value, of the Company                                                                                                                                                              |  | (J) 
|4.7         |  | Certificate of Decrease Relating to Certificate of Designation, Preference sand Rights of Series A Convertible Preferred Stock of the Company, filed July 10, 2006                                                                                                  |  | (BB)
|4.8         |  | Certificate of Designation, Preferences and Rights of Series B Convertible Preferred Stock of the Company, filed July 10, 2006                                                                                                                                      |  | (BB)
|4.9         |  | Certificate of Elimination of Series A Convertible Preferred Stock of the Company, dated July 20, 2006.                                                                                                                                                             |  | (BB)
|4.10        |  | Specimen certificate of the Series B Convertible Preferred Stock of the Company                                                                                                                                                                                     |  | (BB)
|4.11        |  | Form of Series A Warrant                                                                                                                                                                                                                                            |  | (BB)
|4.12        |  | Form of Series B Warrant                                                                                                                                                                                                                                            |  | (BB)
|4.13        |  | Stockholders' Agreement, dated as of February 8, 2005, by and among the Company, Camden Partners Strategic Fund III, L.P. and Camden Partners Strategic Fund III-A, L.P.                                                                                            |  | (J) 
|4.14        |  | Registration Rights Agreement, dated as of February 8, 2005, by and among the Company, Camden Partners Strategic Fund III, L.P. and Camden Partners Strategic Fund III-A, L.P.                                                                                      |  | (J) 
|4.15        |  | Amended and Restated Stockholders' Agreement, dated as of July 19, 2006, by and among the Company, Camden Partners Strategic Fund III, L.P., Camden Partners Strategic Fund III-A, L.P., Alkhaleej Training and Education Corporation and
the Warrant Holders.      |  | (BB)
|4.16        |  | Amended and Restated Registration Rights Agreement, dated as of July 19, 2006, by and among the Company, Camden Partners Strategic Fund III, L.P., Camden Partners Strategic Fund III-A, L.P., Alkhaleej Training and Education Corporation
and the Warrant Holders |  | (BB)
|4.17        |  | Certificate of Designation, Preferences and Rights of Series C Convertible Preferred Stock of the Company dated July 2, 2007.                                                                                                                                       |  | (FF)

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|4.18  |    | Specimen certificate for shares of the Series C Convertible Preferred Stock.                                                                                                       |  | (FF)
|----- | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|10.1  | ** | Omnibus Equity Plan of the Company                                                                                                                                                 |  | (B) 
|10.2  | ** | Amendment No. 1 dated March 15, 2002 to the Omnibus Equity Plan of the Company                                                                                                     |  | (G) 
|10.3  | ** | Form of Stock Option Agreement executed by employee recipients of options under Omnibus Equity Plan                                                                                |  | (D) 
|10.4  | ** | Key Employees Stock Option Plan of the Company                                                                                                                                     |  | (A) 
|10.5  | ** | Amendment No. 1 to the Key Employees Stock Option Plan of the Company                                                                                                              |  | (C) 
|10.8  | ** | Stock Option Agreement dated September 19, 1996, between the Company and Scott R. Wilson                                                                                           |  | (B) 
|10.9  | ** | Form of Stock Option Agreement executed by non-employee Director recipients of options under Omnibus Equity Plan                                                                   |  | (B) 
|10.10 |    | Form of Indemnity Agreement with Directors and Officers of the Company                                                                                                             |  | (C) 
|10.11 |    | Lease Agreement dated February 15, 2000, between New Horizons Worldwide, Inc. and Stadium Gateway Associates, LLC, guaranteed by the Company                                       |  | (D) 
|10.12 |    | Lease Agreement dated April 27, 2000, between New Horizons Worldwide, Inc. and 1114 Trizechahn-Swig, guaranteed by the Company                                                     |  | (E) 
|10.13 |    | Revised Class Action Settlement and General Release Agreement                                                                                                                      |  | (I) 
|10.14 |    | Series A Stock Purchase Agreement, dated as of February 7, 2005, by and among the Company, Camden Partners Strategic Fund III, L.P. and Camden Partners Strategic Fund III-A, L.P. |  | (J) 
|10.15 |    | Credit Agreement, dated as of July 19, 2006, by and among the Company, Camden Partners Strategic III, LLC and the Lenders named therein                                            |  | (BB)
|10.16 |    | Preferred Stock Exchange Agreement, dated as of July 19, 2006, by and among the Company, Camden Partners Strategic Fund III, L.P. and Camden Partners Strategic Fund III-A, L.P.   |  | (BB)
|10.17 | ** | Employment Agreement, dated July 5, 2006, by and between the Company and Mark A. Miller                                                                                            |  | (AA)
|10.18 | ** | Nonqualified Stock Option Agreement, dated July 5, 2006, by and between the Company and Mark A. Miller.                                                                            |  | (AA)
|10.19 | ** | New Horizons Worldwide, Inc. Restricted Stock Agreement, dated July 5, 2006, between the Company and Mark A. Miller.                                                               |  | (AA)
|10.20 | ** | Letter Agreement, dated February 7, 2005, between the Company and Jeffrey S. Cartwright, as amended February 10, 2005                                                              |  | (J) 
|10.21 | ** | President and Chief Executive Officer Compensation                                                                                                                                 |  | (Y) 
|10.22 | ** | Offer Letter, dated February 6, 2006, between the Company and Charles Caporale                                                                                                     |  | (Z) 
|10.23 | ** | Agreement, dated February 2, 2006, between the Company and Thomas Bresnan                                                                                                          |  | (Z) 
|10.24 | ** | Employment Agreement, dated February, 2006, between the Company and Mark A. Miller                                                                                                 |  | (AA)

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|10.25 | *   | Asset Purchase Agreement, dated September 15, 2005, by and between NHCLC of San Antonio, Inc., a Delaware corporation, and South Texas Horizons, L.P., a Texas limited partnership, Derek Wright, an individual, Scott Hardin, an
individual, Robert Dupree, an individual and South Texas Horizons GP, L.L.C., a Texas limited liability company.                                                                                              |  | (CC)
|----- | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|10.26 | *   | Asset Purchase Agreement, dated March 10, 2006, by and between New Horizons Computer Learning Center of Charlotte, Inc., a Delaware corporation, and Sukothai, Inc., a North Carolina corporation, and Kimberly Pongpat, an
individual.                                                                                                                                                                                                         |  | (CC)
|10.27 | *   | Asset Purchase Agreement, dated April 28, 2006, by and among New Horizons Computer Learning Center of Memphis, Inc., a Delaware corporation, together with its direct or indirect parent corporation, New Horizons Worldwide, Inc., on the
one hand; Integrated Learning Solutions Memphis, LLC, a Tennessee limited liability company; and David L. Weinstein, Robert J. Hussey, III, Stanley Graber and Joel W. Brown, each a natural person. |  | (DD)
|10.28 | *   | Asset Purchase Agreement, dated April 28, 2006, by and among: New Horizons Computer Learning Center of Nashville, Inc., a Delaware corporation, together with its direct or indirect parent corporation, New Horizons Worldwide, Inc., on
the one hand; GBWH Nashville, LLC, a Tennessee limited liability company; and David L. Weinstein, Robert J. Hussey, III, Stanley Graber and Joel W. Brown, each a natural person.                     |  | (DD)
|10.29 | *   | Asset Purchase Agreement, dated April 28, 2006, by and among: New Horizons Computer Learning Center of Atlanta, Inc., a Delaware corporation, together with its direct or indirect parent corporation, New Horizons Worldwide, Inc., on the
one hand; GBWH Atlanta, LLC, a Georgia limited liability company; and David L. Weinstein, Robert J. Hussey, III, Stanley Graber and Joel W. Brown, each a natural person.                           |  | (DD)
|10.30 | *   | Asset Purchase Agreement, dated March 17, 2006, by and among; and between New Horizons Computer Learning Center of Hartford, Inc., a Delaware corporation, and NHCLC-Hartford, L.L.C., a Delaware limited liability company.                                                                                                                                                                                                                    |  | (DD)
|10.31 | *   | Asset Purchase Agreement, dated July 31, 2006 by and between New Horizons Computer Learning Center of Albuquerque, Inc., a Delaware corporation on the one hand, and R.A.R.E. Technologies, LLC, a New Mexico limited liability company and
Robin Dennehey, Eric Lopez, Rick Dennehey and Audra Lopez, each an individual.                                                                                                                      |  | (EE)
|10.32 | #** | Employment Letter Agreement, effective as of November 7, 2006, by and between the Company and Timothy A. Kleczka.                                                                                                                                                                                                                                                                                                                               |  |     
|10.33 | **  | Employment Letter Agreement, effective as of February 1, 2007, by and between the Company and Charles Mallon.                                                                                                                                                                                                                                                                                                                                   |  | (FF)
|10.34 | **  | Nonqualified Stock Option Agreement, dated as of February 1, 2007, to be entered into by and between the Company and Charles Mallon.                                                                                                                                                                                                                                                                                                            |  | (FF)
|10.35 |     | Asset Purchase Agreement, dated on March 31, 2007, by and among New Horizons Computer Learning Center of Cleveland, Ltd., L.L.C., a Delaware limited liability company, and New Horizons Worldwide, Inc., on the one hand, and NH Cleveland,
 LLC, a Michigan limited liability company, and M&J L.L.C., a Michigan limited liability company that is an affiliate of NH Cleveland, LLC on the other hand.                                      |  | (GG)

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|10.36 |    | Asset Purchase Agreement, dated on March 31, 2007, by and among New Horizons Computer Learning Center of Chicago, Inc., a Delaware corporation, and New Horizons Worldwide, Inc., on the one hand; and NH Chicago, LLC, a Michigan
limited liability company, and M&J L.L.C., a Michigan limited liability company that is an affiliate of NH Chicago, LLC on the other hand. |  | (GG)
|----- | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|10.37 |    | Asset Purchase Agreement, dated June 1, 2007, by and among New Horizons Computer Learning Center of Santa Ana, L.L.C., a Delaware limited liability company, and New Horizons Worldwide, Inc., on the one hand; and KML Enterprises, Inc.,
a California corporation, and Kevin M. Landry, a natural person who owns all of the equity of KML Enterprises.                     |  | (HH)
|10.38 |    | Series C Stock and Warrant Purchase Agreement, dated as of July 2, 2007, by and among the Company and the Series C Stockholders.                                                                                                                                                                                                                                              |  | (II)
|10.39 |    | Form of Series C Warrant.                                                                                                                                                                                                                                                                                                                                                     |  | (II)
|10.40 |    | Amendment No. 1 to Credit Agreement, dated as of July 3, 2007, by and among the Company, Camden LLC and the Lenders.                                                                                                                                                                                                                                                          |  | (II)
|10.41 |    | Form of Amended and Restated Series A-1 Warrant.                                                                                                                                                                                                                                                                                                                              |  | (II)
|10.42 |    | Form of Amended and Restated Series B-1 Warrant.                                                                                                                                                                                                                                                                                                                              |  | (II)
|10.43 |    | Form of Series A-2 Warrant.                                                                                                                                                                                                                                                                                                                                                   |  | (II)
|10.44 |    | Form of Series B-2 Warrant.                                                                                                                                                                                                                                                                                                                                                   |  | (II)
|10.45 |    | Second Amended and Restated Stockholders' Agreement, dated as of July 3, 2007, by and among the Company, the Series B Stockholders, the Series C Stockholders and the Warrant Holders.                                                                                                                                                                                        |  | (II)
|10.46 |    | Second Amended and Restated Registration Rights Agreement, dated as of July 3, 2007, by and among the Company, the Series B Stockholders, the Series C Stockholders and the Warrant Holders.                                                                                                                                                                                  |  | (II)
|10.47 |    | Voting Agreement, dated as of July 3, 2007, by and among the Company and the Stockholders named therein.                                                                                                                                                                                                                                                                      |  | (II)
|10.48 | ** | New Horizons Worldwide, Inc. Restricted Stock Agreement, dated August 24, 2007, between the Company and Mark A. Miller.                                                                                                                                                                                                                                                       |  | (II)
|10.49 | ** | New Horizons Worldwide, Inc. Restricted Stock Agreement, dated August 24, 2007, between the Company and Charles J. Mallon.                                                                                                                                                                                                                                                    |  | (II)
|10.50 | ** | New Horizons Worldwide, Inc. Restricted Stock Agreement, dated August 24, 2007, between the Company and Timothy A. Kleczka.                                                                                                                                                                                                                                                   |  | (II)
|10.51 | ** | New Horizons Worldwide, Inc. Restricted Stock Agreement, dated August 24, 2007, between the Company and Howard H. Mark.                                                                                                                                                                                                                                                       |  | (II)
|10.52 |    | Asset Purchase Agreement, dated October 26, 2007, by and among New Horizons Computer Learning Center of Metropolitan New York, Inc., a Delaware corporation, and New Horizons Worldwide, Inc., on the one hand; and NHCLC-New York, L.L.C,                                                                                                                                    |  | (JJ)
|21.1  | #  | New Horizons Worldwide, Inc. Subsidiary Listing                                                                                                                                                                                                                                                                                                                               |  |     
|31.1  | #  | Rule 13a - 14(a) Certification of the Company's Chief Executive Officer                                                                                                                                                                                                                                                                                                       |  |     
|31.2  | #  | Rule 13a - 14(a) Certification of the Company's Chief Financial Officer                                                                                                                                                                                                                                                                                                       |  |     

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|32.1 | # | Section 1350 Certification of the Company's Chief Executive Officer |  | 
|---- | - | ------------------------------------------------------------------- |  | 
|32.2 | # | Section 1350 Certification of the Company's Chief Financial Officer |  | 

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