FORM 10-K 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

(Mark One)

|      |                                                                                                            | 
|----- | ---------------------------------------------------------------------------------------------------------- | 
|[X]   | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]       
|      |                                                                                                           
|      | For the fiscal year ended  December 31, 2003     OR                                                       
|      |                                                                                                           
|[   ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from  N/A
   to

Commission file number 0-17840

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

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

|1900 S. State College Blvd., Suite 200, Anaheim, CA | 92806     
|--------------------------------------------------- | ----------
|                                                   
|(Address of principal executive offices)            | (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

|                    | 
|------------------- | 
|Title of each Class | 
|                    | 
|Not Applicable      | 
|                    | 

Securities registered pursuant to Section 12(g) of the Act:

|Common Stock, $.01 Par Value
|----------------------------
|                            
|Title of Class              

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Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.   Yes X   No

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

Indicate by check mark whether the
Registrant is an accelerated filer (as defined in Exchange Rule Act 12b-2).   YesX
  No .

The Company was incorporated in
Delaware on December 15, 1988, and its principal executive offices are located 1900 S.
State College Blvd, Suite 200, Anaheim, California 92806. The Company maintains a website
at http://www.newhorizons.com. On this website, or through links on the information
for investors portion of this website, the Company makes available free of charge its
annual report 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. 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 aggregate market value of the
Common Stock held by non-affiliates of the Registrant as of March 8, 2004, was
approximately $56,326 computed on the basis of the last reported sales price per share
($7.16) of such stock on The Nasdaq Stock Market.

The number of shares of the
Registrants Common Stock outstanding as of March 8, 2004 was 10,450,157.

DOCUMENTS OR PARTS
THEREOF INCORPORATED BY REFERENCE

|                                   |                                                                                                                                                                 
|---------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|Part of Form 10-K                  | Documents Incorporated                                                                                                                                          
|Part III (Items 10, 11, 12 and 13) | by Reference                                                                                                                                                    
|                                   |                                                                                                                                                                 
|                                   | Portions of the  Registrant's  definitive  Proxy  Statement
        to be used in connection  with its Annual Meeting of  Stockholders to be held on May 4, 2004

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# NEW HORIZONS WORLDWIDE,
INC.
INDEX TO ANNUAL REPORT ON FORM 10K

PART I

| |         |                                                     
| | ------- | ----------------------------------------------------
| | Item 1. | Business                                            
| |         | Information about Forward-Looking Statements        
| |         | General                                             
| |         | Information Technology Education and Training Market
| |         | New Horizons Business Model                         
| |         | Training Centers                                    
| |         | Franchising Operations                              
| |         | Customers                                           
| |         | Sales and Marketing                                 
| |         | Competition                                         
| |         | Employees                                           
| |         | Regulations                                         
| |         | Insurance                                           
| |         | Trademarks                                          
| |         |                                                     
| | Item 2. | Properties                                          
| |         |                                                     
| | Item 3. | Legal Proceedings                                   
| |         |                                                     
| | Item 4. | Submission of Matters to a Vote of Security Holders 

PART II

| |          |                                                           
| | -------- | ----------------------------------------------------------
| | Item 5.  | Market for Registrant's Common Equity                     
| |          | and Related Shareholder Matters                           
| |          |                                                           
| | Item 6.  | Selected Consolidated Financial Data                      
| |          |                                                           
| | Item 7.  | Management's Discussion and Analysis of                   
| |          | Financial Condition and Results of Operations             
| |          |                                                           
| | Item 7A. | Quantitative and Qualitative Disclosures About Market Risk
| |          |                                                           
| | Item 8.  | Financial Statements and Supplementary Data               
| |          |                                                           
| | Item 9.  | Changes in and Disagreements with Accountants             
| |          | on Accounting and Financial Disclosure                    
| |          |                                                           
| | Item 9A. | Controls and Procedures                                   

PART III

| |          |                                                   
| | -------- | --------------------------------------------------
| | Item 10. | Directors and Executive Officers of the Registrant
| |          |                                                   
| | Item 11. | Executive Compensation                            
| |          |                                                   
| | Item 12. | Security Ownership of Certain Beneficial Owners   
| |          | and Management                                    
| |          |                                                   
| | Item 13. | Certain Relationships and Related Transactions    
| |          |                                                   
| | Item 14. | Controls and Procedures                           



PART IV

| |          |                                 
| | -------- | --------------------------------
| | Item 15. | Exhibits and Reports on Form 8-K
| |          |                                 
| |          | SIGNATURES                      

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# PART I

# ITEM 1. BUSINESS

(All dollars in thousands, except per share data)

# INFORMATION ABOUT
FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains
forward-looking statements which involve risks and uncertainties. The
Company uses words such as expect, anticipate,
project, believe, plan, intend,
seek, estimate, future, and other similar expressions
to identify forward looking statements.  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.  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.  The reader should not place undue reliance on these forward-looking statements
and the Company does not undertake to update our forward-looking information, or any other
information contained or referenced in this annual report to reflect future events and circumstances.

# GENERAL

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

In 1996, the Company sold its
environmental business segment and changed its name to New Horizons Worldwide, Inc., in
order to concentrate its resources on the technology training market. The Companys
common stock trades on The Nasdaq Stock Market under the symbol NEWH. From
1998 to 2001, the Company pursued a strategy to acquire well performing franchises in
select United States markets. As a result, the Company acquired eleven franchise
locations: none in 2003 and 2002, two in 2001, none in 2000, six in 1999, and three in
1998. The acquisitions have been recorded using the purchase method of accounting and the
operating results have been included in the Companys financial statements from the
date of acquisition.

The New Horizons franchise network is
the largest independent provider of personal computer (PC) software application and
technical certification instruction within the information technology (IT) training
industry. The New Horizons franchise network delivered over 2.3 million student-days of IT
training in 2003, generating system-wide revenues, which include both the results of
company-owned and franchised operations, of $394 million. The network has approximately
2,100 classrooms, 2,400 instructors and 2,100 account executives.

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# THE INFORMATION
TECHNOLOGY EDUCATION AND TRAINING MARKET

The growing role of IT in business
organizations and the emergence of the Internet are creating increasing demand for IT
training. A July 2003 IDC study estimated that the worldwide market for IT education and
training in 2003 was about $18.5 billion and is expected to grow approximately 2.7% per
year to over $21.5 billion in the year 2007.

The growing need for technology
training is driven by several developments including: (i) increased use of computers in
the workplace requiring employees to acquire and apply IT skills; (ii) rapid and complex
technological changes in operating systems, new software development, and technical
training; (iii) continuing emphasis by industry on productivity, increasing the number of
functions being automated throughout organizations; (iv) greater focus by organizations on
core competencies with a shifting emphasis to outsourcing of non-core activities; (v)
corporate downsizing requiring remaining personnel to develop a greater variety of skills;
(vi) increasing interest in IT certification from both a companys and an
employees perspective; and (vii) development of the Internet.

Instructor-led classroom training is
the dominant delivery method for technology training in the United States. According to a
March 2003 IDC report, 66% of technology training was delivered via instructor-led
classroom training. IDC projects that instructor-led training will continue to maintain a
significant share of the market because trainees value the personalized attention,
interaction with classmates and instructors, and insulation from workplace interruptions.

While IDC projects instructor-led
training will continue to be a significant delivery method in the market, the role of
technology-based training, primarily consisting of eLearning and computer-based training,
is gaining greater acceptance. Technologybased training, consisting of eLearning,
CD-ROMs, videotape, and satellite video broadcast, has become a significant delivery
modality. According to a March 2003 IDC report, technology-based training is expected to
have a 45% share of the United States IT training market in 2007 while instructor-led
training will have a 49% share. While growth in the instructor-led category is expected to
remain flat, the technology-based training, specifically eLearning, will continue to grow,
but at a slower rate than predicted by IDC in the past.

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# NEW HORIZONS
BUSINESS MODEL

The business model of New Horizons
Worldwide, Inc. centers on owning and operating company-owned training centers, the sale
of franchises, and the on-going support of franchised locations. The Company has created
two reporting units to devote attention to these activities, company-owned training
centers and franchising operations. The Company believes the mixed ownership of New
Horizons training centers between franchised and company-owned centers enables the Company
to combine the accelerated expansion opportunities provided by franchising, while
maintaining ownership of a significant number of training centers.

The Company has historically grown
through the sale of franchises, the opening of new company-owned facilities, the buyback
of franchises in certain markets, and revenue growth from the existing training centers.

In the future, the Company plans to
continue to grow through improved revenues and profits at company-owned and franchised
locations; the sale of additional franchises; the development of new course offerings and
market segments than can be delivered through the existing distribution channel; and the
acquisition of companies in similar or complementary businesses.

The Companys growth strategy is
premised on a number of assumptions concerning trends in the IT training industry. These
include the continuation of growth in the market for IT training and the trends toward
outsourcing and eLearning. To the extent that the Companys assumptions with respect
to any of these matters are inaccurate, its results of operations and financial condition
could be adversely affected. Important factors which may result in variations from results
contemplated by such forward-looking statements include, but are by no means limited to:
(i) the Companys ability to respond effectively to potential changes in the manner
in which computer training is delivered, including the increasing acceptance of
technology-based training, including through the Internet, which could have more favorable
economics with respect to timing and delivery costs and the emergence of just-in-time
interactive training; (ii) the Companys ability to attract and retain qualified
instructors and management employees; (iii) the rate at which new software applications
are introduced by manufacturers and the Companys ability to keep up with new
applications and enhancements to existing applications; (iv) the level of expenditures
devoted to upgrading information systems and computer software by customers; (v) the
Companys ability to compete effectively with low cost training providers who may not
be authorized by software manufacturers; and (vi) the Companys ability to manage the
growth of its business.

The Companys ability to achieve
growth from acquisitions is dependent, in part, on its borrowing capacity under its credit
agreement. At December 31, 2003, no acquisitions were pending.  As of January 31, 2004,
the Company had a cash balance of $8,718 and the availability under the credit agreement was $850.

3

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# New Horizons Training
Center Business Model

The goal of each New Horizons
training center, whether company-owned or franchised, is to provide students with
information and skills that have immediate and practical value in the workplace. New
Horizons training centers offer a variety of delivery modalities, a broad range of
curriculum, and the ability to deliver IT training throughout the world. Additionally, New
Horizons training centers attempt to achieve the highest standards of authorization and
certification within the IT training industry.

Delivery Modalities
In 2001, the Company developed its
trademarked Integrated Learning program upon realizing the impact of the Internet and
growing customer demand for flexibility with regard to how IT training is delivered. The
Integrated Learning program combines each of New Horizons delivery modalities and
consists of three learning components: traditional instructor-led classroom learning,
Online LIVE learning and Online ANYTIME learning. Online LIVE consists of synchronous,
interactive virtual classrooms that feature instructor-facilitated classes
delivered over the Internet. Online ANYTIME consists of asynchronous instruction, similar
in content to the classroom instruction, but self-paced and available to those students
who prefer a more independent learning method.

Although the Integrated Learning
program has resulted in growth in the delivery of Internet-based training throughout the
New Horizons network, New Horizons training centers continue to specialize in
instructor-led training, which is the dominant delivery method for IT training.
Instructor-led training occurs primarily in fully equipped classrooms maintained by each
New Horizons training center by certified instructors. Approximately 10% of
instructor-led classes are delivered at the customers location. New Horizons often
supplies the computer hardware for these on-site classes.

In addition to PC software
application and technical certification instruction, New Horizons training centers also
offer students certification exam preparation tools, courseware materials, access to
computer labs, and free help desk support.

Curriculum
Curriculum is centered on technical
certification programs (approximately 57%) and software applications (approximately 43%).
Classes are concise, generally ranging from one to five days, and are designed to be
intensive skill-building experiences. The Company offers a broad array of IT courses
covering the most popular software applications and technical certification programs. The
Company also provides customized training for customers proprietary software
applications.

4

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The Companys curriculum
offerings allow students to choose from courses from the largest technology training
segments, including technical certification, software applications and business skills
training. Courses within these segments include content from a broad range of major
software vendors, including Microsoft, Novell, Lotus, Cisco, Linux, Adobe, Corel, and
Symantec. Furthermore, New Horizons is the worlds largest provider of vendor-neutral
CompTIA certification training and also offers subject specific content that covers a
multitude of software vendors.

New Horizons training centers have
the ability to provide training and courseware for proprietary customer software or tailor
curriculum to specific customer needs.

Certification &
Authorization
New Horizons is authorized to provide
certified training by many of the major software publishers, including Novell and Adobe
and has the largest network of Microsoft Certified Partner Learning Solution (CPLS)
centers.  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.  In support of these vendors, the Company has 25
Microsoft Gold CPLS, 182 Microsoft CPLS, 89 Novell (NTSP), and 10 Adobe (ACTP) authorized
centers worldwide. The authorization agreements are typically annual in length and are
renewable at the option of the publishers and the centers.  Additionally, with certification testing
continuing to be important to many of our clients, New Horizons has established the
largest number of Authorized Thomson Prometric Testing Centers and Pearson VUE Testing
Centers in the world. The Company also offers more vendor-neutral CompTIA certification
training than any other company in the world.  As of December 31, 2003, 53 centers
have become Ascendant Learnings Security Certified Professional Authorized Training
Partners (SCP ATP).

Locations
New Horizons has an ability to
deliver IT training throughout the world via its company-owned and franchised training
centers.

As of December 31, 2003, the Company
operated 25 training centers, all within the continental United States:

|            |            |          |          |              |          
|----------- | ---------- | -------- | -------- | ------------ | ---------
|California  | Colorado   | Georgia  | Illinois | Indiana      | Tennessee
|Anaheim     | Denver     | Atlanta  | Chicago  | Indianapolis | Memphis  
|Los Angeles | Englewood  | Marietta | Rosemont |              | Nashville
|Burbank     | Broomfield | Downers' |          |              |          
|Sacramento  | Colorado   | Grove    |          |              |          
|Stockton    | Springs    |          |          |              |          
|            | Loveland   |          |          |              |          
|            |            |          |          |              |          

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|            |                |             |                   |             |          
|----------- | -------------- | ----------- | ----------------- | ----------- | ---------
|New Mexico  | North Carolina | Texas       | New York          | Connecticut | Ohio     
|Albuquerque | Charlotte      | San Antonio | New York City (2) | Hartford    | Cleveland

As of December 31, 2003, the
Companys franchisees operated 126 locations in the United States and Canada and 101
locations in 48 other countries around the world. An additional 23 franchises had
been sold as of December 31, 2003 and are scheduled for future openings.

Additionally, New Horizons training
centers regularly facilitate the delivery of IT training at their customers
facilities.

In addition to Integrated Learning
solutions, certified instructors, broad curriculum, and numerous delivery locations the
New Horizons training center is designed to provide its customers immediate and practical
value by featuring: (i) product offerings including technical tracks, clubs and bootcamps
that allow customers to attend series of classes for one low price; (ii) the largest
network of authorized training centers in the industry; (iii) on-site training at
customers facilities; (iv) skills assessment for standard software;
 (v) flexible scheduling including evening and weekend classes; (vi) professional
certification training; (vii) guaranteed training through the Companys free,
six-month repeat privileges; (viii) free help desk support for a full sixty-day
period after an applications class has been completed; (ix) 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; and (x) the Integrated Learning Manager, which allows
customers to access eLearning courses, develop custom integrated learning plans, and track progress of courses,
exams, and other goals completed.

# Franchising Operations
Business Model

The New Horizons network is an
international confederation of independent franchises that provide IT training. The
Company initially offered franchises for sale in 1991 and sold its first franchise in
1992. The Company had 257 franchised locations operating at the end of 2001; 242 at the
end of 2002; and 227 at the end of 2003, of which 126 were in the United States and Canada
and 101 were abroad. In addition, there are an additional 23 franchise locations
that have been sold and are scheduled to open in the future.

New Horizons franchisees are given a
"limited-exclusive" license and franchise to participate in and use the business model and sales
system developed and refined by the Company. New Horizons estimates the initial investment
required to acquire and start a franchise, including the initial franchise fee, ranges
from approximately $350 to $550 in the United States and varying amounts in the international
locations which may be less than that of the United States.

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United States and Canada

Initial Franchise Fees

A franchisee in the United States and
Canada is charged an initial franchise fee and ongoing monthly royalties, which become
effective at a specified period of time after the center begins operation. The initial
franchise fee is based on the size of the territory granted, as defined in the Franchise
Agreement relating to that particular franchise. In the United States and Canada, the size
of a territory, and resulting initial franchise fee, is measured by the number of PCs
within the territory as follows:

| |        |                   
| | ------ | ------------------
| | Type   | # of PCs          
| |        |                   
| | Type 1 | 500,000 or more   
| | Type 2 | 250,000 to 499,999
| | Type 3 | 100,000 to 249,999
| | Type 4 | under 100,000     

Entrepreneurs converting an existing
training center to a New Horizons center receive a 25% reduction in the initial fee as a
conversion allowance. Based on information furnished by IDC concerning the number of PCs
in various geographic areas, 8 Type 1 territories, 17 Type 2 territories, 34 Type 3
territories, and 22 Type 4 territories are available for sale as franchises in the United
States and Canada as of December 31, 2003.

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

Royalties

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

| | a monthly continuing royalty fee, equal to the greater of a defined percentage of monthly
gross revenues ranging from 3% to 6%, or a minimum flat fee; and
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | a monthly marketing and advertising
fee equal to 1% of gross revenues.                                                                                    

Franchise Agreement

Franchise Agreements govern the
relationship between the Company and its franchisees. Franchisees are granted territories
in which to operate computer training facilities. The territory is a limited-exclusive
territory in that New Horizons agrees not to own or franchise any other
New Horizons training center within the same area, provided the franchisee operates in
compliance with the terms of its franchise agreement. The geographic boundaries of a
territory are typically determined by United States Postal Service zip codes. Unless the
Franchise Agreement terminates or is amended by mutual agreement, a territory is not
altered. Franchises are expected to market their business to customers located within the
defined territory and not to customers within territories of other New Horizons franchises
or affiliates.

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Each Franchise Agreement has an
initial term of ten years and is renewable in additional five-year terms. The franchise is
exclusive for instructor-led training within the specific defined territory and is subject
to a number of limitations and conditions. These limitations and conditions include, but
are not limited to: (i) staffing requirements, including a General Manager plus a minimum
number of 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 to itself the
exclusive right to deliver New Horizons branded eLearning within all
territories on behalf of the franchise network. New Horizons and its franchisees have profit sharing arrangements for sales
of New Horizons eLearning 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. The agreement also contains default and termination
remedies.

The Franchise Agreement also contains
non-competition restrictions which bar: (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 associated with the New Horizons service
marks or operating system; and (iv) soliciting any person who is at that time employed by
the franchisor 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.

International

Franchise Fees

Initial franchisee fees and
territories for international franchises are market/country specific. Internationally, the Company
has both 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. In addition to those markets currently served by its franchisees,
the Company has identified over 160 additional international markets that may support a training center.

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

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Royalties

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

Unit Franchisees  a monthly
continuing royalty fee, equal to the greater of a defined percentage of monthly gross
revenues ranging from 4% to 6%, or a minimum flat fee.

Master Franchisees  40% of
royalties received from their Unit Subfranchises, plus royalties on their owned centers of 4% to 6%
of monthly gross revenues.

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 Franchise Agreement. Unless the Franchise Agreement terminates or is amended
by mutual agreement, a territory is not altered. Franchises are expected to market their
business to customers located within the defined territory and not to customers within
territories of other New Horizons franchises or affiliates.

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 with the Master Franchisee in the
proceeds of subsequent sales.

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.

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Unit Franchise Agreement

Each Unit Franchise Agreement runs
for an initial term of ten years and is renewable for additional five-year terms. The
franchise is "limited-exclusive" for instructor-led training within the specific defined territory,
typically a city, and is subject to a number of limitations and conditions. These
limitations and conditions include, but are not limited to: (i) staffing requirements,
including a General Manager plus a minimum number of account executives based on the
territory; (ii) a minimum number of classrooms depending on the territory; (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. 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. The agreement also contains default and termination remedies.

The Unit Franchise Agreement also
contains non-competition restrictions which bar: (i) competing with New Horizons during
the term of the Franchise Agreement; (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 associated with the New Horizons service marks or
operating system; and (iv) soliciting any person who is at that time employed by the
franchisor or any of its affiliated corporations to leave his or her employment.

Franchise Support

In return for the initial franchise
fee and the other monthly fees, the Company provides franchisees with the following
services, products, and managerial support: (i) two weeks of initial franchise training at
the Companys operating headquarters in Anaheim, California, 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 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 the corporate headquarters in Anaheim, and (x) product,
program or operational support via telephone from New Horizons personnel.

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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 (ASP) fees and/or license fees for the Center
Management System (CMS) software program.

# CUSTOMERS

New Horizons training center
customers are predominantly employer-sponsored individuals from a wide range of public and
private corporations, service organizations, government agencies and municipalities
seeking to improve and/or maintain the IT skills of their employees and consumers looking
to gain information technology certifications to enable them to enter into the IT
profession.

The Company has segmented its
customers into the following categories: consumers, enterprise/government, and
small-to-medium businesses. Each segment has distinctly different characteristics.
Consumers, or non-employer sponsored individuals, need technical certifications and vendor
specific skills required to gain employment in the IT industry. Small-to-medium businesses
necessitate IT solutions to customer specific business problems. Enterprise/government
customers require IT solutions to their business problems, as well as additional
logistical support in the coordination of delivery of IT training in multiple locations
and modalities.

No single customer accounted for more
than 10% of New Horizons revenues in 2003.

# SALES AND MARKETING

The New Horizons sales system
is organized and disciplined. New Horizons has historically marketed its services through
marketing representatives that utilize telesales to target and contact potential
customers. After undergoing an initial training program, marketing representatives
are expected to generate their own database of customers through telephone sales, make a
minimum number of calls per day, and invoice and collect a minimum amount of revenue each
month.

In addition to the Companys
historical sales and marketing system, the Company is currently undertaking to evolve its
sales system to address more complex and sophisticated demands of its customers. As a
result, the Company has segmented its sales force to include marketing representatives, as
discussed above, and sales associates. Sales associates are trained to utilize a more
sophisticated consultative sales approach in order to understand customer business issues
and diagnose IT training solutions.

The target sales areas for marketing
representatives and sales associates are local and regional. Sales opportunities that
involve national and international accounts and involve delivery of training at multiple
locations are serviced by sales personnel within the Companys Enterprise Learning
Solutions program.

11

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The ELS program is designed to market
computer training services to large organizations, which have facilities and training
needs over a broad geographic area within and outside the United States.  This
program provides New Horizons national and international customers with a single
point of contact to the entire New Horizons network of training and support
services.  During 2003, New Horizons competed for and won national and international
contracts with Aventis, Iron Mountain, LexisNexis, BASF, MeadWestvaco, and Towers
Perrin, amongst others.  In addition to these contracts, New Horizons was awarded large project-based
contracts with the U.S. State Department, Commander Navy Reserves, MRSOC (security
command), NIWA (security command) and USDA.

As customer needs evolve, the Company
has added content and curriculum to its course offerings. In addition to traditional IT
training courses, the Company has developed course offerings surrounding business skills,
health information management, and English as a second language (ESL). Furthermore, the
Company has continued to develop additional IT product offerings and certification
programs, most notably its Network Security Expert programs.

The Company maintains a web site for
marketing its products over the Internet (http://www.newhorizons.com). The Company
believes that the Internet will become an increasingly important tool in its marketing
program.

# 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 and 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 eLearning products and
those that offer instructor-led training, and those that are capable of offering
integrated solutions.

Periodically, some of these
competitors offer instruction and course titles 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 eLearning and
computer-based training, are important and growing competitive developments in the
industry.

12

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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, while alleviating their
overhead costs for in-house instructors salaries and benefits and course
development.

Instructor-led Training

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 in the instructor-led
training market. These firms include Learning Tree, Global Knowledge, Executrain,
Productivity Point, Azlan, NIIT, Aptech, Informatics, community colleges, and
independent training organizations. These national firms provide similar curriculum and
operate in some of the same markets as New Horizons.

Technology-Based Training

In 2001, the Company introduced its
eLearning product offering with Online LIVE, its synchronous virtual classroom product,
and Online ANYTIME, its asynchronous self-paced product. The Companys competitors in
the eLearning environment include Skillsoft, DigitalThink, Knowledgenet, NETg, ElementK,
Mindleaders and others.

The Company believes its future
success depends on, among other factors, the markets continued acceptance of
instructor-led training as a delivery method for IT training and the Companys
ability to successfully capitalize on the potential of technology-based training delivery
methods. The combination of the Companys market presence, the depth and breadth of
its course offerings, its ability to provide integrated learning solutions, its flexible
customer service approach, its centralized control of delivery to national customers, its
status as the worlds largest network of Microsoft CPLS centers, and its organized
and disciplined sales system distinguishes the Company from its competitors.

# EMPLOYEES

As of February 28, 2004, the Company
employed a total of 919 individuals in its corporate operations and company-owned
facilities. Of these employees, 237 are instructors, 235 are account executives, and 447
are administrative and executive personnel. New Horizons also utilizes the services of
outside contract instructors to teach some of its curriculum, primarily technical
certification programs which require instructors who are certified by Microsoft, Novell,
and Lotus.

None of New Horizons employees
are represented by a labor organization. New Horizons considers relations with its
employees to be good.

13

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# 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 states and foreign jurisdictions. Numerous state laws also
regulate the offer and sale of franchises and business opportunities, as well as the
ongoing relationship between franchisors and franchisees, including the termination,
transfer, and renewal of franchise rights.

The failure to comply with these laws
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 issued trademark
registrations and pending trademark applications for the word mark 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 registrations for WHAT DO YOU WANT TO LEARN & HOW DO YOU
WANT TO LEARN IT? and THE INTEGRATED LEARNING COMPANY while the mark
CHOOSE. LEARN. SUCCEED has matured to registration. 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 word mark NEW
HORIZONS in certain foreign countries and that it cannot register or use any of the
New Horizons trademarks in the Dominican Republic. Accordingly, the Company has
applications filed with the Dominican Republic trademark office to protect Skill Master as
its trademark in the Dominican Republic.

The Company believes that the
inability to register certain of its trademarks in certain foreign countries will not have
a material adverse effect on its financial condition or results of operations.

14

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# ITEM 2. PROPERTIES

The Companys corporate
headquarters and its flagship-training center are located in Anaheim, California, pursuant
to a lease, which expires in 2012. The Company relocated to the Anaheim facility in
October 2001.

As of December 31, 2003, New Horizons
operated training centers at 24 other leased facilities in California, Connecticut,
Georgia, Illinois, Indiana, New Mexico, New York, North Carolina, Ohio, Tennessee and
Texas, with leases that expire from 2003 to 2014.

In December 2002, the Company sold
8.3 acres of undeveloped land in Santa Ana, California and realized a pretax gain of
approximately $503. The net proceeds of approximately $5,666 were
used to reduce its debt with its lenders.

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

# ITEM 3. LEGAL PROCEEDINGS

The Company has accrued approximately
$557 related to residual environmental liabilities retained from the sale of its
environmental remediation business in 1996. See Note 15 to the Consolidated Financial
Statements.

The Company is also 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.

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

No matters were submitted to a vote
of security holders during the fourth quarter of the year ended December 31, 2003.

15

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# PART II

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

The Companys common stock is
traded on The NASDAQ Stock Market under the symbol NEWH. The following table sets forth
the range of high and low closing quotations per share of common stock from January 1,
2002, through December 31, 2003, as reported by The NASDAQ Stock Market.

|            |                           |       |      
|----------- | ------------------------- | ----- | -----
|2003        |                           | HIGH  | LOW  
|1st Quarter | (January 1 - March 31)    | 3.99  | 2.41 
|2nd Quarter | (April 1 - June 30)       | 4.51  | 2.49 
|3rd Quarter | (July 1 - September 30)   | 6.39  | 3.74 
|4th Quarter | (October 1 - December 31) | 6.65  | 5.45 
|            |                           |       |      
|2002        |                           | HIGH  | LOW  
|1st Quarter | (January 1 - March 31)    | 13.70 | 10.52
|2nd Quarter | (April 1 - June 30)       | 11.80 | 9.05 
|3rd Quarter | (July 1 - September 30)   | 9.68  | 6.12 
|4th Quarter | (October 1 - December 31) | 7.74  | 3.75 

As of March 1, 2004, the
Companys common stock was held by 410 holders of record. The Company has never paid
cash dividends on its common stock and has no intention to pay cash dividends in the
foreseeable future. The Company currently intends to retain any future earnings to finance
the growth of the Company.

# Equity Compensation Plan
Information

The following table sets out summary
stock option plan information as of December 31, 2003, all of which relates to stock
option plans that were previously approved by stockholders of the Company.

16

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|                             |                |                  |                             
|---------------------------- | -------------- | ---------------- | ----------------------------
|                             | (a)            |                  |                             
|                             | Number of      |                  | Number of securities        
|                             | securities to  |                  | remaining available for     
|                             | be issued upon | Weighted-average | future issuance under equity
|                             | exercise of    | exercise price   | compensation plans          
|                             | outstanding    | of outstanding   | (excluding securities       
|Plan category                | options        | options          | reflected in column (a))    
|                            
|Equity compensation plans   
|approved by security holders | 1,968,032      | $  9.42          | 724,217                     

The Company does not have any stock
option plans that were not approved by stockholders.

ITEM 6. SELECTED
CONSOLIDATED FINANCIAL DATA(Dollars in thousands, except per share)

|                                                             | 2003 | 2002 | 2001 | 2000    | 1999
|------------------------------------------------------------ | ---- | ---- | ---- | ------- | ----
|                                                             |      |      |      |         |     
|Total revenues                                               |      |      | $    | 139,155 |     
|Operating income (loss)                                      |      |      |      | 1,551   |     
|Income (loss) from continuing operations before taxes        |      |      |      | 1,233   |     
|                                                             |      |      |      |         |     
|Net income (loss)                                            |      |      |      | 1,045   |     
|Income (loss) per share from continuing operations - Basic   |      |      |      | 0.08    |     
|Income (loss) per share from continuing operations - Diluted |      |      |      | 0.08    |     
|                                                             |      |      |      |         |     
|Total assets                                                 |      |      |      | 98,353  |     
|                                                             |      |     
|Long term debt less current portion                          |      |      |      | 4,566   |     

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# ITEM 7.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The Company operates and franchises
computer training centers. The Company has two reporting units, company-owned training
centers and franchising operations. The company-owned training centers reporting unit
operates wholly-owned computer training centers in 15 metropolitan cities within the
continental United States and generates revenue through the sale and delivery of PC
applications, technical software training courses and business skills 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 systems of instruction, sales, and management concepts
concerning computer training, and the sale of courseware materials and eLearning products
to franchises. The franchising operations reporting unit has places of business in
Anaheim, California; Amsterdam, Netherlands; and Singapore. Each reporting unit operates
within the IT training industry.

OVERVIEW

The IT training industry is highly
fragmented. Customers are serviced by multi-national conglomerates that specialize in
hardware and software implementations and provide initial training to support these
products, electronics merchandisers that offer supplementary applications training,
independent training providers such as the Company, and accredited public and private
institutions.

From 1995 to 2000, the IT training
industry exhibited significant growth as a result of the advent of the Internet and the
number of PCs owned by households and used in the workplace. Additionally, the strength of
the domestic capital markets during this time period fueled commercial growth and
expansion that resulted in significant hardware and software implementations at commercial
entities and a strong demand for IT professionals and computer-savvy employees.

Since 2001, the IT training industry
has experienced a decline from previous levels. The decline in the IT training industry
mirrored the decline in domestic capital markets and has yet to recover similar to the
domestic capital markets recovery in 2003. Corporate IT spending for hardware,
software implementations, and employee training declined consistently with corporate
earnings and stock valuations. During this period corporations have been able to rely on
existing IT resources due to fiscal constraints and the lack of a revolutionary
application which drives immediate business efficiencies.

In reaction to the aforementioned
industry trends, the Company has made significant reductions in its cost structure,
identified additional sources of revenue, segmented its sales force, and continued to
create products for increasingly complex customer needs.

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Reductions in Cost
Structure

Although many of the Companys
costs are fixed in nature, such as facility lease costs and minimum staffing requirements,
the Company made significant reductions in its cost structure as a direct response to
decreases in sales opportunities and student attendance. The Company has reduced
headcount, maintained class delivery efficiency metrics, and benefited from a shift in
sales mix favoring consumer sales. Additionally, the Company has continued to reduce
excess capacity through facility subleases.

The Company has significantly reduced
employee compensation expense during the past two years. Beginning in mid-2001, the
Company performed three significant layoffs that resulted in the consolidation and
restructuring of franchise support operations and reductions in both sales and non-sales
positions. Further, the Company effected a salary and hiring freeze for all of its
employees beginning in October 2001. The Company monitors its exposure to compensation
expense in terms of selling, instructor, and other non-selling headcount.

The following table illustrates the
Companys selling and non-selling headcount:

|                               | 2003 |     | 2002 |       | 2001 |      
|------------------------------ | ---- | --- | ---- | ----- | ---- | -----
|                               |      |     |      |       |      |      
|Company-owned training centers |      |     |      |       |      |      
|Selling headcount              |      | 242 |      | 304   |      | 305  
|Instructor headcount           |      | 237 |      | 281   |      | 329  
|Other non-selling headcount    |      | 288 |      | 298   |      | 328  
|                               |      |     |      |       |      |      
|Company-owned training centers |      | 767 |      | 883   |      | 962  
|Franchising operations         |      | 153 |      | 154   |      | 137  
|                               |      |     |      |       |      |      
|Total                          |      | 920 |      | 1,037 |      | 1,099

The Company has focused on
maintaining minimum class delivery efficiency metrics in an attempt to scale down
operations consistent with decreases in student attendance. These metrics include number
of students, number of training events, students per event, instructor utilization, and
average price per class day. Instructor utilization represents the ratio of class days
taught to the number of available instructor days. The average price per day metric
approximates the dollar value, per student class day, of products sold during a period.

Maintaining minimum levels of
instructor utilization and students per class performance metrics have allowed the Company
to consolidate course schedules. Schedule consolidation has reduced course delivery costs
through a reduction in instructor headcount and the number of courses delivered.

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The following table illustrates the
Companys class delivery efficiency metrics within the company-owned training centers
for the three years ended December 31, 2003:

|                       |  | 2003 |   |         | 2002 |   |         | 2001 |  
|---------------------- |  | ---- | - | ------- | ---- | - | ------- | ---- | -
|                       |  |      |   |         |      |   |         |      |  
|Training events        |  |      |   | 41,892  |      |   | 51,718  |      |  
|Number of students     |  |      |   | 363,362 |      |   | 472,020 |      |  
|Students per event     |  |      |   | 8.7     |      |   | 9.1     |      |  
|Instructor utilization |  |      |   | 78%     |      |   | 75%     |      |  
|Average price per day  |  |      | $ | 227     |      | $ | 215     |      | $

In addition to monitoring class
delivery efficiency metrics, the Company altered instructor compensation plans in 2003 to
reduce instructor base compensation and increase instructor daily teaching bonuses. These
changes were made to make instructor compensation more variable in respect to number of
days of instruction.

The shift in sales mix favoring
consumer sales has had a positive benefit on the Companys operating performance.
Price points for consumer sales are typically higher due to volume purchase discounts
issued to small-to-medium business and enterprise/government customers. The Companys
acquisition costs related to consumer sales have decreased dramatically due to the use of
more effective marketing and advertising strategies, resulting in greater margins on
consumer sales.

The Company has continued to identify
excess facility capacity resulting from decreases in student attendance and training
events. In 2003, the Company sublet excess capacity or executed lease termination
agreements. Although these transactions resulted in $817 of additional expense during
2003, the Company believes the actions will mitigate future expense and cash outlays with
respect to these facilities.

Additional Sources of
Revenue and Segmented Sales Force

Historically, the Companys
sales force almost exclusively targeted small-to-medium size businesses. Weak corporate
operating performance, the perception that employee training is discretionary, and
unemployment levels that find qualified IT professionals without jobs have resulted in
decreased sales opportunities at small-to-medium businesses. As a result, the Company
identified additional revenue sources by dividing the IT training market into three
segments: consumers, small-to-medium businesses, and governmental agencies and large
corporations (together known as the enterprise/government segment).

20

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Each market segment has distinctly
different characteristics. Consumers, or non-employer sponsored individuals, need
technical certifications and vendor specific skills required to gain employment in the IT
industry. Small-to-medium businesses necessitate IT solutions to customer specific
business problems. Enterprise/government customers require IT solutions to their business
problems, as well as additional logistical support in the coordination of delivery of IT
training in multiple locations and modalities.

Consumer demand has been fueled by
higher unemployment rates and career minded individuals who seek to switch to an IT
related career. Consumer revenue growth has been exceptionally strong at the company-owned
centers as a result of strategic marketing campaigns and consumer oriented product
offerings. Additionally, the Company is often able to facilitate financing for consumer
programs through third party financial institutions and/or governmental agencies.

The Company estimates the
enterprise/government segment to spend approximately $3.6 billion annually on IT related
training. Given the number of domestic and international delivery locations within the New
Horizons network, the Companys eLearning product offerings, and the release of the
Integrated Learning Manager in July 2003, the Company believes it is now poised to
effectively service this segment. During 2003, the Company invested significantly in
enterprise/government segment infrastructure and sales personnel and, as a result, both
enterprise/government sales and requests for proposal activity have shown significant
growth, primarily due to contracts executed with governmental agencies.

In order to effectively sell into the
consumer, small-to-medium business, and enterprise/government segments, the Company
divided its sales force accordingly. Under the segmented model, sales persons focus on an
individual market segment. Additionally, the Company added additional core competencies to
its existing sales force. These core competencies include more sophisticated sales
techniques used in an attempt to diagnose business problems and prescribe IT solutions.
The Company anticipates these competencies can be leveraged across each market segment.

Increasingly Complex
Customer Needs

The needs of IT training customers
have become increasingly more complex. During the industrys rapid growth, customers
required specific software applications training to make employees more efficient in the
workplace and to train their IT staff on recently acquired technologies and new IT
standards.

Currently, customers are seeking IT
solutions to customer specific business problems, as well as multiple delivery methods,
and a high return on investment. In reaction to the change in customer needs, the Company
has continued to develop relevant product offerings for each market segment, enhanced its
ability to provide blended learning solutions, and committed to obtaining the highest of
quality rankings available in the industry.

21

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To address the customer specific
business problems of small-to-medium and enterprise/government, the Company increased its
course offerings to include a higher volume of technical courses, cross-vendor platform
programs and vendor neutral programs that provide students appropriate technical knowledge
to solve current day business issues such as information security, network administration,
project management, and fundamental business skills and written communication. In 2004,
the Company released course offerings on additional topics such as wireless networks and
help desk certification.

In response to consumer needs, the
Company developed a multitude of programs that enable students to obtain technical
certifications necessary to gain employment in the IT profession. These certification
programs include Microsoft Certified System Administrator, Microsoft Certified System
Engineer, A+, Network +, Security +, and Cisco Certified Network Administrator.
Additionally, the Company has developed English as a second language (ESL) courses for
consumers that are popular internationally. In the future, the Company intends to increase
course offerings which target consumers, namely in the field of health information
management.

The Company has continued to increase
its capability to deliver integrated learning solutions including instructor-led and
eLearning delivery. Through the Companys Online LIVE and Online ANYTIME product
offerings, the Company has products which offer online access to an array of
technology-based training courses and content, in addition to its instructor-led course
offerings. The Companys eLearning products have been well received, primarily
because eLearning products provide customers the ability for mobile and remote workers to
access training through web-conferencing software and self-paced content libraries.
Additionally, eLearning products are typically less expensive than traditional,
instructor-led training and more cost effective.

In addition to eLearning product
offerings, the Company has invested in excess of $2,800 in its proprietary Integrated
Learning Manager and expects to invest an additional $550 in 2004. The Integrated Learning
Manager enables employers to create employee training plans and monitor employee
performance on a real time basis.

The Company has also focused on its
ability to deliver the highest quality training in the industry. To monitor the quality of
instruction, the Company utilizes Metrics That Matter scores, which are independent
student satisfaction surveys conducted at each of Microsofts Certified Partner
Learning Solutions centers. At December 31, 2003 New Horizons had more centers ranked in
the top twenty in overall customer satisfaction than all other training centers combined.

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Successful product development
materializes into customer demand for New Horizons training products. The Company analyzes
two key performance indicators in judging the demand for New Horizons training products.
These key performance indicators include non-eLearning courseware sales and system-wide sales comparisons.

Non-eLearning courseware sales
are comprised primarily of physical courseware and other class materials, such as
kits and books, sold to the franchise network. The Company views these figures as an
indicator of the sales and delivery volume occurring throughout the franchise network.

Non-eLearning courseware sales
for the years ended December 31, 2003, 2002, and 2001 are illustrated in the table
below:

|                               |  | 2003 |   |        | 2002 |   |        | 2001 |  
|------------------------------ |  | ---- | - | ------ | ---- | - | ------ | ---- | -
|                               |  |      |   |        |      |   |        |      |  
|Non-eLearning courseware sales |  |      | $ | 13,557 |      | $ | 15,797 |      | $

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. Same center revenues represent revenues from
company-owned training centers and franchises open during both periods of comparison.
Total system-wide revenues for the years ended December 31, 2003, 2002 and 2001 are
illustrated in the table below:

|                           |  | 2003 |   |         | 2002 |   |         | 2001 |  
|-------------------------- |  | ---- | - | ------- | ---- | - | ------- | ---- | -
|                           |  |      |   |         |      |   |         |      |  
|Total system-wide revenues |  |      | $ | 393,678 |      | $ | 428,768 |      | $

Total system-wide same center revenues are illustrated in the table below:

|                                 |  | 2003 vs. 2002 |   |         | 2002 vs. 2001 |  
|-------------------------------- |  | ------------- | - | ------- | ------------- | -
|                                 |  |               |  
|                                 |  | 2003          |   |         | 2002          |  
|                                 |  |               |   |         |               |  
|System-wide same center revenues |  |               | $ | 384,920 |               | $

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RESULTS OF OPERATIONS
2003 VERSUS 2002

Revenues

Revenues totaled $139,155 during the
year ended December 31, 2003, an increase of $3,452 from $135,703 during the same period
in 2002. The increase in revenue is the result of the net effect of a revenue increase at
company-owned training centers of $5,894 and a decrease in franchising revenue of $2,442.

Company-Owned Training
Centers

Company-owned training centers earned
revenue of $100,933 in the year ended December 31, 2003, an increase of $5,894, or 6%,
from $95,039 during the same period in 2002. The increase in company-owned training center
revenue is due to increased consumer and eLearning product sales, partially offset by weak
demand in the small-to-medium business segment.

Increases in consumer sales are
attributable to the success of the Companys Consumer Segment initiative, which has
focused on the creation of courses of study specifically designed to enable consumers to
learn skills necessary to become employable as IT professionals, as well as the
development and implementation of marketing strategies targeting consumers. Consumer
revenue increased approximately 97% in 2003.  Consumer sales comprised approximately 28% of
company-owned training centers revenue in the year ended December 31, 2003, an increase
of 13% from 15% in 2002.

Revenues associated with the
Companys eLearning products, including OnLine LIVE and OnLine ANYTIME, increased
$2,058, or 41%, at company-owned training centers during the year ended December 31, 2003,
as compared to the same period in 2002, due to continued market penetration.

Franchising Operations

Franchising revenues totaled $38,222
during the year ended December 31, 2003, a decrease of $2,442 as compared to the same
period in 2002. The decrease in franchising revenues resulted from decreases in franchise
royalties and other courseware sales not associated with eLearning products, net against increases in initial
franchise fees and franchise renewal fees and eLearning products.

Initial franchise fees and franchise
renewal fees increased $326, primarily due to revenues earned from the Australia, Taiwan,
and Germany master franchises or sub-franchises during 2003. During 2002, revenues earned
from the India master franchise comprised the only significant revenues earned from master
franchises or sub-franchises.

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Revenues associated with the sale of
the Companys eLearning products to franchisees, including OnLine LIVE and OnLine
ANYTIME, increased 76%. Increases in eLearning product revenues are due to continued
market penetration.

Franchise royalties and sales of
courseware unaffiliated with eLearning products decreased a combined $4,781, or 13%,
resulting from decreased system-wide revenues and lesser demand for IT training
domestically.

System-wide Revenues

System-wide revenues totaled $393,678
during the year ended December 31, 2003, a decrease of 8%, or $35,090, from $428,768
during the same period in 2002.

The decrease in system-wide revenues
resulted from significant decreases in sales opportunities from small-to-medium businesses
and student attendance. These decreases resulted in revenue decreases at North American
franchises and franchise closures. North American franchises have not yet replicated
revenue increases in the consumer segment in similar proportion to company-owned training
centers, and therefore have not mitigated revenue decreases associated with the weakness
in small-to-medium business market. As a result, North American franchises suffered
revenue decreases in excess of $38,377, or 16%.

System-wide same center sales for the
year ended December 31, 2003 totaled $384,920, a decrease of 6%, from $409,334 during the
same period in 2002. The decrease is the result of decreased revenues in North American
franchise locations, net against moderate same center revenue increases at international
franchises of 3% and company-owned training centers of 6%.

Cost of Revenues

Cost of revenues totaled $79,224
during the year ended December 31, 2003, a decrease of $3,083, or 4%, from $82,307 during
the same period in 2002. As a percentage of revenues, cost of revenues decreased 4% as a
result of higher margins realized on eLearning and consumer sales, combined with benefits
from schedule consolidation and headcount reductions, and reductions in depreciation
expense of $1,189 resulting from decreases in capital expenditures. These cost benefits
were partially offset by losses of $817 recorded in connection with the sub-lease and
termination of excess training facilities.

25

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Selling, General and
Administrative Expenses

Selling, general and administrative
expenses totaled $58,380 during the year ended December 31, 2003, an increase of $697, or
1%, from $57,683 in the same period of 2002. As a percentage of revenues, selling, general
and administrative expenses remained relatively stable as compared to 2002. The increase
in selling, general and administrative expenses in absolute dollars is the result of
increases in expenses incurred in the ELS initiative, and various legal expenses, net
against costs savings in sales and marketing expenses associated with company-owned
training centers.

The Companys ELS initiative is
designed to facilitate the delivery of IT training to large corporate customers at
company-owned and franchised training centers. During 2003, the ELS initiative was
expanded to provide enhanced account strategy services and sales support to the franchise
network. ELS initiative expenses increased $1,604 during the year ended December 31, 2003.

Sales and marketing expenses at
company-owned training centers decreased approximately $649 during the year ended
December 31, 2003, as compared to the same period in 2002, resulting from headcount
reduction and reduced advertising costs.

Interest Expense

Interest expense totaled $573 for the
year ended December 31, 2003, a decrease of $1,752 from $2,325 recorded during the same
period in 2002. The decrease is the result of a lesser amount of outstanding debt in 2003
and a decrease in the effective interest rate on the Companys floating rate debt
facility.

RESULTS OF OPERATIONS
2002 VERSUS 2001

Revenues

Total revenues decreased $24,196, or
15.1%, from $159,899 for the year ended December 31, 2001 to $135,703 for the year ended
December 31, 2002. The company-owned and franchising operating segments experienced
decreases of $23,297 and $899, respectively.

Company-Owned Training
Centers

Company-owned revenues decreased
$23,297, or 19.7%, from $118,336 for the year ended December 31, 2001 to $95,039 for the
year ended December 31, 2002. During the same time period, same-center revenues decreased
in excess of 22% as a result of the continued softness of the domestic economy and
adjusted revenue recognition rates.

26

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Due to the lagging domestic economy,
corporations, organizations, government, and municipalities decreased their levels of
spending on technology and technology-related products, including IT training. Reduced
demand caused a significant decrease in the number of student training days delivered, and
a corresponding decrease in applications and technical course revenue of $25,196, as well
as decreases in other sources of revenue of $1,762. These decreases were partially offset
by increased revenue from the Companys eLearning courses of $3,662.

As a result of an update to its
historical studies of student attendance patterns in the fourth quarter of 2002, the
Company determined that in certain programs, primarily training vouchers and technical
certification programs, students were taking longer to complete classes compared to past
historical experience. As a result, the Company adjusted its revenue recognition rates for
each of the programs affected. The change in revenue recognition rates resulted in a
decrease of $4,383 in revenue as compared to 2001.

The decrease in revenue within the
company-owned segment is partially offset by a full year of revenue for the Indianapolis
and Atlanta centers, which were acquired in early 2001.

Franchising Operations

Franchising revenue decreased $899,
or 2.2%, from $41,563 for the year ended December 31, 2001 to $40,664 for the year ended
December 31 2002. The decrease in franchising revenue is due to lower amounts of initial
fees and royalties earned in 2002, partially offset by increases in courseware sales to
franchisees.

Initial franchise fees decreased
$258, or 22.1%, from $1,167 for the year ended December 31, 2001 to $909 for the year
ended December 31, 2002. The continued softness in the domestic and global economies
resulted in decreased demand for new franchises and the execution of fewer new franchise
agreements during the year as compared to 2001.

Royalty fees decreased $3,317, or
14.8%, from $22,415 for the year ended December 31, 2001 to $19,098 for the year ended
December 31, 2002. The decrease in royalty fees is due to decreases in same-center revenue
at franchise locations and a net reduction of 15 franchise centers during 2002. Same
center revenue decreased approximately 10% at franchise centers. At December 31, 2002,
there were 242 franchise locations in operation, a decrease of 15 from the 257 franchise
locations in operation at December 31, 2001.

Other franchising revenues increased
$2,676, or 14.9%, from $17,981 for the year ended December 31, 2001 to $20,657 for the
year ended December 31, 2002. The increase in other franchising revenues is due to a full
year of sales of Microsoft official curriculum, eLearning courseware, and student learning
guides. The Company began offering each of these products during 2001.

27

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System-wide

System-wide revenues, defined as
revenues from all centers, both company-owned and franchised, decreased $83,046, or 16.2%,
from $511,814 for the year ended December 31, 2001 to $428,768 for the year ended December
31, 2002.

Cost of Revenues

Cost of revenues decreased $2,795, or
3.3%, from $85,102 for the year ended December 31, 2001 to $82,307 for the year ending
December 31, 2002.

As a percentage of revenues, cost of
revenues increased from 53.2% in 2001 to 60.7% in 2002. The increase, as a percentage of
revenues, is due to increased sales of lower margin items, including courseware and
eLearning products, and the effect of under-utilized fixed costs. Facility costs,
instructor wages, and other fixed costs comprise a significant portion of the
Companys cost of revenue. Although the Company, on an on-going basis, attempts to
minimize under-utilized fixed costs through cost management initiatives, these initiatives
have been unable to reduce fixed costs at the same rate as the reduction in revenue. Cost
management initiatives include managing employee headcount, class schedule consolidation,
and the sublease of under-utilized facilities.

The decrease in cost of revenues, in
dollar terms, is attributable to a decrease in variable costs and the effects of cost
management initiatives executed throughout the year, partially offset by losses on
sub-leases of under-utilized facilities of $539.

Selling, General and
Administrative Expenses

Selling, general and administrative
expenses decreased $8,316, or 12.6%, from $65,999 for the year ended December 31, 2001 to
$57,683 for the year ending December 31, 2002. Upon adopting SFAS No. 142 in January 2002,
the Company ceased amortizing goodwill. In 2001, $3,624 of goodwill amortization expense
was classified within selling, general, and administrative expenses. The remaining
decrease in selling, general and administrative expenses is attributable to decreases in
sales commissions of $3,916 and the effect of cost management initiatives executed
throughout the year.

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 and also in the event of an impairment indicator.

28

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Pursuant to SFAS No. 142, the Company
completed a transitional impairment test based on the fair values of the Companys
company-owned centers and franchising reporting units as of January 1, 2002. The
transitional impairment test resulted in a pretax impairment charge of $27,000 against
goodwill related to the company-owned centers reporting unit. The transitional impairment
charge was recorded as a cumulative effect of a change in accounting principle in the
amount of $17,800, net of tax. The transitional impairment charge was the result of a
fundamental change in the measurement of impairment losses resulting from the
Companys adoption of SFAS No. 142.

The Company performed its annual
impairment test during the fourth quarter of 2002. As a result of the annual impairment
test, the Company recorded a pretax impairment charge of $48,700. The fourth quarter
impairment charge was the result of a significant decrease in the fair value of the
Companys company-owned centers reporting unit.

The Company utilized an independent
valuation consultant to assist it in determining the fair value of the Companys
reporting units as part of the impairment testing. These consultants determined the fair
value of the Companys reporting units utilized in impairment testing. These
consultants considered both the income approach and market approach in determining fair
value. Under the income approach and market approach, managements estimates of
future profitability and market capitalization were used in determining fair value. The
decrease in fair value of the company-owned center reporting unit was attributable to the
continued softness of the domestic economy and downward revisions in managements
estimates of the future profitability of company-owned centers.

During the year ended December 31,
2002, the domestic economy was characterized by decreases in capital and technology
related expenditures by corporations and organizations. The decrease in technology-related
expenditures significantly affected the capital markets and resulted in decreases in the
stock prices and market capitalization of publicly traded entities within the technology
sector.

Prior to the fourth quarter of 2002,
management believed the domestic economy and, more specifically, technology-related
spending would rebound in early 2003 and improve operating performance. The variance
between the Companys estimated and actual operating results in the latter half of
2002, in addition to the lack of positive indicators that the technology sector will
return as quickly as previously thought, has caused management to revise its estimates as
to the future profitability of the company-owned centers downward.

29

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Interest Income

Interest income for 2002 decreased
$180 or 48.8% to $189 compared with $369 in 2001. As a percentage of revenues, interest
income decreased to 0.1% for 2002 from 0.2% for 2001.

Interest Expense

Interest expense increased $875 to
$2,325 for 2002 or 60.3% compared to $1,450 in 2001. As a percentage of revenues, interest
expense was 1.7% in 2002 and 0.9% in 2001. The increase in interest expense in absolute
dollars was due to higher outstanding debt in 2002 as compared to 2001, and the write-off
of $435 unamortized bank fees related to the previous credit agreement that was replaced
with a new credit agreement in February 2003.

Income Taxes

The provision for income taxes as a
percentage of loss before taxes was 34% for 2002. The decreased benefit was primarily
related to foreign taxes which were not offset by federal credits and a reduction in tax
benefit due to the tax treatment of the impairment of non-deductible goodwill. The
provision for tax expense in 2001 was reduced to 33.8% primarily due to the tax treatment
of a non-recurring gain.

CRITICAL ACCOUNTING
POLICIES

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. Changes in these
estimates could potentially have a material impact on the presentation of the
Companys financial position or results of operations.

Revenue Recognition

The Company recognizes revenue for
training vouchers, technical tracks and programs, and club arrangements of certain
durations based on estimates of how the Company delivers training to customers over the
service period. These estimates differ from the straight-line method. Combined, these products
comprise a material amount of the Companys consolidated revenues. Management has
determined historical student attendance pattern rates are the best estimate of how the
Company will deliver training to customers in the future.

30

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The Company performs historical
student attendance analyses on a quarterly basis. In these analyses, the Company reviews
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 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.

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

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.

Deferred Costs

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

31

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Accounts Receivable

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

The Company records an allowance for
bad debt separately for its franchising and company-owned training centers segments. The
franchising segment records an allowance for bad debt each period based upon specifically
identified uncollectible receivables, the geographic location of the customer and historical experience of
bad debts. The company owned training centers segment records an allowance  for bad debt
based upon a precentage of outstanding receivables.  The percentage applied differs by each
of the individual centers within the company-owned training centers segment and is estimated based
on each center's historical experience.

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

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 tax exposure together
with assessing temporary differences resulting from differing treatment of items, such as
deferred revenue, for tax and accounting purposes. These differences result in deferred
tax assets and liabilities, which are included within the consolidated balance sheets. The
Company must then assess the likelihood that its deferred tax assets will be recovered
from future taxable income and, to the extent it believes that recovery is not likely,
must establish a valuation allowance. To the extent a valuation allowance is established
or this allowance is increased in a period, an expense must be included within the tax
provision in the consolidated statements of operations.

The Company regularly analyzes the
future recovery of its deferred tax assets based on its best estimates of future taxable
income. Taxable income is forecasted over the periods in which the deferred tax assets
relate. In order to realize its deferred tax asset balance of $25,585 at December 31,
2003, the Companys future taxable income must exceed approximately $63,960 over a
period of up to thirty years.

32

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Accounting for Goodwill

The goodwill balances attributable to
the Companys franchising and company-owned centers reporting units are tested for
impairment annually and also in the event of an impairment indicator. Impairment tests are
comprised of two steps. The first step of the goodwill impairment test, used to identify
potential impairment, compares the fair value of a reporting unit with its carrying
amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair
value, the reporting units goodwill is considered impaired and the second step of
the impairment test is required. The second step of the goodwill impairment test, used to
measure the amount of impairment loss, compares the implied fair value of reporting unit
goodwill with the carrying amount of that goodwill. The implied fair value of reporting
unit goodwill is determined in the same manner as the amount of goodwill recognized in a
business combination. If the carrying amount of reporting unit goodwill exceeds the
implied fair value of that goodwill, an impairment loss shall be recognized in an amount
equal to that excess, limited to the carrying amount of reporting unit goodwill.

The Company utilizes outside
valuation consultants 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.

LIQUIDITY AND CAPITAL
RESOURCES

The Companys sources of cash
are comprised of sales of IT training courses at company-owned training centers, the sale
of master and unit franchise territories, continuing royalties from franchises, courseware
sales to franchises, and available credit on the Companys debt facility with Wells
Fargo Bank.

Historically, the Company has been
able to fund operations and meet its debt obligations through cash provided by operating
activities. Cash provided by operations for the three years ended December 31, 2003, 2002
and 2001 total $12,888, $12,525, and $13,338, respectively. Cash provided from operations
during the year ended December 31, 2003 includes $4,488 of income tax refunds related to
net operating loss carrybacks for losses associated with the 2002 tax year. Refunds
associated with net operating loss carrybacks are unlikely to recur in the near future.
Cash provided from operations for the year ended December 31, 2003, excluding such net
operating loss carrybacks, totaled $8,400.

The Companys future obligations
consist primarily of its debt facility with Wells Fargo Bank, trade payables and future
delivery of IT training courses, a litigation settlement, and off-balance sheet
obligations and contractual commitments.

33

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At December 31, 2003, the outstanding
balance on the Companys debt facility totaled $7,566. The debt facility with Wells
Fargo Bank requires the Company to maintain minimum financial ratios and contains
restrictive covenants including restrictions on the occurrence of additional indebtedness
and acquisitions. As of December 31, 2003, the Company was in compliance with all
covenants and minimum financial ratios per the credit agreement, except for the minimum
quarterly adjusted EBITDA ratio. The Company has received a waiver letter from Wells Fargo
Bank waiving the banks default rights with respect to the breach. The Company
believes its relationship with Wells Fargo is good as of December 31, 2003. Based on this
relationship, the Company believes it may have access to additional capital in the future,
in the form of debt secured by the assets of the Company.

At December 31, 2003, the
Companys accounts payable and accrued liabilities total a combined $18,880. The
Company believes these amounts will be required to be paid in cash during the next year.

Additionally, the Companys
deferred revenue balance, which represents the Companys obligation to provide future
IT training to customers, totals $20,032. The Company believes these obligations will be
performed during the next year, requiring cash outflows for incremental delivery costs
estimated to approximate $6,010.

The Company has settled litigation
related to its discontinued environmental remediation business in the amount of $557. The
Company expects this amount will be paid in the first quarter of 2004.

Off-Balance Sheet
Arrangements and Contractual Obligations

The Companys off-balance sheet
arrangements and contractual obligations consist of purchase commitments and outstanding
guarantees and surety bonds.

The Companys purchase
commitments consist of contracts with software vendors for services related to additional
software development associated with the Companys Integrated Learning Manager and
minimum purchase commitments with a provider of courseware materials. At December 31,
2003, purchase commitments total $3,060, all of which will require settlement in cash during
2004.

The Company has outstanding
guarantees and surety bonds of $650 and $1,083, respectively. Outstanding guarantees
pertain to a letter of credit issued to a landlord of a certain company-owned training
center as a security deposit. The Company has issued surety bonds on behalf of
company-owned training centers and certain franchises to guarantee performance in various
states in respect to providing training to consumers. In the event the Company was to
abandon training in a state where there is a surety bond, the state agency could draw
against the bond to satisfy undelivered training obligations. The Company has not recorded
any liability for these guarantees and surety bonds within its financial statements as of
December 31, 2003.

34

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The Companys contractual
obligations and commercial cash commitments as of December 31, 2003 are shown below.
Commercial commitments include a letter of credit that could result in potential cash
outflows if the Company were to default on a lease agreement.

Contractual Obligations

|           | Operating |      |  | Purchase |        |  |        |            
|---------- | --------- | ---- |  | -------- | ------ |  | ------ | -----------
|           |           | Debt |  |          | Leases |  |        | Commitments
|           |           |      |  |          |        |  |        |            
|2004       |           |      |  | 3,000    |        |  | 10,132 |            
|2005       |           |      |  | 4,566    |        |  | 9,298  |            
|2006       |           |      |  | --       |        |  | 8,197  |            
|2007       |           |      |  | --       |        |  | 7,405  |            
|2008       |           |      |  | --       |        |  | 6,058  |            
|Thereafter |           |      |  | --       |        |  | 18,038 |            
|           |           |      |  |          |        |  |        |            
|           |           |      |  | 7,566    |        |  | 59,128 |            

Commercial Commitments

|                 | 
|---------------- | 
|Letter of Credit | 
|Surety Bonds     | 
|                 | 
|                 | 

The nature of the IT training
industry requires substantial cash commitments for the purchase of computer equipment,
software, and training facilities. During 2003, New Horizons spent approximately $4,132 on
capital items. Capital expenditures for 2004 are expected to total approximately $4,000.

The Company has never paid cash
dividends on its common stock and has no present intention to pay any cash dividends in
the foreseeable future.

Management believes that existing
capital, anticipated cash flows from operations, and current and anticipated borrowings
under its credit facility, will be adequate to support its current and anticipated capital
and operating expenditures for the foreseeable future.

# IMPACT OF ACCOUNTING
PRONOUNCEMENTS

Information regarding recent
accounting pronouncements is contained in Note 1 to the Consolidated Financial Statements
for the year ended December 31, 2003, which note is incorporated herein by this reference,
and is included as part of Item 8 of Form 10-K.

35

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# ITEM 7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk
related to changes in interest rates. A discussion of the Companys accounting
policies for financial instruments and further disclosures relating to financial
instruments are included in the Notes to the Consolidated Financial Statements. The
Company monitors the risks associated with interest rates and financial instrument
positions.

The Companys primary interest
rate risk exposure results from floating rate debt on its credit agreement with Wells
Fargo Bank. At December 31, 2003, the Companys bank debt consisted of floating rate
debt. Assuming no changes in the amount of outstanding bank debt, if interest rates were
to increase 100 basis points (1.0%) from December 31, 2003 rates, the additional annual
expense would approximate $76 before taxes. The Company does not currently hedge its
exposure to interest rate risk.

The Companys risk exposure to
fluctuations in foreign currency exchange rates is not material.

# ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA

Pages F-1 to F-32 contain the
Financial Statements and supplementary data specified for Item 8 of Part II of Form 10-K.

36

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# REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS

To
the Board of Directors and Stockholders 
     of New Horizons Worldwide, Inc.:

We have audited the accompanying
consolidated balance sheet of New Horizons Worldwide, Inc. and subsidiaries (the Company)
as of December 31, 2003 and the related consolidated statements of operations,
stockholders equity, and cash flows for the year then ended. 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 audit.

We conducted our audit in accordance
with auditing standards generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides 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 subsidiaries as of December 31,
2003, and the results of their consolidated operations and their consolidated cash flows
for the year then ended, in conformity with accounting principles generally accepted in
the United States of America.

/s/ Grant Thornton LLP
Irvine, California
February 27, 2004

F-1

---

# INDEPENDENT
AUDITORS REPORT

Board of Directors and
Stockholders
New Horizons Worldwide, Inc.

We have audited the accompanying
consolidated balance sheets of New Horizons Worldwide, Inc. and subsidiaries (the
Company) as of December 31, 2002 and the related consolidated statements of
operations, stockholders equity and cash flows for each of the two years in the
period ended December 31, 2002. These consolidated 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 auditing standards generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, such consolidated
financial statements present fairly, in all material respects, the financial position of
New Horizons Worldwide, Inc. and subsidiaries at December 31, 2002 and the results of
their operations and their cash flows for each of the two years in the period ended
December 31, 2002 in conformity with accounting principles generally accepted in the
United States of America.

As discussed in Note 1 to the
consolidated financial statements, in 2002 the Company changed its method of accounting
for goodwill and other intangible assets.

DELOITTE & TOUCHE LLP

Costa Mesa, California
March 11, 2003

F-2

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

|                                                            |  | 2003 |   |        | 2002 |  
|----------------------------------------------------------- |  | ---- | - | ------ | ---- | -
|                                                            |  |      |   |       
|Assets                                                      |  |      |   |        |      |  
|Current assets:                                             |  |      |   |        |      |  
|Cash and cash equivalents                                   |  |      | $ | 10,850 |      | $
|Restricted cash                                             |  |      |   | --     |      |  
|Accounts receivable, net                                    |  |      |   | 14,496 |      |  
|Inventories                                                 |  |      |   | 1,283  |      |  
|Prepaid expenses                                            |  |      |   | 7,329  |      |  
|Refundable income taxes                                     |  |      |   | 980    |      |  
|Deferred  tax assets                                        |  |      |   | 3,643  |      |  
|Other current assets                                        |  |      |   | 1,299  |      |  
|                                                            |  |      |   |       
|Total current assets                                        |  |      |   | 39,880 |      |  
|Property and equipment, net                                 |  |      |   | 14,381 |      |  
|Goodwill                                                    |  |      |   | 18,368 |      |  
|Cash surrender value of life insurance                      |  |      |   | 1,360  |      |  
|Deferred tax assets, net                                    |  |      |   | 21,941 |      |  
|Notes from officer and director                             |  |      |   | 1,011  |      |  
|Other assets                                                |  |      |   | 1,412  |      |  
|                                                            |  |      |   |       
|Total Assets                                                |  |      | $ | 98,353 |      | $
|                                                            |  |      |   |       
|Liabilities and Stockholders' Equity                        |  |     
|Current Liabilities:                                        |  |     
|Current portion of long-term debt                           |  |      | $ | 3,000  |      | $
|Accounts payable                                            |  |      |   | 4,267  |      |  
|Deferred revenue                                            |  |      |   | 20,032 |      |  
|Other current liabilities                                   |  |      |   | 14,613 |      |  
|                                                            |  |      |   |       
|Total current liabilities                                   |  |      |   | 41,912 |      |  
|Long-term debt, excluding current portion                   |  |      |   | 4,566  |      |  
|Deferred rent                                               |  |      |   | 2,278  |      |  
|Other long-term liabilities                                 |  |      |   | 824    |      |  
|                                                            |  |      |   |       
|Total liabilities                                           |  |      |   | 49,580 |      |  
|                                                            |  |      |   |       
|Commitments and contingencies                               |  |      |   | --     |      |  
|Stockholders' equity:                                       |  |     
|Preferred stock, no par value, 2,000,000 shares             |  |     
|authorized, no shares issued or outstanding                 |  |      |   | --     |      |  
|Common stock, $.01 par value, 20,000,000 shares authorized; |  |     
|10,635,157 and 10,572,657 shares issued;  10,450,157 and    |  |     
|10,387,657 shares issued and outstanding at                 |  |     
|December 31, 2003 and 2002, respectively                    |  |      |   | 106    |      |  
|Additional paid-in capital                                  |  |      |   | 48,562 |      |  
|Retained earnings                                           |  |      |   | 1,403  |      |  
|Treasury stock at cost - 185,000 shares at December 31, 200 |  |      |   |        |     
|and 2002                                                    |  |      |   | (1,298 | )    |  
|                                                            |  |      |   |       
|Total stockholders' equity                                  |  |      |   | 48,773 |      |  
|                                                            |  |      |   |       
|Total Liabilities & Stockholders' Equity                    |  |      | $ | 98,353 |      | $
|                                                            |  |      |   |       

See accompanying notes
to consolidated financial statements.

F-3

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
                             Consolidated Statements of Operations
                         Years ended December 31, 2003, 2002, and 2001
                         (Dollars in thousands, except per share data)

|                                                       |  | 2003 |   |            | 2002 |   |            | 2001 |  
|------------------------------------------------------ |  | ---- | - | ---------- | ---- | - | ---------- | ---- | -
|                                                       |  |      |   |            |      |  
|Revenues                                               |  |      |   |            |      |   |            |      |  
|Franchising                                            |  |     
|Franchise fees                                         |  |      | $ | 1,235      |      | $ | 909        |      | $
|Royalties                                              |  |      |   | 17,162     |      |   | 19,098     |      |  
|Courseware sales and other                             |  |      |   | 19,825     |      |   | 20,657     |      |  
|                                                       |  |      |   |            |      |  
|Total franchising revenues                             |  |      |   | 38,222     |      |   | 40,664     |      |  
|Company-owned training centers                         |  |      |   | 100,933    |      |   | 95,039     |      |  
|                                                       |  |      |   |            |      |  
|Total revenues                                         |  |      |   | 139,155    |      |   | 135,703    |      |  
|                                                       |  |      |  
|Cost of revenues                                       |  |      |   | 79,224     |      |   | 82,307     |      |  
|Selling, general and administrative expenses           |  |      |   | 58,381     |      |   | 57,683     |      |  
|Impairment of goodwill                                 |  |      |   | --         |      |   | 48,700     |      |  
|                                                       |  |      |   |            |      |  
|Operating income (loss)                                |  |      |   | 1,550      |      |   | (52,987    | )    |  
|Other income                                           |  |      |   | 112        |      |   | 503        |      |  
|Interest expense                                       |  |      |   | (573       | )    |   | (2,325     | )    |  
|Investment income                                      |  |      |   | 144        |      |   | 189        |      |  
|                                                       |  |      |   |            |      |  
|Income (loss) before income taxes and                  |  |     
|cumulative effect of change in accounting principle    |  |      |   | 1,233      |      |   | (54,620    | )    |  
|Provision (benefit) for income taxes                   |  |      |   | 437        |      |   | (18,575    | )    |  
|                                                       |  |      |   |            |      |  
|Income (loss) from continuing operations               |  |      |   | 796        |      |   | (36,045    | )    |  
|Income (loss) from discontinued operations, net of tax |  |      |   |            |     
|expense of $171 in 2003 and benefit of $285 in 2001    |  |      |   | 249        |      |   | --         |      |  
|                                                       |  |      |   |            |      |  
|Income (loss) before cumulative effect of change       |  |     
|in accounting principle                                |  |      |   | 1,045      |      |   | (36,045    | )    |  
|Cumulative effect of change in accounting principle,   |  |     
|net of tax of $9,200 in 2002                           |  |      |   | --         |      |   | (17,800    | )    |  
|                                                       |  |      |   |            |      |  
|Net income (loss)                                      |  |      | $ | 1,045      |      | $ | (53,845    | )    | $
|                                                       |  |      |   |            |      |  
|Weighted average number of common shares               |  |     
|outstanding - Basic                                    |  |      |   | 10,397,357 |      |   | 10,309,937 |      |  
|Weighted average number of common shares               |  |     
|outstanding - Diluted                                  |  |      |   | 10,407,865 |      |   | 10,473,704 |      |  
|Basic Earnings Per Share                               |  |     
|Income (loss) from continuing operations               |  |      | $ | 0.08       |      | $ | (3.49      | )    | $
|Income (loss) from discontinued operations             |  |      | $ | 0.02       |      | $ | --         |      | $
|Cumulative per share effect of change in               |  |     
|accounting principle, net of tax                       |  |      |   | --         |      | $ | (1.73      | )    | $
|Net income (loss) per share                            |  |      | $ | 0.10       |      | $ | (5.22      | )    | $
|Diluted Earnings Per Share                             |  |     
|Income (loss) from continuing operations               |  |      | $ | 0.08       |      | $ | (3.49      | )    | $
|Income (loss) from discontinued operations             |  |      | $ | 0.02       |      | $ | --         |      | $
|Cumulative per share effect of change in               |  |     
|accounting principle, net of tax                       |  |      | $ | --         |      | $ | (1.73      | )    | $
|Net income (loss) per share                            |  |      | $ | 0.10       |      | $ | (5.22      | )    | $

See accompanying notes to consolidated financial statements.

F-4

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
                                     Consolidated Statements of Cash Flows
                                 Years ended December 31, 2003, 2002, and 2001
                                             (Dollars in thousands)

|                                                                |  | 2003 |   |         | 2002 |   |         | 2001 |  
|--------------------------------------------------------------- |  | ---- | - | ------- | ---- | - | ------- | ---- | -
|                                                                |  |      |   |         |      |  
|Cash flows from operating activities:                           |  |      |   |         |      |   |         |      |  
|Net income (loss)                                               |  |      | $ | 1,045   |      | $ | (53,845 | )    | $
|Adjustments to reconcile net income (loss) to net cash and cash |  |     
|equivalents provided by operating activities:                   |  |     
|Cumulative effect of change in accounting principle             |  |      |   | --      |      |   | 27,000  |      |  
|Deferred tax benefit from cumulative effect of change           |  |     
|in accounting principle                                         |  |      |   | --      |      |   | (9,200  | )    |  
|Impairment of goodwill                                          |  |      |   | --      |      |   | 48,700  |      |  
|Depreciation and amortization                                   |  |      |   | 6,966   |      |   | 7,738   |      |  
|Gain on disposal of property and equipment                      |  |      |   | (2      | )    |   | (503    | )    |  
|Deferred taxes                                                  |  |      |   | (484    | )    |   | (15,359 | )    |  
|Provision for bad debts                                         |  |      |   | 1,429   |      |   | 404     |      |  
|(Income) loss on discontinued operations                        |  |      |   | (420    | )    |   | --      |      |  
|Deferred tax expense (benefit) from discontinued operations     |  |      |   | 171     |      |   | --      |      |  
|Cash provided (used) from the change in:                        |  |     
|Accounts receivable                                             |  |      |   | 3,702   |      |   | 783     |      |  
|Inventories                                                     |  |      |   | 51      |      |   | 183     |      |  
|Prepaid expenses and other assets                               |  |      |   | (347    | )    |   | (3,985  | )    |  
|Income taxes                                                    |  |      |   | 4,488   |      |   | (3,183  | )    |  
|Accounts payable                                                |  |      |   | (806    | )    |   | 1,795   |      |  
|Deferred revenue                                                |  |      |   | (463    | )    |   | 10,600  |      |  
|Other liabilities                                               |  |      |   | (2,768  | )    |   | 525     |      |  
|Deferred rent                                                   |  |      |   | 326     |      |   | 872     |      |  
|                                                                |  |      |   |         |      |  
|Net cash provided by operating activities                       |  |      |   | 12,888  |      |   | 12,525  |      |  
|                                                                |  |      |   |         |      |  
|Cash flows from investing activities:                           |  |     
|Cash paid for acquisitions                                      |  |      |   | --      |      |   | (442    | )    |  
|Additions to property and equipment                             |  |      |   | (4,132  | )    |   | (5,035  | )    |  
|Proceeds from sale of property and equipment                    |  |      |   | 65      |      |   | 5,666   |      |  
|Cash surrender value of life insurance                          |  |      |   | (39     | )    |   | (23     | )    |  
|                                                                |  |      |   |         |      |  
|Net cash (used in) provided by investing activities             |  |      |   | (4,106  | )    |   | 166     |      |  
|                                                                |  |      |   |         |      |  
|Cash flows from financing activities:                           |  |     
|Proceeds from exercise of stock options                         |  |      |   | 357     |      |   | 1,092   |      |  
|Proceeds from issuance of debt                                  |  |      |   | 10,939  |      |   | --      |      |  
|Principal payments on debt obligations                          |  |      |   | (17,813 | )    |   | (11,275 | )    |  
|                                                                |  |      |   |         |      |  
|Net cash (used in) provided by financing activities             |  |      |   | (6,517  | )    |   | (10,183 | )    |  
|                                                                |  |      |   |         |      |  
|                                                                |  |      |   |        
|Net increase in cash and cash equivalents                       |  |      |   | 2,265   |      |   | 2,508   |      |  
|                                                                |  |      |   |        
|                                                                |  |      |   |        
|Cash and cash equivalents at beginning of period                |  |      |   | 8,585   |      |   | 6,077   |      |  
|                                                                |  |      |   |         |      |  
|Cash and cash equivalents at end of period                      |  |      | $ | 10,850  |      | $ | 8,585   |      | $
|                                                                |  |      |   |         |      |  
|                                                                |  |      |   |        
|Supplemental disclosure of cash flow information                |  |     
|Cash  paid for:                                                 |  |     
|Interest                                                        |  |      | $ | 538     |      | $ | 1,622   |      | $
|                                                                |  |      |   |         |      |  
|Income taxes                                                    |  |      | $ | 730     |      | $ | 672     |      | $
|                                                                |  |      |   |         |      |  
|Noncash investing and financing activities:                     |  |     
|Income tax benefit from the exercise of stock options           |  |      | $ | 9       |      | $ | 219     |      | $
|                                                                |  |      |   |         |      |  

See accompanying notes to consolidated financial statements.

F-5

---

NEW HORIZONS WORDWIDE, INC. AND SUBSIDIARIES
                                                       Consolidated Statements of Stockholders' Equity
                                                        Years ending December 31, 2003, 2002, and 2001
                                                                (Dollars in thousands)

|                                                        |              |        |         |            |        |         
|------------------------------------------------------- | ------------ | ------ | ------- | ---------- | ------ | --------
|                                                        |              |        |         |            |        |         
|                                                        | Common Stock |        | Paid-in |            |        | Retained
|                                                        |              | Shares |         |            | Amount |         
|                                                        |              |        |         |            |        |         
|Balance at January 1, 2001                              |              |        |         | 10,083,038 |        | $       
|                                                        |              |        |         |            |        |         
|Issuance of common stock from exercise of stock options |              |        |         | 7,875      |        |         
|                                                        |              |        |         |            |        |         
|Income tax benefit from the exercise of stock options   |              |        |         | --         |        |         
|                                                        |              |        |         |            |        |         
|Issuance of common stock for acquisitions               |              |        |         | 306,344    |        |         
|                                                        |              |        |         |            |        |         
|Net income                                              |              |        |         | --         |        |         
|                                                        |              |        |         |            |        |         
|Balance at December 31, 2001                            |              |        |         | 10,397,257 |        | $       
|                                                        |              |        |         |            |        |         
|Issuance of common stock from exercise of stock options |              |        |         | 175,400    |        |         
|                                                        |              |        |         |            |        |         
|Income tax benefit from the exercise of stock options   |              |        |         | --         |        |         
|                                                        |              |        |         |            |        |         
|Issuance of common stock for acquisitions               |              |        |         | --         |        |         
|                                                        |              |        |         |            |        |         
|Net loss                                                |              |        |         | --         |        |         
|                                                        |              |        |         |            |        |         
|Balance at December 31, 2002                            |              |        |         | 10,572,657 |        | $       
|                                                        |              |        |         |            |        |         
|Issuance of common stock from exercise of stock options |              |        |         | 62,500     |        |         
|                                                        |              |        |         |            |        |         
|Income tax benefit from the exercise of stock options   |              |        |         | --         |        |         
|                                                        |              |        |         |            |        |         
|Net income                                              |              |        |         | --         |        |         
|                                                        |              |        |         |            |        |         
|Balance at December 31, 2003                            |              |        |         | 10,635,157 |        | $       
|                                                        |              |        |         |            |        |         

See accompanying notes to consolidated financial statements.

F-6

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements 
December 31, 2003 and 2002
(Dollars in thousands, except per share data)

# 1.   Organization and
Summary of Significant Accounting Policies

(a)      Description of Business

New Horizons Worldwide, Inc.
(New Horizons, or the Company) owns and franchises computer
training centers. The Companys training centers provide application software and
technical certification training to a wide range of individuals and employer-sponsored
individuals from national and international public and private corporations, service
organizations and government agencies. Additionally, the Company supplies internally
developed and externally licensed curriculum and courseware materials to its franchisees.
As of December 31, 2003, the Company and its franchisees delivered training in 25
company-owned and 227 franchised locations in 50 countries around the world.

(b)      Principles of Consolidation

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

(c)      Basis of Presentation

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

Certain reclassifications have been
made to the prior years consolidated financial statements to conform to the current
years presentation.

(d)      Use of Estimates

The preparation of financial
statements in conformity with generally accepted accounting principles 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 uncollectible accounts receivable to be the most sensitive
estimates impacting financial position and results of operations.  It is at least reasonably
possible that a material change to these estimates will occur in the near term.  Other significant
estimates by management include: impairmant analysis of long-lived assets and goodwill and deferred
tax assets.  Actual results could differ from these estimates.

F-7

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements 
December 31, 2003 and 2002
(Dollars in thousands, except per share data)

(e)      Cash and Cash Equivalents

Cash and cash equivalents consist of
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
maturities.

The Companys credit agreement
(as discussed in Note 3), previously required the Company to maintain minimum cash
balances of at least $3.5 million on the last day of each quarterly reporting period. This
amount is classified as restricted cash at December 31, 2002. No cash balances were
restricted pursuant to the amended credit agreement at December 31, 2003.

(f)      Accounts Receivable

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

The Company records an allowance for
bad debt separately for its franchising and company-owned training centers segments. The
franchising segment records an allowance for bad debt each period based upon specifically
identified uncollectible receivables, the geographic location of the customer and historical
experience of bad debts.  The company-owned training centers segment records an allowance for
bad debt based upon a percentage of outstanding receivables.  The percentage applied differs
by each of the individual centers within the company-owned training centers segment and is
estimated based on each center's historical experience of bad debts.

(g)      Concentration of Risk

Financial instruments that subject
the Company to credit risk consist primarily of cash, cash equivalents, and accounts
receivable. The Company invests its cash and cash equivalents in money market accounts
with high quality financial institutions.

The Company issues credit to a
significant number of customers that are diversified over a wide geographic area. The
Company performs ongoing credit evaluations of its customers and maintains an allowance
for doubtful accounts. The Company does not require collateral from its customers.

For the three years ended December
31, 2003, no single customer accounted for greater than 10% of consolidated revenues.

F-8

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements 
December 31, 2003 and 2002
(Dollars in thousands, except per share data)

(h)      Revenue Recognition

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

Franchising Operations

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

Initial franchise fees are charged to
unit and master franchisees. Unit franchises receive the exclusive right to own and
operate franchises within a certain territory. Master franchises receive a territory in
which the master franchisee is able to award unit sub-franchises. Initial franchise fees
for unit franchises are recognized upon the completion of the franchisees two-week
initial franchise training, after which the Companys obligations to the franchisee
are perfunctory. Initial fees for master franchises are based upon the expected number of
sub-franchises to be sold in the licensed territory and are recognized ratably as unit
sub-franchises are sold. 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 recognize revenue.

The Company sells both licensed and
internally developed courseware materials and curriculum to its franchisees. Courseware
sales are recognized upon shipment. The Company utilizes a third party for the production
of courseware items and fulfillment of orders placed by 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,
revenue is recognized on a net basis.

Per-student fees are charged to the
franchisees for eLearning courses delivered through the Online LIVE and Online ANYTIME
formats. Online LIVE courses are synchronous, interactive virtual classrooms that feature
instructor-facilitated classes delivered over the Internet. 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.

F-9

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements 
December 31, 2003 and 2002
(Dollars in thousands, except per share data)

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

Company-Owned Training
Centers

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

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

Training vouchers represent a
contract for services that allows the customer to send attendees to instructor-led classes
during a finite period of time for a fixed price. Revenue associated with training
vouchers are recognized over the period of time the voucher is valid using rates that
represent the historical utilization of the training vouchers.

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

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

Individual classes allow students to
take single classes at a fixed price. Revenue for individual classes is recognized upon
delivery. Individual classes are typically short in duration, not exceeding five class
days.

F-10

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements 
December 31, 2003 and 2002
(Dollars in thousands, except per share data)

Bootcamps are similar to an
individual class delivered over an extended period of time. Bootcamps are typically
delivered over periods exceeding one month in duration and contain curriculum covering
several individual class offerings. Bootcamps are recognized to revenue over the delivery
period on a straight-line basis.

eLearning programs are delivered
through the Companys Online LIVE and Online ANYTIME products.

Online LIVE courses are synchronous,
interactive virtual classrooms delivered over the Internet. Online LIVE revenue is
recognized upon delivery.

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

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

The Company adjusts its revenue
recognition rates upon changes in historical experience. As a result of an update to its
historical studies of student attendance patterns in the fourth quarter of 2002, the
Company determined that in certain programs, primarily training vouchers and technical
certification programs, students were taking longer to complete classes compared to past
historical experience. As a result, the Company adjusted its revenue recognition rates and
recorded an increase in deferred revenue of $4.4 million, resulting in a charge, net of
adjustments to related deferred costs and income taxes, of $1.9 million.

(i)      Property and Equipment

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:

F-11

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements 
December 31, 2003 and 2002
(Dollars in thousands, except per share data)

|                        |                                         
|----------------------- | ----------------------------------------
|Computers and equipment | 3 to 5 years                            
|                        |                                         
|Furniture and fixtures  | 5 to 10 years                           
|                        |                                         
|Purchased software      | 3 years                                 
|                        |                                         
|Leasehold 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 income.

(j)      Inventories

Inventories are stated at the lower
of cost or market. Inventory costs are determined using the first-in, first-out (FIFO)
method. Inventories consist primarily of courseware materials, books, and kits.

(k)      Valuation of
Long-lived Assets

Pursuant to Statement of Financial
Accounting Standard (SFAS) No. 144 Accounting for the Impairment or Disposal of
Long-Lived Assets, 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. Impairment tests are comprised of two stages, determination of
impairment and calculation of impairment loss. In the first step, the carrying amount of a
long-lived asset or intangible asset is compared to its future estimated undiscounted cash
flows. If the carrying value of the long-lived asset group is not recoverable from its
undiscounted cash flows, the long-lived asset group is deemed to be impaired and the
second step of the impairment test is performed. In the second step, the impairment loss
is measured as the difference between the carrying amount of the asset group and its fair
value.

(l)      Goodwill

Pursuant to SFAS No. 142
Goodwill and Other Intangible Assets, the Company ceased amortizing goodwill
as of January 1, 2002. The goodwill balances attributable to the Companys
franchising and company-owned centers reporting units are tested for impairment annually
as of December 31 of each year and also in the event of an impairment indicator.
Impairment tests are comprised of two steps. The first step of the goodwill impairment
test, used to identify potential impairment, compares the fair value of a reporting unit
with its carrying amount, including goodwill. If the carrying amount of a reporting unit
exceeds its fair value, the reporting units goodwill is considered impaired and the
second step of the impairment test is required. The second step of the goodwill impairment
test, used to measure the amount of impairment loss, compares the implied fair value of
reporting unit goodwill with the carrying amount of that goodwill. The implied fair value
of reporting unit goodwill is determined in the same manner as the amount of goodwill
recognized in a business combination. If the carrying amount of reporting unit goodwill
exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in
an amount equal to that excess, limited to the carrying amount of reporting unit goodwill.

F-12

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements 
December 31, 2003 and 2002
(Dollars in thousands, except per share data)

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
Company accepts the fair values of the reporting units, as determined by the consultant,
and utilizes these values within the impairment analyses.

Upon the adoption of SFAS No. 142 as
of January 1, 2002, the Company recorded a transitional goodwill impairment charge,
presented as a cumulative change in accounting principle, in the amount of $17,800, net of
taxes of $9,200.

Additionally, the Company recorded a
pretax goodwill impairment charge of $48,700 during the fourth quarter of 2002 as a result
of annual impairment testing.

(m)      Income Taxes

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.

(n)      Stock-Based
Compensation

The Company accounts for stock-based
awards to employees using the intrinsic value method in accordance with APB Opinion No. 25
Accounting for Stock Issued to Employees, including related interpretations,
and follows the disclosure-only provision of SFAS No. 123, Accounting for Stock
Based Compensation, as amended by SFAS No. 148 Accounting for Stock Based
Compensation  Transition and Disclosure.

F-13

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements 
December 31, 2003 and 2002
(Dollars in thousands, except per share data)

At December 31, 2003, the Company has
two stock-based employee compensation plans, which are described more fully in Note 10. No
stock-based employee compensation cost is reflected in the results of operations, as all
options granted under those plans had an exercise price equal to or greater than the
market value of the underlying common stock on the date of grant. The following table
illustrates the effect on net income (loss) and earnings (loss) per share as if the
Company had applied the fair value recognition provisions of SFAS No. 123, as amended, to
stock-based employee compensation.

|                                                                                                                                             | 2003 |  | 2002 |        | 2001 |  
|-------------------------------------------------------------------------------------------------------------------------------------------- | ---- |  | ---- | ------ | ---- | -
|                                                                                                                                             |      |  |      |        |      |  
|Net income (loss), as reported                                                                                                               |      |  | $    | 1,045  |      | $
|                                                                                                                                             |      |  |     
|Deduct:  Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |      |  |      | (1,026 | )    |  
|                                                                                                                                             |      |  |      |        |      |  
|Pro forma net income (loss)                                                                                                                  |      |  | $    | 19     |      | $
|                                                                                                                                             |      |  |      |        |      |  
|Basic Earnings Per Share                                                                                                                     |      | 
|As reported                                                                                                                                  |      |  | $    | 0.10   |      | $
|Pro forma                                                                                                                                    |      |  | $    | 0.00   |      | $
|                                                                                                                                             |      |  |     
|Diluted Earnings Per Share                                                                                                                   |      | 
|As reported                                                                                                                                  |      |  | $    | 0.10   |      | $
|Pro forma                                                                                                                                    |      |  | $    | 0.00   |      | $

The fair value of each option grant
was estimated as of the grant date using the Black-Scholes option-pricing model assuming
risk-free interest rates of 2.3%  3.3%, volatility of 67%, and zero dividend yield
for 2003; a risk-free interest rate of 4.2% volatility of 67%, and zero dividend yield for
2002; a risk-free interest rate of 4.0%, volatility of 55%, and zero dividend yield for
2001, with expected lives of four to ten years.

(o)      Comprehensive Income

Comprehensive income includes all
changes in shareholders equity, except those arising from transactions with
shareholders, and includes net income and net unrealized gains (losses) on securities. For
the three years ended December 31, 2003, there was no difference between the
Companys net income (loss) and comprehensive income (loss).

F-14

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements 
December 31, 2003 and 2002
(Dollars in thousands, except per share data)

(p)      Earnings Per Share

The Company calculates earnings per
share (EPS) pursuant to SFAS No. 128, Earnings Per Share. Under SFAS No. 128,
basic EPS is computed by dividing earnings available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock. When dilutive, stock options are
included as share equivalents in computing diluted earnings per share using the treasury
stock method.

Warrants and
stock options that could potentially dilute basic EPS in the future that were not included
in the computation of diluted EPS because to do so would be anti-dilutive totaled
18,968,448, 22,601,363, and 17,227,161 at December 31, 2003, 2002, and 2001, respectively.

(q)      Fair Value of
Financial Instruments

The Companys consolidated
balance sheets include the following financial instruments: trade accounts receivable,
trade accounts payable, notes receivable, 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 interest rates on notes receivable from
franchisees and long-term debt approximate current market rates.

(r)      Deferred Costs

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

(s)      Deferred Rent

The Company recognizes rent expense
on a straight-line basis and records deferred rent based on the difference between cash
paid and straight-line expense.

F-15

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements 
December 31, 2003 and 2002
(Dollars in thousands, except per share data)

(t)      New Accounting
Pronouncements

In January 2003, the FASB issued
FASB Interpretation No. 46 (FIN 46), Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51, which addresses
consolidation by business enterprises of variable interest entities (VIEs)
either: (1) that do not have sufficient equity investment at risk to permit the
entity to finance its activities without additional subordinated financial support, or
(2) in which the equity investors lack an essential characteristic of a controlling
financial interest. In December 2003, the FASB completed deliberations of proposed
modifications to FIN 46 (Revised Interpretations) resulting in multiple
effective dates based on the nature as well as the creation date of the VIE. VIEs created
after January 31, 2003, but prior to January 1, 2004, may be accounted for
either based on the original interpretation or the Revised Interpretations. VIEs created
after January 1, 2004 must be accounted for under the Revised Interpretations.
Special Purpose Entities (SPEs) created prior to February 1, 2003 may be
accounted for under the original or revised interpretations provisions. Non-SPEs
created prior to February 1, 2003, should be accounted for under the Revised
Interpretations provisions. The Revised Interpretations are effective for periods
after June 15, 2003 for VIEs in which the Company holds a variable interest it acquired
before February 1, 2003. For entities acquired or created before February 1, 2003, the
Revised Interpretations are effective no later than the end of the first reporting period
that ends after March 15, 2004, except for those VIEs that are considered to be
special-purpose entities, for which the effective date is no later that the end of the
first reporting period that ends after December 15, 2003. The adoption of FIN 46 and the
Revised Interpretations has not and is not expected to have an impact on the consolidated
financial statements.

In December 2003, the SEC issued
Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition (SAB No. 104), which
codifies, revises and rescinds certain sections of SAB No. 101, Revenue Recognition, in
order to make this interpretive guidance consistent with current authoritative accounting
and auditing guidance and SEC rules and regulations. The changes noted in SAB No. 104 did
not have a material effect on the consolidated results of operations, consolidated
financial position or consolidated cash flows.

In May 2003, the FASB issued SFAS No.
150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity.  SFAS No. 150 establishes standards on the
classification and measurement of certain instruments with characteristics of both
liabilities and equity. SFAS No. 150 is effective for financial instruments entered into
or modified after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003.  SFAS No. 150 requires the
classification of any financial instruments with a mandatory redemption feature, an
obligation to repurchase equity shares, or a conditional obligation based on the issuance
of a variable number of its equity shares, as a liability. The adoption of SFAS No. 150
did not have a material effect on the consolidated financial statements.

F-16

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements 
December 31, 2003 and 2002
(Dollars in thousands, except per share data)

In April 2003, the FASB issued SFAS
No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities, effective for contracts entered into or modified after June 30,
2003.  This amendment clarifies when a contract meets the characteristics of a
derivative, clarifies when a derivative contains a financing component, and amends certain
other existing pronouncements.  The adoption of SFAS No. 149 did not have a material
effect on the consolidated financial statements.

In November 2002, the FASB issued
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others, which
addresses the disclosure to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees. The disclosure requirements are
effective for interim and annual financial statements ending after December 15, 2002.

FIN 45 also requires the recognition
of a liability by a guarantor at the inception of certain guarantees. FIN 45 requires the
guarantor to recognize a liability for the non-contingent component of a guarantee, which
is the obligation to stand ready to perform in the event that specified triggering events
or conditions occur. The initial measurement of this liability is the fair value of the
guarantee at inception. The recognition of the liability is required even if it is not
probable that payments will be required under the guarantee or if the guarantee was issued
with a premium payment or as part of a transaction with multiple elements. The initial
recognition and measurement provisions are effective for all guarantees within the scope
of FIN 45 issued or modified after December 31, 2002.

As noted above, the Company has
adopted the disclosure requirements of FIN 45 and will apply the recognition and
measurement provisions for all guarantees entered into or modified after December 31,
2002. For the year ended December 31, 2003, the Company has not recorded any amounts
within its consolidated financial statements related to any guarantees within the scope of FIN 45.

# 2.   Allowance For
Doubtful Accounts

Accounts receivable has been
presented net of an allowance for doubtful accounts. Allowance for doubtful accounts
includes the following:

F-17

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements 
December 31, 2003 and 2002
(Dollars in thousands, except per share data)

|                           |  |  |  
|-------------------------- |  |  | -
|                           |  |  |  
|                           |  |  |  
|Balance, beginning of year |  |  | $
|Provisions                 |  |  |  
|Deductions                 |  |  |  
|Reclassifications          |  |  |  
|                           |  |  |  
|Balance, end of year       |  |  | $
|                           |  |  |  

# 3.   Debt

On February 27, 2003 and as amended
December 16, 2003, the Company consummated a credit agreement with Wells Fargo Bank,
National Association (the Wells Fargo Credit Agreement). Upon execution of the Wells Fargo
Credit Agreement, the available funds under the facility totaled $12,139, consisting of a
term loan of $10,639 and revolving loan of $1,500. As of December 31, 2003, the term loan
has a total commitment equal to its outstanding balance of $7,566. Quarterly principal
payments of $750 for the term loan commenced on March 31, 2003 and continue through the
term loans maturity on February 15, 2005. The revolving loan has a total commitment
of $1,500 under which loans are available through maturity and which $0 was outstanding as
of December 31, 2003. Any unpaid principal and interest balances associated with the term
and revolving loans are due upon maturity of the loans on February 15, 2005. The revolving
loan also includes a $1,000 sub-limit for the issuance of standby and commercial letters
of credit. One standby letter of credit is outstanding under the revolving loan as of
December 31, 2003 for $650. At December 31, 2003, $850 was available under the Wells Fargo
Credit Agreement.

Interest related to the Wells Fargo
Credit Agreement is paid monthly, bimonthly, or quarterly and is based on the Base
Rate or Eurodollar Base Rate, whichever is applicable to the loan, plus
margins based on Adjusted EBITDA, as defined in the agreement. The Base Rate is a daily
fluctuating rate per annum equal to the higher of the Prime Rate or the Federal Funds Rate
plus 0.50%. The Eurodollar Base Rate is the rate per annum for United States dollar
deposits equal to the Inter-Bank Market Offered Rate, which approximates the London
Inter-Bank Market rate plus 2.75%. Commitment fees of 0.5%, are paid quarterly for any
unused portion of the revolving loan commitment. The effective rate of the term loan as of
December 31, 2003 was 4.05%.

The Wells Fargo Credit Agreement, as
amended, requires the maintenance of certain financial ratios and contains other
restrictive covenants, including restrictions on the incurrence of additional indebtedness
and acquisitions. Prior to the amendment of the Wells Fargo Credit Agreement, the debt
facility required the maintenance of a minimum of $3,500 in cash at the end of each
quarter. Accordingly, the Company has presented $3,500 as restricted cash as of December
31, 2002.

F-18

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements 
December 31, 2003 and 2002
(Dollars in thousands, except per share data)

As of December 31, 2003 the Company
was in compliance with all covenants per the agreement except for the minimum quarterly
adjusted EBITDA ratio. The Company received a letter from Wells Fargo Bank, National
Association, dated March 9, 2004, waiving the banks default rights with respect
to the breach during the quarter ended December 31, 2003.

The Wells Fargo Credit Agreement is
secured by the Companys cash and cash equivalents, accounts receivable, intangible
assets, and investments, if any.

Upon the closing of the Wells Fargo
Credit Agreement, the Company drew $10,639 against the term loan and $300 against the
revolving loan. The loan proceeds from the Wells Fargo Credit Agreement, plus an
additional $3,500 of cash on-hand were utilized to repay all outstanding principal and
interest balances on the Companys former credit facility, with Bank of America, N.A.
as agent, dated April 25, 2001, and amended January 31, 2002.

|                                                                                                    |  | 
|--------------------------------------------------------------------------------------------------- |  | 
|                                                                                                    |  | 
|                                                                                                    |  | 
|Term loan with bank                                                                                 |  | 
|Revolving line of credit with bank                                                                  |  | 
|Amounts due under capital leases with effective interest rates ranging from 8.5% to 14.6% per annum |  | 
|                                                                                                    |  | 
|                                                                                                    |  | 
|                                                                                                    |  | 
|Less: Current portion                                                                               |  | 
|                                                                                                    |  | 
|                                                                                                    |  | 
|                                                                                                    |  | 

The following is a summary of future
payments required under the above obligations:

|     | 
|---- | 
|2004 | 
|2005 | 
|     | 
|     | 
|     | 

F-19

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements 
December 31, 2003 and 2002
(Dollars in thousands, except per share data)

# 4.   Property and Equipment

Property and equipment are comprised of
the following:

|                                                |  | 
|----------------------------------------------- |  | 
|                                                |  | 
|                                                |  | 
|Leasehold improvements                          |  | 
|Equipment and software                          |  | 
|Furniture & fixtures                            |  | 
|                                                |  | 
|                                                |  | 
|Less: Accumulated depreciation and amortization |  | 
|                                                |  | 
|                                                |  | 
|                                                |  | 

# 5.   Goodwill

The Company adopted the provisions of
SFAS No. 142, Goodwill and Other Intangible Assets on January 1, 2002.
Pursuant to SFAS No. 142, the Company ceased amortizing goodwill as of January 1, 2002 and
performs periodic testing for impairment. The following table presents the impact of SFAS
No. 142 on net income and earnings per share, net of tax, had the standard been in effect
for all periods presented:

|                                         |  |  |  
|---------------------------------------- |  |  | -
|                                         |  |  |  
|                                         |  |  |  
|Reported net income (loss)               |  |  | $
|Amortization of goodwill                 |  |  |  
|                                         |  |  |  
|Adjusted net income (loss)               |  |  | $
|                                         |  |  |  
|Basic Earnings Per Share:                |  | 
|Reported net income (loss)               |  |  | $
|Goodwill amortization                    |  |  | $
|Adjusted basic earnings (loss) per share |  |  | $
|                                         |  |  |  
|Diluted Earnings Per Share:              |  | 
|Reported net income (loss)               |  |  | $
|Goodwill amortization                    |  |  | $
|Adjusted basic earnings (loss) per share |  |  | $

In accordance with SFAS No. 142, in 2002 the
Company recorded a transitional impairment charge of $27,000 against goodwill held at the
company-owned locations reporting unit. The charge has been reflected as a cumulative
effect of a change in accounting principle, net of taxes of $9,200, during the year ended
December 31, 2002. The fair value of each reporting unit was obtained through an outside
valuation consultant. The consultant considered both the income approach and the market
approach in determining fair value.

F-20

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements 
December 31, 2003 and 2002
(Dollars in thousands, except per share data)

Additionally, as a result of annual
impairment testing, the Company recorded a pretax goodwill impairment charge of $48,700
during the fourth quarter of 2002 against goodwill held at the company-owned centers
reporting unit. The impairment loss was generally a result of the negative impact of the
continued soft economy on the Companys operations. The fair value of each reporting
unit was determined through the use of an outside independent valuation consultant. The
consultant considered both the income approach and market approach in determining fair
value.

The Company does not have any identifiable
intangible assets subject to amortization or identifiable intangible assets with indefinite lives.

# 6.   Income Taxes

Income tax expense for the periods
below differs from the amounts computed by applying the United States federal income tax
rate of 35% to pretax income as a result of the following:

|                                                              |  |  |  
|------------------------------------------------------------- |  |  | -
|                                                              |  |  |  
|                                                              |  |  |  
|Computed "expected" tax expense                               |  |  | $
|Amortization of goodwill                                      |  |  |  
|State and local tax expense, net of federal income tax effect |  |  |  
|Foreign taxes                                                 |  |  |  
|Discontinued operations                                       |  |  |  
|Other                                                         |  |  |  
|                                                              |  |  |  
|Income tax expense (benefit) from continuing operations       |  |  | $
|                                                              |  |  |  
|Effective rates                                               |  |  |  

F-21

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements 
December 31, 2003 and 2002
(Dollars in thousands, except per share data)

|                                                        |  |  |   | 2003 |   |   | 2002    |   |   | 2001  | 
|------------------------------------------------------- |  |  | - | ---- | - | - | ------- | - | - | ----- | 
|                                                        |  |  |   |      |   |  
|Income tax expense consists of:                         |  | 
|Federal:                                                |  | 
|Deferred                                                |  |  | $ | (357 | ) | $ | (4,991  | ) | $ | 693   | 
|Current                                                 |  |  |   | (148 | ) |   | (11,189 | ) |   | 1,215 | 
|State and local:                                        |  | 
|Deferred                                                |  |  |   | 44   |   |   | 525     |   |   | 439   | 
|Current                                                 |  |  |   | 95   |   |   | (4,170  | ) |   | 449   | 
|Foreign                                                 |  |  |   | 803  |   |   | 1,250   |   |   | 724   | 
|                                                        |  |  |   |      |   |  
|Income tax expense (benefit) from continuing operations |  |  | $ | 437  |   | $ | (18,575 | ) | $ | 3,520 | 
|                                                        |  |  |   |      |   |  

The tax effects of temporary
differences that give rise to significant portions of the deferred tax assets and
liabilities at December 31, 2003 and 2002, are presented below:

|                                                                        |  | 
|----------------------------------------------------------------------- |  | 
|                                                                        |  | 
|                                                                        |  | 
|Deferred tax assets:                                                    |  | 
|Accounts receivable, principally due to allowance for doubtful accounts |  | 
|Reserve for uninsured losses and litigation                             |  | 
|Accrued expenses                                                        |  | 
|Property and equipment, principally due to differences in depreciation  |  | 
|Foreign tax credit carry forward                                        |  | 
|Deferred revenue                                                        |  | 
|Net operating loss                                                      |  | 
|Deferred rent                                                           |  | 
|Other                                                                   |  | 
|Goodwill                                                                |  | 
|                                                                        |  | 
|                                                                        |  | 
|                                                                        |  | 

F-22

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements 
December 31, 2003 and 2002
(Dollars in thousands, except per share data)

|                          |  | 
|------------------------- |  | 
|                          |  | 
|                          |  | 
|Deferred tax liabilities: |  | 
|Prepaid expenses          |  | 
|State deferred taxes      |  | 
|Other                     |  | 
|                          |  | 
|                          |  | 
|                          |  | 
|Net deferred income taxes |  | 
|                          |  | 

# 7.   Prepaid Expenses

Prepaid expenses are comprised of the
following:

|                 |  | 
|---------------- |  | 
|                 |  | 
|                 |  | 
|Deferred costs   |  | 
|Prepaid expenses |  | 
|Prepaid rent     |  | 
|                 |  | 
|                 |  | 
|                 |  | 

F-23

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements 
December 31, 2003 and 2002
(Dollars in thousands, except per share data)

# 8.   Other Assets

Other assets are comprised of the
following:

|                                          |  | 
|----------------------------------------- |  | 
|                                          |  | 
|                                          |  | 
|Notes receivable from franchisees         |  | 
|Other                                     |  | 
|                                          |  | 
|                                          |  | 
|Less: Current portion of notes receivable |  | 
|                                          |  | 
|                                          |  | 
|                                          |  | 
|                                          |  | 

# 9.   Related Party
Transactions

The notes receivable from officer
and director are demand notes. The Company does not intend to demand repayment of these
notes during 2004. Currently, all notes receivable from officer and director are
non-interest bearing.

Of the notes, $711 are collateralized
by the proceeds from certain life insurance policies. These notes accrued interest at
market rates until January 2000, at which time the notes were modified pursuant to oral
agreements between the Company and director.

The remaining $300 note
receivable from an officer relates to a non-interest bearing loan in connection with an
officers relocation expenses.

# 10.   Other Current
Liabilities

Other current liabilities are
comprised of the following:

|                                                  |  | 
|------------------------------------------------- |  | 
|                                                  |  | 
|                                                  |  | 
|Accounts payable to franchisees                   |  | 
|Salaries, wages and commissions payable           |  | 
|Royalties and fees payable to courseware partners |  | 
|Accrued operating expenses and other liabilities  |  | 
|                                                  |  | 
|                                                  |  | 
|                                                  |  | 

# 11.   Employee Savings Plan

The Company established the New
Horizons Worldwide, Inc. 401(k) Retirement Savings Plan (the Plan) in 1995. Essentially
all of the Companys employees are eligible to participate. The Plan was established
in 1995 and through December 31, 1998, was non-contributory. From 1999 to 2001, the
Company elected to match 25% of the employees contributions. The Company did not
match employee contributions in 2002 or 2003.

F-24

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements 
December 31, 2003 and 2002
(Dollars in thousands, except per share data)

# 12.   Stock Option Plans

The Company maintains a Key Employee
Stock Option Plan and an Omnibus Equity Plan which provide for the issuance of
non-qualified options, incentive stock options, and stock appreciation rights. The Key
Employee Stock Option Plan, which expired in 1999, had provided for the granting of
options to purchase up to 1,500,000 shares of common stock. The current Omnibus Equity
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. All options were granted at fair market value at dates of grant.

Independent directors of the Company
currently hold options to acquire a total of 350,583 shares pursuant to option plans and
agreements, including 63,333 and 96,000 awarded in 2003 and 2002, respectively, under the
Companys Omnibus Equity Plan. The exercise price under all such options was equal to
the fair market value as of the date of grant.

Changes in shares, under all current
and former plans and other arrangements, for the three years ended December 31, 2003 are
summarized as follows:

F-25

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements 
December 31, 2003 and 2002
(Dollars in thousands, except per share data)

|                                 | 2003 |  | 2002 |           | 2001 |  
|-------------------------------- | ---- |  | ---- | --------- | ---- | -
|                                 |      |  |      |           |      |  
|                                 |      |  |      |           |      |  
|                                 |      |  |      |           |      |  
|                                 |      |  |      | Shares    |      |  
|                                 |      |  |      |           |      |  
|Outstanding, beginning of year   |      |  |      | 2,287,899 |      | $
|Granted                          |      |  |      | 78,333    |      |  
|Exercised                        |      |  |      | (62,500   | )    |  
|Canceled                         |      |  |      | (335,700  | )    |  
|                                 |      |  |      |           |      |  
|Outstanding, end of year         |      |  |      | 1,968,032 |      |  
|                                 |      |  |      |           |      |  
|Options exercisable, end of year |      |  |      | 1,281,778 |      | $

|Weighted average fair value of options granted during the year | $ | 2.57 |  |  |  |  | $ | 5.82 |  |  |  |  | $ | 7.65 | 
|-------------------------------------------------------------- | - | ---- |  |  |  |  | - | ---- |  |  |  |  | - | ---- | 

Outstanding stock options at December 31, 2003 consist of the following:

|                  | Options Outstanding |        | Options Exercisable
|----------------- | ------------------- | ------ | -------------------
|                  |                     |        |                    
|                  |                     |        |                    
|                  |                     |        |                    
|Range of Exercise |                     |        |                    
|Prices            |                     | Shares |                    
|                  |                     |        |                    
|$                 | 2.51                |        |                    
|                  | 3.80                | -      |                    
|                  | 5.80                | -      |                    
|                  | 8.85                | -      |                    
|                  | 13.38               | -      |                    
|                  |                     |        |                    
|$                 | 2.51                | -      |                    
|                  |                     |        |                    

As of December 31, 2003, there were
724,217 shares of common stock under the Omnibus Equity Plan that were available for
future grant.

F-26

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements 
December 31, 2003 and 2002
(Dollars in thousands, except per share data)

# 13.   Commitments and
Contingencies

(a)      Leases

The Company leases its offices,
training facilities and certain equipment under operating lease obligations. Operating
leases expire on various dates through 2014.

Under the terms of the leases, future
minimum commitments at December 31, 2003 are as follows:

| |             
| | ------------
| |             
| | 2004        
| | 2005        
| | 2006        
| | 2007        
| | 2008        
| | 2009 & after
| |             
| |             
| |             

Rent expense was $11,083, $11,384,
and $9,421 for 2003, 2002, and 2001, respectively.

(b)      Purchase Commitment

The Company has entered into a
contract with a provider to purchase $3,000 in courseware through June 30, 2004.

(c)      Litigation

The Company has accrued approximately
$557 related to residual environmental liabilities retained from the sale of its
environmental remediation business in 1996 (Note 15).

The Company is also 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.

F-27

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements 
December 31, 2003 and 2002
(Dollars in thousands, except per share data)

(d)      Guarantees

The Company has made guarantees and
indemnities, under which it may be required to make payments to a guaranteed or
indemnified party. In connection with the company-owned training centers, the Company has
obtained surety bonds totaling $1,083 to guarantee performance in various states with
respect to providing training to consumers. In the event the Company was to abandon
training in a state where there is a surety bond, the state agency could draw against the
bond to satisfy undelivered training obligations. The Company agrees 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.

(e)      Letter of Credit

The Company has an outstanding letter
of credit, under which it may be required to make payments to a guaranteed or indemnified
party. At December 31, 2003, the outstanding letter of credit, which expires in 2014,
totaled $650. The Company has not recorded any liability for these guarantees and
indemnities in the consolidated financial statements.

# 14.   Acquisitions

(a)      Indianapolis

On January 31, 2001, the Company
purchased the Indianapolis, Indiana franchise. The consideration paid included $4,926 in
cash, net of cash acquired. The selling shareholders received additional cash
consideration upon achieving certain operating performance targets of $442. The
acquisition has been recorded using the purchase method of accounting and the operating
results have been included in the Companys financial statements from the date of
acquisition. The acquisition resulted in goodwill of $5,306.

(b)      Atlanta

On April 2, 2001, the Company
purchased the assets of the Atlanta, Georgia franchise. The consideration paid included
$15,703 in cash, net of cash acquired, and 113,984 shares of the Companys common
stock valued at $1,652. The acquisition has been recorded using the purchase method of
accounting and the operating results have been included in the Companys financial
statements from the date of acquisition. The acquisition resulted in goodwill of $18,005.

(c)     Additional Consideration

During the twelve months ended December 31, 2003, the Company
provided additional consideration for previous acquisitions consisting of $4,651 in cash and 132,501 shares of the Company's stock
valued at $2,074 upon the acquired entities meeting certain operating performance targets.

F-28

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements 
December 31, 2003 and 2002
(Dollars in thousands, except per share data)

(d)      Pro Forma Results

The operating results for the
Indianapolis and Atlanta centers have been included within the Companys operating
results from the date of acquisition. If the Company had acquired the Indianapolis and
Atlanta franchises as of January 1, 2001, the Companys revenue, net income, and
earnings per share would have approximated the following:

|                             | 2001 |        
|---------------------------- | ---- | -------
|
|Revenue                      | $    | 163,992
|Net income                   | $    | 6,852  
|Earnings per share - Basic   | $    | 0.67   
|Earnings per share - Diluted | $    | 0.64   

# 15.  Discontinued Operations

1n 1996, the Company sold its
environmental remediation business. As a condition of the sale, the Company indemnified
the purchasers of certain environmental liabilities existing as of the date of sale.

In 2001, the Company recorded a loss
from discontinued operations of $426, net of taxes of $285, to increase its estimated
costs to resolve these environmental liabilities.

In 2004, the Company reached a
preliminary settlement agreement to settle the aforementioned environmental liabilities
and recorded income from discontinued operations of $249, net of taxes of $171, as a
result of reducing a previously recorded accrual of $1,030 for estimated costs to resolve
these environmental liabilities to the preliminary settlement amount of $557.

The aggregate liabilities of $557 and
$1,030 related to discontinued operations are included in other liabilities at December
31, 2003 and 2002, respectively.

# 16.   Other Income

During the fourth quarter of 2003,
the Company recorded a gain of $112 associated with the sale of an international business
opportunity. The consideration for the sale, consummated in 2000, consisted of notes
receivable that were fully reserved for as of the date of the transaction. The gain
recorded in 2003 represents cash payments on such notes received in 2003.

F-29

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements 
December 31, 2003 and 2002
(Dollars in thousands, except per share data)

In 2002, the Company sold 8.3 acres
of undeveloped land in Santa Ana, California and realized a gain of $503. The net sales
proceeds of $5,666 were used to reduce its debt with its lenders.

In 2001, the Company recorded a gain
of $1,203, representing its portion of the proceeds from the sale of a joint venture. The
Company received the right to a portion of the proceeds from the future sale of the joint
venture in 1996 as partial consideration for the sale of its environmental remediation
business.

Additionally in 2001, the Company
recorded a gain of $1,480 resulting from the net increase in the carrying value of certain
assets received as consideration from the sale of its environmental remediation business.
The increase in carrying value was realized substantially in the form of cash received.

# 17.   Segment Reporting

The
Companys business units have been aggregated into two reportable segments, company
owned training centers and franchising. The two segments are managed separately due to
differences in their sources of revenues and services offered. The company-owned training
centers segment operates wholly-owned computer training centers in the United States and
earns revenues from the delivery of IT training courses. The franchising segment
franchises domestic and international computer training centers and provides computer
training instruction, sales, and management concepts to franchisees. The franchising
segment earns revenues from initial franchise fees, on-going royalties from franchise
operations, and the sale of courseware and other products to franchisees.

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

F-30

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements 
December 31, 2003 and 2002
(Dollars in thousands, except per share data)

For the year ended December 31, 2003:

|                                                      | Company-owned |  |             |         | Executive |   |              | 
|----------------------------------------------------- | ------------- |  | ----------- | ------- | --------- | - | ------------ | 
|                                                      | Centers       |  | Franchising |         | Office    |   | Consolidated | 
|                                                      |               |  |             |         |           |   |              | 
|                                                      |               |  |             |         |           |   |              | 
|Revenues from external customers                      |               |  | $           | 100,933 |           | $ | 38,222       | 
|Inter-segment revenues                                |               |  |             | --      |           |   | 8,246        | 
|Depreciation and amortization                         |               |  |             | 3,590   |           |   | 3,376        | 
|Interest expense                                      |               |  |             | 573     |           |   | --           | 
|Investment income                                     |               |  |             | 72      |           |   | 72           | 
|Income tax (benefit) provision                        |               |  |             | (288    | )         |   | 725          | 
|Income (loss) from continuing operations before taxes |               |  |             | (725    | )         |   | 1,958        | 
|Income from discontinued operations, net of taxes     |               |  |             | --      |           |   | --           | 
|Net income                                            |               |  |             | (437    | )         |   | 1,233        | 
|Accounts receivable                                   |               |  |             | 6,622   |           |   | 7,834        | 
|Net deferred tax asset                                |               |  |             | 25,363  |           |   | 221          | 
|Total assets                                          |               |  |             | 58,310  |           |   | 23,323       | 
|Capital expenditures                                  |               |  |             | 2,232   |           |   | 1,900        | 

For the year ended December 31, 2002:

|                                                                  | Company-owned |  |             |         | Executive |   |              | 
|----------------------------------------------------------------- | ------------- |  | ----------- | ------- | --------- | - | ------------ | 
|                                                                  | Centers       |  | Franchising |         | Office    |   | Consolidated | 
|                                                                  |               |  |             |         |           |   |              | 
|                                                                  |               |  |             |         |           |   |              | 
|Revenues from external customers                                  |               |  | $           | 95,039  |           | $ | 40,664       | 
|Inter-segment revenues                                            |               |  |             | --      |           |   | 6,985        | 
|Goodwill impairment                                               |               |  |             | 48,700  |           |   | --           | 
|Depreciation and amortization                                     |               |  |             | 4,781   |           |   | 2,957        | 
|Interest expense                                                  |               |  |             | 2,318   |           |   | 7            | 
|Investment income                                                 |               |  |             | 97      |           |   | 92           | 
|Net (loss) income from continuing operations before income taxes  |               |  |             | (62,941 | )         |   | 8,321        | 
|Income tax (benefit) provision                                    |               |  |             | (21,595 | )         |   | 3,020        | 
|Cumulative effect of change in accounting principle, net of taxes |               |  |             | (17,800 | )         |   | --           | 
|Net income                                                        |               |  |             | (59,146 | )         |   | 5,301        | 
|Accounts receivable                                               |               |  |             | 8,821   |           |   | 10,788       | 
|Net deferred tax asset                                            |               |  |             | 24,514  |           |   | 756          | 
|Total assets                                                      |               |  |             | 82,958  |           |   | 20,238       | 
|Capital expenditures                                              |               |  |             | 2,208   |           |   | 2,827        | 

F-31

---

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements 
December 31, 2003 and 2002
(Dollars in thousands, except per share data)

For the year ended December 31, 2001:

|                                                          | Company-owned |  |             |         | Executive |   |              |  
|--------------------------------------------------------- | ------------- |  | ----------- | ------- | --------- | - | ------------ | -
|                                                          | Centers       |  | Franchising |         | Office    |   | Consolidated |  
|                                                          |               |  |             |         |           |   |              |  
|                                                          |               |  |             |         |           |   |              |  
|Revenues from external customers                          |               |  | $           | 118,336 |           | $ | 41,563       |  
|Inter-segment revenues                                    |               |  |             | --      |           |   | --           |  
|Depreciation                                              |               |  |             | 5,302   |           |   | 2,130        |  
|Amortization                                              |               |  |             | 3,580   |           |   | 43           |  
|Other income                                              |               |  |             | --      |           |   | --           |  
|Interest expense                                          |               |  |             | 1,450   |           |   | --           |  
|Investment income                                         |               |  |             | 72      |           |   | 297          |  
|Net income from continuing operations before income taxes |               |  |             | (2,222  | )         |   | (12,622      | )
|Income tax (benefit) provision                            |               |  |             | (26     | )         |   | 3,546        |  
|Net (loss) income from continuing operations              |               |  |             | (2,196  | )         |   | 9,076        |  
|Loss from discontinued operations, net of taxes           |               |  |             | --      |           |   | --           |  
|Net income                                                |               |  |             | (2,196  | )         |   | 9,076        |  
|Accounts receivable                                       |               |  |             | 9,899   |           |   | 10,908       |  
|Total assets                                              |               |  |             | 124,963 |           |   | 29,014       |  
|Capital expenditures                                      |               |  |             | 7,642   |           |   | 6,172        |  

# 18.   Quarterly Financial
Data (Unaudited)

Summarized quarterly financial data
for continuing operations for 2003 and 2002 is as follows:

|                             | First   |  | Second  |         | Third   |   | Fourth  | 
|---------------------------- | ------- |  | ------- | ------- | ------- | - | ------- | 
|                             | Quarter |  | Quarter |         | Quarter |   | Quarter | 
|                             |         |  |         |         |         |   |         | 
|Year ended December 31, 2003 |         |  |         |         |         |   |         | 
|Revenues                     |         |  | $       | 35,827  |         | $ | 35,958  | 
|Operating income (loss)      |         |  |         | 443     |         |   | 747     | 
|Net income                   |         |  |         | 166     |         |   | 382     | 
|Basic earnings per share     |         |  |         | 0.02    |         |   | 0.04    | 
|Diluted earnings per share   |         |  |         | 0.02    |         |   | 0.04    | 
|                            
|Year ended December 31, 2002 |         | 
|Revenues                     |         |  | $       | 34,541  |         | $ | 36,225  | 
|Operating income (loss)      |         |  |         | 506     |         |   | 1,074   | 
|Net (loss) income            |         |  |         | (17,726 | )       |   | 372     | 
|Basic earnings per share     |         |  |         | (1.73   | )       |   | 0.04    | 
|Diluted earnings per share   |         |  |         | (1.68   | )       |   | 0.04    | 

During the fourth quarter of 2003, the Company
recorded a pre-tax charge of $1,288 to increase its reserve for uncollectible acccounts.

During the fourth quarter of 2002, the Company
recorded a pre-tax charge of $48,700 related to the impairment of goodwill (See Note 5).

F-32

---

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

As previously reported on Form 8K on April 16 2003
Deloitte & Touche LLP (D&T) notified the Company that D&T would not stand for reappointment as the Company's independent
auditors.  On May 2, 2003, the client-auditor relationship between the Company and D&T ceased.

The reports of D&T on the consolidated financial statements
for the years ended December 31, 2002 and 2001 contained no adverse opinion or disclaimer of opinion
and were not qualified or modified as to uncertainty, audit scope, aor accounting principle.  In addition, there were no
disagreements with D&T on any matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure, which disagreements if not resolved to the satisfaction of D&T,
would have caused it to make reference thereto in its report on the financial statements for such years.

During the years ending December 31, 2002 and through
the period ending May 2, 2003, there were no reportable events (as defined in Regulation SK Item 304(a)(1)(v)),
other than that described in Item 14 of the Company's Annual Report on Form 10K for the year ended December 31, 2002.
In connection with their audit of the Company's financial statements as of and for the year ending December 31, 2002,
D&T identified certain deficiencies in the Company's internal control procedures that D&T considered to be a
material weakness.  In March 2003, D&T advised the Audit Committee that it had identified certain deficiencies in the
Company's ability to timely and accurately produce data that supports its revenue recognition rates for certain of its learning programs.
These matters were discussed with D&T and the Audit Committee of the Company's Board of Directors, as well as Grant Thornton LLP,
the Company's new independent auditors.  To address the material weakness, the Company has devoted additional
resources and made certain additional procedural changes.

# ITEM 9A.  CONTROLS AND PROCEDURES

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

38

---

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

There has been no change in the internal controls over financial
reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially
affect, the internal controls over financial reporting.

39

---

# PART III

# ITEM 10.   DIRECTORS AND
EXECUTIVE OFFICERS OF THE REGISTRANT

# DIRECTORS

The information required by this Item
10 as to the Directors of the Company is incorporated herein by reference to the
information set forth under the captions Election of Directors and
Section 16(a) Beneficial Ownership Reporting Compliance in the Companys
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 4,
2004, since such Proxy Statement will be filed with the Securities and Exchange Commission
not later than 120 days after the end of the Companys fiscal year pursuant to
Regulation 14A.

# EXECUTIVE OFFICERS OF
THE REGISTRANT*

The following is a list of the
executive officers of the Company. The executive officers are elected each year and serve
at the pleasure of the Board of Directors.

|                     |     |                                         
|-------------------- | --- | ----------------------------------------
|NAME                 | AGE | POSITION                                
|Curtis Lee Smith, Jr | 76  | Chairman of the Board                   
|                     |     |                                         
|Thomas J. Bresnan    | 51  | President and Chief Executive Officer   
|                     |     |                                         
|Stuart O. Smith      | 71  | Vice Chairman of the Board and Secretary
|                     |     |                                         
|Martin G. Bean       | 39  | Chief Operating Officer                 
|                     |     |                                         
|Robert S. McMillan   | 52  | Vice President, Treasurer and Chief     
|                     |     | Financial Officer                       

*The description of executive
officers called for in this Item is included pursuant to Instruction 3 to Section (b) of
Item 401 of Regulation S-K.

Set forth below is a brief
description of the background of those executive officers of the Company who are not
Directors of the Company. Information with respect to the background of those executive
officers who are also Directors of the Company is incorporated herein by reference as set
forth under the caption Election of Directors in the Companys definitive
Proxy Statement for the Annual Meeting of Stockholders to be held on May 4, 2004.

40

---

ROBERT S. MCMILLAN was named Vice
President, Treasurer and Chief Financial Officer of the Company in August 1997. He served
as Chief Financial Officer of New Horizons Computer Learning Centers, Inc. beginning in
1995 and became a Senior Vice President in January 1997. From 1992 to 1995, Mr. McMillan
was Chief Financial Officer of ZNYX Corporation, Fremont California. From 1990 to 1992, he
was Chairman, Chief Executive Officer and Chief Financial Officer of Omnivar, in Burbank,
California.

# AUDIT COMMITTEE
FINANCIAL EXPERT

The information required by this Item
10 is incorporated by reference to the information set forth under the captions
Board of Directors and Committees, in the Companys definitive Proxy
Statement for the Annual Meeting of Stockholders to be held on May 4, 2004, since such
Proxy Statement will be filed with the Securities and Exchange Commission not later than
120 days after the end of the Companys fiscal year pursuant to Regulation 14A. (See
Item 5 for the disclosure required by Item 201(d) of Regulation S-K.)

# ITEM 11.   EXECUTIVE
COMPENSATION

The information required by this Item
11 is incorporated by reference to the information set forth under the captions
Compensation of Executive Officers, Board of Directors and
Committees, Compensation Committee Report on Executive Compensation, and
Stockholder Return Performance Presentation, in the Companys definitive
Proxy Statement for the Annual Meeting of Stockholders to be held on May 4, 2004, since
such Proxy Statement will be filed with the Securities and Exchange Commission not later
than 120 days after the end of the Companys fiscal year pursuant to Regulation 14A.
(See Item 5 for the disclosure required by Item 201(d) of Regulation S-K.)

# ITEM 12.   SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item
12 is incorporated by reference to the information set forth under the caption Share
Ownership of Principal Holders and Management in the Companys definitive Proxy
Statement for the Annual Meeting of Stockholders to be held on May 4, 2004, since such
Proxy Statement will be filed with the Securities and Exchange Commission not later than
120 days after the end of the Companys fiscal year pursuant to Regulation 14A.

41

---

# ITEM 13.   CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item
13 is incorporated by reference to the information set forth under the caption
Certain Transactions in the Companys definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on May 4, 2004, since such Proxy Statement will
be filed with the Securities and Exchange Commission not later than 120 days after the end
of the Companys fiscal year pursuant to Regulation 14A.

# ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this Item 14 is incorporated by reference to the
information set forth under the caption "Independent Auditors" in the Company's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 4, 2004, since such Proxy Statement will be filed with the Securities and Exchange Commission not
later than 120 days after the end of the Company's fiscal year pursuant to Regulation 14A.

42

---

# PART IV

# ITEM 15.   EXHIBITS AND
REPORTS ON FORM 8-K

|            | 
|----------- | 
|(a)     (1) | 
|            | 
|            | 

| |                                                
| | -----------------------------------------------
| | Page                                           
| |                                                
| | Reports of Independent Auditors                
| | Consolidated Balance Sheets                    
| | Consolidated Statements of Operations          
| | Consolidated Statements of Stockholders' Equity
| | Consolidated Statements of Cash Flows          
| | Notes to Consolidated Financial Statements     

|            | 
|----------- | 
|(a)     (2) | 
|            | 
|(a)     (3) | 

| |        |                                                                                                                               
| | ------ | ------------------------------------------------------------------------------------------------------------------------------
| | 3.1    | Restated Certificate of Incorporation of the Registrant (9)                                                                   
| |        |                                                                                                                               
| | 3.2    | Amended and restated By-laws of the Registrant (9)                                                                            
| |        |                                                                                                                               
| | 4.1    | Specimen Certificate for Share of Common Stock, $.01 par value, of the Registrant (5)                                         
| |        |                                                                                                                               
| | 4.2    | Credit Agreement, dated February 27, 2003, between the Registrant and Wells Fargo Bank, N.A. (13)                             
| |        |                                                                                                                               
| | 4.3    | Amendment No. 1, dated December 16, 2003 to the Credit Agreement between the Registrant and Wells Fargo Bank, N.A. *          
| |        |                                                                                                                               
| | 4.4    | Waiver, dated March 9, 2004, to the Credit Agreement between the Registrant and Wells Fargo Bank, N.A. *                      
| |        |                                                                                                                               
| | 10.1  | Omnibus Equity Plan of the Registrant (2)                                                                                     
| |        |                                                                                                                               
| | 10.2  | Amendment No. 1 dated March 15, 2002 to the Omnibus Equity Plan of the Registrant (11)                                        
| |        |                                                                                                                               
| | 10.3  | Form of Stock Option Agreement executed by employee recipients of options under Omnibus Equity Plan (7)                       
| |        |                                                                                                                               
| | 10.4  | Key Employees Stock Option Plan of the Registrant (1)                                                                         
| |        |                                                                                                                               
| | 10.5  | Amendment No. 1 to the Key Employees Stock Option Plan of the Registrant (5)                                                  
| |        |                                                                                                                               
| | 10.6  | Stock Option Agreement dated January 22, 1998, between the Registrant and Robert S. McMillan based on performance criteria (4)
| |        |                                                                                                                               
| | 10.7  | Outside Directors Stock Option Plan of the Registrant (1)                                                                     
| |        |                                                                                                                               
| | 10.8  | Amendment No. 1 to the Outside Directors Stock Option Plan of the Registrant (5)                                              
| |        |                                                                                                                               
| | 10.9  | Stock Option Agreement dated September 19, 1996, between the Registrant and David A. Goldfinger (2)                           
| |        |                                                                                                                               
| | 10.10 | Stock Option Agreement dated September 19, 1996, between the Registrant and William Heller (2)                                
| |        |                                                                                                                               
| | 10.11 | Stock Option Agreement dated September 19, 1996, between the Registrant and Scott R. Wilson (2)                               
| |        |                                                                                                                               
| | 10.12 | Form of Stock Option Agreement executed by non-employee Director recipients of options under Omnibus Equity Plan (13)         
| |        |                                                                                                                               
| | 10.13 | Form of Indemnity Agreement with Directors and Officers of the Registrant (5)                                                 

43

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| |        |                                                                                                                                                                 
| | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.14 | New Horizons Worldwide 401(k) Profit Sharing Trust and Plan (10)                                                                                                
| |        |                                                                                                                                                                 
| | 10.15 | Warrants for the purchase of 43,750 shares of Common Stock, $.01 par value per share, of the Registrant issued to The Nassau Group, Inc. - December 31, 1997 (3)
| |        |                                                                                                                                                                 
| | 10.16 | Relocation agreement dated July 27, 1999, between the Registrant and Thomas J. Bresnan (6)                                                                      
| |        |                                                                                                                                                                 
| | 10.17 | Promissory note dated August 31, 1999, between the Registrant and Thomas J. Bresnan (7)                                                                         
| |        |                                                                                                                                                                 
| | 10.18 | Amendment dated January 4, 2000, to relocation agreement between the Registrant and Thomas J. Bresnan (7)                                                       
| |        |                                                                                                                                                                 
| | 10.19 | Amended Promissory Note, dated July 29, 2002, between the Registrant and Thomas J. Bresnan (11)                                                                 
| |        |                                                                                                                                                                 
| | 10.20 | Severance agreement dated January 4, 2000, between the Registrant and Robert S. McMillan (7)                                                                    
| |        |                                                                                                                                                                 
| | 10.21 | Employment Agreement dated January 7, 2002, between the Registrant and Martin G. Bean (10)                                                                      
| |        |                                                                                                                                                                 
| | 10.22 | Lease Agreement dated February 15, 2000, between New Horizons Worldwide, Inc. and Stadium Gateway Associates, LLC, guaranteed by the Registrant (7)             
| |        |                                                                                                                                                                 
| | 10.23  | Lease Agreement dated April 27, 2000, between New Horizons Worldwide, Inc. and 1114 Trizechahn-Swig, guaranteed by the Registrant (8)                           
| |        |                                                                                                                                                                 
| | 21.1   | Subsidiaries to the Registrant *                                                                                                                                
| |        |                                                                                                                                                                 
| | 23.1   | Consent of Grant Thornton LLP *                                                                                                                                 
| |        |                                                                                                                                                                 
| | 23.2   | Consent of Deloitte & Touche LLP *                                                                                                                              
| |        |                                                                                                                                                                 
| | 31.1   | Rule 13a  14(a) Certification of the Companys Chief Financial Officer **                                                                                      
| |        |                                                                                                                                                                 
| | 31.2   | Rule 13a  14(a) Certification of the Companys Chief Executive Officer **                                                                                      
| |        |                                                                                                                                                                 
| | 32.1   | Section 1350 Certification of the Companys Chief Financial Officer **                                                                                          
| |        |                                                                                                                                                                 
| | 32.2   | Section 1350 Certification of the Companys Chief Executive Officer **                                                                                          

| |     
| | ----
| | (1) 
| |     
| | (2) 
| |     
| | (3) 
| |     
| | (4) 
| |     
| | (5) 
| |     
| | (6) 
| |     
| | (7) 
| |     
| | (8) 
| |     
| | (9) 
| |     
| | (10)

44

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| |      |                                                                                                                                                        
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------
| | (11) | Incorporated herein by reference
to the appropriate exhibit to the Registrants Quarterly Report on Form 10-Q for the period ended June 30, 2002.      
| |      |                                                                                                                                                        
| | (12) | Incorporated herein by reference
 to the appropriate exhibit to the Registrants Quarterly Report on Form 10-Q for the period ended September 30, 2002.
| |      |                                                                                                                                                        
| | (13) | Incorporated herein by reference
to the appropriate exhibit to the Registrants Annual Report on Form 10-K for the year ended December 31, 2002.       

| |                                        | 
| | -------------------------------------- | 
| | *   Filed herewith                    
| |                                       
| | **   Furnished herewith               
| |                                       
| |      Compensatory plan or arrangement

|    | 
|--- | 
|(b) | 
|    | 
|    | 

45

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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 at Anaheim, California this 15th day of March 2004.

| |                           
| | --------------------------
| | By:  /s/ Thomas J. Bresnan
| | Thomas J. Bresnan         
| | Chief Executive Officer   

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

|                                | 
|------------------------------- | 
|Signature                       | 
|                                | 
|/s/  Thomas J. Bresnan          | 
|Thomas J. Bresnan               | 
|                                | 
|                                | 
|/s/  Robert S. McMillan         | 
|Robert S. McMillan              | 
|                                | 
|                                | 
|                                | 
|/s/  Curtis Lee Smith,  Jr      | 
|Curtis Lee Smith, Jr            | 
|                                | 
|                                | 
|/s/  Stuart O. Smith            | 
|Stuart O. Smith                 | 
|                                | 
|                                | 
|/s/  David A. Goldfinger        | 
|David A. Goldfinger             | 
|                                | 
|                                | 
|/s/  Richard L. Osborne         | 
|Richard L. Osborne              | 
|                                | 
|                                | 
|/s/  Scott R. Wilson            | 
|Scott R. Wilson                 | 
|                                | 
|                                | 
|/s/  William H. Heller          | 
|William H. Heller               | 
|                                | 
|                                | 
|/s/  Martin G. Bean             | 
|Martin G. Bean                  | 
|                                | 
|                                | 
|/s/  Ching Yuen Yau             | 
|Ching Yuen Yau (a.k.a. Sam Yau) | 

46

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