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

FORM 10-K

(Mark One)

ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2008 ORo

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


For the transition period
from                                to

Commission file number 000-17840

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

Delaware(State of other jurisdiction of
incorporation or organization)

22-2941704(I.R.S. Employer Identification No.)1 W. Elm St., Suite 125, Conshohocken, PA 19428(Address of principal executive offices)


Registrant's
telephone number, including area code:(484) 567-3000

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

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

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

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

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

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

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

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company ý


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

The aggregate value of common stock of the registrant held by non-affiliates was approximately $2,526,838 (based upon the closing price of $0.60 per
share of the of the registrant's common stock on the OTC "Bulletin Board" as of March 10, 2009). For purposes of making this calculation, the registrant has defined affiliates as including all
executive officers, directors and beneficial owners of more than 10% of the common stock of the registrant.

The
number of shares of the registrant's common stock outstanding as of March 10, 2009 was 11,450,269.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement for the 2009 annual meeting of stockholders to be filed within
120 days after the end of the period covered by this Annual Report on Form 10-K are incorporated by reference into Part III of this Annual Report on
Form 10-K.



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



Information About Forward Looking Statements

1PART IItem 1.

Business

1Item 1A.

Risk Factors

11Item 1B.

Unresolved Staff Comments

16Item 2.

Properties

16Item 3.

Legal Proceedings

16PART IIItem 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

17Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

18Item 8.

Index to Consolidated Financial Statements

28Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

74Item 9A.

Controls and Procedures

74PART IIIItem 10.

Directors, Executive Officers and Corporate Governance

76Item 11.

Executive Compensation

76Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

76Item 13.

Certain Relationships and Related Transactions, and Director Independence

76Item 14.

Principal Accountant Fees and Services

76PART IVItem 15.

Exhibits and Financial Statement Schedules

77Signatures

78Exhibit Index

79Certifications

86


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Information About Forward-Looking Statements

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



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

PART I

Item 1.    Business.

General

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

The
Company was incorporated in Delaware on December 15, 1988, and its principal executive offices are located 1 W. Elm St., Suite 125, Conshohocken, PA 19428. The Company
maintains a website athttp://www.newhorizons.com. On this website, or through links on the "Investor Relations" section of this website, the Company
makes available free of charge its annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any
amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. Such material is made available through the Company's
website as soon as reasonably practicable after the Company electronically files or furnishes the material with the SEC.

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Table of Contents

The
Company's common stock trades on the Over-the-Counter ("OTC") Bulletin Board under the symbol "NEWH.OB."

The
Company franchises and operates computer-training centers. The Company has two reporting units: franchising operations and Company-owned training centers, both of which operate
principally within the information technology ("IT") training industry. The franchising operations reporting unit earns revenue through the sale of New Horizons master and unit franchises within the
United States and abroad, on-going royalties in return for providing franchises with systems of instruction, sales, and management concepts concerning computer training, and the sale of
courseware materials and e-learning products. The franchising operations reporting unit has places of business in Anaheim, California; Conshohocken, Pennsylvania; and Singapore. As of
December 31, 2008, the Company-owned training centers reporting unit operated two wholly-owned computer training
centers within the continental United States, generating revenue through the sale and delivery of personal computing ("PC") applications training, technical software training, business skills and
healthcare information management courses.

Industry Overview

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

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

Customer Base

For 27 years, New Horizons global network of training centers has followed a business-to-business sales
strategy to secure millions of customers in the small to medium business, large business, enterprise business and government market segments. The Company has also developed and implemented strategies
to expand its customer base to individual consumers.

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

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

Research
was completed by the Company in 2006 to gain a better understanding of the spending trends of the Company's top customers. Using a structured process, the Company collected
information through comprehensive buyer interviews providing insight into their buying criteria and buying processes. Top customers were also surveyed to understand the perceptions they have of the
Company and the value associated with the Company's brand. Company franchise owners at different levels of

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maturity,
customers in various markets around the world, vendors and partners were also surveyed. The following key findings were concluded from this research:



The Information Technology Education and Training Market

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



New Horizons Business Model

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

The
Company continues to evaluate its strengths, weaknesses, opportunities and competitive threats, in order to identify critical issues facing New Horizons. This allows the Company to
establish specific goals and objectives as well as identify opportunities for the Company's brand and the

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strategies
necessary to achieve the most successful outcome. The Company determined through their process that its core strengths are as follows:

Delivery Modalities

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

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

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

Mentored
Learning represents one of the fastest growing areas of opportunity for the Company. A number of the Company's learning centers have built a strong and profitable business
around Mentored Learning. The Company has built a comprehensive model for the proper implementation of this learning method that has proven successful. In March of 2009, the Company will be
re-introducing Mentored Learning, together with a new Learning Management System (LMS) and web-based course exercises as a suite of services that make the new generation of
Mentored Learning an even more differentiated and compelling customer training option.

Curriculum

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

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

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



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

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

Locations

New Horizons has the ability to deliver IT training throughout the world via its Company-owned and franchised training centers. As of
December 31, 2008, the Company-owned and operated two training centers, both within the continental United States. The New Horizons franchise network consists of 305 centers in 58 countries
making New Horizons the largest independent IT training company in the world per the 2007 industry report from International Data Corporation ("IDC"), a global provider of market intelligence and
research in the information technology market.

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

Franchising Operations Business Model

New Horizons operates a global network of independent franchises that provide IT training and related services to their customers. The
Company initially offered franchises for
sale in 1991 and sold its first franchise in 1992. The Company had 163 franchises plus satellite locations operating at the end of 2008 of which 91 were in North America and 72 were abroad. New
Horizons franchisees are given a "limited exclusive" license and are franchised to participate in and use the Company's business model and sales system. The territory is a "limited exclusive"
territory in that New Horizons agrees not to own or franchise any other New Horizons training centers within the same area, provided the franchisee operates in compliance with the terms of its
franchise agreement.

North America

Initial Franchise Fees

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

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

Initial Franchise FeePopulationStart Up
Franchise

Conversion
FranchiseMarket Category

Min. Band

Max BandMegaM-1


8,000,000


+

$
125,000

$
93,750M-2


6,000,000


7,999,999

$
125,000

$
93,750M-3


4,000,000


5,999,999

$
125,000

$
93,750LargeL-1


3,000,000


3,999,999

$
75,000

$
56,250L-2


2,000,000


2,999,999

$
75,000

$
56,250MediumMed


1,000,000


1,999,999

$
75,000

$
56,250SmallS-1


750,000


999,999

$
60,000

$
45,000S-2


300,000


749,999

$
60,000

$
45,000


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

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

Royalties

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



Franchise Agreement

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

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

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there
are certain restrictions on the franchisees' rights to transfer the franchise license. New Horizons also maintains a "right of first refusal" if a transfer effects a change of control of the
franchise. The agreement also contains default and termination remedies.

The
franchise agreement typically includes non-competition restrictions which prohibit franchisees for one year after termination from: (i) competing with New Horizons
during the term of the franchise agreement and for one year after termination of the franchise within a 25 mile radius of any New Horizons center; (ii) diverting or attempting to divert any
customer or business of the franchise business to any competitor; (iii) performing any act that is injurious or prejudicial to the goodwill associated with New Horizons service marks or
operating system; and (iv) soliciting any person who is at that time employed by New Horizons or any of its affiliated corporations to leave his or her employment.

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

International

Initial Franchise Fees

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

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

Royalties

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



Master Franchise Agreement

Master franchise agreements govern the relationship between the Company and its master franchisees. Upon the execution of a master
franchise agreement, a master franchisee receives a territory, which is typically a country or a region encompassing multiple countries. The territory is a "limited exclusive" territory in that New
Horizons agrees not to own or franchise any other New Horizons training center, provided the franchisee operates in compliance with the terms of its respective master franchise agreement. Unless the
master franchise agreement terminates or is amended by mutual agreement, a territory is not altered. Franchises are expected to market their business exclusively to customers located within the
defined territory. Under the master franchise agreement, the master franchisee may license and service a number of third party unit subfranchises operated by persons other than the master franchisee,
as specified in the master franchise agreement, and own and operate at least one New Horizons location under a separate unit franchise agreement. The master franchisee is responsible for the
pre-opening and ongoing support of the subfranchises. The Company shares in the proceeds of the subsequent sub-franchises sales with the master franchisee.

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Each
master franchise agreement runs for an initial term of ten years and is renewable for one additional ten-year term. The master franchisee is expected to: (i) grant unit
subfranchises in a form of subfranchise agreement as approved by New Horizons; (ii) perform and enforce against each unit subfranchise the terms of any unit subfranchise agreement it enters
into; (iii) provide the initial training in the New Horizons system to each unit subfranchise; and (iv) provide ongoing support, consulting and assistance to each Unit Subfranchise after
the initial training. For these obligations the master franchisee retains 60% of the initial franchise fees and the ongoing royalties received from its unit subfranchises.

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

Franchise Support

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

Courseware Sales and Other

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

Customers

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

The
Company has segmented its customers into the following categories: consumers, small-sized businesses (companies with revenues between $10 and $100 million and
50100 employees), medium businesses (companies with revenues between $100 million and $1 billion and 500 - 5,000 employees), enterprise-sized
businesses (companies with revenue over $1 billion and over 5,000 employees) and governmental entities. Each segment has distinctly different selection criteria for training. Consumers
primarily need certification training for software and operating systems and technology training for the advanced technologist to gain employment in the IT industry or grow his or her IT career.
Businesses require technology training for the advanced technologist as well as certification training but also require desktop applications training. Businesses also require training solutions that
are aligned with

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the
businesses' strategic goals. These solutions can range from the relatively simple to very complex. Both consumers and business rate course availability, quality of instructors and content, client
service and successful outcomes as the main criteria when selecting a learning provider. Enterprise and government clients also require training solutions that can be successfully implemented on a
global scale.

No
single customer accounted for more than 10% of New Horizons revenues in 2008.

Sales and Marketing

The Company utilizes a consultative sales model in order to fully understand client business and training issues. This collaborative
approach with clients allows the sales representative to identify opportunities for solving these issues through the many training offerings the Company provides. This sales model also serves to build
relationships with clients, garnering repeat business by not only selling training but providing client service throughout the entire training project. According to a client survey conducted in the
second half of 2006, client service is a key selection criterion when selecting a training vendor. In order to further penetrate each market segment, the Company will continue to expand its client
service capabilities with strategies, tools, technology, processes and resources that further increase the ease of doing business with the Company.

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

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

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

Competition

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

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

In-House Training Departments

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

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Independent Training Organizations

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

Technology-Based Training

In 2001, the Company introduced its e-learning product offering with "Online LIVE", its synchronous virtual classroom
product (i.e., webinar training), and "Online ANYTIME", its asynchronous self-paced product. The Company's primary competitors in the e-learning environment include
Skillsoft, AXZO Press and Element K. In 2008, the Company also introduced "Connected Classrooms", a web-based platform enabling centers to host and sell remote learning over the internet
from their center.

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

Employees

As of December 31, 2008, the Company employed a total of 189 individuals in its corporate operations and Company-owned
facilities. Of these employees, 29 are instructors, 29 are account executives and 131 are administrative and executive personnel. New Horizons also utilizes the services of outside contract
instructors to teach certain technical certification programs that require certified instructors with specialized skills.

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

Regulations

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

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

Insurance Coverage

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

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

Trademarks

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

Item 1A.    Risk Factors.

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

Recent Market Events.(All dollars in thousands)

Difficult conditions in the economy generally may materially adversely affect our business and results of operations, and we do not know when these conditions may improve.

Our results of operations are materially affected by conditions in the economy generally. The capital and credit markets have been
experiencing extreme volatility and disruption for more than six months at unprecedented levels. Recently, concerns over inflation, energy costs, geopolitical issues, the availability and cost of
credit, the U.S. mortgage market and a declining U.S. real estate market have contributed to increased volatility and diminished expectations for the economy and corporate and consumer spending. These
factors, combined with volatile oil prices, declining business and consumer confidence and increased unemployment, have precipitated an economic slowdown and national recession. These events and the
continuing market upheavals may have an adverse effect on us because we are dependent upon corporate and consumer spending behavior. Our revenues are likely to decline in such circumstances. In
addition, in the event of extreme and prolonged market events, such as the global credit crisis, we could incur significant loss of revenue.

Factors
such as corporate and consumer spending, business investment, the volatility and strength of the capital markets, and inflation all affect the business and economic environment
and, ultimately, the profitability of our business. In an economic downturn characterized by higher unemployment, lower family income, lower corporate earnings, lower business investment and lower
consumer spending, the demand for our products and training services could be adversely affected. Adverse changes in the economy could affect our results negatively and could have a material adverse
effect on our business and financial condition.

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There can be no assurance that actions of the U.S. government, Federal Reserve and other governmental and regulatory bodies for the purpose of stabilizing the financial
markets will achieve the intended effect.

In response to the financial crises affecting the banking system and financial markets and going concern threats to banks and other
financial institutions, the federal government, Federal Reserve and other governmental and regulatory bodies have taken or are considering taking numerous actions to address these financial crises.
There can be no assurance as to the actual impact of these government actions on the financial markets or on us. The failure of these programs to help stabilize the financial markets and a
continuation or worsening of current financial market conditions could materially and adversely affect our business, financial condition, results of operations, access to credit or the trading price
of our common stock.

A prolonged economic downturn could reduce our customer base and demand for our products.

We are in uncertain economic times, including uncertainty with respect to financial markets that have been volatile as a result of
sub-prime mortgage related and other matters. Our success significantly depends upon the growth of demand of our products from a growing customer base of both companies and individual
consumers. If prevailing economic conditions locally, nationally or internationally are unfavorable, our business may not succeed or may be significantly impacted. A prolonged economic downturn would
likely cause a deterioration of the demand for our products and training services, which in turn would hurt our business. A prolonged economic downturn could, therefore, result in losses that could
materially and adversely affect our business.

Risks Related to our Business and Operations

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

We incurred significant losses in 2006. Although the Company was profitable in 2007 and 2008, future revenues and profits, if any, will
depend upon various factors, including continued market acceptance of our products and services. Since 2002, we have experienced a significant decrease in revenues, primarily due to the sale and
re-franchising of Company-owned training centers. In addition, we continue to incur significant fixed costs, including expenses for facility leases, sales and marketing, product
development, and managerial and administrative personnel. Our business may not continue to improve and our revenues may not increase. From 2001 through 2006, we experienced recurring losses and we
have an accumulated deficit of $45,543 through 2008.

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

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

We may need to raise additional capital.

To fund the full scale implementation of our business plan, we may need to raise additional capital. Actual capital requirements will
depend on many factors, including the success of our business results, the costs of maintaining and building our business and the market acceptance of our product and training offerings. Additional
funds may not be available when needed, or, if available, such funds may not be obtainable on terms acceptable to us.

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

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

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

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

Our industry is intensely competitive, rapidly evolving, and subject to technological change. Demand for particular courseware
products, systems hardware, and services may be adversely affected by the increasing number of competitive products from which a prospective customer may choose. We compete primarily against other
organizations offering educational and training software and services. Our competitors include several large companies with substantially greater financial, technical, and marketing resources than
ours such as comprehensive curriculum software publishers, companies providing single-title retail products, Internet content and service providers, and computer hardware companies. Existing
competitors may broaden their product lines and potential competitors may enter the market and/or increase their focus on e-learning, resulting in greater competition for us. Increased
competition in our industry could result in price reductions, reduced operating margins, or loss of market share, which could seriously harm our business, cash flows, and operating results.

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

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

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

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

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

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

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

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

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

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

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

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

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

We market our services worldwide. We operate franchises in many countries outside the United States, located throughout North and South
America, Europe, the Middle East and the Asia Pacific regions. We expect to continue franchise expansion in additional countries. Expansion of its existing international operations and entry into
additional countries will require management attention and financial resources. In addition, there are certain risks inherent in conducting business internationally

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including:
exposure to currency fluctuations, longer payment cycles, greater difficulties in accounts receivable collection, difficulties in complying with foreign laws, unexpected changes in legal or
regulatory requirements, difficulties in staffing and managing foreign operations, political instability and potentially adverse tax consequences. To the extent that we do not manage our international
operations successfully, our business could be adversely affected and its revenues and earnings could be reduced.

Risks Relating to Ownership of Our Common Stock

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

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



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

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

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

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Table of Contents

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

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

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

Item 1B.    Unresolved Staff Comments.

None.

Item 2.    Properties.

We lease approximately 8,000 square feet of office space in Conshohocken, Pennsylvania for our corporate executives, accounting and IT
services under a lease that expires in 2014. We lease approximately 20,000 square feet of office space in Anaheim, California for our corporate operations headquarters under a lease that expires in
January 2012. In addition, we lease approximately 1,800 square feet of office space for our international operations in Singapore.

As
of December 31, 2008, New Horizons operated training centers at 6 leased facilities in Colorado and Indiana, with leases that expire from 2010 to 2016. The total leased office
space of these centers is approximately 58,000 square feet.

The
Company is a sublessor in two of the Company-owned training centers that were sold with total leased space of approximately 47,000 square feet. The two subleases expire in June 2011
and December 2011. Three of the leases for Company-owned training centers that were sold in 2006 terminated in 2007 and two of the leases terminated in 2008. The Company has also assigned its interest
in obligations under real estate leases as a condition to the refranchising of certain Company-owned locations; but remains contingently liable on these lease agreements. These leases have varying
terms, the latest of which expires in 2015.

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

Item 3.    Legal Proceedings.

(All
dollars in thousands)

The
Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not
have a material adverse effect on the Company's consolidated financial position or results of operations. See also Note 15 "Commitments and Contingencies" to the Company's consolidated
financial statements.

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PART II

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

On May 1, 2008 the Company's common stock began trading on the OTC Bulletin Board under the symbol "NEWH.OB." The following
table sets forth the quarterly range of high and low closing quotations per share of common stock from May 1, 2008, through December 31, 2008, as reported on the OTC Bulletin Board.
Prior to being traded on the OTC Bulletin Board, the Company's common stock was traded on the Pink Sheets under the symbol "NEWH.PK." The following table sets forth the quarterly range of high and low
closing quotations per share of common stock from January 1, 2007, through April 30, 2008. The quotations below do not reflect the retail mark-up, markdown or commissions and
may not represent actual transactions.

2007



High

Low1st Quarter

(January 1 - March 31)

$
1.15

$
0.802nd Quarter

(April 1 - June 30)

$
1.00

$
0.843rd Quarter

(July 1 - September 30)

$
1.90

$
0.904th Quarter

(October 1 - December 31)

$
2.25

$
1.55




2008



High

Low1st Quarter

(January 1 - March 31)

$
1.75

$
1.252nd Quarter

(April 1 - June 30)

$
1.80

$
1.403rd Quarter

(July 1 - September 30)

$
1.75

$
1.154th Quarter

(October 1 - December 31)

$
1.49

$
0.51


Holders

As of March 10, 2009, the Company's common stock was held by 353 holders of record.

Dividend Policy

The Company has never declared or paid cash dividends on its common stock and does not intend to declare or pay cash dividends on its
common stock in the foreseeable future. The Company currently intends to retain any future earnings to finance the growth of the Company.

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Table of Contents

Securities Authorized for Issuance Under Equity Compensation Plans As of December 31, 2008:

The
following table sets forth, as of December 31, 2008, information concerning equity compensation plans under which our securities are authorized for issuance. The table does
not reflect grants, awards, exercises, terminations or expirations since that date.

Plan Category

(a)
Number of
securities to be
issued upon exercise
of outstanding
options, warrants
and rights

(b)
Weighted-
average
exercise price of
outstanding
options, warrants
and rights

(c)
Number of
securities remaining
available for
future issuance
under equity
compensation
plans (excluding securities
reflected in column (a))Equity compensation plans approved by security holders(1)


1,228,334

$
1.75


Equity compensation plans approved by security holders(2)


320,000

$
1.50


1,707,500Equity compensation plans not approved by security holders








Total


1,548,334

$
1.71


1,707,500


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

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide information to
assist you in better understanding and evaluating our financial condition and results of operations. We encourage you to read this MD&A in conjunction with our consolidated financial statements
included in Part II, Item 8 of this Annual Report on Form 10-K and the "Risk Factors" contained in Part I, Item 1A of this Annual Report on
Form 10-K.

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

2008

2007

2006RevenuesFranchisingFranchise fees


3
%

2
%

1
%Royalties


56
%

37
%

22
%Courseware sales and other


8
%

8
%

14
%Total franchising revenues


67
%

47
%

37
%Company-owned training center revenues


33
%

53
%

63
%Total revenues


100
%

100
%

100
%Cost of revenues


38
%

47
%

59
%Selling, general and administrative expenses


46
%

45
%

43
%Impairment of property and equipment


0
%

0
%

1
%Operating income (loss)


16
%

8
%

(3
)%Other income/(loss)


0
%

0
%

(1
)%Gain on sale of Company-owned training centers


0
%

5
%

2
%Interest expense


(1
)%

(1
)%

0
%Investment income


0
%

0
%

0
%Income (loss) before income tax provision


15
%

12
%

(2
)%Benefit/(provision) for income taxes


3
%

(2
)%

(1
)%Net income (loss)


18
%

10
%

(3
)%


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

Results Of Operations 2008 Versus 2007(in thousands)

Revenues

Revenues totaled $37,237 during the year ended December 31, 2008, a decrease of $14,400, or 28%, from $51,637 in 2007. The
decrease in revenue is the result of a decrease in Company-owned location revenue of $15,116, offset by an increase in franchising revenues of $716.

Franchising Operations

Franchising revenues totaled $24,749 during the year ended December 31, 2008, an increase of $716, or 3%, from $24,033 in 2007.
The increase in franchising revenues resulted from an increase in franchise fees and royalties partially offset by decline in courseware sales.

Franchise
fees totaled $1,068 during the year ended December 31, 2008, an increase of $93, or 10%, from $975 in 2007. The increase is primarily due to an increase in international
franchising activity for the twelve months ended December 31, 2008 versus the prior year.

Franchise
royalties totaled $20,883 during the year ended December 31, 2008, an increase of $1,733, or 9%, from $19,150 in 2007. The increase is due to an increase in North
American royalties as a result of refranchising four Company-owned training centers since March 31, 2007 and increasing revenues from other franchised centers, both domestic and
internationally.

Courseware
sales and other revenues totaled $2,798 during the year ended December 31, 2008, a decrease of $1,110, or 28%, from $3,908 in 2007. Courseware sales and other revenues
are comprised primarily of revenues from the sale of licensed software training courseware, e-Learning and non

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e-Learning
products, and other revenues and fees. The decrease is primarily due to a decline in revenues from the Company's eLearning offerings.

Company-owned Training Centers

Company-owned training centers earned revenue of $12,488 for the year ended December 31, 2008, a decrease of $15,116, or 55%,
from $27,604 in 2007. The decrease is due to the impact of the sale of four Company-owned training centers in 2007. Consumer sales accounted for approximately 22% and 19% of Company-owned training
centers sales in 2008 and 2007, respectively, and corporate sales accounted for approximately 78% and 81% of Company-owned training centers sales in 2008 and 2007, respectively.

System-wide Revenues

System-wide revenues, comprised of Company-owned training center revenue and non-consolidated franchise revenue
as reported to the Company by franchisees, totaled $393,628 during the year ended December 31, 2008, an increase of $11,504, or 3%, from $382,124 in 2007. The increase in revenue occurred
across the network including the United States and internationally. System-wide revenues are defined as the revenues from Company-owned training centers and revenues reported to the
Company by its domestic and international franchises, and is provided as a statistical indicator of growth of the New Horizons network. The Company believes that the growth of the franchise network
has a significant and direct impact on the amount of franchise royalty revenue generated for the Company.

Cost of Revenues

Cost of revenues totaled $14,005, or 38% of revenue, during the year ended December 31, 2007, a decrease of $10,110, or 42%,
from $24,115, or 47% of revenue, in 2007. The decrease is due to the impact of the sale of four Company-owned training centers resulting in the exclusion of such centers for the full twelve months in
2008 versus those centers' partial inclusion in the twelve months ended December 31, 2007.

Selling, General and Administrative Expenses

Selling, general and administrative expenses totaled $17,266, or 46% of revenue, during the year ended December 31, 2008, a
decrease of $6,033, or 26%, from $23,299, or 45% of revenue, in 2007. The decrease in actual SG&A expenses is due to the abovementioned sales of Company-owned training centers in 2007. The increase in
the percentage of SG&A expenses of revenue, reflects the semi-fixed nature of SG&A expenses and the overall reduction in the Company's revenues due to the sale of Company-owned training
centers in 2007.

Gain on Sale of Company-owned Training Centers

Gain on sale of Company-owned training centers totaled $0 for the year ended December 31, 2008, a decrease from a gain of $2,681
for the same period in 2007. The decrease is attributable to a gain being recognized on the sale of Chicago, Cleveland, Anaheim, and New York Company-owned training centers for the twelve months ended
December 31, 2007. See Note 16 "Gain/Loss on Sale of Company-owned Training Centers" to the Company's consolidated financial statements.

Interest Expense

Interest expense totaled $517 for the year ended December 31, 2008, a decrease of $87, or 14%, from $604 in 2007. The decrease
is primarily due to lower interest paid in connection with student refunds in 2008.

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Table of Contents

Investment Income

Investment income totaled $69 for the year ended December 31, 2008, a decrease of $60, or 47%, from $129 in 2007. The decrease
is due to a decrease in the interest rate available for invested funds in 2008 and the Company's new revolving credit facility that utilizes available cash to reduce outstanding borrowings.

Benefit (Provision) for Income Taxes

The benefit for income taxes totaled $1,263 for the year ended December 31, 2008, a decrease of $2,360, or 215%, from an income
tax expense of $1,097 in 2007. In the recovery analysis for December 31, 2008, there is significant positive evidence of future taxable income for the year ending December 31, 2009. As a
result, due to the existence of significant positive evidence of future taxable income, the Company concluded that less than a full valuation allowance was required as of December 31, 2008. See
also Note 8 "Income Taxes" to the Company's consolidated financial statements.

Results Of Operations 2007 Versus 2006(in thousands)

Revenues

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

Franchising Operations

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

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

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

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

Company-owned Training Centers

Company-owned training centers earned revenue of $27,604 for the year ended December 31, 2007, a decrease of $21,113, or 43%,
from $48,717 in 2006. The decrease is primarily due to the Company's sale and refinancing of Company-owned training centers, reducing the number of Company-owned training centers from six to two, and
increasing the number of franchised operations by the

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same
number. In 2006, the Company had decided to reduce significantly the number of Company-owned training centers and to refocus its resources and managerial energies on its franchising operations.
Consumer sales accounted for approximately 19% and 17% of Company-owned training centers sales in 2007 and 2006, respectively, and corporate sales accounted for approximately 81% and 83% of
Company-owned training centers sales in 2007 and 2006, respectively.

System-wide Revenues

System-wide revenues, comprised of Company-owned training center revenue and non-consolidated franchise revenue
as reported to the Company by franchisees, totaled $382,124 during the year ended December 31, 2007, an increase of $18,846, or 5%, from $363,278 in 2006. The increase in revenue was
experienced across the network including the United States and internationally. System-wide revenues are defined as the revenues from Company-owned training centers and revenues reported
to the Company by its domestic and international franchises, and is provided as a statistical indicator of growth of the New Horizons network. The Company believes that the growth of the franchise
network has a significant and direct impact on the amount of franchise royalty revenue generated for the Company.

Cost of Revenues

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

Selling, General and Administrative Expenses

Selling, general and administrative expenses totaled $23,299, or 45% of revenue, during the year ended December 31, 2007, a
decrease of $10,214, or 31%, from $33,513, or 43% of revenue, in 2006. The decrease is primarily due to the sale of 11 Company-owned training centers since March 1, 2006 and savings achieved
from cost cutting initiatives undertaken in 2006 and 2007.

Gain on Sale of Company-owned Training Centers

Gain on sale of Company-owned training centers totaled $2,681 for the year ended December 31, 2007, an increase of $561, or 27%,
from $2,120 in 2006. The 2007 gain related to the sale of the Chicago, Cleveland, Anaheim, and New York Company-owned training centers. See Note 16 "Gain/Loss on Sale of Company-owned Training
Centers" to the Company's consolidated financial statements.

Interest Expense

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

Investment Income

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

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Provision for Income Taxes

Provision for income tax expense totaled $1,097 for the year ended December 31, 2007, an increase of $78, or 8%, from $1,019 in
2006. The majority of income tax expense represents foreign source withholding taxes on royalties remitted to the Company by its international franchisees. See also Note 8 "Income Taxes" to the
Company's consolidated financial statements.

Critical Accounting Policies and Management's Estimates

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

Revenue Recognition

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

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

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

A
master franchise fee provides international franchisees with the right to award subfranchises to other parties within a particular region. The fee is payable upon execution of the
Franchise Agreement and is not refundable under any circumstances. This fee is based upon the expected number of subfranchises to be sold. Initial franchise fees for master and unit franchises are
recognized when all related franchise training and all material conditions or services related to the sale have been performed or satisfied by the Company.

The
Company recognizes revenues from its Company-owned training center operations for training vouchers, club memberships, and technical certification tracks. Revenue is recognized based
on estimates of the time period required to deliver training to customers over the service period. These estimates differ from the straight-line method. Combined, these products comprise a
material amount of the Company's consolidated revenues. Management has determined that historical student attendance rates are the best estimate of how the Company will deliver training and recognize
revenue to customers in the future.

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

Due
to the use of estimated delivery rates rather than actual delivery, revenue recognition for training vouchers and technical tracks and programs are based on estimated delivery rates
that could differ materially from that of actual course delivery. Additionally, the Company's estimates based on historical student attendance patterns may not accurately forecast future attendance
patterns. Generally, the student attendance analyses indicate a greater percentage of attendance in the earlier months and the last month of the time periods associated with training vouchers, club
memberships, and technical certification programs. Thus, a greater percentage of revenues are recognized in these time periods than if a straight-line method were applied.

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

Change in Estimate

Revenue recognition rates utilized for certain training vouchers and technical certification programs are based on the results of
student attendance analyses performed by the Company. The Company's student attendance analyses have been derived from historical experience over the past eight quarterly analyses, or two years of
trailing data. 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 and
technical certification programs. Thus, a greater percentage of revenues are recognized in these time periods than if the straight-line method were applied. The continual revision of
estimated student attendance rates results in cumulative adjustments to revenue recognized for sales transactions consummated in prior periods. Upon completion of the historical student attendance
analyses, the Company adjusted its revenue recognition rates and recorded an increase in deferred revenue and a decrease in revenue of $42, $217, and $150 in the fourth quarters of 2008, 2007 and
2006, respectively.

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

Deferred Costs

The Company defers those direct and incremental costs associated with the sale of products and services for which revenue is deferred.
Direct and incremental costs associated with the sale of products and services for which revenue is deferred include commissions paid to sales persons and technology and hosting costs associated with
the Company's e-learning products. Deferred costs are charged to earnings at the same rate that the associated product revenues are recorded to earnings. At December 31, 2008 and
2007, the Company's deferred costs totaled $217 and $232, respectively, and is reported in prepaid expenses in the accompanying Consolidated Balance Sheet.

Accounts Receivable

Accounts receivable is shown net of allowances for doubtful accounts. The Company records an allowance for doubtful accounts based on
the age of individual invoices. For the Franchise reporting

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unit,
the percentage applied reflects the age of the invoice with specific reserves for certain delinquent customers. For the Company-owned training centers, the percentage applied reflects each
center's historical experience of bad debts and mix of business. At December 31, 2008 and 2007, the Company's allowance for doubtful accounts was $942 and $1,313, respectively.

Deferred Tax Asset

In preparing the consolidated financial statements the Company is required to estimate its income taxes for federal and state purposes.
This process involves estimating the actual current taxes together with assessing temporary differences resulting from differing treatment
of items, such as deferred revenue or the allowance for doubtful accounts, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within
the consolidated balance sheets. The Company must then assess the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes that recovery is
not likely, must establish a valuation allowance. To the extent a valuation allowance is established or this allowance is modified in a period, an expense or income must be included within the tax
provision in the consolidated statements of operations.

The
Company regularly analyzes the future recovery of its deferred tax assets based on its best estimates of future taxable income. In the recovery analysis, recent cumulative losses are
provided greater weight than estimated future profitability. As a result, in the absence of significant positive evidence indicating future taxable income is imminent, there is a presumption that a
valuation allowance is required during periods of recent cumulative losses. During 2008, a $2,601 net deferred tax asset was realized, resulting in an equal reduction to the valuation allowance at
December 31, 2008. In addition, as a result of significant positive evidence of future taxable income for the year ended December 31, 2009, a $1,971 deferred tax asset was also realized,
resulting in an equal reduction to the valuation allowance at December 31, 2008. During 2007, $11,514 of deferred tax asset was realized, resulting in an equal reduction to the valuation
allowance at December 31, 2007. See also Note 8 "Income Taxes" to the Company's consolidated financial statements.

Accounting for Goodwill

The Company accounts for goodwill and other intangible assets in accordance with Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). Goodwill is the excess of cost over fair value of the net assets of the
business acquired. Intangible assets consist of reacquired franchise rights, which are deemed to have an indefinite useful life and are not amortized.

The
goodwill balances attributable to the Company's franchising reporting unit is tested for impairment annually as of December 31 of each year and on an interim basis in the
event of an impairment indicator. Factors the Company considers important, the presence of which could trigger an impairment review, include significant underperformance relative to expected
historical or projected future operating results, significant changes in the manner of use of acquired assets or the strategy for the overall business, and significant negative industry or economic
trends. Both the income approach and the market approach are utilized.

On
November 26, 2008, the Company acquired substantially all the assets of Technology Training & Services Corporation ("TTSC") pursuant to a Business Combination Agreement
("The Acquisition"). The transaction was accounted for as a purchase transaction in accordance with SFAS 141, "Business Combinations," and the
Company's consolidated financial statements include the results of operations since the date of the acquisition. As a result, the assets of TTSC were recorded at their fair value, with the excess
purchase price over the fair value of the assets acquired allocated to

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goodwill.
The Company's goodwill increased by $457 to $11,865 at December 31, 2008. (See Note 3 "Acquisitions" in the Company's Notes to Consolidated Financial Statements for further
information.)

No
impairment was recorded related to the franchising reporting unit, where all of the Company's goodwill is held, during 2008, 2007 or 2006. There can be no assurance that future
goodwill impairment tests will not result in a charge to earnings. See also Note 7 "Goodwill" to the Company's consolidated financial statements.

Liquidity and Capital Resources

The Company's cash and cash equivalents was $639 as of December 31, 2008 compared to $4,101 as of December 31, 2007. The
$3,462 decrease is due primarily to the repayment of the Company's former secured credit facility, and the purchase of TTSC assets. Further, the Company's new revolving credit facility utilizes
available cash to pay down outstanding borrowings, which is partially offset by the cash generated from operating activities of the Company and borrowings under the Company's new revolving credit
facility.

Cash
provided by operations was $2,021 for the year ended December 31, 2008, $2,982 more than the amount used in the comparable period for 2007. The year over year increase is due
primarily to (1) a $1,438 greater net income in fiscal 2008 compared to fiscal 2007 (2) a $2,681 non-cash gain on sale of Company- owned training centers in the 2007 period
(3) a $1,228 greater net decrease in accounts payable, deferred revenue and other liabilities in the 2007 period, as the Company brought itself current with creditors following the sale of
preferred stock in July 2007, offset in part by (3) a $356 decrease in the non-cash provision for doubtful accounts and the non-cash fees paid with common stock and
(4) a deferred tax benefit of $1,971 in fiscal 2008.

Cash
used in investing activities was $2,207 for the year ended December 31, 2008, $2,497 greater than the amount provided by investing activities in the comparable period for
2007. The increase in cash utilization is primarily due to the Company spending $681 for the TTSC acquisition and $2,119 for capital equipment compared to the same period last year, in which the
Company spent only $838 on
capital equipment. In addition, in the 2007 period the Company had proceeds of $140 from the sale of Company-owned centers and a $988 increase in operating cash due to the removal of restrictions on
cash compared to a $513 increase in operating cash that had its cash restrictions removed in 2008. (See Note 3 "Acquisitions" in the Company's Notes to Consolidated Financial Statements.)

Net
cash used in financing activities was $3,276 for the year ended December 31, 2008, $7,253 greater than the amount in the comparable period, principally due to the repayment of
the $4,000 secured credit facility in 2008 and the sale of the Series C Preferred Stock in July 2007, partially offset by $714 of net borrowings received under the revolving credit facility in
2008. (See Note 5 "Debt" in the Company's Notes to Consolidated Financial Statements.)

As
stated above, during the year ended December 31, 2008, the Company received $714 of net borrowings from the $6,000 revolving credit facility, offset by the repayment of $4,000
of existing debt. The Company intends to use the proceeds of the revolving credit facility primarily for general working capital. Management believes that the availability under the revolving credit
facility, combined with continued positive improved financial results, will sustain the Company for the next twelve months.

Off-Balance Sheet Arrangements and Contractual Obligations

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

On
November 26, 2008, the Company acquired substantially all the assets of TTSC pursuant to the Acquisition. The Acquisition was consummated providing Online IT training and
consulting services. The Company also purchased a perpetual license from Terillian, an affiliate of TTSC, for the

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semi-exclusive
use of its proprietary software. The transaction was accounted for as a purchase transaction in accordance with SFAS 141, "Business
Combinations," and the Company's consolidated financial statements include the results of operations since the date of the acquisition. As a result, the assets of TTSC were
recorded at their fair value, with the excess purchase price over the fair value of the assets acquired allocated to goodwill. The total purchase price was $1,581 of which, $681was paid in 2008 and
$900 is payable in installments by April 15, 2009. (See Note 3 "Acquisitions" in the Company's Notes to Consolidated Financial Statements.)

On
October 1, 2008, the Company entered into a $6,000 revolving credit facility with PNC Bank which replaced the Company's existing $4,000 secured credit facility. The revolving
credit facility contains
customary covenants, representations and warranties and events of default. (See Note 5 "Debt" in the Company's Notes to Consolidated Financial Statements.)

During
2007, the Company had $513 in restricted cash comprised of the following. The Company had deposited $263 with state agencies to guarantee performance in various states in respect
to providing training to consumers. In the event the Company abandoned training in a state, the state agency could have drawn against the deposits to satisfy undelivered training obligations. In
addition, the Company had deposited $250 with a bank to comply with contractual obligations. The Company has fulfilled its obligation with the bank and replaced the restricted cash held by state
agencies with surety bonds. Accordingly, as of December 31, 2008, the Company has no cash subject to restriction.

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

On
July 2, 2007, the Company completed $4,000 of new financing through the sale and issuance of Series C preferred stock. The Company concurrently amended its debt
covenants on July 2, 2007. The secured credit facility was fully repaid as a result of the Company entering into the revolving credit facility with PNC Bank. (See Note 5 "Debt" in the
Company's Notes to Consolidated Financial Statements.)

The
Company experienced recurring operating losses from 2001 through 2006 and has an accumulated deficit of $45,543 as of December 31, 2008. Moreover, essentially all of its
assets are encumbered under its revolving credit facility. The extent of the Company's needs for additional liquidity will depend in part on its future operating performance, which is itself dependent
on a number of factors, many of which the Company cannot control. These factors include prevailing economic conditions, availability of other sources of liquidity, and financial, business, regulatory
and other factors affecting the Company's business and operations. Although the Company believes its strategic, operational and financial plans will be successful, there can be no assurance that the
Company will successfully implement these plans. If the Company is not successful in implementing these plans, there could be a material adverse impact on the Company's financial position and results
of operations. Management cannot assure the Company's shareholders that business will not decline or if the recent improvement in operating performance can be sustained.

Item 8.    Financial Statements and Supplementary Data.

Page 29 includes management's assessment of internal control over financial reporting as of December 31, 2008,
pages 30 and 31 is the report of our independent registered public accounting firm, McGladrey & Pullen, LLP and our former independent registered public
accounting firm, Squar, Milner, Peterson, Miranda & Williamson, LLP, and pages 32 to 73 are the Consolidated Financial Statements of the Company along with applicable notes specified by
Article 8 of Regulation S-X.

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NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



PageMANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING

29REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

30CONSOLIDATED BALANCE SHEETS

32CONSOLIDATED STATEMENTS OF OPERATIONS

33CONSOLIDATED STATEMENTS OF CASH FLOWS

34CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

35NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

36


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MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

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

Management
performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2008 based upon criteria in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
("COSO"). Based on this assessment, management determined that the company's internal control over financial reporting was effective as of December 31, 2008, based on the criteria in Internal
Control-Integrated Framework issued by COSO.

This
annual report does not include an attestation report of the company's registered public accounting firm due to a transition period established by rules of the Securities and
Exchange Commission for smaller public companies.

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

/s/ MARK A. MILLER

/s/ CHARLES J. MALLONMark A. Miller Chairman and Chief Executive Officer

Charles J. Mallon Executive Vice President and Chief Financial Officer


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We
have audited the accompanying consolidated balance sheet of New Horizons Worldwide, Inc. and its Subsidiaries (collectively the "Company") as of December 31, 2008, 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 the standards of the Public Company Accounting Oversight Board (United States). 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of New Horizons Worldwide, Inc. and its
Subsidiaries as of December 31, 2008, and the results of their operations and their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

We
were not engaged to examine management's assessment of the effectiveness of New Horizons Worldwide, Inc.'s internal control over financial reporting as of December 31,
2008, included in the accompanying Management's Report on Internal Controls over Financial Reporting and, accordingly, we do not express an opinion thereon.

/s/ MCGLADREY & PULLEN, LLPBlue Bell, PA
March 25, 2009


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

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

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

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

/s/ SQUAR, MILNER, PETERSON, MIRANDA, & WILLIAMSON, LLPNewport Beach, California
March 18, 2008


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NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES        Consolidated Balance Sheets        December 31, 2008 and 2007        (Dollars in thousands,
except share and per share data)

2008

2007AssetsCurrent assets:Cash and cash equivalents

$
639

$
4,101Accounts receivable, net


5,340


4,772Prepaid expenses


1,001


650Deferred tax asset


2,429


Refundable income taxes


158


238Other current assets


134


90Total current assets


9,701


9,851Property and equipment, net


4,873


2,631Restricted cash





513Goodwill, net


11,865


11,408Debt issuance costs, net


40


Other assets


252


873Total assets

$
26,731

$
25,276Liabilities and shareholders' equityCurrent liabilities:Accounts payable

$
853

$
2,305Deferred revenue


3,513


4,169Other current liabilities


7,840


8,416Total current liabilities


12,206


14,890Long-term debt





4,000Revolving credit facility, net


754


Deferred rent


658


737Deferred tax liability


457


Other long-term liabilities


48


235Total liabilities


14,123


19,862Commitments and contingencies





Shareholders' equity:Convertible preferred stock Series C, no par value, 200,000 shares authorized, 172,043 shares issued and outstanding at December 31, 2008 and 2007,
respectively. Liquidation preference of $23.25 per share


3,802


3,802Convertible preferred stock Series B, no par value, 200,000 shares authorized, 174,693 shares issued and outstanding at December 31, 2008 and 2007,
respectively. Liquidation preference of $37.50 per share


5,611


5,611Common stock, $.01 par value, 30,000,000 shares authorized, 11,635,269 and 11,445,269 shares issued; 11,450,269 and 11,260,269 shares outstanding at
December 31, 2008 and 2007, respectively


116


114Additional paid-in capital


49,920


49,498Accumulated deficit


(45,543
)

(52,313
)Treasury stock at cost185,000 shares at December 31, 2008 and 2007


(1,298
)

(1,298
)Total shareholders' equity


12,608


5,414Total liabilities and shareholders' equity

$
26,731

$
25,276


See accompanying notes to consolidated financial statements.

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NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES        Consolidated Statements of Operations        Years ended December 31, 2008, 2007, and 2006        (Dollars in thousands, except share and per share data)

2008

2007

2006RevenuesFranchisingFranchise fees

$
1,068

$
975

$
816Royalties


20,883


19,150


16,696Courseware sales and other


2,798


3,908


10,451Total franchising revenues


24,749


24,033


27,963Company-owned training center revenues


12,488


27,604


48,717Total revenues


37,237


51,637


76,680Cost of revenues


14,005


24,115


45,191Selling, general and administrative expenses


17,266


23,299


33,513Impairment of property and equipment








391Operating income (loss)


5,966


4,223


(2,415
)Other loss


(11
)




(704
)Gain on sale of Company-owned training centers





2,681


2,120Interest expense


(517
)

(604
)

(304
)Investment income


69


129


293Income (loss) before income tax benefit/(provision)


5,507


6,429


(1,010
)Benefit/(provision) for income taxes


1,263


(1,097
)

(1,019
)Net income (loss)


6,770


5,332


(2,029
)Dividends payable on preferred stock


(684
)

(604
)

(204
)Deemed dividend on preferred stock





(2,963
)

Net income (loss) attributable to common shareholdersbasic

$
6,086

$
1,765

$
(2,233
)Dividends payable on preferred stock addback


684


604


Net income (loss) attributable to common shareholdersdiluted

$
6,770

$
2,369

$
(2,233
)Net income (loss) per share:Basic

$
0.54

$
0.17

$
(0.21
)Diluted

$
0.29

$
0.13

$
(0.21
)Weighted average shares outstanding:Basic


11,265,989


10,675,565


10,678,349Diluted


23,025,629


18,667,814


10,678,349


See
accompanying notes to consolidated financial statements.

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NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES        Consolidated Statements of Cash Flows        Years ended December 31, 2008, 2007, and 2006        (Dollars in thousands)

2008

2007

2006Cash flows from operating activities:Net income (loss)

$
6,770

$
5,332

$
(2,029
)Adjustments to reconcile net income (loss) to net cash and cash equivalents provided by (used in) operating activities:Depreciation and amortization


915


615


1,726Amortization of debt issuance costs


169





Gain on sale of Company-owned training centers





(2,681
)

(2,120
)Stock-based compensation


411


561


86Director's fees paid with the issuance of common stock





115


Legal settlement paid with the issuance of common stock





82


Impairment of property and equipment








391Loss on disposal


6





Provision for losses on doubtful accounts


99


258


850Deferred tax provision


(1,971
)




Cash (used in) provided by the change in:Accounts receivable


(668
)

(667
)

2,295Prepaid expenses and other assets


61


504


1,306Refundable income taxes


80


153


402Accounts payable


(1,452
)

(907
)

(153
)Deferred revenue


(656
)

(496
)

(3,790
)Other liabilities


(1,663
)

(3,595
)

(4,461
)Deferred rent


(80
)

(235
)

(905
)Net cash provided by (used in) operating activities


2,021


(961
)

(6,402
)Cash flows from investing activities:Acquisitions of business, net


(681
)




Additions to property and equipment


(2,119
)

(838
)

(520
)Proceeds from sale of property and equipment


80





12Proceeds from sale of training centers





140


1,447Restricted cash


513


988


(647
)Net cash (used in) provided by investing activities


(2,207
)

290


292Cash flows from financing activities:Proceeds from exercise of stock options


13


175


Proceeds from issuance of common stock to officer








100Proceeds from issuance of preferred stock





4,000


Proceeds from issuance of debt


754





4,000Costs from issuance of debt/equity


(43
)

(198
)

(13
)Principal payments on debt obligations


(4,000
)




(980
)Net cash (used in) provided by financing activities


(3,276
)

3,977


3,107Net (decrease) increase in cash and cash equivalents


(3,462
)

3,306


(3,003
)Cash and cash equivalents at beginning of period


4,101


795


3,798Cash and cash equivalents at end of period

$
639

$
4,101

$
795Supplemental disclosure of cash flow informationCash paid for:Interest

$
342

$
601

$
335Income taxes

$
875

$
964

$
788Noncash investing and financing activities:Dividends payable and deemed dividends on preferred stock

$
684

$
3,567

$
204Schedule of non-cash investing activitiesbusiness acquisitions (see Note 3)Estimated fair value of assets acquired

$
1,124

$


$
Goodwill


457





Cash paid


(681
)




Liabilities

$
900

$


$



See accompanying notes to consolidated financial statements.

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NEW HORIZONS WORDWIDE, INC. AND SUBSIDIARIES        Consolidated Statements of Shareholders' Equity (Deficit)        Years ended December 31, 2008, 2007, and
2006        (Dollars in thousands, except share data)

Convertible
Preferred Stock
Series C

Convertible
Preferred Stock
Series B

Convertible
Preferred Stock
Series ACommon Stock





Notes
from
officer and
director



Total
shareholders'
equity
(deficit)Additional
paid-in
capital

Accumulated
(Deficit)/Equity

Treasury
stockShares

Amount

Shares

Amount

Shares

Amount

Shares

AmountBalance at January 1, 2006




$





$



1,638,398

$
16


10,636,658

$
106

$
53,809

$
(55,616
)
$
(300
)
$
(1,298
)
$
(3,283
)Conversion of Series A preferred stock to Series B preferred stock








174,693


5,611


(1,638,398
)

(16
)







(5,424
)










171Stock-based compensation expense


























86











86Sale of common stock to officer




















108,695


1


99











100Forgiveness of officer note
































300





300Net loss





























(2,029
)







(2,029
)Balance at December 31, 2006








174,693


5,611








10,745,353


107


48,570


(57,645
)




(1,298
)

(4,655
)Issuance of Series C preferred stock, net of offering costs


172,043


3,802
































3,802Stock-based compensation expense


























561











561Director fees paid in stock




















74,750


1


114











115Share options exercised




















242,666


3


174











177Stock issued as part of legal settlement




















37,500





82











82Vested restricted stock




















345,000


3


(3
)










Net income





























5,332








5,332Balance at December 31, 2007


172,043


3,802


174,693


5,611








11,445,269


114


49,498


(52,313
)




(1,298
)

5,414Stock-based compensation expense


























411











411Share options exercised




















15,000





13











13Vested restricted stock




















175,000


2


(2
)










Net income





























6,770








6,770Balance at December 31, 2008


172,043

$
3,802


174,693

$
5,611




$



11,635,269

$
116

$
49,920

$
(45,543
)
$


$
(1,298
)
$
12,608


See accompanying notes to consolidated financial statements.

35

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Table of Contents

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES        Notes to Consolidated Financial Statements        December 31, 2008, 2007 and 2006    
(Dollars in thousands, except share and per share data)

1. Organization and Summary of Significant Accounting Policies



New Horizons Worldwide, Inc. ("New Horizons" or the "Company") owns and franchises computer-training centers. The Company has
two reporting units: franchising operations
and Company-owned training centers, both of which operate principally within the information technology ("IT") training industry. The franchising operations reporting unit earns revenue through the
sale of New Horizons master and unit franchises within the United States and internationally; on-going royalties received in return for providing franchises with systems of instruction,
and sales and management concepts concerning computer training; the sale of courseware materials, and e-learning products. The franchising operations reporting unit has offices in Anaheim,
California; Conshohocken, Pennsylvania; and Singapore. As of December 31, 2008, the Company-owned training center reporting unit operated two wholly owned computer training centers within the
continental United States and generated revenue through the sale and delivery of training for personal computing ("PC") applications, technical software, business skills, and healthcare information
management.



The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in consolidation.



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



The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates and such differences could be material to the consolidated financial statements. The Company believes its estimates related to
revenue recognition and deferral, allowance for doubtful accounts, and valuation of deferred tax assets to be the most sensitive estimates impacting financial position and results of operations.



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

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Table of Contents

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

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



Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the
Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable. The Company determines the allowance based on historical write-off experience
by industry and regional economic data. The Company reviews its allowance for doubtful accounts quarterly. Past due balances over 90 days and over a specified amount are reviewed individually
for collectability. All other balances are reviewed on a pooled basis by age and type of receivable. Account balances are charged off against the allowance when the Company believes it is probable the
receivable will not be recovered. The Company does not have any off-balance-sheet credit exposure related to its customers.



Financial instruments that subject the Company to credit risk consist primarily of cash and cash equivalents and accounts receivable.
At December 31, 2008, the Company had $250 in accounts in excess of the Federal Deposit Insurance Corporation insurance coverage limit. The Company has not experienced any losses in these
accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

The
Company issues credit to a significant number of customers that are diversified over a wide geographic area. The Company monitors the payment histories of its customers and maintains
an
allowance for doubtful accounts which is reviewed for adequacy on a quarterly basis. The Company does not require collateral from its customers. For the years ended December 31, 2008, 2007 and
2006, no single customer accounted for greater than 10% of consolidated revenues or consolidated accounts receivable.



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



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

Initial
franchise fees are charged to unit and master franchisees. Unit franchisees receive the exclusive right to own and operate franchises within a certain territory. Master
franchisees receive an exclusive right to operate within a specific territory in which the master franchisee is able to award unit sub-franchises. Initial franchise fees for master and
unit franchises are recognized when all related franchise training and all material conditions or services related to the sale have been performed or

37

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Table of Contents

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

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

satisfied
by the Company. Initial fees under unit and master franchise agreements are not refundable under any circumstance.

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

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

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

The
Company's ELS facilitates training for large organizations that have locations and training needs throughout the world. The Company recognizes revenues when the Company has
substantially completed the earning process. Under this policy, the Company recognizes revenues after the billing and collection processes are completed.



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

The
Company recognizes revenue for these programs as the services are rendered based on historical attendance rates. For a new program, when historical rates are not available, revenues
are recognized on a straight line basis.

38

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Table of Contents

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

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



Training Vouchers are prepaid coupons purchased by customers for their employees to use towards various
to-be-determined training courses. Vouchers are redeemed as courses are delivered; consequently, for all vouchers sold with a 12 month redemption period, which account
for greater than 98% of all voucher sales, the Company studies the rate of redemption of these vouchers, per month. The Company then uses historical redemption rates (2 years trailing) to
recognize the revenue over the redemption period (generally the 12 months following the voucher sales).

Club
memberships are ways for companies and individuals to purchase the right to use our products for a specified period of time at a discounted rate. The Company recognized revenue for
these programs as the services are rendered based on historical attendance rates.

Technical
Certifications are programs designed towards helping students achieve their certification in certain technical programs. Technical Certifications are often sold as part of a
program of several related certifications required to achieve a certain proficiency level. For all programs sold, the Company studies the historical course delivery rates and uses those percentages to
recognize the revenue over the life of the program. The recognition of revenue for these programs does not start until the first class of the program has been delivered.

The
Company's student attendance analyses have been derived from historical experience over the past eight quarterly analyses, or two years of trailing data. Generally, the student
attendance analyses indicate a greater percentage of attendance in the earlier months and the last month of the time periods associated with training vouchers, club memberships, and technical
certification programs. Thus, a greater percentage of revenues are recognized in these time periods than if the straight-line method were applied.

The
continual revision of estimated student attendance rates results in cumulative adjustments to revenue recognized for sales transactions consummated in prior periods. Upon completion
of the historical student attendance analyses, the Company adjusted its revenue recognition rates and recorded an increase in deferred revenue and a decrease in revenue of $42, $217, and $150 in the
fourth quarters of 2008, 2007 and 2006, respectively.

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



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

39

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Table of Contents

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

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

The
estimated useful lives are as follows:

Computer equipment and software

3 to 5 yearsFurniture and fixtures

5 to 10 yearsLeasehold improvements

Useful life or term of lease, if shorter


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



Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 144"Accounting for the
Impairment or Disposal of Long-Lived Assets," ("SFAS No. 144"), the Company performs impairment tests on its long-lived assets if an event or
circumstance indicates that the carrying amount of the long-lived assets may not be recoverable. During the year ended December 31, 2006, the Company recorded long-lived
asset impairment charges related to fixed assets held for use at its Company-owned training centers totaling $391. The Company did not have impairment charges in 2008 or 2007. The fair value of each
impaired asset group was determined to be the greater of the estimated discounted cash flows of the Company-owned training center or the current sales price of like asset groups, which was based on
historical sales by the Company. See also Note 6 "Property and Equipment" to the Company's consolidated financial statements for additional discussion.



During 2007, the Company had $513 in restricted cash comprised of the following. The Company had deposited $263 with state agencies to
guarantee performance in various states in respect to providing training to consumers. In the event the Company abandoned training in a state, the state agency could have drawn against the deposits to
satisfy undelivered training obligations. In addition, the Company had deposited $250 with a bank to comply with contractual obligations. The Company has fulfilled its obligation with the bank and
replaced the restricted cash held by state agencies with surety bonds. The Company currently has no restricted cash balance as of December 31, 2008.



The Company accounts for goodwill and other intangible assets in accordance with Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). Goodwill is the excess of cost over fair value of the net assets of the
business acquired.

The
Company ceased amortizing goodwill as of January 1, 2002. Goodwill balances, attributable to the Company's franchising reporting unit, are tested for impairment annually as of
December 31 of each year and on an interim basis if events or circumstances exist which suggest that goodwill may be impaired. Factors the Company considers important, the presence of which
could trigger an impairment review, include significant underperformance relative to expected historical or projected future

40

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Table of Contents

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

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

operating
results, significant changes in the manner of use of acquired assets or the strategy for the overall business, and significant negative industry or economic trends. Both the income approach
and the market approach are utilized.

In
our analysis, we have taken into consideration the income and cash-generating capability of the Company. After considering multiple approaches to value, we have utilized
the discounted cash flow income-based methodology ("Income Approach") and the guideline public company market-based methodology ("Market Approach").

The
income approach values a business based upon the future benefits that will accrue to it, with the value of the future economic benefits discounted back to a present value at some
appropriate discount rate. The discount rate reflects all the risk of ownership and the associated risks of realizing the prospective economic income stream.

The
market approach values a business by reference to guideline companies, for which values are known. The guideline public company methodology derives valuation multiples from the
operating data and share prices of similar publicly traded companies.

On
November 26, 2008, the Company acquired substantially all the assets of TTSC pursuant to the Acquisition. The transaction was accounted for as a purchase transaction in
accordance with SFAS 141, "Business Combinations" and the Company's consolidated financial statements include the results of operations since the
date of the acquisition. As a result, the assets of TTSC were recorded at their fair value, with the excess purchase price over the fair value of the assets acquired allocated to goodwill. The
Company's goodwill increased by $457 to $11,865 at December 31, 2008. (See Note 3 "Acquisitions" in the Company's Notes to Consolidated Financial Statements for further information.)

No
impairment was recorded related to the franchising reporting unit, where all of the Company's goodwill is held, during 2008, 2007, or 2006. There can be no assurance that future
goodwill impairment tests will not result in a charge to earnings. See also Note 7 "Goodwill" to the Company's consolidated financial statements for additional discussion.



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

In
June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48 "Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement 109"

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Table of Contents

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

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

("FIN 48").
FIN 48 establishes a single model to address accounting for uncertain tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum
recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on de-recognition, measurement,
classification, interest and penalties, accounting in interim periods, disclosure, and transition.

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

The
Company is subject to U.S. federal and state income tax. The Company is no longer subject to U.S. federal and state income tax examinations for the years before 2004 and foreign
income tax examinations before 2002. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses or tax credits were generated and
carried forward, and make adjustments up to the amount of the net operating loss or credit carryforward amount. The Company is not currently under Internal Revenue Service or state or foreign tax
examinations. See also Note 8 "Income Taxes" to the Company's consolidated financial statements for additional discussion.



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

In
calculating the compensation expense related to stock options, the weighted average fair value of each employee option grant was estimated on the date of the grant using the
Black-Scholes-Merton option pricing model with the following weighted-average assumptions used for grants during fiscal years 2008 and 2007:

2008

2007

2006Expected volatility


97.9
%

99.0
%
99.0%Expected life (years)


4.4


3.0

1.0 - 3.0Risk-free interest rate


2.8
%

4.5
%
4.9%Expected dividends


None


None

None


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

42

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Table of Contents

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

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

For the year ended December 31, 2008, the Company recognized approximately $411 of share-based compensation expense. For the year ended December 31, 2007, the Company
recognized approximately $561 of share-based compensation expense. For the year ended December 31, 2006, the Company recognized approximately $86 of share-based compensation expense.

For
the year ended December 31, 2008, compensation expense consisted of $271 for vested stock options and $140 for vested restricted common stock. For the year ended
December 31, 2007, the Company recognized approximately $159 and $402, respectively, of share-based compensation expense for vested stock options and restricted common stock. For the year ended
December 31, 2006, the entire $86 of share-based compensation was for vested stock options.

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

December 31,2008

2007

2006Unrecognized compensation cost:Stock options

$
489

$
431

$
299Restricted stock

$


$
360

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


1.80


2.26


2.78Restricted stock





1.50


4.50


For
the year ended December 31, 2008, 15,000 stock options were exercised resulting in proceeds to the Company of $13.

The
Company has a net operating loss carry-forward as of December 31, 2008 and 2007, and no tax benefit is generated from the stock-based awards and therefore no tax deduction is
recognized in the Consolidated Statement of Operations for the years ended December 31, 2008 and 2007. Additionally, no incremental tax benefits were recognized from stock options exercised in
2008 or 2007 that would have resulted in a reclassification to reduce net cash provided by operating activities with an offsetting increase in net cash provided by financing activities.

The
Company provides for the grant of stock options and the award of restricted common stock to key employees and non-employee directors under its 2007 Omnibus Equity Plan.
The Company will not grant any further stock options under its 1997 Omnibus Equity Plan as the period to grant stock options under this plan expired on March 20, 2008. A summary of award
activity is described in further detail below.



On March 4, 2008, the Company's Chief Executive Officer ("CEO"), was granted stock options in the amount of 45,000 shares at an
exercise price of $1.50 per share. The stock options vest over three years and expire in ten years. Also during 2008, stock option grants totaling 275,000 shares were made

43

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Table of Contents

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

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

to
management employees with shares at an exercise price of $1.50 per share, vesting over three years and expiring in ten years.



A summary of restricted stock award activity as of December 31, 2008 and changes during the year then ended is presented as
follows:

Number of
Shares

Weighted
Average Grant
Date Fair ValueRestricted stock outstanding at January 1, 2006




$
Granted


350,000

$
0.80Vested




$
Forfeited and expired




$
Restricted stock outstanding at December 31, 2006


350,000

$
0.80Granted


340,000

$
1.54Vested


(345,000
)
$
1.17Forfeited and expired




$
Restricted stock outstanding at December 31, 2007


345,000

$
1.17Granted




$
Vested


(175,000
)
$
(0.80
)Forfeited and expired


(170,000
)
$
(1.54
)Restricted stock outstanding at December 31, 2008




$



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

2008

2007

2006Weighted average grant date fair value of options and restricted stock granted (per share)

$
1.50

$
1.44

$
0.92Intrinsic value of options exercised

$
12

$
209

$



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

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Table of Contents

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

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

The
Company recognized $262 of compensation expense in the Company's consolidated financial statements for the year ended December 31, 2007. For the year ended December 31,
2008, the Company did not reach its performance target of $7,565 in Adjusted EBITDA, therefore the remaining 170,000 shares of restricted stock did not vest and reverted back to the Company. There are
no remaining shares of restricted stock under this grant.

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

The
Company recognized $140 of compensation expense in the Company's consolidated financial statements for the year ended December 31, 2007 related to the vesting of 175,000
shares. As of December 31, 2008, the remaining 175,000 shares of the restricted stock had vested. For the year ended December 31, 2008, the Company recognized $140 of compensation
expense for the remaining 175,000 restricted shares that vested in 2008. There are no remaining shares of restricted stock under this grant.



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

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

45

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Table of Contents

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

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

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

For the Year Ended December 31,2008

2007

2006Income
(Loss)

Shares

Per
Share
Amount

Income
(Loss)

Shares

Per
Share
Amount

Income
(Loss)

Shares

Per
Share
AmountNet income (loss)

$
6,770







$
5,332







$
(2,029
)Less: Series B preferred dividends


(524
)







(524
)







(204
)

Less: Series C preferred dividends


(160
)







(80
)










Less: Series C deemed preferred dividend on beneficial conversion
feature











(1,953
)










Less: Deemed dividend from the amended warrants for Series A and Series B











(1,010
)










Basic income (loss) available to common shareholders

$
6,086


11,266

$
0.54

$
1,765


10,676

$
0.17

$
(2,233
)

10,678

$
(0.21
)Add: Preferred dividends


684








604











Add: Dilutive impact of preferred stock





9,587








6,928








Add: Impact of expired and exercised options





7








89








Add: Dilutive impact of options and warrants





2,166








975








Diluted income (loss) available to common shareholders

$
6,770


23,026

$
0.29

$
2,369


18,668

$
0.13

$
(2,233
)

10,678

$
(0.21
)


The
computation of Diluted EPS does not assume conversion, exercise, or contingent issuance of securities that may have an anti-dilutive effect on earnings per share. As a
result of the
loss available to common stockholders for the year ended December 31, 2006, the same amount of shares are used to calculate both basic and diluted loss per share. Adding the effect of the
Company's potentially dilutive common shares would be anti-dilutive. Convertible preferred stock, stock options, warrants that have not been included in the diluted income per share
computation totaled 990,500, 1,206,516, and 8,727,190 for the years ended December 31, 2008, 2007, and 2006, respectively.

46

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Table of Contents

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

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



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



The Company defers those direct and incremental costs associated with the sale of products and services for which revenue is deferred.
Direct and incremental costs associated with the sale of products and services for which revenue is deferred include commissions paid to sales persons, and technology and hosting costs associated with
the Company's e-Learning products. At December 31, 2008 and 2007, deferred costs included in the Company's consolidated balance sheets totaled $217 and $232 as Prepaid Expenses.
Deferred costs are recorded to results of operations at the same rate that the associated product revenues are recorded to earnings.



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



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

In
addition, the Company incurred advertising expense of $338, $875 and $1,767 for the years ended December 31, 2008, 2007 and 2006, respectively.



In September 2006, the FASB issued SFAS No. 157,"Fair Value Measurements"("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP, expands disclosures about fair value measurements, and how SFAS 157 applies to
other accounting pronouncements that require or permit fair value measurements. SFAS 157 does not require any new fair value measurements. However, the FASB anticipates that for some entities,
the application of SFAS 157 will change current practice. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company
adopted the provisions of SFAS 157 on

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Table of Contents

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

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

January 1,
2008. SFAS 157 has had no impact on our financial position, results of operations, and cash flows.

In
February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities"("SFAS 159"). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to
improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to
apply complex hedge accounting provisions. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The provisions of SFAS 159
became effective for the Company on January 1, 2008. The Company did not elect the fair value measurement option under SFAS 159 for any of its financial assets or liabilities and, as a
result, there was no impact on the Company's consolidated financial statements.

In
February 2008, the FASB issued Financial Staff Position ("FSP") SFAS 157-1,"Application of FASB Statement No. 157 to FASB Statement
No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13 ("FSP
157-1")",which excludes FASB Statement No. 13, "Accounting for Leases," and other
accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under Statement No. 13. However, this scope exception does not apply to assets
acquired and liabilities assumed in a business combination that are required to be measured at fair value under FASB Statement No. 141, "Business
Combination," or No. 141 (revised 2007), "Business Combinations," regardless of whether those assets and liabilities are
related to leases. FSP 157-1 will be effective upon the initial adoption of SFAS 157. The adoption of FSP 157-1 will not have an impact on our financial position,
results of operations, and cash flows.

In
February 2008, the FASB issued FSP SFAS 157-2,Effective Date of FASB Statement No. 157("FSP
157-2"), which delays the effective date of SFAS 157, for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually). SFAS 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements. FSP
157-2 partially defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the
scope of this FSP. The adoption of the delayed items of SFAS No. 157 will not have an impact on our financial position, results of operations, and cash flows.

In
April 2008, the FASB issued FSP SFAS 142-3, "Determination of the Useful Life of Intangible Assets"("FSP
142-3"). This guidance is intended to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142,Goodwill and Other
Intangible Assets("SFAS 142"), and the period of expected cash flows used to measure the fair value of the asset under SFAS 141R when the underlying arrangement
includes renewal or extension of terms that would require substantial costs or result in a material modification to the asset upon renewal or extension. Companies estimating the useful life of a
recognized intangible asset must now consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, must consider assumptions that
market participants would use about renewal or extension as adjusted for SFAS 142's

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Table of Contents

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

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

entity-specific
factors. FSP 142-3 is effective for us beginning January 1, 2009. The adoption of FSP 142-3 is not expected to have a material impact on our financial
position, results of operations, and cash flows.

In
October 2008, the FASB issued FSP SFAS 157-3,"Determining the Fair Value of a Financial Asset When The Market for That Asset Is Not
Active"("FSP 157-3"), to clarify how an entity would determine fair value in an inactive market. FSP 157-3 is effective immediately and applies to our
December 31, 2008 financial statements. The adoption of FSP 157-3 did not have an impact on our financial position, results of operations, and cash flows.

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

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

2. Change in Estimates

Revenue recognition rates utilized for certain training vouchers and technical certification programs are based on the results of student attendance analyses performed by the Company.
The Company's student attendance analyses have been derived from historical experience over the past eight quarterly analyses, or two years of trailing data. 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 and technical certification programs. Thus, a greater
percentage of revenues are recognized in these time periods than if the straight-line method were applied. The continual revision of estimated student attendance rates results in
cumulative adjustments to revenue recognized for sales transactions consummated in prior periods. Upon completion of the historical student attendance analyses, the Company adjusted its revenue
recognition rates and recorded an increase in deferred revenue and a decrease in revenue of $42, $217, and $150 in the fourth quarters of 2008, 2007 and 2006, respectively.

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.

49

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Table of Contents

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

3. Acquisitions

On November 26, 2008, the Company acquired substantially all the assets of Technology Training & Services Corporation ("TTSC") pursuant to a Business Combination Agreement
("the Acquisition"). The Acquisition was consummated to provide additional Online IT training and consulting services. The Company also purchased a perpetual license from Terillian, an affiliate of
TTSC, for the semi-exclusive use of its proprietary software. The transaction was accounted for as a purchase transaction in accordance with SFAS 141,
"Business Combinations" and the Company's consolidated financial statements include the results of operations since the date of the acquisition. As a
result, the assets of TTSC were recorded at their fair value, with the excess purchase price over the fair value of the assets acquired allocated to goodwill. The total purchase price was $1,581 of
which, $681was paid in 2008 and $900 is payable in installments by April 15, 2009. The amount payable is included in Other Current Liabilities at December 31, 2008. The Acquisition was
funded by the Company's new revolving credit facility. (See Note 5 "Debt" in the Company's Notes to Consolidated Financial Statements for further information about the Company's new revolving
credit facility.)

The
total purchase price includes a non-refundable payment of $500 related to the future annual earn-out payments commencing December 31, 2009 and ending
December 31, 2013. The payout is equal to fifty percent of the cumulative net income of the Online IT training and consulting services as determined using GAAP consistently applied, from the
acquisition date through that calendar year-end, less all earn-out payments made to TTSC previously.

The
purchase price has been allocated based on the estimated fair values of the assets acquired as follows:

Property and equipment

$
1,124Goodwill


457Total assets acquired

$
1,581


4. Allowance for Doubtful Accounts

Accounts receivable are carried net of an allowance for doubtful accounts. The allowance for doubtful accounts includes the following:

2008

2007

2006Balance, beginning of year

$
1,313

$
1,697

$
2,917Provisions


99


258


850Reduction due to sale of Company-owned training centers





(305
)

(120
)Write offs


(470
)

(337
)

(1,950
)Balance, end of year

$
942

$
1,313

$
1,697


During
2008, the Company recovered $7 of previously written off accounts receivable that was considered uncollectable.

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Table of Contents

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

5. Debt

On October 1, 2008, the Company entered into a revolving credit facility (the "Revolver") with PNC Bank ("PNC") which replaced the Company's existing secured credit facility. The
Revolver consists of a secured revolving credit facility available to the Company in an aggregate principal amount of $6,000. The purpose of the Revolver is to, among other things,
(i) terminate the existing $4,000 credit facility and (ii) support the daily operations of the Company.

The
Revolver has a current interest rate of the London Interbank Offering Rate ("LIBOR") plus 2.25% or the alternate base rate (the greater of the PNC prime rate and the federal funds
rate). The Revolver will mature and the commitments will terminate on September 30, 2011. The Company will remit monthly payments to PNC for interest only and any outstanding principal will be
due upon maturity. The obligations under the Revolver are guaranteed by the Company and certain direct and indirect domestic subsidiaries of the Company. The obligations of the Company under the
Revolver are secured by substantially all the assets of the Company.

The
Company incurred issuance costs, related to the Company entering into the Revolver, of $43. At December 31, 2008, the Company had an outstanding issuance cost balance of $40
which is shown on the consolidated balance sheet in Debt Issuance Costs. These costs are being amortized on a straight-line basis, over the term of the Revolver. As of December 31,
2008, the Company had an outstanding balance of $754 under the Revolver.

The
Revolver contains customary covenants, representations and warranties, and events of default. As of December 31, 2008, the Company was in compliance with all of the covenants.

On
July 3, 2007, the Company entered into Amendment No. 1 to its then existing $4,000 secured Credit Agreement (the "Credit Amendment"). The Credit Amendment has revised
definitions for certain terms, amends and restates certain sections, and required the Company to file preliminary proxy materials concerning a meeting of the Company's stockholders with the SEC, which
materials were filed on October 5, 2007 and which meeting was held on November 6, 2007. The Credit Amendment was fully repaid as a result of the Company entering into the Revolver with
PNC. The Company was in compliance with all of its debt covenants at the time the debt was repaid.

On
July 19, 2006, the Company entered into a $4,000 secured Credit Agreement among the Company, Camden Partners Strategic III, LLC ("Camden LLC"), as administrative
agent, Camden Partners Strategic Fund III, L.P. ("Camden III"), Camden Partners Strategic Fund III-A, L.P.
("Camden III-A", with Camden LLC and Camden III, "Camden"), George S. Rich and Alkhaleej Training and Education Corporation ("Alkhaleej"), (collectively, "the Lenders").

The
Credit Agreement provided for a secured $4,000 term loan, comprised of a single advance from each of the Lenders, which was to mature on July 19, 2009 (the "Financing"). Under
the terms of the Credit Amendment, interest was paid quarterly at the annual rate of 10% per year. See Note 14 "Stockholders' Equity" for additional discussion.

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Table of Contents

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

6. Property and Equipment

Property and equipment are comprised of the following:

2008

2007Computer equipment and software

$
9,031

$
5,957Furniture and fixtures


230


117Leasehold improvements


198


7969,459


6,870Less: accumulated depreciation and amortization


(4,586
)

(4,239
)Total

$
4,873

$
2,631


The
Company did not have an impairment charge in 2008 or 2007. During 2006, the Company recorded a impairment charge of $391 against fixed assets at the Company-owned training centers.
The non-cash impairment charge is the result of continued operating and cash flow losses arising from the respective training centers and a decrease in the estimated fair value of each
Company-owned training center. The estimated fair value of each Company-owned training center was determined based on the greater of the estimated discounted cash flows of the Company-owned training
centers or recent sales of comparable locations within the Company's franchise network.

Depreciation
expense was $915, $615 and $1,726 for the years ended December 31, 2008, 2007 and 2006, respectively.

7. Goodwill

The Company accounts for goodwill and other intangible assets in accordance with SFAS 142. Goodwill is the excess of cost over fair value of the net assets of the business
acquired. Intangible assets consist of reacquired franchise rights and software licenses, which are deemed to have an indefinite useful life and are not amortized.

The
Company ceased amortizing goodwill as of January 1, 2002. Goodwill balances, when attributable to the Company's franchising reporting unit, are tested for impairment annually
as of December 31 of each year and on an interim basis if events or circumstances exist which suggest that goodwill may be impaired. Factors the Company considers important, the presence of
which could trigger an impairment review, include significant underperformance relative to expected historical or projected future operating results, significant changes in the manner of use of
acquired assets or the strategy for the overall business, and significant negative industry or economic trends. Both the income approach and the market approach are utilized.

In
our analysis, we have taken into consideration the income and cash-generating capability of the Company. After considering multiple approaches to value, we have utilized
the discounted cash flow income-based methodology ("Income Approach") and the guideline public company market-based methodology ("Market Approach").

The
income approach values a business based upon the future benefits that will accrue to it, with the value of the future economic benefits discounted back to a present value at some
appropriate

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Table of Contents

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

7. Goodwill (Continued)

discount
rate. The discount rate reflects all the risk of ownership and the associated risks of realizing the prospective economic income stream.

The
market approach values a business by reference to guideline companies, for which values are known. The guideline public company methodology derives valuation multiples from the
operating data and share prices of similar publicly traded companies.

On
November 26, 2008, the Company acquired substantially all the assets of TTSC pursuant to the Acquisition. The transaction was accounted for as a purchase transaction in
accordance with SFAS 141, "Business Combinations" and the Company's consolidated financial statements include the results of operations since the
date of the acquisition. As a result, the assets of TTSC were recorded at their fair value, with the excess purchase price over the fair value of the assets acquired allocated to goodwill. The
Company's goodwill increased by $457 to $11,865 at December 31, 2008. (See Note 3 "Acquisitions" in the Company's Notes to Consolidated Financial Statements for further information.)

No
impairment was recorded related to the franchising reporting unit, where all of the Company's goodwill is held, during 2008, 2007, or 2006. There can be no assurance that future
goodwill impairment tests will not result in a charge to earnings.

8. Income Taxes

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

2008

2007

2006Computed "expected" tax (benefit) expense

$
1,872

$
2,152

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


248


285


109Foreign taxes


369


528


522Federal NOLs in excess of annual limitation


(5
)




Valuation allowance for deferred tax assets


(4,572
)

(1,946
)

629Other


825


78


102Income tax (benefit) expense from continuing operations

$
(1,263
)
$
1,097

$
1,019Effective rates


(22.93
)%

18.69
%

(100.91
)%


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Table of Contents

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

8. Income Taxes (Continued)



2008

2007

2006Income tax expense consists of:Federal:Deferred

$
(1,971
)
$


$
Current








State and localDeferred








Current


150


382


228Foreign


558


715


791Income tax (benefit) expense from continuing operations

$
(1,263
)
$
1,097

$
1,019


The
tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2008 and 2007, are presented below:

2008

2007Deferred tax assets:Accounts receivable, principally due to allowance for doubtful accounts

$


$
634Accrued expenses


920


767Property and equipment, principally due to differences in depreciation





12Net operating loss carryforward


12,375


11,388Deferred rent


253


284Goodwill


7,411


9,831Other


229


42221,188


23,338Deferred tax liabilities:Prepaid expenses


(36
)

(5
)Accounts receivable, principally due to allowance for doubtful accounts


(209
)

Property, plant & equipment, principally due to differences in depreciation


(212
)

Valuation allowance


(18,760
)

(23,333
)Net deferred income taxes

$
1,971

$



In
the recovery analysis for December 31, 2008, there is significant positive evidence of future taxable income for the year ending December 31, 2009. As a result, due to
the presence of significant positive evidence, the Company concluded that less than a full valuation allowance is required as of December 31, 2008. Consequently, the valuation allowance was
reduced by approximately, $4,572 to offset taxes on 2008 net income, and provide for expected taxes on 2009 net income.

As
of December 31, 2008, the Company had federal and state NOL carryforwards of approximately $27,435 and $68,448, respectively, which will begin to expire in 2023 and 2008
respectively, unless utilized. As a result of the adoption of SFAS 123R, the Company will recognize excess tax benefits associated with the exercise of stock options as an increase to
stockholder's equity only when realized. Accordingly, deferred tax assets are not recognized for net operating loss

54

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Table of Contents

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

8. Income Taxes (Continued)

carryforwards
resulting from excess tax benefits. As of December 31, 2008, deferred tax assets do not include $180 of excess tax benefits from employee stock option exercises that are a
component of the Company's NOL carryforwards. Pursuant to Section 382 and 383 of the Code, annual use of the Company's NOL carryforwards may be limited in the event of a cumulative change in
ownership of more than 50% within a three-year period.

Utilization
of NOL carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as
required by Section 382 of the Code, as well as similar state and foreign provisions. These ownership changes may limit the amount of NOL carryforwards that can be utilized annually to offset
future taxable income and tax, respectively. In general, an "ownership change" as defined by Section 382 of the Code results from a transaction or series of transactions over a
three-year period resulting in an ownership change of more than 50 percentage points of the market value of a company by certain stockholders or public groups. On July 19,
2006, a change in control occurred as defined by IRS section 382 due to the issuance of preferred stock.

Consequently,
the Company's utilization of the NOL carryforwards are subject to an annual limitation of $664 under Section 382 of the Code, which is determined by first
multiplying the value of the Company's stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional
adjustments, as required. Due to the existence of substantial valuation allowance, future changes in the Company's unrecognized tax benefits are not expected to significantly impact its effective tax
rate. Any carryforwards that will expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a corresponding reduction of the valuation allowance.

The
Company regularly analyzes the future recovery of its deferred tax assets based on its best estimates of future taxable income. In the recovery analysis for December 31, 2007,
a decline in the Company's business since 2001 combined with decreasing revenues and recent cumulative losses are provided greater weight than estimated future profitability. As a result, due to the
absence of
significant positive evidence indicating that future taxable income is imminent, the Company concluded that a full valuation allowance was required as of December 31, 2007.

The
Company adopted the provisions of FIN No. 48 on January 1, 2007. As of the date of the adoption, there were no unrecognized tax benefits. The adoption of FIN
No. 48 did not result in any unrecognized tax benefits. During the year ended December 31, 2008, there were no changes to the Company's uncertain tax benefits. The Company will recognize
interest and penalties related to unrecognized tax benefits as a component of income tax expense.

The
Company is subject to U.S. federal and state income tax. The Company is no longer subject to U.S. federal and state income tax examinations for the years before 2004 and foreign
income tax examinations before 2002. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses or tax credits were generated and
carried forward, and make adjustments up to the amount of the net operating loss or credit carryforward amount. The Company is not currently under Internal Revenue Service or state tax examinations.

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Table of Contents

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

9. Prepaid Expenses

Prepaid expenses are comprised of the following:

2008

2007Deferred costs

$
217

$
232Prepaid expenses


623


231Prepaid rent


161


187Total

$
1,001

$
650


10. Other Assets

Other assets are comprised of the following:

2008

2007Notes receivable from franchisees, net of allowance

$
124

$
81Security deposits


252


691Other





182376


954Less: Current portion of notes receivable


(124
)

(81
)Total other assetslong term

$
252

$
873


Notes
receivable from franchisees is shown net of an allowance for loan losses of $39 and $240 as of December 31, 2008 and 2007, respectively.

11. Related Party Transactions

A note receivable from an officer, dated August 31, 1999, totaling $300 related to a non-interest bearing term loan, was due and payable on August 31, 2007. The
note was issued in connection with such officer's relocation expenses. Per the agreement dated February 7, 2006 between the Company and the officer, the note balance of $300 was forgiven
effective July 31, 2006.

In
addition to Board of Director fees, affiliates of Alwaleed Aldryann, David Warnock, and Donald Hughes were lenders on the $4,000 secured Credit Agreement and were paid $228 and $272
in interest payments in 2008 and 2007, respectively. Alwaleed Aldryann is also an international master franchise owner that paid to the Company $1,447 and $1,572 in royalty revenues in 2008 and 2007,
respectively.

The
Company outsources its annual tax compliance work to an accounting firm, in which one of the principals is related to the Company's Chief Financial Officer. Fees for services
totaling $159 were paid to this accounting firm for tax services rendered for the year ended December 31, 2008.

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Table of Contents

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

12. Other Current Liabilities

Other current liabilities are comprised of the following:

2008

2007Accounts payable to franchisees

$
1,378

$
1,766Salaries, wages and commissions payable


3,203


2,993Undelivered futures liability


297


836Accrued operating expenses and other liabilities


2,962


2,821Total

$
7,840

$
8,416


13. Employee Savings Plan

The Company established the New Horizons Worldwide, Inc. 401(k) Retirement Savings Plan (the "Plan") on January 1, 1995. All full-time employees of the Company
are eligible to participate in the Plan beginning with the first month of the next quarterly period after their hire date. While the Plan provides for a discretionary match of employee contributions,
the Company did not match such contributions in 2008, 2007, or 2006.

14. Shareholders' Equity

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

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



The Series C Warrants to purchase an aggregate of 1,066,667 shares of the Company's common stock (the "Series C Warrant
Shares") entitle the holder to exercise the warrants from and after July 3, 2007, until July 3, 2012, at an exercise price of $0.75 per common share. The exercise price is subject to

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Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

14. Shareholders' Equity (Continued)

adjustment
under certain circumstances as specified in the terms of the Series C Warrants. The Series C Warrants are not exercisable and are subject to cancellation in whole or in part
commencing January 1, 2010 and ending three months prior to their expiration if the market value of the common stock for which such warrants are exercisable exceeds certain amounts as specified
in terms of the Series C Warrants.

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



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



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



On July 2, 2007, the Company filed a Certificate of Designation, Preferences and Rights of Series C Convertible Preferred
Stock (the "Series C Certificate of Designation"), pursuant to which the Series C Shares are entitled to receive cumulative quarterly dividends at a rate of 4% per annum on the last day
of March, June, September and December of each year, if declared by the Board of Directors. Upon any liquidation, dissolution, or winding up of the Company, either voluntary or involuntary, the
Series C Shares are entitled to a liquidation preference in an amount per share equal to $23.25 per share, plus any cumulative but unpaid dividends. The Series C Shares are convertible
at any time and from time to time after the Certificate Amendment shall have become effective, at the

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NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

14. Shareholders' Equity (Continued)

option
of each holder of Series C Shares, into fully paid and non-assessable common stock. Initially, the conversion rate is 31 shares of common stock for one Series C Share,
subject to adjustment in certain events. Until the holders of Series C Shares own less than 50% of the Series C Shares originally issued, the Company cannot take certain actions without
obtaining the approval of the holders of a majority of the outstanding Series C Shares, including the issuance, creation, designation, or authorization of any securities having rights or
preferences senior to or on parity with the Series C Shares, incur indebtedness in excess of $5,000, effect any single capital expenditure equal to or in excess of $2,500, or enter into an
acquisition or joint venture for which the consideration is equal to or in excess of $2,500.



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



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

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

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

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NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

14. Shareholders' Equity (Continued)



The Company has not declared or paid any cash dividends on its common stock or on its Series B Shares and Series C
Shares. At December 31, 2008, cumulative, undeclared and unaccrued dividends on the Series B Shares and Series C Shares totaled $1,287 and $240, respectively.



Concurrent with the execution of the $4,000 secured Credit Agreement, the Company converted all outstanding Preferred Series A
Stock ("Series A Shares") and accrued dividends and interest into 174,693 shares of Preferred Series B Stock ("Series B Shares"). On October 1, 2008, the $4,000 secured
Credit Amendment was fully repaid as a result of the Company entering into the Revolver with PNC. The Company was in compliance with all of its debt covenants at the time the debt was redeemed. See
Note 5 "Debt" to the Company's consolidated financial statements for additional discussion.

In
connection with the Financing discussed in Note 5, "Debt", the Company entered into an Amended and Restated Stockholders' Agreement with Camden, Alkhaleej, and the holders of
Warrants (the "Warrant Holders"), dated as of July 19, 2006 (the "Amended Stockholders' Agreement"). The Amended Stockholders' Agreement amended and restated the Stockholders' Agreement, dated
as of February 7, 2005. Pursuant to the Amended Stockholders' Agreement and the Certificate of Designation (as defined below), the Series B Stockholders are entitled to elect three
directors to the Board of Directors (the "Series B Preferred Directors"). In addition, holders of the Preferred Series C Shares are entitled to vote with the Common Stock as a single
class at shareholder's meetings, on an as-converted basis. Pursuant to the Amended Stockholders' Agreement, for so long as the Series B Stockholders are entitled to elect
Series B Preferred Directors, the Company, each Series B Stockholder, and each Warrant Holder are required to take certain actions, including, without limitation, to establish the size
of the Board at nine directors, to elect the Series B Preferred Directors, with such directors initially being Donald W. Hughes, David L. Warnock and Alwaleed Aldryann, and, within eighteen
(18) months of the date of the Amended Stockholders' Agreement, to elect an independent director to replace an incumbent director. Additionally, Camden is required to vote all of its shares in
favor of the Common Directors proposed by the Board of Directors' Governance Committee. Under the terms of the Amended Stockholders' Agreement, for as long as the loan is outstanding or Alkhaleej
beneficially holds not less than seventy-five percent (75%) of the Series A Warrants issued, or the Common Stock issued pursuant to the Warrants, the Company, the holders of
Series B Shares and Alkhaleej shall take all steps necessary to retain Mr. Aldryann as a Director. The Amended Stockholders' Agreement also provides that so long as Camden holds at least
25% of the Series B Shares, it will have board observation rights. Under the terms of the Amended Stockholders' Agreement, the Series B Stockholders may transfer Series B shares
subject to a right of first refusal by the Company. Under the terms of the Amended Stockholders' Agreement, the Company granted preemptive rights with respect to future issuances of equity securities
by the Company to each holder of at least 10,000 Series B Shares and each Warrant Holder, subject to customary exceptions.

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NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

14. Shareholders' Equity (Continued)



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



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



Subsequent to filing the Certificate of Decrease, on July 10, 2006, the Company filed a Certificate of Designation, Preferences
and Rights of Series B Convertible Preferred Stock (the "Certificate of Designation"), pursuant to which the Series B Shares are entitled to receive cumulative quarterly dividends at an
initial rate of 8% per annum when, as and if declared by the Company's Board of Directors. On the fourth anniversary of the date of issuance, the dividend rate will increase to 12% per annum. Upon any
liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the Series B Shares are entitled to a liquidation preference in an amount equal to $37.50 per share, plus
any accrued but unpaid dividends. At December 31, 2008, cumulative, undeclared and unaccrued dividends equaled approximately $1,287. A Change of Control (as defined in the Certificate of
Designation) will be considered a liquidation event, unless a majority of the outstanding Series B Shares elect otherwise. The Series B Shares are convertible at any time, at the option
of each holder of

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Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

14. Shareholders' Equity (Continued)

Preferred
Series B Shares, into fully paid and non-assessable shares of Common Stock, initially at the conversion rate is 20.8333 shares of Common Stock for one Series B
Share. The current conversion rate is 24.3506 shares of Common Stock for one Series B Share. The conversion price of the Series B Shares is subject to adjustment in the event of a
consolidation, merger subdivision or combination of shares or the issuance of stock dividends, in the event that the Company issues additional shares of Common Stock at a price per share which is less
than the conversion price, or in the event that the Company issues warrants, options or other stock purchase rights for which the purchase price for the Common Stock is less than the conversion price.
The Company has concluded that the embedded conversion feature in the Series B Shares does not qualify for bifurcation as it meets the scope exception of paragraph 11 as of SFAS
No. 133, "Derivatives and Hedging Activities." The conversion feature is indexed to the Company's own common stock and meets the criteria of
EITF 00-19- Issue No. 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock." At any time after February 7, 2007, the Company may convert all the Series B Shares into shares of Common Stock at the
then-applicable conversion price; provided that the Common Stock meets certain requirements with respect to trading volume and price on the market or exchange on which the Common Stock is
trading, or if none, by a nationally recognized quotation reporting service, and there is then in effect a registration statement permitting the resale of the Common Stock received upon conversion of
the Series B Shares. At any time after February 7, 2009, the Company may convert fifty percent (50%) of the Series B Shares into shares of Common Stock at the
then-applicable conversion price; provided that the Common Stock meets a certain requirement with respect to its trading price on the market or exchange on which the Common Stock is
trading, or if none, by a nationally recognized quotation reporting service, and there is then in effect a registration statement permitting the resale of the Common Stock received upon conversion of
the Series B Shares. The Company may convert all Preferred Series B Shares not previously converted any time after February 7, 2011; provided that the Common Stock meets a certain
trading price requirement on the market or exchange on which the Common Stock is trading, or if none, by a nationally recognized quotation reporting service and there is then in effect a registration
statement permitting the resale of the Common Stock received upon conversion of the Series B Shares. At any time after the
sixth anniversary of the date that Series B Shares are first issued, the Company may redeem the Series B Shares, in whole or in part, at a redemption price equal to 2.25 times the
original issue price of the Series B Shares, $37.50, plus an amount equal to the accrued but unpaid dividends thereon. Until the holders of Series B Shares own less than 50% of the
Series B Shares originally issued, the Company cannot take certain actions without obtaining the approval of the holders of a majority of the outstanding Series B Shares, including the
issuance, creation, designation, or authorization of any new equity securities having rights or preferences senior to or on parity with the Series B Shares, incur indebtedness in excess of
$5,000, effect a single capital expenditure in excess of $2,500, or enter into an acquisition or joint venture for which the consideration is in excess of $2,500. As long as at least fifty percent
(50%) of the Series B Shares issued upon the closing of the Exchange Agreement remain outstanding, the holders thereof shall be entitled to elect, at a meeting of such stockholders, three
Series B Directors, who will not serve a classified term with the directors elected by the holders of Common Stock together with the holders of any other class or series of capital stock
entitled to vote thereon. In addition, holders of the Preferred Series B Shares are entitled to vote with the Common Stock as a single class at stockholders' meetings, on an
as-converted basis. The rights of the Series A

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Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

14. Shareholders' Equity (Continued)

Shares
have been eliminated and replaced by the rights granted under the Series B Shares. The rights of the Common Stock have been materially limited by the issuance of the Series B
Shares. The general effect of the issuance of the Series B Shares upon the rights of the holders of the Common Stock is more fully described in the Certificate of Designation, as described
above.



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



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

A
summary of restricted stock award activity as of December 31, 2008 and changes during the twelve months then ended is presented as follows:

Number of
Shares

Weighted
Average Grant
Date Fair ValueRestricted stock outstanding at January 1, 2006




$
Granted


350,000

$
0.80Vested




$
Forfeited and expired




$
Restricted stock outstanding at December 31, 2006


350,000

$
0.80Granted


340,000

$
1.54Vested


(345,000
)
$
1.17Forfeited and expired




$
Restricted stock outstanding at December 31, 2007


345,000

$
1.17Granted




$
Vested


(175,000
)
$
(0.80
)Forfeited and expired


(170,000
)
$
(1.54
)Restricted stock outstanding at December 31, 2008




$



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NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

14. Shareholders' Equity (Continued)

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

The
Company recognized $262 of compensation expense in the Company's consolidated financial statements for the year ended December 31, 2007. For the year ended December 31,
2008, the Company did not reach its performance target of $7,565 in Adjusted EBITDA, therefore the remaining 170,000 shares of restricted stock did not vest and reverted back to the Company. There are
no remaining shares of restricted stock under this grant.

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

The
Company recognized $140 of compensation expense in the Company's consolidated financial statements for the year ended December 31, 2007 related to the vesting of 175,000
shares. As of December 31, 2008, the remaining 175,000 shares of the restricted stock had vested. For the year ended December 31, 2008, the Company recognized $140 of compensation
expense for the remaining 175,000 restricted shares that vested in 2008. There are no remaining shares of restricted stock under this grant.

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

2008

2007

2006Weighted average grant date fair value of options and restricted stock granted (per share)

$
1.50

$
1.44

$
0.92Intrinsic value of options exercised

$
12

$
209

$



In
October 2007, the Company issued Edusoft, Ltd. ("Edusoft") 37,500 restricted shares of the Company's common stock as part of a settlement agreement. Edusoft shall not sell or
transfer these restricted shares for a period of three years and during this time Edusoft shall vote the shares in favor of all matters supported by the Company's management which are brought before a
vote of

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NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

14. Shareholders' Equity (Continued)

stockholders.
See also Note 15 "Commitments and Contingencies" to the Company's consolidated financial statements.

On
November 6, 2007, the Company approved the 2007 Omnibus Equity Plan ("2007 Plan"), which provides for the issuance of non-qualified options, incentive stock
options, and stock appreciation rights. The 2007 Plan provides for the granting of options to purchase up to 2,000,000 shares of common stock. Incentive stock options are exercisable for up to ten
years, at an option price of not less than the fair market value on the date the option is granted, or at a price of not less than 110% of the fair market price in the case of an option granted to an
individual who, at the time of grant, owns more than 10% of the Company's common stock. Non-qualified stock options may be issued at such exercise price and on such other terms and
conditions as the Compensation Committee of the Board of Directors may determine. Optionees may also be granted stock appreciation rights under which they may, in lieu of exercising an option, elect
to receive cash or common stock, or a combination thereof, equal to the excess of the fair market value of the common stock over the option price at the date of exercise. All options were granted at
the average of the
Company's opening and closing price of its common stock as of the date of grant. As of December 31, 2008, options to purchase 320,000 shares have been issued under this plan.

The
Company also maintains a 1997 Omnibus Equity Plan ("1997 Plan"), which provides for the issuance of non-qualified options, incentive stock options, and stock appreciation
rights. The 1997 Plan provides for the granting of options to purchase up to 2,250,000 shares of common stock. Incentive stock options are exercisable for up to ten years, at an option price of not
less than the fair market value on the date the option is granted, or at a price of not less than 110% of the fair market price in the case of an option granted to an individual who, at the time of
grant, owns more than 10% of the Company's common stock. Non-qualified stock options may be issued at such exercise price and on such other terms and conditions as the Compensation
Committee of the Board of Directors may determine. Optionees may also be granted stock appreciation rights under which they may, in lieu of exercising an option, elect to receive cash or common stock,
or a combination thereof, equal to the excess of the fair market value of the common stock over the option price at the date of exercise. All options were granted at the average of the Company's
opening and closing price of its common stock as of the date of grant. As of December 31, 2007, there were 666,834 shares of common stock under the 1997 Plan available for future grant. The
1997 Plan expired on March 20, 2008 and no further shares will be granted under this plan.

Independent
directors of the Company hold options to acquire a total of 77,500 shares of common stock all of which were issued prior to 2006. Options were not issued to directors during
2008 or 2007. The exercise price under all such options was equal to the average of the Company's opening and closing price of its common stock as of the date of grant.

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NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

14. Shareholders' Equity (Continued)

Changes
in shares and disclosures required under SFAS 123R, under both the 2007 Plan and the 1997 Plan and other arrangements, for the year ended December 31, 2008, 2007
and 2006 are summarized as follows:

Shares

Weighted
Average
Price

Weighted
Average
Contractual
Period
(Yrs)

Aggregate
Intrinsic
Value
($ in thousands)Options outstanding at January 1, 2006


1,569,266

$
6.85(1,569,266 shares exercisable)Granted


1,151,000

$
0.98Exercised




$
Forfeited and expired


(649,175
)
$
6.25Options outstanding at December 31, 2006


2,071,091

$
3.77(1,080,091 shares exercisable)Granted


340,000

$
1.38Exercised


(242,666
)
$
0.72Forfeited and expired


(827,925
)
$
6.54Options outstanding at December 31, 2007


1,340,500

$
2.01(523,170 shares exercisable)Granted


320,000

$
1.50Exercised


(15,001
)
$
0.81Forfeited and expired


(124,665
)
$
4.58Options outstanding at December 31, 2008


1,520,834

$
1.71


7.58

$
23Vested and expected to vest


1,410,198

$
1.73


7.49

$
23Exercisable at December 31, 2008


768,005

$
2.05


6.67

$
19


The
aggregate intrinsic value in the table above represents the difference between the Company's closing stock price on the last trading day of the year
(December 31, 2008) and the exercise price, multiplied by the number of in-the-money options outstanding, whether vested or not vested.

The
total fair value of stock options granted was $326, $301 and $379 during the years ended December 31, 2008, 2007 and 2006, respectively. At December 31, 2008,
unrecognized compensation cost related to stock options outstanding as of December 31, 2008 was $489, which is expected to be recognized over a weighted average remaining vesting period of
approximately 2 years. At December 31, 2007, unrecognized compensation cost related to stock options outstanding as of December 31, 2007 was $447, which is expected to be
recognized over a weighted average remaining vesting period of approximately 2 years.

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NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

14. Shareholders' Equity (Continued)

Outstanding
stock options at December 31, 2008 under both the 2007 Plan and the 1997 Plan consist of the following:

Options Outstanding

Options ExercisableRange of Exercise Prices

Shares

Weighted
Average
Remaining
Life (Years)

Weighted
Average
Price

Shares

Weighted
Average
Price$0.67 - $0.80


255,334


7.37

$
0.76


167,667

$
0.74$0.81 - $1.10


275,000


8.10

$
1.08


150,003

$
1.09$1.11 - $1.53


795,500


8.47

$
1.51


255,335

$
1.51$1.54 - $10.92


182,000


3.76

$
4.15


182,000

$
4.15$10.93 - $12.06


13,000


0.08

$
11.36


13,000

$
11.36$0.67 - $12.06


1,520,834


7.58





768,005

$
2.05


As
of December 31, 2007, there were 666,834 shares of common stock under the 1997 Plan available for future grant. The 1997 Plan expired on March 20, 2008 and no further
shares will be granted under this plan.

On
November 6, 2007, the Board of Directors approved the 2007 Plan that made 2,000,000 shares of common stock available for future grants. As of December 31, 2008, options
to purchase 320,000 shares have been issued under this plan.

During
2007, the Company issued to its Board of Directors 74,750 shares of the Company's common stock in lieu of payment for Board of Director fees.



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



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

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Table of Contents

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

14. Shareholders' Equity (Continued)

Warrants
were amended and restated to reduce the exercise price per common share to $0.90 and to issue additional warrants.



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

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

15. Commitments and Contingencies



The Company leases its offices, training facilities and certain equipment under operating lease obligations. Operating leases expire on
various dates through 2016.

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

2009

$
3,0362010


3,0822011


2,0992012


6852013


6062014 and thereafter


1,132Total

$
10,640


Rent
expense was $1,989, $3,701, and $7,381 for the years ended 2008, 2007, and 2006, respectively.

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Table of Contents

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

15. Commitments and Contingencies (Continued)

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

2009

$
1,1612010


1,1742011


8632012


2013


2014 and thereafter


Total

$
3,198




On October 16, 2007, the Company executed a settlement and mutual release agreement with Edusoft. This settlement agreement
provides for the termination of the licensing agreement between the Company and Edusoft under which the Company had the right to use certain proprietary educational materials related to Edusoft's
English Language teaching program. Pursuant to the terms of this agreement, all but three of the Company's franchises will discontinue using these Edusoft teaching programs. The Company will pay
Edusoft a total of $375 and issue Edusoft 37,500 restricted shares of the Company's common stock. The Company has a balance of $125 payable to Edusoft as of December 31, 2008. Edusoft may not
sell or transfer these restricted shares for a period of three years and during this time. Edusoft is obligated to vote the shares in favor of all matters supported by the Company's management which
are brought before a vote of stockholders.

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



The Company has made guarantees and indemnities, under which it may be required to make payments to a guaranteed or indemnified party.
The Company had deposited $263 with state agencies to guarantee performance in various states in respect to providing training to consumers. In the event the Company abandoned training in a state, the
state agency could have drawn against the deposits to satisfy undelivered training obligations. In addition, the Company had deposited $250 with a bank to comply with contractual obligations. The
Company has fulfilled its obligations with the states and the bank and currently has no restricted cash balance as of December 31, 2008. The Company has agreed to indemnify its franchisees
against any trademark infringement claims that may arise out of their use of the New Horizons' trademark. The Company has also agreed to indemnify its directors and officers to the maximum extent
permitted under the laws of the State of Delaware. The Company has not recorded any liability for these guarantees and indemnities in the accompanying consolidated balance sheets.

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Table of Contents

NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

15. Commitments and Contingencies (Continued)



As a result of assigning our interest in obligations under real estate leases as a condition to the refranchising of certain
Company-owned locations, we are contingently liable on lease agreements. These leases have varying terms, the latest of which expires in 2015. As of December 31, 2008, the potential amount of
undiscounted payments we could be required to make in the event of non-payment by the primary lessees was approximately $10,960. The present value of these potential payments discounted at
the Company's borrowing rate at December 31, 2008 was approximately $9,951. Our franchisees are the primary lessees under these leases.



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

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

During 2007, the Company sold and re-franchised four of its Company-owned training centers in Chicago, Cleveland, Anaheim and New York pursuant to asset sale agreements
pursuant to which the buyers assumed net liabilities of $2,541. In addition, the buyers paid $300 of franchise fees and prepaid $850 of royalties to be earned over the term of the franchise
agreements. The Company determined that the sale of these centers did not meet all necessary criteria to be classified as discontinued operations within the Company's consolidated financial statements
at any time during the twelve months ended December 31, 2007. In addition, due to significant continuing involvement between the Company and these re-franchised centers, the Company
deferred $1,269 of the gross gain on the sale of these centers. The deferred gain at the date of sale consisted of a discount to the buyer on royalty revenue over a defined term in each respective
agreement. Subsequent to the sales, a portion of the deferred royalty revenue related to these four sales and sales made in prior years was earned and recognized $979 through December 31, 2007
and $278 for the year ended December 31, 2008.

During
2006, the Company sold and re-franchised its wholly owned Company-owned training centers in San Antonio, Charlotte, Memphis, Nashville, Atlanta, Hartford and
Albuquerque pursuant to asset sale agreements for $1,650 in cash and notes plus assumption of liabilities of $2,439. The unsecured notes receivable totaled $203, bear interest at rates of 6% to 8% per
annum and have

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NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

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

maturity
dates over the next 12 to 24 months. The Company also disposed of fixed assets as a result of a relocation of its corporate facilities. The Company determined that the sale of these
centers did not meet all necessary criteria to be classified as discontinued operations within the Company's consolidated financial statements at any time during the year ended December 31,
2006. Due to significant continuing involvement between the Company and these re-franchised centers, the Company deferred a portion of the gross gain on the sale of these centers of
$1,374. The sale of fixed assets related to the Company's relocation of its corporate offices resulted in a net loss of approximately $195.

17. Other Income/Loss

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

18. Segment Reporting

In accordance with SFAS 131, "Disclosures about Segments of an Enterprise and Related Information", the Company's business units
have been segregated into two reportable segments, franchising and Company-owned locations. The two segments are managed separately due to differences in their sources of revenues and services
offered. At December 31, 2008 and 2007, the Company-owned locations segment operated wholly-owned computer training centers in two metropolitan areas (six metropolitan areas at
December 31, 2006) within the continental United States and generates revenue through the sale and delivery of training for PC applications and technical software training courses and business
skills courses. The franchising segment earns revenue through the sale of New Horizons master and unit franchises within the continental United States and internationally, on-going
royalties received in return for providing franchises with systems of instruction, sales and management concepts concerning computer training and the sale of courseware materials and
e-learning products.

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

For
the year ended and at December 31, 2008:

Franchising

Company-owned
training centers

ConsolidatedTotal revenuesdomestic

$
16,987

$
12,488

$
29,475Total revenuesinternational


7,762





7,762Depreciation


738


177


915Interest expense


(501
)

(16
)

(517
)Investment income


59


10


69Income before provision for income taxes


3,839


1,668


5,507Benefit for income taxes


880


383


1,263Net income

$
4,719

$
2,051

$
6,770Amortization of debt issuance costs

$
169

$


$
169Goodwill

$
11,865

$


$
11,865Total assets

$
23,999

$
2,732

$
26,731


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NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

18. Segment Reporting (Continued)

For
the year ended and at December 31, 2007:

Franchising

Company-owned
training centers

ConsolidatedTotal revenuesdomestic

$
17,298

$
27,604

$
44,902Total revenuesinternational


6,735





6,735Depreciation and amortization


392


223


615Interest expense


(411
)

(193
)

(604
)Investment income


126


3


129Income before provision for income taxes


2,859


3,570


6,429Provision for income taxes


(891
)

(206
)

(1,097
)Net income

$
1,968

$
3,364

$
5,332Goodwill

$
11,408

$


$
11,408Total assets

$
22,551

$
2,725

$
25,276


For
the year ended and at December 31, 2006:

Franchising

Company-owned
training centers

ConsolidatedTotal revenuesdomestic

$
22,016

$
48,717

$
70,733Total revenuesinternational


5,947





5,947Depreciation and amortization


1,209


517


1,726Fixed asset impairment


391





391Interest expense


(197
)

(107
)

(304
)Investment income


283


10


293Income (loss) before provision for income taxes


5,356


(6,366
)

(1,010
)Provision for income taxes


(846
)

(173
)

(1,019
)Net income (loss)

$
4,510

$
(6,539
)
$
(2,029
)Goodwill

$
11,408

$


$
11,408Total assets

$
19,280

$
8,330

$
27,610


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NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, 2007 and 2006

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

19. Quarterly Financial Data (Unaudited)

Summarized quarterly financial data for the fiscal years ended December 31, 2008 and 2007 are as follows:

First Quarter

Second Quarter

Third Quarter

Fourth QuarterYear ended December 31, 2008Revenues

$
9,409

$
9,909

$
9,190

$
8,729Gross profit


5,682


6,219


5,951


5,380Operating income


1,503


1,484


1,594


1,385(Provision)/benefit for income taxes


(59
)

(261
)

(175
)

1,758Net income attributable to common shareholdersbasic

$
1,190

$
951

$
1,078

$
2,867Basic earnings per share attributable to common shareholders

$
0.11

$
0.08

$
0.10

$
0.25Diluted earnings per share attributable to common shareholders

$
0.06

$
0.05

$
0.05

$
0.14Year ended December 31, 2007Revenues

$
14,838

$
13,309

$
11,901

$
11,589Gross profit


7,439


7,078


6,641


6,364Operating income


977


1,354


1,620


272Gain (loss) on sale of Company-owned training centers


555


585


(180
)

1,721Provision for income taxes


(180
)

(293
)

(664
)

40Net income (loss) attributable to common shareholdersbasic

$
1,086

$
1,497

$
(2,482
)
$
1,794Basic earnings (loss) per share attributable to common shareholders

$
0.12

$
0.14

$
(0.23
)
$
0.16Diluted earnings (loss) per share attributable to common shareholders

$
0.11

$
0.14

$
(0.23
)
$
0.08


During
the fourth quarter of 2007, the Company sold and re-franchised its Company-owned training center in New York for a gain of $1,521. See Note 16 "Gain/Loss on
Sale of Company-
owned Training Centers for additional discussion See Note 6 "Property and Equipment" for additional discussion.

20. Subsequent Event

On February 1, 2009, the Company acquired substantially all of the assets of Computer Education International, Inc. ("CEI"), the independently owned New Horizons Franchisee in
Portland, Oregon. The transaction will be accounted for as a purchase transaction in accordance with SFAS 141(R), "Business Combinations." The purchase price includes cash payments of $36 to be paid
in installments from July through December 2009, earn-out payments due in February 2011 and 2012 that are contingent on operating income of the business acquired and the assumption of certain
liabilities. The assets of CEI will be recorded at their fair value, with the excess purchase price over the fair value of the assets acquired allocated to goodwill. The Acquisition was funded by the
Company's new revolving credit facility.

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Table of Contents

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

None.

Item 9A.    Controls And Procedures.

Evaluation of Disclosure Controls and Procedures

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

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

Internal Control Over Financial Reporting

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

Management
has assessed the effectiveness of our internal control over financial reporting as of December 31, 2008. In making such assessment, management used the criteria set
forth inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of
the Treadway Commission ("COSO"). Management has concluded that, as of December 31, 2008, our internal control over financial reporting was effective based on these criteria.

The
report of management on our internal control over financial reporting is set forth in Item 8 of this Annual Report and is incorporated herein by reference.

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

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Table of Contents

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

Changes in Internal Control Over Financial Reporting

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

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Table of Contents

PART III

Item 10.    Directors, and Executive Officers of the Registrant.

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

Item 11.    Executive Compensation.

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

Item 12.    Security Ownership of Certain Beneficial Owners, Management, and Related Shareholder Matters.

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

Item 13.    Certain Relationships, Related Transactions, and Director Independence.

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

Item 14.    Principal Accountant Fees and Services.

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

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Table of Contents

PART IV

Item 15.Exhibits, Financial Statement Schedules.

Financial Statements

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

Exhibits

See the Exhibit Index on page 58 of this Annual Report on Form 10-K

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Table of Contents

Signatures

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

March 23,
2009

By:

/s/ MARK A. MILLER Mark A. Miller President, Chief Executive Officer and Director


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

Signature

Title

Date/s/ MARK A. MILLER Mark A. Miller

President, Chief Executive Officer and Director (Principal Executive Officer)

March 23, 2009/s/ CHARLES J. MALLON Charles J. Mallon

Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

March 23, 2009/s/ CURTIS LEE SMITH, JR. Curtis Lee Smith, Jr.

Chairman of the Board of Directors

March 20, 2009/s/ ALWALEED ALDRYANN Alwaleed Aldryann

Director

March 22, 2009/s/ ARNOLD M. JACOB Arnold M. Jacob

Director

March 23, 2009/s/ WILLIAM H. HELLER William H. Heller

Director

March 23, 2009/s/ DONALD W. HUGHES Donald W. Hughes

Director

March 20, 2009/s/ ROBERT H. ORLEY Robert H. Orley

Director

March 23, 2009/s/ DAVID L. WARNOCK David L. Warnock

Director

March 23, 2009


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Table of Contents

Exhibit Index:

Exhibit No.

Description3.1

Restated Certificate of Incorporation of the Company

(F)3.2

Amended and Restated By-laws of the Company

(QQ)3.3

Certificate of Amendment to Restated Certificate of Incorporation of New Horizons Worldwide, Inc.

(KK)4.1

Specimen Certificate for Share of Common Stock, $.01 par value, of the Company

(C)4.5

Certificate of Designation, Preferences and Rights of Series A Preferred Convertible Stock of the Company, dated February 7, 2005

(J)4.6

Specimen Certificate for Share of Series A Convertible Preferred Stock, $.01 par value, of the Company

(J)4.7

Certificate of Decrease Relating to Certificate of Designation, Preference sand Rights of Series A Convertible Preferred Stock of the Company, filed July 10, 2006

(BB)4.8

Certificate of Designation, Preferences and Rights of Series B Convertible Preferred Stock of the Company, filed July 10, 2006

(BB)4.9

Certificate of Elimination of Series A Convertible Preferred Stock of the Company, dated July 20, 2006.

(BB)4.10

Specimen certificate of the Series B Convertible Preferred Stock of the Company

(BB)4.11

Form of Series A Warrant

(BB)4.12

Form of Series B Warrant

(BB)4.13

Stockholders' Agreement, dated as of February 8, 2005, by and among the Company, Camden Partners Strategic Fund III, L.P. and Camden Partners Strategic Fund III-A, L.P.

(J)4.14

Registration Rights Agreement, dated as of February 8, 2005, by and among the Company, Camden Partners Strategic Fund III, L.P. and Camden Partners Strategic Fund III-A, L.P.

(J)4.15

Amended and Restated Stockholders' Agreement, dated as of July 19, 2006, by and among the Company, Camden Partners Strategic Fund III, L.P., Camden Partners Strategic Fund III-A, L.P., Alkhaleej
Training and Education Corporation and the Warrant Holders.

(BB)4.16

Amended and Restated Registration Rights Agreement, dated as of July 19, 2006, by and among the Company, Camden Partners Strategic Fund III, L.P., Camden Partners Strategic Fund III-A, L.P., Alkhaleej
Training and Education Corporation and the Warrant Holders

(BB)4.17

Certificate of Designation, Preferences and Rights of Series C Convertible Preferred Stock of the Company dated July 2, 2007.

(FF)4.18

Specimen certificate for shares of the Series C Convertible Preferred Stock.

(FF)10.1
**
1997 Omnibus Equity Plan of the Company

(B)10.2
**
Amendment No. 1 dated March 15, 2002 to the 1997 Omnibus Equity Plan of the Company

(G)


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Table of Contents

Exhibit No.

Description10.3
**
Form of Stock Option Agreement executed by employee recipients of options under 1997 Omnibus Equity Plan

(D)10.4
**
Key Employees Stock Option Plan of the Company

(A)10.5
**
Amendment No. 1 to the Key Employees Stock Option Plan of the Company

(C)10.9
**
Form of Stock Option Agreement executed by non-employee Director recipients of options under 1997 Omnibus Equity Plan

(B)10.10

Form of Indemnity Agreement with Directors and Officers of the Company

(C)10.11

Lease Agreement dated February 15, 2000, between New Horizons Worldwide, Inc. and Stadium Gateway Associates, LLC, guaranteed by the Company

(D)10.12

Lease Agreement dated April 27, 2000, between New Horizons Worldwide, Inc. and 1114 Trizechahn-Swig, guaranteed by the Company

(E)10.13

Revised Class Action Settlement and General Release Agreement

(I)10.14

Series A Stock Purchase Agreement, dated as of February 7, 2005, by and among the Company, Camden Partners Strategic Fund III, L.P. and Camden Partners Strategic Fund III-A, L.P.

(J)10.15

Credit Agreement, dated as of July 19, 2006, by and among the Company, Camden Partners Strategic III, LLC and the Lenders named therein

(BB)10.16

Preferred Stock Exchange Agreement, dated as of July 19, 2006, by and among the Company, Camden Partners Strategic Fund III, L.P. and Camden Partners Strategic Fund III-A, L.P.

(BB)10.17
**
Employment Agreement, dated July 5, 2006, by and between the Company and Mark A. Miller

(AA)10.18
**
Nonqualified Stock Option Agreement, dated July 5, 2006, by and between the Company and Mark A. Miller.

(AA)10.19
**
New Horizons Worldwide, Inc. Restricted Stock Agreement, dated July 5, 2006, between the Company and Mark A. Miller.

(AA)10.21
**
President and Chief Executive Officer Compensation

(Y)10.24
**
Employment Agreement, dated February, 2006, between the Company and Mark A. Miller

(AA)10.25
*
Asset Purchase Agreement, dated September 15, 2005, by and between NHCLC of San Antonio, Inc., a Delaware corporation, and South Texas Horizons, L.P., a Texas limited partnership, Derek Wright, an
individual, Scott Hardin, an individual, Robert Dupree, an individual and South Texas Horizons GP, L.L.C., a Texas limited liability company.

(CC)10.26
*
Asset Purchase Agreement, dated March 10, 2006, by and between New Horizons Computer Learning Center of Charlotte, Inc., a Delaware corporation, and Sukothai, Inc., a North Carolina corporation, and
Kimberly Pongpat, an individual.

(CC)


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Table of Contents

Exhibit No.

Description10.27
*
Asset Purchase Agreement, dated April 28, 2006, by and among New Horizons Computer Learning Center of Memphis, Inc., a Delaware corporation, together with its direct or indirect parent corporation, New Horizons
Worldwide, Inc., on the one hand; Integrated Learning Solutions Memphis, LLC, a Tennessee limited liability company; and David L. Weinstein, Robert J. Hussey, III, Stanley Graber and Joel W. Brown, each a natural person.

(DD)10.28
*
Asset Purchase Agreement, dated April 28, 2006, by and among: New Horizons Computer Learning Center of Nashville, Inc., a Delaware corporation, together with its direct or indirect parent corporation, New
Horizons Worldwide, Inc., on the one hand; GBWH Nashville, LLC, a Tennessee limited liability company; and David L. Weinstein, Robert J. Hussey, III, Stanley Graber and Joel W. Brown, each a natural person.

(DD)10.29
*
Asset Purchase Agreement, dated April 28, 2006, by and among: New Horizons Computer Learning Center of Atlanta, Inc., a Delaware corporation, together with its direct or indirect parent corporation, New
Horizons Worldwide, Inc., on the one hand; GBWH Atlanta, LLC, a Georgia limited liability company; and David L. Weinstein, Robert J. Hussey, III, Stanley Graber and Joel W. Brown, each a natural person.

(DD)10.30
*
Asset Purchase Agreement, dated March 17, 2006, by and among; and between New Horizons Computer Learning Center of Hartford, Inc., a Delaware corporation, and NHCLC-Hartford, L.L.C., a Delaware limited
liability company.

(DD)10.31
*
Asset Purchase Agreement, dated July 31, 2006 by and between New Horizons Computer Learning Center of Albuquerque, Inc., a Delaware corporation on the one hand, and R.A.R.E. Technologies, LLC, a New
Mexico limited liability company and Robin Dennehey, Eric Lopez, Rick Dennehey and Audra Lopez, each an individual.

(EE)10.32
**
Employment Letter Agreement, effective as of November 7, 2006, by and between the Company and Timothy A. Kleczka.

(MM)10.33
**
Employment Letter Agreement, effective as of February 1, 2007, by and between the Company and Charles Mallon.

(FF)10.34
**
Nonqualified Stock Option Agreement, dated as of February 1, 2007, to be entered into by and between the Company and Charles Mallon.

(FF)10.35

Asset Purchase Agreement, dated on March 31, 2007, by and among New Horizons Computer Learning Center of Cleveland, Ltd., L.L.C., a Delaware limited liability company, and New Horizons Worldwide, Inc.,
on the one hand, and NH Cleveland, LLC, a Michigan limited liability company, and M&J L.L.C., a Michigan limited liability company that is an affiliate of NH Cleveland, LLC on the other hand.

(GG)10.36

Asset Purchase Agreement, dated on March 31, 2007, by and among New Horizons Computer Learning Center of Chicago, Inc., a Delaware corporation, and New Horizons Worldwide, Inc., on the one hand; and NH
Chicago, LLC, a Michigan limited liability company, and M&J L.L.C., a Michigan limited liability company that is an affiliate of NH Chicago, LLC on the other hand.

(GG)


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Exhibit No.

Description10.37

Asset Purchase Agreement, dated June 1, 2007, by and among New Horizons Computer Learning Center of Santa Ana, L.L.C., a Delaware limited liability company, and New Horizons Worldwide, Inc., on the one hand; and
KML Enterprises, Inc., a California corporation, and Kevin M. Landry, a natural person who owns all of the equity of KML Enterprises.

(HH)10.38

Series C Stock and Warrant Purchase Agreement, dated as of July 2, 2007, by and among the Company and the Series C Stockholders.

(II)10.39

Form of Series C Warrant.

(II)10.40

Amendment No. 1 to Credit Agreement, dated as of July 3, 2007, by and among the Company, Camden LLC and the Lenders.

(II)10.41

Form of Amended and Restated Series A-1 Warrant.

(II)10.42

Form of Amended and Restated Series B-1 Warrant.

(II)10.43

Form of Series A-2 Warrant.

(II)10.44

Form of Series B-2 Warrant.

(II)10.45

Second Amended and Restated Stockholders' Agreement, dated as of July 3, 2007, by and among the Company, the Series B Stockholders, the Series C Stockholders and the Warrant Holders.

(II)10.46

Second Amended and Restated Registration Rights Agreement, dated as of July 3, 2007, by and among the Company, the Series B Stockholders, the Series C Stockholders and the Warrant Holders.

(II)10.47

Voting Agreement, dated as of July 3, 2007, by and among the Company and the Stockholders named therein.

(II)10.48
**
New Horizons Worldwide, Inc. Restricted Stock Agreement, dated August 24, 2007, between the Company and Mark A. Miller.

(II)10.49
**
New Horizons Worldwide, Inc. Restricted Stock Agreement, dated August 24, 2007, between the Company and Charles J. Mallon.

(II)10.50
**
New Horizons Worldwide, Inc. Restricted Stock Agreement, dated August 24, 2007, between the Company and Timothy A. Kleczka.

(II)10.51
**
New Horizons Worldwide, Inc. Restricted Stock Agreement, dated August 24, 2007, between the Company and Howard H. Mark.

(II)10.52

Asset Purchase Agreement, dated October 26, 2007, by and among New Horizons Computer Learning Center of Metropolitan New York, Inc., a Delaware corporation, and New Horizons Worldwide, Inc., on the one
hand; and NHCLC-New York, L.L.C.

(JJ)10.53
**
Registration Statement with respect to 1,000,000 additional shares of its Common Stock that may be offered or sold pursuant to the 1997 Omnibus Equity Plan, as amended by the Amendment No. 1 to 1997 Omnibus
Equity Plan.

(OO)10.54
**
2007 Omnibus Equity Plan of the Company

(NN)10.55
#
Software License Agreement, dated November 3, 2008 by and between Terillian Technologies Incorporated and New Horizons Computer Learning Centers, Inc.


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Exhibit No.

Description10.56
#
Asset Purchase Agreement, dated November 26, 2008, by and between New Horizons Learning Centers, Inc., a California corporation and Technology Training & Services Corporation, a California corporation,
Phyllis Scott, an individual, and Clay Scott, an individual.10.57

Revolving Credit Loan Agreement among New Horizons Worldwide, Inc. and PNC Bank dated as of October 1, 2008.

(PP)10.58

Line of Credit Note among New Horizons Worldwide, Inc. and PNC Bank dated as of October 1, 2008.

(PP)10.59

Revolving Credit Security Agreement among New Horizons Worldwide, Inc. and PNC Bank dated as of October 1, 2008.

(PP)10.60

Revolving Credit Guaranty and Suretyship Agreement among New Horizons Worldwide, Inc. and PNC Bank dated as of October 1, 2008.

(PP)10.61

Letter to the Securities and Exchange Commission from Squar, Milner, Peterson, Miranda and Williamson, LLP, dated June 11, 2008.

(RR)21.1
#
New Horizons Worldwide, Inc Subsidiary Listing23.1
#
Consent of Squar, Milner, Peterson, Miranda, & Williamson, LLP.23.2
#
Consent of McGladrey & Pullen, LLP.31.1
#
Rule 13a14(a) Certification of the Company's Chief Executive Officer31.2
#
Rule 13a14(a) Certification of the Company's Chief Financial Officer32.1
#
Section 1350 Certification of the Company's Chief Executive Officer32.2
#
Section 1350 Certification of the Company's Chief Financial Officer


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