-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EBjl0A/jJyp6qyx+4WAV8cuffg5OCDjsHfKAoF5fgVYKOaWe8vsD7shpVwlEsSH2 Zth3p47yLzY45T9WiH9rZQ== 0000950170-97-000323.txt : 19970329 0000950170-97-000323.hdr.sgml : 19970329 ACCESSION NUMBER: 0000950170-97-000323 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961228 FILED AS OF DATE: 19970328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW HORIZONS WORLDWIDE INC CENTRAL INDEX KEY: 0000850414 STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955] IRS NUMBER: 222941704 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-17840 FILM NUMBER: 97566703 BUSINESS ADDRESS: STREET 1: 500 CAMPUS DR CITY: MORGANVILLE STATE: NJ ZIP: 07751 BUSINESS PHONE: 9085368500 MAIL ADDRESS: STREET 1: CO JOHN ST JAMES STREET 2: 500 CAMPUS DRIVE CITY: MORGANVILLE STATE: NJ ZIP: 07751 FORMER COMPANY: FORMER CONFORMED NAME: HANDEX ENVIRONMENTAL RECOVERY INC DATE OF NAME CHANGE: 19920703 10-K405 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended DECEMBER 28, 1996 OR ----------------- [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from NOT APPLICABLE to -------------- ------------------ Commission file number 0-17840 ------- NEW HORIZONS WORLDWIDE, INC. ---------------------------- (Exact name of Registrant as specified in its charter) DELAWARE 22-2941704 ------------------------------ ------------------- (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 500 CAMPUS DRIVE, MORGANVILLE, NEW JERSEY 07751 - ----------------------------------------- --------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (908) 536-8501 ------------- Securities registered pursuant to Section 12(b) of the Act: Title of each Class Name of each exchange on which registered NOT APPLICABLE NOT APPLICABLE -------------- -------------- Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE ---------------------------- Title of Class Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the Common Stock held by non-affiliates of the Registrant as of March 3, 1997 was approximately $36,819,036, computed on the basis of the last reported sales price per share ($10.125) of such stock on the NASDAQ National Market System. The number of shares of the Registrant's Common Stock outstanding as of March 3, 1997 was 7,032,051. DOCUMENTS OR PARTS THEREOF INCORPORATED BY REFERENCE PART OF FORM 10-K DOCUMENTS INCORPORATED - ---------------------------------- BY REFERENCE PART III (ITEMS 10, 11, 12 AND 13) --------------------------- PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE USED IN CONNECTION WITH ITS ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 6, 1997 NEW HORIZONS WORLDWIDE, INC. INDEX TO ANNUAL REPORT ON FORM 10K PART I Item 1. Business..........................................................1 General...........................................................1 Recent Developments...............................................1 Information Technology Education and Training Market..............2 New Horizons Business Model.......................................3 Company-owned Training Centers...............................3 Franchising..................................................4 Customers.........................................................5 Sales and Marketing...............................................5 Training Authorizations...........................................5 Competition.......................................................6 Information about Forward Looking Statements......................7 Regulations.......................................................7 Insurance.........................................................7 Trademarks........................................................7 Employees.........................................................7 Item 2. Properties........................................................8 Item 3. Legal Proceedings.................................................8 Item 4. Submission of Matters to a Vote of Security Holders...............8 PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters..............................9 Item 6. Selected Consolidated Financial Data..............................9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...............10 Item 8. Financial Statements and Supplementary Data......................16 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......................16 PART III Item 10. Directors and Executive Officers of the Registrant...............17 Item 11. Executive Compensation...........................................18 Item 12. Security Ownership of Certain Beneficial Owners and Management..............................................18 Item 13. Certain Relationships and Related Transactions...................18 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8K..................................................19 SIGNATURES.......................................................20 PART 1 ITEM 1. BUSINESS This Annual Report on Form 10-K contains forward-looking statements which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that may cause such a difference include, but are not limited to, those discussed throughout this document and under the caption "INFORMATION ABOUT FORWARD LOOKING STATEMENTS." New Horizons Worldwide, Inc., (the "Company" or "New Horizons") formerly Handex Corporation, through various subsidiaries, both owns and franchises computer training centers. The Company sold its environmental business segment and changed its name to New Horizons late in 1996, in order to concentrate its resources on the technology training market. GENERAL - ------- New Horizons' 1996 systemwide revenues of $192 million make it the largest independent provider in the fragmented PC software applications and technical certification training industry. Through various subsidiaries, the Company both owns and franchises computer training centers. Through these training centers the Company offers comprehensive instruction in the use of personal computers, PC software applications and technical certification courses. The goal of the training is to deliver to the student information and skills which have immediate, practical value in the workplace. The New Horizons worldwide network delivered over 1.5 million student-days of technology training in 1996, generating system-wide revenues, which include both the results of company-owned and franchised operations, of $192 million, up 86% from the $103 million in 1995. The network has over 1,000 classrooms, 1,100 instructors and 1,100 account executives. New Horizons specializes in instructor-led training which is the industry's dominant delivery method for information technology training. The Company has become a leader in the industry by developing the processes for and delivering high quality training for the largest technology training segments: PC software applications and technical certification training. The network's learning centers offer a broad range of high quality courses for most of the major software vendors, including Microsoft, Novell, Lotus, Adobe, Aldus, Apple Computer, Symantec, Sun Microsystems, and Unix. New Horizons has the largest network of Novell Authorized Education Centers and the second largest network of Microsoft Authorized Technical Education Centers in the world. Classes can be held at New Horizons locations or on-site at the client's facility. Curriculum can be tailored to the client's specific needs. The Company can also provide training and courseware for customers' proprietary software. New Horizons owns and operates seven computer training facilities located in Santa Ana, California; Burbank, California; Los Angeles, California; Irvine, California; Chicago, Illinois; Cleveland, Ohio; and New York City, New York. A second New York facility opened during the first quarter of 1997. The Santa Ana location was acquired as part of the original purchase of New Horizons in 1994. The remaining California locations are part of a strategy to expand in the large southern California technology training market, while the Chicago, Cleveland, and New York locations were acquired from franchisees as part of the Company's strategy to operate company-owned training centers in select major metropolitan markets within the United States. As of December 31, 1996, the Company's franchisees operated 147 locations in the United States and in 23 countries around the world. An additional 30 franchises have been sold and are scheduled for future openings. Of the 154 learning centers operating at the end of 1996, 110 were operating in the United States and 44 were operating abroad. The Company was incorporated in Delaware on December 15, 1988, and its principal executive offices are located at 500 Campus Drive, Morganville, New Jersey, 07751. The Company's principal operating offices are located at 1231 East Dyer Road, Santa Ana, California 92705. The Company maintains a website at http://www.newhorizons.com. RECENT DEVELOPMENTS - ------------------- SALE OF ENVIRONMENTAL BUSINESS UNIT AND CHANGE OF CORPORATE NAME On December 27, 1996, the Company sold its environmental business segment to ECB, Inc. ("ECB"), a Florida corporation, and simultaneously changed its name from Handex Corporation to New Horizons Worldwide, Inc.(the "Company" or "New Horizons"). This name change was effected so as to more closely identify with its continuing educational training business, which does business under the name New Horizons Computer Learning Centers. Both the transaction and the name change were authorized by stockholders at a Special Meeting of the Stockholders held on December 20, 1996. As a result of the transaction, the Company's educational business is the Company's sole business, and the Company's environmental business is no longer owned by the Company. The Company now trades on NASDAQ under the symbol "NEWH." 1 The Company received aggregate consideration in the face amount of approximately $21,954,000 in connection with the sale of Handex Environmental, Inc. The consideration received by the Company from ECB consisted of: (i) $4,600,000 in cash; (ii) a promissory note in the original principal amount of $3,700,000 (subject to adjustment in certain events) due on April 30, 2002 and bearing interest at the rate of 6% per annum; (iii) 2,000 shares of Series A Preferred Stock, stated value $1,000 per share of ECB; (iv) a six-year warrant to acquire 300,000 common shares of ECB at a price of $1.32 per share ("Warrant A"); (v) a six-year Warrant to acquire 85,000 common shares of ECB at a price of $1.60 per share ("Warrant B") (Warrant A and Warrant B are collectively referred to herein as the "Warrants"); and (vi) one-third of the redemption value of a small interest in a joint venture, when paid or available to be paid to ECB. In addition, immediately prior to the closing, the Company received a dividend of cash, accounts receivable and other assets owned by the Environmental Subsidiaries having a book value of $11,654,000 at December 27, 1996. See "Management Discussion and Analysis of Operations and Financial Condition." For a more detailed description of the transaction, see the Company's Proxy Statement dated December 3, 1996, and the appendices thereto and information incorporated by reference therein. The divestiture and name change represent strategic steps in the re-direction of the Company's resources away from the environmental industry. Since 1992, the environmental services industry has been affected by significant changes in the statutory regulations that govern environmental clean-ups, the stiffening of eligibility requirements for reimbursement funds, the entry of low-cost service providers, and an ever increasing level of cost consciousness on the part of its customers, all of which combined to heighten the level of competition in an already competitive marketplace. These forces materially impacted the industry by reducing growth opportunities and lowering margins. The lack of clear signs of change that would reverse trends led to management's decision to divest the Company's environmental business and refocus the Company's resources and energies towards the faster growing computer education and training industry which the Company's continuing operations serve. In early 1994, the Company initiated the strategy to diversify its business away from the environmental industry to an industry which offered greater potential and financial rewards for its stockholders. Management determined that the technology training industry offered the potential for growth and profitability. Through market research and awareness, and through intermediaries of companies in the industry that were available for sale, the Company's education segment was started in August 1994, via the acquisition of all of the issued and outstanding shares of New Horizons Franchising, Inc., and all of the assets of New Horizons Computer Learning Center, Inc. At the time of the acquisition, New Horizons operated one company-owned learning center and had approximately sixty operating franchises. From that time to the December 27, 1996 divestiture of its environmental segment, the Company operated in two distinct industry segments. THE INFORMATION TECHNOLOGY EDUCATION AND TRAINING MARKET - -------------------------------------------------------- The rapidly growing role of information technology in business organizations and the emergence of the Internet are creating significant and increasing demand for information technology training. An International Data Corporation ("IDC") study estimated that in 1995 the worldwide market for information technology education and training was about $15 billion and is expected to grow at a pace of 12.7% per year to over $27 billion in the year 2000. The growing need for technology training is driven by several developments including: (i) increased use of computers in the workplace requiring employees to acquire and apply information technology skills; (ii) rapid and complex technological changes in operating systems, new software development and technical training; (iii) continuing emphasis by industry on productivity, increasing the number of functions being automated throughout organizations; (iv) greater focus by organizations on core competencies with a shifting emphasis to outsourcing of non-core activities; (v) corporate downsizing requiring remaining personnel to develop a greater variety of skills; and (vi) development of the Internet. Although a significant portion of technology training is accomplished by in-house training departments, IDC, in its study, identified a decided shift towards outsourcing to external training professionals. This outsourcing is motivated by several factors including: (i) the lack of internal trainers experienced in the latest software; (ii) the cost of maintaining an in-house staff of trainers; and (iii) the cost of developing and maintaining internal courseware. Organizations are searching out and selecting outside technology training services that can provide the following: (i) cost effective delivery of high quality instruction; (ii) qualified, technically expert instructors; (iii) flexibility to deliver a consistent training product at geographically dispersed facilities; (iv) ability to tailor the training product to specific customers needs; (v) definitive, current courseware; (vi) testing and certification of technical competency; (vii) effective 2 training methods delivering knowledge and skills with immediate practical value in the workplace; (viii) a depth and breadth of curriculum; and (ix) flexible and convenient scheduling of classes. Instructor-led classroom training is the dominant delivery method for technology training. According to the IDC study, since 1990, instructor-led training has grown 68.6% from $6.7 billion to $11.3 billion in 1995. IDC projects that instructor-led training will continue to dominate the market because trainees value the personalized attention, interfacing and problem solving with classmates and instructors, and the insulation classroom training provides from workplace interruptions. While instructor-led training will continue to be the leading delivery method in the market, the role of both multimedia and computer based training is gaining greater acceptance. IDC estimates that technology training in the multimedia and computer based training formats has increased from $230 million in 1990 to $1.1 billion in 1995 and is expected to increase to $4.1 billion by the year 2000, a rate of 31%, while instructor-led training is expected to grow at a rate of 8% over the same period. THE NEW HORIZONS BUSINESS MODEL - ------------------------------- New Horizons' company-owned and franchised operations both provide an instructor-led training delivery system to customers that is executed by certified employee instructors in fully equipped classrooms in New Horizons facilities. Approximately 25% of classes are given on-site at the customer's location. New Horizons often supplies the computer hardware for these on-site classes. The Company sells its services primarily to business and government as opposed to individuals. Curriculum is centered on software applications (approximately 70% of the courses) and technical certification programs (approximately 30%). Classes are concise, generally ranging from one to five days, and are designed to be intensive skill building experiences. The Company offers a broad array of information technology courses covering the most popular software applications and technical certification programs. The Company also provides customized training for customers' proprietary software applications. The Company believes it offers more classes more often than any other company in the industry. In addition to certified instructors and broad curriculum, the New Horizons business model is designed to provide its customers high training value featuring: (i) guaranteed training through the Company's free six-month repeat privileges; (ii) skills assessment on subjects and skills for both standard or proprietary software; (iii) professional certification training; (iv) the largest network of authorized training centers in the industry ensuring quality and consistency; (v) free 24 hour-a-day, 7 day-a-week help desk service for a full sixty day period after a class has been completed; (vi) on-site training at customer's facilities; (vii) customized courseware from a library of over 800 titles in eight languages; (viii) club memberships providing a series of classes for one platform at one low price; (ix) flexible scheduling including evening and weekend classes; and (x) a major accounts program which coordinates the national and or international delivery of training for clients with training requirements in a multitude of locations. The Company has historically grown through the sale of franchises, the opening of new company-owned facilities, and the buy-back of franchises in major metropolitan markets. The Company believes a mix of franchised and company-owned centers will enable it to combine the accelerated expansion opportunities provided by franchising while maintaining ownership of a significant number of training centers. The Company plans to continue to grow through the (i) improvement of revenues and profits at both current company-owned and franchised operating locations; (ii) the sale of additional franchises; (iii) the selective buyback of existing franchises in major metropolitan markets in the U.S. and (iv) the potential acquisition of companies in similar or complementary businesses. COMPANY-OWNED TRAINING CENTERS - ------------------------------ At the end of 1996, the Company owned and operated seven computer training facilities located in Burbank, Irvine, Los Angeles and Santa Ana, California; Chicago, Illinois; Cleveland, Ohio; and New York City, New York. A second New York facility opened during the first quarter of 1997. The Santa Ana location was acquired as part of the original purchase of New Horizons in 1994. The remaining California locations were opened between October, 1994 and April, 1996 as part of a strategy to expand in the Southern California information technology training market. The Chicago, Cleveland, and New York locations were acquired from franchisees as part of the Company's strategy to operate company-owned training centers in select major metropolitan markets within the United States. In 1996, the company-owned centers generated over $31,425,000 in revenues. 3 FRANCHISING - ----------- At the end of 1996, the Company supported a worldwide network of independent franchises which provide information technology training at 147 locations in 24 countries. There are an additional 30 franchised locations which have been sold and which are scheduled to open at various times over the next three years. The franchisee is given a non-exclusive license and franchise to participate in and use the business model and sales system developed and refined by the Company. The Company initially offered franchises for sale in 1991 and sold its first franchise in 1992. The Company had 71 franchised locations operating at the end of 1994; 106 at the end of 1995; and 147 at the end of 1996, of which 103 were in the U.S. and 44 were abroad. The Company offers franchises for the operation of computer-related learning centers to independent operators throughout the world. The franchisee is charged an initial franchise fee and ongoing monthly fees which become effective a specified period of time after the center begins operation. The initial franchise fee is based on the size of the territory ("territory") granted as defined in the Franchise Agreement. In the United States, the size of a territory is measured by the number of personal computers ("PC's") in the territory. The initial franchise fee for a start-up center for a Type 1 territory (150,000 or more PC's) is $60,000; for a Type 2 territory (75,000 to 149,999 PC's) is $40,000; and a Type 3 territory (less than 75,000 PC's) is $20,000. Entrepreneurs converting an existing training center to a New Horizons center pay an initial franchise fee for a Type 1 Territory of $50,000; for a Type 2 Territory $35,000; and for a Type 3 Territory $15,000. The initial franchise fee is payable upon execution of the Franchise Agreement and is not refundable under any circumstances. The territory is a "limited exclusive" territory in that New Horizons agrees not to own or franchise any other New Horizons business provided the franchisee operates in compliance with the terms of its franchise agreement. The geographic boundaries of a territory are determined by United States Postal Service zip codes. Unless the Franchise Agreement terminates or is amended by mutual agreement, a territory will not be altered. Franchises are limited to marketing their business to customers located within the defined territory and not to customers within territories of other New Horizons franchises or affiliates. Franchisees have six months from the date of the execution of the Franchise Agreement to open a center. Initial franchisee fees for international franchises are market/country specific. For international franchising activities, the Company has historically entered into master franchise agreements providing franchisees with the right to award sub-franchises to other parties within a particular country. Under the terms of these master franchise agreements, the franchisee commits to open or cause to be opened a specified number of locations with a specified timeframe. The Company shares with the master franchisee in the proceeds of subsequent sales of individual franchises, and also receives a percentage of the royalties received by the master franchisee. The Company has also entered into individual franchise agreements with foreign franchisees similar to those entered into in its domestic franchising activities and anticipates that these individual franchise arrangements may become more prevalent in the future. Less than 10% of the Company's systemwide revenues were generated by international locations in 1996. The offer and sale of franchises are subject to regulation by the United States Federal Trade Commission and certain foreign countries. There also exist numerous state laws that regulate the offer and sale of franchises and business opportunities, as well as the ongoing relationship between franchisors and franchisees, including the termination, transfer and renewal of franchise rights. The failure to comply with these laws could adversely affect the Company's operations. New Horizons estimates the initial investment required to acquire and start a franchise operation, including the initial franchise fee, ranges from approximately $158,000 to $329,000. In addition to the initial franchise fee, franchisees pay the following fees to New Horizons: (i) a monthly continuing royalty fee, consisting of the greater of 6% of monthly gross revenues or a minimum flat fee of $1,500 for a Type 1 territory or $1,000 for a Type 2 and Type 3 territory; (ii) a monthly marketing and advertising fee of 1% of gross revenues; and (iii) a course materials surcharge of 9% of the gross revenues from course materials sold to third parties. Each franchisee also pays a $10 annual software license fee and a $50 per month maintenance fee for customized software developed and maintained by New Horizons. The 6% royalty fee rate was effective for franchises sold during September 1996 or later; the first twelve franchisees pay a 3% royalty fee and the remainder pay a 5% royalty fee. Monthly royalty fees begin the fourth month after the effective date of a new franchise and begin the sixth month after the effective date of a conversion franchise. In return for the initial franchise fee and the other monthly fees, the Company provides the franchisee with the following services, products and managerial support: (i) two weeks of initial franchise training at the Company's operating headquarters in Santa Ana, California, and one week of field training at the franchisee's location; (ii) franchise and sales system information contained in the Company's Confidential Operations Manual and other training manuals; (iii) ongoing operating support via on-site visits from Regional Franchise Support Managers, and access to troubleshooting and 4 business planning assistance; (iv) current applications courseware at printing cost only (over 800 titles in eight languages); (v) access to a major accounts division which coordinates a national/international referral system and delivery network of training for major clients which have training requirements in multiple locations; (vi) site selection assistance; (viii) periodic regional and international meetings and conferences; and (ix) advisory councils and monthly communications. The Franchise Agreement runs for an initial term of ten years, and is renewable for additional five-year terms. The franchise is exclusive within the specific defined territory and is subject to a number of limitations and conditions. These limitations and conditions include, but are not limited to: (i) staffing requirements, including a General Manager plus a minimum number of account executives based on the territory type; (ii) a minimum number of classrooms depending on the territory type; (iii) full-time and continuous operations; (iv) a pre-defined minimum required curriculum; (v) minimum computer equipment and system requirements; (vi) signage and display material requirements; (vii) minimum insurance requirements; and (vii) record keeping requirements. The agreement also contains non-competition restrictions which bar: (i) competing with New Horizons during the term of the franchise agreement and for one year after termination of the franchise, within a 25 mile radius of any New Horizons center; (ii) diverting or attempting to divert any customer or business of the franchise business to any competitor; (iii) performing any act that is injurious or prejudicial to the goodwill associated with the New Horizons service marks or operating system; and (iv) soliciting any person who is at that time employed by the franchisor or any of its affiliated corporations to leave his or her employment. In addition, there are certain restrictions on the franchisees' rights to transfer the franchise license. New Horizons also maintains a "right of first refusal" if a transfer effects a change of control. The agreement also contains default and termination remedies. CUSTOMERS - --------- Customers for the training provided at New Horizons company-owned and franchised training centers are predominantly employer-sponsored individuals from a wide range of public and private corporations, service organizations, government agencies and municipalities. Little, if any, of the Company's revenues are generated from Title IV entitlement programs. No single customer accounted for more than 10% of New Horizons revenues in 1996. The New Horizons system delivered over 1,500,000 student-days of technology training in 1996. SALES AND MARKETING - ------------------- New Horizons markets its services primarily through account executives who utilize telemarketing/telesales to target and contact potential customers. The New Horizons sales system is organized and disciplined. After undergoing a formal initial training program, account executives are expected to generate their own database of customers through telephone sales, make a minimum number of calls per day, and invoice and collect a minimum amount of revenue each month. These minimums escalate over the first eight months an account executive is selling and are designed to move the account executive from being compensated with base pay plus a small commission to a full commission compensation program. Account executives target sales areas are local and regional; sales opportunities which involve national and international accounts and involve delivery of training at multiple locations are turned over the Company's major accounts division. In 1995, the Company established a major accounts program designed to market computer training services to large organizations which have facilities and training needs throughout the world. This program provides New Horizons' national and international customers with a single point of contact to the entire New Horizons network of training and support services. During 1996, New Horizons competed for and won national and international contracts with Bell South, EDS, Southwestern Bell, Intel, Amdahl, and Motorola, among others. The Company maintains a web site for marketing its products over the Internet (http://www.newhorizons.com). The Company believes that the Internet will become an increasingly important tool in its marketing program. TRAINING AUTHORIZATIONS - ----------------------- New Horizons is authorized to provide certified training by more than 30 software publishers, including Microsoft, Novell, Apple and Sun Microsystems. Many of the industry's major software vendors do not offer training but support their 5 products through independent training companies using a system of standards and performance criteria. In support of these vendors, the Company has 71 Novell (NAEC), 59 Microsoft (ATEC), and 13 Lotus (LAEC) authorized centers worldwide. The authorization agreements are typically annual in length and are renewable at the option of the publishers. While New Horizons believes that its relationships with software publishers are good, the loss of any one of these agreements could have a material adverse impact on its business. COMPETITION - ----------- The information technology training market 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's competitors are primarily in-house company training departments, and independent education and training organizations. Computer retailers, computer resellers, and others also compete with the Company. Periodically some of these competitors offer instruction and course titles similar to those offered by New Horizons at advantageous pricing. In addition, some of these competitors may have greater financial strength and resources than New Horizons. New Horizons believes that competition in the industry is based on a combination of pricing, quality of training and flexibility and convenience of service. The Company recognizes that the emergence of desktop multimedia and computer based training, as well as distance learning and on-line training on the Internet, are important and growing competitive developments 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 information technology training, allowing for customized instruction tailored to specific needs. However, according to IDC, the demand for outsourced training is expected to grow faster than the overall market as more companies switch to outside training organizations. IDC estimates that in 1995 and 1996, 50% of information technology training needs were met by in-house training organizations. By 1998 and 1999, the balance is expected to shift more towards outsourcing. The shift is being driven by (i) the lack of internal trainers experienced in the latest software; (ii) the cost of maintaining in-house trainers; and (iii) the cost of maintaining in-house courseware libraries. INDEPENDENT EDUCATION AND TRAINING ORGANIZATIONS: Although the majority of independent training organizations are relatively small and focus on local or regional markets, the Company competes directly on a national level with several firms providing similar curriculum. Executrain, Productivity Point, and Catapult target the same customer base and operate in some of the same markets as New Horizons. The Company believes that the combination of its market presence, the depth and breadth of its course offerings, its flexible customer service approach, its centralized control of delivery to national customers, its status as the world's largest network of Novell Authorized Education Centers and as the world's second largest network of Microsoft Authorized Technical Education Centers, and its organized and disciplined sales system distinguishes New Horizons from these competitors. The Company also competes in certain locations with computer resellers like Inacom, Vanstar, and Ameridata, as well as computer retailers such as CompUSA. MULTIMEDIA, COMPUTER BASED TRAINING, DISTANCE LEARNING, AND INTERNET TRAINING: Instructor-led training has historically been the dominant delivery method for information technology training. Multimedia, CBT, distance learning and Internet training have been small but growing delivery methods. According to IDC, these training delivery methods are expected to grow at a faster rate than instructor-led training through the year 2000. The Company recognizes that its future success depends on, among other factors, the market's continued acceptance of instructor-led training as a delivery method for information technology training, the Company's ability to continue to market competitive instructor-led course offerings and the Company's ability to successfully capitalize on the potential of multimedia, CBT, distance learning, and Internet delivery methods. The Company is currently in the development stage for several computer based training products that are expected to be introduced during 1997. Information technology training can be broken into three segments: Segment 1, which includes the most sophisticated levels of training for programmers and software developers; Segment 2, which includes certification for engineers (Microsoft, Novell); and Segment 3, which includes the end-users of standard application software. New Horizons competes in Segments 2 and 3, with an estimated 30% of revenues from Segment 2 and 70% from Segment 3. The Company competes with Catapult, Executrain, and Productivity Point in Segments 2 and 3. The Company competes marginally with Learning Tree and Global Knowledge Network in Segment 2. The Company, currently, does no training of programmers and software developers. 6 INFORMATION ABOUT FORWARD LOOKING STATEMENTS - -------------------------------------------- The statements made in this Annual Report on Form 10-K that are not historical facts are forward looking statements. Such statements are based on current expectations but involve risks, uncertainties, and other factors which may cause actual results to differ materially from those contemplated by such forward looking statements. Important factors which may result in variations from results contemplated by such forward looking statements include, but are by no means limited to: (i) the Company's ability to respond effectively to potential changes in the manner in which computer training is delivered, including the increasing acceptance of technology based training which could have more favorable economics with respect to timing and delivery costs and the emergence of "just in time" interactive training; (ii) the Company's ability to attract and retain qualified instructors; (iii) the rate at which new software applications are introduced by manufacturers and the Company's ability to keep up with new applications and enhancements to existing applications; (iv) the level of expenditures devoted to enhancements upgrading information systems and computer software by customers (v) the Company's ability to compete effectively with low cost training providers who may not be authorized by software manufacturers; and (vi) the Company's ability to manage the growth of its business. The Company's strategy focuses on enhancing revenues and profits at current locations, and also includes the possible opening of new company-owned locations, the sale of additional franchises, the selective acquisition of existing franchises in major metropolitan markets in the United States, and the acquisition of companies in similar or complementary businesses. The Company's growth strategy is premised on a number of assumptions concerning trends in the information technology training industry. These include the continuation of growth in the market for information technology training and the trend toward outsourcing. To the extent that the Company's assumptions with respect to any of these matters are inaccurate, its results of operations and financial condition could be adversely effected. REGULATIONS - ----------- The offer and sale of franchises and business opportunities are subject to regulation by the United States Federal Trade Commission, as well as many states and foreign jurisdictions. There also exist numerous laws that regulate the ongoing relationship between franchisors and franchisees, including the termination, transfer and renewal of franchise rights. The failure to comply with any such laws could have an adverse effect on the Company. INSURANCE - --------- The Company maintains liability insurance in amounts it believes to be adequate based on the nature of its business. While the Company believes that New Horizons operates its business safely and prudently, there can be no assurance that liabilities incurred with respect to a particular claim will be covered by insurance or, if covered that the dollar amount of such liabilities will not exceed coverage limits. TRADEMARKS - ---------- The Company has issued trademark registrations and pending trademark applications for the word mark "NEW HORIZONS" and for other trademarks incorporating the words "NEW HORIZONS." 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 advised that it cannot register the word mark "NEW HORIZONS" in certain foreign countries and that it cannot register or use any of the New Horizons trademarks in one foreign country. The Company believes that this 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. EMPLOYEES - --------- As of March 1, 1997, the Company employed a total of 535 individuals in its corporate operations and company-owned facilities. Of these employees, 146 are instructors, 152 are account executives, and 237 are administrative and executive personnel. New Horizons also utilizes the services of outside contract instructors to teach some of its curriculum, primarily technical certification programs which require instructors who are certified by Microsoft, Novell and Lotus. None of New Horizons' employees is represented by a labor organization. New Horizons considers relations with its employees and outside contract instructors to be satisfactory. 7 ITEM 2. PROPERTIES The Company's corporate headquarters occupy 1,500 square feet in a facility in Morganville, New Jersey. The space is being sublet under a short-term agreement with the facility's primary tenant. The offices for the Company's franchising business and company-owned training centers are located in Santa Ana and Irvine, California, pursuant to leases which expire in 1997 and 2001, respectively. As of December 28, 1996, New Horizons operated training centers at five other leased facilities in California, Illinois, Ohio and New York. The Company believes that its facilities are well maintained and are adequate to meet current requirements and that suitable additional or substitute space will be available as needed to accommodate any expansion of operations and for additional offices if necessary. ITEM 3. LEGAL PROCEEDINGS The Company is involved in several lawsuits incidental to the ordinary conduct of its business. Under the terms of the sale of the Company's environmental business, the Company is required to indemnify the purchaser against liabilities arising out of pending litigation. The Company does not believe that the outcome of any or all these claims will have a material adverse effect upon its business or financial condition or result of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On December 20, 1996, a special meeting (the "Special Meeting") of stockholders of Handex Corporation (now New Horizons Worldwide, Inc.) was held at the Company's corporate headquarters at 500 Campus Drive, Morganville, New Jersey. Holders of Common Stock of record at the close of business on November 15, 1996, were entitled to vote at the Special Meeting. Approval of each issue to be voted upon required the affirmative vote of the holders of a majority of the outstanding shares of Handex Common Stock entitled to vote at the Special Meeting. The Special Meeting was called for the following purposes: 1. To consider and act upon a proposal to authorize, approve and adopt a Stock Purchase Agreement (the "Agreement") dated November 4, 1996, by and between Handex Corporation and ECB, Inc., a Florida corporation ("ECB") pursuant to which Handex would sell all of the issued and outstanding shares of capital stock of its wholly-owned subsidiary Handex Environmental, Inc., a Delaware corporation, to ECB upon the terms and for the consideration set forth in the Agreement. 2. To consider and act upon a proposal to amend the provisions of Article First of the Company's Certificate of Incorporation to change the Company's corporate name from "Handex Corporation" to "New Horizons Worldwide, Inc.," subject to consummation of the transactions contemplated by the Agreement. 3. To transact such other business as may properly come before the Special Meeting. The results of the vote were as follows: Proposal 1. Votes for 5,352,630; votes against 7,365; broker non-votes 81,721; abstentions 4,025. Proposal 2. Votes for 5,438,601; votes against 2,990; broker non-votes 0; abstentions 4,150. Based on the authorization received from stockholders, on December 27, 1996, the Company completed the transaction to sell the environmental segment of its business and changed the Company's name from "Handex Corporation" to "New Horizons Worldwide, Inc." 8 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Common stock is traded on the NASDAQ National Market System under the symbol NEWH. The following table sets forth the range of high and low bid quotations per share of Common stock from January 1, 1995 through December 28, 1996, as reported by the NASDAQ system. 1996 HIGH LOW - ---- ---- --- 1st Quarter (December 31 - March 30) 5 3/4 4 7/8 2nd Quarter (March 31 - June 29) 11 1/2 5 1/8 3rd Quarter (June 30 - September 28) 11 3/8 6 3/4 4th Quarter (September 29 - December 28) 14 5/8 9 3/4 1995 HIGH LOW - ---- ---- --- 1st Quarter (January 1 - April 1) 9 6 7/8 2nd Quarter (April 2 - July 1) 8 1/4 4 1/2 3rd Quarter (July 2 - September 30) 8 1/8 6 1/4 4th Quarter (October 1 - December 30) 7 3/8 4 5/8 As of March 3, 1997, the Company's Common stock was held by 228 holders of record. The Company has never paid cash dividends on its Common stock and has no present intention to pay cash dividends in the foreseeable future. The Company currently intends to retain any future earnings to finance the growth of the Company. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Summary Consolidated Financial Data (in thousands, except per share) SELECTED CONSOLIDATED 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- STATEMENTS OF OPERATIONS DATA: Total revenues $41,269 $23,734 $5,989 $ -- $ -- Cost of revenues 20,599 13,165 3,269 -- -- Selling, general and administrative expenses 19,063 11,757 2,813 -- -- ------- ------- ------ ------ ------ Operating income (loss) 1,607 (1,188) (93) -- -- Interest income (expense) net (140) 131 43 -- -- ------- ------- ------ ------ ------ Income (loss) from continuing operations before income taxes 1,467 (1,057) (50) -- -- Provision for income taxes (benefits) 669 (440) (35) -- -- ------- ------- ------ ------ ------ Income (loss) from continuing operations 798 (617) (15) -- -- Income (loss) from discontinued operations Less applicable income taxes of $85, $510, $1,569 for 1996, 1995 and 1994, respectively (130) 424 2,346 1,374 1,933 Loss on disposal of discontinued operations (7,303) -- -- -- -- ------- ------- ------ ------ ------ Income (loss) on discontinued operations (7,433) 424 2,346 1,374 1,933 ------- ------- ------ ------ ------ Net income (loss) $(6,635) $ (193) $2,331 $1,374 $1,933 ======= ======= ====== ====== ====== Income (loss) per share From continuing operations $ 0.12 $ (0.09) $0.00 $ 0.00 $ 0.00 From discontinued operations $ (1.08) $ 0.06 $0.34 $ 0.20 $ 0.28 Net income (loss) per share $ (0.96) $ (0.03) $0.34 $ 0.20 $ 0.28
SELECTED CONSOLIDATED BALANCE SHEET DATA DECEMBER 28, DECEMBER 30, DECEMBER 31, JANUARY 1 DECEMBER 31 SELECTED CONSOLIDATED BALANCE SHEET DATA: 1996 1995 1994 1994 1992 ------------ ------------ ----------- --------- ----------- Working Capital $22,830 $28,898 $30,802 $38,194 $36,129 Total Assets 60,472 56,477 53,651 52,393 50,629 Long Term Obligations Less Current Installments 2,330 650 464 -- -- Total Stockholder's Equity 43,757 49,428 49,637 47,060 46,253
9 (1) Certain reclassifications were made in 1995, 1994, 1993 and 1992 to conform with the presentation in 1996. (2) The operating results of New Horizons are included in 1996 and 1995 for the entire year and for the period from August 15, 1994 through December 31, 1994 for 1994. The Company acquired certain assets of a computer training school and all the issued and outstanding shares of stock of a computer training franchising company on August 15, 1994. The Company entered the technology training and education market with these acquisitions. (3) Net income per share of Common Stock is computed based on the weighted average number of common shares outstanding during the year as adjusted for stock repurchases in 1992 and 1993. Inclusion of the incremental shares applicable to outstanding stock options in the computation would have no material effect. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes and "SELECTED CONSOLIDATED FINANCIAL DATA" included elsewhere in this report. GENERAL - ------- The Company operates computer training centers in the United States and franchises computer training centers in the United States and abroad. Prior to the sale of Handex Environmental, the Company also operated an environmental remediation business. As a result of the completion of the sale of Handex Environmental, Inc. to ECB, the results of operations for the Company's environmental business segment have been classified as discontinued operations for all periods presented in the accompanying consolidated financial statements. Although the Company operates in a single business segment, its operations are comprised of two distinct business; one operates wholly-owned computer training centers, and the other supplies systems of instruction, sales and management concepts concerning computer training to independent franchisees. Corporate revenues are defined as revenues from company-owned training centers, initial franchise fees and royalties from franchised operations. Systemwide revenues are defined as total revenues from all centers, both company-owned and franchised. Systemwide revenues are used to gauge the growth rate of the entire New Horizons training network. Revenues from company-owned training centers operated by New Horizons consist primarily of training fees and fees derived from the sale of courseware material. Cost of revenues consists primarily of instructor costs, rent, utilities, and classroom equipment; courseware development costs; and computer hardware, software and peripheral expenses. Included in selling, general and administrative expenses are costs associated with technical support personnel, facilities support personnel, scheduling personnel, training personnel, accounting and finance personnel and sales executives. Revenues for the franchising operation consist primarily of initial franchise fees paid by franchisees for the purchase of specific franchise territories and franchise rights; training royalty and advertising fees based on a percentage of gross training revenues realized by the franchisees; and percentage royalty fees received on the gross sales of courseware. Cost of revenues consists primarily of costs associated with franchise support personnel who provide system guidelines and advice on daily operating issues including sales, marketing, instructor training, and general business problems. Included in selling, general and administrative expenses are technical support, courseware development, accounting and finance support, major account program support, advertising expenses, and franchise sales expenses. SALE OF ENVIRONMENTAL BUSINESS UNIT AND CHANGE OF CORPORATE NAME On December 27, 1996, Handex Corporation completed the sale of its environmental business segment to ECB, Inc. ("ECB"), a Florida corporation, and simultaneously changed its name from Handex Corporation to New Horizons Worldwide, Inc.(the "Company" or "New Horizons"). This name change was effected so as to more closely identify with its continuing educational training business, which conducts business under the name New Horizons Computer Learning Centers. Both the transaction and the name change were authorized by stockholders at a Special Meeting of the Stockholders held on December 20, 1996. DESCRIPTION OF THE TRANSACTION The Company sold all of the issued and outstanding shares of capital stock of Handex Environmental, Inc., a wholly-owned subsidiary of the Company, to ECB, Inc. Handex Environmental, Inc. was a holding company for several subsidiaries ("Environmental Subsidiaries") which conducted the Company's environmental remediation services. 10 Under the sale agreement, ECB acquired the stock of the Company's environmental subsidiaries with a net asset value of $10.3 million for $4.6 million in cash, and other consideration, including a promissory note and preferred stock in the amount of $3.7 million and $2.0 million, respectively. Assets of the discontinued segment in excess of $10.3 million, consisting principally of accounts receivable were retained by the Company. The Company incurred a loss on the disposal of the segment of $7.3 million consisting primarily of valuation reserves on the promissory note and the preferred stock in the amount of $2,960,000 and $1,600,000, respectively, a goodwill write-off of $1,785,000 and transaction costs of approximately $966,000. There is no expected tax benefit from this loss. CONSIDERATION RECEIVED BY THE COMPANY; USE OF PROCEEDS The Company received aggregate consideration in the face amount of approximately $21,954,000. The consideration received by the Company from ECB consisted of: (i) $4,600,000 in cash; (ii) a promissory note in the original principal amount of $3,700,000 (subject to adjustment in certain events) due on April 30, 2002 and bearing interest at the rate of 6% per annum; (iii) 2,000 shares of Series A Preferred Stock, stated value $1,000 per share of ECB; (iv) a six-year warrant to acquire 300,000 common shares of ECB at a price of $1.32 per share ("Warrant A"); (v) a six-year Warrant to acquire 85,000 common shares of ECB at a price of $1.60 per share ("Warrant B") (Warrant A and Warrant B are collectively referred to herein as the "Warrants"); and (vi) one-third of the redemption value of a small interest in a joint venture, when paid or available to be paid to ECB. In addition, immediately prior to the closing, the Company received a dividend of cash, accounts receivable and other assets owned by the Environmental Subsidiaries having a book value of $11,654,000 at December 27, 1996. The face amount of the non-cash consideration received the by the Company (excluding the Warrants) was $5.7 million. However, because ECB is a newly organized entity with no history of prior operations, and because of the significant amount of indebtedness that ECB incurred in connection with the transaction, the Company established a valuation reserve with respect to the non-cash consideration in the amount of $4.6 million. In addition, neither the warrants nor the interest in the joint venture were given any value in determining the loss on the disposal of the environmental business or for balance sheet presentation purposes. The Company intends to use the cash proceeds from the sale to provide working capital to finance the development and continued expansion of its educational business segment, fund potential acquisitions, if any, and for other general corporate purposes. As a result of the divestiture and discontinuance of its environmental business, the Company incurred certain operating and transaction costs. Included in the 1996 financial statements is the loss on discontinued operations of $7,433,000, which consists primarily of the write-off of goodwill, operating losses, transaction costs, and valuation reserves. The charge was taken in the third quarter of 1996 and there is no expected Federal income tax benefit from the loss on the disposal of the environmental segment. For a more detailed description of the transaction, see the Company's Proxy Statement dated December 3, 1996, and the appendices thereto and information incorporated by reference therein. RESULTS OF OPERATIONS 1996 VERSUS 1995 - --------------------- ---------------- REVENUES OF CONTINUING OPERATIONS Revenues for 1996 increased $17,536,000 to $41,269,000 or 73.9% over the $23,733,000 realized in 1995. Revenues include revenues from company-owned locations, initial franchise fees and royalties from franchise operations. The increase in revenues was attributable to growth in each revenue category reported by the Company. Revenues at Company-owned locations and from its franchising operations for 1996 were significantly higher compared with 1995. Revenues at company-owned centers increased 68.2% to $31,425,000 from $18,686,000 in 1995. The increase was primarily attributable to a 46.2% growth in revenues at company-owned centers open over one year, which was due to more effective use of physical facilities and the addition of classrooms. In addition, the increase was partially attributable to the opening of a company-owned training center in Los Angeles during the first quarter of 1996, and the inclusion of the results of the Cleveland training center which the Company began consolidating effective the beginning of fiscal 1996 when the Company assumed full control of its operations. In the Company's franchising operation, initial franchise fees increased 88.6% to $1,270,000 from $674,000 in 1995. The increase was due primarily to the greater number of franchises sold in 1996 versus 1995. Franchise royalty fees for 1996 were $8,574,000, up 96% over the 1995 total of $4,374,000. The increase was principally due to a 65.8% revenue 11 increase at locations open more than one year and the addition of 41 franchise locations during the year. At the end of 1996, there were 147 franchise locations in operation, up 38.7% over the 106 in operation at the end of 1995. One hundred three locations operate in the United States while 44 operate in 23 countries around the world. Systemwide revenues, which are defined as revenues from all centers, both company-owned and franchised, increased to $192 million at the end of 1996, up 86% from $103 million in 1995. COST OF REVENUES OF CONTINUING OPERATIONS Cost of revenues increased $7,436,000 or 56.5% for 1996 compared to 1995. As a percentage of revenues, cost of revenues declined to 49.9% for 1996 from 55.5% for 1995. Cost of revenues includes direct training costs, such as instructor payroll and benefits, facilities rent, cost of computer equipment, courseware development, and other training delivery costs. For 1996 the increase in cost of revenues was due primarily to higher training, courseware and depreciation/amortization expenses, costs associated with the opening of the Company's new company-owned training center in Los Angeles, and costs associated with the Cleveland operations. The decrease in cost of revenues as a percentage of revenues was primarily due to improved absorption of fixed costs and increased revenues. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES OF CONTINUING OPERATIONS Selling, general and administrative expenses increased $7,305,000 or 62.1% for 1996 compared to 1995. As a percentage of revenues, selling, general and administrative expenses declined to 46.2% for 1996 from 49.5% for 1995. The increase in absolute dollars for selling, general and administrative expenses was due primarily to growth in spending in the areas of sales and marketing (creation of a marketing department), national advertising, the implementation of the major accounts program, expansion of support for the technical training business, and expenses associated with the Los Angeles and Cleveland operations. The decrease in selling, general and administrative expense as a percentage of revenues was principally due to the significant growth in revenues. Selling, general and administrative expenses for 1995 include a provision for an investment loss and an asset write-off in the aggregate of $812,000. In February 1995, the Company acquired a minority interest in a limited liability company by contributing the assets of its Cleveland operations and cash. In the third quarter of 1995, an affiliate of the venture's majority member filed for bankruptcy and the Company assumed management of the center. The Company has provided for the loss on the joint venture in the amount of $650,000. Operating results of this operation have been consolidated with the Company's continuing operations since January 1996. In addition, the Company wrote off the unamortized developmental costs of a software program which had been in development prior to its acquisition by the Company in August 1994. The write-off amounted to $161,748. 12 OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS Operating income for 1996 rose to $1,607,000 from a loss of $1,188,000 incurred in 1995. As a percentage of revenues, operating income was 3.9% compared to a loss of 5.0% in 1995. The increase in operating income for 1996 in absolute dollars and as a percentage of revenues was due principally to a significant growth in company-owned and franchising revenues. INTEREST INCOME (EXPENSE) FROM CONTINUING OPERATIONS Interest income for 1996, decreased $20,000 or 8.6% to $211,000 compared with $231,000 in 1995. As a percentage of revenues, interest income declined to 0.5% for 1996 from 1.0% for 1995. The decline in interest income in absolute dollars was due mainly to the utilization of cash reserves to satisfy the working capital needs of the discontinued environmental segment early in 1996. The decline in interest income as a percentage of revenues was primarily due to the growth in revenues. Interest expense increased $251,000 to $351,000 for 1996 or 250.0% compared to 1995. As a percentage of revenues, interest expense rose to 0.9% from 0.4% in 1995. The rise in interest expense, both in absolute dollars and as a percentage of revenues, was due mainly to purchases of equipment under capital lease arrangements. INCOME TAXES OF CONTINUING OPERATIONS The provision for income taxes as a percentage of income before income taxes was 45.6% for 1996 compared with a provision for income tax benefit of 41.6% for 1995. NET INCOME (LOSS) OF CONTINUING OPERATIONS Net income for 1996 was $798,000 compared to a net loss of $617,000 for 1995. Included in the 1995 results were provisions for a loss on an investment and an asset write-off in the aggregate of $812,000 pretax. RESULTS OF OPERATIONS 1995 VERSUS 1994 - --------------------- ---------------- REVENUES OF CONTINUING OPERATIONS Revenues for 1995 increased $17,744,000 to $23,733,000 or 296.3% over the $5,989,000 realized in 1994. 1994 revenues covered the period August 15, 1995 through December 31, 1994. The Company acquired the New Horizons operations effective August 15, 1994. The increase in revenues was attributable to growth in each revenue category reported by the Company. Revenues at company-owned locations and from its franchising operations for 1995 were significantly higher compared with 1994. Revenues at company-owned centers increased 285.3% to $18,686,000 from $4,850,000 (1994 revenues were for the period August 15, 1994 through December 31, 1994) in 1994. The increase was attributable to growth at the Company's principal company-owned location in Santa Ana, California, and revenue contributions from the company-owned Chicago (October 1994) and New York (February 1995) training centers, both of which were acquired from franchisees as part of the Company's strategy to own and operate training centers in major domestic metropolitan markets. In the Company's franchising operation, initial franchise fees increased 201.7% to $674,000 from $223,000 in 1994. The increase was due to the greater number of franchises sold in 1995 versus 1994. Franchise royalty fees for 1995 were $4,374,000, up 377.5% over the 1994 total of $916,000. The increase was principally due to increased revenues at locations open over one year and the addition of 36 franchise locations during the year. At the end of 1995, there were 106 franchise locations in operation, up 51.4% over the 70 in operation at the end of 1994. Seventy-seven of the locations operated in the United States while 29 operated internationally. Systemwide revenues, which are defined as revenues from all centers both company-owned and franchised, increased to $103 million at the end of 1995, up 98% from $52 million in 1994. COST OF REVENUES OF CONTINUING OPERATIONS The Company's cost of revenues increased $9,895,000 or 302.6% in 1995 compared to 1994 (August 15, 1994 to December 31, 1994). As a percentage of revenues, cost of revenues increased to 55.5% in 1995 from 54.6% in 1994. 13 The increase in absolute dollars for cost of revenues was due primarily to the 1994 period consisting of four and one-half months compared to a full year for 1995. The increase in cost of revenues as a percentage of revenues was due primarily to higher personnel and facilities costs and higher costs relative to revenues associated with New Horizons' start-up operations in Chicago and New York. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES OF CONTINUING OPERATIONS The Company's selling, general and administrative expenses increased $8,944,000 or 317.9% in 1995 compared to 1994 (four and one-half month period). As a percentage of revenues, the Company's selling, general and administrative expenses increased to 49.5% in 1995, from 44.8% in 1994. The increase in the Company's selling, general and administrative expenses was primarily due to lower revenues associated with its start-up operations in Chicago and New York. In the third quarter of 1995, the Company recognized pretax charges totaling $812,000 or 3.4% of revenues. See discussion of this charge in the section on Selling, General and Administrative Expenses for continuing operations for 1996 versus 1995. OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS In 1995, the Company suffered an operating loss of $1,188,000, an increase of $1,095,00 from the $93,000 loss suffered in 1994. The increased loss was due principally from the provision for a loss in a joint venture and an asset write-off which totaled $812,000 pretax. In addition, there were facilities and employee-related expenses and lower operating income relative to revenues associated with the franchise conversions in Chicago and New York. INTEREST INCOME (EXPENSE) OF CONTINUING OPERATIONS Interest income for 1995 increased $151,000 or 191.0% to $231,000 compared with $79,000 in 1994. As a percentage of revenues, interest income declined to 1.0% for 1995 from 1.3% for 1994. Interest expense increased $64,000 to $100,000 for 1995 or 180.0% compared to 1994. As a percentage of revenues, interest expense declined to 0.4% from 0.6% in 1994. The rise in interest expenses, in absolute dollars, was due mainly to purchases of equipment under capital lease arrangements. The decline in interest expense as a percentage of revenues was due mainly to the significant increase in revenues. INCOME TAXES OF CONTINUING OPERATIONS The provision for income tax benefit as a percentage of income before income taxes was 41.6% for 1995 compared with a provision for income tax benefit of 68.7% for 1994. The decline in the provision for income tax benefits was due primarily to a lower proportion of tax-free interest income as a percentage of operating loss in 1995 compared to 1994. NET INCOME (LOSS) FROM CONTINUING OPERATIONS. The net loss for 1995 was $617,000 compared to a net loss of $15,000 for 1994. Included in the 1995 results was a pretax charge of $812,000 associated with a loss on an investment and an asset write-off. DISCONTINUED OPERATIONS - ----------------------- RESULTS OF DISCONTINUED OPERATIONS 1996 VERSUS 1995, AND 1995 VERSUS 1994 As a result of the sale of the environmental business, the Company incurred a third quarter non-cash, after tax charge of $7.3 million, or $1.06 per share. This charge, representing a loss on the disposal of discontinued operations, consists primarily of the write-off of goodwill which approximated $1.8 million, transaction costs which approximated $966,000 and valuation reserves that totaled about $4.6 million. An operating loss from discontinued operations of $130,000, or $0.02 per share combined with the loss on disposal, resulted in a full year 1996 loss from discontinued operations of $7.4 million or $1.08 per share. In combining continued and discontinued operations, the Company reported a 1996 net loss of $6.6 million or $0.96 per share compared with prior year loss of $193,000 or $0.03 per share. Earnings from discontinued operations for 1995 were $424,000 or $0.06 per share; for 1994, discontinued operations earned $2,347,000 or $0.34 per share. The reduction in earnings, for the discontinued operations for the period 1994 to 1996, was a result of increased competition, changes in regulations, and increased cost consciousness on the part of customers. 14 LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- As of December 28, 1996, the Company's current ratio was 2.7 to 1, working capital was $22,830,000 and its cash, cash equivalents and short term investments totaled over $11,711,000. Working capital as of December 28, 1996, reflected a decrease of $6,068,000 from $28,898,000 as of December 30, 1995. The decrease was due principally to the loss on the disposal of the environmental business. On December 30, 1996, the Company received cash proceeds from the sale of the environmental business of $4,600,000. These funds were received from the purchasers of the environmental business after the close of the 1996 fiscal year. The receivable from ECB is presented as part of "Other Current Assets" on the December 28, 1996 balance sheet. In addition, the Company as part of the sale transaction of the environmental business, retained over $9,300,000 in net accounts receivable. The Company expects the majority of the retained accounts receivables to be converted to cash by the end of the third quarter of 1997. Approximately $3,500,000 of the retained receivables are due from the State of Florida's Inland Protection Trust Fund. The payment terms for these receivables is dependent on the State's funding position and can take from 13 months to over two years to be paid. In a separate transaction, closed on March 6, 1997, the Company received cash consideration of $2,600,000 in return for releasing the franchise obligations of an owner of four New Horizons franchises in New York State. The Company presently intends to use the proceeds from both transactions, and the cash collected from the retained accounts receivable, to support the expansion of the educational business. The Company currently maintains two credit facilities with a commercial bank providing aggregate availability of $2.5 million. Amounts outstanding under these facilities bear variable interest rates. The facilities are designed to support capital equipment and working capital needs. The facilities expire June 1997. There were no outstanding balances under these facilities as of December 28, 1996. A credit facility maintained for the Company's divested environmental business was terminated during the fourth quarter of 1996. The nature of the information technology and training industry requires substantial cash commitments for the purchase of state-of-the-art computer equipment, software and training facilities. During 1996, New Horizons spent approximately $5,083,000 on capital items. Capital expenditures for 1997 are expected to total $5,000,000. Management believes that its current working capital position, cash flows from operations, cash collected from retained accounts receivable, along with its credit facilities, will be adequate to support its current and anticipated capital expenditures and its strategies to grow its computer education and training business. IMPACT OF INFLATION - ------------------- Inflation has not had a significant impact on the Company's historical operations. IMPACTS OF ACCOUNTING PRONOUNCEMENTS - ------------------------------------ The Company's management is not aware of any current recommendations by regulatory authorities which, if they were implemented, would have a material effect on the liquidity, capital resources or operations of the Company. All applicable Statements of Financial Accounting Standards that have been issued and have effective dates impacting 1996 and prior years' financial statements have been adopted by the Company. The Company believes there are no Statements of Financial Accounting Standards which have been issued and have implementation dates in the future which will materially impact the financial statements of future years. The Company applies APB Option No. 25, Accounting for Stock Issued to Employees, in accounting for stocks issued under its Stock Option Plan and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS 123, Accounting for Stock-Based Compensation, its net income would have been reduced by an immaterial amount. 15 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Pages 24 to 44 contain the Financial Statements and supplementary data specified for Item * of Part II of Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 16 NEW HORIZONS WORLDWIDE, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 28, 1996 Page ---- REPORT OF INDEPENDENT AUDITORS F-2 FINANCIAL STATEMENTS Consolidated Balance Sheets F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Stockholders' Equity F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-8 - F-16 SCHEDULES Schedule II Valuation and Qualifying Accounts and Revenues 21 All other schedules have been omitted because the material is not applicable or is not required as permitted by the rules and regulations of the Commission, or the required information is included in Notes to Consolidated Financial Statements. F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders New Horizons Worldwide, Inc.: We have audited the consolidated financial statements of New Horizons Worldwide, Inc. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of New Horizons Worldwide, Inc. and subsidiaries as of December 28, 1996, and December 30, 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 28, 1996 in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG PEAT MARWICK LLP - ------------------------- KPMG Peat Marwick LLP Cleveland, Ohio February 14, 1997 F-2
CONSOLIDATED BALANCE SHEETS NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES DECEMBER 28, 1996 AND DECEMBER 30, 1995 ASSETS 1996 1995 - ------ ------------ ------------ Current assets: Cash and cash equivalents $11,410,868 $ 3,652,408 Marketable securities (note 1d) 300,000 2,775,000 Accounts receivable, less allowance for doubtful accounts of $1,610,854 in 1995 and $981,745 in 1995 (note 3) 17,703,228 15,973,657 Inventories 606,453 352,196 Prepaid expenses 538,809 375,494 Refundable income tax -- 464,603 Deferred income tax assets (note 4) 825,329 781,251 Other current assets (note 5) 5,032,769 166,170 Net assets of discontinued operations -- 10,335,268 ----------- ----------- Total current assets 36,417,456 34,876,047 ----------- ----------- Property, plant and equipment, at cost: (note 2) Leasehold improvements 1,470,707 661,775 Equipment 7,413,307 3,585,406 Furniture and fixtures 1,847,143 852,890 ----------- ----------- 10,731,157 5,100,071 Less accumulated depreciation and amortization (3,926,383) (1,355,100) ----------- ----------- Net property, plant and equipment 6,804,774 3,744,971 Excess of cost over net assets of acquired companies, net of accumulated amortization of $868,143 in 1996 and $842,095 in 1995 13,920,041 16,121,258 Cash surrender value of life insurance (note 5) 674,350 909,839 Other assets (note 5) 2,655,761 824,910 ----------- ----------- $60,472,382 $56,477,025 =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY - ---------------------------------- Current liabilities: Current installments of long-term obligations (note 2) $ 1,449,052 $ 447,227 Accounts payable 4,614,466 905,923 Income taxes payable 96,145 -- Other current liabilities (note 6) 7,427,813 4,624,825 ----------- ----------- Total current liabilities 13,587,476 5,977,975 Long-term obligations, excluding current installments (note 2) 2,329,672 649,941 Deferred income tax liability (note 4) 798,215 420,815 Stockholders' equity: Preferred stock without par value, 2,000,000 shares authorized, no shares issued -- -- Common stock, $.01 par value, 15,000,000 shares authorized; issued, 7,163,660 shares in 1996 and 7,050,212 shares in 1995 71,637 70,502 Additional paid in capital 25,312,279 24,349,542 Retained Earnings 19,671,228 26,306,375 Treasury stock at cost - 185,000 shares in 1996 and 1995 (1,298,125) (1,298,125) ----------- ----------- Total stockholders' equity 43,757,019 49,428,294 Commitments and contingencies (notes 9 and 13) -- -- ----------- ----------- $60,472,382 $56,477,025 =========== ===========
See accompanying notes to consolidated financial statements F-3
CONSOLIDATED STATEMENTS OF OPERATIONS NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995 AND DECEMBER 31, 1994 1996 1995 1994 ----------- ----------- ---------- Revenues Franchising Franchise fees $ 1,270,500 $ 673,588 $ 223,275 Royalties 8,573,968 4,373,883 915,960 ----------- ----------- ---------- Total franchising revenues 9,844,468 5,047,471 1,139,235 Company-owned training centers 31,425,027 18,685,737 4,849,899 ----------- ----------- ---------- Total revenues 41,269,495 23,733,208 5,989,134 Cost of revenues 20,599,592 13,164,000 3,269,495 Selling, general and administrative expenses 19,062,680 11,757,631 2,813,454 ----------- ----------- ---------- Operating income (loss) 1,607,223 (1,188,423) (93,815) Interest income (expense), net (140,347) 130,595 43,520 ----------- ----------- ---------- Income (loss) from continuing operations before income taxes 1,466,876 (1,057,828) (50,295) Provision for income taxes (benefits) (note 4) 668,982 (440,474) (34,560) ----------- ----------- ---------- Income (loss) from continuing operations 797,894 (617,354) (15,735) Income (loss) from discontinued operations Less applicable income taxes of $84,583, $509,983 and $1,569,357 for 1996, 1995 and 1994, respectively (130,041) 424,313 2,346,777 Loss on disposal of discontinued operations (7,303,000) -- -- ----------- ----------- ---------- Income (loss) from discontinued operations (7,433,041) 424,313 2,346,777 ----------- ----------- ---------- Net income (loss) $(6,635,147) $ (193,041) $2,331,042 =========== =========== ========== Income (loss) per share from continuing operations (Note 1) 0.12 $ (0.09) $ -- Income (loss) per share from discontinued operations $ (1.08) $ 0.06 $ 0.34 ----------- ----------- ---------- Net income (loss) per share $ (0.96) $ (0.03) $ 0.34 =========== =========== ==========
F-4 See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995 AND DECEMBER 31, 1994 ADDITIONAL COMMON STOCK PAID-IN RETAINED TREASURY STOCKHOLDERS' SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY --------- ------- ------------ ----------- ----------- ------------ BALANCE AT JANUARY 1, 1994 6,855,212 $70,402 $24,119,669 $24,168,374 $(1,298,125) $47,060,320 Issuance of Common Stock for stock options 10,000 100 64,900 -- -- 65,000 Income tax benefit from the exercise of stock options -- -- 1,997 -- -- 1,997 Issuance of warrants on Common Stoc -- -- 179,000 -- -- 179,000 Net income, year ended December 31, 1994 -- -- -- 2,331,042 -- 2,331,042 --------- ------- ----------- ----------- ----------- ----------- BALANCE AT DECEMBER 31, 1994 6,865,212 70,502 24,365,566 26,499,416 (1,298,125) 49,637,359 Registration expense for warrants issued in 1994 -- -- (16,024) -- -- (16,024) Net loss, year ended December 30, 1995 -- -- -- (193,041) -- (193,041) --------- ------- ----------- ----------- ----------- ----------- BALANCE AT DECEMBER 30, 1995 6,865,212 70,502 24,349,542 26,306,375 (1,298,125) 49,428,294 Issuance of Common Stock for stock options 113,448 1,135 742,094 -- -- 743,229 Income tax benefit from the exercise of stock options -- -- 224,243 -- -- 224,243 Registration expense for warrants issued in 1994 -- -- (3,600) -- -- (3,600) Net loss, year ended December 28, 1996 -- -- -- (6,635,147) -- (6,635,147) --------- ------- ----------- ---------- ----------- ----------- BALANCE AT DECEMBER 28, 1996 6,978,660 $71,637 $25,312,279 $19,671,228 $(1,298,125) $43,757,019 ========= ======= =========== =========== =========== ===========
See accompanying notes to consolidated financial statements F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995 AND DECEMBER 31, 1994 1996 1995 1994 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(6,635,147) $ (193,041) $ 2,331,042 ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and amortization 2,863,405 1,724,023 325,271 Loss on equipment/software write-off 44,519 161,748 -- Deferred income taxes 16,768 40,601 (12,483) Cash provided (used) from the change in: Accounts receivable (1,547,077) (88,061) (4,764,413) Inventories (236,863) (198,424) (51,979) Prepaid expenses and other current assets (429,914) (259,793) 163,691 Other assets (389,797) (500,619) 140,686 Accounts payable 3,459,559 426,270 182,320 Accrued expenses 2,555,357 2,218,028 232,814 Income tax payable/refundable 739,862 (83,949) (658,429) Non-cash charges and working capital changes from discontinued operations 7,767,991 1,552,022 2,382,922 ----------- ----------- ------------ Net cash provided by operating activities 8,208,663 4,798,805 271,442 ----------- ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities -- (5,775,000) (17,855,000) Redemption of marketable securities 2,475,000 6,940,000 37,010,000 Additions to property, plant and equipment: Continuing operations (4,943,098) (2,688,458) (1,194,214) Discontinued operations (1,010,213) (1,500,578) (2,282,024) Cash paid for acquired companies, net of cash acquired: Continuing operations (56,403) (500,327) (14,531,722) Discontinued operations -- (368,262) -- ----------- ----------- ------------ Net cash (used in) provided by investing activities (3,534,714) (3,892,625) 1,147,040 ----------- ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 743,229 -- 65,000 Proceeds from debt obligations 3,412,734 766,992 556,030 Principal payments on debt obligations (1,067,852) (714,171) (153,960) Other (3,600) (16,024) -- ----------- ----------- ------------ Net cash provided in financing activities 3,084,511 36,797 467,070 ----------- ----------- ------------ Net increase in cash and cash equivalents 7,758,460 942,977 1,885,552 Cash and cash equivalents at beginning of period 3,652,408 2,709,431 823,879 ----------- ----------- ------------ Cash and cash equivalents at end of period $11,410,868 $ 3,652,408 $ 2,709,431 =========== =========== ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash was paid for: Interest $ 351,325 $ 104,460 $ 37,042 =========== =========== ============ Income taxes $ 287,465 $ 568,650 $ 2,144,135 =========== =========== ============
F-6 NON-CASH INVESTING AND FINANCING ACTIVITIES In 1995, the Company acquired certain assets of New Horizons' New York franchise and a Florida based environmental concern for an aggregate cash price and related expenses of approximately $830,000. There were no liabilities assumed in either acquisition. In August 1994, the Company acquired certain assets and liabilities of a computer training school and all the issued and outstanding shares of stock of a computer training franchising company at an aggregate cash price of $14,000,000 and related cash expenses of approximately $600,000 and non-cash expense of $179,000. The non-cash expense represents the excess of the fair market value over the issue price on warrants on 40,000 shares of the Company's Common Stock. Liabilities assumed totaled $2,446,000. See accompanying notes to consolidated financial statements F-7 NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 28, 1996, December 30, 1995 and December 31, 1994 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ----------------------------------------------------------- (a) NATURE OF OPERATIONS On December 27, 1996, the Company completed a transaction to sell its environmental business, and simultaneously changed its name from Handex Corporation to New Horizons Worldwide, Inc., to more closely identify with its continuing educational training business. As a result of the transaction, the Company's educational business is its sole business and the Company no longer owns the environmental business. New Horizons Worldwide, Inc., the surviving company remains a public company, trading under the symbol "NEWH" on NASDAQ. The net assets and results of operations of Handex Environmental, Inc., have been reflected as discontinued operations in the accompanying consolidated financial statements through December 28, 1996. Effective with the sale of the environmental segment on December 27, 1996, the Company operates in one industry, education and training. The Company's training centers provide application software and technical certification training to a wide range of employer-sponsored individuals from national and international public and private corporations, service organizations and government agencies. As of December 28, 1996, the Company and its franchisees delivered training in seven company-owned and 147 franchised locations in 24 countries around the world. (b) BASIS OF ACCOUNTING AND PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of New Horizons Worldwide, Inc., and its subsidiaries, all of which are wholly-owned. All significant intercompany balances and transactions have been eliminated in consolidation. (c) REVENUE RECOGNITION Revenues for training services are recognized as training is provided. Training for applications software typically lasts one day while training for technical certification lasts from three to five days. Revenues for longer-term instruction are recognized pro-rata over the term of the course. Franchise royalty fees are recognized in the month earned. Initial franchise fees are recognized when the Company has supplied substantially all of the services and met all of the conditions of the sale of the franchise rights. (d) MARKETABLE SECURITIES Funds retained for future use in the business are temporarily invested in tax-exempt bonds and municipal funds. F-8 Effective January 2, 1994, the Company adopted Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in debt and Securities" ("SFAS 115"). SFAS 115 requires the accounting for certain investments in debt and equity securities based on certain specific guidelines. The Company's investments are presented at their aggregate face value. Amounts paid over face value are amortized through maturity. Unamortized premiums amounted to $2,707 and are included in other current assets. As of December 28, 1996 and December 30, 1995, the Company's security portfolio had aggregate fair market values of $300,000 and $2,775,000, respectively. There were no unrealized gains or losses as of December 28, 1996. There were also no gains or losses realized from the redemption of securities during the year. (e) INVENTORIES Inventories are stated at the lower of cost or market. Inventory costs are determined using the first-in, first-out (FIFO) method. (f) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the respective assets, using the straight line method as follows: Equipment 3 to 5 years Furniture and fixtures 5 to 10 years Leasehold Improvements Term of lease (g) INCOME TAXES The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years when those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. When options granted under the Company's stock option plans are exercised, the Company receives a tax deduction related to the difference between the market value of its Common Stock at the date of exercise and the sum of the exercise price and any compensation expense recognized for financial reporting purposes. The tax benefit resulting from this tax deduction is reflected as a decrease in the Company's income tax liability and an increase to additional paid-in capital. (h) EXCESS OF COST OVER NET ASSETS ACQUIRED The excess of cost over net assets acquired is being amortized on a straight-line basis principally over 40 years. (i) ASSET IMPAIRMENTS The Company periodically reviews the carrying value of certain of its assets in relation to historical results, current business conditions and trends to identify potential situations in which the carrying value of assets may not be recoverable. Such assets would include, cost in excess of fair market value of net assets of acquired businesses and other identifiable intangible assets. If such reviews indicate that the carrying value of such assets may not be recoverable, the Company would estimate the undiscounted sum of the expected future cash flows to determine if they are less than the carrying value of such assets to ascertain if a permanent impairment has occurred. The carrying value of any impaired assets will be reduced to fair market value. F-9 In March 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This standard release requires the Company to review long-lived assets and certain identifiable intangibles to be held and used or to be disposed of for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For 1996 the impact of the adoption of FASB 121 was immaterial to the Company's consolidated statement of operations. (j) CASH AND CASH EQUIVALENTS For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments with purchased maturities of three months or less to be cash equivalents. (k) NET INCOME PER SHARE The computation of net income per share of Common stock is based on the average number of shares outstanding during each year. Inclusion of the incremental shares applicable to outstanding stock options in the computation using the treasury stock method would have no material dilutive effect. Dilutive options are not considered in the calculation of net loss per share. The average number of shares outstanding used in determining net income per share was 6,881,604 in 1996, 6,865,212 in 1995, and 6,863,069 in 1994. (l) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (m) RECLASSIFICATION Certain items on the 1995 and 1994 consolidated balance sheets, statements of operations and cash flows have been reclassified to conform to the 1996 presentation. 2. LONG-TERM OBLIGATIONS ---------------------
The Company's debt and capital lease obligations are as follows: 1996 1995 ----------- ----------- Note payable to bank at 9.99% interest rate, payable in monthly installments of $9,306, secured by certain assets of the Company $ 70,532 $ 170,421 ----------- ----------- Amounts due under non-cancelable leases accounted for as capital leases. These leases have effective interest rates ranging from 8.5% to 14.6% per annum 4,561,621 1,101,655 Amount of capital leases representing interest (853,429) (174,908) ----------- ----------- Present value of minimum lease payments 3,708,192 926,747 ----------- ----------- Less: Current portion of notes payable and lease obligations 1,449,052 447,227 ----------- ----------- $ 2,329,672 $ 649,941 =========== ===========
F-10 The following is a summary of future payments required under the above obligations: DEBT LEASE ------- ---------- 1997 $70,532 $1,905,308 1998 -- 1,573,213 1999 -- 900,418 2000 -- 159,275 2001 -- 23,407 2002 and after -- -- Included in the Company's property and equipment are equipment and leasehold improvements under capital leases amounting to $5,327,936, net of accumulated amortization of $1,626,909. The Company currently maintains two credit facilities with a commercial bank providing aggregate availability of $2.5 million. Amounts outstanding under these facilities bear variable interest rates. The facilities are designed to support capital equipment and working capital needs. The facilities expire June 1997. There was no outstanding balance under these facilities as of December 28, 1996. A credit facility maintained for the Company's divested environmental business was terminated during the fourth quarter of 1996. 3. BUSINESS AND CREDIT CONCENTRATION --------------------------------- The Company has no individual customer which accounts for 10% or more of its operating revenues for 1996 and 1995. 4. INCOME TAXES ------------ Income tax expense for the periods below differs from the amounts computed by applying the U.S. federal income tax rate of 34 percent to the pretax income as a result of the following:
1996 1995 1994 --------- --------- --------- Computed "expected" tax expense (benefit) $498,738 $(359,662) $(17,100) Amortization of excess of cost over net assets acquired 14,700 14,700 5,500 State and local tax expense (benefit), net of Federal income tax effect 88,900 (61,300) (2,100) Foreign income tax 128,456 36,740 6,351 Interest income from tax-free investments (71,700) (64,200) (27,000) Other 9,888 (6,752) (211) -------- --------- -------- Income tax expense $668,982 $(440,474) $(34,560) ======== ========= ======== Effective rates 45.6% (41.6)% (68.7)% ======== ========= ======== 1996 1995 1994 -------- --------- -------- Income tax expense consists of: Federal Current $389,056 $(425,010) $(25,255) Deferred 16,768 40,601 (12,483) State and local 134,702 (92,805) (3,173) Foreign 128,456 36,740 6,351 -------- --------- -------- $668,982 $(440,474) $(34,560) ======== ========= ========
F-11 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 28, 1996 and December 30, 1995, are presented below: 1996 1995 -------- -------- Deferred tax assets: Accounts receivable, principally due to $186,994 $392,698 allowance for doubtful accounts Reserve for uninsured losses and litigation 564,925 232,064 Accrued expenses 141,085 33,688 Loss on joint venture -- 260,000 -------- -------- Total gross deferred tax assets 893,004 918,450 Less valuation allowance -- -- -------- -------- Net deferred tax assets 893,004 918,450 ======== ======== Deferred tax liability: Property, plant and equipment, principally 275,736 112,513 due to differences in depreciation Excess of cost over net assets of acquired company 522,479 308,302 Loss on join venture 22,790 -- Other 44,885 137,199 -------- -------- Deferred tax liability 865,890 558,014 -------- -------- Net deferred tax asset $ 27,114 $360,436 ======== ======== There is no valuation allowance required at December 28, 1996 and December 30, 1995 as management believes it is more likely than not that the Company will generate sufficient future taxable income to fully utilize the net deferred tax assets. 5. OTHER CURRENT ASSETS/OTHER ASSETS a. NOTES RECEIVABLE FROM OFFICERS Included in other current assets and other assets are notes receivable from certain officers of the Company in the aggregate amount of $809,381. One of the notes is payable on or before September 30, 1997 and is fully secured by a mortgage on real estate to which the loan proceeds were applied; the others are demand notes secured by the proceeds from certain life insurance policies. b. CASH PROCEEDS FROM SALE OF ENVIRONMENTAL BUSINESS Other current assets includes a receivable for the cash proceeds from the sale of the environmental segment. The $4,600,000 was received December 30, 1996. c. NON-CASH PROCEEDS OF SALE OF ENVIRONMENTAL BUSINESS Other assets also include non-cash proceeds from the sale of the environmental segment consisting of a note receivable in the amount of $3,700,000 and preferred stock in ECB, Inc. in the amount of $2,000,000; net of a valuation reserve of $4,560,000. 6. OTHER CURRENT LIABILITIES Other current liabilities consist of: 1996 1995 ---------- ---------- Deferred revenues $1,964,962 $1,547,455 Accounts payable to franchisees 1,454,089 430,383 Accrued expenses in connection with the disposition of the environmental segment 710,644 -- Salaries, wages and commissions payable 922,923 623,580 Allowance for litigation expenses 430,000 330,000 Allowance for uninsured claims 258,390 250,161 Deferred rent payable 243,096 249,832 Other 1,443,709 1,193,414 ---------- ---------- $7,427,813 $4,624,825 ========== ========== F-12 7. EMPLOYEE SAVINGS PLAN --------------------- The Company established a 401(k) Profit Sharing Trust and Plan in which employees not currently covered by a collective bargaining agreement are eligible to participate. None of the Company's employees is currently covered by a collective bargaining agreement. The plan was established in 1995 and is non-contributory. 8. STOCK OPTION PLAN ----------------- The Company maintains a key employee stock option plan which provides for the issuance of non-qualified options, incentive stock options and stock appreciation rights. The plan currently provides for the granting of options to purchase up to 1,200,000 shares of common stock. Incentive stock options are exercisable for up to ten years, at an option price of not less than the market price on the date the option is granted or at a price of not less than 110% of the 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 market price of the Common stock over the option price. All options were granted at fair market value at dates of grant. The stock option plan for directors who are not employees of the Company provides for the issuance of up to 75,000 shares of Common stock and may be issued at such price per share and on such other terms and conditions as the Compensation Committee may determine. All options were granted at fair market value at dates of grant. The following table summarizes all transactions during 1996 and 1995 under the Stock Option Plans.
1996 1995 ---------- ---------- Options outstanding at beginning of year (number of shares): Key employees 713,739 723,900 Outside directors 24,750 24,750 Options granted (number of shares): Key employees -- 30,739 Outside directors -- -- Average grant price: Key employees $ -- $ 6.00 Outside directors $ -- $ -- Options exercised (number of shares): Key employees 113,448 -- Outside directors -- -- Average exercise price: Key employees $ 6.55 $ -- Outside directors $ -- $ -- Options canceled (number of shares): Key employees 5,400 40,900 Outside directors -- -- Options outstanding at end of year (number of shares): Key employees 594,891 713,739 Outside directors 24,750 24,750 Option price range: Key employees $6.00 - $ 9.00 5.80 - $ 9.00 Outside directors $ .50 - $11.20 $6.50 - $11.20 Options exercisable (number of shares): Key employees 429,891 399,500 Outside directors 24,750 24,750 Aggregate price of exercisable options Key employees $ 3,242,211 $ 2,891,810 Outside directors $ 230,200 $ 230,200 Options available for future grants (number of shares): Key employees 280,961 270,761 Outside directors 46,250 46,250
F-13 The Company applies APB Option No. 25, Accounting for Stock Issued to Employees, in accounting for stocks issued under its Stock Option Plan and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS 123, Accounting for Stock-Based Compensation, its net income would have been reduced by an immaterial amount. 9. LEASES ------ The Company, is obligated under operating leases primarily for office space and training facilities, with rental arrangements for various periods of time ending through 2006. These leases provide for minimum fixed rents for the following fiscal years as follows: 1997, $2,038,143; 1998, $2,210,035; 1999, $2,204,321; 2000, $2,204,321; 2001, $1,853,223; and 2002 and after, $6,835,956. Rent expense was $1,760,764, $1,051,391, and $190,908, during the years ended December 28, 1996, December 30, 1995, and December 31, 1994, respectively. 10. QUARTERLY FINANCIAL DATA (UNAUDITED) ------------------------------------ Summarized quarterly financial data for 1996 and 1995 for continuing and discontinued operations are as follows (in thousands except per share data):
FIRST SECOND THIRD FOURTH 1996 QUARTER QUARTER QUARTER QUARTER ---- ------- ------- -------- ------- Revenues Franchising Franchise fees $ 568 $ 245 $ 155 $ 303 Royalties 1,794 2,089 2,225 2,465 ------ ------- ------- ------- Total franchising revenues 2,362 2,334 2,380 2,768 Company-owned training centers 6,732 7,667 8,104 8,923 ------ ------- ------- ------- Total revenues 9,094 10,001 10,484 11,691 Cost of revenues 4,405 4,978 5,231 5,985 Selling, general and administrative expenses 4,072 4,898 4,763 5,331 ------ ------- ------- ------- Operating income 617 125 490 375 Interest income (expense), net (15) (35) (52) (37) ------ ------- ------- ------- Income from continuing operations before income taxes 602 90 438 338 Provision for income taxes 292 37 178 162 ------ ------- ------- ------- Income from continuing operations 310 53 260 176 Income (loss) from discontinued operations, less applicable income taxes (benefits) (754) 437 181 5 Loss on disposal of discontinued operations -- -- (7,303) -- ------ ------- ------- ------- Income (loss) from discontinued operations (754) 437 (7,122) 5 ------ ------- ------- ------- Net income (loss) $ (444) $ 490 $(6,862) $ 181 ====== ======= ======= ======= Income per share from continuing operations $ 0.05 $ 0.01 $ 0.04 $ 0.03 Income (loss) per share from discontinued operations $(0.12) $ 0.06 $ (1.04) $ 0.00 Net income (loss) per share $(0.07) $ 0.07 $ (1.00) $ 0.03
F-14
FIRST SECOND THIRD FOURTH 1995 QUARTER QUARTER QUARTER QUARTER ---- ------- ------- ------- ------- Revenues Franchising Franchise fees $ 209 $ 190 $ 183 $ 91 Royalties 791 941 1,151 1,491 ------ ------ ------- ------ Total franchising revenues 1,000 1,131 1,334 1,582 Company-owned training centers 4,136 4,480 4,673 5,397 ------ ------ ------- ------ Total revenues 5,136 5,611 6,007 6,979 Cost of revenues 2,785 3,080 3,358 3,942 Selling, general and administrative expenses 2,441 2,562 3,743 3,010 ------ ------ ------- ------ Operating income (loss) (90) (31) (1,094) 27 Interest income (expense), net 38 51 29 13 ------ ------ ------- ------ Income (loss) from continuing operations before income taxes (52) 20 (1,065) 40 Provision for income taxes (benefits) (45) (12) (393) 10 ------ ------ ------- ------ Income (loss) from continuing operations (7) 32 (672) 30 Income (loss) from discontinued operations, less applicable income taxes 281 303 64 (224) ------ ------ ------- ------ Net income (loss) $ 274 $ 335 $ (608) $ (194) ====== ====== ======= ====== Income (loss) per share from continuing operations $ 0.00 $ 0.00 $ (0.10) $ 0.01 Income (loss) per share from discontinued operations $ 0.04 $ 0.05 $ 0.01 $(0.04) Net income (loss) per share $ 0.04 $ 0.05 $ (0.09) $(0.03)
The fourth quarter of 1996 reflects a charge totaling $570,000 in discontinued operations to provide for a loss on an environmental contract. 11. PROVISION FOR LOSS IN A JOINT VENTURE AND ASSET WRITE-OFF --------------------------------------------------------- In February 1995, the Company acquired a minority interest in a limited liability company by contributing the assets of its Cleveland operations and cash. In the third quarter of 1995, an affiliate of the venture's majority member filed for bankruptcy and the Company assumed management of the center. The Company has provided for the loss on the joint venture in the amount of $650,000. Operating results of this operation have been consolidated with the Company's continuing operations since January 1996. In addition, the Company wrote off the unamortized developmental costs of a software program which had been in development prior to its acquisition by the Company in August 1994. The write-off amounted to $161,748. These charges combined, all of which were recorded in the third quarter of 1995, totaled $811,748 before income tax benefit and on an after-tax basis, had a $0.07 impact on net income per share. F-15 12. FINANCIAL INSTRUMENTS --------------------- The carrying value of cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities is considered to approximate their fair value due to the short maturity of these instruments. Marketable securities are shown at face value which approximates market value. 13. COMMITMENTS AND CONTINGENCIES ----------------------------- 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. 14. DISCONTINUED OPERATIONS ----------------------- On November 4, 1996, the Company signed a definitive agreement to sell its environmental business. The sale was authorized at a Special Meeting of Stockholders held on December 20, 1996, and was consummated on December 27, 1996. Under the agreement the Company sold the stock of its environmental segment which had a net asset value of $10.3 million for $4.6 million in cash and other consideration, including a promissory note and preferred stock in the amount of $3.7 million and $2.0 million, respectively. Assets of the discontinued segment in excess of $10.3 million, consisting principally of cash and accounts receivable were retained by the Company. The Company incurred a loss of $7.3 million on the disposal of the segment, consisting primarily of valuation reserves on the promissory note and preferred stock of $2,960,000 and $1,600,000, respectively, goodwill write-off of $1,785,000 and transaction costs of approximately $966,000. There is no expected tax benefit from this loss. The net assets and results of operations of Handex Environmental, Inc. have been reflected as discontinued operations in the accompanying consolidated financial statements. Operating results for the discontinued operations were as follows: DECEMBER 28, 1996 ----------------- Net operating revenues $44,281,046 ----------- Loss before income taxes (7,348,458) Income taxes 84,583 ----------- Net loss $(7,433,041) =========== F-16 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS - --------- The information required by this Item 10 as to the Directors of the Company is incorporated herein by reference to the information set forth under the caption "Election of Directors" in the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 6, 1997, since such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company's fiscal year pursuant to Regulation 14A. Information required by this Item 10 as to the executive officers of the Company is included in Part I of this Annual Report on Form 10-K. EXECUTIVE OFFICERS OF THE REGISTRANT* - ------------------------------------- The following is a list of the executive officers of the Company. The executive officers are elected each year and serve at the pleasure of the Board of Directors.
NAME AGE POSITION ---- --- -------- Curtis Lee Smith, Jr. 69 Chairman of the Board and Chief Executive Officer Thomas J. Bresnan 44 President and Chief Operating Officer Stuart O. Smith 64 Vice Chairman of the Board and Secretary John T. St. James 50 Vice President, Treasurer and Chief Financial Officer
The following is a list of officers of New Horizons Computer Learning Centers, Inc.
Charles G. Kinch 43 President and Chief Operating Officer Martin Bean 32 Executive Vice President Gene A. Longobardi 39 Senior Vice President North American Operations Robert S. McMillan 45 Senior Vice President, Chief Financial Officer
*The description of executive officers called for in this Item is included pursuant to Instruction 3 to Section (b) of Item 401 of Regulation S-K. Set forth below is a brief description of the background of those executive officers of the Company who are not Directors of the Company. Information with respect to the background of those executive officers who are also Directors of the Company is incorporated herein by reference as set forth in Part III, Item 10, of the Company's Annual Report on Form 10-K. JOHN T. ST. JAMES joined the Company in December 1988 and was elected its Treasurer in January 1989, Chief Financial Officer in February 1989 and Vice President in February 1991. Prior to joining the Company, Mr. St. James served as Vice President and Chief Financial Officer for B.A.T.U.S., Inc., an operator of retail concerns, from 1984 to 1987, as Vice President and Chief Financial Officer for the Henri Bendel division of The Limited, Inc., and operator of retail clothing stores, from 1987 to 1988; and as Vice President - Financial Operations/Control for Brooks Fashions, Inc., an operator of retail clothing stores, for a brief period during 1988. CHARLES G. KINCH was named President and Chief Operating Officer of New Horizons in May 1995. Before then, from 1992 to 1995, he was President of Paragon Retailers Systems, Boca Raton, Florida. From 1989 to 1992, he was Vice President for Marketing and Operations, Tandem Source Company, Tandem Computers, Cupertino, California. 17 From 1983 to 1989, he was with ComputerLand Corporation, Hayward California, beginning as Vice President of Products, and then being promoted to General Manager of ComputerLand Operated Stores, Inc., and President of ComputerLand Franchise Holding Corp., both based in Hayward, California. MARTIN BEAN joined the Company in February 1997 as Executive Vice President. Prior to joining the Company, Mr. Bean served as Vice President of Sales and Market Development for Novell Education from 1993 to 1997. Prior to joining Novell, Mr. Bean served as Asia/Pacific Manager for Drake Training and Technologies from 1990 to 1993. GENE A. LONGOBARDI was named Vice President of Operations of New Horizons in October 1995 and Senior Vice President of North American Operations in January 1997. He joined New Horizons as Chief Financial Officer in 1992 and was also named Assistant Secretary in 1994. Before then, from 1988 to 1992, Mr. Longobardi was Chief Financial Officer of RFG Management Group, Santa Ana, California. ROBERT S. MCMILLAN was named Chief Financial Officer of New Horizons in 1995 and Senior Vice President in January 1997. Before then, from 1992 to 1995, Mr. McMillan was Chief Financial Officer of ZNYX Corporation, Fremont California. From 1990 to 1992, he was Chairman, Chief Executive Officer and Chief Financial Officer of Omnivar, Burbank, California. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item 11 is incorporated by reference to the information set forth under the caption "Compensation of Directors and Executive Officers" in the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 6, 1997, since such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company's fiscal year pursuant to Regulation 14A. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item 12 is incorporated by reference to the information set forth under the caption "Share Ownership of Principal Holders and Management" in the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 6, 1997, since such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company's fiscal year pursuant to Regulation 14A. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item 13 is incorporated by reference to the information set forth under the caption "Certain Transactions" in the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 6, 1997, since such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company's fiscal year pursuant to Regulation 14A. 18 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) (1) FINANCIAL STATEMENTS The following Consolidated Financial Statements of the Registrant and its subsidiaries are included in Part II, Item 8: Page Report of Independent Auditors F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Stockholders' Equity F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-8 to F-16 (A) (2) FINANCIAL STATEMENTS SCHEDULES The following Consolidated Financial Statement Schedules of the Registrant and its subsidiaries are included in Item 14 hereof: Report of Independent Auditors as to Schedules F-2 Schedule II Valuation and Qualifying Accounts and Reserves 21 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (A) (3) EXHIBITS Reference is made to the Exhibit Index at sequential page 22 hereof. 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized at Morganville, New Jersey this 28th day of March, 1997. NEW HORIZONS WORLDWIDE, INC. By: /s/CURTIS LEE SMITH, JR. -------------------------------- Curtis Lee Smith, Jr., Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: SIGNATURE TITLE DATE --------- ----- ---- /s/CURTIS LEE SMITH, JR. Chairman, and ) - ------------------------ Curtis Lee Smith, Jr. ) Chief Executive Officer ) (Principal Executive Officer) ) ) ) /s/JOHN T. ST. JAMES Vice President, Treasurer and ) - -------------------- Chief Financial Officer ) John T. St. James (Principal Financial and ) Accounting Officer) ) ) ) /s/STUART O. SMITH Director ) - ------------------ ) Stuart O. Smith ) ) March 28, 1997 ) /s/THOMAS J. BRESNAN Director ) - -------------------- ) Thomas J. Bresnan ) ) ) /s/DAVID A. GOLDFINGER Director ) - ---------------------- ) David A. Goldfinger ) ) ) /s/RICHARD L. OSBORNE Director ) - --------------------- ) Richard L. Osborne ) ) ) /s/SCOTT R. WILSON Director ) - ------------------ ) Scott R. Wilson ) ) ) /s/WILLIAM H. HELLER Director ) - -------------------- ) William H. Heller ) ) ) 20 SCHEDULE II NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts and Reserves Years ended December 28, 1996, December 30, 1995, and December 31, 1994 ALLOWANCE FOR DOUBTFUL ACCOUNTS -------- Balance at January 1, 1994 $ 840,091 Additions - Charged to costs and expenses 195,552 Deductions (A) (101,083) ---------- Balance at December 31, 1994 934,560 Additions - Charged to costs and expenses 400,375 Deductions (A) (353,190) ---------- Balance at December 30, 1995 981,745 Additions - Charged to costs and expenses 1,048,210 Deductions (A) (419,101) ---------- Balance at December 28, 1996 $1,610,854 ========== (A) - Accounts charged off, less recoveries 21 EXHIBIT INDEX
PAGINATION BY SEQUENTIAL EXHIBIT EXHIBIT NUMBERING NUMBER DESCRIPTION SYSTEM - ------ ----------- ---------- 3.1 Amended Certificate of Incorporation of the Registrant (1) 3.2 By-laws of the Registrant(1) 3.3 Amendment to Certificate of Incorporation of the Registrant* 4.1 Specimen Certificate for Share of Common Stock, $.01 par value, of the Registrant(1) 4.2 Secured Straight Line of Credit, guaranteed by the Registrant* 4.3 Secured Revolving Line of Credit, guaranteed by the Registrant* 10.1 Key Employees Stock Option Plan of the Registrant(1) 10.2 New Horizons Education Corporation 401(k) Profit Sharing and Trust Plan(13) 10.3 Amendment No. 1 New Horizons Education Corporation 401(k) Profit Sharing and Trust Plan * 10.4 Amendment No. 2 New Horizons Education Corporation 401(k) Profit Sharing and Trust Plan* 10.5 Amendment No. 3 New Horizons Education Corporation 401(k) Profit Sharing and Trust Plan* 10.6 Form of Stock Option Agreement executed by recipients of options under Key Employees Stock Option Plan(6) 10.7 Stock Option Agreement dated August 6, 1992, between the Registrant and Thomas J. Bresnan (7) 10.8 Outside Directors Stock Option Plan of the Registrant(1) 10.9 Amendment No. 1 to the Outside Directors Stock Option Plan of the Registrant (7) 10.10 Form of Stock Option Agreement executed by recipients of options under the Outside Directors Stock Option Plan(7) 10.11 Form of Indemnity Agreement with Directors and Officers of the Registrant(6) 10.12 Employment Agreement dated August 3, 1992, between the Registrant and Thomas J. Bresnan(7) 10.13 Lease Agreement dated March 25, 1991, between Handex of New England, Inc. and Metro Park Marlboro Realty Trust, as amended, guaranteed by the Registrant(6) 10.14 Lease Agreement dated March 1, 1995, between New Horizons Computer Learning Center of Metropolitan New York, Inc. and Mid City Associates, guaranteed by the Registrant(10)
22
PAGINATION BY SEQUENTIAL EXHIBIT EXHIBIT NUMBERING NUMBER DESCRIPTION SYSTEM - ------ ----------- ---------- 10.15 Lease Agreement dated February 24, 1995, between New Horizons Computer Learning Center of Cleveland LTD., LLC, and Realty One Property Management, guaranteed by the Registrant (10) 10.16 Warrants for the purchase of 25,000 shares of Common Stock, $.01 par value per share, of the Registrant issued to The Nassau Group, Inc. - December 17, 1993 (10) 10.17 Warrants for the purchase of 40,000 shares of Common Stock, $.01 par value per share, of the Registrant issued to The Nassau Group, Inc. - August 15, 1994(10) 10.18 Lease Agreement dated April 5, 1995, between New Horizons Computer Learning Center of Chicago, Inc. and the Equitable Life Assurance of the United States(12) 10.19 Lease Agreement dated March 7, 1996, between New Horizons Computer Learning Centers, Inc. and Mani Brothers, LLC (13) 10.20 Stock Purchase Agreement dated November 4, 1996, between the Registrant and ECB, Inc. and certain exhibits thereto(14) 21.1 Subsidiaries of the Registrant* 23.1 Consent of KPMG Peat Marwick LLP* 27.0 Financial Data Schedule* 99.1 Directors and Officers and Company Indemnity Policy(5) - ---------- (1) Incorporated herein by reference to the appropriate exhibits to the Registrant's Registration Statement on Form S-1 (File No. 33-28798). (2) Incorporated herein by reference to the appropriate exhibit to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1989. (3) Incorporated herein by reference to the appropriate exhibit to the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1990. (4) Incorporated herein by reference to the appropriate exhibit to the Registrant's Quarterly Report or Form 10-Q for the period ended June 30, 1990. (5) Incorporated herein by reference to the appropriate exhibit to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990. (6) Incorporated herein by reference to the appropriate exhibit to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991. (7) Incorporated herein by reference to the appropriate exhibit to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992. (8) Incorporated herein by reference to the appropriate exhibit to the Registrant's Quarterly Report on Form 10-Q for the period ended July 3, 1993. (9) Incorporated herein by reference to the appropriate exhibit to the Registrant's Annual Report on Form 10-K for the year ended January 1, 1994. (10) Incorporated herein by reference to the appropriate exhibit to the Registrant's Form 8-K dated August 15, 1994. (11) Incorporated herein by reference to the appropriate exhibit to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 23 (12) Incorporated herein by reference to the appropriate exhibit to the Registrant's Quarterly Report on Form 10-Q for the period ended April 1, 1995. (13) Incorporated herein by reference to the appropriate exhibit to the Registrant's Annual Report on Form 10-K for the year ended December 30, 1995. (14) Incorporated herein by reference to the appropriate exhibit to the Registrant's Quarterly Report on Form 10-Q for the period ended September 28, 1996. *Filed herewith.
(b) Report on Form 8-K On January 3, 1997, the Registrant filed a report on Form 8-K in connection with its divestiture of the environmental segment of its business, the change of the Company's name from Handex Corporation to New Horizons Worldwide, Inc., and the change of the Company's fiscal year from 52-53 weeks ending on the Saturday nearest the last day of December to one ending on December 31 of each year subject to Internal Revenue Service approval. 24 EX-3.3 2 Exhibit 3.3 CERTIFICATE OF AMENDMENT TO CERTIFICATE OF INCORPORATION OF HANDEX CORPORATION ------------------------------------- PURSUANT TO SECTION 242 OF THE DELAWARE GENERAL CORPORATION LAW -------------------------------------- The undersigned, Thomas J. Bresnan, being the President, and Scott R. Wilson, being the Assistant Secretary, of Handex Corporation, a Delaware corporation (the "Corporation"), hereby certify as follows: 1. The name of the Corporation is Handex Corporation. 2. The amendment of the Certificate of Incorporation as hereinafter set forth has been duly adopted in accordance with Section 242 of the Delaware General Corporation law. 3. The Certificate of Incorporation of the Corporation is hereby amended by deleting in its entirety the current Article I and replacing it with the following: "The name of the Corporation is New Horizons Worldwide, Inc." IN WITNESS WHEREOF, the undersigned, being the duly elected and acting President and Assistant Secretary, respectively, have hereunto subscribed their names to this Certificate of Amendment and affirm that the facts stated herein are true under penalties of perjury, this 30th day of December, 1996. /S/ THOMAS J. BRESNAN -------------------------------------- Thomas J. Bresnan President /S/ SCOTT R. WILSON -------------------------------------- Scott R. Wilson Assistant Secretary EX-4.2 3
PROMISSORY NOTE - --------------- ---------- ------------ ---------- ----------- ------------- ----------- ---------- ---------- PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS - --------------- ---------- ------------ ---------- ----------- ------------- ----------- ---------- ---------- $1,500,000 01-14-97 06-01-97 81 310 - -------------------------------------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item.
- -------------------------------------------------------------------------------- BORROWER: NEW HORIZONS EDUCATION CORPORATION LENDER: MARINE NATIONAL BANK 1231 EAST DYER ROAD, SUITE 110 NEWPORT BEACH OFFICE SANTA ANA, CA 92705 500 NEWPORT CENTER DRIVE NEWPORT BEACH, CA 92660
============================================================================= Principal Amount: $1,500,000.00 Initial Rate: 8.750% Date of Note: January 14, 1997 PROMISE TO PAY. NEW HORIZONS EDUCATION CORPORATION ("Borrower") promises to pay to MARINE NATIONAL BANK ("Lender"), or order, in lawful money of the United States of America, the principal amount of One Million Five Hundred Thousand & 00/100 Dollars ($1,500,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance. PAYMENT. Borrower will pay this loan on demand, or if no demand is made, in one payment of all outstanding principal plus all accrued unpaid interest on June 1, 1997. In addition, Borrower will pay regular monthly payments of accrued unpaid interest beginning February 1, 1997, and all subsequent interest payments are due on the same day of each month after that. Interest on this Note is computed on a 365/360 simple interest basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount to any unpaid collection costs and late charges. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an independent index which is the Prime rate as published by the Wall Street Journal (the "Index"). The Index is not necessarily the lowest rate charged by Lender on its loans. If the Index becomes unavailable during the term of this loan, Lender may designate a substitute Index after notice to Borrower. Lender will tell Borrower the current Index rate upon Borrower's request. Borrower understands that Lender may make loans based on other rates as well. The interest rate change will not occur more often than each day. The Index currently is 8.250% per annum. The interest rate to be applied to the unpaid principal balance of this Note will be at a rate of 0.500 percentage points over the Index, resulting in an initial rate of 8.750% per annum. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment of this Note, Borrower understands that Lender is entitled to a minimum interest charge of $100.00. Other than Borrower's obligation to pay any minimum interest charge, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments of accrued unpaid interest. Rather they will reduce the principal balance due. LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged 5.000% of the regularly scheduled payment or $5.00, whichever is greater. DEFAULT. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment when due. (b) Borrower breaks any promise Borrower has made to Lender, or Borrower fails to comply with or to perform when due any other term, obligation, covenant, or condition contained in this Note or any agreement related to this Note, or in any other agreement or loan Borrower has with Lender. (c) Any representation or statement made or furnished to Lender by Borrower or on Borrower's behalf is false or misleading in any material respect either now or at the time made or furnished. (d) Borrower becomes insolvent, a receiver is appointed for any part of Borrower's property, Borrower makes an assignment for the benefit of creditors, or any proceeding is commenced either by Borrower or against Borrower under any bankruptcy or insolvency laws. (e) Any creditor tries to take any of Borrower's property on or in which Lender has a lien or security interest. This includes a garnishment of any of Borrower's accounts with Lender. (f) Any guarantor dies or any of the other events described in this default section occurs with respect to any guarantor of this Note. (g) A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the indebtedness is impaired. (h) Lender in good faith deems itself insecure. If any default, other than a default in payment, is curable and if Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured (and no event of default will have occurred). If Borrower, after receiving written notice from Lender demanding cure of such default: (a) cures the default within fifteen (15) days; or (b) if the cure requires more than fifteen (15) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, without notice, and then Borrower will pay that amount. Upon Borrower's failure to pay all amounts declared due pursuant to this section, including failure to pay upon final maturity, Lender, at its option, may also, if permitted under applicable law, increase the variable interest rate on this Note to 5.000 percentage points over the Index. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower also will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also will pay any court costs, in addition to all other sums provided by law. This Note has been delivered to Lender and accepted by Lender in the State of California. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of ORANGE County, the State of California. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other. This Note shall be governed by and construed in accordance with the laws of the State of California. RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on this Note against any and all such accounts. COLLATERAL. This Note is secured by SIX COMMERCIAL SECURITY AGREEMENTS DATED JANUARY 14, 1997, EXECUTED BY BORROWER OR PLEDGOR IN CONNECTION WITH THIS NOTE. LINE OF CREDIT. This Note evidences a straight line of credit. Once the total amount of principal has been advanced, Borrower is not entitled to further loan advances. Advances under this Note may be requested either orally or in writing by Borrower or by an authorized person. Lender may, but need not, require that all oral requests be confirmed in writing. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender's office shown above. The following party or parties are authorized to request advances under the line of credit until Lender receives from Borrower at Lender's address shown above written notice of revocation of their authority: ROBERT S. MCMILLAN, CHIEF FINANCIAL OFFICER; CHARLES G. KINCH, PRESIDENT AND CEO; and THOMAS J. BRESNAN, CHAIRMAN OF THE BOARD & CEO. Borrower agrees to be liable for all sums either: (a) advanced in accordance with the instructions of an authorized person or (b) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (a) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor's guarantee of this Note or any other loan with Lender; (d) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender; or (e) Lender in good faith deems itself insecure under this Note or any other agreement between Lender and Borrower. GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific default provisions or rights of Lender shall not preclude Lender's right to declare payment of this Note on its demand. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extend allowed by law, waive any applicable statute of limitations, presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. ================================================================================ PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE. BORROWER: NEW HORIZONS EDUCATION CORPORATION By: _______________________________________________ ROBERT S. MCMILLAN, CHIEF FINANCIAL OFFICER EX-4.3 4
PROMISSORY NOTE - --------------- ---------- ------------ ---------- ----------- ------------- ----------- ---------- ---------- PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS - --------------- ---------- ------------ ---------- ----------- ------------- ----------- ---------- ---------- $1,000,000 01-14-97 06-01-97 20 310 - -------------------------------------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item.
- -------------------------------------------------------------------------------- BORROWER: NEW HORIZONS EDUCATION CORPORATION LENDER: MARINE NATIONAL BANK 1231 EAST DYER ROAD, SUITE 110 NEWPORT BEACH OFFICE SANTA ANA, CA 92705 500 NEWPORT CENTER DRIVE NEWPORT BEACH, CA 92660
============================================================================= Principal Amount: $1,00,000.00 Initial Rate: 8.250% Date of Note: January 14, 1997 PROMISE TO PAY. NEW HORIZONS EDUCATION CORPORATION ("Borrower") promises to pay to MARINE NATIONAL BANK ("Lender"), or order, in lawful money of the United States of America, the principal amount of One Million and 00/100 Dollars ($1,000,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance. PAYMENT. Borrower will pay this loan on demand, or if no demand is made, in one payment of all outstanding principal plus all accrued unpaid interest on June 1, 1997. In addition, Borrower will pay regular monthly payments of accrued unpaid interest beginning February 1, 1997, and all subsequent interest payments are due on the same day of each month after that. Interest on this Note is computed on a 365/360 simple interest basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount to any unpaid collection costs and late charges. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an independent index which is the Prime rate as published by the Wall Street Journal (the "Index"). The Index is not necessarily the lowest rate charged by Lender on its loans. If the Index becomes unavailable during the term of this loan, Lender may designate a substitute Index after notice to Borrower. Lender will tell Borrower the current Index rate upon Borrower's request. Borrower understands that Lender may make loans based on other rates as well. The interest rate change will not occur more often than each day. The Index currently is 8.250% per annum. The interest rate to be applied to the unpaid principal balance of this Note will be at a rate equal to the Index, resulting in an initial rate of 8.250% per annum. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. In any event, even upon full prepayment of this Note, Borrower understands that Lender is entitled to a minimum interest charge of $100.00. Other than Borrower's obligation to pay any minimum interest charge, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments of accrued unpaid interest. Rather, they will reduce the principal balance due. LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged 5.000% of the regularly scheduled payment or $5.00, whichever is greater. DEFAULT. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment when due. (b) Borrower breaks any promise Borrower has made to Lender, or Borrower fails to comply with or to perform when due any other term, obligation, covenant, or condition contained in this Note or any agreement related to this Note, or in any other agreement or loan Borrower has with Lender. (c) Any representation or statement made or furnished to Lender by Borrower or on Borrower's behalf is false or misleading in any material respect either now or at the time made or furnished. (d) Borrower becomes insolvent, a receiver is appointed for any part of Borrower's property, Borrower makes an assignment for the benefit of creditors, or any proceeding is commenced either by Borrower or against Borrower under any bankruptcy or insolvency laws. (e) Any creditor tries to take any of Borrower's property on or in which Lender has a lien or security interest. This includes a garnishment of any of Borrower's accounts with Lender. (f) Any guarantor dies or any of the other events described in this default section occurs with respect to any guarantor of this Note. (g) A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the indebtedness is impaired. (h) Lender in good faith deems itself insecure. If any default, other than a default in payment, is curable and if Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured (and no event of default will have occurred). If Borrower, after receiving written notice from Lender demanding cure of such default: (a) cures the default within fifteen (15) days; or (b) if the cure requires more than fifteen (15) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, without notice, and then Borrower will pay that amount. Upon Borrower's failure to pay all amounts declared due pursuant to this section, including failure to pay upon final maturity, Lender, at its option, may also, if permitted under applicable law, increase the variable interest rate on this Note to 5.000 percentage points over the Index. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower also will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also will pay any court costs, in addition to all other sums provided by law. This Note has been delivered to Lender and accepted by Lender in the State of California. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of ORANGE County, the State of California. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other. This Note shall be governed by and construed in accordance with the laws of the State of California. RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on this Note against any and all such accounts. COLLATERAL. This Note is secured by SIX COMMERCIAL SECURITY AGREEMENTS DATED JANUARY 14, 1997, EXECUTED BY BORROWER OR PLEDGOR IN CONNECTION WITH THIS NOTE. LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note may be requested either orally or in writing by Borrower or by an authorized person. Lender may, but need not, require that all oral requests be confirmed in writing. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender's office shown above. The following party or parties are authorized to request advances under the line of credit until Lender receives from Borrower at Lender's address shown above written notice of revocation of their authority: ROBERT S. MCMILLAN, CHIEF FINANCIAL OFFICER; CHARLES G. KINCH, PRESIDENT AND COO; and THOMAS J. BRESNAN, CHAIRMAN OF THE BOARD & CEO. Borrower agrees to be liable for all sums either: (a) advanced in accordance with the instructions of an authorized person or (b) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (a) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor's guarantee of this Note or any other loan with Lender; (d) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender; or (e) Lender in good faith deems itself insecure under this Note or any other agreement between Lender and Borrower. GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific default provisions or rights of Lender shall not preclude Lender's right to declare payment of this Note on its demand. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extend allowed by law, waive any applicable statute of limitations, presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. ======================================================================= PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE. BORROWER: NEW HORIZONS EDUCATION CORPORATION By: _______________________________________________ ROBERT S. MCMILLAN, CHIEF FINANCIAL OFFICER EX-10.3 5 Exhibit 10.3 AMENDMENT NO. 1 TO NEW HORIZONS EDUCATION CORPORATION 401(K) PROFIT SHARING TRUST AND PLAN This Amendment No. 1 is made this ___ day of ___________, 1996, by NEW HORIZONS EDUCATION CORPORATION, a Delaware corporation (hereinafter called the "Company"). WITNESSETH: WHEREAS, the Company established the New Horizons Education Corporation 401(k) Profit Sharing Trust and Plan (hereinafter called the "Trust and Plan") effective the first day of January, 1995; WHEREAS, the Company reserved the right, pursuant to Section 19.1 of the Trust and Plan, to amend the Trust and Plan; and WHEREAS, it is the desire of the Company to amend the Trust and Plan in order to secure from the Internal Revenue Service a determination letter to the effect that the Trust and Plan meets the requirements of Sections 401(a) and 501(a) of the Internal Revenue Code; NOW, THEREFORE, pursuant to Section 19.1 of the Trust and Plan, the Company hereby amends the Trust and Plan effective as of January 1, 1995, as follows: 1. Section 2.12 of Article 2 of the Trust and Plan is hereby amended by the deletion of said Section 2.12 in its entirety and the substitution in lieu thereof of the following: "2.12 The word "compensation" shall mean all remuneration paid by the Participating Companies to an active participant for services rendered as a Covered Employee, including wages, salaries, commissions and overtime pay, but shall not include: (a) bonuses, whether discretionary or non-discretionary, except for such purposes as they are by law specifically required to be included; (b) any extra benefits such as payment by a Participating Company of hospitalization, group insurance, expense reimbursement, amounts contributed under this Trust and Plan (except as provided below in this Section 2.12) or any other qualified retirement plan; and (c) other special benefits. The amount of a participant's compensation for any plan year shall not include any amounts paid to the participant by a Participating Company prior to the date as of which he became a participant pursuant to Article 3 hereof. Except as otherwise indicated in the Trust and Plan, a participant's compensation shall include amounts contributed by a Participating Company to the Trustee pursuant to a participant's election under Section 4.1 hereof. For purposes of the Trust and Plan, the amount of a participant's compensation for any plan year shall not exceed One Hundred and Fifty Thousand Dollars ($150,000) plus such adjustments for increases in the cost of living as shall be prescribed by the Secretary of the Treasury pursuant to Section 401(a)(17) of the Code. In determining the limit on compensation set forth in the preceding paragraph, the family aggregation rules contained in Section 414(q)(6) of the Code and any lawful regulations thereunder shall apply, except that in applying such rules, the term 'family' shall include only the spouse of the employee and any lineal descendants of the employee who have not attained age nineteen (19) before the close of the plan year. If, as a result of the application of such family aggregation rules, the limit on compensation set forth above is exceeded, the amount of each family member's -2- compensation which shall count toward the limit shall equal that portion of the limit which bears the same relationship to the limit as such family member's compensation, determined under this Section 2.12 prior to the application of such compensation limit ('unlimited compensation'), bears to the total unlimited compensation of all the family members." 2. Section 19.2 of Article 19 of the Trust and Plan is hereby amended by the addition at the end thereof of a new sentence to read as follows: "All such amounts allocated to the accounts of participants employed by a Participating Company at the time of termination of this Trust and Plan with respect to such Participating Company shall be fully vested and nonforfeitable." 3. Section 22.1 of Article 22 of the Trust and Plan is hereby amended by the addition at the end thereof of a new sentence to read as follows: "For purposes of calculating the maximum allowable amounts under this Section 22.1, a participant's "limitation year" shall mean the plan year and his compensation shall mean his compensation as required to be reported under sections 6041, 6051 and 6052 of the Code (wages, tips and other compensation as reported on Form W-2) and paid and includible in gross income during the limitation year." 4. Section 24.5 of Article 24 of the Trust and Plan is hereby amended by the deletion of subparagraph (b) set forth in said Section 24.5 in its entirety and the substitution in lieu thereof of the following: "(b) any contributions made for plan years during which this Trust and Plan does not initially qualify under Section 401(a) of the Code, provided such contributions are returned to the Participating Company within one (1) year after the date of denial of qualification; and" -3- IN WITNESS WHEREOF, the Company, by its duly authorized officers, has caused this Amendment No. 1 to be executed as of the day and year first above written. NEW HORIZONS EDUCATION CORPORATION ("Company") By:________________________________ And:_______________________________ EX-10.4 6 Exhibit 10.4 AMENDMENT NO. 2 TO NEW HORIZONS EDUCATION CORPORATION 401(K) PROFIT SHARING TRUST AND PLAN This Amendment No. 2 is made this ___ day of January, 1997, by NEW HORIZONS EDUCATION CORPORATION, a Delaware corporation (hereinafter called the "Company"). WITNESSETH: WHEREAS, the Company established the New Horizons Education Corporation 401(k) Profit Sharing Trust and Plan (hereinafter called the "Trust and Plan") effective the first day of January, 1995; and WHEREAS, the Company reserved the right, pursuant to Section 19.1 of the Trust and Plan, to amend the Trust and Plan; and WHEREAS, effective December 27, 1996, New Horizons Worldwide, Inc., fka Handex Corporation ("NHW"), sold the stock of Handex Environmental, Inc. to ECB, Inc. pursuant to that certain Stock Purchase Agreement dated November 4, 1996 between NHW and ECB, Inc.; and WHEREAS, the entire account balances of certain participants are to be transferred from the Handex Environmental, Inc. 401(k) Profit Sharing Trust and Plan fka the Handex Corporation 401(k) Profit Sharing Trust and Plan (the "Handex Plan") to the Trust and Plan as soon as practicable following the consummation of the sale of Handex Environmental, Inc. stock; and WHEREAS, it is the desire of the Company to amend the Trust and Plan in order to continue to provide the same distribution options under the Trust and Plan as were provided in the Handex Plan in respect of amounts transferred to the Trust and Plan from the Handex Plan and to include other appropriate provisions with respect to the former participants in the Handex Plan; and WHEREAS, it is desired to add NHW as a Participating Company under the Trust and Plan effective December 27, 1996; NOW, THEREFORE, pursuant to Section 19.1 of the Trust and Plan, the Company hereby amends the Trust and Plan effective as of December 27, 1996, as follows: 1. The Trust and Plan is hereby amended by the addition at the end thereof of a new Supplemental Agreement I to provide as set forth on Exhibit A to this Amendment No. 2. 2. Article 19 of the Trust and Plan is hereby amended by the addition at the end thereof of new Sections 19.5 and 19.6 to provide as follows: "19.5 ADOPTION OF SUPPLEMENTAL AGREEMENTS. The Company may, in the sole discretion of its Board of Directors, determine that special provisions shall be applicable to some or all of the employees of a Participating Company either in addition to or in lieu of the provisions of this Trust and Plan or may determine that certain Covered Employees otherwise eligible to participate in this Trust and Plan shall not be eligible to participate in this Trust and Plan. In such event, the Company shall adopt a Supplemental Agreement with respect to the Participating Company which employs such individuals which Supplemental Agreement shall specify the employees of the Participating Company covered thereby and the special provisions applicable to such employees. Any Supplemental Agreements shall be deemed to be a part of this Trust and Plan solely with respect to the employees specified therein. 19.6 AMENDMENT OF SUPPLEMENTAL AGREEMENTS. The Company may, from time to time, amend, modify or terminate any Supplemental Agreement provided, however, that no such action shall operate so as to deprive any participant who was covered by any such Supplemental Agreement of any vested rights to which he is entitled under this Trust and Plan or the Supplemental Agreement prior to such termination." 3. Exhibit A to the Trust and Plan is hereby amended by the addition of "New Horizons Worldwide, Inc., fka Handex Corporation" as a Participating Company with an Adoption Date of "December 27, 1996." -2- IN WITNESS WHEREOF, the Company, by its duly authorized officers, has caused this Amendment No. 2 to be executed as of the day and year first above written. NEW HORIZONS EDUCATION CORPORATION ("Company") By:________________________________ And:_______________________________ -3- EXHIBIT A NEW HORIZONS EDUCATION CORPORATION 401(K) PROFIT SHARING TRUST AND PLAN - -------------------------------------------------------------------------------- SUPPLEMENTAL AGREEMENT I RELATING TO CERTAIN FORMER PARTICIPANTS IN HANDEX ENVIRONMENTAL, INC. 401(k) PROFIT SHARING TRUST AND PLAN - -------------------------------------------------------------------------------- This Supplemental Agreement I to the New Horizons Education Corporation 401(k) Profit Sharing Trust and Plan, as originally effective as of January 1, 1995 and as amended effective December 27, 1996 (the "Trust and Plan"), relating only to certain participants and accrued benefits in the Handex Environmental, Inc. 401(k) Profit Sharing Trust and Plan (the "Handex Plan") as of December 27, 1996, as set forth herein. SECTION I-A DEFINITIONS I.A.1. Definitions. The following terms, when used herein, unless their context indicates otherwise, shall have the following respective meanings: (a) The words "Handex Participants" shall mean certain participants under the Handex Plan who, in connection with the sale of stock of Handex Environmental, Inc., ceased to be employed by that company and became employed by New Horizons Worldwide, Inc., fka Handex Corporation, or another Participating Company and on whose behalf assets are to be transferred to the Trust and Plan. The Handex Participants to whom this Supplemental Agreement I shall apply are as follows: Thomas J. Bresnan Gary T. Gann -1- Linda L. Kelly John T. St. James (b) The words "Joint and Survivor Annuity" shall mean an annuity contract purchased from an insurance company which provides that the amounts distributable to a participant under the Trust and Plan shall be paid to the participant for his lifetime in equal monthly amounts commencing on the date specified in this Trust and Plan until the payment made as of the first day of the month during which the participant shall die and that an amount which is equal to either fifty percent (50%) or one hundred percent (100%), as selected by the participant, of the monthly amount payable to the participant shall be payable to the person who was the spouse of the participant on the date distribution commenced to the participant, commencing on the first day of the month following the death of the participant, if such person is then living, and ending with the payment made on the first day of the month during which such person shall die. (c) The words "Life Annuity" shall mean an annuity contract purchased from an insurance company which provides that the amounts distributable to an unmarried participant or a beneficiary who is a deceased participant's surviving spouse under the Trust and Plan shall be paid to the participant or beneficiary for his lifetime in equal monthly amounts commencing on the date specified in the Trust and Plan and payable each month thereafter until the month during which the participant or beneficiary dies. SECTION I-B FORMER HANDEX ENVIRONMENTAL, INC. EMPLOYEES I.B.1. Handex Participants became participants under the Trust and Plan as of December 27, 1996. -2- I.B.2. In connection with the sale of the stock of Handex Environmental, Inc. on December 27, 1996, as soon as practicable following consummation of that transaction, Handex Environmental, Inc., as the new sponsor of the Handex Plan, shall arrange for the transfer to this Trust and Plan of all assets under the Handex Plan credited to accounts of Handex Participants and the Trustee shall accept such transfer. SECTION I-C VESTING I.C.1. The vesting service under this Trust and Plan for any Handex Participant shall equal such person's vesting service under the Handex Plan through December 26, 1996, plus such person's vesting service under the Trust and Plan for periods on and after December 27, 1996. SECTION I-D ACCOUNTS I.D.1. As soon as practicable after the execution of Amendment No. 2 to the Trust and Plan, the Administrator shall establish a Handex cash option account and a Handex employer contribution account, if applicable, for each Handex Participant on whose behalf amounts will be transferred to the Trustee from the Handex Plan. The Administrator shall credit said accounts with the amounts transferred to the Trustee from the Handex Plan on behalf of such person as follows: (a) all amounts credited under the Handex Plan to such person's cash option account at the time of the transfer, together with all future earnings, gains and losses attributable thereto, shall be credited to such person's Handex cash option account under the Trust and Plan; and (b) all amounts credited under the Handex Plan to such person's matching employer contribution account and regular employer contribution account at the time of the transfer, together with all future earnings, gains and losses attributable thereto, shall be credited to such person's Handex employer contribution account under the Trust and Plan. -3- I.D.2. Except as otherwise provided in Section I-E: (a) a Handex Participant's Handex cash option account shall be invested, administered and distributed as if it were a part of his cash option account and all references to his cash option account shall be deemed to include his Handex cash option account; and (b) a Handex Participant's Handex employer contribution account shall be invested, administered and distributed as if it were a part of his employer contribution account and all references to his employer contribution account shall be deemed to include his Handex employer contribution account. SECTION I-E DISTRIBUTIONS I.E.1. Subject to Section 12.1, a Handex Participant or his beneficiary may elect to receive distributions pursuant to Articles 9, 10 and 11 from such person's Handex cash option account and Handex employer contribution account pursuant to one or a combination of the following optional methods of distribution: (a) In a single lump sum payment; or (b) In nearly equal installments payable to the distributee from the trust fund over a period of years specified by the distributee or, if he shall die after the commencement of payments but prior to the completion of said installments, to his designated beneficiary; or (c) In equal monthly payments under an annuity contract purchased by the Trustee from an insurance company. To elect either one or a combination of said methods of distribution, a participant or beneficiary shall notify the Administrator of such election in writing prior to the date the amounts credited to his Handex cash option account and Handex employer contribution account are distributed pursuant to Articles 9, 10 and 11, as applicable. Notwithstanding the foregoing provisions of this Section I.E.1, an unmarried -4- participant shall receive his distribution under Articles 9 or 10 of this Trust and Plan in the form of a Life Annuity purchased from an insurance company unless he shall elect some other method of distribution. I.E.2. Notwithstanding any other provisions of this Section I-E (except Section 12.7 of the Trust and Plan), a married participant shall receive the amounts distributable to him under Articles 9 or 10 of this Trust and Plan from his Handex cash option account and Handex employer contribution account in the form of a Joint and Survivor Annuity unless either (a) both the participant and his spouse sign a document electing another form of payment and the spouse's signature is properly notarized or (b) it is established to the satisfaction of the Administrator that the signature of the spouse cannot be obtained either because the spouse cannot be located or because of such other circumstances as the Secretary of the Treasury may prescribe by lawful regulations. Any consent given by a spouse pursuant to this Section I.E.2 shall be effective only with respect to such spouse and shall not be effective with respect to any other spouse of such participant. Any married participant shall be allowed to elect, in accordance with this Section I.E.2, to receive the amounts distributable to him from his Handex cash option account and Handex employer contribution account pursuant to a method of distribution (described in Section I.E.1 above) other than in the form of a Joint and Survivor Annuity during the period commencing ninety (90) days after such married participant receives a written explanation of the Joint and Survivor Annuity. The date amounts otherwise become distributable to a participant pursuant to this Trust and Plan shall be postponed if necessary to provide such ninety (90) days notice. Subject to the spousal consent requirement pertaining to married participants, any married participant may revoke a prior distribution election and elect another method of distribution, if desired, as long as such ninety (90) day period has not expired. -5- I.E.3. Notwithstanding any other provisions of this Section I-E (except Section 12.7 of the Trust and Plan), in the event a participant dies before the distribution of his accounts has been made or commenced to be made under Articles 9 or 10 and the surviving spouse of such participant is the deceased participant's beneficiary, such surviving spouse shall receive the amounts distributable to her under Article 11 from the participant's Handex cash option account and Handex employer contribution account in the form of a Life Annuity unless such surviving spouse signs a document electing another form of payment and such signature is properly notarized. Any such surviving spouse shall be allowed to elect to receive such amounts pursuant to a method of distribution described in Section I.E.1 above other than a Life Annuity during the period commencing ninety (90) days after such surviving spouse receives a written explanation of the Life Annuity. The date any such amounts otherwise become distributable to a surviving spouse pursuant to Article 11 hereof shall be postponed if necessary to provide such ninety (90) days notice. Any such surviving spouse may revoke a prior distribution election and elect another method of distribution, if desired, as long as such ninety (90) day period has not expired. -6- EX-10.5 7 Exhibit 10.5 AMENDMENT NO. 3 TO NEW HORIZONS EDUCATION CORPORATION 401(K) PROFIT SHARING TRUST AND PLAN This Amendment No. 3 is made this ______ day of ________________, 1997, by NEW HORIZONS EDUCATION CORPORATION, a Delaware corporation (hereinafter called the "Company"). WITNESSETH: WHEREAS, the Company established the New Horizons Education Corporation 401(k) Profit Sharing Trust and Plan (hereinafter called the "Trust and Plan") effective the first day of January, 1995; and WHEREAS, the Company reserved the right, pursuant to Section 19.1 of the Trust and Plan, to amend the Trust and Plan; and WHEREAS, it is the desire of the Company to amend the Trust and Plan in order to add certain entities as Participating Companies under the Trust and Plan; NOW, THEREFORE, pursuant to Section 19.1 of the Trust and Plan, the Company hereby amends the Trust and Plan effective as of the dates specified herein, as follows: 1. Effective January 1, 1995, Exhibit A to the Trust and Plan is hereby amended by the deletion of the words "New Horizons Franchising, Inc." in the third line of Exhibit A and the substitution in lieu thereof of the words "New Horizons Computer Learning Centers, Inc., FKA New Horizons Franchising, Inc.". 2. Effective January 1, 1995, Exhibit A to the Trust and Plan is hereby amended by the deletion of the words "New Horizons Computer Learning Centers, Inc." in the eighth line of Exhibit A and the substitution in lieu thereof of the words "New Horizons Computer Learning Center of Santa Ana, Inc. FKA New Horizons Computer Learning Centers, Inc.". 3. Effective January 24, 1995, Exhibit A to the Trust and Plan is hereby amended by the addition of "New Horizons Computer Learning Center of Metropolitan New York, Inc." as a Participating Company with an Adoption Date of "January 24, 1995." 4. Effective January 1, 1995, Exhibit A to the Trust and Plan is hereby amended by the addition of "New Horizons Computer Learning Center of Chicago, Inc." as a Participating Company with an Adoption Date of "January 1, 1995." 5. Effective September 30, 1996, Exhibit A to the Trust and Plan is hereby amended by the addition of "New Horizons Computer Learning Center of Cleveland Ltd., L.L.C." as a Participating Company with an Adoption Date of "September 30, 1996." IN WITNESS WHEREOF, the Company, by its duly authorized officer, has caused this Amendment No. 3 to be executed as of the day and year first above written. NEW HORIZONS EDUCATION CORPORATION ("Company") By:________________________________ -2- EX-21.1 8 Exhibit 21.1 NEW HORIZONS WORLDWIDE, INC. Subsidiaries: New Horizons Education Corporation New Horizons Computer Learning Centers, Inc. New Horizons Computer Learning Center of Chicago, Inc. New Horizons Computer Learning Center of Metropolitan New York, Inc. New Horizons Computer Learning Center of Santa Ana, Inc. New Horizons Computer Learning Center of Cleveland, Ltd., L.L.C. EX-23.1 9 Exhibit 23.1 CONSENT OF KPMG PEAT MARWICK LLP The Board of Directors and Stockholders New Horizons Worldwide, Inc. We consent to incorporation by reference in: the Registration Statement (No. 33-59151) on Form S-3 of Handex Corporation (now known as New Horizons Worldwide, Inc.; the Registration Statement (No. 33-32239) on Form S-8 of New Horizons Worldwide, Inc.; and the Registration Statement (No. 333-16903) on For S-8 of New Horizons Worldwide, Inc., of our report dated February 14, 1997, relating to the consolidated balance sheets of New Horizons Worldwide, Inc. and subsidiaries as of December 28, 1996 and December 30, 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 28, 1996, and all related schedules, which report appears in the December 28, 1996 annual report on Form 10-K of New Horizons Worldwide, Inc. KPMG Peat Marwick LLP Cleveland, Ohio EX-27 10
5 YEAR DEC-28-1996 DEC-28-1996 11,410,868 300,000 19,314,082 1,610,854 606,453 36,417,456 10,731,157 3,926,383 60,472,382 13,587,476 2,329,672 0 0 71,637 43,685,382 60,472,382 41,269,495 41,269,495 20,599,592 39,662,272 (210,978) 1,048,210 351,325 1,466,876 668,982 797,894 (7,433,041) 0 0 (6,635,147) (.96) (.96)
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