FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1997
------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from Not Applicable to
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Commission File Number 0-17840
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NEW HORIZONS WORLDWIDE, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 22-2941704
- - ------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
500 CAMPUS DRIVE, MORGANVILLE, NEW JERSEY 07751
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(Address of principal executive offices)
(Zip Code)
(908) 536-8500
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(Registrant's telephone number, including area code)
_____________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months or for such shorter period that the
registrant was required to file such reports, and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Number of shares of common stock outstanding at March 31, 1997: 7,071,081
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PART I: FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
New Horizons Worldwide, Inc. and Subsidiaries
March 31, 1997 and December 28, 1996
MARCH 31, 1997 DECEMBER 28, 1996
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ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents$ 21,300,767 11,410,868
Marketable securities 300,000 300,000
Accounts receivable, net 15,909,675 17,703,228
Inventories 605,304 606,453
Deferred income tax assets 637,319 825,329
Prepaid expenses and other current
assets 818,380 5,571,578
----------- -----------
Total current assets 39,571,445 36,417,456
Property, plant and equipment, net 7,562,987 6,804,774
Other non-current assets 3,469,159 3,330,111
Intangible assets 13,855,596 13,920,041
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$64,459,187 $60,472,382
=========== ===========
See accompanying notes to condensed consolidated financial statements.
2
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CONDENSED CONSOLIDATED BALANCE SHEETS
NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
MARCH 31, 1997 AND DECEMBER 28, 1996
MARCH 31, 1997 DECEMBER 28, 1996
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(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term
obligations and notes payable $ 2,227,205 $ 1,449,052
Accounts payable 4,294,343 4,614,466
Accrued expenses 8,057,580 7,427,813
Income taxes payable 795,565 96,145
------------ ------------
Total current liabilities 15,374,693 13,587,476
Long-term obligations, excluding current
installments 2,010,579 2,329,672
Deferred income tax liability 1,107,398 798,215
Stockholders' equity:
Preferred stock, without par value,
2,000,000 shares authorized, no
shares issued -- --
Common stock, $.01 par value,
15,000,000 shares authorized;
issued 7,256,081 shares in 1997
and 7,163,660 shares in 1996 72,561 71,637
Additional paid-in capital 25,788,481 25,312,279
Retained earnings 21,403,600 19,671,228
Treasury stock at cost - 185,000
shares in 1997 and 1996 (1,298,125) (1,298,125)
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Total stockholders' equity 45,966,517 43,757,019
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$ 64,459,187 $ 60,472,382
============ ============
See accompanying notes to condensed consolidated financial statement
3
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<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 30, 1996
(UNAUDITED)
MARCH 31, 1997 MARCH 30, 1996
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<S> <C> <C>
Revenues $11,991,773 $ 9,093,171
Cost of revenues 6,397,020 4,405,568
Selling, general and administrative expenses 5,499,816 4,070,200
----------- -----------
Operating income 94,937 617,403
Interest income (expense), net 127,043 (15,224)
Gain from release of certain franchise obligations 2,600,000 --
----------- -----------
Income from continuing operations before income taxes 2,821,980 602,179
Provision for income taxes 1,089,598 292,545
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Income from continuing operations 1,732,382 309,634
Discontinued operations (Note 2)
Loss from operations of the
discontinued environmental segment
(less applicable income tax benefit of $441,016) -- (754,051)
----------- -----------
Net income (loss) $ 1,732,382 (444,417)
=========== ===========
Earnings per share from continuing operations $ 0.25 $ 0.05
Loss per share from discontinued operations -- (0.12)
----------- -----------
Earnings (loss) per share $ 0.25 $ (0.07)
=========== ===========
Weighted average number of shares 7,024,056 6,865,212
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 30, 1996
(UNAUDITED)
MARCH 31, 1997 MARCH 30, 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $1,732,382$ $ (444,417)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 916,044 566,197
Loss on disposal of equipment 2,764 6,671
Deferred income taxes 497,193 (165,728)
Gain from release of certain franchise obligations (2,600,000) --
Cash provided (used) from the change in:
Accounts receivable 1,793,553 (2,644,321)
Inventories 1,149 (64,376)
Prepaid expenses and other current assets 4,753,198 62,264
Other assets (168,626) (69,677)
Accounts payable (320,123) (303,766)
Accrued expenses 629,767 33,748
Income tax payable/refundable 699,420 480,640
Discontinued operations - non cash charges
and working capital changes -- 484,543
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Net cash provided by (used in) operating activities 7,936,721 (2,058,222)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Redemption of marketable securities -- 2,475,000
Gain from release of certain franchise obligations
Additions to property, plant and equipment: 2,600,000 --
Continuing operations (1,582,998) (1,223,410)
Discontinued operations -- (462,470)
Excess of cost over net assets of acquired company -- (56,403)
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1,017,002 732,717
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Net cash provided by investing activities:
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 481,931 --
Proceeds from debt obligations 859,121 514,724
Principal payments on debt obligations (400,061) (160,370)
Other (4,815) (3,600)
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Net cash provided by (used in) financing activities 936,176 350,754
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Net increase (decrease) in cash and cash equivalents 9,889,899 (974,751)
Cash and cash equivalents at beginning of period 11,410,868 3,652,408
------------ ------------
Cash and cash equivalents at end of period $ 21,300,767 $ 2,677,657
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash was paid for:
Interest $ 95,784 $ 54,120
============ ============
Income taxes $ 150,445 $ 28,414
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 30, 1996
(UNAUDITED)
Note 1 In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (all of which
are normal and recurring) necessary to present fairly the financial
position of the Company at March 31, 1997 and the results of operations
for the three month periods ended March 31, 1997 and March 30, 1996.
The statements and notes should be read in conjunction with the
financial statements and notes thereto included in the Company's annual
report for the year ended December 28, 1996.
Note 2 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 concentrate on and more
closely identify with its continuing computer training business.
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 consisted of (i)
$4,600,000 in cash; (ii) a promissory note in the original 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 of $1,000 per share,
of the acquiring company; (iv) six-year warrants to acquire 300,000 and
85,000 common shares of the acquiring company at the price of $1.32 and
$1.60, respectively; and (v) one-third share of the redemption value of
a small joint venture when paid or made available to the acquiring
company. In addition, immediately prior to 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 net assets and results of operations of Handex Environmental, Inc.,
the divested operation, have been reflected as discontinued operations
in the accompanying condensed consolidated financial statements.
Note 3 Certain items on the 1996 financial statements have been reclassified
to conform to the 1997 presentation.
Note 4 The company has received permission from the Department of the Treasury
to change its accounting period for federal income tax purposes to a
taxable year ending on December 31 from a 52-53 week taxable year
ending on the Saturday nearest December 31.
6
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PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, Inc. in December 1996, the Company also
operated an environmental remediation business. As a result of the completion of
the sale of Handex Environmental, Inc. the results of operations for the
Companys environmental business segment have been classified as discontinued
operations for all periods presented in the accompanying condensed consolidated
financial statements.
New Horizons conducts two distinct businesses, one which operates company-owned
computer training centers, and the other which supplies systems of instructions
and 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, classroom equipment, 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; 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.
REVENUES
Revenues increased $2,899,000 or 31.9% to $11,992,000 for the first quarter of
1997 compared to $9,093,000 for the first quarter of 1996. Revenues at
company-owned locations and from its franchising operations for the first
quarter of 1997 were significantly higher compared with the first quarter of
1996. Systemwide revenues for the first quarter rose 42.8% to $58,498,000 from
$40,971,000 for the same period in 1996. Systemwide revenues include revenues
from both franchised locations and company-owned training centers. Revenues from
locations open more than 12 months, both franchised and company-owned, grew
43.4% in the first quarter of 1997 as compared to the same period in 1996.
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COST OF REVENUES
Cost of revenues increased $1,991,000 or 45.2% for the first quarter of 1997 as
compared to the same period in 1996. As a percentage of revenues, cost of
revenues increased to 53.3% in the 1997 quarter from 48.4% for the 1996 quarter.
The increases in the cost of revenues in absolute dollars and as a percent of
revenues were due primarily to higher training, facilities and depreciation
expenses associated with the opening of a training center in Los Angeles and the
expansion of the centers in Santa Ana and New York City.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $1,430,000 or 35.1% for
the 1997 quarter as compared to 1996. As a percentage of revenues, selling,
general and administrative expenses increased to 45.9% for the first quarter of
1997 from 44.8% for the same period for 1996. The increase in selling, general
and administrative expenses, both in absolute dollars and as a percentage of
revenues, was due principally to increased spending in the areas of sales and
marketing, national advertising, the expansion of the Major Accounts Program,
franchise support for domestic and international operations, and expenses
associated with the new center in Los Angeles and expansion in New York City.
OPERATING INCOME
Operating income decreased $522,000 for the first quarter of 1997 when compared
to the first quarter of 1996. As a percentage of revenues, operating income was
0.8% compared to 6.8% for the first quarter of 1996. The decline in operating
income was due principally to the increases in cost of revenues and the selling,
general and administrative expenses discussed above.
INTEREST INCOME/(EXPENSE)
As a percentage of revenues, interest income increased to 2.1% for the 1997
quarter compared with the same period in 1996. The increase in interest income,
both in absolute dollars and as a percentage of revenues was due mainly to the
substantial increase in short term investment funds resulting from the sale of
the environmental business.
Interest expense increased $73,000 or 135.2% for the 1997 quarter compared with
the same period in 1996. As a percentage of revenues, interest expense rose to
1.1% for the first quarter of 1997 from .6% for the first quarter of 1996. 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 in the 2nd half of 1996, and bank financing for purchases in the
first quarter of 1997.
GAIN FROM RELEASE OF CERTAIN FRANCHISE OBLIGATIONS
On February 28, 1997 the company received cash consideration of $2,600,000 in
return for releasing the franchise obligations of an owner of four New Horizons
training centers in the State of New York. The company is aggressively
attempting to re-franchise the territories that became available as a result of
this transaction. There were no items of other income in the first quarter of
1996.
INCOME TAXES
The provision for income taxes as a percentage of income before income taxes was
38.6% for the 1997 quarter compared to 48.5% for 1996. The decrease in the
provision for income taxes as a percentage of income before income taxes was due
principally to higher tax free income in 1997
8
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when compared to 1996 and substantially lower foreign income taxes in the 1997
quarter when compared to the 1996 quarter.
NET INCOME (LOSS)
Net income for the 1997 quarter was $1,732,000 compared to net income of
$310,000 for the 1996 quarter. Included in the 1997 results was the gain from
the release of certain franchise obligations described above.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company's working capital was $24,197,000, and its
cash, cash equivalents and short-term investments totaled $21,601,000. Working
capital as of March 31, 1997 reflected an 6% increase of $1,367,000 from
$22,830,000 as of December 28, 1996. The increase was due principally to the
gain from the release of certain franchise obligations described above.
The Company currently maintains two credit facilities with a commercial bank
providing aggregate availability of $2,500,000. 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 1, 1997
and negotiations with the bank are in process to extend the commitment, although
there can be no assurance concerning the extension of the facilities.
The nature of the computer education and training industry requires substantial
cash commitments for the purchase of computer equipment, software and training
facilities. During the first quarter of 1997 the Company spent approximately
$1,583,000 on capital items and anticipates spending up to $5,000,000 during
1997.
Management believes that its current working capital position and cash flows
from operations, along with its credit facilities, will be adequate to support
its current and anticipated capital and operating expenditures and its
strategies to grow its computer education and training business through the end
of 1997.
INFORMATION ABOUT FORWARD LOOKING STATEMENTS
The statements made in this Quarterly Report on Form 10-Q that are not
historical facts are forward looking statements. Such statements are based on
current expectations but involve risks, uncertainties, and other factors which
may cause actual results to differ materially from those contemplated by such
forward looking statements. 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 Companys 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 Companys ability to
attract and retain qualified instructors; (iii) the rate at which new software
applications are introduced by manufacturers and the Companys 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 Companys ability to compete effectively
with low cost training providers who may not be authorized by software
manufacturers; and (vi) the Companys ability to manage the growth of its
business.
The Companys 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,
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and the acquisition of companies in similar or complementary businesses. The
Companys 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 Companys assumptions with
respect to any of these matters are inaccurate, its results of operations and
financial condition could be adversely affected.
IMPACT OF ACCOUNTING PRONOUNCEMENTS
The Companys 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 1997 or in the future which will materially impact the
financial statements of future years.
11
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FORM 10Q - PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENTS
------- ------------------------
10.1 Form of Non-Employee Director Stock Option Plan Agreement(1)
15.0 Letter from Independent Certified Public Accountants *
27.0 Financial Data Schedule*
* Filed herewith
Incorporated herein by reference to the appropriate exhibits to the Registrants
Proxy Statement dated April 11, 1997.
11
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
NEW HORIZONS WORLDWIDE, INC.
(Registrant)
Date: May 15, 1996 By: /s/ JOHN T. ST. JAMES
-----------------------------
John T. St. James
(Duly authorized officer and
Principal Financial Officer)
12
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE
- - ------- ----
10.1 Form of Non-Employee Director Stock Opiton Plan Agreement(1)
15.0 Letter from Independent Certified Public Accoountants*
27.0 Finanacial Data Schedule* (for SEC use only)
EXHIBIT 15.0
Independent Auditors Review Report
The Board of Directors
New Horizons Worldwide, Inc.
and Subsidiaries
We have reviewed the condensed consolidated balance sheet of New Horizons
Worldwide, Inc. and subsidiaries as of March 31, 1997, and the related condensed
consolidated statements of income and cash flows for the three month periods
ended March 31, 1997 and March 30, 1996. These condensed consolidated financial
statements are the responsibility of the Companys management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquires of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of New Horizons Worldwide, Inc. and
subsidiaries as of December 28, 1996, and the related consolidated statements of
operations, stockholders equity, and cash flows for the year then ended (not
presented herein); and in our report dated February 14, 1997, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of December 28, 1996 is fairly presented, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
Los Angeles, California
May 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 21,300,767
<SECURITIES> 300,000
<RECEIVABLES> 17,305,843
<ALLOWANCES> 1,396,168
<INVENTORY> 605,304
<CURRENT-ASSETS> 39,571,445
<PP&E> 12,317,508
<DEPRECIATION> 4,754,521
<TOTAL-ASSETS> 64,459,189
<CURRENT-LIABILITIES> 15,374,693
<BONDS> 2,010,579
0
0
<COMMON> 72,561
<OTHER-SE> 45,893,956
<TOTAL-LIABILITY-AND-EQUITY> 45,966,517
<SALES> 11,991,773
<TOTAL-REVENUES> 11,991,773
<CGS> 6,397,020
<TOTAL-COSTS> 11,896,836
<OTHER-EXPENSES> (253,620)
<LOSS-PROVISION> 125,571
<INTEREST-EXPENSE> 126,577
<INCOME-PRETAX> 2,821,980
<INCOME-TAX> 1,089,598
<INCOME-CONTINUING> 1,732,382
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,732,382
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
