**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K**

 

| **(Mark One)** |                                                                                                                                               |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------|
| x              | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**                                               |
|           | ** **                                                                                                                                         |
|           |                                                                                                                                               | **For the fiscal year ended December 31, 2007** |   |
|           | ** **                                                                                                                                         |
|           |                                                                                                                                               | **OR** |   |
|           | ** **                                                                                                                                         |
| o              | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**                                           |
|           | ** **                                                                                                                                         |
| ** **     | **For the transition period from          to          ** |
|                |                                                                                                                                                    |  |  |  |  |

 

**Commission file number 0-7282**

 

**COMPUTERHORIZONS CORP.**

(Exact name of registrant as specified in its charter)

 

| **New York**                                              | ** ** | **13-2638902**       |
|-----------------------------------------------------------|------------|----------------------|
| (State  or other jurisdiction of                          |       | (I.R.S.  Employer    |
| incorporation  or organization)                           |       | Identification  No.) |
| ** **                                                |       |                 |
| **2001 Route 46 East, Suite 310**                    |       |                 |
| **Parsippany, New Jersey**                                | ** ** | **07054**            |
| (Address  of principal                                    |       | (Zip  Code)          |
| executive  offices)                                       |       |                 |
|                                                      |       |                 |
| Registrant’s  telephone number, including area code: | ** ** | **(973) 257-5030**   |

 

Securities registeredpursuant to Section 12(b) of the Act:

 
| **Title of each class** | ** ** | **Name of each exchange  on which registered** |
|-------------------------|------------|------------------------------------------------|
| None                    |       | None                                           |

 

Securities registeredpursuant to Section 12(g) of the Act:

 

**Common Stock (Par value $.10 per share)**(Title of class) **Series A Preferred Stock Purchase Rights**(Title of class)

 

Indicate by check mark whether the registrant is a well-known seasonedissuer (as defined in Rule 405 of the Securities Act).  Yes   o  No x

 

Indicate by check mark whether the registrant is not required to filereports pursuant to Section 13 or Section 15(d) of theAct.   Yes   o  No x

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes x    No o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K. o

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer or a smaller reportingcompany. See the definitions of “large accelerated filer,” “accelerated filer”and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 
| Large  accelerated filer o |   | Accelerated  filer o |   | Non-accelerated  filer o | Smaller  reporting company x |
|----------------------------|--------|----------------------|--------|--------------------------|------------------------------|

 

Indicate by check mark whether the registrant is a shell company, asdefined in Rule 12b-2 of the Exchange Act.  Yes   x  No o

 

The aggregate market value of the voting stock held by non-affiliates ofthe registrant as of June 29, 2007 was approximately $23,686,099.  The number of shares outstanding of each ofthe registrant’s classes of common stock as of March 20, 2008 was33,837,284 shares.

 

 

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** **

**COMPUTER HORIZONS CORP.December 31, 2007Form 10-K**

** **

**Table of Contents**

** **
| PART I   | 1                                                                                                                   |
|---------------|---------------------------------------------------------------------------------------------------------------------|
| Item 1.       | Business                                                                                                            | 1 |
| Item 1A.      | Risk  Factors                                                                                                       | 2 |
| Item 2.       | Properties                                                                                                          | 3 |
| Item 3.       | Legal Proceedings                                                                                                   | 3 |
|          |                                                                                                                |   |
| PART II  |                                                                                                                | 5 |
| Item 5.       | Market for  Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases  of Equity Securities | 5 |
| Item 6.       | Selected  Financial Data                                                                                            | 7 |
| Item 7.       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         | 8 |
| Item 7A.      | Quantitative  and Qualitative Disclosures about Market Risk                                                         | 22 |
| Item 8.       | Financial Statements and Supplementary Data                                                                         | 23 |
| Item 9A(T).   | Controls and  Procedures                                                                                            | 50 |
|          |                                                                                                                |   |
| PART III |                                                                                                                | 52 |
| Item 10.      | Directors,  Executive Officers and Corporate Governance                                                             | 52 |
| Item 11.      | Executive  Compensation                                                                                             | 54 |
| Item 12.      | Security Ownership of Certain Beneficial Owners and  Management                                                     | 58 |
| Item 13.      | Certain  Relationships and Related Transactions, and Director Independence                                          | 59 |
| Item 14.      | Principal  Accountant Fees and Services                                                                             | 59 |
|          |                                                                                                                |   |
| PART IV  |                                                                                                                | 61 |
| Item 15.      | Exhibits and  Financial Statement Schedules                                                                         | 61 |
|          |                                                                                                                |
| SIGNATURES    | 64                                                                                                                  |

 

i

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** **

**Disclosure RegardingForward Looking Statements**

** **

Statementsincluded in this Report that do not relate to present or historical conditionsare “forward-looking statements” within the meaning of that term in Section 27Aof the Securities Act of 1933, as amended, and in Section 21F of theSecurities Exchange Act of 1934, as amended (the “Exchange Act”).  Additional oral or written forward-lookingstatements may be made by the Company from time to time, and such statementsmay be included in documents that are filed with the Securities and ExchangeCommission (“SEC”).  Such forward-lookingstatements involve risks and uncertainties that could cause results or outcomesto differ materially from those expressed in such forward-lookingstatements.  Forward-looking statementsmay include, without limitation, statements relating to the Company’s plans,strategies, objectives, expectations and intentions and are intended to be madepursuant to the safe harbor provisions of the Private Securities LitigationReform Act of 1995.  Words such as “believes,”“forecasts,” “intends,” “possible,” “expects,” “estimates,” “anticipates,” or “plans”and similar expressions are intended to identify forward-looking statements.

 

ii

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# ** **

# **PART I**

# ** **

## **Item 1.      ***Business*

## ** **

***General***

*** ***

Foundedin 1969, Computer Horizons Corp. (the “Company” or “CHC”) was incorporated in1972 under the laws of the State of New York. The Company provided a broadrange of IT staffing and project-based solution services using a globaldelivery model that allowed the Company to perform work at client sites or atCompany development centers in the U.S., Montreal, Canada, and Chennai, India.The Company’s  Chimes, Inc. (“Chimes”)subsidiary offered a business process outsourcing (BPO) solution for vendormanagement services (VMS), enabled by its proprietary technology, ChimesTM.

 

TheCompany’s Federal business unit was sold on September 29, 2006 for apurchase price of $15.3 million in cash, less an estimated net asset adjustmentof approximately $1.2 million, which was subject to further adjustment.  During the second quarter of 2007, theparties reached agreement on the final net asset amount, resulting in a paymentto the buyer of $215 thousand.  The sale of RGII resulted in a net book lossof $4.8 million.

 

At aSpecial Meeting held on February 14, 2007, the shareholders of the Companyapproved the sales of the Company’s Chimes, Inc. subsidiary to anaffiliate of Axium International and the Company’s Commercial Division to an affiliateof Allegis Group (the “Asset Sales”).  At the Special Meeting, theshareholders of the Company also approved a proposed plan of completeliquidation and dissolution of the Company. The Company began implementing the complete liquidation and dissolutionof the Company after both the Chimes and Commercial Asset Sales were completedon February 16, 2007. On March 5, 2007, the Company announced thatits Board of Directors declared an initial liquidating distribution of $4.00per share to its common shareholders. This distribution was paid March 27, 2007 to shareholders of recordas of the close of business on March 16, 2007.  This initial liquidating distribution was thefirst in what is expected to be a series of liquidating distributions pursuantto the plan of complete liquidation and dissolution approved by the Company’sshareholders on February 14, 2007. On December 19, 2007, the Board of Directors announced a secondliquidating distribution of $.30 per share to its common shareholders.  This distribution was paid on February 11,2008 to shareholders of record as of the close of business on January 15,2008.  The aggregate amount ofdistributions to our shareholders is expected to be in the range of $4.68 to$4.78 per share of Common Stock.  The actualamount and timing of future liquidating distributions cannot be predicted atthis time and will depend upon a variety of factors, including, but not limitedto, the ultimate settlement amounts of the Company’s liabilities andobligations, and actual costs incurred in connection with carrying out theCompany’s plan of complete liquidation and dissolution, includingadministrative costs during the liquidation period.

 

As aresult of the adoption of the Company’s plan of complete liquidation anddissolution, the Company adopted the liquidation basis of accounting effective February 17,2007, whereby assets are valued at their net realizable values and liabilitiesare valued at their estimated settlement amounts.  The valuation of assets and liabilities requiresmany estimates and assumptions by management.

 

***Employees***

*** ***

As of December 3l,2007, the Company had five employees, consisting of a Chief Executive Officer,a Chief Financial Officer, a General Counsel and two administrative employees.

 

In the past, intellectual property, seasonality andcompetition affected us and were reported in our public filings.  As of the filing date of this document, suchitems are no longer applicable to the Company.

 

***Available Information***

*** ***

Information on theCompany may be obtained by writing to Computer Horizons Corp at 2001 Route 46East, Suite 310, Parsippany, NJ 07054.

 

1

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## **Item 1A.    *RiskFactors***

## ** **

Forwardlooking statements are subject to various uncertainties.

 

Statementsmade in this Report regarding the payment of additional liquidatingdistributions are forward-looking statements. Such forward-looking statementsare subject to a number of risks and uncertainties, and there can be noassurance that the expectations reflected in those statements will be realizedor achieved. Such risks and uncertainties include, without limitation, possiblecontingent liabilities and post-closing indemnification and other obligationsarising from the sale of the Company’s businesses; and risks associated withthe liquidation and dissolution of the Company, including, without limitation,settlement of the Company’s liabilities and obligations, costs incurred inconnection with the carrying out of the plan of liquidation and dissolution,the amount of income earned on the Company’s cash and cash equivalents andshort-term investments during the liquidation period, and the actual timing ofliquidating distributions.

 

TheCompany has indemnification obligations under the Commercial Services Asset PurchaseAgreement.

 

Underthe Commercial Services Asset Purchase Agreement, the Company has agreed toindemnify TEKsystems and its affiliates for, among other things, any lossesincurred by them arising out of the Company’s breach of the Commercial ServicesAsset Purchase Agreement, subject to certain dollar and time limitations.

 

TheCompany’s Board of Directors will need to make provision for the satisfactionof all of the Company’s known and unknown liabilities, which couldsubstantially delay or limit the Company’s ability to make distribution in fullto shareholders.

 

TheCompany’s Board of Directors will be required to make adequate provision tosatisfy the Company’s liabilities, including known and unknown claims againstthe Company, before authorizing any further distribution to shareholders. Theprocess of accounting for the Company’s liabilities, including those that arepresently unknown, may involve difficult valuation decisions, which couldadversely impact the Company’s ability to make distribution in full in a timelymanner. Substantial time may be required for the Company to determine theextent of its liabilities to known third party creditors and claimants and forthe Company to settle or judicially resolve any claims that are contested. Furthermore,pursuant to the New York Business Corporation Law, the Company may be subjectto claims being commenced against it for liabilities unknown to it for a periodof time after dissolution. Assuming the Company has sufficient remaining cash,a period of time must elapse after dissolution before the Company would be ableto make any distribution in full to shareholders of its assets remaining aftersatisfying or providing for all its liabilities and obligations, and suchdistribution may likely be made in more than one installment over an extendedperiod of time.

 

If acourt holds at any time that the Company has failed to make adequate provisionfor its expenses and liabilities or if the amount ultimately required to bepaid in respect of such liabilities exceeds the amount available from thecontingency reserve, the Company’s creditors could seek an injunction againstthe making of distributions on the grounds that the amounts to be distributedare needed to provide for the payment of the Company’s expenses andliabilities. Any such action could delay or substantially diminish the amountof any cash distributions to shareholders.

 

If theCompany fails to create an adequate contingency reserve for payment of itsexpenses and liabilities, creditors could assert claims against eachshareholder receiving a distribution for the payment of any shortfall, up tothe amounts previously received by the shareholder in distributions from theCompany.

 

On March 13,2007, the Company announced that it had notified The NASDAQ Stock Market (“NASDAQ”)of its intention to voluntarily withdraw its common stock from listing onNASDAQ effective immediately prior to the opening of trading on April 2,2007, with the effect that the last day of trading on NASDAQ would be March 30,2007.  Because the Company’s common stockno longer trades on NASDAQ, the ability of stockholders to buy and sell sharesmay be materially impaired.  The Company’scommon stock is now traded in the Pink Sheets.

 

2

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## **Item 2.      ***Properties*

## ** **

TheCompany maintains limited office space for administrative use in connectionwith its liquidation process.  Itsheadquarters is located in leased space at 2001 Route 46 East, Suite 310,Parsippany, New Jersey 07054.

 

## **Item 3.      ***Legal Proceedings*

## ** **

TheCompany is, or was during 2007, a party to the following lawsuits, each arisingout of the Asset Sales.

 

AxiumInternational, Inc. and Diversity MSP, Inc. d/b/a Ensemble ChimesGlobal v. Computer Horizons Corp., et al. (Supreme Court of the State of New York, County of NewYork, Index No. 602746/07)

 

AxiumInternational, Inc. (“Axium”) and Diversity MSP, Inc. (“Diversity”)commenced this action in August 2007 against the Company, Chimes, Inc.(now known as Forgone, LLC), and certain of their officers, alleging that thedefendants engaged in fraudulent conduct, including making representationsallegedly known by them to be false, and active concealment and thereby inducedthe plaintiffs into entering into the contract with the Company and Chimeswhereby Diversity purchased substantially all of the assets of Chimes, and thatthe Company and Chimes breached representations, warranties, covenants andagreements contained in that agreement. The complaint asked for damages in anunspecified amount and attorney’s fees. On October 2, 2007, the Companyand Chimes filed an answer denying the material allegations in the complaintand asserting certain affirmative defenses, and the other defendants filed amotion to dismiss the complaint as to them. Subsequently, the action wassettled in December 2007, without any admission of liability by theCompany or any of the other defendants, with the payment by the Company of$175,000 to Axium and with discontinuance of all of the claims asserted byAxium and Diversity in the action with prejudice.

 

ComputerHorizons Corp.V. TEKsystems, Inc. (United States District Court, District of Maryland,Case No.:  1:07-CV-02849 WMN)

 

Thisaction relates to the Asset Purchase Agreement entered into as of November 7,2006 by and among TEKsystems, Inc.(“TEK”), Allegis Group, Inc., theCompany (referred to therein as “Seller”), and others (the “APA”) under whichthe Company agreed to sell and TEK agreed to purchase substantially all of theassets of the business of the Company’s Commercial Services Business Unit.Included among the assets was all of the capital stock of the Company’sCanadian subsidiary, Computer Horizons (Canada) Corp. (“Canada Sub”).  Specifically excluded from the sale of assetsand retained by the Company is a refundable income tax credit payable to CanadaSub by Revenu Quebec for the tax years 2005 and 2006 (the “Quebec TaxReceivable”). The closing of the sale of the assets under the APA occurred on February 16,2007 (the “Closing Date”).  Under the APA,TEK agreed to promptly remit to the Company all amounts collected by TEK afterthe closing in payment of the Quebec Tax Receivable.

 

Duringthe third quarter of 2007, TEKsystems advised the Company that Canada Sub hadreceived approximately Canadian $4.3 million with respect to the QuebecTax Receivable for 2005 (representing approximately Canadian $4.4 millionin tax credit and interest less a deduction for associated capital taxes ofapproximately Canadian $114 thousand). Using the exchange rate between theCanadian and United States dollars as of the day before the date of TEKsystem’snotice to the Company, the receipt by TEKsystems amounted to approximatelyUS$4.4 million. TEKsystems remitted to the Company approximately$958 thousand, after deducting approximately $1.49 million forCanadian income taxes, $1.89 million as a purchase price adjustment underthe APA, and $114 thousand for capital taxes. Under the terms of the APA,TEKsystems has no right to offset any amounts due the Company and the aforementionedamount of $1.49 million is subject to dispute and currently beingconsidered by an independent accounting firm, mentioned below. The Company hasrecorded the $958 thousand as a deferred cash credit in the balance sheetas of September 30, 2007. After demands to remit the $4.3 millionwere ignored, on October 19, 2007, the Company commenced this actionagainst TEK, seeking damages for the failure of TEK to remit the full amount ofthe Quebec Tax Receivable for 2005 to the Company, and a declaration that TEKmust remit to the Company the full amount of the Quebec Tax Receivable for 2006to be received by Canada Sub from Revenu Quebec promptly upon such receipt.

 

3

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TheAPA provides for a potential purchase price adjustment based on the Final NetWorking Capital of the business sold thereunder as of the Closing Date. Thereare disputes between the Company and TEK concerning certain items involved inthe determination of Final Net Working Capital (and any purchase priceadjustment). Under the APA, all such disputed items are to be determined by anindependent accounting firm.  The Companyand TEK submitted the disputed items to such independent accounting firm fordetermination, but TEK has failed to cooperate with the independent accountingfirm and has prevented it from determining the disputed items in calculatingFinal Net Working Capital. Accordingly, the Company filed an amended complainton December 29, 2007 in this action, adding a third claim, i.e., forjudgment ordering TEK to cooperate promptly with the independent accountingfirm in its determination of the disputed items in the calculation of Final NetWorking Capital.

 

Byanswer filed January 14, 2008, TEK denied any liability under the three claimsin the Company’s amended complaint and alleged four counterclaims against the Company for its purported breaches ofwarranties and representations in the APA, including two counterclaimsdemanding a declaration that the Company must indemnify TEK for legal fees andany judgment against TEK should it be sued as a successor to the Company byplaintiffs that have brought actions against the Company, a counterclaim for adeclaration that the Company must indemnify TEK in the event it is held to oweany taxes by reason of a notice sent by an employee of the Company to taxingauthorities, and a counterclaim for the purported legal fees incurred by TEKand the amount by which it allegedly reduced a receivable in settling a disputewith the Iowa Health Systems, Inc. (“IHS”) over the receivable that IHSowed.  The counterclaims seek to have thecourt impose a constructive trust over the Company’s assets to remedy thealleged breaches of the APA by the Company. By reply filed February 27, 2008, the Company denied thesubstantive allegations contained in  thecounterclaims.

 

On February 27,2008, the Company served a motion in this action to compel TEK to arbitrate thedisputed matters in the calculation of Final Net Working Capital before theindependent accounting firm and to compel TEK to cooperate promptly with thefirm in its determination of the disputed matters. This motion is pending.

 

Nodiscovery has yet been taken in this action.

 

TheCompany intends to prosecute its claims and defend against the counterclaims ofTEK vigorously in this action.

 

TEKsystemsCanada , Inc. v. Computer Horizons Corp. (United States District Court, District of Maryland,Case No.:  1:08-CV-00209 WMN)

 

On January 24,2008. Canada Sub, now known as TEKsystems Canada, Inc., filed this actionagainst the Company, alleging four claims: (1) for judgment in the amountof Canadian income taxes that Canada Sub claims is owed for its receipt of theQuebec Tax Receivable for 2005, i.e., Canadian$1,495,139, and a declarationthat the Company will be liable for the amount of Canadian income taxes thatwill allegedly be owed upon and for Canada Sub’s future receipt of the QuebecTax Receivable for 2006, i.e., Canadian$1,890,559, (2) for judgment in theamount of Canadian$113,854, and a declaration that the Company will be liablefor at least Canadian$54,973, and Canadian$25,062 in Canadian provincialcapital taxes, penalties, and interest that Canada Sub alleges it owes or willowe for, respectively, 2005, 2006, and the period January 1, 2007 through February 16,2007, (3) for a judgment for Canada Sub’s alleged loss of tax attributesin the amount of Canadian$12,889,974 by the method by which an intercompanynote made payable by Canada Sub to the Company was allegedly contributed, and (4) fora declaration that the Company will be liable for the amount that Canada Submay allegedly owe under a purported payroll tax audit. The complaint seek tohave the court impose a constructive trust over the assets of the Company toremedy its purportedly “inequitable conduct.”

 

On February 27,2008, the Company filed a motion in this action to stay proceedings on Canada Sub’s first two claims in its complaint,i.e., (1) for the amounts of the taxes allegedly owed for the receipt of the Quebec Tax Receivable for2005 and allegedly will be owed upon and for Canada Sub’s future receipt of theQuebec Tax Receivable for 2006 and (2) for the amounts of the purportedCanadian provincial capital taxes owed for 2005, 2006, and the period January 1,2007 through February 16, 2007, pending completion of the arbitrationbetween TEK and the Company before the independent accounting firm.  This motion is pending.

 

4

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On February 27,2008, the Company also filed its answer to the complaint in this action,denying the substantive allegations of the complaint.

 

Nodiscovery has yet been taken in this action.

 

Bystipulations between counsel for the parties in this action and the abovedescribed action commenced by the Company in the District of Maryland and orderof the Court dated February 27, 2008, the two actions in the District ofMaryland were consolidated

 

TheCompany intends to defend itself vigorously against the claims of Canada Sub inthe consolidated lawsuit.

 

# **PART II**

# ** **

## **Item 5.**       *Market for Registrant’s Common Equity, Related Shareholder Matters andIssuer Purchases of Equity Securities*

## ** **

On March 9,2007, the Board of Directors of the Company approved a plan to voluntarilywithdraw its common stock from trading on The NASDAQ Stock Market (“NASDAQ”)effective after the close of trading on March 30, 2007.

 

On March 12,2007, the Company received a letter from NASDAQ stating that, based on theNASDAQ staff’s review of the Company’s public announcements concerning itsshareholders’ approval of a plan of complete liquidation and dissolution of theCompany and the declaration of an initial distribution (and anticipatedsubsequent distributions) in connection therewith and pursuant to Marketplace Rule 4300,the NASDAQ staff believes that the Company is a “public shell” and as such nolonger meets NASDAQ’s continued listing requirements, but that in view of theCompany’s plan to voluntarily withdraw its common stock from listing on NASDAQand pursuant to Marketplace Rule 4450(f) the staff has determined togrant an extension of time permitting the Company’s common stock to continue totrade on NASDAQ through March 30, 2007.

 

On March 13,2007, the Company announced that it had notified NASDAQ of its intention tovoluntarily withdraw its common stock from listing on NASDAQ effectiveimmediately prior to the opening of trading on April 2, 2007, with theeffect that the last day of trading on NASDAQ would be March 30, 2007. TheCompany’s stock began trading in the Pink Sheets effective at the opening oftrading on Monday, April 2, 2007.

 

Thefollowing table shows the high and low sales prices per share of our commonstock for each full quarterly period within the two most recent fiscal years,as reported by NASDAQ or the Pink Sheets, as the case may be.  The over-the-counter market quotations listedbelow reflect inter-dealer prices, without retail mark-up, mark-down orcommission and may not represent actual transactions.

 

| ** ** | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------|------------|----------|------------|----------|------------|
| ** ** | ** ** | **High** | ** ** | **Low**  | ** ** | **High** | ** ** | **Low** | ** ** |
| Quarter    |       |     |       |     |       |   |   |   |   |
| First      |       | $        | 4.73       |     | $          | 0.70 |   | $ | 5.00 |   | $ | 4.15 |   |
| Second     |       | 0.75     |       | 0.60     |       | 5.50 |   | 4.20 |   |
| Third      |       | 0.80     |       | 0.53     |       | 4.73 |   | 3.61 |   |
| Fourth     |       | 0.67     |       | 0.40     |       | 4.80 |   | 3.49 |   |
|       |       |     |       |     |       |   |   |   |   |
|            |            |          |            |          |            |  |  |  |  |  |  |  |  |

 

During 2007, the Company did not repurchase shares of its common stock.As treasury shares were depleted the Company issued 103,272 shares of itscommon stock.  As of March 28, 2008,there were approximately 713 registered holders of common stock, according tothe Company’s transfer agent.

 

5

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On March 27,2007, the Company distributed to its shareholders of record as of March 16,2007 (and certain former option holders) the sum of $135.3 million (or $4.00per share based on 33,837,284 shares of common stock then outstanding).  On February 11, 2008, the Companydistributed to its shareholders of record as of January 15, 2008 (andcertain former option holders) the sum of $10.2 million (or $.30 per sharebased on 33,837,284 shares of common stock then outstanding).  The actual amount and timing of any futureliquidating distributions cannot be predicted at this time.

 

6

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| **Item 6.** | *** *** | ***Selected  Financial Data***                  |
|-------------|--------------|-------------------------------------------------|
|        |         |                                            |
|        |         | **Consolidated  Statement of Operations Data:** |
|        |         | (in thousands except per  share data)           |

 

 
| ** **                                                                                                                                     | ** ** | **January 1, 2007 to  February 16, 2007** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                     | ** ** | ** **                                          | **2006**   | ** **            | **2005**   | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                                                                                           |       |                                                |       |                  |       |   |   |   |   |   |   |
| REVENUES:                                                                                                                                      |       | $                                                   | 29,666     |                  | 211,990    |   | $ | 223,856 |   | $ | 214,188 |   | $ | 226,990 |   |
| **Costs and expenses:**                                                                                                                        | ** ** | ** **                                          | ** ** | ** **            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Direct costs                                                                                                                                   |       | 23,086                                              |       | 141,191               |       | 159,587 |   | 154,488 |   | 162,880 |   |
| Selling, general  and administrative                                                                                                           |       | 10,761                                              |       | 68,295                |       | 71,902 |   | 69,077 |   | 74,434 |   |
| Amortization of  intangibles                                                                                                                   |       | —                                              |       | —                |       | 79 |   | 189 |   | 63 |   |
| Restructuring  charges                                                                                                                         |       | 14                                                  |       | (41                   | )          | 2,150 |   | 2,859 |   | 3,278 |   |
| SERP/Change of Control                                                                                                                         |       | —                                              |       | —                |       | 13,247 |   | — |   | — |   |
| Special charges                                                                                                                                |       | —                                              |       | 367                   |       | 5,135 |   | (939 | ) | 10,113 |   |
| Goodwill  impairment                                                                                                                           |       | —                                              |       | —                |       | — |   | 20,306 |   | — |   |
| Write off of  assets                                                                                                                           |       | —                                              |       | —                |       | — |   | 910 |   | — |   |
| Income(loss)  from continuing operations                                                                                                       |       | (4,195                                              | )          | 2,178                 |       | (28,244 | ) | (32,702 | ) | (23,778 | ) |
| Other  income/(expense):                                                                                                                       |       |                                                |       |                  |       |   |   |   |   |   |   |
| Gain/(loss) on  sale of assets                                                                                                                 |       |                                                |       | 394                   |       | — |   | — |   | (424 | ) |
| Net (loss)/gain  on investments                                                                                                                |       | —                                              |       | —                |       | (1,180 | ) | — |   | (432 | ) |
| Interest income                                                                                                                                |       | 881                                                 |       | 2,213                 |       | 811 |   | 321 |   | 517 |   |
| Interest expense                                                                                                                               |       | (1                                                  | )          | —                |       | (6 | ) | (82 | ) | (40 | ) |
|                                                                                                                                           |       |                                                |       |                  |       |   |   |   |   |   |   |
| Income/(loss)  from continuing operations before income taxes and cumulative effect of a  change in accounting principle and minority interest |       | (3,315                                              | )          | 4,785                 |       | (28,619 | ) | (32,463 | ) | (24,157 | ) |
| Gain on Sale                                                                                                                                   |       | 102,686                                             |       |                  |       |   |   |   |   |   |   |
| Income taxes/(benefit)                                                                                                                         |       | —                                              |       | 201                   |       | 17,130 |   | (3,478 | ) | (6,702 | ) |
| Income /(loss)  from continuing operations before cumulative effect of a change in accounting  principle and minority interest                 |       | 99,371                                              |       | 4,584                 |       | (45,749 | ) | (28,985 | ) | (17,455 | ) |
| Minority Interest                                                                                                                              |       | —                                              |       | —                |       | — |   | (45 | ) | (89 | ) |
| Cumulative  effect of change in accounting principle                                                                                           |       |                                                |       |                  |       |   |   |   |   |   |   |
| Net income/(loss) Continuing Operations                                                                                                        |       | $                                                   | 99,371     |                  | 4,584      |   | $ | (45,749 | ) | $ | (29,030 | ) | $ | (17,544 | ) |
|                                                                                                                                           |       |                                                |       |                  |       |   |   |   |   |   |   |
| Income/ (loss) from discontinued operations                                                                                                    |       | —                                              |       | (13,243               | )          | (671 | ) | 3,858 |   | 389 |   |
| Loss on sale of  discontinued operations                                                                                                       |       | —                                              |       | (4,779                | )          | — |   |   |   | — |   |
| Income/ (loss)  from discontinued operations                                                                                                   |       |                                                |       |                  |       |   |   |   |   |   |   |
| Net of tax                                                                                                                                     |       | —                                              |       | (18,022               | )          | (671 | ) | 3,858 |   | 389 |   |
| Net loss                                                                                                                                       |       | $                                                   | 99,371     |                  | (13,438    | ) | $ | (46,420 | ) | $ | (25,172 | ) | $ | (17,155 | ) |
| ** **                                                                                                                                     | ** ** | ** **                                          | ** ** | ** **            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Earnings/(loss) per share from continuing  operations-basic                                                                                    |       | $                                                   | 2.94       |                  | 0.14       |   | $ | (1.46 | ) | $ | (0.94 | ) | (0.58 | ) |
| Earnings/(loss)  per share from discontinued operations-basic                                                                                  |       | $                                                   | —     |                  | (0.56      | ) | $ | (0.02 | ) | $ | 0.12 |   | 0.01 |   |
|                                                                                                                                           |       |                                                |       |                  |       |   |   |   |   |   |   |
| Loss per share-basic                                                                                                                           |       | $                                                   | 2.94       |                  | (0.41      | ) | $ | (1.48 | ) | $ | (0.80 | ) | (0.56 | ) |
| Earnings/(loss)  per share from continuing operations-diluted                                                                                  |       | $                                                   | —     |                  | 0.14       |   | $ | (1.46 | ) | $ | (0.94 | ) | (0.58 | ) |
| Earnings/(loss)  per share from discontinued operations-diluted                                                                                |       | $                                                   | 2.94       |                  | (0.55      | ) | $ | (0.02 | ) | $ | 0.12 |   | 0.01 |   |
|                                                                                                                                           |       |                                                |       |                  |       |   |   |   |   |   |   |
| Anti-Dilutive Earnings/(Loss) per share                                                                                                        |       | $                                                   | 2.94       |                  | (0.41      | ) | $ | (1.48 | ) | $ | (0.80 | ) | (0.56 | ) |
|                                                                                                                                           |       |                                                |       |                  |       |   |   |   |   |   |   |
| Weighted average number of shares of  outstanding-basic                                                                                        |       | 33,837,284                                          |       | 32,444,000            |       | 31,399,000 |   | 30,870,000 |   | 30,455,000 |   |
| Weighted Average number shares outstanding-diluted                                                                                             |       | 33,837,284                                          |       | 32,614,000            |       | 31,399,000 |   | 30,870,000 |   | 30,455,000 |   |

 

 

7

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## ** **

## **Item 7.**                       *Management’s Discussion and Analysis ofFinancial Condition and Results of Operations*

## ** **

**FORWARD-LOOKING STATEMENTS**

** **

Thisreport contains forward-looking statements within the meaning of the safeharbor provisions of the Private Securities Litigation Reform Act of 1995. Insome cases, forward-looking statements can be identified by words such as “believe,”“expect,” “anticipate,” “plan,” “potential,” “continue” or similar expressions.Forward-looking statements also include the assumptions underlying or relatingto any of the foregoing statements. Such forward-looking statements are basedupon current expectations and beliefs and are subject to a number of factorsand uncertainties that could cause actual results to differ materially fromthose described in the forward-looking statements including, but not limitedto, risks described from time to time in the Company’s filings with theSecurities and Exchange Commission, press releases and other communications.All forward-looking statements included in this report are based on informationavailable to the Company on the date hereof. The Company undertakes noobligation (and expressly disclaims any such obligation) to updateforward-looking statements made in this report to reflect events orcircumstances after the date of this report or to update reasons why actualresults would differ from those anticipated in such forward-looking statements.

 

Thefollowing detailed discussion and analysis of the Company’s financial conditionand results of operations should be read in conjunction with the December 31,2007 financial statements and related notes included in separate sections ofthis Form 10-K.

 

At aSpecial Meeting held on February 14, 2007, the shareholders of ComputerHorizons Corp. (the “Company”) approved the sales of the Company’s Chimes, Inc.subsidiary to an affiliate of Axium International and the Company’s CommercialDivision to an affiliate of Allegis Group (collectively, the “Asset Sales”). Atthe Special Meeting, the shareholders of the Company also approved a proposedplan of complete liquidation and dissolution of the Company (the “Plan of Liquidation”).The Company began implementing the Plan of Liquidation after the Asset Saleswere completed on February 16, 2007.

 

Theconsolidated financial statements for the period January 1, 2007 to February 16,2007 and for 2006 were prepared on the going concern basis of accounting, whichcontemplates realization of assets and satisfaction of liabilities in thenormal course of business. As a result of the shareholders’ approval of thePlan of Liquidation, the Company adopted the liquidation basis of accountingeffective February 17, 2007. This basis of accounting is consideredappropriate when, among other things, liquidation of a company is probable andthe net realizable values of assets are reasonably determinable. Under thisbasis of accounting, assets are valued at their net realizable values andliabilities are stated at their estimated settlement amounts.

 

***Liquidation Basis of Accounting***

*** ***

Theconversion from the going concern to liquidation basis of accounting requiredmanagement to make significant estimates and judgments. In order to recordassets at estimated net realizable value and liabilities at estimatedsettlement amounts under the liquidation basis of accounting, the Companyrecorded the following adjustments to record its assets and liabilities at fairvalue as of February 17, 2007, the date of adoption of the liquidationbasis of accounting:

 

| ** **                                   | ** ** | **($ in thousands)** | ** ** |
|----------------------------------------------|------------|---------------------------|------------|
| Adjust assets and liabilities to fair value: |       |                      |       |
| Write down of  Fixed Assets                  |       | 119                       |       |
| Write off of  Advances to India              |       | 698                       |       |
| Write down of  Other Assets                  |       | 156                       |       |
|                                         |       |                      |       |
| Total                                        |       | $                         | 973        |   |
|                                              |            |                           |            |  |

 

8

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*** ***

***Accrued Cost of Liquidation***

*** ***

Uponconversion to the liquidation basis of accounting, the Company accrued for theknown costs to be incurred in liquidation, and has made subsequent adjustmentsand payments against these accounts, as follows:

 

TheCompany will continue to incur operating costs and receive income on itsinvestments throughout the liquidation period. On a regular basis, we evaluateour assumptions, judgments and estimates that can have a significant impact onour reported net assets in liquidation based on the most recent informationavailable to us, and when necessary make changes accordingly. Actual costs andincome may differ from our estimates, which might reduce net assets availablein liquidation to be distributed to shareholders.

 
| **($ in thousands)**              | ** ** | **As Recorded  2/17/2007** | ** ** | **Recorded  prior to  2/17/2007*** | ** ** | **Adjustments  to reserves** | ** ** | **Activity  to date** | ** ** | **Balance at  12/31/07** | ** ** |
|----------------------------------------|------------|----------------------------|------------|------------------------------------|------------|------------------------------|------------|-----------------------|------------|--------------------------|------------|
| Lease Obligation                       |       | $                          | 1,324      |                               |       |                         | 237        |                  | (1,519     | )                        | 42         |   |
| Legal Fees                             |       | 450                        |       |                               |       | 2000                         |       | (450                  | )          | 2000                     |       |
| Professional Fees, including Insurance |       | 2037                       |       |                               |       | 3064                         |       | (3502                 | )          | 1599                     |       |
| Human Resources                        |       | 3,480                      |       | 1,188                              |       | 1178                         |       | (5,355                | )          | 491                      |       |
| Systems-related                        |       | 819                        |       |                               |       | (232                         | )          | (487                  | )          | 100                      |       |
| Misc.                                  |       | 900                        |       | 295                                |       | (310                         | )          | (685                  | )          | 200                      |       |
|                                   |       |                       |       |                               |       |                         |       |                  |       |                     |       |
| Total                                  |       | $                          | 9,010      |                               | 1,483      |                         | 5,937      | **                    | (11,998    | )                        | 4432       |   |

----

*                    Accruals carry forward from operating period.

 

**             Adjustments to reserves totaled $5.9 million, and wereprimarily the result of revised estimates relating to the cost of professionalservices and human resource costs. (See “Sale of Commercial” and “Sale ofChimes”, below, and Item III of Part I, above, for a discussion of currentlegal proceedings.)

 

TheCompany expects to make further distributions to its shareholders of itsremaining cash, less any amount applied to or reserved for actual or contingentliabilities (which will be deposited in a liquidating trust). The amountsreserved will be based on a determination by the board of directors, derivedfrom consultation with management and outside experts, if the board ofdirectors determines that it is advisable to retain such experts, and a reviewof, among other things, our estimated contingent liabilities and our estimatedongoing expenses, including, but not limited to, payroll, legal expenses,regulatory filings and other miscellaneous expenses. To the extent that assetsdeposited in the liquidating trust are not applied to or reserved for paymentof the Company’s liabilities, these assets will be distributed to holders ofbeneficial interests in the liquidating trust at one or more later dates. Eachshareholder will receive his or her pro rata share of each distribution basedon the number of shares held on the record date for such distribution.

 

***Sale of RGII***

*** ***

On September 29,2006, the Company sold its subsidiary, RGII Technologies, Inc., toNetstar-1, Inc. for $15.3 million in cash, less an estimated netasset adjustment of $1.2 million. In addition, CHC retained all cash andcash equivalents of RGII, in the amount of $6.3 million. The amount of theestimated net asset adjustment was subject to a final review. To the extentthat the final net asset amount sold to NetStar-1 was greater than theestimated asset amount at closing, the Stock Purchase Agreement provided thatthe excess would be paid to CHC together with interest thereon at the primerate from the closing date to the date of payment. If the final net assetamount sold to NetStar-1 was less than the estimated asset amount at closing,the Stock Purchase Agreement provided that the deficiency would be paid by CHCto NetStar-1, together with interest thereon at the prime rate from the closingdate to the date of payment. During the second quarter 2007, the partiesreached agreement on the 

 

9

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final net asset amount, resulting in a payment to theBuyer in the amount of $215 thousand. The remainder of the amount inescrow of $785 thousand was released from escrow to CHC. The sale of RGIIresulted in a net book loss on disposal of $4.8 million, includingapproximately $969 thousand in transaction costs as reported September 30,2006.

 

***Sale of Commercial***

*** ***

On November 7,2006, the Company entered into an asset purchase agreement (the “CommercialServices Asset Purchase Agreement”) by and among TEKsystems, Inc., aMaryland corporation (“TEKsystems”), TEKsystems EF&I Solutions, LLC, aMaryland limited liability company, Allegis Group Canada Corporation, a NovaScotia unlimited liability corporation, the Company, GBS Holdings PrivateLimited, a corporation organized under the laws of Mauritius, CHC HealthcareSolutions, LLC, a Delaware limited liability company, and Allegis Group, Inc.,a Maryland corporation. Pursuant to the Commercial Services Asset PurchaseAgreement, on February 16, 2007, the Company sold to TEKsystemssubstantially all of the assets of its Commercial Services Business (as definedin the Commercial Services Asset Purchase Agreement), for a purchase price of$57 million in cash subject to a potential post-closing working capitaladjustment, estimated at $(1.9) million using data as of the date of sale (the “CommercialServices Asset Sale”). The sale was also subject to an escrow of$1.7 million of the purchase price pending receipt of tax certificates inconnection with the Taxation Act—Quebec; the certificates were subsequentlyreceived and the escrow released on April 24, 2007. Assets not included inthe Commercial Services Asset Sale included a refundable Quebec tax credit for2005 and 2006 currently estimated at approximately $9.6 million (describedbelow) and the unit’s operating cash as of the date of the sale. The Companyrecorded an estimated gain of $29.1 million as a result of the sale of theCommercial Services Business.

 

On April 17,2007, TEKsystems submitted their revised calculation of the net working capitaladjustment, asserting a claim for $6 million payable to TEKsystems. TheCompany continues to believe that its estimate of approximately$1.9 million is accurate, and has disputed this claim. While some differenceswere resolved, there still remains a difference of $3.3 million betweenthe Company’s estimate and that of TEKsystems. The principal item in disputerelates to the Company’s belief that Computer Horizons (Canada) Corp. (“CanadaSub”) has sufficient NOL’s to offset any income tax due on the Quebec taxreceivable discussed below. Under the terms of the Commercial Services AssetPurchase Agreement, such disputed items are to be determined by an independentaccounting firm and, on September 19, 2007 the Company, and on September 28,2007 TEKsystems, submitted the disputed items to such independent accountingfirm for determination.  To date,TEKsystems has refused to proceed with such process to resolve these disputeditems and this is now the subject of litigation between CHC andTEKsystems.  For a more detaileddescription of this litigation, see Item 3 of Part I of this Annual Reporton Form 10-K (Legal Proceedings).

 

TheCommercial Services Asset Sale included all of the capital stock of ComputerHorizons (Canada) Corp. (“Canada Sub”) but, as noted above, specificallyexcluded a refundable income tax credit payable to Canada Sub by Revenu Quebecfor the tax years 2005 and 2006 (the “Quebec Tax Receivable”). During the thirdquarter of 2007, TEKsystems advised the Company that Canada Sub had receivedapproximately Canadian$4.3 million with respect to the Quebec TaxReceivable for 2005 (representing approximately Canadian $4.4 million intax credit and interest less a deduction for associated capital taxes ofapproximately Canadian $114 thousand). Using the exchange rate between theCanadian and United States dollars as of the day before the date of TEKsystem’snotice to the Company, the receipt by TEKsystems amounted to approximatelyUS$4.4 million. TEKsystems remitted to the Company approximately$958 thousand, after deducting approximately $1.49 million forCanadian income taxes, $1.89 million as a purchase price adjustment underthe Commercial Services Asset Purchase Agreement, and $114 thousand forcapital taxes. Under the terms of the Commercial Services Asset PurchaseAgreement, TEKsystems has no right to offset any amounts due the Company andthe aforementioned amount of $1.49 million is subject to dispute and hasbeen submitted to an independent accounting firm for determination, althoughTEKsystems has refused to proceed with such process as mentioned above. TheCompany has recorded the $958 thousand as a deferred cash credit in thebalance sheet. After demands to remit the $4.3 million were ignored, theCompany, on October 19, 2007, filed a lawsuit against TEKsystems seekingdamages for the failure of TEKsystems to remit the balance of the fundsreceived by it with respect to the 2005 Quebec Tax Receivable and a declarationthat TEKsystems must promptly remit to the Company upon receipt all fundsreceived 

 

10

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by it in the future in payment of the 2006 Quebec TaxReceivable. For a more detailed description of this litigation, see Item 3of Part I of this Annual Report on Form 10-K (Legal Proceedings).

 

TheCommercial Services Asset Purchase Agreement also grants the partiesindemnification rights against each other with respect to certain matters. Themaximum liability of the Company for indemnification claims under theCommercial Services Asset Purchase Agreement is $10 million and iscontingent upon assertion of a claim for indemnity within nine months after thedate of the Commercial Services Asset Agreement. On August 6, 2007,TEKsystems submitted a letter to the Company, on behalf of itself, the otherpurchaser parties to the Commercial Services Asset Purchase Agreement and theiraffiliates, purporting to be a claim notice under the indemnificationprovisions of the Commercial Services Asset Purchase Agreement assertingpurported indemnification claims based, variously, on the proposition thatTEKsystems and the other purchaser parties are or may be subject to claims thatare Excluded Liabilities under the Commercial Services Asset Purchase Agreementor arise out of alleged breaches of representations, warranties and/orcovenants made by the Company in that agreement. The Company believes that manyof the claims set forth in the letter relate to the working capital adjustmentreferred to above and overlap with or are repetitious of the issues between theparties with respect to the correct amount of that adjustment. The Companystrongly disagrees with the assertions in the letter from TEKsystems andbelieves such assertions are without merit and, if TEKsystems brings suit basedon any of the matters stated therein, the Company intends to vigorously defendagainst it.

 

TheCommercial Services Asset Sale is a taxable transaction with respect to theCompany to the extent of the gain that was realized. The Company will realizegain or loss measured by the difference between the proceeds received by it andits affiliates on such sale and the Company’s (or an affiliate’s) tax basis inthe assets. For purposes of calculating gain or loss, the proceeds received by theCompany and its affiliates will include the cash received by them, the amountof their indebtedness that is cancelled or assumed, and any other considerationreceived by them for their assets. It is anticipated that the Company will havesufficient current losses to offset most of the gain expected to be realizedfrom the Commercial Services Asset Sale for regular Federal income tax purposesand will otherwise incur approximately $300 thousand in alternativeminimum taxes. The Company and/or its affiliates may be subject to state incometaxes to the extent that gains exceed losses for state tax law purposes, butthe Company does not anticipate that such taxes, if any, will be significant.

 

***Sale of Chimes***

*** ***

On October 18,2006, the Company signed a definitive asset purchase agreement (the “ChimesAsset Purchase Agreement”) by and among Axium International, Inc., aDelaware corporation, Diversity MSP, Inc., a California corporation (“DiversityMSP”) and Chimes, Inc., a Delaware corporation and wholly-owned subsidiaryof the Company (now known as Forgone, LLC, a Delaware limited liabilitycompany, and referred to herein as “Chimes”). Pursuant to the Chimes AssetPurchase Agreement, on February 16, 2007, the Company sold to DiversityMSP substantially all of the assets of Chimes, excluding cash and marketablesecurities, for a purchase price of $80.0 million in cash (the “ChimesAsset Sale”), with a gain of $73.6 million.

 

TheChimes Asset Purchase Agreement also grants the parties indemnification rightsagainst each other with respect to certain matters. The maximum liability ofthe Company for indemnification claims under the Chimes Asset PurchaseAgreement is $8 million and is contingent upon assertion of a claim forindemnity within six months after the closing date.

 

On July 23,2007, counsel for Axium International, Inc. and Diversity MSP(collectively, “Axium”) submitted a letter to the Company on Axium’s behalfpurporting to be a claim notice under the indemnification provisions of theChimes Asset Purchase Agreement asserting losses and damages, includingpunitive damages, in unspecified amount as a result of allegedly “fraudulentconduct, intentional and willful and/or negligent misrepresentations,concealment and breach of representations, warranty, covenants and agreementscontained in the [Chimes Asset Purchase] Agreement” by the Company, Chimes andcertain of their officers and directors. Thereafter, on August 15, 2007,the Company received a summons and complaint in a lawsuit making similarallegations. On October 2, 2007, the Company and Chimes filed an answerdenying the material allegations in the complaint and asserting certainaffirmative defenses and the other defendants filed a motion to dismiss thecomplaint as to them.  See Item 3 of Part Iof this Annual Report on Form 10-K (Legal Proceedings) for a descriptionof that 

 

11

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lawsuit and the Company’s response thereto. On December 19,2007, the Company announced that it had settled the litigation pending betweenit and Axium International.  The lawsuitwas discontinued without prejudice, the parties exchanged releases, andComputer Horizons made a payment to Diversity of $175,000.

 

TheChimes Asset Sale is a taxable transaction with respect to the Company to theextent of the gain that was realized. The Company will realize a gain measuredby the difference between the proceeds received by it and its affiliates onsuch sale and the Company’s (or an affiliate’s) tax basis in the assets. Forpurposes of calculating the gain, the proceeds received by the Company and itsaffiliates will include the cash received by them, the amount of theirindebtedness that is cancelled or assumed, and any other consideration receivedby them for their assets. It is anticipated that the Company will havesufficient NOL carry-forwards to offset most of the gain realized from theChimes Transaction for regular Federal income tax purposes and otherwise incurapproximately $1.3 million in alternative minimum taxes.

 

TheCompany and/or its affiliates may be subject to state income taxes to theextent that gains exceed losses for state tax law purposes, but does notanticipate that such taxes, if any, will be significant. Based upon currentprojections, such state taxes are estimated to be approximately$627 thousand after taking into account the availability of state lossesto offset the gain, and have been accrued.

 

***Contingencies and Estimates***

*** ***

TheCompany will continue to incur costs through the liquidation. Note 1 tothe Company’s Consolidated Financial Statements included in this Annual Reporton Form 10-K sets forth the current (initial) estimate of these costs. TheCompany will evaluate the assumptions, judgments and estimates that can have asignificant impact during liquidation and make changes accordingly. Inaddition, the following contingencies should be noted:

 

| ** **                                                                                                                                                                                                                                                                                        | ** ** | **($ in 000’s)** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|
| Sale of the Commercial  Services Business Unit, maximum contingent liability under asset purchase  agreement, upon assertion of a claim within nine months after the date of the  Commercial Services Asset Purchase Agreement.                                                                   |       | $                          | 10,000     |   |
| Sale of the Commercial  Services Business Unit, claim filed for Net Working Capital Adjustment as  provided in asset purchase agreement, as adjusted, less $1.9 million accrual.  (See the discussion regarding the claim notice sent by TEKsystems under “Sale  of Commercial” above.) |       | $                          | 3,300      |   |

 

Thedetails of the above are described more fully elsewhere in this Annual Reporton Form 10-K.

 

***Legal Matters***

*** ***

TheCompany is involved in various routine litigation matters that arose in thenormal course of business. Management believes that the resolution of thesematters will not have a material adverse effect on the final liquidation of theCompany. While the Company firmly maintains that all claims against the Companyin such matters are without merit, it will continue to incur costs as itvigorously defends against these claims.

 

Inaddition, the Company is involved in litigation with TEKsystems, as describedin Item 3 of Part I of this Annual Report on Form 10-K (LegalProceedings).

 

 

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*** ***

***Liquidating Distributions***

*** ***

On March 5,2007, the Company announced that its Board of Directors had declared an initialliquidating distribution of $4.00 per share, or $135.3 million, to itscommon shareholders (and certain former option holders under the provisions ofthe surrender plan described below). The initial liquidating distributionrepresented a partial distribution to shareholders of the proceeds received bythe Company from the sales of RGII, Chimes and the Commercial Services BusinessUnit. In determining the amount of the initial distribution, the Companyconsidered wind-down and transition expenses and the exposure for contingentclaims under the asset purchase agreements. The distribution was paid on March 27,2007 to shareholders of record as of the close of business on March 16,2007. The initial liquidating distribution was the first of what is expected tobe a series of liquidating distributions pursuant to the Plan of Liquidation.On December 19, 2007, the Board of Directors announced a secondliquidating distribution of $.30 per share to its common shareholders.  This distribution was paid on February 11,2008 to shareholders of record as of the close of business on January 15,2008.

 

Theaggregate amount of distributions to our shareholders is expected to be in therange of $4.68 to $4.78 per share of Common Stock. However, uncertainties as tothe ultimate amount of our liabilities make it impossible to predict withcertainty the actual aggregate net amounts that will ultimately be availablefor distribution to shareholders or the timing of any such distribution. Suchamount and timing will depend on a number of factors, several of which cannotbe determined at this time, including:

 

·                  The ultimate amount of our known, unknownand contingent debts and liabilities; and

 

·                  The fees and expenses incurred by us inthe liquidation of our assets and the dissolution of the Company.

 

As a result, the amount of cash remaining following completion of ourliquidation and dissolution could vary significantly from our currentestimates.

 

***Election to Surrender Options***

*** ***

Inorder to facilitate the participation in any liquidating distributions by theholders of Company options, the board of directors granted to each optionholder the right to surrender their options in exchange for the right toreceive the amount(s) that such option holder would have been entitled toreceive in each distribution as if they held the number of shares of CommonStock issuable upon exercise of the surrendered options. The amount sodistributed to each option holder is reduced by the exercise price of his orher options, which is applied to reduce the amounts that would otherwise bepayable to the option holder until the exercise price has been applied in full.A total of 1,162,820 options were surrendered under the plan. The averageexercise price for such options was $2.97 per share. The initial distributionto holders of surrendered options was $394,569.   The second distribution to holders ofsurrendered options on February 11, 2008 was $250,846.

 

***Voluntary withdrawal from NASDAQ***

*** ***

On March 9,2007, the Board of Directors of the Company approved a plan to voluntarilywithdraw its common stock from trading on The NASDAQ Stock Market (“NASDAQ”)effective after the close of trading on March 30, 2007.

 

On March 12,2007, the Company received a letter from NASDAQ stating that, based on theNASDAQ staff’s review of the Company’s public announcements concerning itsshareholders’ approval of a plan of complete liquidation and dissolution of theCompany and the declaration of an initial distribution (and anticipatedsubsequent distributions) in connection therewith and pursuant to Marketplace Rule 4300,the NASDAQ staff believes that the Company is a “public shell” and as such nolonger meets NASDAQ’s continued listing requirements, but that in view of theCompany’s plan to voluntarily withdraw its common stock from listing on NASDAQand pursuant to Marketplace Rule 4450(f) the staff has determined togrant an extension of time permitting the Company’s common stock to continue totrade on NASDAQ through March 30, 2007.

 

13

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On March 13,2007, the Company announced that it had notified NASDAQ of its intention tovoluntarily withdraw its common stock from listing on NASDAQ effectiveimmediately prior to the opening of trading on April 2, 2007, with theeffect that the last day of trading on NASDAQ would be March 30,2007.  The Company’s stock began tradingin the Pink Sheets effective at the opening of trading on Monday, April 2,2007.

 

***Special Shareholders Meeting***

*** ***

At aSpecial Meeting held on February 14, 2007, the shareholders of the Companyapproved the sales of the Company’s Chimes, Inc. subsidiary to anaffiliate of Axium International and the Company’s Commercial Division toAllegis Group (the “Asset Sales”).  At the Special Meeting, theshareholders of the Company also approved a proposed plan of completeliquidation and dissolution of the Company.

 

***Change of Control Charges and Special Charges***

*** ***

Thebalance of the $2.3 million in change of control has been re-classed to theshort-term liability section of the 2006 balance sheet due to the futureliquidation of the Company.

 

Forthe fiscal year 2006, a gain on the sale of the Company owned condominium of$394,000 was recorded in the third quarter.

 

TheCompany recorded $367,000 of special charges of which approximately $87,000related to expenses in connection with the review of strategic alternatives and$280,000 in connection with the sale of Chimes.

 

TheCompany had a reduction in restructuring expense of $41,000 associated with alawsuit settled for less than the amount expected at the time when therestructuring reserve was recorded.

 

***Reserves for issuance of authorized but unissued shares***

*** ***

AsTreasury Shares have been depleted through issuance upon stock option exercisesand pursuant to the Employee Stock Purchase Plan (the “ESPP”), on October 2,2006, the Company created common stock reserves for issuance of authorized butunissued shares.  The initial reserve for stock option exercise was3,500,000 and the reserve for the ESPP was 250,000 shares.  As of December 31, 2006, 2,924,453reserve shares remained for stock option exercise and 250,000 reserve sharesremained for ESPP.

 

TheCompany has discontinued the ESPP as of the end of fourth quarter 2006.  The last contributions were accepted through December 31,2006 and the final purchase for ESPP was January 3, 2007.  As of January 2007, all Treasury Shareswere fully depleted with the final purchase of ESPP for the Company.

 

***Critical Accounting Policies***

*** ***

Themost critical accounting policies used in the preparation of the Company’sfinancial statements are related to the liquidation form of accounting and thevaluation of deferred tax assets.

 

***Liquidation Form of Accounting***

*** ***

As aresult of the shareholders’ approval of the Plan of Liquidation, the Companyadopted the liquidation basis of accounting effective February 17, 2007.This basis of accounting is considered appropriate when, among other things,liquidation of a company is probable and the net realizable values of assetsare reasonably determinable. Under this basis of accounting, assets are valuedat their net realizable values and liabilities are stated at their estimatedsettlement amounts.

 

***Evaluation of Bad Debt Reserve***

*** ***

TheCompany determines its allowance by considering a number of factors, includingthe length of time trade accounts receivable are past due, the Company’sprevious loss history, the customer’s current ability to pay its 

 

14

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obligation to the Company and the condition of thegeneral economy and the industry as a whole. The Company writes off accountsreceivable when they become uncollectible, and payments subsequently receivedon such receivables are credited to income or to the allowance for doubtfulaccounts.

 

***Valuation of the Deferred Tax Asset***

*** ***

TheCompany records deferred tax assets for the future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and their respective tax bases, and operating losscarryforwards. Deferred tax assets are reduced by a valuation allowance if,based on available evidence, it is more likely than not that some portion or allof the deferred tax assets will not be realized. In assessing the realizabilityof deferred tax assets, management considers the scheduled reversal periods ofthe deferred tax assets, whether sustained profitability has been achieved andtax planning strategies.

 

TheCompany has significant deferred tax assets resulting from net operating losscarryforwards, capital loss carryforwards, and deductible temporary differencesthat may reduce taxable income in future periods. The Company has provided fullvaluation allowances on the future tax benefits related to capital losses,foreign net operating losses, and all state net operating losses. The Companybelieves that the valuation allowance is appropriate because these deferred taxassets have relatively short carryforward periods or relate to taxingjurisdictions which do not allow the filing of consolidated tax returns. Also,as a result of adopting liquidation accounting, the Company does not expect toutilize its deferred tax asset due to the sale of the remaining operations.

 

Pleaserefer to Note 8 of the Notes to Consolidated Financial Statements containedelsewhere in this Annual Report on Form 10-K, for further informationregarding deferred income taxes.

 

15

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** **

**RESULTS OF OPERATIONS ANDFINANCIAL CONDITION**

** **

**Results ofOperations—Period from January 1, 2007 to February 16, 2007**

** **

*Revenues. *Consolidated revenues decreased to$29.7 million in the period from January 1, 2007 to February 16,2007, down from $212 million in the year ended December 31, 2006. Dueto the shortened time period during 2007 as a result of the adoption of theliquidation basis of accounting effective February 17, 2007, these numbersare not comparable.

 

*Direct Costs and Gross Margins.* Direct costs were $23.1 million and $141.2 million in theperiod from January 1, 2007 to February 16, 2007 and the year ended December 31,2006, respectively. Gross margin, revenues less direct costs, decreased to$6.6 million, or 22.2% in the period from January 1, 2007 to February 16,2007 from 33.3% in the year ended December 31, 2006. Due to the shortenedtime period during 2007 as a result of the adoption of the liquidation basis ofaccounting effective February 17, 2007, these numbers are not comparable.

 

*Costs and Expenses.*  Selling,general and administrative expenses were $10.8 million in the period from January 1,2007 to February 16, 2007, compared to $68.3 million in the yearended December 31, 2006. As a percentage of revenue, the Company’sSG&A expenses were 36.3% in the period from January 1, 2007 to February 16,2007, as compared to 32.2% in the year ended December 31, 2006. Due to theshortened time period during 2007 as a result of the adoption of theliquidation basis of accounting effective February 17, 2007, these numbersare not comparable.

 

*Income / (Loss) from Continuing Operations.* The Company’s net loss from continuing operations totaled$(4.2) million in the period from January 1, 2007 to February 16,2007. This compares to net income from continuing operations of $2.5 million inthe year ended December 31, 2006. Due to the shortened time period during2007 as a result of the adoption of the liquidation basis of accountingeffective February 17, 2007, these numbers are not comparable.

 

*Other Income/(Expense). *Otherincome (primarily net interest income) totaled approximately $880 thousandin the period from January 1, 2007 to February 16, 2007, compared toapproximately $2.2 million in the year ended December 31, 2006. Dueto the shortened time period during 2007 as a result of the adoption of theliquidation basis of accounting effective February 17, 2007, these numbersare not comparable.

 

*Gain on Sale of Commercial Services Business Unit. *Pursuant to the Commercial Services Asset PurchaseAgreement, on February 16, 2007, the Company sold to TEKsystemssubstantially all of the assets of its Commercial Services Business (as definedin the Commercial Services Asset Purchase Agreement), for a purchase price of$57 million in cash subject to a potential post-closing working capitaladjustment, estimated at $(1.9) million using data as of the date of sale.Assets not included in the sale of the Commercial Services Business included arefundable tax credit of $8.9 million, and the unit’s operating cash as ofthe date of the sale. The Company recorded an estimated gain of$29.1 million as a result of the sale of the Commercial Services Business.

 

*Gain on Sale of Chimes. *Pursuantto the Chimes Asset Purchase Agreement, on February 16, 2007, the Companysold to Diversity MSP substantially all of the assets of Chimes, excluding cashand marketable securities, for a purchase price of $80.0 million in cash,with an estimated gain of $73.6 million.

 

*Provision for Income Taxes. *Similar to the prior year, the Company is not in aposition to determine its projected annual effective tax rate. For the yearended December 31, 2006 and 2007, the Company could not estimate the ratedue to the large net operating loss carryforward and corresponding valuation allowance.

 

Incometax expense has been provided for the year ended December 31, 2006 at aneffective tax rate of (1.5%). As mentioned, liquidation accounting was adoptedas of February 17, 2007, and as the result of operational losses, there isno provision from continuing operations. For the year ended December  31,2007, taxes have been provided as a result of the sale of the businessoperations. The Company has accrued $627 thousand for state and localtaxes and $1.3 million for federal alternative minimum taxes.

 

16

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*Net Income. *The net income for the period from January 1,2007 to February 16, 2007 was $99.4 million, or $2.94 per basic anddiluted share and primarily relates to the sale of the Commercial ServicesBusiness and Chimes  .

 

**Liquidity and CapitalResources**

** **

On February 16,2007, cash was received in the amount of $80 million for the sale ofChimes and $57 million for the sale of the Commercial Business ServicesUnit.  On March 5, 2007, the Companyannounced that its Board of Directors had declared an initial liquidatingdistribution of $4.00 per share, or $135.3 million, to its commonshareholders and certain former option holders under the provisions of thesurrender plan described in Note 3 to the Company’s Financial Statementsincluded in this Annual Report on Form 10-K.  This liquidating distribution represented apartial distribution to shareholders of the proceeds received by the Companyfrom the sales of RGII, Chimes and the Commercial Services Business Unit.  In determining the amount of the initialdistribution, the Company considered wind down and transition expenses and theexposure for contingent claims under the asset purchase agreements.  The distribution was payable on March 27,2007 to shareholders of record as of the close of business on March 16,2007.  The initial liquidatingdistribution was the first of what is expected to be a series of liquidatingdistributions pursuant to the Plan of Liquidation.  On December 19, 2007, the Board ofDirectors announced a second liquidating distribution of $.30 per share to itscommon shareholders.  This distributionwas payable on February 11, 2008 to shareholders of record as of the closeof business on January 15, 2008.

 

Theaggregate amount of distributions to our shareholders is expected to be in therange of $4.68 to $4.78 per share of Common Stock. However, uncertainties as tothe ultimate amount of our liabilities make it impossible to predict withcertainty the actual aggregate net amounts that will ultimately be availablefor distribution to shareholders or the timing of any such distribution. Suchamount and timing will depend on a number of factors, several of which cannotbe determined at this time, including:

 

·                  The ultimate amount of our known, unknownand contingent debts and liabilities; and

 

·                  The fees and expenses incurred by us inthe liquidation of our assets and the dissolution of the Company.

 

As aresult, the amount of cash remaining following completion of our liquidationand dissolution could vary significantly from our current estimates.

 

As of December 31,2007, the Company had approximately $25.7 million in working capital, ofwhich $25.2 million was cash and cash equivalents. Working capital  as of December 31, 2006 was $72million.  Included in cash and cashequivalents at December 31, 2006 was restricted cash of $1.2 million.Restricted cash pertains to funds received by Chimes and held inclient-specific bank accounts to be used to make payments to vendors of theapplicable client. Cash and cash equivalents at December 31, 2006 alsoincluded approximately $23.3 million of cash which was fully disbursed toChimes vendors in accordance with the client payment terms.

 

Thebalance of the $2.3 million in change of control payments to employees wasre-classed to the short-term liability section of the 2006 balance sheet due tothe liquidation of the Company. These liabilities were paid in full as of theend of the second quarter of 2007.

 

Netcash provided by operating activities for the period from January 1through February 16, 2007 was $98 million consisting primarily of netloss of $(3.2) million offset by the gain on sale of Chimes and theCommercial Services Business Unit of $102.6 million.

 

Net cashprovided by investing activities for the period from January 1 through February 16,2007 was $1.5 million, consisting primarily of the sale of fixed assets asa part of the sale of Chimes and the Commercial Services Business Unit.

 

17

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Netcash provided by financing activities for the period from January 1through February 16, 2007 was $.4 million, primarily consisting ofshares issued pursuant to the employee stock option plan and employee stockpurchase plan.

 

**Contractual Obligationsand Commercial Commitments**

** **

TheCompany does not utilize off balance sheet financing other than operating leasearrangements for office premises and related equipment.  The Company currently maintains one operatinglease for limited administration use.

 

**Recent AccountingPronouncements**

** **

In September 2006,the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109(FIN 48), which clarifies the accounting for uncertainty in income taxesrecognized in an enterprise’s financial statements. This Interpretationprescribes a recognition threshold and measurement attribute for the financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return. This interpretation also provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosure and transition.

 

On January 1,2007, the Company adopted the provisions of FASB Interpretation 48, Accountingfor Uncertainty in Income Taxes, in regards to our accounting and disclosure ofuncertain tax positions. The adoption of the provisions of FIN 48 did notmaterially affect our consolidated financial statements. Upon the adoption ofFIN 48, a tax contingency reserve of approximately $350 thousand wasestablished related to various Federal, Foreign and State income tax matters.An additional amount was accrued for interest and penalties.

 

**Savings Plan and OtherRetirement Plans**

** **

Until December 2006,the Company maintained a Deferred Compensation Plan for key executives thatpermit the individuals to defer a portion of their annual salary or bonus for aperiod of at least five years. There is no effect on the Company’s operatingresults since any amounts deferred under the plan are expensed in the periodincurred. Amounts deferred amounted to $1.8 million as of December 31,2006.  As of December 31, 2006 theassets of the deferred compensation plan were liquidated and payments were madeto individuals on January 31, 2007.

 

**FAS 123RCalculations**

** **

FAS 123Rprovides procedures for the estimation of employee compensation by forecastingthe future stock price at an estimated point in time. Following the sale ofChimes and Commercial, the Company can more accurately estimate the endingshare price based on the aggregate amount of distribution range per share aswell as the expected term. Using the midpoint of the liquidating distributionrange, the FAS123R estimated compensation expense for stock option plans in2007 was estimated at $16 thousand.

 

As of December 31,2007, there was no total unrecognized compensation cost related to non-vestedshare-based compensation arrangements granted under these plans.

 

Inaddition to the three share-based compensation plans detailed above, theCompany also maintained an Employee Stock Purchase Plan (“the ESPP”). The ESPPpurchased shares quarterly at a 15% discount from the lower of the opening andclosing stock prices for the period. The shares were purchased at a fixeddiscount and therefore gave rise to a liability under FAS 123R. TheCompany discontinued the ESPP as of the end of fourth quarter 2006. The lastcontributions were accepted through December 31, 2006 and the finalpurchase for the ESPP was made on January 3, 2007.

 

18

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** **

**Cash**

** **

On March 5,2007, the Company announced that its Board of Directors had declared an initialliquidating distribution of $4.00 per share, or $135.3 million, to itscommon shareholders (and certain former option holders under the provisions ofthe surrender plan described under “Election to Surrender Options” above).  The distribution was payable March 27,2007 to shareholders of record as of the close of business on March 16,2007. The initial liquidating distribution was the first of what is expected tobe a series of liquidating distributions pursuant to the plan of liquidationand dissolution approved by the Company’s shareholders on February 14,2007. The liquidating distribution represents a partial distribution toshareholders of the proceeds received by the Company from the sale of its RGIITechnologies subsidiary and substantially all of the non-cash assets of itsChimes, Inc. subsidiary and its Commercial division. On December 19,2007, the Board of Directors announced a second liquidating distribution of$.30 per share to its common stockholders. This distribution was payable on February 11, 2008 to shareholdersof record as of the close of business on January 15, 2008.

 

**ComprehensiveIncome/(Loss)**

** **

Statementof Financial Accounting Standards No. 130, Reporting Comprehensive Income(“FAS 130”), requires that items defined as other comprehensive income/(loss),such as foreign currency translation adjustments and unrealized gains andlosses, be separately classified in the financial statements and that theaccumulated balance of other comprehensive income/(loss) be reported separatelyfrom retained earnings and additional paid-in capital in the equitysection of the balance sheet. The components of comprehensive loss for theyear ended December 31, 2006 is as follows:

 

| ** **                                                      | ** ** | **Year Ended**       | ** ** |
|-----------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                      | ** ** | **December 31** | ** ** |
| **(dollars in thousands)**                                      | ** ** | **2006**             | ** ** |
| Comprehensive income/(loss) :                                   |       |                 |       |
| Net income/(loss)                                               |       | $                    | (13,438    | ) |
| Other comperhensive income/(loss)- foreign currency  adjustment |       | (9                   | )          |
| Realized loss on SERP investments                               |       | —               |       |
| Unrealized gain/(loss) on SERP investments                      |       | —               |       |
| Comprehensive income/(loss)                                     |       | $                    | (13,447    | ) |

 

Theaccumulated balances related to each component of other comprehensive income(loss) for the period from January 1, 2007 through February 16, 2007was as follows:

 
| **(dollars in thousands)**              | ** ** | **Foreign Currency  Translation** | ** ** | **Unrealized  Gain/(Loss) on  Investments** | ** ** | **Accumulated Other  Comprehensive Loss** | ** ** |
|-----------------------------------------|------------|-----------------------------------|------------|---------------------------------------------|------------|-------------------------------------------|------------|
| Balance at December 31, 2006       |       | $                                 | (652       | )                                           | $          | —                                    |       | $ | (652 | ) |
| Accumulated comprehensive income/(loss) |       | 9                                 |       | —                                      |       | 9                                         |       |
| Balance at February 16, 2007       |       | $                                 | (643       | )                                           | $          | —                                    |       | $ | (643 | ) |

 

The components of comprehensive loss for the periodfrom January 1, 2007 to February 16, 2007 and the year ended December 31,2007 are indicated in the table below. Due to the shortened time period during2007 as a result of the adoption of the liquidation basis of accountingeffective February 17, 2007, these numbers are not comparable.

 

19

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| ** **                                                      | ** ** | **Year Ended**             | ** ** |
|-----------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                      | ** ** | **January 1 through** | ** ** | **December 31** | ** ** |
| **(dollars in thousands)**                                      | ** ** | **February 16, 2007** | ** ** | **2007** | ** ** |
| Comprehensive income/(loss):                                    |       |                       |       |   |   |
| Net income/(loss)                                               |       | $                          | 99,371     |   | $ | (13,438 | ) |
| Other comperhensive income/(loss)- foreign currency  adjustment |       | 9                          |       | (9 | ) |
| Realized loss on SERP investments                               |       | —                     |       | — |   |
| Unrealized gain/(loss) on SERP investments                      |       | —                     |       | — |   |
| Comprehensive income/(loss)                                     |       | $                          | 99,380     |   | $ | (13,447 | ) |

 

**Purchase of TreasuryStock**

** **

In April of2001, the Board of Directors approved the repurchase in the open market of upto 10% of its common shares outstanding, or approximately 3.2 millionshares. The Company did not repurchase shares of its common stock for the yearended December 31, 2007, and the year ended December 31, 2006.  As of January 2007, all Treasury Shareswere fully depleted.  No furtherpurchases are contemplated.

 

**Asset-Based LendingFacility**

** **

TheCompany’s credit facility with CIT was cancelled by the Company effective February 12,2007. CIT held $100 thousand in escrow for 90 days after theeffective date of cancellation. During the second quarter of 2007, such fundswere released from escrow and returned to the Company.

 

**Income Taxes**

** **

Similar to the prior year, the Company is not in aposition to determine its projected annual effective tax rate. For the yearended December 31, 2006 and 2007, the Company could not estimate the ratedue to the large net operating loss carryforward and corresponding valuationallowance.

 

Incometax expense has been provided for the year ended December 31, 2006 at aneffective tax rate of (1.5%). As mentioned, liquidation accounting was adoptedas of February 17, 2007, and as the result of operational losses, there isno provision from continuing operations. For the year ended December  31,2007, taxes have been provided as a result of the sale of the businessoperations. The Company has accrued $627 thousand for state and localtaxes and $1.3 million for federal alternative minimum taxes.

 

**Deferred Tax Asset andValuation Allowance**

** **

TheCompany records deferred tax assets for the future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and their respective tax bases, and operating losscarryforwards. Deferred tax assets are reduced by a valuation allowance if,based on available evidence, it is more likely than not that some portion orall of the deferred tax assets will not be realized. In assessing therealizability of deferred tax assets, management considers the scheduled reversalperiods of the deferred tax assets, whether sustained profitability has beenachieved and tax planning strategies.

 

TheCompany has significant deferred tax assets resulting from net operating losscarryforwards, capital loss carryforwards, and deductible temporary differencesthat may reduce taxable income in future periods. The Company has provided fullvaluation allowances on the future tax benefits related to capital losses,foreign net operating losses, and all state net operating losses. The Companybelieves that the valuation allowance is appropriate 

 

20

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because these deferred tax assets have relativelyshort carryforward periods or relate to taxing jurisdictions which do not allowthe filing of consolidated tax returns. Also, as a result of adoptingliquidation accounting, the Company does not expect to utilize its deferred taxasset due to the sale of the remaining operations.

 

**Financial AccountingStandard 48—Accounting for Uncertainty in Income Taxes**

** **

TheCompany adopted FASB Interpretation 48, Accounting for Uncertainty in IncomeTaxes (“FIN 48”), at the beginning of fiscal year 2007. As a result of theimplementation, the Company recognized a $150 thousand net increase toreserves for uncertain tax positions. This change has two components of whichamounts related to a re-class to a non income tax reserve balance of$200 thousand for sales and use tax and a $350 thousand increase tothe income tax reserve. The $350 thousand increase was accounted for as anadjustment to the beginning balance of retained earnings on the Balance Sheet.Including the cumulative effect for the adoption of FIN 48, at the beginning of2007, the Company had approximately $1.3 million of total grossunrecognized tax benefits. Of this total, $845 thousand (net of thefederal benefit on state issues) represents the amount of unrecognized taxbenefits that, if recognized, would favorably affect the effective income taxrate in any future periods.

 

TheCompany and its subsidiaries are subject to U.S. federal income tax as well asincome tax of multiple state jurisdictions. The Company has substantiallyconcluded all U.S. federal income tax matters for years through 2002.Substantially all material state, local and foreign income tax matters havebeen concluded for years through 2001. There are no material audits in processat this time.

 

The Company recognizesinterest and penalties relating to unrecognized tax benefits as a component of *Provision for income taxes. *The Company had $237,000 and $349,600of accrued interest and penalties as of December 31, 2006 and December 31,2007, respectively.

 

**Change of Control andother Special Charges and Contingency Payments**

** **

Thebalance of the $2.3 million in change of control payments to employees wasre-classed to the short-term liability section of the 2006 balance sheet due tothe future liquidation of the Company. These liabilities were paid in full asof the end of the second quarter of 2007.

 

**Refundable Income Tax**

** **

TheQuebec Government through Invest Quebec granted the Company’s MontrealOutsourcing Centre (“MOC”) a refundable tax credit on certain qualifying jobpositions in Information Technology. The outstanding receivables as of September 30,2007 and 2006 include credits relating to 2005 and 2006. The CommercialServices Asset Sale included all of the capital stock of Computer Horizons(Canada) Corp. (“Canada Sub”) but, as noted above, specifically excluded therefundable income tax credit payable to Canada Sub by Revenu Quebec for the taxyears 2005 and 2006 (the “Quebec Tax Receivable”). During the third quarter of2007, TEKsystems advised the Company that Canada Sub had received approximatelyCanadian $4.3 million with respect to the Quebec Tax Receivable for 2005,(representing approximately Canadian $4.4 million in tax credit andinterest less a deduction for associated capital taxes of approximatelyCanadian $114 thousand). Using the exchange rate between the Canadian andUnited States dollars as of the day before the date of TEKsystem’s notice tothe Company, the receipt by TEKsystems amounted to approximatelyUS$4.4 million.    An additional US$665 thousandwas booked during the third quarter of 2007 to recognize the increase in valueof the 2005 tax credit due to the change in exchange rate since the Company’slast estimate of such value. (See “Sale of Commercial” above for an additionaldiscussion of recent events surrounding the Quebec Tax Receivable for 2005 and2006.).

 

21

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## **Item 7A.**              *Quantitative and Qualitative Disclosures about Market Risk*

## ** **

**Market Risk Exposure**

** **

TheCompany has financial instruments that are subject to interest rate risk.Historically, the Company has not experienced material gains or losses due tointerest rate changes. Based on the current holdings, the exposure to interestrate risk is not material. Additionally, at December 31, 2006 and December 31,2007, the Company was debt free.

 

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## **Item 8.**                       *Financial Statements and Supplementary Data*

## ** **

# **Report of IndependentRegistered Public Accounting Firm**

# ** **

Boardof Directors and Shareholders

ComputerHorizons Corp. and Subsidiaries

 

Wehave audited the accompanying consolidated statement of net assets inliquidation (liquidation basis) of Computer Horizons Corp. (“the Company”) asof December 31, 2007, and the related consolidated statement of changes innet assets in liquidation (liquidation basis) for the period February 17,2007 through December 31, 2007.  Wealso have audited the consolidated balance sheet of the Company as of December 31,2006 and the related consolidated statements of operations, shareholders’equity and comprehensive income, and cash flows for the period January 1,2007 through February 16, 2007 and the year ended December 31,2006.  These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement. The Company is not required to have, nor were we engagedto perform, an audit of its internal control over financial reporting. Ouraudits included consideration of internal control over financial reporting as abasis for designing audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express nosuch opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

 

Asdescribed in Note 1 to the consolidated financial statements, the shareholdersof Computer Horizons Corp. approved a plan of liquidation on February 14,2007.  As a result, the Company changed itsbasis of accounting effective February 17, 2007 from the going-concernbasis to a liquidation basis.

 

As discussed in Note 1 to the consolidated financialstatements, in 2007, the Company adopted the provisions of FIN 48, “Accountingfor Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109”.

 

Duringthe year ended December 31, 2006, the Company has changed its method ofaccounting for stock-based compensation.

 

In ouropinion, the consolidated financial statements referred to above presentfairly, in all material respects, the consolidated net assets in liquidation(liquidation basis) as of December 31, 2007, the consolidated changes innet assets in liquidation for the period February 17, 2007 to December 31,2007, the consolidated financial position of the Company at December 31,2006 and the consolidated results of its operations and its cash flows for theperiod from January 1, 2007 to February 16, 2007 and the year ended December 31,2006, in conformity with accounting principles generally accepted in the UnitedStates of America.

 

Wehave also audited the consolidated financial statement schedule, Schedule II —Valuation and Qualifying Accounts, for the year ended December 31, 2006.In our opinion, this financial schedule, when considered in relation to theconsolidated financial statements taken as a whole, presents fairly, in allmaterial respects, the information stated therein.

 

 
| /s/ AMPER, POLITZINER  & MATTIA, P.C. |   |
|-------------------------------------------|--------|
| March 31,  2008                      |
| Edison,  New Jersey                       |

 

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**CONSOLIDATEDSTATEMENT OF NET ASSETS (Liquidation Basis) AND BALANCE SHEET**

**(GoingConcern Basis)**

(in thousands except pershare data) 
| ** **                                                                                                                                            | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                            | ** ** | **2007**              | ** ** | **2006** | ** ** |
| **ASSETS**                                                                                                                                            |       |                  |       |   |   |
| **CURRENT ASSETS:**                                                                                                                                   |       |                  |       |   |   |
| Cash and cash equivalents                                                                                                                             |       | $                     | 25,182     |   | $ | 71,790 |   |
| Cash held in escrow                                                                                                                                   |       | —                |       | 1,000 |   |
| Accounts receivable, less allowance for doubtful  accounts of $4,599 at December 31, 2006                                                        |       | —                |       | 34,517 |   |
| Quebec refundable tax credit                                                                                                                          |       | 9,627                 |       | 8,547 |   |
| Prepaid expenses and other                                                                                                                            |       | 24                    |       | 4,741 |   |
| **TOTAL CURRENT ASSETS**                                                                                                                              |       | 34,833                |       | 120,595 |   |
|                                                                                                                                                  |       |                  |       |   |   |
| **PROPERTY AND EQUIPMENT**                                                                                                                            |       | 4                     |       | 44,267 |   |
| Less accumulated depreciation                                                                                                                         |       | —                |       | 41,521 |   |
| **TOTAL PROPERTY AND EQUIPMENT, NET**                                                                                                                 |       | 4                     |       | 2,746 |   |
| ** **                                                                                                                                            | ** ** | ** **            | ** ** | ** ** | ** ** |
| **OTHER ASSETS - NET:**                                                                                                                               |       |                  |       |   |   |
| Deferred income taxes                                                                                                                                 |       | —                |       | 1,491 |   |
| Other                                                                                                                                                 |       | —                |       | 940 |   |
| TOTAL OTHER ASSETS                                                                                                                                    |       | —                |       | 2,431 |   |
| **TOTAL ASSETS**                                                                                                                                      |       | $                     | 34,837     |   | $ | 125,772 |   |
|                                                                                                                                                  |       |                  |       |   |   |
| **LIABILITIES AND SHAREHOLDERS EQUITY**                                                                                                               |       |                  |       |   |   |
| **CURRENT LIABILITIES:**                                                                                                                              |       |                  |       |   |   |
| Accounts payable                                                                                                                                      |       | $                     | 136        |   | $ | 28,126 |   |
| Accrued payroll, payroll taxes and benefits                                                                                                           |       | 6                     |       | 9,431 |   |
| Income taxes payable                                                                                                                                  |       | 1,695                 |       | 1,150 |   |
| Restructuring reserve                                                                                                                                 |       | —                |       | 61 |   |
| Other accrued expenses                                                                                                                                |       | 4,432                 |       | 4,212 |   |
| Deferred income taxes                                                                                                                                 |       | —                |       | 1,491 |   |
| Net Working Capital Adjustment                                                                                                                        |       | 1,904                 |       |   |   |
| Change of control payable                                                                                                                             |       | —                |       | 2,316 |   |
| Deferred Cash Receipts                                                                                                                                |       | 957                   |       |   |   |
| Deferred compensation                                                                                                                                 |       | —                |       | 1,847 |   |
| **TOTAL CURRENT LIABILITIES**                                                                                                                         |       | 9,131                 |       | 48,634 |   |
|                                                                                                                                                  |       |                  |       |   |   |
| **OTHER LIABILITIES:**                                                                                                                                |       |                  |       |   |   |
| Other                                                                                                                                                 |       |                  |       | 443 |   |
| **TOTAL OTHER LIABILITIES**                                                                                                                           |       | —                |       | 443 |   |
|                                                                                                                                                  |       |                  |       |   |   |
| **TOTAL LIABILITIES**                                                                                                                                 |       | $                     | 9,131      |   | 49,077 |   |
|                                                                                                                                                  |       |                  |       |   |   |
| **SHAREHOLDERS EQUITY:**                                                                                                                              |       |                  |       |   |   |
| Preferred stock,  $.10 par; authorized and unissued 200,000 shares, including 50,000  Series A                                                   |       |                  |       |   |   |
| Common stock,  $.10 par; authorized 100,000,000 shares; issued 33,733,652 and 33,158,105  shares at December 31, 2007 and December 31, 2006 |       |  

—        |       | 3,373 |   |
| Additional paid in capital                                                                                                                            |       | —                |       | 148,046 |   |
| Accumulated other comprehensive loss                                                                                                                  |       | —                |       | (652 | ) |
| Retained earnings/ (Accumulated deficit)                                                                                                              |       | —                |       | (73,930 | ) |
|                                                                                                                                                  |       | —                |       | 76,837 |   |
| Less shares held in treasury, at cost; 25,000 at  December 31, 2006                                                                              |       | —                |       | (140 | ) |
| **TOTAL SHAREHOLDERS EQUITY**                                                                                                                         |       | —                |       | 76,697 |   |
| **TOTAL LIABILITIES AND SHAREHOLDERS EQUITY**                                                                                                         |       | —                |       | $ | 125,772 |   |
| **NET ASSETS IN LIQUIDATION**                                                                                                                         |       | $                     | 25,706     |   |   |   |
| The accompanying notes are an integral part of these  statements.                                                                                     |       |                  |       |   |   |

 

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**Computer Horizons Corp. andSubsidiaries**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS (Going Concern Basis)**

(in thousands except per share data)

 
| ** **                                                           | ** ** | **January 1, 2007  to February 16, 2007** | ** ** | **Year Ended   December 31,2006** | ** ** |
|----------------------------------------------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                           | ** ** | ** **                                          | ** ** |
| **REVENUES:**                                                        | ** ** | ** **                                          | ** ** | ** **                             | ** ** |
| Commercial                                                           |       | $                                                   | 24,995     |                                   | $          | 180,471 |   |
| Chimes                                                               |       | 4,671                                               |       | 31,519                                 |       |
| **Total**                                                            |       | 29,666                                              |       | 211,990                                |       |
|                                                                 |       |                                                |       |                                   |       |
| **COSTS AND EXPENSES:**                                              | ** ** | ** **                                          | ** ** | ** **                             | ** ** |
| Direct costs                                                         |       | 23,086                                              |       | 141,191                                |       |
| Selling, general & administrative                           |       | 10,761                                              |       | 68,295                                 |       |
| Amortization of intangibles                                          |       | —                                              |       | —                                 |       |
| Restructuring charges                                                |       | 14                                                  |       | (41                                    | )          |
| SERP/Change of Control                                               |       | —                                              |       | —                                 |       |
| Special charges                                                      |       | —                                              |       | 367                                    |       |
| Gain on sale of assets                                               |       | —                                              |       | (394                                   | )          |
| Goodwill impairment                                                  |       | —                                              |       | —                                 |       |
| Write off of assets                                                  |       | —                                              |       | —                                 |       |
| Total Costs                                                          |       | 33,861                                              |       | 209,418                                |       |
| **Income/(Loss) from operations**                                    |       | (4,195                                              | )          | 2,572                                  |       |
| ** **                                                           | ** ** | ** **                                          | ** ** | ** **                             | ** ** |
| **OTHER INCOME/(EXPENSE):**                                          | ** ** | ** **                                          | ** ** | ** **                             | ** ** |
| Net (loss)/gain on investments                                       |       | —                                              |       | —                                 |       |
| Interest income                                                      |       | 881                                                 |       | 2,213                                  |       |
| Interest expense                                                     |       | (1                                                  | )          | —                                 |       |
|                                                                 |       | 880                                                 |       | 2,213                                  |       |
| **Income/(Loss) from continuing operations before  income taxes**    |       | (3,315                                              | )          | 4,785                                  |       |
| **Gain on Sale**                                                     |       | 102,686                                             |       |                                   |       |
| **Net Income/(Loss) from continuing operations**                     |       | 99,371                                              |       | 4,785                                  |       |
|                                                                 |       |                                                |       |                                   |       |
| **INCOME TAXES/(BENEFIT):**                                          | ** ** | ** **                                          | ** ** | ** **                             | ** ** |
| Current                                                              |       | —                                              |       | 201                                    |       |
| Deferred                                                             |       | —                                              |       | —                                 |       |
|                                                                 |       | —                                              |       | 201                                    |       |
| Income/(Loss) before cumulative effect of minority  interest         |       | 99,371                                              |       | 4,584                                  |       |
|                                                                 |       |                                                |       |                                   |       |
| Minority interest                                                    |       | —                                              |       | —                                 |       |
|                                                                 |       |                                                |       |                                   |       |
| **Net income/(loss) from continuing operations**                     |       | $                                                   | 99,371     |                                   | $          | 4,584 |   |
| ** **                                                           | ** ** | ** **                                          | ** ** | ** **                             | ** ** |
| **Income/ (loss) from discontinued operations**                      |       | —                                              |       | (13,243                                | )          |
| **Loss on sale of discontinued operations**                          |       | —                                              |       | (4,779                                 | )          |
| **Income/(Loss) from discontinued operations net  of tax**           |       | —                                              |       | (18,022                                | )          |
| **Net Loss**                                                         |       | $                                                   | 99,371     |                                   | $          | (13,438 | ) |
| ** **                                                           | ** ** | ** **                                          | ** ** | ** **                             | ** ** |
| **Earnings/(Loss) per share from continuing  operations- basic**     |       | $                                                   | 2.94       |                                   | $          | 0.14 |   |
| **Earnings/(Loss) per share from discontinued  operations -basic**   |       | $                                                   | —     |                                   | $          | (0.56 | ) |
| **Loss per share- basic**                                            |       | $                                                   | 2.94       |                                   | $          | (0.41 | ) |
| **Earnings/(Loss) per share from continuing  operations- diluted**   |       | $                                                   | 2.94       |                                   | $          | 0.14 |   |
| **Earnings/(Loss) per share from discontinued  operations -diluted** |       | $                                                   | —     |                                   | $          | (0.55 | ) |
| **Loss per share- diluted**                                          |       | $                                                   | 2.94       |                                   | $          | (0.41 | ) |
| **Weighted average number of shares outstanding  -basic**            |       | 33,837,284                                          |       | 32,444,000                             |       |
| **Weighted average number of shares outstanding  -diluted**          |       | 33,837,284                                          |       | 32,614,000                             |       |

 

25

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** **

**CONSOLIDATED STATEMENT OFSHAREHOLDERS’ EQUITY (Going Concern Basis)Year ended December 31, 2006**

** **

**(in thousands)**

 
|                                                      |       |              |       |        | ** ** | ** **        | ** ** | **Accumulated**   | ** ** | ** **          |       |       |       |       |       |      |       |
|-----------------------------------------------------------|------------|-------------------|------------|-------------|------------|-------------------|------------|-------------------|------------|---------------------|------------|------------|------------|------------|------------|-----------|------------|
|                                                      |       |              |       |        | ** ** | **Additional**    | ** ** | **other**         | ** ** | **Retained**        |       |       |       |       |       |      |       |
|                                                      |       | **Common  Stock** | ** ** | **Paid-in** | ** ** | **Comprehensive** | ** ** | **Earnings  /**   |       | **Treasury  Stock** |       |       |       |
| ** **                                                | ** ** | **Shares**        | ** ** | **Amount**  | ** ** | **Capital**       | ** ** | **Income/(Loss)** | ** ** | **(Deficit)**       | ** ** | **Shares** | ** ** | **Amount** | ** ** | **Total** | ** ** |
| *Balance, December 31, 2005*                         |       | 33,158,105        |       | 3,315       |       | 148,083           |       | (643              | )          | (60,492             | )          | 1,118,014  |       | (6,236     | )          | 84,027    |       |
| Net Loss for the year                                     |       |              |       |        |       |              |       |              |       | (13,438             | )          |       |       |       |       | (13,438   | )          |
| Other comprehensive Loss:                                 |       |              |       |        |       |              |       |              |       |                |       |       |       |       |       |      |       |
| Foreign currency  translation adjustments                 |       |              |       |        |       |              |       | (9                | )          |                |       |       |       |       |       | (9        | )          |
| Total  comprehensive loss                                 |       |              |       |        |       |              |       |              |       |                |       |       |       |       |       | (13,447   | )          |
| Other issuance of common stock                            |       |              |       |        |       |              |       |              |       |                |       |       |       |       |       |      |       |
| Stock options  exercised                                  |       | 425,546           |       | 43          |       | (646              | )          |              |       |                |       | (967,571   | )          | 5,392      |       | 4,789     |       |
| Warrant Issue                                             |       | 150,001           |       | 15          |       | 569               |       |              |       |                |       |       |       |       |       | 584       |       |
| Employee stock  purchase program                          |       |              |       |        |       | (246              | )          |              |       |                |       | (125,443   | )          | 704        |       | 458       |       |
| FAS123R Expense                                           |       |              |       |        |       | 286               |       |              |       |                |       |       |       |       |       | 286       |       |
| *Balance, December 31, 2006*                         |       | 33,733,652        |       | 3,373       |       | 148,046           |       | (652              | )          | (73,930             | )          | 25,000     |       | (140       | )          | 76,697    |       |
| Net Income January 1, 2007 - February 16,  2007 |       |              |       |        |       |              |       |              |       | 99,371              |       |       |       |       |       | 99,371    |       |
| Other comprehensive Loss:                                 |       |              |       |        |       |              |       |              |       |                |       |       |       |       |       |      |       |
| Foreign currency  translation adjustments                 |       |              |       |        |       |              |       | 9                 |       |                |       |       |       |       |       | 9         |       |
| Total  comprehensive income                               |       |              |       |        |       |              |       |              |       |                |       |       |       |       |       | 99,380    |       |
| Other issuance of common stock                            |       |              |       |        |       |              |       |              |       |                |       |       |       |       |       |      |       |
| Stock options  exercised                                  |       | 98,000            |       | 10          |       | 323               |       |              |       |                |       |       |       |       |       | 333       |       |
| Employee stock  purchase program                          |       | 4,832             |       | (0          | )          | (43               | )          |              |       |                |       | (25,000    | )          | 140        |       | 97        |       |
| FAS123R Expense                                           |       |              |       |        |       | (15               | )          |              |       |                |       |       |       |       |       | (15       | )          |
| *Balance, February 16, 2007*                         |       | 33,836,484        |       | 3,383       |       | 148,311           |       | (643              | )          | 25,441              |       | 0          |       | 0          |       | 176,492   |       |
|                                                           |            |                   |            |             |            |                   |            |                   |            |                     |            |            |            |            |            |           |            |  |

 

26

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**Computer Horizons Corp and Subsidiaries Statement of Net Assets as of December 31, 2007 (Liquidation Basis)**

($ inthousands)

(Unaudited)

 

| Shareholders’ Equity at February 16, 2007                                        |   | $        | 176,492 |   |
|--------------------------------------------------------------------------------------------|--------|----------|---------|--------|
| Liquidation basis adjustments:                                                             |   |     |    |
| Adjust assets  and liabilities to fair value                                               |   | (973     | )       |
| Accrued cost of  liquidation                                                               |   | (9,010   | )       |
| Cash  distribution to shareholders                                                         |   | (135,349 | )       |
| Transition  Services Billing                                                               |   | 1,111    |    |
| Surrender program  payment — stock options                                            |   | (395     | )       |
| Investment  income from February 17, 2007 to December 31, 2007                   |   | 2,401    |    |
| Settlement with  NetStar-1                                                                 |   | (215     | )       |
| Tax adjustment                                                                             |   | (767     | )       |
| Adjustments to  assets from February 17, 2007 to December 31, 2007               |   | 939      |    |
| Adjustments to  Liquidation accruals from February 17, 2007 to December 31, 2007 |   | (5,937   | )       |
| Costs incurred  from February 17, 2007 through March 31, 2007                    |   | (2,433   | )       |
| Net Working  Capital Adjustment                                                            |   | (158     | )       |
| Net Assets in  Liquidation December 31, 2007                                          |   | $        | 25,706  |   |

 

Theaccompanying notes are an integral part of this statement.

 

27

----

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS (Going Concern Business)**

**(inthousands)**

 
| ** **                                                   | ** ** | **January 1,  2007  to February 16, 2007** | ** ** | **Year ended December 31, 2006** | ** ** |
|--------------------------------------------------------------|------------|------------------------------------------------------|------------|---------------------------------------|------------|
|                                                         |       |                                                 |       |                                  |       |
| **CASH FLOWS FROM OPERATING ACTIVITIES**                     | ** ** | ** **                                           | ** ** | ** **                            | ** ** |
| Net loss                                                     |       | $                                                    | 99,371     |                                  | $          | (13,438 | ) |
| Less: Income/(Loss) from discontinued Operations             |       | —                                               |       | (13,243                               | )          |
| Income/Loss on sale of discontinued operations               |       | 102,625                                              |       | (4,779                                | )          |
| Income/(Loss) from continuing operations                     |       | (3,254                                               | )          | 4,584                                 |       |
| Deferred taxes                                               |       | (1                                                   | )          | (137                                  | )          |
| Depreciation                                                 |       | 234                                                  |       | 2,055                                 |       |
| Amortization of intangibles                                  |       | —                                               |       | —                                |       |
| Provision for bad debts                                      |       | 1,452                                                |       | 694                                   |       |
| FAS 123R Option Expense                                      |       | (1                                                   | )          | 286                                   |       |
| **Changes in assets and liabilities, net of  acquisitions:** |       | (5,124                                               | )          | (3,651                                | )          |
| **NET CASH PROVIDED BY/(USED IN) OPERATING  ACTIVITIES**     |       | (6,692                                               | )          | 3,831                                 |       |
| **NET CASH PROVIDED BY DISCONTINUED OPERATIONS**             |       | 104,657                                              |       | 17,735                                |       |
| **NET CASH PROVIDED BY/ (USED IN) OPERATING  ACTIVITIES**    |       | 97,965                                               |       | 21,566                                |       |
|                                                         |       |                                                 |       |                                  |       |
| **CASH FLOWS FROM INVESTING ACTIVITIES**                     | ** ** | ** **                                           | ** ** | ** **                            | ** ** |
| Proceeds from sale of assets                                 |       | —                                               |       | —                                |       |
| Acquisitions net of cash received                            |       |                                                 |       |                                  |       |
| Acquisitions of Goodwill                                     |       |                                                 |       |                                  |       |
| Proceeds from sale of investments                            |       | —                                               |       | —                                |       |
| Sale/Purchases of furniture and equipment                    |       | 1,527                                                |       | (963                                  | )          |
| **NET CASH PROVIDED BY (USED IN) INVESTING  ACTIVITIES**     |       | 1,527                                                |       | (963                                  | )          |
| **NET CASH PROVIDED BY/(USED IN) DISCONTINUED  OPERATIONS**  |       | —                                               |       | —                                |       |
| **NET CASH PROVIDED BY/ (USED IN) INVESTING  ACTIVITIES**    |       | 1,527                                                |       | (963                                  | )          |
|                                                         |       |                                                 |       |                                  |       |
| **CASH FLOWS FROM FINANCING ACTIVITIES**                     | ** ** | ** **                                           | ** ** | ** **                            | ** ** |
| Stock options exercised                                      |       | 334                                                  |       | 5,372                                 |       |
| Stock issued on employee stock purchase plan                 |       | 97                                                   |       | 459                                   |       |
| **NET CASH PROVIDED BY FINANCING ACTIVITIES**                |       | 431                                                  |       | 5,831                                 |       |
| **NET CASH USED IN DISCONTINUED OPERATIONS**                 |       | —                                               |       | —                                |       |
| **NET CASH PROVIDED BY FINANCING ACTIVITIES**                |       | 431                                                  |       | 5,831                                 |       |
|                                                         |       |                                                 |       |                                  |       |
| Foreign currency gains/(losses)                              |       | —                                               |       | (9                                    | )          |
| **NET INCREASE/(DECREASE) IN CASH AND CASH  EQUIVALENTS**    |       | 99,923                                               |       | 26,425                                |       |
|                                                         |       |                                                 |       |                                  |       |
| **CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR**           |       | 72,790                                               |       | 46,365                                |       |
|                                                         |       |                                                 |       |                                  |       |
| **CASH AND CASH EQUIVALENTS AT END OF PERIOD**               |       | $                                                    | 172,713    |                                  | $          | 72,790 |   |

 

The accompanying notes are anintegral part of these statements.

 

28

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** **

**Computer Horizons Corp.and SubsidiariesNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2007 and 2006**

** **

**NOTE1—BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS**

** **

At aSpecial Meeting held on February 14, 2007, the shareholders of ComputerHorizons Corp. (the “Company”) approved the sales of the Company’s Chimes, Inc.subsidiary to an affiliate of Axium International and the Company’s CommercialDivision to an affiliate of Allegis Group (collectively, the “Asset Sales”). Atthe Special Meeting, the shareholders of the Company also approved a proposedplan of complete liquidation and dissolution of the Company (the “Plan ofLiquidation”). The Company began implementing the Plan of Liquidation after theAsset Sales were completed on February 16, 2007.

 

Theconsolidated financial statements have been prepared by the Company withoutaudit in accordance with the rules and regulations of the Securities andExchange Commission, and should be read in conjunction with the auditedConsolidated Financial Statements previously filed on the Company’s Form 10-Kfor the year ended December 31, 2006. In the opinion of management, thestatements reflect all adjustments necessary for a fair presentation of theresults of interim periods. Certain information and note disclosures, normallyincluded in financial statements prepared in accordance with accountingprinciples generally accepted in the United States of America, which are notrequired for interim purposes, have been condensed or omitted. The results forany interim period are not necessarily indicative of the results to be expectedfor a full year.

 

Theconsolidated financial statements for the period January 1, 2007 to February 16,2007 and for all periods presented for 2006 were prepared on the going concernbasis of accounting, which contemplates realization of assets and satisfactionof liabilities in the normal course of business. As a result of theshareholders’ approval of the Plan of Liquidation, the Company adopted theliquidation basis of accounting effective February 17, 2007. This basis ofaccounting is considered appropriate when, among other things, liquidation of acompany is probable and the net realizable values of assets are reasonablydeterminable. Under this basis of accounting, assets are valued at their netrealizable values and liabilities are stated at their estimated settlementamounts.

 

Theconversion from the going concern to liquidation basis of accounting requiredmanagement to make significant estimates and judgments. In order to record assetsat estimated net realizable value and liabilities at estimated settlementamounts under the liquidation basis of accounting, the Company recorded thefollowing adjustments to record its assets and liabilities at fair value as of February 17,2007, the date of adoption of the liquidation basis of accounting:

 

| ** **                                   | ** ** | **($ in  thousands)** | ** ** |
|----------------------------------------------|------------|----------------------------|------------|
| Adjust assets and liabilities to fair value: |       |                       |       |
| Write down of  Fixed Assets                  |       | 119                        |       |
| Write off of  Advances to India              |       | 698                        |       |
| Write down of  Other Assets                  |       | 156                        |       |
| Total                                        |       | $                          | 973        |   |
|                                              |            |                            |            |  |

 

***Accrued Cost of Liquidation***

*** ***

Uponconversion to the liquidation basis of accounting, the Company accrued for theknown costs to be incurred in liquidation, and has made subsequent adjustmentsand payments against these accounts:

 

TheCompany will continue to incur operating costs and receive income on itsinvestments throughout the liquidation period. On a regular basis, we evaluateour assumptions, judgments and estimates that can have a significant impact onour reported net assets in liquidation based on the most recent informationavailable to us, and when necessary make changes accordingly. Actual costs andincome may differ from our estimates, which might reduce net assets availablein liquidation to be distributed to shareholders.

 

29

----

 

TheCompany expects to make further distributions to its shareholders of itsremaining cash, less any amount applied to or reserved for actual or contingentliabilities (which will be deposited in a liquidating trust). The amountsreserved will be based on a determination by the board of directors, derivedfrom consultation with management and outside experts, if the board ofdirectors determines that it is advisable to retain such experts, and a reviewof, among other things, our estimated contingent liabilities and our estimatedongoing expenses, including, but not limited to, payroll, legal expenses,regulatory filings and other miscellaneous expenses. To the extent that assetsdeposited in the liquidating trust are not applied to or reserved for paymentof the Company’s liabilities, these assets will be distributed to holders ofbeneficial interests in the liquidating trust at one or more later dates. Eachshareholder will receive his or her pro rata share of each distribution basedon the number of shares held on the record date for such distribution.

 

SeeNote 2 below for additional details on liquidation accruals.

 

***Sale of RGII***

*** ***

On September 29,2006, the Company sold its subsidiary, RGII Technologies, Inc., toNetstar-1, Inc. for $15.3 million in cash, less an estimated netasset adjustment of $1.2 million. In addition, CHC retained all cash andcash equivalents of RGII, in the amount of $6.3 million. The amount of theestimated net asset adjustment was subject to a final review. To the extentthat the final net asset amount sold to NetStar-1 was greater than theestimated asset amount at closing, the Stock Purchase Agreement provided thatthe excess would be paid to CHC together with interest thereon at the primerate from the closing date to the date of payment. If the final net assetamount sold to NetStar-1 was less than the estimated asset amount at closing,the Stock Purchase Agreement provided that the deficiency would be paid by CHCto NetStar-1, together with interest thereon at the prime rate from the closingdate to the date of payment. During the second quarter 2007, the partiesreached agreement on the final net asset amount, resulting in a payment to theBuyer in the amount of $215 thousand. The remainder of the amount inescrow of $785 thousand was released from escrow to CHC. The sale of RGIIresulted in a net book loss on disposal of $4.8 million, includingapproximately $969 thousand in transaction costs as reported September 30,2006.

 

***Sale of Commercial***

*** ***

On November 7,2006, the Company entered into an asset purchase agreement (the “CommercialServices Asset Purchase Agreement”) by and among TEKsystems, Inc., aMaryland corporation (“TEKsystems”), TEKsystems EF&I Solutions, LLC, aMaryland limited liability company, Allegis Group Canada Corporation, a NovaScotia unlimited liability corporation, the Company, GBS Holdings PrivateLimited, a corporation organized under the laws of Mauritius, CHC HealthcareSolutions, LLC, a Delaware limited liability company, and Allegis Group, Inc.,a Maryland corporation. Pursuant to the Commercial Services Asset PurchaseAgreement, on February 16, 2007, the Company sold to TEKsystemssubstantially all of the assets of its Commercial Services Business (as definedin the Commercial Services Asset Purchase Agreement), for a purchase price of$57 million in cash subject to a potential post-closing working capitaladjustment, estimated at $(1.9) million using data as of the date of sale (the “CommercialServices Asset Sale”). The sale was also subject to an escrow of$1.7 million of the purchase price pending receipt of tax certificates inconnection with the Taxation Act—Quebec; the certificates were subsequentlyreceived and the escrow released on April 24, 2007. Assets not included inthe Commercial Services Asset Sale included a refundable Quebec tax credit for2005 and 2006 currently estimated at approximately $9.6 million (describedbelow) and the unit’s operating cash as of the date of the sale. The Companyrecorded an estimated gain of $29.1 million as a result of the sale of theCommercial Services Business.

 

On April 17,2007, TEKsystems submitted their revised calculation of the net working capitaladjustment, asserting a claim for $6 million payable to TEKsystems. The Companycontinues to believe that its estimate of approximately $1.9 million isaccurate, and has disputed this claim. While some differences were resolved,there still remains a difference of $3.3 million between the Company’sestimate and that of TEKsystems. The principal item in dispute relates to theCompany’s belief that Computer Horizons (Canada) Corp. (“Canada Sub”) hassufficient NOL’s to offset any income tax due on the Quebec tax receivablediscussed below. Under the terms of the Commercial Services Asset PurchaseAgreement, such disputed items are to be determined by an independent 

 

30

----

 

accounting firm and, on September 19, 2007 theCompany, and on September 28, 2007 TEKsystems, submitted the disputeditems to such independent accounting firm for determination.

 

TheCommercial Services Asset Sale included all of the capital stock of ComputerHorizons (Canada) Corp. (“Canada Sub”) but, as noted above, specificallyexcluded a refundable income tax credit payable to Canada Sub by Revenu Quebecfor the tax years 2005 and 2006 (the “Quebec Tax Receivable”). During the thirdquarter, TEKsystems advised the Company that Canada Sub had receivedapproximately Canadian $4.3 million with respect to the Quebec TaxReceivable for 2005 (representing approximately Canadian $4.4 million intax credit and interest less a deduction for associated capital taxes ofapproximately Canadian $114 thousand). Using the exchange rate between theCanadian and United States dollars as of the day before the date of TEKsystem’snotice to the Company, the receipt by TEKsystems amounted to approximatelyUS$4.4 million. TEKsystems remitted to the Company approximately$958 thousand, after deducting approximately $1.49 million forCanadian income taxes, $1.89 million as a purchase price adjustment underthe Purchase Agreement, and $114 thousand for capital taxes. Under theterms of the Purchase Agreement, TEKsystems has no right to offset any amountsdue the Company and the aforementioned amount of $1.49 million is subjectto dispute and currently being considered by an independent accounting firm,mentioned above. The Company has recorded the $958 thousand as a deferredcash credit in the balance sheet. After demands to remit the $4.3 millionwere ignored, the Company, on October 19, 2007, filed a lawsuit againstTEKsystems seeking damages for the failure of TEKsystems to remit the balanceof the funds received by it with respect to the 2005 Quebec Tax Receivable anda declaration that TEKsystems must promptly remit to the Company upon receiptall funds received by it in the future in payment of the 2006 Quebec TaxReceivable. For a more detailed description of this litigation, refer to Note19 and Item 3 of Part I of this Report on Form 10-K (LegalProceedings).

 

TheCommercial Services Asset Purchase Agreement also grants the partiesindemnification rights against each other with respect to certain matters. Themaximum liability of the Company for indemnification claims under theCommercial Services Asset Purchase Agreement is $10 million and iscontingent upon assertion of a claim for indemnity within nine months after thedate of the Commercial Services Asset Purchase Agreement. On August 6,2007, TEKsystems submitted a letter to the Company, on behalf of itself, theother purchaser parties to the Commercial Services Asset Purchase Agreement andtheir affiliates, purporting to be a claim notice under the indemnificationprovisions of the Commercial Services Asset Purchase Agreement assertingpurported indemnification claims based, variously, on the proposition thatTEKsystems and the other purchaser parties are or may be subject to claims thatare Excluded Liabilities under the Commercial Services Asset Purchase Agreementor arise out of alleged breaches of representations, warranties and/orcovenants made by the Company in that agreement. The Company believes that manyof the claims set forth in the letter relate to the working capital adjustmentreferred to above and overlap with or are repetitious of the issues between theparties with respect to the correct amount of that adjustment. The Companystrongly disagrees with the assertions in the letter from TEKsystems andbelieves such assertions are without merit and, if TEKsystems brings suit basedon any of the matters stated therein, the Company intends to vigorously defendagainst it.

 

TheCommercial Services Asset Sale is a taxable transaction with respect to theCompany to the extent of the gain that was realized. The Company will realizegain or loss measured by the difference between the proceeds received by it andits affiliates on such sale and the Company’s (or an affiliate’s) tax basis inthe assets. For purposes of calculating gain or loss, the proceeds received bythe Company and its affiliates will include the cash received by them, theamount of their indebtedness that is cancelled or assumed, and any otherconsideration received by them for their assets. It is anticipated that theCompany will have sufficient current losses to offset most of the gain expectedto be realized from the Commercial Services Asset Sale for regular Federalincome tax purposes and will otherwise incur approximately $300 thousandin alternative minimum taxes. The Company and/or its affiliates may be subjectto state income taxes to the extent that gains exceed losses for state tax lawpurposes, but the Company does not anticipate that such taxes, if any, will besignificant.

 

***Sale of Chimes***

*** ***

On October 18,2006, the Company signed a definitive asset purchase agreement (the “ChimesAsset Purchase Agreement”) by and among Axium International, Inc., aDelaware corporation, Diversity MSP, Inc., a California corporation (“DiversityMSP”) and Chimes, Inc., a Delaware corporation and wholly-owned subsidiaryof 

 

31

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the Company (now known as Forgone, LLC, a Delawarelimited liability company, and referred to herein as “Chimes”). Pursuant to theChimes Asset Purchase Agreement, on February 16, 2007, the Company sold toDiversity MSP substantially all of the assets of Chimes, excluding cash andmarketable securities, for a purchase price of $80.0 million in cash (the “ChimesAsset Sale”), with a gain of $73.6 million.

 

TheChimes Asset Purchase Agreement also grants the parties indemnification rightsagainst each other with respect to certain matters. The maximum liability ofthe Company for indemnification claims under the Chimes Asset PurchaseAgreement is $8 million and is contingent upon assertion of a claim forindemnity within six months after the closing date.

 

On July 23,2007, counsel for Axium International, Inc. and Diversity MSP(collectively, “Axium”) submitted a letter to the Company on Axium’s behalfpurporting to be a claim notice under the indemnification provisions of theChimes Asset Purchase Agreement asserting losses and damages, includingpunitive damages, in unspecified amount as a result of allegedly “fraudulentconduct, intentional and willful and/or negligent misrepresentations,concealment and breach of representations, warranty, covenants and agreementscontained in the [Chimes Asset Purchase] Agreement” by the Company, Chimes andcertain of their officers and directors. Thereafter, on August 15, 2007,the Company received a summons and complaint in a lawsuit making similarallegations. On October 2, 2007, the Company and Chimes filed an answerdenying the material allegations in the complaint and asserting certainaffirmative defenses and the other defendants filed a motion to dismiss thecomplaint as to them. Refer to Note 19 and Item 3 of Part I of thisReport on Form 10-K (Legal Proceedings). for a description of that lawsuitand the Company’s response thereto. On December 19, 2007, the Companyannounced that it had settled the litigation pending between it and AxiumInternational.  The lawsuit wasdiscontinued without prejudice, the parties exchanged releases, and ComputerHorizons made a payment to Diversity of $175,000.

 

TheChimes Asset Sale is a taxable transaction with respect to the Company to theextent of the gain that was realized. The Company will realize a gain measuredby the difference between the proceeds received by it and its affiliates onsuch sale and the Company’s (or an affiliate’s) tax basis in the assets. Forpurposes of calculating the gain, the proceeds received by the Company and itsaffiliates will include the cash received by them, the amount of theirindebtedness that is cancelled or assumed, and any other consideration receivedby them for their assets. It is anticipated that the Company will havesufficient NOL carry-forwards to offset most of the gain realized from theChimes Transaction for regular Federal income tax purposes and otherwise incurapproximately $1.3 million in alternative minimum taxes.

 

TheCompany and/or its affiliates may be subject to state income taxes to theextent that gains exceed losses for state tax law purposes, but does notanticipate that such taxes, if any, will be significant. Based upon currentprojections, such state taxes are estimated to be approximately $627 thousandafter taking into account the availability of state losses to offset the gain,and have been accrued.

 

**NOTE2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

** **

**Going Concern andLiquidation Basis of Accounting**

** **

Theconsolidated financial statements for the period January 1, 2007 to February 16,2007 and for all periods presented for 2006 were prepared on the going concernbasis of accounting, which contemplates realization of assets and satisfactionof liabilities in the normal course of business. As a result of theshareholders’ approval of the Plan, the Company adopted the liquidation basisof accounting effective February 17, 2007. This basis of accounting isconsidered appropriate when, among  otherthings, liquidation of a company is probable and the net realizable values ofassets are reasonably determinable. Under this basis of accounting, assets arevalued at their net realizable values and liabilities are stated at theirestimated settlement amounts. The conversion from the going concern toliquidation basis of accounting required management to make significantestimates and judgments to record assets at estimated net realizable value andliabilities at estimated settlement amounts.

 

32

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**Critical AccountingPolicies and Estimates**

** **

Ourdiscussion and analysis of financial condition and results of operations arebased upon our consolidated financial statements, which have been prepared bythe Company without audit in accordance with the rules and regulations ofthe Securities and Exchange Commission. The preparation of our financialstatements requires us to make estimates that affect the reported amounts ofassets, liabilities, revenue and expense, and related disclosure of contingentassets and liabilities. Accounting estimates are based on historical experienceand other factors that are believed to be reasonable under the circumstances.However, actual results may vary from these estimates under differentassumptions or conditions.

 

Pursuantto the Plan of Liquidation, since February 16, 2007, our operations havebeen limited to wind down of our business and affairs, selling our remainingassets and discharging our known liabilities. We plan to distribute ourremaining assets to our stockholders, in accordance with the Plan ofLiquidation.

 

**Accrued Costs ofLiquidation**

** **

Uponconversion to the liquidation basis of accounting, the Company accrued for theknown costs to be incurred in liquidation, and has made subsequent adjustmentsand payments against these accounts, as follows:

 

TheCompany will continue to incur operating costs and receive income on itsinvestments throughout the liquidation period. On a regular basis, we evaluateour assumptions, judgments and estimates that can have a significant impact onour reported net assets in liquidation based on the most recent informationavailable to us, and when necessary make changes accordingly. Actual costs andincome may differ from our estimates, which might reduce net assets availablein liquidation to be distributed to shareholders.

 
| **($ in thousands)**              | ** ** | **As  Recorded  2/17/2007** | ** ** | **Recorded  prior to 2/17/2007*** | ** ** | **Adjustments  to reserves** | ** ** | **Activity  to date** | ** ** | **Balance  at 12/31/07** | ** ** |
|----------------------------------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------------------|------------|-----------------------|------------|--------------------------|------------|
| Lease Obligation                       |       | $                           | 1,324      |                              |       |                         | 237        |                  | (1,519     | )                        | 42         |   |
| Legal Fees                             |       | 450                         |       |                              |       | 2000                         |       | (450                  | )          | 2,000                    |       |
| Professional Fees, including Insurance |       | 2037                        |       |                              |       | 3064                         |       | (3502                 | )          | 1,599                    |       |
| Human Resources                        |       | 3,480                       |       | 1,188                             |       | 1178                         |       | (5,355                | )          | 491                      |       |
| Systems-related                        |       | 819                         |       |                              |       | (232                         | )          | (487                  | )          | 100                      |       |
| Misc.                                  |       | 900                         |       | 295                               |       | (310                         | )          | (685                  | )          | 200                      |       |
|                                   |       |                        |       |                              |       |                         |       |                  |       |                     |       |
| Total                                  |       | $                           | 9,010      |                              | 1,483      |                         | 5,937      | **                    | (11,998    | )                        | 4,432      |   |

 

----

*                    Accruals carry forward from operating period.

 

**             Adjustments to reserves totaled $5.9 million, and wereprimarily the result of revised estimates relating to the cost of professionalservices and human resource costs. (See “Sale of Commercial” and “Sale ofChimes”, below, and Item III of Part I, above, for a discussion of currentlegal proceedings.)

 

Adjustmentsto liquidation accruals in the third quarter of 2007 totaled $4.1M, and wereprimarily the result of revised estimates relating to the cost of legalactions, along with the associated administrative costs. (See “Sale of 

 

33

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Commercial” and “Sale of Chimes” below for adiscussion of current legal activities.)   There were no adjustments to liquidationaccruals in the fourth quarter of 2007.

 

TheCompany will continue to incur operating costs and receive income on itsinvestments throughout the liquidation period. On a regular basis, we evaluateour assumptions, judgments and estimates that can have a significant impact onour reported net assets in liquidation based on the most recent informationavailable to us, and when necessary make changes accordingly. Actual costsincome may differ from our estimates, which might reduce net assets availablein liquidation to be distributed to shareholders.

 

**Cash and Cash Equivalents**

** **

Cashand cash equivalents include highly liquid instruments with an originalmaturity of three months or less at the time of purchase and consist of thefollowing at December 31:

 

| ** **       | ** ** | **2007**         | ** ** | **2006** | ** ** |
|------------------|------------|------------------|------------|----------|------------|
| ** **       | ** ** | **in thousands** | ** ** |
| Cash             |       | $                | 25,182     |     | $          | 63,972 |   |
| Commercial paper |       | —           |       | 7,661    |       |
| Restricted cash  |       | —           |       | 1,157    |       |
|             |       | $                | 25,182     |     | $          | 72,790 |   |

 

*Concentrations of CreditRisk*

* *

Financialinstruments, which potentially subject the Company to concentrations of creditrisk, regardless of the degree of such risk, consist principally of cash andcash equivalents and trade accounts receivable. The Company invests the majority of its excess cash in overnightcommercial paper of high-credit, high quality, short-term money marketinstruments, high quality financial institutions or companies.

 

TheCompany maintains its cash balances principally in two financial institutionslocated in the United States.  Thebalances in U.S banks are insured by the Federal Deposit Insurance Corporationup to $100,000 for each entity at each institution. At December 31, 2007,uninsured amounts held by the Company at these financial institutions totalapproximately $25.1 million.  Thisexceeds the cash on the Balance Sheet due to outstanding checks and othertiming differences.

 

*Fair Value of FinancialInstruments*

* *

Thecarrying value of financial instruments (principally consisting of cash andcash equivalents, accounts receivable and payable) approximates fair valuebecause of their short maturities.

 

*Property and Equipmentand Depreciation*

* *

Propertyand equipment are stated at cost. Depreciation is computed using thestraight-line method over the estimated useful lives of the assets which rangefrom three to seven years.  As of December 31,2007, all but $3.5 thousand of property, plant and equipment had been sold, inaccordance with the Company’s plan of liquidation.

 

*Income Taxes*

* *

Similar to the prior year, the Company is not in aposition to determine its projected annual effective tax rate. For the yearended December 31, 2006 and 2007, the Company could not estimate the ratedue to the large net operating loss carryforward and corresponding valuationallowance.

 

34

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Incometax expense has been provided for the year ended December 31, 2006 at aneffective tax rate of (1.5%). As mentioned, liquidation accounting was adoptedas of February 17, 2007, and as the result of operational losses, there isno provision from continuing operations. For the year ended December  31,2007, taxes have been provided as a result of the sale of the businessoperations. The Company has accrued $627 thousand for state and localtaxes and $1.3 million for federal alternative minimum taxes.

 

*Deferred Tax Asset and Valuation Allowance*

* *

TheCompany records deferred tax assets for the future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and their respective tax bases, and operating losscarryforwards. Deferred tax assets are reduced by a valuation allowance if,based on available evidence, it is more likely than not that some portion orall of the deferred tax assets will not be realized. In assessing therealizability of deferred tax assets, management considers the scheduledreversal periods of the deferred tax assets, whether sustained profitabilityhas been achieved and tax planning strategies.

 

TheCompany has significant deferred tax assets resulting from net operating losscarryforwards, capital loss carryforwards, and deductible temporary differencesthat may reduce taxable income in future periods. The Company has provided fullvaluation allowances on the future tax benefits related to capital losses,foreign net operating losses, and all state net operating losses. The Companybelieves that the valuation allowance is appropriate because these deferred taxassets have relatively short carryforward periods or relate to taxingjurisdictions which do not allow the filing of consolidated tax returns. Also,as a result of adopting liquidation accounting, the Company does not expect toutilize its deferred tax asset due to the sale of the remaining operations.

 

***FinancialAccounting Standard 48—Accounting for Uncertainty in Income Taxes***

*** ***

TheCompany adopted FASB Interpretation 48, Accounting for Uncertainty in IncomeTaxes (“FIN 48”), at the beginning of fiscal year 2007. As a result of theimplementation the Company recognized a $150 thousand net increase toreserves for uncertain tax positions. This change has two components of whichamounts related to a re-class to a non income tax reserve balance of$200 thousand for sales and use tax and a $350 thousand increase tothe income tax reserve. The $350 thousand increase was accounted for as anadjustment to the beginning balance of retained earnings on the Balance Sheet.Including the cumulative effect for the adoption of FIN 48, at the beginning of2007, the Company had approximately $1.3 million of total grossunrecognized tax benefits. Of this total, $845 thousand (net of thefederal benefit on state issues) represents the amount of unrecognized taxbenefits that, if recognized, would favorably affect the effective income taxrate in any future periods.

 

TheCompany and its subsidiaries are subject to U.S. federal income tax as well asincome tax of multiple state jurisdictions. The Company has substantiallyconcluded all U.S. federal income tax matters for years through 2002.Substantially all material state, local and foreign income tax matters havebeen concluded for years through 2001. There are no material audits in processat this time.

 

TheCompany’s continuing practice is to recognize interest and/or penalties relatedto income tax matters in income tax expense. The Company has accrued interestof approximately $113 thousand in 2007 for FIN48 related items.

 

*Earning/(Loss) Per Share*

* *

Basicloss per share is based on the weighted average number of common sharesoutstanding without consideration of common stock equivalents. Diluted loss pershare is based on the weighted average number of common and common equivalentshares outstanding, except when the effect is anti-dilutive. The calculationtakes into account when dilutive, the shares that may be issued upon exerciseof stock options, reduced by the shares that may be repurchased with the fundsreceived from the exercise, based on the average price during the year. For the year ended December 31, 2006 there were 40,000 options excludedwith an exercise price of $4.70.  In order to facilitate the participationin any liquidating distributions by the holders of Company options, the boardof directors granted to each option holder the right to surrender their optionsin exchange for the right to receive the amount(s)

 

 

 

35

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that such option holder would have been entitled toreceive in each distribution as if they held the number of shares of CommonStock issuable upon exercise of the surrendered options. The amount sodistributed to each option holder was reduced by the exercise price of his orher options, which was applied to reduce the amounts that would otherwise bepayable to the option holder until the exercise price has been applied in full.A total of 1,162,820 options were surrendered under the plan.

 

*Use of Estimates in Financial Statements*

* *

Inpreparing financial statements in conformity with accounting principlesgenerally accepted in the United States of America, management makes estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosures of contingent assets and liabilities at the date of the financialstatements, as well as the reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates.

 

*Foreign Currency Translation*

* *

Foroperations outside the United States that prepare financial statements incurrencies other than the United States dollar (Canadian dollar, British pound,and Indian Rupee), results of operations and cash flows are translated at theaverage exchange rates during the period, and assets and liabilities aretranslated at end of period exchange rates. Exchange amounts included inoperations are income/(loss) of $(133,000) for December 31, 2006.Translation adjustments are included as a separate component of comprehensiveincome/(loss) within the statement of shareholders’ equity.

 

*Accounts Receivable*

* *

Accountsreceivable are generally due within 30 days and are stated at amounts due fromclients net of an allowance for doubtful accounts. Accounts outstanding longerthan the contractual payment terms are considered past due. The Companydetermines its allowance by considering a number of factors, including thelength of time trade accounts receivable are past due, the Company’s previousloss history, the client’s current ability to pay its obligation to the Companyand the condition of the general economy and the industry as a whole. TheCompany writes off accounts receivable when they become uncollectible, and paymentssubsequently received on such receivables are credited to income or theallowance for doubtful accounts.

 

As of December 31,2007, there were no trade receivables remaining.

* *

*Recent Accounting Pronouncements*

* *

In June 2006,the Financial Accounting Standards Board (FASB) issued FASB Interpretation  No. 48, Accounting for Uncertainty inIncome Taxes-an interpretation of FASB Statement No. 109 (FIN 48), whichclarifies the accounting for uncertainty in income taxes recognized in anenterprise’s financial statements.  ThisInterpretation prescribes a recognition threshold and measurement attribute forthe financial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. This interpretation also provides guidance on derecognition,classification, interest and penalties, accounting in interim periods,disclosure and transition.

 

On January 1,2007, we adopted the provisions of recently issued FASB Interpretation 48,Accounting for Uncertainty in Income Taxes, in regards to our accounting anddisclosure of uncertain tax positions. The adoption of the provisions of FIN 48 did not materially affect ourconsolidated financial statements.

 

 

36

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**NOTE 3—ACCOUNTS RECEIVABLE**

** **

Accounts receivableconsist of the following at December 31:

 
| ** **                                 | ** ** | **2007**                | ** ** | **2006** | ** ** |
|--------------------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                                 | ** ** | **(in thousands)** | ** ** |
| Billed                                     |       | $                       | —     |     | $          | 32,315 |   |
| Unbilled—primarily scheduled billings |       | —                  |       | 6.801    |       |
|                                       |       | —                  |       | 39,116   |       |
| Less allowance for doubtful accounts       |       | —                  |       | 4,599    |       |
|                                       |       | $                       | —     |     | $          | 34,517 |   |

 

**NOTE 4—PROPERTY ANDEQUIPMENT**

** **

Property and equipmentconsist of the following:

 
| ** **                        | ** ** | **(in thousands)** | ** ** |
|-----------------------------------|------------|--------------------|------------|
|                              |       |               |       |   |   |
| Furniture, Fixtures and Equipment |       | $4                 |       | $37,190 |   |
| Software                          |       | —             |       | 3,811 |   |
| Leasehold Improvements            |       | —             |       | 3,266 |   |
|                              |       | —             |       | 44,267 |   |
| Less: accumulated depreciation    |       | —             |       | 41,521 |   |
|                              |       | $4                 |       | $2,746 |   |

 

Property and equipment are stated at cost. Depreciation is computedusing the straight-line method over the estimated useful lives of the assetswhich range from three to seven years. Depreciation expense was $0.00 and $2.0million, for the period from January 1, 2007 — February 16, 2007, andthe year ended December 31, 2006.

 

**NOTE 5—ASSET-BASEDLENDING FACILITY**

** **

On June 16,2006 the Company amended the line of credit facility.  The line was reduced to $20 million from $40million, reflecting management’s belief that there was no need for the higherlevel of funding, thereby reducing associated costs.  The amendment extended the termination of theFinancing Agreement from July 31, 2006 to July 31, 2007.  The Administrative Management Fee, the EarlyTermination Fee and the Line of Credit Fee have all been eliminated.  As of December 31, 2006, the Company hadno outstanding loan balance against the facility.  Based on the Company’s eligible clientreceivables and cash balances, $3.8 million was available for borrowing as of December 31,2006.  The unused line fee has beeneliminated beginning June 1, 2006. The unused line fee and other associated fees, including the float andwire fees, were approximately $77,000 for the year ended December 31,2006.  This line of credit involvescovenants relating to the maintenance of cash balances and providing forlimitations on incurring obligations of operating leases exceeding $9 millionannually and spending limits on capital expenditures exceeding $8 millionannually.  As of December 31, 2006,the Company was in compliance with the covenants.  This credit facility was cancelled effective February 12,2007.  The CIT held $100,000 in escrowfor 90 days after the effective date, and it was refunded in full prior to theend of the second quarter, 2007.

 

**NOTE 6—PURCHASE OFTREASURY STOCK**

** **

In April of2001, the Board of Directors approved the repurchase in the open market of upto 10% of its common stock outstanding, or approximately 3.2 million shares.The Company did not repurchase shares of its

 

 

 

37

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common stock during the year ended December 31,2005. For the year ended December 31, 2003, the Company had repurchased,in the open market, 392,200 shares of its common stock at an average price of$3.08 per share for an aggregate purchase amount of $1.2 million. For the yearended December 31, 2002, the Company had repurchased, in the open market,1,611,700 shares of its common stock at an average price of $3.81 per share foran aggregate purchase amount of $6.1 million. As of December 31, 2006authorization for repurchase relates to approximately 93,000 shares of commonstock.

 

AsTreasury Shares had been depleted through issuance upon stock option exercisesand to the Employee Stock Purchase Plan (the “ESPP”), on October 2, 2006,the Company created common stock reserves for issuance of authorized butunissued shares.  The initial reserve for stock option exercise was3,500,000 and the reserve for the ESPP is 250,000 shares.

 

As of January 2007all Treasury Shares were fully depleted.

 

**NOTE 7—SHAREHOLDERS’EQUITY**

** **

*Stock Option Plans*

* *

In1994, the Company adopted a stock option plan which provides for the grantingof options, to officers and key employees, for the purchase of a maximum of7,594,000 shares of common stock and stock appreciation rights (“SARs”).Options and SARs generally expire ten years from the date of grant and becomeexercisable in specified amounts during the life of the respective options. NoSARs have been granted as of December 31, 2006. There were no sharesavailable as of December 31, 2005 for the 1994 stock option plan.

 

In May 2004,the Company received shareholder approval and adopted the 2004 OmnibusIncentive Compensation Plan (the “Omnibus Plan”). This plan replaced the 1994Stock Option and Appreciation Plan and provides for a maximum number of3,500,000 shares of common stock issuable under the plan. These awards may bestock options, stock appreciation rights, restricted stock or performance shareawards. This Plan is scheduled to expire on May 19, 2014. As of December 31,2006 there were 2,711,500 available for awards under the Omnibus Plan.

 

TheCompany also has a non-qualified Directors’ stock option plan (the “Directors’Plan”). In 1998, the Company amended the Directors’ Plan, providing that eachnew director of the Company who is not an employee of the Company (i) shallimmediately receive options to purchase 10,000 shares of the Company’s commonstock and (ii) shall receive annual grants to purchase an additional10,000 shares of its common stock. The Directors’ Plan originally was to expireon March 4, 2001 and was extended by the Board of Directors andShareholders through March 6, 2007. There were 24,000 shares of commonstock available for grant at December 31, 2006 under the Directors’ Plan.

 

*Accounting for Stock-Based Compensation*

* *

In January 2006,the Company adopted Financial Accounting Standards Board Statement No. 123(revised 2004) (“FAS 123R”) — “Share-Based Payments”.  FAS 123R requiresall entities to recognize compensation expense in an amount equal to the fairvalue of share-based payments, such as stock options granted toemployees.  The Company elected to apply FAS 123R under a modifiedprospective method.  Under this method, the Company was required to recordcompensation expense for newly granted options and (as previous awards continueto vest) for the unvested portion of previously granted awards that remainoutstanding at the date of adoption.  The financial statements for priorinterim periods and fiscal years do not reflect any adjusted amounts.

 

Asummary of the status of all the Company’s stock option plans as of December 31,2007 and the changes during the year ended on that date are presented below:

 
| ** **                                                                                   | ** ** | **Year ended  December 31, 2007** | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                   | ** ** | **Average**                            | ** ** | **Weighted** | ** ** |
| ** **                                                                                   | ** ** | **Shares**                             | ** ** | **Exercise** | ** ** |
| **Options**                                                                                  | ** ** | **(000’s)**                       | ** ** | **Price** | ** ** |
| ** **                                                                                   | ** ** | ** **                             | ** ** | ** ** | ** ** |
| Outstanding January 1, 2007                                                             |       | 1,287                                  |       | $ | 3.72 |   |
| Granted                                                                                      |       | 0                                      |       | $ | 0.00 |   |
| Exercised                                                                                    |       | (99                                    | )          | $ | 3.37 |   |
| Canceled/forfeited/expired                                                                   |       | (1,163                                 | )          | $ | 3.76 |   |
| Outstanding December 31, 2007                                                           |       | 25                                     |       | $ | 3.31 |   |
| Options exercisable December 31, 2007                                                   |       | 25                                     |       | $ | 3.31 |   |
| Weighted average fair value of options granted  during the year ended December 31, 2007 |       |                                   |       | $ | 0.00 |   |

 

 

 

38

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Cash receivedfrom option exercise under all share-based payment arrangements for the yearended December 31, 2007 was $431,000.  There are no tax benefitsrealized for the tax deductions from option exercise of the share-based paymentarrangements for the same period due to the full valuation allowanceposition.  As the Company currently has a full valuation allowance withrespect to its deferred tax assets, no tax benefit from the options arerecognized at this time.  If the Company determines that it is more likelythan not that it will recognize a tax benefit from the exercise of the options,then this amount would generally reflect the overall tax benefit.

 

*FAS 123R Calculations*

* *

FAS123R provides procedures for the estimation of employee compensation by forecastingthe future stock price at an estimated point in time.  Following the saleof Chimes and Commercial, the Company can more accurately estimate the endingshare price based on the aggregate amount of distribution range per share aswell as the expected term.  Using the midpoint of the liquidatingdistribution range, the FAS123R estimated compensation expense for stock optionplans in 2007 was estimated at $16 thousand.

 

As of December 31,2007, there was no total unrecognized compensation cost related to non-vestedshare-based compensation arrangements granted under these plans.

 

Inaddition to the three share-based compensation plans detailed above, theCompany also maintained an Employee Stock Purchase Plan (“the ESPP”).  TheESPP purchased shares quarterly at a 15% discount from the lower of the openingand closing stock prices for the period.  The shares were purchased at afixed discount and therefore gave rise to a liability under FAS 123R.  TheCompany discontinued the ESPP as of the end of fourth quarter 2006.  Thelast contributions were accepted through December 31, 2006 and the finalpurchase for the ESPP was made on January 3, 2007.

* *

*Election to Surrender Options*

* *

Inorder to facilitate the participation in any liquidating distributions by theholders of Company options, the board of directors granted to each optionholder the right to surrender their options in exchange for the right toreceive the amount(s) that such option holder would have been entitled toreceive in each distribution as if they held the number of shares of CommonStock issuable upon exercise of the surrendered options. The amount sodistributed to each option holder will be reduced by the exercise price of hisor her options, which will be applied to reduce the amounts that wouldotherwise be payable to the option holder until the exercise price has beenapplied in full. A total of 1,162,820 options were surrendered under the plan.The average exercise price for such options was $2.97 per share. The initialdistribution to holders of surrendered options was $394,569.   The second distribution to holders ofsurrendered options on February 11, 2008 was $250,846.

 

*Warrants*

* *

TheCompany issued 150,001 warrants in 2003 to one major shareholder to purchaseshares of its common stock. The exercise price of such warrants is $3.89,representing the fair value of the Company’s common stock at the date of grant.As of December 31, 2007, 150,001 warrants were exercised and cash receivedwas $584,000.

 

 

 

39

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** **

**NOTE8—INCOME TAXES**

** **

The following is ageographic breakdown of the Company Income(loss) before taxes:
| ** **                             | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------------------------------|------------|----------|------------|----------|------------|
| Domestic from  Continuing Operations   |       | —   |       | 678      |       |
| Domestic from  Discontinued Operations |       | 99,299   |       | (18,022  | )          |
| Foreign from  Continuing Operations    |       | —   |       | 4,110    |       |
| Foreign from  Discontinued Operations  |       | 72       |       | —   |       |
| Net Income  Before Tax                 |       | 99,371   |       | (13,234  | )          |

 

The provision for incometaxes/(benefit) consists of the follow for the years ended December 31:
| Current                              | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|
| Federal Tax  Continuing Operations   |       | —   |       | —   |       |
| Federal Tax  Discontinued Operations |       | 1,263    |       | —   |       |
| State Tax  Continuing Operations     |       | —   |       | —   |       |
| State Tax  Discontinued Operations   |       | 627      |       | 129      |       |
| Foreign Tax  Continuing Operations   |       | —   |       | 72       |       |
| Foreign Tax  Discontinued Operations |       | —   |       | —   |       |
| Total Current                        |       | 1,890    |       | 201      |       |
|                                 |       |     |       |     |       |
| Deferred                             |       |     |       |     |       |
| Federal Tax  Continuing Operations   |       | —   |       | —   |       |
| Federal Tax  Discontinued Operations |       | —   |       | —   |       |
| State Tax  Continuing Operations     |       | —   |       | —   |       |
| State Tax  Discontinued Operations   |       | —   |       | —   |       |
| Total Deferred                       |       | —   |       | —   |       |
| Total Income Tax  Expense            |       | 1,890    |       | 201      |       |

 

Deferred tax assets andliabilities consist of the following at December 31:
| ** **                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------------------------------------|------------|----------|------------|----------|------------|
| Deferred Tax  Liabilities                           |       |     |       |     |       |
| Payroll credit  receivable, Foreign                 |       | —   |       | (2,869   | )          |
| Amortization of  intangibles                        |       | —   |       | —   |       |
| Prepaid  Insurance                                  |       | —   |       | (9       | )          |
| Total Deferred  Liabilities                         |       | —   |       | (2,878   | )          |
|                                                |       |     |       |     |       |
| Deferred Tax  Assets                                |       |     |       |     |       |
| Federal and  State Net Operating Losses             |       | 15,676   |       | 41,065   |       |
| Foreign Net  Operating losses                       |       | —   |       | 1,689    |       |
| Capital losses                                      |       | —   |       | 11,978   |       |
| Depreciation                                        |       | —   |       | 1,618    |       |
| Amortization of  Intangibles, Foreign               |       | —   |       | 5,880    |       |
| Accrued Payrolls  and benefits                      |       | —   |       | 2,159    |       |
| Allowance for  doubtful accounts                    |       | 166      |       | 1,446    |       |
| Restructuring  Charges                              |       | 2,335    |       | —   |       |
| Other                                               |       | 329      |       | 613      |       |
| Net Deferred tax  assets before valuation allowance |       | 18,506   |       | 63,570   |       |
| Valuation  allowance                                |       | (18,506  | )          | (63,570  | )          |
| Net Deferred tax  assets                            |       | —   |       | —   |       |

 

40

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In accordance withparagraph 41 of FAS 109,  the Company hasallocated the valuation allowance, on a prorated basis, between current andnoncurrent deferred tax assets.

 

A reconciliation ofincome expense/(benefits), as reflected in the accompanying statements, withthe statutory Federal income tax rate of 35% for the years end December 31, 2007and 2006 is as follows:

 
| ** **                                                        | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Statutory  Federal Income Taxes                                   |       | 34,780   |       | (4,894   | )          |
| State and local  income taxes/(benefit) net of Federal tax effect |       | 408      |       | 85       |       |
| Sale of stock-  RGII and AIM                                      |       | —   |       | (14,019  | )          |
| Goodwill  impairment                                              |       | —   |       | 2,360    |       |
| Foreign rate  differential                                        |       | —   |       | (1,366   | )          |
| Change of  Control Expenses                                       |       | —   |       | —   |       |
| Adjustment of  deferred taxes                                     |       | —   |       | —   |       |
| Change in  valuation allowance                                    |       | 33,317   |       | 18,469   |       |
| Other, net                                                        |       | 19       |       | (434     | )          |
|                                                              |       | 1,890    |       | 201      |       |

 

The following tablesummarizes the changes in the historical valuation allowance for the yearsended December 31, 2007 and 2006 :

 
| ** **                                             | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------------------------------------|------------|----------|------------|----------|------------|
| Valuation  Allowance at the Beginning of the year      |       | 63,570   |       | 45,101   |       |
|                                                   |       |     |       |     |       |
|                                                   |       |     |       |     |       |
| Reserve on  current year tax assets charged to expense |       | (45,064  | )          | 18,469   |       |
| Reserve on prior  year tax assets charge to expense    |       |     |       |     |       |
| Changes in fully  reserve assets and other             |       |     |       |     |       |
| Valuation  allowance at the end of the year            |       | 18,506   |       | 63,570   |       |

 

The company has deferredtax assets from federal, state, and foreign net operating loss carryforwardsand capital loss carryforwards.  At December 31,2007 and December 31, 2006 the Company had a Federal net operating losscarryforward of approximately $18 million and $81 million respectively.

 

The Company adopted theprovisions of FASB Interpretation No. 48, “Accounting for Uncertainty inIncome Taxes - an Interpretation of FASB Statement No. 109” (FIN 48), on January 1,2007. As a result of the adoption, the Company recognized a $ .6 millionincrease in the liability for unrecognized tax benefits, interest andpenalties, across all jurisdictions  Areconciliation of the change in unrecognized tax benefits during 2007 is asfollows:

 
| **Unrecognized tax benefits**                     | ** ** | **2007** | ** ** |
|---------------------------------------------------|------------|----------|------------|
| Balance at  January 1, 2007                  |       | 1,500    |       |
| Additions  related to the current year            |       |     |       |
| Additions  related to the prior year              |       | —   |       |
| Reductions  relating to prior years               |       |     |       |
| Settlements  during the year                      |       |     |       |
| Reductions due  to the lapse in limitations       |       |     |       |
|                                              |       |     |       |
| Balance at  December 31, 2007                |       | 1,500    |       |
|                                              |       |     |       |
| Interest and  Penalties at January 1, 2007   |       | 237      |       |
| Interest and  Penalties at December 31, 2007 |       | 350      |       |

 

41

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The Company does notexpect any significant change to the above noted unrecognized tax benefitsduring the next 12 months.

 

The Company recognizesinterest and penalties relating to unrecognized tax benefits as a component of *Provision for income taxes. *The Company had $237,000 and $349,600of accrued interest and penalties as of December 31, 2006 and December 31,2007, respectively.

 

**NOTE9—EARNING/(LOSS) PER SHARE DISCLOSURES**

 
|                                                                                                               | ** ** | **January 1, 2007 to   February 16, 2007** | ** ** | **Years Ended December 31, 2006** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|----------------------------------------|------------|
| Numerator:                                                                                                         |       |                                                 |       |                                   |       |
| Net income/(loss) from operations - (000)                                                                          |       | $                                                    | 99,371     |                                   | $          | 4,584 |   |
| Net income/(loss) from discontinued operations -  (000)                                                            |       | —                                               |       | $                                      | (18,022    | ) |
| Net income/(loss) - (000)                                                                                          |       | $                                                    | 99,371     |                                   | $          | (13,438 | ) |
| Denominator:                                                                                                       |       |                                                 |       |                                   |       |
| Denominator for basic earnings per share - weighted  average shares outstanding                                    |       | 33,837,284                                           |       | 32,444,000                             |       |
| Effect of stock options                                                                                            |       | —                                               |       | 170,000                                |       |
| Diluted earnings/(loss) per share:                                                                                 |       |                                                 |       |                                   |       |
| Denominator for diluted earnings per share -  adjusted weighted average shares outstanding and assumed conversions |       | 33,837,284                                           |       | 32,614,000                             |       |
| Basic earnings/(loss) per share from continuing  operations                                                        |       | $                                                    | 2.94       |                                   | $          | 0.14 |   |
| Basic loss per share from discontinued operations                                                                  |       | $                                                    | —     |                                   | $          | (0.56 | ) |
| Basic earnings/(loss) per share                                                                                    |       | $                                                    | 2.94       |                                   | $          | (0.41 | ) |
| Diluted earnings/(loss) per share from continuing  operations                                                      |       | $                                                    | 2.94       |                                   | $          | 0.14 |   |
| Diluted loss per share from discontinued operations                                                                |       | $                                                    | —     |                                   | $          | (0.55 | ) |
| Diluted earnings/(loss) per share                                                                                  |       | $                                                    | 2.94       |                                   | $          | (0.41 | ) |

 

The 2007 computation of diluted income per share excludes all optionsbecause they are antidilutive.  For the year ended December 31, 2006there were 40,000 options excluded with an average exercise price of $4.70.

 

**NOTE10—SEGMENT INFORMATION**

** **

Duringthe fourth quarter of 2004, the Company completed a restructuring initiativewhereby the Company’s business model was realigned, effective January 1,2005, around its three distinct segments of clients: 

 

42

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Commercial, Federal Government and Vendor Managementservices (Chimes).  This realigned business model was designed to deliverimproved operational performance for the Company and reduce annual operatingcosts. On September 29, 2006 upon the sale of RGII, the Federal Governmentsector was removed from this disclosure. All prior year amounts reported in this footnote have been changed toreflect this.

 

Income/(loss)before income tax benefit consists of income/(loss) before income taxes,excluding interest income, interest expense, gain/(loss) on the sale ofassets/investments, change of control charges, restructuring charges, specialcharges/(credits), the write-off of  assets and a terminated project,amortization of intangibles and goodwill impairment. These exclusions totalexpense of $ 15.7 million for the year ended December 31, 2006. Long-term assets include goodwill, intangibles and property, plant andequipment. Corporate services, consisting of general and administrativeservices are provided to the segments from a centralized location. Such costsare allocated to the applicable segments receiving Corporate services based onrevenue.

 

Due tothe sale of the remaining business segments on February 16, 2007, segmentdata for 2007 is not presented.

 

| **BY LINE OF BUSINESS**                   | ** ** | ** ** | ** ** |
|----------------------------------------------------------|------------|------------|------------|
| ** **                                               | ** ** | **2006**   | ** ** |
| (dollars in thousands)                                   |       |       |       |
| Revenues :                                               |       |       |       |
| Commercial                                               |       | $          | 180,471    |   |
| Chimes                                                   |       | 31,519     |       |
| **Total Revenues**                                       |       | $          | 211,990    |   |
|                                                     |       |       |       |
| Gross Profit :                                           |       |       |       |
| Commercial                                               |       | $          | 40,019     |   |
| Chimes                                                   |       | 30,780     |       |
| **Total Gross Profit**                                   |       | $          | 70,799     |   |
| %                                                        |       | 33.4       | %          |
|                                                     |       |       |       |
| Operating Income :                                       |       |       |       |
| Commercial                                               |       | $          | 16,956     |   |
| Chimes                                                   |       | 5,458      |       |
| **Total Operating Income**                               |       | $          | 22,414     |   |
| %                                                        |       | 10.6       | %          |
|                                                     |       |       |       |
| Corporate Allocation :                                   |       |       |       |
| Commercial                                               |       | $          | 16,943     |   |
| Chimes                                                   |       | 2,967      |       |
| **Total Corporate Allocation**                           |       | $          | 19,910     |   |
| %                                                        |       | 9.4        | %          |
|                                                     |       |       |       |
| **Total Income / (Loss) before Income Taxes**            | ** ** | ** ** | ** ** |
| **/ (Benefit) :**                                        | ** ** | ** ** | ** ** |
| Commercial                                               |       | $          | 13         |   |
| Chimes                                                   |       | 2,491      |       |
| **Total Income / (Loss) before Income  Taxes/(Benefit)** |       | $          | 2,504      |   |
| %                                                        |       | 1.2        | %          |
|                                                     |       |       |       |
| Assets:                                                  |       |       |       |
| Commercial                                               |       | $          | 105,686    |   |
| Chimes                                                   |       | 20,086     |       |
| **Total Assets**                                         |       | $          | 125,772    |   |
|                                                     |       |       |       |
| Depreciation Expense:                                    |       |       |       |
| Commercial                                               |       | $          | 1,378      |   |
| Chimes                                                   |       | 677        |       |
| **Total Depreciation**                                   |       | $          | 2,055      |   |

* *

43

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* *

*Reconciliationof Segments Loss before Income Tax Benefit to Consolidated Loss Before IncomeTax Benefit:*

| **BY GEOGRAPHIC AREA*** | ** ** | ** ** | ** ** |
|-----------------------------------|------------|------------|------------|
| **(in thousands)**                | ** ** | **2006**   | ** ** |
|                              |       |       |       |
| REVENUE                           |       |       |       |
| United States                     |       | $          | 178,174    |   |
| Canada                            |       | 33,585     |       |
| Europe                            |       | —     |       |
| India                             |       | 30         |       |
| Puerto Rico                       |       | 201        |       |
| Total Revenue                     |       | $          | 211,990    |   |
|                              |       |       |       |
| LONG-TERM ASSETS                  |       |       |       |
| United States                     |       | $          | 1,168      |   |
| Canada                            |       | 1,550      |       |
| India                             |       | 28         |       |
| Total Long-Term  Assets           |       | $          | 2,746      |   |

 

| ** **                                                   | ** ** | **2006** | ** ** |
|--------------------------------------------------------------|------------|----------|------------|
|                                                         |       |     |       |
| Total segment income/(loss) before income  taxes/(benefit) : |       | $        | 2,504      |   |
| Adjustments :                                                |       |     |       |
| Corporate allocation to Discontinued Operations              |       | —   |       |
| Restructuring charges                                        |       | 41       |       |
| SERP/Change of Control                                       |       | —   |       |
| Special charges                                              |       | (367     | )          |
| Amortization of intangibles                                  |       | —   |       |
| Net/gain(loss) on investments                                |       | —   |       |
| Sale of Assets                                               |       | 394      |       |
| Net interest income                                          |       | 2,213    |       |
| interest expense                                             |       | —   |       |
| Goodwill impairment                                          |       | —   |       |
| Write-off of assets                                          |       | —   |       |
| Loss from Disc Ops                                           |       | (18,022  | )          |
| Minority interest                                            |       | —   |       |
| Total adjustments                                            |       | (15,741  | )          |
| Consolidated income/(loss) before income  taxes/(benefit)    |       | $        | (13,237    | ) |

 

----

*          Revenueis generated for each geographic segment based on the locale of the client.

 

44

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**NOTE 11—SAVINGS PLAN AND OTHERRETIREMENT PLANS**

 

Until October 2005,the Company maintained a defined contribution savings plan covering eligibleemployees. The Company made contributions up to a specific percentage ofparticipants’ contributions. The Company contributed approximately $0.5 millionin 2006.  No contributions were made in2007.

 

**NOTE 12—COMMITMENTS**

 

**Leases**

 

As a result of the recentsales of the Company’s Commercial division and Chimes Subsidiary on February 16th2007 the Company is no longer responsible for certain property leaseobligations.  As of the end of 2007, allproperties had been disposed of with the exception that the Company currentlymaintains one operating lease for limited administration use.

 

**Other**

 

In 2003, the Company enteredinto a separation package with the Company’s former CEO which contained acommitment for the Company to provide continued medical coverage until age 75,with remaining payments totaling approximately $38,000 at December 31,2006.  As of the end of 2007, allobligations under this agreement had been fulfilled.

 

**NOTE 13—SELECTED QUARTERLYFINANCIAL DATA (UNAUDITED)**

 

For the years ended December 31,2006 selected quarterly financial data is as follows:

 
| ** **                                   | ** ** | ** ** | ** ** | **Quarters** | ** ** | ** ** | ** ** | **YTD**    | ** ** |
|----------------------------------------------|------------|------------|------------|--------------|------------|------------|------------|------------|------------|
| **(in thousands except per share data)**     | ** ** | **First**  | ** ** | **Second**   | ** ** | **Third**  | ** ** | **Fourth** | ** ** | **Total** | ** ** |
|                                         |       |       |       |         |       |       |       |       |       |   |   |
| **2006**                                     | ** ** | ** ** | ** ** | ** **   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                                     |       | $          | 53,280     |         | $          | 53,699     |       | $          | 52,619     |   | $ | 52,392 |   | $ | 211,990 |   |
| Direct Cost                                  |       | 36,384     |       | 36,241       |       | 35,064     |       | 33,502     |       | 141,191 |   |
| Gross Profit                                 |       | 16,896     |       | 17,458       |       | 17,555     |       | 18,890     |       | 70,799 |   |
| Selling, general and administrative          |       | 17,224     |       | 17,082       |       | 17,452     |       | 16,537     |       | 68,295 |   |
| Restructuring charges                        |       |       |       | 1            |       | (32        | )          | (10        | )          | (41 | ) |
| Sale of Assets                               |       | (6         | )          | 6            |       | (394       | )          |       |       | (394 | ) |
| Special charges/(credits)                    |       |       |       | 280          |       | 87         |       |       |       | 367 |   |
| Income/(Loss) from operations                |       | (322       | )          | 89           |       | 443        |       | 2,362      |       | 2,572 |   |
| Interest income/(expense)-Net                |       | 335        |       | 446          |       | 526        |       | 906        |       | 2,213 |   |
| (Loss)/profits before income taxes           |       | 13         |       | 535          |       | 969        |       | 3,268      |       | 4,785 |   |
| Income taxes/(benefit)                       |       | 34         |       | 37           |       | 79         |       | 51         |       | 201 |   |
| Loss from Discontiuned Ops                   |       | 779        |       | (14,551      | )          | (4,239     | )          | (11        | )          | (18,022 | ) |
| Net Income/(Loss)                            | ** ** | **758**    | ** ** | **(14,053**  | **)**      | **(3,349** | **)**      | **3,206**  | ** ** | **(13,438** | **)** |
| Earning/(Loss) per share(basic and diluted): |       | $          | 0.02       |         | $          | (0.44      | )          | $          | (0.10      | ) | $ | (1.26 | ) | $ | (0.41 | ) |
|                                         |       |       |       |         |       |       |       |       |       |   |   |
|                                              |            |            |            |              |            |            |            |            |            |  |  |  |  |  |  |  |  |  |  |  |

 

Because thecompany was sold on February 16, 2007, selected quarterly financial datais not presented.

 

 

 

 

45

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**NOTE 14—RESTRUCTURING CHARGES**

 

During 2004, inconnection with the Company’s business model realignment, the Company recordeda restructuring charge of approximately $2.9 million comprised of approximately$2.8 million in severance costs and $0.1 million in lease obligation costs. Thelease obligation of $110,000 was calculated based on current rent commitmentsless a calculated sublease amount based on current market conditions.   This reserve was used in it’s entirety bythe end of the first quarter, 2007.

 

**NOTE 15—ACQUISITIONS AND SALE OFSUBSIDIARIES**

 

See Note 1 for adiscussion of the sale of RGII, the Commercial Services Business, and Chimes.

 

**NOTE 16—CHANGE OF CONTROL ANDOTHER SPECIAL CHARGES**

 

For the fiscal year 2006,the company recorded a total of $367,000 special charges.   In connection with the review of strategicalternatives the company recorded $87,000 and $280,000 of special chargesrelated to the sale of Chimes.

 

For fiscal year 2005, Inthe fourth quarter of 2005, the Company recorded a charge of approximately$13.2 million related to the change of control resulting from the removal ofthe Company’s then existing Board of Directors. The balance of the change ofcontrol payments to employees were re-classed to the short term liabilitysection of the 2006 balance sheet due to the liquidation of the Company, andwere paid in full as of the end of the second quarter of 2007.  The Company also recorded specialcharges/(credits) of $5.1 million primarily pertaining to expenses associatedwith two proxy contests (including approximately $0.5 million paid toreimburse participants in the proxy contest for costs incurred therein) andmerger-related charges pertaining to the proposed merger with AnalystsInternational Corp., which was not approved by the Company’s shareholders atthe September 2, 2005 special meeting.

 

**NOTE 17—COMPREHENSIVEINCOME/(LOSS)**

 

Statement of FinancialAccounting Standards No. 130, Reporting Comprehensive Income (“FAS 130”),requires that items defined as other comprehensive income/(loss), such asforeign currency translation adjustments and unrealized gains and losses, beseparately classified in the financial statements and that the accumulatedbalance of other comprehensive income/(loss) be reported separately fromretained earnings and additional paid-in capital in the equity section ofthe balance sheet. The components of comprehensive loss for the year ended December 31,2006 are as follows:

 

 
| ** **                                                      | ** ** | **Year Ended**       | ** ** |
|-----------------------------------------------------------------|------------|----------------------|------------|
|                                                            | ** ** | **December 31** | ** ** |
| **(dollars in thousands)**                                      | ** ** | **2006**             | ** ** |
| Comprehensive income/(loss) :                                   |       |                 |       |
| Net income/(loss)                                               |       | $                    | (13,438    | ) |
| Other comperhensive income/(loss)- foreign currency  adjustment |       | (9                   | )          |
| Realized loss on SERP investments                               |       | —               |       |
| Unrealized gain/(loss) on SERP investments                      |       | —               |       |
| Comprehensive income/(loss)                                     |       | $                    | (13,447    | ) |

 

 

 

46

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The accumulated balancesrelated to each component of other comprehensive income (loss) for the periodfrom January 1, 2007 through February 16, 2007 was as follows:

 
| ** **                              | ** ** | ** **           | ** ** | **Unrealized**     | ** ** | ** **             | ** ** |
|-----------------------------------------|------------|----------------------|------------|--------------------|------------|------------------------|------------|
| ** **                              | ** ** | **Foreign Currency** | ** ** | **Gain/(Loss) on** | ** ** | **Accumulated Other**  | ** ** |
| **(dollars in thousands)**              | ** ** | **Translation**      | ** ** | **Investments**    | ** ** | **Comprehensive Loss** | ** ** |
| Balance at December 31, 2006       |       | $                    | (652       | )                  | —     |                   | $          | (652 | ) |
| Accumulated comprehensive income/(loss) |       | 9                    |       | —             |       | 9                      |       |
| Balance at February 16, 2007       |       | $                    | (643       | )                  | —     |                   | $          | (643 | ) |

 

The components ofcomprehensive loss for the period from January 1, 2007 to February 16,2007 and the year ended December 31, 2007 are indicated in the tablebelow. Due to the shortened time period during 2007 as a result of the adoptionof the liquidation basis of accounting effective February 17, 2007, thesenumbers are not comparable.

 
| ** **                                                      | ** ** | **Year Ended**             | ** ** |
|-----------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                      | ** ** | **January 1 through** | ** ** | **December 31** | ** ** |
| **(dollars in thousands)**                                      | ** ** | **February 16, 2007** | ** ** | **2006** | ** ** |
| Comprehensive income/(loss) :                                   |       |                       |       |   |   |
| Net income/(loss)                                               |       | $                          | 99,371     |   | $ | (13,438 | ) |
| Other comperhensive income/(loss)- foreign currency  adjustment |       | 9                          |       | (9 | ) |
| Realized loss on SERP investments                               |       | —                     |       | — |   |
| Unrealized gain/(loss) on SERP investments                      |       | —                     |       | — |   |
| Comprehensive income/(loss)                                     |       | $                          | 99,380     |   | $ | (13,447 | ) |

 

**NOTE 18—SALE OF ASSETS**

 

On September 30,2006, the Company sold a condo in Sunny Isles Beach Florida for $450,000.  Cash of $407,879 was received on October 5,2006. Closing cost was $42,121. Fixed Assets net of depreciation were$13,453.   A gain on sale of $394,426 wasrecorded by the Company in the third quarter of 2006.

 

**NOTE 19—LEGAL MATTERS**

 

The Company is, or wasduring 2007, a party to the following lawsuits, each arising out of the AssetSales.

 

Axium International, Inc.and Diversity MSP, Inc. d/b/a Ensemble Chimes Global v. Computer HorizonsCorp., et al. (SupremeCourt of the State of New York, County of New York, Index No. 602746/07)

 

Axium International, Inc.(“Axium”) and Diversity MSP, Inc. (“Diversity”) commenced this action in August 2007against the Company, Chimes, Inc. (now known as Forgone, LLC), and certainof their officers, alleging that the defendants engaged in fraudulent conduct,including making representations allegedly known by them to be false, andactive concealment and thereby induced the plaintiffs into entering into thecontract with the Company and Chimes whereby Diversity purchased substantiallyall of the assets of Chimes, and that the Company and Chimes breachedrepresentations, warranties, covenants and agreements contained in thatagreement. The complaint asked for damages in an unspecified amount andattorney’s fees. On October 2, 2007, the Company and Chimes filed ananswer denying the material allegations in the complaint and asserting certainaffirmative defenses, and the other defendants filed a motion to dismiss thecomplaint as to them. Subsequently, the action was settled in December 2007,without any admission of liability by the Company or any of the otherdefendants, with the payment by the Company of $175,000 to Axium and withdiscontinuance of all of the claims asserted by Axium and Diversity in theaction with prejudice.

 

 

 

47

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Computer Horizons Corp.V.TEKsystems, Inc. (United States District Court, District of Maryland, Case No.:  1:07-CV-02849 WMN)

 

This action relates tothe Asset Purchase Agreement entered into as of November 7, 2006 by andamong TEKsystems, Inc.(“TEK”), Allegis Group, Inc., the Company(referred to therein as “Seller”), and others (the “APA”) under which theCompany agreed to sell and TEK agreed to purchase substantially all of theassets of the business of the Company’s Commercial Services Business Unit.Included among the assets was all of the capital stock of the Company’sCanadian subsidiary, Computer Horizons (Canada) Corp. (“Canada Sub”).  Specifically excluded from the sale of assetsand retained by the Company is a refundable income tax credit payable to CanadaSub by Revenu Quebec for the tax years 2005 and 2006 (the “Quebec TaxReceivable”). The closing of the sale of the assets under the APA occurred on February 16,2007 (the “Closing Date”).  Under theAPA, TEK agreed to promptly remit to the Company all amounts collected by TEKafter the closing in payment of the Quebec Tax Receivable.

 

During the third quarterof 2007, TEKsystems advised the Company that Canada Sub had receivedapproximately Canadian $4.3 million with respect to the Quebec TaxReceivable for 2005 (representing approximately Canadian $4.4 million intax credit and interest less a deduction for associated capital taxes ofapproximately Canadian $114 thousand). Using the exchange rate between theCanadian and United States dollars as of the day before the date of TEKsystem’snotice to the Company, the receipt by TEKsystems amounted to approximatelyUS$4.4 million. TEKsystems remitted to the Company approximately$958 thousand, after deducting approximately $1.49 million forCanadian income taxes, $1.89 million as a purchase price adjustment underthe APA, and $114 thousand for capital taxes. Under the terms of the APA,TEKsystems has no right to offset any amounts due the Company and theaforementioned amount of $1.49 million is subject to dispute and currentlybeing considered by an independent accounting firm, mentioned above. TheCompany has recorded the $958 thousand as a deferred cash credit in thebalance sheet as of September 30, 2007. After demands to remit the$4.3 million were ignored, on October 19, 2007, the Company commencedthis action against TEK, seeking damages for the failure of TEK to remit thefull amount of the Quebec Tax Receivable for 2005 to the Company, and adeclaration that TEK must remit to the Company the full amount of the QuebecTax Receivable for 2006 to be received by Canada Sub from Revenu Quebecpromptly upon such receipt.

 

The APA provides for apotential purchase price adjustment based on the Final Net Working Capital ofthe business sold thereunder as of the Closing Date. There are disputes betweenthe Company and TEK concerning certain items involved in the determination ofFinal Net Working Capital (and any purchase price adjustment). Under the APA,all such disputed items are to be determined by an independent accounting firm.  The Company and TEK submitted the disputeditems to such independent accounting firm for determination, but TEK has failedto cooperate with the independent accounting firm and has prevented it fromdetermining the disputed items in calculating Final Net Working Capital.Accordingly, the Company filed an amended complaint on December 29, 2007in this action, adding a third claim, i.e., for judgment ordering TEK tocooperate promptly with the independent accounting firm in its determination ofthe disputed items in the calculation of Final Net Working Capital.

 

By answer filed January 14,2008, TEK denied any liability under the three claims in the Company’s amendedcomplaint and alleged  four counterclaimsagainst the Company for its purported breaches of warranties andrepresentations in the APA, including two counterclaims demanding a declarationthat the Company must indemnify TEK for legal fees and any judgment against TEKshould it be sued as a successor to the Company by plaintiffs that have broughtactions against the Company, a counterclaim for a declaration that the Companymust indemnify TEK in the event it is held to owe any taxes by reason of anotice sent by an employee of the Company to taxing authorities, and acounterclaim for the purported legal fees incurred by TEK and the amount bywhich it allegedly reduced a receivable in settling a dispute with the IowaHealth Systems, Inc. (“IHS”) over the receivable that IHS owed.  The counterclaims seek to have the courtimpose a constructive trust over the Company’s assets to remedy the allegedbreaches of the APA by the Company.  Byreply filed February 27, 2008, the Company denied the substantiveallegations contained in  thecounterclaims.

 

 

 

48

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On February 27, 2008,the Company served a motion in this action to compel TEK to arbitrate thedisputed matters in the calculation of Final Net Working Capital before theindependent accounting firm and to compel TEK to cooperate promptly with thefirm in its determination of the disputed matters. This motion is pending.

 

No discovery has yet beentaken in this action.

 

The Company intends toprosecute its claims and defend against the counterclaims of TEK vigorously inthis action.

 

TEKsystems Canada, Inc.v. Computer Horizons Corp. (United States District Court, District of Maryland,Case No.:  1:08-CV-00209 WMN)

 

On January 24, 2008.Canada Sub, now known as TEKsystems Canada, Inc., filed this actionagainst the Company, alleging four claims: (1) for judgment in the amountof Canadian income taxes that Canada Sub claims is owed for its receipt of theQuebec Tax Receivable for 2005, i.e., Canadian$1,495,139, and a declarationthat the Company will be liable for the amount of Canadian income taxes thatwill allegedly be owed upon and for Canada Sub’s future receipt of the QuebecTax Receivable for 2006, i.e., Canadian$1,890,559, (2) for judgment in theamount of Canadian$113,854, and a declaration that the Company will be liablefor at least Canadian$54,973, and Canadian$25,062 in Canadian provincialcapital taxes, penalties, and interest that Canada Sub alleges it owes or willowe for, respectively, 2005, 2006, and the period January 1, 2007 through February 16,2007, (3) for a judgment for Canada Sub’s alleged loss of tax attributesin the amount of Canadian$12,889,974 by the method by which an intercompanynote made payable by Canada Sub to the Company was allegedly contributed, and (4) fora declaration that the Company will be liable for the amount that Canada Submay allegedly owe under a purported payroll tax audit. The complaint seek tohave the court impose a constructive trust over the assets of the Company toremedy its purportedly “inequitable conduct.”

 

On February 27,2008, the Company filed a motion in this action to stay proceedings on Canada Sub’s first two claims in its complaint,i.e., (1) for the amounts of the taxes allegedly owed for the receipt of the Quebec Tax Receivable for2005 and allegedly will be owed upon and for Canada Sub’s future receipt of theQuebec Tax Receivable for 2006 and (2) for the amounts of the purportedCanadian provincial capital taxes owed for 2005, 2006, and the period January 1,2007 through February 16, 2007, pending completion of the arbitrationbetween TEK and the Company before the independent accounting firm.  This motion is pending.

 

On February 27,2008, the Company also filed its answer to the complaint in this action,denying the substantive allegations of the complaint.

 

No discovery has yet beentaken in this action.

 

By stipulations betweencounsel for the parties in this action and the above described action commencedby the Company in the District of Maryland and order of the Court dated February 27,2008, the two actions in the District of Maryland were consolidated

 

The Company intends todefend itself vigorously against the claims of Canada Sub in the consolidatedlawsuit.

 

**NOTE 20—REFUNDABLE TAX CREDIT**

 

The Quebec Governmentthrough Invest Quebec granted the Company’s Montreal Outsourcing Centre (“MOC”)a refundable tax credit on certain qualifying job positions in InformationTechnology. The outstanding receivables as of December 31, 2007 and 2006include credits relating to 2005 and 2006. The Commercial Services Asset Saleincluded all of the capital stock of Computer Horizons (Canada) Corp. (“CanadaSub”) but, as noted above, specifically excluded the refundable income taxcredit payable to Canada Sub by Revenu Quebec for the tax years 2005 and 2006(the “Quebec Tax Receivable”). During the third quarter, TEKsystems advised theCompany that Canada Sub had received approximately C$4.3 million withrespect to the Quebec Tax Receivable for 2005, (representing approximatelyC$4.4 million in tax credit and interest less a deduction for associatedcapital taxes of

 

 

 

49

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approximatelyC$114 thousand). Using the exchange rate between the Canadian and UnitedStates dollars as of the day before the date of TEKsystem’s notice to theCompany, the receipt by TEKsystems amounted to approximatelyUS$4.4 million.    An additional US$665 thousandwas booked during the third quarter of 2007 to recognize the increase in valueof the 2005 tax credit due to the change in exchange rate since the Company’slast estimate of such value. (See “Sale of Commercial” in Note 1 above foran additional discussion of recent events surrounding the Quebec Tax Receivablefor 2005 and 2006.).

 

## **Item9A(T).**                                  *Controls and Procedures*

## ** **

**Management’s Evaluation ofDisclosure Controls and Procedures**

 

The Company’s ChiefExecutive Officer and Chief Financial Officer have evaluated the effectivenessof the Company’s disclosure controls and procedures (as such term is defined inRules 13a-15(e) under the Securities Exchange Act of 1934, asamended) as of the end of the period covered by this report. Based upon suchevaluation, the Company’s Chief Executive Officer and Chief Financial Officerhave concluded that, as of the end of the period covered by this report, theCompany’s disclosure controls and procedures were effective in recording,processing, summarizing and reporting, on a timely basis, information requiredto be disclosed by the Company in the reports that it files or submits underthe Securities Exchange Act of 1934, as amended.

 

**Management’s Annual Report onInternal Control Over Financial Reporting**

 

The management of theCompany is responsible for establishing and maintaining adequate internalcontrol over financial reporting. Internal control over financial reporting isdefined in Rule 13a-15 (f) and 15d-15 (f) promulgated under theSecurities Exchange Act of 1934 as a process designed by, or under thesupervision of, the Company’s Principal Executive Officer and PrincipalFinancial Officer and effected by the Company’s board of directors, managementand other personnel, to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles andincludes those policies and procedures that:

 

1.                    Pertain to the maintenance of recordsthat in reasonable detail accurately and fairly reflect the transactions anddispositions of assets of the Company;

 

2.                    Provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, andthat receipts and expenditures of the Company are being made only in accordancewith authorizations of management and directors of the Company; and

 

3.                    Provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use or dispositionof the Company’s assets that could have a material effect on the financialstatements.

 

The Company’s managementassessed the effectiveness of the Company’s internal control over financialreporting as of December 31, 2007. In making this assessment, the Company’s management used the criteriaestablished in Internal Control—Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission.  Under the supervision and with theparticipation of our management, including our Principal Executive Officer andPrincipal Financial Officer, we conducted an evaluation of our internal controlover financial reporting as prescribed above for the periods covered by thisreport. Based on our evaluation, our Principal Executive Officer and PrincipalFinancial Officer concluded that the Company’s internal control over financialreporting is effective as of December 31, 2007.

 

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Projections of any evaluation of effectiveness to futureperiods are subject to the risk that controls may become inadequate because ofchanges in conditions, or that the degree of compliance with the policies orprocedures may deteriorate.

 

 

 

50

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**Changes in Internal Controls overFinancial Reporting**

 

There were no changes inour internal control over financial reporting that occurred during our mostrecently completed fiscal quarter that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

 

 

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# ** **

# **PART III**

# ** **

## **Item 10.**                *Directors, Executive Officers and CorporateGovernance*

## ** **

Thenames and ages of each director of the Company, each of their principaloccupations at present and for the past five (5) years and certain otherinformation about each of the directors are set forth below:

 
| ** ** | ** ** | **Name**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | ** ** | **Age** | ** ** | **Director  Since** |
|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------|------------|---------------------|
|            |       | ERIC ROSENFELD has served  as the general partner of Crescendo Partners, L.P., a New York-based  investment firm, since November 1998. Mr. Rosenfeld also currently  serves as Chairman of the Board, Chief Executive Officer and President  of Rhapsody Acquisition Corporation. In addition, he serves on the  Boards of CPI Aerostructures, Inc., as  Chairman; and as Director at DALSA Corporation, Matrikon Inc., and Hill International Inc. Prior, Mr. Rosenfeld  was a Managing Director at CIBC Oppenheimer, a financial services firm, and  its predecessor company Oppenheimer & Co., Inc.                                                                                     |       | 51      |       | 2005                |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |    |       |                |
|            |       | KARL L. MEYER recently  retired as Chairman of the board and president of Ermis Maritime Holdings  Limited, an owner and operator of ocean going tankers. Previously, he held  similar positions with Homeport Bancorp, Inc. (1991—2000), a single bank  holding company, and Marine Transport Lines, Inc., the owner and  operator of 58 vessels, from April 1986 to December 1989. Prior to  that, Mr. Meyer was Managing Director of Diogenes Management Company, an  investment advisory company, from July 1995 to 2004. He served as a  director of Stelmar Shipping Inc., BT Shipping Limited from May 2003 to  May 2004, and Computer Horizons from October 2005 to present. |       | 70      |       | 2005                |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |    |       |                |
|            |       | FRANK J. TANKI served as a  director of Acceris Communications Inc., a broad based telecommunications  company, from May 2004 to March 2005. Prior to Mr. Tanki’s  retirement in 2000, he spent 36 years with Coopers & Lybrand (now  Price Waterhouse Coopers) and retired in 1998 as a Senior Partner in the  Business Assurance practice. Mr. Tanki is presently on the board of  directors of MonoSol RX and Media Sciences International, Inc. During his  career, he was a member of the firm’s Executive Committee, Director of  Accounting and SEC Technical Services and Partner-In-Charge of the New York  practice group.                                                       |       | 68      |       | 2005                |

 

52

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|        |   | WILLEM VAN RIJN has served  as Senior Advisor to the founder and management committee of Capco, an  operations and technology consulting and solutions firm since 2002. Prior to  joining Capco, Mr. van Rijn was a Senior Partner with Price Waterhouse  Coopers, and its predecessor Coopers & Lybrand, where he served as  the Managing Partner of the Japanese financial services consulting practice  from 1998 to 2002, and the global strategy and financial risk management  consulting practice from 1995 to 1998.Mr. van Rijn is also a member of the  Board of Directors of Media Sciences International Inc. (Nasdaq “MSII”) |   | 59     |   | 2005   |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |
|        |   | ROBERT F. WALTERS was an  Executive Vice President and Chief Information Officer of John Hancock  Financial Services (1995—2004), when it was acquired by ManuLife of Toronto,  Canada. Prior to joining John Hancock, Mr. Walters held a variety of  senior information technology positions at Citicorp, in the US, London and  Brussels. He was the Chief Information Officer of European technology,  managing the technology operations of businesses in 14 countries in Western  Europe.                                                                                                                                                              |   | 58     |   | 2005   |

 

53

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** **

**Additional ExecutiveOfficers of the Company Who Are Not Directors:**

 
| **Name**                | ** ** | **Age** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | ** ** |
|-------------------------|------------|---------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Dennis J. Conroy        |       | 63      |       | Mr. Conroy has been President and Chief Executive  Officer of the Company since October 2005. He served in various  leadership roles at management consulting firms, bringing 30 years of  management and leadership experience to the Company. From 2003 to 2004,  Mr. Conroy served as a Managing Director at BearingPoint, Inc. From  1998 through 2003, Mr. Conroy held various leadership positions,  including membership in Price Waterhouse Coopers’ North American Executive  Leadership Team, and CEO of Price Waterhouse Cooper’s West Business Unit.  Prior to joining Price Waterhouse Coopers, Mr. Conroy served as vice  president of Booz/Allen/Hamilton, Inc.’s communications and technology  practice, as well as managing partner of the National  Information—Communications Industry Practice at Coopers & Lybrand. |       |
|                    |       |    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |
|  Barbara Rodriguez |       | 55      |       | Barbara Rodriguez has been Chief Financial Officer  of the Company since April 2006.  As of January 1, 2008,  Mrs. Rodriguez is also acting as Chief Financial Officer of Airborne  Health, Inc. Prior to joining CHC, Mrs. Rodriguez served as: Vice  President of Client Services at i2 Technologies; Chief Operating Officer at  NextGenMarkets, Inc, and Senior Vice President, Information Technology and  Chief Information Officer at Alliant Exchange Corporation; and Vice  President, Controller and Chief Compliance Officer at Compaq  Corporation.  Mrs. Rodriguez has a MBA in finance from Bernard  Baruch College and a B.S. in Business Administration from Geneva College.                                                                                                                                                                      |       |

 

**Code ofEthics**

 

The Company has adopted aCode of Business Conduct and Ethics, applicable to its employees, officers anddirectors, which may be obtained, free of charge, by writing to ComputerHorizons Corp at 2001 Route 46 East, Suite 310, Parsippany, NJ  07054.

 

**AuditCommittee Financial Expert**

 

The Board of Directors ofthe Company has determined that Frank J. Tanki, the Chairman of the Company’saudit committee, is an “audit committee financial expert” within the meaning ofItem 407(d)(5)(ii) of Regulation S-K promulgated under the SecuritiesExchange Act of 1934, as amended, and that Mr. Tanki is independent underNASDAQ’s independence standards for Audit Committee members.

 

## **Item 11.**                *Executive Compensation*

## ** **

Thefollowing table sets forth the compensation paid by the Company for the fiscalyears indicated, to the Chief Executive Officer and to each of the Company’sother executive officers, whose combined salary and bonus exceeded $100,000,(together, the “named executive officers”), as of December 31, 2007.

 

54

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**Summary Compensation Table**

**As of December 31, 2007**

 
| **Name and Principal Position**                       | ** ** | **Year** | ** ** | **Salary (3)** | ** ** | **Bonus(1)** | ** ** | **All Other   Compen-  sation (2)** | ** ** |
|-------------------------------------------------------|------------|----------|------------|----------------|------------|--------------|------------|-------------------------------------|------------|
| Dennis J. Conroy                                      |       | 2007     |       | $              | 626,428    |         | 85,000     |                                | $          | 4,000 |   |
| President and Chief  Executive Officer                |       | 2006     |       | $              | 365,000    |         | —     |                                | $          | 14,201 |   |
| Brian A. Delle Donne                                  |       | 2007     |       | $              | 239,430    |         | 410,577    |                                | $          | 5,000 |   |
| Executive Vice  President and Chief Operating Officer |       | 2006     |       | $              | 275,000    |         | —     |                                | $          | 14,234 |   |
| Barbara Rodriguez                                     |       | 2007     |       | $              | 234,249    |         | $          | 103,076                             |       | $ | 4,800 |   |
| Chief Financial  Officer                              |       | 2006     |       | $              | 198,019    |         | $          | 100,000                             |       | $ | 37,726 |   |
| Marci Braunstein                                      |       | 2007     |       | $              | 156,451    |         | $          | 7,000                               |       | — |   |
| Corporate  Controller                                 |       | 2006     |       | $              | 151,250    |         | $          | 72,337                              |       | $ | 1,967 |   |

 

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| (1)    | Barbara  Rodriguez was awarded a retention bonus of $75,000 in 2007 which was paid on  December 31, 2007, in one lump sum payment.                                                                                                                                                                                                                                                                                                                                                                                     |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (2)    | The Company sponsors and  pays in full basic life and accidental death & dismemberment  insurance policies for all benefit eligible employees in the amount of one  times base salary up to a maximum of $150,000. The premiums remitted for  these policies in 2006 were $234 for Messrs Conroy and Delle Donne, and an  additional $176 for Ms. Rodriguez. Under each such insurance policy, the  insured has the right to designate the beneficiaries.                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | The Company maintains a  defined contribution (401K) savings plan. Full-time salaried employees are  eligible to participate in the Plan following the completion of six months of  continued service. The Company contributes $.50 for every dollar contributed  by all participating salaried employees up to 4% of each employee’s  semi-monthly salary deferral. In 2007, Mr. Conroy received a company  match in the amount of $709.04. Mrs. Rodriguez received a company match  in the amount of $2,643.96. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | Barbara Rodriguez received  $4,800 in compensation for an auto lease allowance during 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (3)    | Barbara Rodriguez began  employment in April 2006. The agreement provides for an annual salary at  a rate of $200,000.                                                                                                                                                                                                                                                                                                                                                                                                      |

 

55

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There were no stockoptions granted to the named executive officers in 2007. Therefore, there areno hypothetical gains or option spreads that would exist for the options.

 

**Employment Agreements**

** **

On February 7,2007, Barbara Rodriguez accepted an employment agreement to continue employmentthrough December 31, 2007, or until formation of the liquidatingtrust.  She will continue to receive herregular wages and other compensation determined in her retention bonusagreement.  She will also receiverelocation expenses no greater than $5,000 to relocate back to Florida.  Barbara Rodriguez has agreed to travel to NewJersey for short-term stays as business needs dictate.  Mrs. Rodriguez will also receive pay outfor current period accrued but unused vacation not to exceed two weeks basesalary post-employment per company policy, and severance pay in the amount of$75,000.

 

On October 20,2005, in connection with the appointment of Dennis J. Conroy as Chief ExecutiveOfficer and President of Computer Horizons Corp. (the “Company”), the Companyentered into an employment letter (the “Conroy Letter”) with Mr. Conroy,which sets forth terms and provisions governing Mr. Conroy’s employment asChief Executive Officer and President of the Company.  The Conroy Letterprovided for an annual salary of $365,000. In connection with his employment, Mr. Conroyreceived an option grant to purchase 100,000 shares of the Company’s commonstock, $.10 par value, at an exercise price of $4.16 per share pursuant to andin accordance with the Company’s 2004 Omnibus Incentive Compensation Plan (the “2004Plan”). Such stock option was scheduled to vest and become exercisable as toone-third of such shares on each of October 19, 2006, October 19,2007 and October 19, 2008. The 2008 vesting was accelerated by the Boardof Directors so that all options vested as of January 31, 2007. Beginningin April, 2007, Mr. Conroy is compensated on an hourly basis at a rate of$300/hour.

 

On October 20,2005, in connection with the appointment of Brian A. Delle Donne as ExecutiveVice President and Chief Operating Officer of the Company, the Company enteredinto an employment letter (the “Delle Donne Letter”) with Mr. Delle Donne,which set forth terms and provisions governing Mr. Delle Donne’semployment as Executive Vice President and Chief Operating Officer of theCompany.  The Delle Donne Letter providedfor an annual salary of $275,000.  Inconnection with his employment, Mr. Delle Donne received an option grantto purchase 75,000 shares of the Company’s common stock, $.10 par value, at anexercise price of $4.16 per share pursuant to and in accordance with theCompany’s 2004 Omnibus Incentive Compensation Plan (the “2004 Plan”).  Such stock option was scheduled to vest andbecome exercisable as to one-third of such shares on each of October 19,2006, October 19, 2007 and October 19, 2008. The 2008 vesting wasaccelerated by the Board of Directors so that all options vested as of January 31,2007.  Mr. Delle Donne was providedwith a car allowance of $1,000 per month and was eligible for twenty-five paidvacation days per year.  Mr. DelleDonne voluntarily resigned from the Company effective May 31, 2007 andreceived a lump sum severance payment of $410,577.

 

**Compensation CommitteeInterlocks and Insider Participation**

** **

TheCompensation Committee consists of Chairman, Robert Walters; Eric Rosenfeld andWillem van Rijn. None of these individuals was at any time during the fiscalyear ended December 31, 2007 or at any other time one of our officers oremployees.

 

Noneof our executive officers serve as a member of the Board of Directors or thecompensation committee of any other entity which has one or more executiveofficers serving as a member of our Board of Directors or CompensationCommittee.

 

56

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**Director Compensation**

** **

In2007, the Company engaged Hewitt Associates to conduct an independent review ofOutside Director Compensation. Based upon this study, effective October 18,2005, the compensation for non-employee Directors has been modified as follows:

 

·                  Per meeting fee for non-employee Directors adjustedfrom $1,000 to $2,000 which is the median among companies paying Board meetingfees.

 

·                  Annual fees for positions of Audit Committee andCompensation Committee Chair have been adjusted to $8,000 and $5,000respectively due to stringent corporate governance mandates, responsibilitiesand time commitments.

 

·                  Initial up-front stock option award moved from 10,000to 15,000 bringing stock option award in line with standard market approach.

 

The following table sets forth the compensation paidby the Company to its directors for the fiscal year end December 31, 2007.

 

| **Director  Compensation Table** | ** ** |
|----------------------------------|------------|
| **Name**                         | ** ** | **Fees earned or  paid in cash ($)** | ** ** |
| Eric Rosenfeld                   |       | 50,500.00 |   |
| Karl L. Meyer                    |       | 48,083.37 |   |
| Frank J. Tanki                   |       | 52,666.74 |   |
| Willem Van Rijn                  |       | 46,333.37 |   |
| Robert F. Walter                 |       | 43,916.74 |   |

* *

Thefollowing summarizes non-employee Director compensation:

 

·                  The Chairman of the Board will receive an annualretainer of $30,000;

 

·                  Each non-employee director will receive an annualretainer of $20,000;

 

·                  Each non-employee director will receive an additional$2,000 per each Board meeting attended;

 

·                  Each non-employee director of each standing committeewill receive a fee of $1,000 per each full length committee meeting attended;

 

·                  Chairs of the Board and the various standingcommittees, excepting the Audit Committee, will receive an annual fee of$5,000. In lieu of the foregoing, the Chair of the Audit Committee will receivean annual fee of $8,000; and

 

·                  Each non-employee member of the Board receives aone-time initial grant of an option to purchase 15,000 shares of the Company’scommon stock and an annual grant of an option to purchase 10,000 shares, withan exercise price equal to the fair market value on the date of the grant.

* *

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* *

**Item 12.     SecurityOwnership of Certain Beneficial Owners and Management**

** **

The following table presents certain information with respect to thebeneficial ownership of shares of the Company’s common stock (its only class ofvoting securities) on March 15, 2008, by (a) persons owning more than5% of such shares, (b) each director and person nominated for election asa director, (c) the named executive officers identified in the SummaryCompensation Table, and (d) all directors and executive officers as agroup. Unless otherwise indicated, each person has sole voting and dispositivepower over the shares shown as being owned by such person.

 

| **Name and Address of Beneficial  Owner**                                       | ** ** | **Amount Beneficially Owned** | ** ** | ** ** | ** ** | **Percent of Class   (%)** | ** ** |
|---------------------------------------------------------------------------------|------------|-------------------------------|------------|------------|------------|----------------------------|------------|
| Eric Rosenfeld                                                                  |       |                          |       |       |       |                       |       |
| Crescendo Partners II, LP 

10 East 53rd Street 

New York, NY 10022            |       | 2,401,600                     |       | (1         | )          | 7.1                        |       |
| Karl L. Meyer 

Route 46 East Suite 310 

Parsippany, NJ 07054                  |       | 0                             |       |       |       | 3⁄4                     |       |
| Frank J. Tanki 

Route 46 East Suite 310 

Parsippany, NJ 07054                 |       | 0                             |       |       |       | 3⁄4                     |       |
| Willem Van Rijn 

Route 46 East, Suite 310

Parsippany, NJ 07054                |       | 0                             |       |       |       | 3⁄4                     |       |
| Robert F. Walters 

Route 46 East Suite 310 

Parsippany, NJ 07054              |       | 0                             |       |       |       | 3⁄4                     |       |
| Dennis Conroy 

Route 46 East Suite 310 

Parsippany, NJ 07054                  |       | 0                             |       |       |       | 3⁄4                     |       |
| Brian Delle Donne 

Route 46 East Suite 310 

Parsippany, NJ 07054              |       | 0                             |       |       |       | 3⁄4                     |       |
| Barbara Rodriguez 

Route 46 East Suite 310 

Parsippany, NJ 07054              |       | 0                             |       |       |       | 3⁄4                     |       |
| Marci Braunstein  Route 46 East, Suite 310  Parsippany, NJ 07054                |       | 0                             |       |       |       |                       |       |
|                                                                            |       |                          |       |       |       |                       |       |
| All directors and executive officers as a group (nine  persons)                 |       | 2,401,600                     |       | (1         | )          | 7.1                        |       |
|                                                                            |       |                          |       |       |       |                       |       |
| Boston Avenue Capital 

415 South Boston, 9th Floor 

Tulsa, OK 74103           |       | 2,380,071                     |       | (2         | )          | 7.0                        |       |
| Southpaw Asset Management LP 

Four Greenwich Office Park 

Greenwich, CT 06831 |       | 1,817,595                     |       | (3         | )          | 5.4                        |       |

 

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(1)                                  Includes 2,401,600 shares owned byCrescendo Partners II, L.P.  CrescendoPartners L.P. filed a Schedule 13D Statement with the Securities andExchange Commission stating that as of October 21, 2005, it may be deemedto have sole voting power and sole dispositive power with respect to 2,401,600shares of the Company’s common stock with no shared voting power or shareddispositive power.

 

(2)                                  Boston Avenue Capital filed aSchedule 13D/A Statement with the Securities and Exchange Commissionstating that as of March 2, 2007 it may be deemed to have sole votingpower and sole dispositive power with respect to 2,380,071 shares of theCompany’s common stock with no shared voting power or shared dispositive power.

 

(3)                                  Southpaw Credit Opportunity Master FundLP, Southpaw Asset Management LP, Southpaw Holdings LLC, Kevin Wyman and HowardGolden filed a Schedule 13G Statement with the Securities and ExchangeCommission stating that as of December 31, 2007, they may be deemed tohave sole voting power and sole dispositive power with respect to 1,817,595shares of the Company’s common stock with no shared voting power or shareddispositive power.

 

58

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## **Item13.    ***Certain Relationships and RelatedTransactions, and Director Independence*

## ** **

Therewere no related-party transactions during 2007.

## ** **

**CORPORATEGOVERNANCE**

 

Our Board of Directorsand senior management have adopted and adhered to corporate governancepractices that we believe maximize shareholder value in a manner consistentwith the highest standards of integrity. We continually review and update ourgovernance practices based on the standards of the National Association ofSecurities Dealers, legal requirements, SEC regulations and best practicesrecommended by governance authorities.

 

**BoardIndependence**

 

The Board of Directorshas reviewed the independence of each director under the listing standards ofNASDAQ.  Based upon its review, the Boardhas determined that all of the directors currently serving on the Board are “independentdirectors” as defined under the listing standards of NASDAQ and that Messrs. Tanki,Meyer and Van Rijn also meet NASDAQ’s additional independence standards forAudit Committee members.

 

**CorporateGovernance Guidelines and Code of Business Conduct and Ethics**

 

The Company is committedto sound corporate governance principles as such principles are essential tothe reputation of the Company and to the ethical conduct of its business andits relationship with others both inside and outside of the Company. TheCompany has adopted Corporate Governance Guidelines as the formal codificationof certain corporate governance practices developed by the Board of Directorsover the Company’s history as well as new practices to be implemented to helpthe Board to fulfill its responsibilities to shareholders. The Company has alsoadopted a Code of Business Conduct and Ethics applicable to its employees,officers and directors. The Company’s Corporate Governance Guidelines and Codeof Business Conduct and Ethics may be obtained, free of charge, by writing toComputer Horizons Corp at 2001 Route 46 East, Suite 310, Parsippany,NJ  07054.

 

## **Item14.    ***Principal Accountant Fees and Services*

## ** **

**Audit Fees**

** **

Feesfor audit services totaled $150,000 and $1,332,000 in 2007 and 2006,respectively, including fees for the audit of the Company’s annual financialstatements included in the Company’s Form 10-K, review of the Company’squarterly financial statements included in the Company’s Form 10-Q,Sarbanes Oxley Section 404 audit procedures, consents and accountingconsultations, and other such services that generally only an independentaccountant can provide.

 

**Audit Related Fees**

 

Fees for audit-relatedservices totaled $23,625 and $164,000 in 2007 and 2006, respectively, includingacquisition due diligence, review of the Company’s Registration Statement on Form S-8filing, Chimes SAS 70 review, and other services traditionally performed byindependent accountants.

 

**Other Fees**

** **

Nonein 2007 and 2006.

 

GrantThornton LLP (“GT”) previously served as the principal accountants for ComputerHorizons Corp. (“the Registrant”).  On November 10,2006 GT was dismissed by the Registrant. The dismissal was recommended by the Audit Committee of the Registrant’sBoard of Directors.

 

On November 10,2006, the Registrant engaged Amper, Politziner & Mattia, P.C. (“APM”)as the Registrant’s principal accountant. The engagement of APM was recommended by the Audit Committee of theRegistrant’s Board of Directors.

 

59

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TheAudit Committee’s policy is to pre-approve services to be performed by theCompany’s independent public accountants in the categories of audit services,audit-related services, tax services and other services.  Additionally, the Audit Committee willconsider on a case-by-case basis and, if appropriate, approve specificengagements that are not otherwise pre-approved.  All services have been approved by the AuditCommittee, and all audit services performed by APM were performed by permanent,full-time employees of APM.

 

60

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# ** **

# **PART IV**

# ** **

## **Item 15.**                *Exhibits and Financial Statement Schedules*

## ** **

(a)                                  Financial Statements and FinancialStatement Schedules

 

1.             Consolidated financial statements

 

·                  Report of independent registered publicaccounting firm on the consolidated financial statements

 

·                  Consolidated statement of Net Assets (liquidationbasis) and Balance Sheet (going concern basis), as of December 3l, 2007and 2006 respectively

 

·                  Consolidated statements of operations (goingconcern basis) for the period  from January 1through February 16, 2007 and the year ended December 31, 2006

 

·                  Consolidated statement of shareholders’equity for the year ended December 31, 2006, and statement of Net Assetsfor the period ended December 31, 2007

 

·                  Consolidated statements of cash flows (goingconcern basis) for the period from January 1 through February 16,2007, and the year ended December 31, 2006

 

·                  Notes to consolidated financialstatements

 

61

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**ScheduleII  Valuation and qualifying accounts forthe years ended December 31, 2006.**

 
| **Description**                  | ** ** | **Balance at   beginning   of period** | ** ** | **Charged   to cost   and   expenses** | ** ** | **Reductions** | ** ** | **Balance at end   of period** | ** ** |
|----------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|----------------|------------|--------------------------------|------------|
| Year ended December 31,2006 |       |                                   |       |                                   |       |           |       |                           |       |
| Allowance for  doubtful accounts |       | $                                      | 4,654      |                                   | 694        |           | 749        | (1)                            | $          | 4,599 |   |
| Deferred tax  asset valuation    |       | $                                      | 45,101     |                                   | 18,469     |           | —     |                           | $          | 63,570 |   |
| 2005 Restructure  Reserve        |       | $                                      | 940        |                                   | —     |           | 940        | (2)                            | $          | — |   |
| 2004 Restructure  Reserve        |       | $                                      | 107        |                                   | —     |           | 107        | (2)                            | $          | — |   |
| 2003 Restructure  Reserve        |       | $                                      | 621        |                                   | —     |           | 560        | (2) (3)                   | $          | 61 |   |

 

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Notes

 

(1)                                  Uncollectible accounts written off, netof recoveries.

 

(2)                                  Includes payments for severance and leaseobligation payments for closed offices.

 

(3)                                  Contains 1999, 2000, 2002 and 2003restructure reserve.

 

 

 

Becausethe Company was sold on February 16, 2007, selected financial data for2007 is not presented.

 

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** **

**SIGNATURES**

** **

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of  1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
|   | Date: March 31, 2008 | COMPUTER HORIZONS CORP.       |
|--------|---------------------------|-------------------------------|
|   |                      |                          |   |
|   |                      | By:                           | /s/ DENNIS J. CONROY |
|   |                      |                          | Dennis J. Conroy, President, CEO |
|   |                      |                          |
|   | Date: March 31, 2008 | (Principal Executive Officer) |
|   |                      |                          |   |
|   |                      | By:                           | /s/ BARBARA RODRIGUEZ |
|   |                      |                          | Barbara Rodriguez, Vice President and CFO |
|   |                      |                          | (Principal Financial Officer) |

 

Pursuantto the requirements of the Securities Exchange Act of  1934, this report has been signed below bythe following persons on behalf of the registrant and in the capacities and onthe dates indicated.

 
|   | Date: March 31, 2008 | COMPUTER HORIZONS CORP. |
|--------|---------------------------|-------------------------|
|   |                      |                    |   |
|   |                      | By:                     | /s/ ERIC ROSENFELD |
|   |                      |                    | Eric Rosenfeld, Chairman of the Board and Director |
|   |                      |                    |   |
|   |                      |                    |   |
|   | Date: March 31, 2008 | By:                     | /s/ KARL L. MEYER |
|   |                      |                    | Karl L. Meyer, Director |
|   |                      |                    |   |
|   |                      |                    |   |
|   | Date: March 31, 2008 | By:                     | /s/ FRANK J. TANKI |
|   |                      |                    | Frank J. Tanki, Director |
|   |                      |                    |   |
|   |                      |                    |   |
|   | Date: March 31, 2008 | By:                     | /s/ WILLEM VAN RIJN |
|   |                      |                    | Willem van Rijn, Director |
|   |                      |                    |   |
|   |                      |                    |   |
|   | Date: March 31, 2008 | By:                     | /s/ ROBERT F. WALTERS |
|   |                      |                    | Robert F. Walters, Director |

 

Reportof independent registered public accounting firm on the financial statementsschedule.

 

Allother schedules are omitted because they are not applicable or the requiredinformation is shown in the consolidated financial statements or notes thereto.

 

3.                                       List of Exhibits

 
| **Exhibit** | ** ** | **Description**                                                                                       | ** ** | **Incorporated by Reference to**                                                     |
|-------------|------------|-------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------|
|        |       |                                                                                                  |       |                                                                                 |
| 2.1         |       | Stock purchase agreement dated as of July 8, 2003  between the Company, RGII and Kathryn B. Freeland. |       | Exhibit 2.1 to the Company’s Current Report on Form  8-K filed on July 8, 2003. |

 

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| **Exhibit** | ** ** | **Description**                                                                                                                                                                                          | ** ** | **Incorporated by Reference to**                                                                                                 |
|-------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                                                                                                                     |       |                                                                                                                             |
| 2.1(a)      |       | Stock Purchase  Agreement by and among Netstar-1, Inc. and Computer Horizons Corp. dated  as of September 29, 2006                                                                             |       | Exhibit 2.1 to the  Company’s Current Report on Form 8-K filed on October 6, 2006                            |
|        |       |                                                                                                                                                                                                     |       |                                                                                                                             |
| 2.1(b)      |       | Asset Purchase  Agreement by and among Axium International, Inc., Diversity  MSP, Inc., as Buyer, Chimes Inc., as Seller and Computer Horizons Corp.,  dated as of October 18, 2006       |       | Exhibit 2.1 to the  Company’s Current Report on Form 8-K filed on October 18, 2006                           |
|        |       |                                                                                                                                                                                                     |       |                                                                                                                             |
| 3(a-1)      |       | Certificate of  Incorporation as amended through 1971.                                                                                                                                                   |       | Exhibit 3(a) to  Registration Statement on Form S-1 (File No. 2-42259)                                       |
|        |       |                                                                                                                                                                                                     |       |                                                                                                                             |
| 3(a-2)      |       | Certificate of  Amendment dated May 16, 1983 to Certificate of Incorporation.                                                                                                                       |       | Exhibit 3(a-2) to  Form 10K for the fiscal year ended February 28, 1983.                                          |
|        |       |                                                                                                                                                                                                     |       |                                                                                                                             |
| 3(a-3)      |       | Certificate of  Amendment dated June 15, 1988 to Certificate of Incorporation.                                                                                                                      |       | Exhibit 3(a-3) to  Form 10K for the fiscal year ended December 31, 1988.                                          |
|        |       |                                                                                                                                                                                                     |       |                                                                                                                             |
| 3(a-4)      |       | Certificate of  Amendment dated July 6, 1989 to Certificate of Incorporation.                                                                                                                       |       | Exhibit 3(a-4) to  Form 10K for the fiscal year ended December 31, 1994.                                          |
|        |       |                                                                                                                                                                                                     |       |                                                                                                                             |
| 3(a-5)      |       | Certificate of  Amendment dated February 14, 1990 to Certificate of Incorporation.                                                                                                                  |       | Exhibit 3(a-5) to  Form 10K for the fiscal year ended December 31, 1989.                                          |
|        |       |                                                                                                                                                                                                     |       |                                                                                                                             |
| 3(a-6)      |       | Certificate of  Amendment dated May 1, 1991 to Certificate of Incorporation.                                                                                                                        |       | Exhibit 3(a-6) to  Form 10K for the fiscal year ended December 31, 1994.                                          |
|        |       |                                                                                                                                                                                                     |       |                                                                                                                             |
| 3(a-7)      |       | Certificate of  Amendment dated July 12, 1994 to Certificate of Incorporation.                                                                                                                      |       | Exhibit 3(a-7) to  Form 10K for the fiscal year ended December 31, 1994.                                          |
|        |       |                                                                                                                                                                                                     |       |                                                                                                                             |
| 3.2         |       | Bylaws, as amended and  presently in effect.                                                                                                                                                             |       | Exhibit 3.2 to  Form 10K for the fiscal year ended December 31, 2003.                                             |
|        |       |                                                                                                                                                                                                     |       |                                                                                                                             |
| 4(a)        |       | Rights Agreement dated  as of July 6, 1989 between the Company and Chemical Bank, as Rights  Agent (“Rights Agreement”) which includes the form of Rights Certificate as  Exhibit B. |       | Exhibit 1 to  Registration Statement on Form 8-A dated July 7, 1989.                                              |
|        |       |                                                                                                                                                                                                     |       |                                                                                                                             |
| 4(b)        |       | Amendment No. 1  dated as of February 13, 1990 to Rights Agreement.                                                                                                                            |       | Exhibit 1 to  Amendment No. 1 on Form 8 dated February 13, 1990 to  Registration Statement on Form 8-A. |
|        |       |                                                                                                                                                                                                     |       |                                                                                                                             |
| 4(c)        |       | Amendment No. 2  dated as of August 10, 1994 to Rights Agreement.                                                                                                                              |       | Exhibit 4(c) to  Form 10K for the fiscal year ended December 31, 1994.                                       |
|        |       |                                                                                                                                                                                                     |       |                                                                                                                             |
| 4(d)        |       | Employee’s Savings Plan  and Amendment Number One.                                                                                                                                                  |       | Exhibit 4.4 to  Registration Statement on Form S-8 dated December 5, 1995.                                        |
|        |       |                                                                                                                                                                                                     |       |                                                                                                                             |
| 4(e)        |       | Employee’s Savings Plan  Trust Agreement as Amended and Restated Effective January 1, 1996.                                                                                                    |       | Exhibit 4.5 to  Registration Statement on Form S-3 dated December 5, 1995.                                        |
|        |       |                                                                                                                                                                                                     |       |                                                                                                                             |
| 4(f)        |       | Amendment No. 3  dated as of July 13, 1999 to Rights Agreement.                                                                                                                                |       | Exhibit 4.1 to  Form 8-K dated July 13, 1999.                                                                     |
|        |       |                                                                                                                                                                                                     |       |                                                                                                                             |
| 10(a)       |       | Employment Agreement  dated as of February 16, 1990 between the Company and John J. Cassese.                                                                                                        |       | Exhibit 10(a) to  Form 10K for the year ended December 31, 1989.                                             |

 

64

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| **Exhibit** | ** ** | **Description**                                                                                                                                                          | ** ** | **Incorporated by Reference to**                                                               |
|-------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------|
|        |       |                                                                                                                                                                     |       |                                                                                           |
| 10(b)       |       | Employment Agreement  dated as of January 1, 1997 between the Company and William J. Murphy.                                                                        |       | Exhibit 10(g) to  Form S-3 dated August 14, 1997.                          |
|        |       |                                                                                                                                                                     |       |                                                                                           |
| 10(c)       |       | Employment Agreement  dated as of March 6, 1997 between the Company and Michael J. Shea.                                                                            |       | Exhibit 10(c) to  Form 10K for the year ended December 31, 1996.           |
|        |       |                                                                                                                                                                     |       |                                                                                           |
| 10(d)       |       | 1991 Directors’ Stock  Option Plan, as amended.                                                                                                                     |       | Exhibit 10(g) to  Form 10-K for the year ended December 31, 1994.          |
|        |       |                                                                                                                                                                     |       |                                                                                           |
| 10(e)       |       | 1994 Incentive Stock  Option and Appreciation Plan.                                                                                                                      |       | Exhibit 10(h) to  Form 10K for the fiscal year ended December 31, 1994.    |
|        |       |                                                                                                                                                                     |       |                                                                                           |
| 10(f)       |       | $15,000,000  Discretionary Line of Credit payable to Chase Manhattan Bank dated as of  June 30, 1998.                                                               |       | Exhibit 10(h) to  Form S-3 dated August 14, 1997.                          |
|        |       |                                                                                                                                                                     |       |                                                                                           |
| 10(g)       |       | $10,000,000  Discretionary Line of Credit from PNC Bank dated as of June 5, 1998.                                                                                   |       | Exhibit 10(h) to  Form 10K for the fiscal year ended December 31, 1996.    |
|        |       |                                                                                                                                                                     |       |                                                                                           |
| 10(h)       |       | 1999 Employee Stock  Purchase Plan.                                                                                                                                      |       | Exhibit 99.1 to Form S8  dated March 17, 1999.                                  |
|        |       |                                                                                                                                                                     |       |                                                                                           |
| 10(i)       |       | Amendment to the  employment agreement dated as of March 24, 2000 between the Company and  William J. Murphy.                                                       |       | Exhibit 10(i) to  Form 10K for the fiscal year ended December 31, 1999.    |
|        |       |                                                                                                                                                                     |       |                                                                                           |
| 10(j)       |       | $15,000,000 Discretionary  Line of Credit payable to Chase Manhattan Bank dated as of June 30,  1998, as amended on March 15, 2000 (increased to $30,000,000). |       | Exhibit 10(j) to  Form 10K for the fiscal year ended December 31, 1999.    |
|        |       |                                                                                                                                                                     |       |                                                                                           |
| 10(k)       |       | $20,000,000  Discretionary Line of Credit payable to Chase Manhattan Bank dated as of  March 20, 2001.                                                              |       | Exhibit 10(k) to  Form 10K for the fiscal year ended December 31, 2000.    |
|        |       |                                                                                                                                                                     |       |                                                                                           |
| 10(l)       |       | $40,000,000 Asset-Based  Lending Agreement payable to CIT dated as of July 31, 2001.                                                                                |       | Exhibit 10(l) to  Form 10K for the fiscal year ended December 31, 2001     |
|        |       |                                                                                                                                                                     |       |                                                                                           |
| 10(n)       |       | Amendment to the  $40,000,000 Asset-Based Lending Agreement payable to CIT dated as of  February 14, 2003.                                                          |       | Exhibit 10(n) to  Form 10-K for the fiscal year ended December 31, 2002.   |
|        |       |                                                                                                                                                                     |       |                                                                                           |
| 10(o)       |       | Non-qualified  supplemental retirement benefit agreement for William J. Murphy.                                                                                          |       | Exhibit 10(o) to  Form 10-K/A for the fiscal year ended December 31, 2003. |
|        |       |                                                                                                                                                                     |       |                                                                                           |
| 10(p)       |       | Non-qualified  supplemental retirement benefit agreement for Michael J. Shea.                                                                                            |       | Exhibit 10(p) to  Form 10-K/A for the fiscal year ended December 31, 2003. |
|        |       |                                                                                                                                                                     |       |                                                                                           |
| 10(q)       |       | First Amendment to the  non-qualified supplemental retirement benefit agreement for William J.  Murphy.                                                                  |       | Exhibit 10(q) to  Form 10-K/A for the fiscal year ended December 31, 2003. |
|        |       |                                                                                                                                                                     |       |                                                                                           |
| 10(r)       |       | First Amendment to the  non-qualified supplemental retirement benefit agreement for Michael J. Shea.                                                                     |       | Exhibit 10(r) to  Form 10-K/A for the fiscal year ended December 31, 2003. |
|        |       |                                                                                                                                                                     |       |                                                                                           |
| 10(s)       |       | Summary of Executive  Compensation Exchange Program with John J. Cassese.                                                                                                |       | Exhibit 10(s) to  Form 10-K/A for the fiscal year ended December 31, 2002. |

 

65

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| **Exhibit** | ** ** | **Description**                                                                                                                                                            | ** ** | **Incorporated by Reference to**                                                                            |
|-------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                                                                                       |       |                                                                                                        |
| 10(t)       |       | Severance Agreement  dated as of April 28, 2003 between the Company and John J. Cassese.                                                                              |       | Exhibit 10.1 to  Form 10-Q for the fiscal quarter ended March 31, 2003.                      |
|        |       |                                                                                                                                                                       |       |                                                                                                        |
| 10(u)       |       | Amendment to the  Employment Agreement dated as of March 31, 2003 between the Company and  William J. Murphy.                                                         |       | Exhibit 10.2 to  Form 10-Q for the fiscal quarter ended March 31, 2003.                      |
|        |       |                                                                                                                                                                       |       |                                                                                                        |
| 10(v)       |       | Amendment to the  Employment Agreement dated as of April 3, 2003 between the Company and  Michael J. Shea.                                                            |       | Exhibit 10.3 to  Form 10-Q for the fiscal quarter ended March 31, 2003.                      |
|        |       |                                                                                                                                                                       |       |                                                                                                        |
| 10(w)       |       | Employment agreement  dated as of July 8, 2003 between RGII and Kathryn B. Freeland.                                                                                  |       | Exhibit 10.1 to  Form 8-K dated July 8, 2003.                                                |
|        |       |                                                                                                                                                                       |       |                                                                                                        |
| 10(x)       |       | Employment agreement  dated as of August 19, 2003 between the Company and Kristin R. Evins.                                                                           |       | Exhibit 10.1 to  Form 10-Q for the fiscal quarter ended September 30, 2003.                  |
|        |       |                                                                                                                                                                       |       |                                                                                                        |
| 10(y)       |       | Employment Agreement  dated as of September 8, 2004, by and between Computer Horizons Corp.  and John Ferdinandi together with Offer Letter dated August 5, 2004 |       | Exhibit 10.1 to  the Company’s Current Report on Form 8-K filed on April 12, 2005       |
|        |       |                                                                                                                                                                       |       |                                                                                                        |
| 10(z)       |       | Employment Agreement  dated as of October 20, 2005 between Computer Horizons Corp. and Dennis  J. Conroy                                                              |       | Exhibit 99.01 to  the Company’s Current Report on Form 8-K/A filed on October 26,  2005 |
|        |       |                                                                                                                                                                       |       |                                                                                                        |
| 10(aa)      |       | Employment Agreement  dated as of October 20, 2005 between Computer Horizons Corp. and Brian  A. Delle Donne                                                          |       | Exhibit 99.02 to  the Company’s Current Report on Form 8-K/A filed on October 26,  2005 |
|        |       |                                                                                                                                                                       |       |                                                                                                        |
| 10(bb)      |       | Accepted offer letter dated  November 15, 2005 between Computer Horizons Corp. and Marci Braunstein                                                                   |       | Exhibit 10.01 to  the Company’s Current Report on Form 8-K filed on November 30, 2005   |
|        |       |                                                                                                                                                                       |       |                                                                                                        |
| 10(cc)      |       | Retention bonus  agreement dated November 29, 2005 between Computer Horizons Corp. and  Michael J. Shea                                                               |       | Exhibit 10.01 to  the Company’s Current Report on Form 8-K filed on December 5, 2005    |
|        |       |                                                                                                                                                                       |       |                                                                                                        |
| 10(dd)      |       | Agreement and Plan of  Merger, dated as of April 12, 2005, among Computer Horizons Corp.,  Analysts International Corporation and JV Merger Corp                      |       | Exhibit 2.1 to the  Company’s Current Report on Form 8-K filed on April 13, 2005        |
|        |       |                                                                                                                                                                       |       |                                                                                                        |
| 10(ee)      |       | Internal Memorandum to  Computer Horizon Corp. employees, dated April 13, 2005                                                                                        |       | Exhibit 99.3 to  the Company’s Current Report on Form 8-K filed on April 13, 2005       |
|        |       |                                                                                                                                                                       |       |                                                                                                        |
| 10(ff)      |       | 2004 Omnibus Incentive  Compensation Plan dated May 19, 2004.                                                                                                         |       | Exhibit 10(Y) to  Form 10-K for year ended December 31, 2004                            |
|        |       |                                                                                                                                                                       |       |                                                                                                        |
| 10(gg)      |       | Stock Purchase  Agreement between RGII Technologies, Inc. and Automated Information  Management, Inc. dated April 1, 2004                                   |       | Exhibit 10(Z) to  Form 10-K for year ended December 31, 2004                            |

 

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| **Exhibit** | ** ** | **Description**                                                                                                                                                                                                                                                                                 | ** ** | **Incorporated by Reference to**                                                                             |
|-------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                                                                                                                                                                                                            |       |                                                                                                         |
| 10 (hh)     |       | Asset Purchase  Agreement By And Among Teksystems, Inc. Allegis Group, Inc.,  Teksystems EF&I Solutions, LLC and Allegis Group Canada Corporation and  Computer Horizons Corp. GBS Holdings Private Limited and CHC Healthcare  Solutions, LLC, dated as of November 7, 2006 |       | Exhibit 10.1 to  the Company’s Current Report on Form 8-K filed on November 8, 2006      |
|        |       |                                                                                                                                                                                                                                                                                            |       |                                                                                                         |
| 16          |       | Letter regarding change  in certifying accountants, dated November 14, 2006                                                                                                                                                                                                                |       | Exhibit 16.01 to  the Company’s Current Report on Form 8-K filed on November 15, 2006    |
|        |       |                                                                                                                                                                                                                                                                                            |       |                                                                                                         |
| 16(a)       |       | Letter regarding change  in certifying accountants, dated November 21, 2006                                                                                                                                                                                                                |       | Exhibit 16.01 to  the Company’s Current Report on Form 8-K/A filed on November 21,  2006 |
|        |       |                                                                                                                                                                                                                                                                                            |       |                                                                                                         |
| 21          |       | List of Subsidiaries.                                                                                                                                                                                                                                                                           |       | Filed herewith                                                                                               |
|        |       |                                                                                                                                                                                                                                                                                            |       |                                                                                                         |
| 23.1        |       | Consent of Amper,  Politziner & Mattia, P.C. Independent Registered Public Accounting  Firm                                                                                                                                                                                            |       | Filed herewith                                                                                               |
|        |       |                                                                                                                                                                                                                                                                                            |       |                                                                                                         |
| 31.1        |       | CEO Certification  required by Rule 13a-14(a)/ 15d-14(a) under the Securities Exchange  Act of 1934.                                                                                                                                                                                  |       | Filed herewith                                                                                               |
|        |       |                                                                                                                                                                                                                                                                                            |       |                                                                                                         |
| 31.2        |       | CFO Certification  required by Rule 13a-14(a)/ 15d-14(a) under the Securities Exchange  Act of 1934.                                                                                                                                                                                  |       | Filed herewith                                                                                               |
|        |       |                                                                                                                                                                                                                                                                                            |       |                                                                                                         |
| 32.1        |       | CEO Certification  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                         |       | Filed herewith                                                                                               |
|        |       |                                                                                                                                                                                                                                                                                            |       |                                                                                                         |
| 32.2        |       | CFO Certification  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                         |       | Filed herewith                                                                                               |

 

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