**UNITED STATES**

**SECURITIES AND 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, 2005**                                                                                                     |
| **OR**                                                                                                                                                   |
| o                                                                                                                                                        | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| **For the transition period from          to           ** |

 

**Commissionfile number 0-7282**

COMPUTER HORIZONS CORP.

(Exact name of registrantas specified in its charter)
| **New York**                                              | **13-2638902**      |
|-----------------------------------------------------------|---------------------|
| (State or other jurisdiction of                           | (I.R.S. Employer    |
| incorporation or organization)                            | Identification No.) |
| **49 Old Bloomfield Avenue**                              | ** **          |
| **Mountain Lakes, New Jersey**                            | **07046-1495**      |
| (Address of principal                                     | (Zip Code)          |
| executive offices)                                        |                |
| Registrant’s telephone  number, including area code: | **(973) 299-4000**  |

 

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 pershare)**(Title of class)**Series A Preferred Stock Purchase Rights**(Title of class)

Indicate by check markwhether the registrant is a well-known seasoned issuer (as defined inRule 405 of the Securities Act).  Yes   o  No  x

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

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act.

| Large accelerated filer  o |   | Accelerated filer  x |   | Non-accelerated filer  o |
|--------------------------------------|--------|--------------------------------|--------|------------------------------------|

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for thepast 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 tothis Form 10-K. o

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

Theaggregate market value of the voting stock held by non-affiliates of theregistrant as of June 30, 2005 was approximately $98,000,000.The number ofshares outstanding of each of the registrant’s classes of common stock as of March 14,2006 were 32,525,514 shares.

**DOCUMENTSINCORPORATED BY REFERENCE**

Items 10, 11, 12, 13 and 14of Part III incorporate by reference information from the registrant’sproxy statement to be filed with the Securities and Exchange Commission inconnection with the solicitation of proxies for the registrant’s 2006 AnnualMeeting of Stockholders.

 

----

**COMPUTER HORIZONSCORP.December 31, 2005Form 10-K**

**Table of Contents**

| **PART I**   |   |                                                                                                               |   |   |
|-------------------|--------|--------------------------------------------------------------------------------------------------------------------|--------|--------|
| Item 1.           |   | Business                                                                                                           |   | 4      |
| Item  1A.         |   | Risk Factors                                                                                                       |   | 7      |
| Item 2.           |   | Properties                                                                                                         |   | 11     |
| Item  3.          |   | Legal Proceedings                                                                                                  |   | 11     |
| Item 4.           |   | Submission of Matters to a Vote of Security Holders                                                                |   | 12     |
| **PART II**  |   |                                                                                                               |   |   |
| Item 5.           |   | Market for Registrant’s Common Equity, Related Shareholder  Matters and Issuer Purchases of Equity Securities |   | 13     |
| Item  6.          |   | Selected  Financial Data                                                                                           |   | 14     |
| Item 7.           |   | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                   |   | 16     |
| Item 7A.          |   | Quantitative and Qualitative Disclosures about Market  Risk                                                        |   | 31     |
| Item 8.           |   | Financial Statements and Supplementary Data                                                                        |   | 32     |
| Item 9.           |   | Changes in and Disagreements with Accountants on  Accounting and Financial Disclosure                         |   | 64     |
| Item 9A.          |   | Controls and Procedures                                                                                            |   | 64     |
| Item  9B.         |   | Other  Information                                                                                                 |   | 65     |
| **PART III** |   |                                                                                                               |   |   |
| Item 10.          |   | Directors and Executive Officers of the Registrant                                                                 |   | 66     |
| Item 11.          |   | Executive Compensation                                                                                             |   | 66     |
| Item 12.          |   | Security Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters                    |   | 66     |
| Item 13.          |   | Certain Relationships and Related Transactions                                                                     |   | 66     |
| Item 14.          |   | Principal Accountant Fees and Services                                                                             |   | 66     |
| **PART IV**  |   |                                                                                                               |   |   |
| Item 15.          |   | Exhibits and Financial Statement Schedules                                                                         |   | 67     |
| **SIGNATURES**    |   | 74                                                                                                                 |

 

2

----

**DisclosureRegarding Forward Looking Statements**

Statements included inthis Report that do not relate to present or historical conditions are “forward-lookingstatements” within the meaning of that term in Section 27A of theSecurities Act of 1933, as amended, and in Section 21F of the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”). Additional oral orwritten forward-looking statements may be made by the Company from time totime, and such statements may be included in documents that are filed with theSecurities and Exchange Commission (“SEC”). Such forward-looking statementsinvolve risks and uncertainties that could cause results or outcomes to differmaterially from those expressed in such forward-looking statements. Forward-lookingstatements may include, without limitation, statements relating to the Company’splans, strategies, objectives, expectations and intentions and are intended tobe made pursuant to the safe harbor provisions of the Private SecuritiesLitigation Reform Act of 1995. Words such as “believes,” “forecasts,” “intends,”“possible,” “expects,” “estimates,” “anticipates,” or “plans” and similarexpressions are intended to identify forward-looking statements. Among theimportant factors on which such statements are based are assumptions concerningthe anticipated growth of the information technology industry, the continuedneed of current and prospective clients for the Company’s services, theavailability of qualified professional staff, and price and wage inflation.

3

----

**PART I**

**Item 1.**                        *Business*

*General*

Computer Horizons Corp. (“CHC” or “the Company”),founded in 1969, provides professional information technology (IT) services tomulti-national companies throughout North America, and to the United Statesgovernment. CHC was founded in 1969 and incorporated in 1972 under the laws ofthe State of New York. The Company provides a broad range of IT staffing andproject-based solution services using a global delivery model that allows theCompany to perform work at client sites or at CHC development centers in theU.S., Montreal, Canada, and Chennai, India. CHC has long-standingrelationships, some dating back almost 30 years, with many blue-chip customersin a range of vertical industries, with particular strengths in the insurance,financial services, healthcare, pharmaceutical, telecom and consumer packagedgoods industries. CHC’s subsidiary, RGII Technologies, Inc (“RGII”), servesvarious agencies and departments of the U.S. Federal government. CHC’smarket-leading Chimes, Inc. (“Chimes”) subsidiary offers a comprehensivebusiness process outsourcing (BPO) solution for vendor management services(VMS), enabled by its proprietary technology, ChimesTM. Chimes manages more than$1.8 billion in contingent labor spend for its global client base.

The Company’s clients are generally very large, Global2000 companies in many industries and with wide geographic dispersion. For theyears ended December 31, 2005, 2004 and 2003, the Company’s ten largestclients accounted for approximately 32%, 24% and 38% of its revenues,respectively. In 2005, the Company provided information technology services to408 clients. ** **During 2005, the Company’s largestclient accounted for approximately 6% of the Company’s consolidated revenues**.**

The Company offers professional information technology(IT) services, which are divided into three segments; (1) Commercial; (2) RGIITechnologies, Inc. (Federal); and (3) Chimes, Inc. The followingdescribes each of these segments:

(1)         Commercial: CHC’sCommercial Services business unit is organized into two lines of services: ITServices (IT staffing), and Solutions (project-based IT work). The IT Servicespractice provides skilled technology personnel to meet clients’ temporary needs(including support personnel, programmers, architects and project managers).These personnel are typically deployed and managed by CHC clients as part of alarger on-site technology effort. The Solutions practice offers a very broadrange of technical knowledge, focusing on application management and support,application development and software quality management. All Solutionsengagements are managed by CHC using its own technical resources anddevelopment centers. The Commercial division was comprised of approximately1,730 billable consultants at the end of 2005.

(2)         RGII Technologies, Inc.(Federal): As a wholly-owned subsidiary of CHC, RGII provides enterprisemanagement, network infrastructure, information assurance and security, webdevelopment and integration, call management, engineering technology andtechnical services to Federal government agencies and both small and largeprime contractors, both on- and off-site. The division was comprised ofapproximately 390 billable consultants at the end of 2005. The Company alsooffers as part of its services its Monument TM software solution, a web-enabledperformance-based budgeting tool for the government market. Although theFederal unit has a presence in numerous Federal government agencies, theagencies accounting for the larger percentage of unit revenue are the FederalAviation Administration, Department of Commerce, Department of Defense,Department of Labor and the Department of State.

(3)         Chimes, Inc.: As awholly-owned subsidiary of CHC, Chimes provides business process outsourcing(BPO) services and workforce procurement and management services to the Global 

4

----

2000.  Through scalable, web-based applications andon-site program management services, Chimes administers the staffing cycle toidentify, leverage and manage the enterprise-wide spend on human procurement. TheChimes BPO solution delivers a supplier-neutral approach to human capitalprocurement, while significantly reducing the cost of acquiring and managingcontingent and permanent labor by incorporating workflow efficiencies with integratedapplications and services. Chimes replaces clients’ many existing individualsupplier contracts with a single Chimes BPO agreement and re-engages allnecessary resource suppliers under a single contract umbrella. This allowsChimes to simplify clients’ timesheet, billing, contracting and paymentsprocesses by submitting a single invoice for all resource usage. Chimes isresponsible for paying and administering suppliers, providing its clients withsignificant process efficiencies. Research and Development costs for the yearsended December 31, 2005, 2004 and 2003 were approximately $2.0 million,$3.3 million and $3.8 million, respectively.

As previously announced by the Company, at a specialshareholders meeting on October 18, 2005, CHC shareholders elected a newBoard of Directors, which is now chaired by Eric Rosenfeld, president and chiefexecutive officer of Crescendo Partners. The Board also appointed Dennis J.Conroy, president and chief executive officer, and Brian A. Delle Donne,executive vice president and chief operating officer.

During the fourth quarter of 2005, the new CHCexecutive team conducted a review of the Company’s strategic and operationalstrengths and weaknesses, and formulated a plan for improved performance. Theplan included restructuring the Company to address lines of accountability,sharpen the focus of service offerings, set performance standards and goals andeliminate inefficiencies. CHC’s Commercial Services business was a highlycentralized organization. This plan reorganized the business into fiveconsolidated geographic regions for Staffing sales, recruiting and operations,and two Solutions units. The reorganization should encourage closercollaboration between sales and delivery at the customer level and to facilitateclearer and more-timely measurement of and influence on results. In Solutionsdelivery, CHC expects to tighten its focus on a more limited but deeper suiteof services that capitalizes on CHC strengths, promises growth, and can besupported effectively in CHC-controlled development sites. At the same time,CHC expects to reduce corporate overhead. As an outgrowth of all of thesechanges, CHC anticipates improved revenue and margin performance. The Company also took steps to loweroperating overhead and recognized a related $1.5 million charge during thefourth quarter of 2005. CHC expects an approximate $3.2 million reduction inannual costs, which is designed to deliver growth and profitability for 2006and beyond. In addition to these personnel costs savings, the Company’sSAP financial system was fully depreciated at the end of 2005 and the Companywill complete additional office consolidations which, together, the Companyexpects will reduce annualized operating expenses by about $1,000,000.

Similarly, the Federalbusiness unit completed a restructuring and rationalization of its services,while working to strengthen business development. Chimes moves into 2006 withan expanded suite of services, stronger focus on sales and continued emphasison customer service.

*FinancialInformation about Industry Segments*

The information requiredby this item is incorporated herein by reference to Note 9 of the Notes toConsolidated Financial Statements included under Item 8 of this Report.

*Employees*

As of December 3l,2005, the Company had a staff of 2,890, including approximately 2,200 ITprofessionals. None of the Company’s employees are subject to a collectivebargaining arrangement. The Company devotes significant resources torecruitment of qualified professionals and provides continuing in-housetraining and education, and a career path management development program withinthe Company.

5

----

*IntellectualProperty*

Certain aspects of ourproducts and technology are proprietary. We rely on U.S. intellectual propertylaws, including patent, copyright, trademark, and trade secret laws to protectour proprietary rights. We also maintain contractual restrictions in ouragreements with customers, employees, and others to protect our intellectualproperty rights. In addition, we license software and technology from thirdparties, and incorporate them into our own software products as well as usingthem as tools in developing our products or providing our services. The sourcecode for our products is protected both as a trade secret and as a copyrightedwork.

*Seasonality*

The Company experiences amoderate amount of seasonality, primarily in the fourth quarter of the year,due to the large number of holidays and an increased amount of vacation timetaken by our employees and clients. As a result, revenues and profitability maybe reduced in the fourth quarter.

*Backlog*

The Company’s backlog ofservices to be completed pertains primarily to the Federal business unit. Fundedand unfunded backlog (contracted, but not yet funded) approximated $15.7million and $118.7 million, respectively, as of December 31, 2005. Fundedand unfunded backlog was approximately $20.2 million and $115.5 million,respectively, as of December 31, 2004.

*Competition*

The Company competes inthe commercial information technology services market which is highlycompetitive. Although there has been a significant amount of consolidation inthis sector, the competitive landscape remains highly fragmented andcharacterized by small local and regional firms and a few large, multi-nationalcompetitors. The market includes participants in a variety of market segments,including systems consulting and integration firms, professional servicescompanies, application software firms, temporary employment agencies, theprofessional service groups of computer equipment companies, facilitiesmanagement and management information systems or MIS outsourcing companies,certain accounting firms, and general management consulting firms. The Company’scompetitors include companies such as Analysts International Corp., CIBER, Inc.,Computer Task Group Inc., iGATE Corp. and Covansys Corp. Many participants inthe information technology consulting and software solutions market havesignificantly greater financial, technical and marketing resources and generategreater revenues than the Company. Management believes that the principalcompetitive factors in the commercial information technology services industryinclude responsiveness to client needs, speed of application softwaredevelopment, quality of service, price, project management capability andtechnical expertise. Pricing has its greatest importance as a competitivefactor in the area of professional service staffing. Management believes thatits ability to compete also depends in part on a number of competitive factorsoutside its control, including the ability of its competitors to hire, retainand motivate skilled technical and management personnel, the ownership bycompetitors of software used by potential clients, the price at which othersoffer comparable services and the extent of its competitors’ responsiveness toclient needs.

*Available Information*

The Company’s internetwebsite address is www.computerhorizons.com. Each of the companies subsidiariesmaintains its own website. The RGII website address is www.rg2.com and theChimes, Inc. website address is www.chimesnet.com. The Company’s Annual Reportson Form 10-K, Quarterly Reports on Form 10-Q, CurrentReports on Form 8-K and amendments to those reports filed orfurnished 

6

----

pursuantto Section 13(a) or 15(d) of the Exchange Act are available freeof charge through our website as soon as reasonably practicable after they areelectronically filed with, or furnished to, the SEC.

**Item 1A.**                *Risk Factors*

*Our operatingresults have varied, and are likely to continue to vary significantly. This mayresult in volatility in the market price of our common stock.*

Our revenues andoperating results have varied in the past and are likely to vary significantlyfrom year to year. This may lead to volatility in the share price. Some otherfactors that may cause the market price of the common stock to fluctuatesubstantially, include:

·       thefailure to be awarded a significant project on which we have bid;

·       thetermination by a client of a material project or the decision by a client notto proceed to the stage of a project that we anticipated;

·       announcementof new services by us or the competitors;

·       announcementof acquisitions or other significant transactions by us or our competitors;

·       changesin or failure to meet earnings estimates by us and/or securities analysts;

·       salesof common stock by us or the existing shareholders or the perception that suchsales may occur;

·       adversejudgments or settlements obligating us to pay liabilities;

·       changesin management; and

·       general economic conditionsand overall stock market volatility.

*The current trendof companies moving technology jobs and projects offshore has caused and couldcontinue to cause revenues to decline.*

In the past few years,more companies are using or are considering using low cost offshore outsourcingcenters, particularly in India, to perform technology related work and projects.This trend has contributed to the decline in domestic IT staff augmentationrevenue as well as on-site solutions oriented projects. We now have our ownoutsourcing centers in India and Canada to compete for this business, but thisnew business has not been sufficient to offset the revenue decline. Additionally,the equivalent amount of work in low cost centers will generate substantiallyless revenue due to the lower billing rates that are charged in these offshoreoutsourcing centers.

*The failure to be successful in retaining existing andfuture highly-skilled technical personnel and attracting a sufficient number ofIT professionals and project managers could adversely affect our business.*

Our business is laborintensive and depends to a large extent on its ability to attract, train,motivate and retain highly-skilled IT professionals and project managers. Ourability to win and retain new business is significantly affected by clientrelationships and the quality of service rendered. The loss of key ITprofessionals and project managers may jeopardize existing client relationshipswith businesses that continue to use our services based upon past relationshipswith key IT professionals and project managers.

*We derive a significant portion of revenues from alimited number of large clients and the loss of any large client could have anadverse effect on our business.*

We have derived, and webelieve we will continue to derive, a significant portion of our revenues froma limited number of large clients. For the years ended December 31, 2005,2004 and 2003, our ten largest 

7

----

clientsaccounted for approximately 32%, 24% and 38% of our revenues, respectively. Theloss of any large client could have an adverse effect on our business, resultsof operations and financial condition. For the year ended December 31,2005, approximately 6% of RGII’s revenues were derived from restrictedcontracts (minority based contracts, etc.)  These contracts may beterminated pursuant to the Federal government’s rights under the FederalAcquisition Regulations. In addition, as a result of RGII’s acquisition by us,RGII will not be eligible to compete for these types of contracts in the futureand will have to replace this revenue stream with new contracts. If thesecontracts are terminated or we are not able to enter new contracts onacceptable terms, our business could be adversely affected.

*Changes in Federal government programs and requirements,or budgetary changes affecting Federal government spending in agencies specificto us, or changes in fiscal policies or available funding, may adversely affectour results of operations.*

We acquired RGIITechnologies, Inc. in July 2003 and RGII acquired AIM in April 2004.RGII receives substantially all its revenue from contracts with the Federalgovernment. For the year ended December 31, 2005, we receivedapproximately 17% of our total revenue from RGII. Significant changes in RGII’srevenues may adversely affect our results of operations.

*Projects performed by RGII are subject to DefenseContract Audit Agency audits and compliance with government cost accountingstandards. The results of such audits may result in adjustments to RGII’sreported financial results.*

RGII has cost reimbursabletype contracts with the U.S. Government, whereby RGII is reimbursed based upondirect expenses attributable to the contract, plus a percentage based uponindirect expenses. The indirect rates are estimated. Accordingly, if the actualrates as determined by the Defense Contract Audit Agency, or DCAA are below theestimated rates, a refund for the difference will be due to the U.S. Government.A significant refund due to the U.S. Government may adversely affect ourresults of operations. DCAA has completed its incurred cost audits for allfiscal years for RGII through December 31, 2004 and through December 31,2002 for AIM.  Past audits have notresulted in significant adjustments.

*We face competition from a number of existingcompetitors, as well as potential new competitors, which could result in lossof market share and adversely affect business.*

The markets for ourservices are highly competitive. We compete with large providers of IT staffingservices, including Comsys IT Partners Inc. and MPS Group, Inc. Inaddition, we compete for staffing projects with the information systems groupsof prospective clients. In the Solutions business, we compete with consultingand system integration firms, including Analysts International Corporation,iGATE Corp., Covansys Corp., Accenture, Bearingpoint, CIBER, Inc.,Computer Sciences Corporation, Computer Task Group, Electronic Data SystemsCorp., IBM Corp. and Keane, Inc. We also compete in the IT solutionsmarket with vendors of application software. There are relatively low barriersto entry in the markets that we compete in and we have faced and expect tocontinue to face, additional competition from other established and emergingcompanies. Increased competition may result in greater pricing pressure whichcould have an adverse effect on our business, results of operations andfinancial condition. Many of our current and potential competitors havesignificantly greater financial, technical, marketing and other resources andgenerate greater revenues than we do. As a result, they may be able to respondmore quickly to new or emerging technologies and changes in clients’requirements, or to devote greater resources to the development, promotion,sale and support of their services and products. In addition, current andpotential competitors may establish cooperative relationships among themselvesor with third parties to increase the ability of their services or products toaddress the staffing and solution needs of prospective clients. Accordingly, itis possible that new competitors, alliances among competitors or alliancesbetween 

8

----

competitorsand third parties may emerge and acquire significant market share. If this wereto occur, it could have an adverse effect on our business, results ofoperations and financial condition.

*The introduction of competitive IT solutions embodyingnew technologies and the emergence of new industry standards may render ourexisting IT solutions or underlying technologies obsolete or unmarketable whichcould have an adverse effect on its business.*

The IT solutions industryis characterized by rapid technological change, changing client requirementsand new service and product introductions. The introduction of competitive ITsolutions embodying new technologies and the emergence of new industrystandards may render our existing IT solutions or underlying technologiesobsolete or unmarketable. As a result, it is dependent in large part upon itsability to develop new IT solutions that address the increasingly sophisticatedneeds of our clients, keep pace with new competitive service and productofferings and emerging industry standards and achieve broad market acceptance. Thebusiness will be adversely affected if we are not successful in developing andmarketing new IT solutions that respond to technological change, changingclient requirements or evolving industry standards.

*Some of our services are offered on a fixed-pricebasis. The failure to estimate accurately the resources and time required for aproject or failure to complete our contractual obligations within the timeframe committed could have an adverse effect on our business.*

We offer some of ourservices on a fixed-price rather than on a time-and-materials, or best efforts,basis. Under the terms of these contracts we bear the risk of cost overruns andinflation in connection with these projects. In the event that we fail toestimate accurately the resources and time required for a project or fail tocomplete our contractual obligations within the time frame committed, ourbusiness, operating results and financial condition could be adverselyaffected.

*Our international operations subject us to additionalrisks that can adversely affect operating results.*

Ourinternational operations, which comprised 13.5%, 10.7%, and 10.5% ofconsolidated revenues for the years ended December 31, 2005, 2004, and2003, respectively, depend greatly upon business, immigration and technologytransfer laws in those countries in which we have international operations andupon the continued development of technology infrastructure. As a result, ourbusiness is subject to the risks generally associated with non-U.S. operationsincluding:

·       unexpectedchanges in regulatory environments;

·       thecosts and difficulties relating to geographically diverse operations;

·       differencesin, and uncertainties arising from changes in, foreign business culture andpractices;

·       fluctuationsin currency exchange rates;

·       restrictionson the movement of cash;

·       longeraccounts receivable payment cycles and greater difficulties in collectingaccounts receivable;

·       potentialforeign tax consequences, including the impact of repatriation of earnings,tariffs and other trade barriers; and

·       politicalunrest and changing conditions in countries in which our services are providedor facilities are located.

If any of these factorswere to render the conduct of business in a particular country undesirable orimpracticable, there could be an adverse effect on our business, operating resultsand financial condition.

9

----

*If we fail to protect our intellectual propertyrights, competitors may be able to use our technology and this could weaken ourcompetitive position, reduce revenue and increase costs.*

We rely primarily upon acombination of copyright and trademark laws, trade secrets, confidentialityprocedures and contractual arrangements to protect proprietary rights. Thesteps taken to protect proprietary rights may not prevent misappropriation ofour proprietary rights, particularly in foreign countries where laws or lawenforcement practices may not protect proprietary rights as fully as in theUnited States. If third parties were to use or otherwise misappropriate ourcopyrighted materials, trademarks or other proprietary rights without consentor approval, our competitive position could be harmed, or we could becomeinvolved in litigation to enforce our rights.

*Third parties could assert that our services infringetheir intellectual property rights, which, if successful, could adverselyaffect our business.*

Third parties may asserttrademark, copyright, patent and other types of infringement or unfaircompetition claims against us. If we are forced to defend against any suchclaims, whether they are with or without merit or are determined in our favor,we may face costly litigation, loss of access to, and use of software anddiversion of technical and management personnel. As a result of such dispute,we may have to develop non-infringing technology or enter into royalty orlicensing arrangements. Such royalty or licensing agreements, if required, maybe unavailable on terms acceptable to us, or at all. If there is a successfulclaim of infringement against us and it is unable to develop non-infringingtechnology or license the infringed or similar technology on a timely basis, itcould adversely affect our business.

*In the event of a failure in a client’s computersystem, a claim for substantial damages may be made against us regardless of ourresponsibility for the failure, which if successful, could adversely affect ourbusiness.*

Much of our businessinvolves projects that are critical to the operations of our clients’businesses and provide benefits that may be difficult to quantify. Any failurein a client’s system could result in a claim for substantial damages againstus, regardless of our responsibility for such failure. Limitations of liabilityset forth in service contracts may not be enforceable in all instances and maynot otherwise protect us from liability for damages. We maintain generalliability insurance, including coverage for errors and omissions, however, wemay not be able to avoid significant claims and resulting publicity.Furthermore, there can be no assurance that the insurance coverage will beadequate or that coverage will remain available at acceptable costs. Successfulclaims brought against us in excess of our insurance coverage could have anadverse effect on business, operating results and financial condition.

*As a provider of staffing services, there are risksassociated with placing employees (and independent contractors) at clients’businesses, which could result in costly and time-consuming litigation.*

Wecould be subject to liability if any of the following risks associated with placingour employees (and independent contractors) at clients’ businesses occurs:

·       possibleclaims of discrimination and harassment;

·       liabilitiesfor errors and omissions by our employees (and independent contractors);

·       misuseof client proprietary information or intellectual property;

·       injuryto client employees;

·       misappropriationof client property;

·       othercriminal activity; and

·       tortsand other similar claims.

10

----

Any claims made against uscould result in costly and time-consuming litigation. In addition, under somecircumstances, we may be held responsible for the actions of persons not under ourdirect control.

*We have adopted anti-takeover defenses that could makeit difficult for another company to acquire control of us or limit the priceinvestors might be willing to pay for our stock.*

Certain provisions of ourCertificate of Incorporation and Bylaws could make a merger or tender offerinvolving us more difficult, even if such events would be beneficial to theinterests of the shareholders. These provisions include adoption of a PreferredShares Rights Agreement, commonly known as a “poison pill” and giving the Boardthe ability to issue preferred stock and determine the rights and designationsof the preferred stock at any time without shareholder approval. The rights ofthe holders of our common stock will be subject to, and may be adverselyaffected by, the rights of the holders of any preferred stock that may beissued in the future. The issuance of preferred stock, while providingflexibility in connection with possible acquisitions and other corporatepurposes, could have the effect of making it more difficult for a third partyto acquire, or of discouraging a third party from acquiring, a majority of ouroutstanding voting stock. The above factors and certain provisions of the NewYork Business Corporation Law may have the effect of deterring hostiletakeovers or otherwise delaying or preventing changes in our control ormanagement, including transactions in which the shareholders might otherwisereceive a premium over the fair market value of our common stock.

**Item 2.**                        *Properties*

The Company’s Corporateand Financial Headquarters (the “Headquarters”), as well as its EasternRegional Office, comprising approximately 31,764 square feet, are located at 49Old Bloomfield Avenue, Mountain Lakes, New Jersey. The Mountain Lakes lease isfor a term expiring September 30, 2006, at a current annual rental ofapproximately $700,000. Upon lease expiration, the Company intends to enter anew lease for its Headquarters (for approximately 20,000 square feet) locatedin the general vicinity of its current leased property. As of December 3l,2005, the Company also maintained leased operating facilities, some of whichare shared between Commercial and Chimes business segments, in Colorado,Connecticut, Florida, Georgia, Illinois, Indiana, Michigan, Minnesota, NewJersey, New York, Ohio and Washington, as well as international operationslocated in India and Canada, with an aggregate of approximately 205,350 squarefeet. RGII maintains leases inMaryland, Virginia and Oklahoma. Chimes maintains facilities inCalifornia, Illinois, Michigan, Minnesota and New Jersey. The leases for all ofthese facilities are at a current annual aggregate rental of approximately $4.3million. These leases expire at various times with no lease commitment longerthan March 31, 2012. The Company believes that the facilities are adequatefor the current level of operations.

**Item 3.**                        *Legal Proceedings*

The Company is involved invarious routine litigation matters, which arise through the normal course ofbusiness. Although the outcome of such matters is unpredictable withassurance, management does not expect that the ultimate outcome of any of thesematters, individually or in the aggregate, will have a material adverse effecton the Company’s financial position or results of operations. However,depending on the amount and timing of any unfavorable outcome of any suchmatters, such outcome could possibly materially and adversely affect our futureresults of operations or cash flows in any particular period.

11

----

**Item 4.**                        *Submission of Matters to a Vote of Security Holders*

On July 22, 2005, a group comprised of CrescendoPartners II, L.P., Series R, Crescendo Investments II, LLC, EricRosenfeld, F. Annette Scott Florida Trust, Richard L. Scott Florida Trust,Scott Family Florida Partnership Trust, Richard L. Scott, Stephen T. Braun andThe Computer Horizons Full Value Committee (collectively, the “Full ValueCommittee”), filed a Statement on Schedule 13D (the “Schedule 13D”) with theSEC disclosing their opposition to the Company’s previously announced proposedmerger with Analysts  InternationalCorporation (“Analysts”) and their intention to solicit the Company’sshareholders to vote against the Company’s proposals in furtherance of theproposed merger. The Schedule 13D further disclosed the Full Value Committee’sintention to call a special meeting of the Company’s shareholders in order toremove up to all of the Company’s existing directors and to replace them withthe Full Value Committee’s own slate of director nominees. As previouslyreported, at the Company’s special meeting of shareholders held on  September 2, 2005, the Company’sshareholders voted not to approve the proposals related to the proposed mergerand, as such, the proposed merger was not consummated.

On July 27, 2005, the Company received from theFull Value Committee a request that a special meeting of the shareholders ofthe Company be called for the following purposes: (i) to remove all of theexisting directors serving on the Company’s board of directors without cause, (ii) tofix the number of members comprising the board at five, and (iii) to electfive director nominees selected by the Full Value Committee.

This second specialmeeting of shareholders took place on October 11, 2005. At the special meeting,the Company’s shareholders voted (i) to remove all of the existingdirectors serving on the Company’s board of directors without cause, (ii) tofix the number of members comprising the board at five, and (iii) to electthe five directors nominees selected by the Full Value Committee, specifically:Messrs. Eric Rosenfeld, Karl L. Meyer, Robert F. Walters, Frank J. Tankiand Willem van Rijn. The proposals and results of the voting are as follows:

1.                Toremove all of the existing directors serving on the Company’s board ofdirectors without cause:

|            | **For** | ** ** |   |           | **Against** | ** ** |   |  | **Abstain** | ** ** |
|------------|---------|------------|--------|-----------|-------------|------------|--------|--|-------------|------------|
| 15,561,343 |    | 5,642,343  |   | 2,150,655 |

 

2.                To fix the numberof members comprising the board at five:

|            | **For** | ** ** | ** ** |           | **Against** | ** ** | ** ** |  | **Abstain** | ** ** |
|------------|---------|------------|------------|-----------|-------------|------------|------------|--|-------------|------------|
| 15,488,116 |    | 5,704,625  |       | 2,161,599 |

 

3.                To elect thefollowing five director nominees: Eric Rosenfeld, Karl L. Meyer, Robert F.Walters, Frank J. Tanki and Willem van Rijn:

| ** **        | ** ** | **For**    | ** ** | **Withhold** | ** ** |
|-------------------|------------|------------|------------|--------------|------------|
| Eric Rosenfeld    |       | 15,550,674 |       | 7,803,666    |       |
| Karl L. Meyer     |       | 15,489,370 |       | 7,864,970    |       |
| Robert F. Walters |       | 15,547,723 |       | 7,806,617    |       |
| Frank J. Tanki    |       | 15,542,718 |       | 7,811,622    |       |
| Willem van Rijn   |       | 15,547,018 |       | 7,807,322    |       |

 

Since all proposals beforethe meeting were non-discretionary, there were no broker non-votes as to anyproposal.

12

----

**PART II**

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

TheCompany’s common stock is quoted on the Nasdaq National Market, under thesymbol CHRZ. The range of high and low closing stock prices, as reported by theNasdaq National Market, for each of the quarters for the years ended December 31,2005 and 2004 is as follows:

| ** ** | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------|------------|----------|------------|----------|------------|
| ** ** | ** ** | **High** | ** ** | **Low**  | ** ** | **High** | ** ** | **Low** | ** ** |
| Quarter    |       |     |       |     |       |   |   |   |   |
| First      |       | $        | 4.40       |     | $          | 3.48 |   | $ | 4.50 |   | $ | 3.85 |   |
| Second     |       | 3.96     |       | 2.62     |       | 4.23 |   | 3.38 |   |
| Third      |       | 4.48     |       | 3.04     |       | 4.62 |   | 3.66 |   |
| Fourth     |       | 4.56     |       | 3.96     |       | 4.41 |   | 3.45 |   |
|            |            |          |            |          |            |  |  |  |  |  |  |  |  |

 

The Company plans toreinvest its earnings in future growth opportunities and, therefore, does notanticipate paying cash dividends in the near future and has not paid any todate. During 2005, the Company did not issue or repurchase shares of itscommon stock. As of March 6, 2006, there were approximately 798 registeredholders of common stock, according to the Company’s transfer agent.

13

----

**Item 6.**                        *Selected Financial Data*

**ConsolidatedStatement of Operations Data:**

| ** **                                                                                                | ** ** | **December 31,**                                                                        | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                | ** ** | **2005**                                                                                     | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                                                                | ** ** | **(dollars amounts in thousands, except per share data)** | ** ** |
| Revenues                                                                                                  |       | $                                                                                            | 268,836    |   | $ | 262,527 |   | $ | 245,210 |   | $ | 297,115 |   | $ | 400,784 |   |
| Costs and expenses:                                                                                       |       |                                                                                         |       |   |   |   |   |   |   |   |   |
| Direct costs                                                                                              |       | 184,159                                                                                      |       | 180,606 |   | 173,198 |   | 216,181 |   | 281,576 |   |
| Selling, general and administrative                                                                       |       | 88,341                                                                                       |       | 85,141 |   | 80,634 |   | 91,343 |   | 128,832 |   |
| Change of Control charges                                                                                 |       | 13,247                                                                                       |       | — |   | — |   | — |   | — |   |
| Amortization of intangibles                                                                               |       | 1,080                                                                                        |       | 1,695 |   | 1,084 |   | — |   | 2,695 |   |
| Restructuring charges                                                                                     |       | 2,175                                                                                        |       | 2,859 |   | 3,278 |   | 2,515 |   | 1,048 |   |
| Write-down of assets held for sale                                                                        |       | —                                                                                       |       | — |   | — |   | — |   | 5,473 |   |
| Special charges/(credits)                                                                                 |       | 5,728                                                                                        |       | (939 | ) | 10,113 |   | — |   | — |   |
| Goodwill impairment                                                                                       |       | —                                                                                       |       | 20,306 |   | — |   | — |   | — |   |
| Write-off of assets                                                                                       |       | —                                                                                       |       | 910 |   | — |   | — |   | — |   |
| Loss from operations                                                                                      |       | (25,894                                                                                      | )          | (28,051 | ) | (23,097 | ) | (12,924 | ) | (18,840 | ) |
| Other income/(expense):                                                                                   |       |                                                                                         |       |   |   |   |   |   |   |   |   |
| Gain/(loss) on sale of assets                                                                             |       | —                                                                                       |       | — |   | (424 | ) | 5,890 |   | (3,197 | ) |
| Net (loss)/gain on investments                                                                            |       | (1,180                                                                                       | )          | — |   | (432 | ) | (61 | ) | 90 |   |
| Interest income                                                                                           |       | 849                                                                                          |       | 337 |   | 529 |   | 928 |   | 2,293 |   |
| Interest expense                                                                                          |       | (27                                                                                          | )          | (103 | ) | (51 | ) | (174 | ) | (1,944 | ) |
| Loss before income taxes and cumulative effect of a  change in accounting principle and minority interest |       | (26,252                                                                                      | )          | (27,817 | ) | (23,475 | ) | (6,341 | ) | (21,598 | ) |
| Income taxes/(benefit)                                                                                    |       | 20,168                                                                                       |       | (2,690 | ) | (6,409 | ) | 1,869 |   | (7,148 | ) |
| Loss before cumulative effect of change in  accounting principle and minority interest                    |       | (46,420                                                                                      | )          | (25,127 | ) | (17,066 | ) | (8,210 | ) | (14,450 | ) |
| Minority interest                                                                                         |       | —                                                                                       |       | (45 | ) | (89 | ) | 35 |   | — |   |
| Cumulative effect  of change in accounting principle                                                      |       | —                                                                                       |       | — |   | — |   | (29,861 | ) | — |   |
| Net loss                                                                                                  |       | $                                                                                            | (46,420    | ) | $ | (25,172 | ) | $ | (17,155 | ) | $ | (38,036 | ) | $ | (14,450 | ) |
| Loss per share:                                                                                           |       |                                                                                         |       |   |   |   |   |   |   |   |   |
| Basic and diluted                                                                                         |       | $                                                                                            | (1.48      | ) | $ | (0.82 | ) | $ | (0.56 | ) | $ | (1.22 | ) | $ | (0.45 | ) |
| Weighted average  number of shares outstanding:                                                           |       |                                                                                         |       |   |   |   |   |   |   |   |   |
| Basic and diluted                                                                                         |       | 31,399,000                                                                                   |       | 30,870,000 |   | 30,455,000 |   | 31,243,000 |   | 31,911,000 |   |

 

14

----

 

| ** **                                                                                                 | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                 | ** ** | **2005**              | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| Analysis (%)                                                                                               |       |                  |       |   |   |   |   |   |   |   |   |
| Revenues                                                                                                   |       | 100.0                 | %          | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
| Gross margin                                                                                               |       | 31.5                  |       | 31.2 |   | 29.4 |   | 27.2 |   | 29.7 |   |
| Selling, general and administrative                                                                        |       | 32.9                  |       | 32.4 |   | 32.9 |   | 30.8 |   | 32.1 |   |
| Amortization of intangibles                                                                                |       | 0.4                   |       | 0.6 |   | 0.4 |   | — |   | 0.7 |   |
| Restructuring charges                                                                                      |       | (0.8                  | )          | 1.1 |   | 1.3 |   | 0.8 |   | 0.2 |   |
| Write-down of assets held for sale                                                                         |       | —                |       | — |   | — |   | — |   | 1.4 |   |
| Special charges/(credits)                                                                                  |       | 2.1                   |       | (0.3 | ) | 4.1 |   | — |   | — |   |
| Goodwill impairment                                                                                        |       | —                |       | 7.7 |   | — |   | — |   | — |   |
| Write-off of assets                                                                                        |       | —                |       | 0.3 |   | — |   | — |   | — |   |
| Loss from operations                                                                                       |       | (9.7                  | )          | (10.7 | ) | (9.4 | ) | (4.4 | ) | (4.7 | ) |
| Gain/(loss) on sale of assets                                                                              |       | —                |       | — |   | (0.2 | ) | 2.0 |   | (0.8 | ) |
| Net (loss)/gain on investments                                                                             |       | (0.4                  | )          | — |   | (0.2 | ) | — |   | — |   |
| Interest income/(expense)—net                                                                         |       | 0.3                   |       | 0.1 |   | 0.2 |   | 0.3 |   | 0.1 |   |
| Loss before  income taxes and cumulative effect of a change in accounting principle and  minority interest |       | (9.8                  | )          | (10.6 | ) | (9.6 | ) | (2.1 | ) | (5.4 | ) |
| Income taxes/(benefit)                                                                                     |       | 7.5                   |       | (1.0 | ) | (2.6 | ) | 0.6 |   | (1.8 | ) |
| Loss before cumulative effect of change in  accounting principle                                           |       | (17.3                 | )          | (9.6 | ) | (7.0 | ) | (2.7 | ) | (3.6 | ) |
| Cumulative effect of change in accounting principle                                                        |       | —                |       | — |   | — |   | (10.1 | ) | — |   |
| Net loss                                                                                                   |       | (17.3                 | )          | (9.6 | ) | (7.0 | ) | (12.8 | ) | (3.6 | ) |
| Revenue growth/(decline) YOY                                                                               |       | 2.4                   |       | 7.1 |   | (17.5 | ) | (25.9 | ) | (10.0 | ) |
| Net income  growth/(decline)YOY                                                                            |       | (84.0                 | )          | (46.7 | ) | 54.9 |   | (163.2 | ) | 75.0 |   |
| Return on equity,  average(1)                                                                              |       | (44.2                 | )          | (19.7 | ) | (12.4 | ) | (22.7 | ) | (7.3 | ) |
| Effective tax  rate                                                                                        |       | 2.7                   |       | 9.7 |   | 27.3 |   | 29.5 |   | 33.1 |   |
| Consolidated  Balance Sheet Data:                                                                          |       |                  |       |   |   |   |   |   |   |   |   |
| At year-end                                                                                                |       |                  |       |   |   |   |   |   |   |   |   |
| Total assets                                                                                               |       | $                     | 143,342    |   | $ | 159,084 |   | $ | 180,326 |   | $ | 193,731 |   | $ | 237,721 |   |
| Working capital                                                                                            |       | 51,404                |       | 68,882 |   | 64,824 |   | 105,579 |   | 115,747 |   |
| Long-term debt                                                                                             |       | —                |       | — |   | — |   | — |   | — |   |
| Shareholders’  equity                                                                                 |       | 84,027                |       | 125,781 |   | 130,337 |   | 145,855 |   | 189,855 |   |
| Other Data:                                                                                                |       |                  |       |   |   |   |   |   |   |   |   |
| Stock price                                                                                                |       | $                     | 4.35       |   | $ | 3.81 |   | $ | 3.92 |   | $ | 3.27 |   | $ | 3.21 |   |
| Employees                                                                                                  |       | 2,890                 |       | 3,137 |   | 2,665 |   | 2,800 |   | 3,313 |   |
| Clients (during  year)                                                                                     |       | 408                   |       | 405 |   | 967 |   | 905 |   | 879 |   |
| Offices (worldwide)                                                                                        |       | 27                    |       | 31 |   | 31 |   | 36 |   | 52 |   |

----

(1)          Return on equity,average is calculated by dividing Net Income/(loss) for the period by theaverage shareholders’ equity for the same period.

15

----

**Item 7.**                        *Management’s Discussion and Analysis of Financial Condition and Resultsof Operation*

The following detaileddiscussion and analysis of the Company’s financial condition and results ofoperations should be read in conjunction with the December 31, 2005financial statements and related notes included in separate sections of this Form 10-K.

**Overview**

Computer Horizons Corp. (“CHC”, or  the “Company”), founded in 1969 providesprofessional information technology (IT) services to multi-national companies throughoutNorth America, and to the United States government. CHC was founded in 1969 andincorporated in 1972 under the laws of the State of New York. The Companyprovides a broad range of IT staffing and project-based solution services usinga global delivery model that allows the Company to perform work at client sitesor at CHC development centers in the U.S., Montreal, Canada, and Chennai,India.

The Company had revenues for the full year endedDecember 31, 2005 of $268.8 million, compared to $262.5 million for2004. The revenue increase of 2.4% for the full year ended December 31, 2005was primarily attributable to Chimes and, to a lesser extent, the Commercialbusiness.

The Company’s netloss for the year ended December 31, 2005 totaled $46.4 million, or$(1.48) per share, compared with a net loss of $25.2 million, or $(0.82) pershare in the comparable period of 2004. The net loss for 2005 includesamortization of intangibles and special charges/(credits) which approximate:

·       $1.1million, or $(0.03) per share related to the amortization of intangibles;

·       $13.2million, or $(0.42) per share pertaining to change of control charges as aconsequence of the removal of the Company’s existing Board of Directors and theelection of a new Board of Directors in October 2005;

·       $5.7million, or $(0.18) of special charges pertaining primarily to costs associatedwith the unsuccessful proposed merger with Analysts International Corp. and theexpenses associated with two proxy contests;

·       $2.2million, or $(0.07) per share of restructuring costs related to thereorganization of the Commercial Services business;

·       $19.5million, or $(0.62) per share, pertaining to an increase in the valuationallowance established for deferred tax assets;

·       $1.2million, or $(0.04) per share, loss on sale of investments related to theSupplemental Executive Retirement Plan.

Management continues to focus on maintaining a healthybalance sheet, with approximately $46.4 million in cash and cashequivalents at December 31, 2005 (including $29.4 million of cash tobe disbursed to Chimes vendors in accordance with the client payment terms),along with $51.4 million in working capital and no debt outstanding.

During the fourth quarter of 2005, the new CHCexecutive team conducted a review of the Company’s strategic and operationalstrengths and weaknesses, and formulated a plan for improved performance. Theplan included restructuring the Company to address lines of accountability,sharpen the focus of service offerings, set performance standards and goals andeliminate inefficiencies.

The Company’s Commercial Services business was ahighly centralized organization. This plan reorganized the business into fiveconsolidated geographic regions for Staffing sales, recruiting and operations,and two Solutions units. The reorganization should encourage closercollaboration between sales and delivery at the customer level and tofacilitate clearer and more timely measurement of and 

16

----

influence on results. InSolutions delivery, the Company expects to tighten its focus on a more limitedbut deeper suite of services that capitalize on the Company’s strengthspromises growth and can be supported effectively in Company-controlleddevelopment sites. At the same time, the Company expects to shrink corporateoverhead. The Company also took steps to lower operating overhead andrecognized a related $1.5 million restructuring charge during the fourthquarter of 2005. In addition to these personnel costs savings, the Company’sSAP financial system was fully depreciated at the end of 2005 and the Company expectsto complete additional office consolidations, which together the Companyexpects will reduce annualized operating expenses by about $1.0 million.

Similarly, the Federalbusiness unit completed a restructuring and rationalization of its services,while working to strengthen business development.

**Recent Developments**

*Termination ofProposed Merger*

As previously reported, inApril, 2005, the Company, JV Merger Corp., a Minnesota corporation and awholly-owned subsidiary of the Company (the “Sub”), and Analysts InternationalCorporation, a Minnesota corporation (“Analysts”), entered into an Agreementand Plan of Merger (the “Merger Agreement”), pursuant to which, among otherthings, subject to satisfaction or waiver of applicable conditions, Sub wouldhave been merged with and into Analysts (the “Merger”) and each issued andoutstanding share of common stock, par value $.10 per share, of Analysts (otherthan shares held of record by the Company, Sub, Analysts and any of theirsubsidiaries) would have been converted into the right to receive 1.15 fullypaid and non-assessable shares of the Company’s common stock, par value $.10per share (the “Merger Consideration”). Completion of the Merger was subject toseveral conditions, including approval by the shareholders of each company and,on September 2, 2005, the Company held a special meeting of its shareholders(the “Special Meeting”) for the purpose of voting on the proposals related tothe proposed merger. The Company’s shareholders voted not to approve theproposals related to the proposed merger and, as such, the proposed merger wasnot consummated. Due to the failure of the condition of shareholder approval,the Merger Agreement was terminated subsequent to the special meeting.

*Special Meeting ofShareholders*

On July 22, 2005, a group comprised of CrescendoPartners II, L.P., Series R, Crescendo Investments II, LLC, EricRosenfeld, F. Annette Scott Florida Trust, Richard L. Scott Florida Trust, ScottFamily Florida Partnership Trust, Richard L. Scott , Stephen T. Braun and TheComputer Horizons Full Value Committee (collectively, the “Full Value Committee”),filed a Statement on Schedule 13D (the “Schedule 13D”) with the SEC disclosingtheir opposition to the Company’s previously announced proposed merger withAnalysts and their intention to solicit the Company’s shareholders to voteagainst the Company’s proposals in furtherance of the proposed merger. TheSchedule 13D further disclosed the Full Value Committee’s intention to call aspecial meeting of the Company’s shareholders in order to remove up to all ofthe Company’s existing directors and to replace them with the Full ValueCommittee’s own slate of director nominees. As previously reported, at theCompany’s Special Meeting held on September 2, 2005, the Company’sshareholders voted not to approve the proposals related to the proposed mergerand, as such, the proposed merger was not consummated.

On July 27, 2005, the Company received from theFull Value Committee a request that a special meeting of the shareholders ofthe Company be called for the following purposes: (i) to remove all of theexisting directors serving on the Company’s board of directors without cause, (ii) tofix the number of members comprising the board at five, and (iii) to electfive director nominees selected by the Full Value Committee.

17

----

This second special meeting of shareholders (the “SecondMeeting”) took place on October 11, 2005. At the Second Meeting, theCompany’s shareholders voted (i) to remove all of the existing directorsserving on the Company’s board of directors without cause, (ii) to fix thenumber of members comprising the board at five, and (iii) to elect thefive director nominees selected by the Full Value Committee, specifically: Messrs. EricRosenfeld, Karl L. Meyer, Robert F. Walters, Frank J. Tanki, and Willem vanRijn.

Since the Second Meeting, Mr. EricRosenfeld has been named non-executive Chairman of the Company and the Company’sBoard of Directors named Dennis J. Conroy, President and Chief ExecutiveOfficer, and Brian A. Delle Donne, Executive Vice President and Chief OperatingOfficer.

*Change of ControlCharges*

In 1995, the Company instituted a Supplemental ExecutiveRetirement Plan (“SERP”), entitling key executives to receive lump-sumretirement payments upon reaching age 65. The SERP is non-qualified, with lifeinsurance policies purchased by the Company to assist in the funding of theamounts payable. The SERP expense is charged to operations during the servicelives of the members. The SERP contains a change of control provision whereby,in the event of a change of control (as defined in the Plan), all retirementbenefits immediately vest and become payable within five (5) businessdays.

On October 18, 2005, as a consequence of theremoval of the Company’s then existing Board of Directors without cause and theelection of the new Board of Directors, a change of control was deemed to haveoccurred under the Company’s SERP. Accordingly, change of control paymentstotaling $11.9 million were paid on October 25, 2005, including$10.4 million to the SERP participants and $1.5 million to key executives,pursuant to the terms of the related employment agreements. As of October 25,2005, the prior accruals for SERP payments approximated $2.2 million,resulting in a charge of approximately $9.7 million, which was recorded inthe fourth quarter of 2005. In addition, as of October 25, 2005, theCompany had unrealized losses on the applicable SERP investments totaling$1.2 million. This loss was recognized in the fourth quarter of 2005 as aresult of the sale of all SERP investments, which generated sales proceeds ofapproximately $4.7 million.

The Company maintains employmentagreements with certain employees which contain change of control provisionsrequiring the payment of specified amounts approximating $3.5 million inaggregate. As a result of the previously noted October 18, 2005 change ofcontrol, the Company has recorded a $3.5 million charge in the fourthquarter of 2005, for change of control payments which payments will be made tothe respective employees upon retirement or upon their termination ofemployment from the Company, other than for cause or disability. This liabilityis presented on the balance sheet as $2.9 million in long-termliabilities, and $0.6 million in other accrued expenses at December 31,2005.

*Vesting of StockOptions*

Under the Company’svarious equity incentive plans, as a result of the October 2005 change ofcontrol as defined in each plan, approximately 704,000 of outstanding unvestedstock options vested and became immediately exercisable.

*Board Review ofStrategic Alternatives*

In September of 2005,the Company’s Board of Directors retained the services of Jefferies Broadviewto assist the Company in exploring strategic alternatives to maximizeshareholder value. These alternatives include, but are not limited to, thepossible sale of all or parts of the Company. Expressions of interest have beenreceived from various parties and are currently being reviewed by the Company.

18

----

**FORWARD-LOOKING STATEMENTS**

This report containsforward-looking statements within the meaning of the safe harbor provisions ofthe Private Securities Litigation Reform Act of 1995. In some 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 associated with unforeseen technical difficulties, the ability tomeet customer requirements, market acceptance of service offerings, changes intechnology and standards, the ability to complete cost reduction initiatives,dependencies on certain technologies, delays, market acceptance andcompetition, as well as other risks described from time to time in the Company’sfilings with the Securities and Exchange Commission, press releases and othercommunications. All forward-looking statements included in this report arebased on information available to the Company on the date hereof. The Companyundertakes no obligation (and expressly disclaims any such obligation) toupdate forward-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.

**AdditionalInformation and Where to Find It**

The Management’sDiscussion and Analysis of Financial Condition and Results of Operations setforth in this Part II has been changed to reflect the realigned operatingsegments: Commercial, Federal Government and Vendor Management Services(Chimes) for 2004, as previously reported in the Company’s Form 10-K forthe year ended December 31, 2004.

**Revenue Generating Activities**

The majority of the Company’s revenues are derivedfrom professional services rendered in the information technology sector.Effective January 1, 2005, the Company realigned its business operationsinto three segments : Commercial, Federal Government (RGII) and VendorManagement Services (Chimes).

The Commercial business consists of providingtechnology consultants to large organizations on a temporary hire basis and isclassified in two general categories, staff augmentation and solutions work. Forthe year ended December 31, 2005, this segment represented approximately72% of total revenues, including $138.3 million of staff augmentation revenueand $57.1 million of commercial solutions revenue.

For staff augmentation assignments, the consultantwork is supervised and managed by the customer. Staff augmentation tends to bea lower risk, lower gross margin business with very competitive pricing. TheCompany’s solutions work tends to be higher margin, higher risk business, dueto the fact that the Company is responsible for project deliverables and otherconditions contained in statements of work and/or contracts with clients. Virtuallyall projects performed by the commercial solutions group are IT related andconsist of practices such as application development, outsourcing arrangements,government services, Health Insurance Portability and Accountability Act (“HIPAA”)services, technology training and managed services.

The Company’s customer relationships are memorializedin master agreements which address the terms and conditions which define theclient engagement. Depending on the service to be performed for the client,either a task order (in the case of a Staffing engagement) or a Statement ofWork (“SOW”) (in the case of a Solutions engagement) is generated. The SOW issigned by both the Company and the customer. In general, no Solutions work isdone unless there is a SOW because the SOW provides the technical details ofthe work to be done. The SOW, although falling under the corresponding master 

19

----

agreement, is astand-alone binding contractual document, typically outlining the projectobjectives, describing the personnel who will work on the project, describingphases of the project, the timeframes for work performance, and the rate ofcompensation, on a time and materials basis. In the event that the parametersof the project expand or otherwise change, a Project Change Request isimplemented to memorialize whatever change has occurred to the deliverables,personnel and/or time/materials. The master agreements, in conjunction with theSOWs, are written to define, with as much detail as possible, the clientrelationship and all aspects of the work to be performed for the client. Withregard to revenues expected in future periods, each SOW has a defined term orsets forth the anticipated length of a project. Where a client engagement ison-going, like certain “Help Desk” type services, the master agreements wouldstill have a term length, but would recite that the agreement was renewable. Generally,commercial solutions engagements are for a year or less. Staff augmentationengagements can and do last for more than a year, with variations in the numberof consultants being provided at any given time. Staffing engagements aregenerally cancelable by clients with a two to four week notice period. Commercialaccounted for approximately 72% of revenue.

The Federal Government segment consists primarily ofsolutions type assignments, whereby the Company is responsible for projectdeliverables and other conditions contained in SOWs and/or contracts with theFederal Government. Federal Government engagements generally have a duration ofseveral years, contingent upon the Federal Government exercising annual optionsto continue work. For the year ended December 31, 2005, the FederalGovernment segment accounted for approximately 17% of consolidated revenues.

Chimes, Inc., orChimes, is a human capital management solution that, through the use ofproprietary software and processes, manages the acquisition of temporaryworkforce of large organizations. For the year ended December 31, 2005,Chimes accounted for approximately 11% of total revenues.

**Critical Accounting Policies**

The most criticalaccounting policies used in the preparation of the Company’s financialstatements are related to revenue recognition, the evaluation of the bad debtreserve, the valuation of goodwill, and the valuation of deferred tax assets.

*Revenue Recognition*

Approximately 95% and 94% of consolidated revenue in2005 and 2004, respectively, was derived from time-and-material contracts.

The Company recognizes revenues either on atime-and-materials basis or on a fixed fee basis. Under a typicaltime-and-materials billing arrangement, our customers are billed on a regularlyscheduled basis, such as biweekly or monthly. At the end of each accountingperiod, revenue is estimated and accrued for services performed since the lastbilling cycle. These unbilled amounts are billed the following month.

For fixed fee contracts, revenue is recognized on thebasis of the estimated percentage of completion. Each fixed fee contract hasdifferent terms, milestones and deliverables. The milestones and deliverablesprimarily relate to the work to be performed and the timing of the billing. Atthe end of each reporting period an assessment of revenue recognized on thepercentage of completion and milestones achieved criteria is made. If itbecomes apparent that estimated cost will be exceeded, an adjustment to revenueand/or costs will be made. The cumulative effect of revisions in estimatedrevenues and costs are recognized in the period in which the facts that giverise to the impact of any revisions become known.

Unbilled accounts receivable represent amountsrecognized as revenue based on services performed in advance of customerbillings principally on a time-and-materials basis. At the end of eachaccounting period, revenue is accrued for services performed since the lastbilling cycle. These unbilled amounts are 

20

----

billed the following month.Costs and estimated earnings in excess of billings on fixed fee contracts arisewhen percentage of completion accounting is used. Such amounts are billed atspecific dates or at contract completion.

The Company’s Chimessubsidiary recognizes revenue on a transaction fee basis. The Chimes serviceoffering aggregates the suppliers of temporary workers to the customer andrenders one invoice to the customer. Upon payment from the customer, Chimesdeducts a transaction fee and remits the balance of the client payment to theapplicable vendor. Chimes recognizes only their fee for the service, not theaggregate billing to the customer. The gross amount of the customer invoicingis not considered revenue or a receivable to Chimes because there is noearnings process for the gross amount and by contract terms, Chimes is notobligated to pay the vendor until paid by the customer.

*Evaluation of BadDebt Reserve*

The Company determines itsallowance by considering a number of factors, including the length of timetrade accounts receivable are past due, the Company’s previous loss history,the customer’s current ability to pay its obligation to the Company and thecondition of the general economy and the industry as a whole. The Companywrites off accounts receivable when they become uncollectible, and paymentssubsequently received on such receivables are credited to income or to theallowance for doubtful accounts.

*Goodwill*

As of December 31, 2005 and 2004, the fair valueof each of the reporting units was calculated using the following approaches (i) marketapproach and (ii) income approach. The reporting units are equal to, orone level below, reportable segments. Under the market approach, value isestimated by comparing the performance fundamentals relating to similar publiccompanies’ stock prices. Multiples are then developed of the value of thepublicly traded stock to various measures and are then applied to eachreporting unit to estimate the value of its equity. Under the income approach,value is determined using the present value of the projected future cash flowsto be generated by the reporting unit.

The fair value conclusion of the reporting unitsreflects an appropriately weighted value of the market multiple approach andthe income approach discussed above. An asset approach is not used because theasset approach is most relevant for liquidation approaches, investment companyvaluations and asset rich company valuations (i.e. real estate entities) andwas not deemed relevant for manufacturing and service company going-concernvaluations.

For the year ended December 31, 2005, using anevaluation prepared by an independent appraisal firm, the Company completed anassessment of the fair value and carrying value of its Federal Governmentsegment. As of December 31, 2005, the indicated fair value of the FederalGovernment reporting unit exceeded the carrying value. As a result, the Companyconcluded that the goodwill of approximately $27.6 million is notimpaired.

For the year ended December 31,2004, the Company reassessed the carrying value of goodwill associated with itsCommercial Solutions Group. Because of a reduction in projected future cashflows in the Commercial Solutions business unit, primarily resulting fromsignificant revenue declines in 2004, the Company determined that goodwill wasimpaired and recorded a non-cash charge of $20.3 million, related to thewrite-off of the Commercial Solutions goodwill. There was no income tax effecton the impairment charge as the related goodwill was primarily attributable toacquisitions which yielded no tax basis for the Company. The remaining goodwillof $27.6 million, as of December 31, 2004, is associated with theCompany’s Federal Government segment.

21

----

*Valuation of theDeferred Tax Asset*

The Company records deferred tax assets for the futuretax consequences attributable to differences between the financial statementcarrying amounts of existing assets and their respective tax bases, andoperating loss carryforwards. Deferred tax assets are reduced by a valuationallowance if, based on available evidence, it is more likely than not that someportion or all of the deferred tax assets will not be realized. In assessingthe realizability of deferred tax assets, management considers the scheduledreversal periods of the deferred tax assets, whether sustained profitabilityhas been achieved and tax planning strategies.

The Company has significant deferred tax assetsresulting from net operating loss carryforwards, capital loss carryforwards,and deductible temporary differences that may reduce taxable income in futureperiods. The Company has provided full valuation allowances on the future taxbenefits related to capital losses, foreign net operating losses, and moststate net operating losses. The Company believes that the valuation allowanceis appropriate because these deferred tax assets have relatively shortcarryforward periods or relate to taxing jurisdictions which do not allow thefiling of consolidated tax returns. The Company expects to continue to maintaina valuation allowance on these deferred tax assets until an appropriate levelof profitability has been achieved in the applicable taxing jurisdictions, orstrategies are developed that would enable the Company to conclude that it ismore likely than not that a portion of these deferred tax assets will berealized.

In prior years management relied primarily on futureprojected income in assessing the realizability of deferred tax assetsresulting from federal net operating loss carryforwards and other deductibletemporary differences. As of December 31, 2005 it was determined thatbecause of continued losses through the fourth quarter of the current year, itwas no longer appropriate to rely on future projected income until sustainedprofitability has been achieved. Accordingly, the Company recorded a fullvaluation allowance on its remaining net deferred tax assets of $19.5 millionin the fourth quarter of 2005.

As indicated previously in “Board Review of StrategicAlternatives,” various expressions of interest have been received for thepurchase of all or parts of the Company. Should some of these result in thesale of parts of the Company, significant amounts of the $45.1 million ofavailable net deferred tax assets may be realized.

Please refer to Note 7 of the Notes to Consolidated FinancialStatements contained elsewhere in this Form 10-K, for further informationregarding deferred income taxes.

22

----

**RESULTSOF OPERATIONS AND FINANCIAL CONDITION**

**YearEnded December 31, 2005 Compared to Year Ended December 31, 2004**

*Revenues.*   Consolidatedrevenue increased to $268.8 million in the year ended December 31, 2005from $262.5 million in the year ended December 31, 2004, an increase of$6.3 million or 2%.

Commercial revenuesincreased to $195.4 million in the year ended December 31, 2005 from$191.1 million in the year ended December 31 2004, an increase of$4.3 million or 2%. For the year ended December 31, 2005, Commercialconsultant average headcount increased 1%, accounting for approximately$1.9 million of the revenue increase. The balance of the increase inrevenue (approximately $2.4 million) is attributable to an increase inaverage bill rates.

Federal revenues decreasedto $45 million in the year ended December 31, 2005 from $48.3 millionin the year ended December 31, 2004, a decrease of $3.3 million or 7%. Thisdecrease in Federal revenues is attributable to a 10% decrease in consultantaverage headcount, partially offset by the inclusion of Automated InformationManagement, Inc. (“AIM”) revenue (acquired in April 2004) in the fullyear of 2005.

Chimes revenue increasedto $28.4 million in the year ended December 31, 2005, from $23.1 millionin the year ended December 31, 2004, an increase of $5.3 million or 23%. Thisincrease was primarily due to an expansion of managed spend at existing clientsof approximately $3.6 million, with a $1.7 million increase attributable to newclients started in 2005.

*Direct Costs and GrossMargins.*   Direct costs increased to $184.2million in the year ended December 31, 2005 from $180.6 million inthe year ended December 31, 2004. Consolidated gross margin, revenue lessdirect costs, increased to 31.5% for the year ended December 31, 2005 from31.2% in the same period of 2004. Commercial gross margin for 2005 were $36.8million, or 18.8%, compared to $38 million, or 19.9% for 2004. Thisdecrease is primarily attributable to the increase in Commercial revenue beingtransacted through Vendor Managed Service providers (23% of Commercial revenuein 2005 vs. 18% in 2004). Federal gross profit decreased to $20.4 million, or45.4% in 2005, from $22.2 million, or 46%, in 2004. Gross margin in theCompany’s Chimes segment increased to 96.7% for 2005 from 94% in 2004,primarily attributable to a reduction in licensing fees for software used todeliver Chimes services.

The slight improvement inthe Company’s consolidated gross margin is primarily attributable to theincrease in revenue from the higher-margin Chimes business unit. In 2005,Chimes represented approximately 11% of consolidated revenue, compared toapproximately 9% in 2004.

*Selling, general andadministrative expenses.**  *Selling, general and administrative (“SG&A”)expenses increased to $88.3 million in the year ended December 31, 2005from $85.1 million for the comparable period of 2004. As a percentage ofrevenue, the Company’s SG&A expenses increased to 32.9% in the year ended December 31,2005 from 32.4% in the year ended December 31, 2004. This increase isprimarily attributable to the acquisition of AIM in April 2004 (whichyielded incremental SG&A expenses of approximately $900,000), additionalSG&A expense in Chimes of approximately $1.4 million primarily related toincreased delivery costs to support new clients, along with increased Corporateoverhead.

*Change of Control charges.**  *In the fourth quarter of 2005, the Company recorded acharge of approximately $13.2 million related to the change of controlresulting from the removal of the Company’s then existing Board of Directors. The$13.2 million charge is comprised of the following:

·       $9.7million charge for change of control payments resulting from provisions definedin the Company’s supplemental executive retirement plan (SERP); 

·       $3.5million charge pertaining to employment agreements which contain change ofcontrol provisions requiring future payments of specified amounts;

23

----

*Special charges/(credits).*   Forfiscal year 2005, the Company recorded special charges/(credits) of $5.7 millionprimarily pertaining to expenses associated with two proxy contests 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. For the year ended December 31,2004, the Company recorded a special credit of $0.9 million related to aninsurance refund.

*Restructuring charges.**  *For the year ended December 31, 2005, theCompany recorded restructuring charges of $2.2 million, primarily comprised ofseverance costs. During 2005, the Company conducted a review of the Company’sstrategic and operational strengths and weaknesses and formulated a plan for improvement.The plan included restructuring the Company to address lines of accountability,eliminating several service offerings, setting performance standards andeliminating inefficiencies.

For the year ended December 31,2004, the Company recorded restructuring charges of $2.9 million. Duringthe fourth quarter of 2004, the Company completed its realignment initiativeswhereby the Company’s business model has been realigned, effective January 1,2005, around its three distinct segments of clients:  Federal Government (RGII), Commercial andVendor Management Services (Chimes). In connection with the realignment, theCompany recorded a $2.9 million restructuring charge comprised of approximately$2.8 million in severance costs and $0.1 million in lease obligation costs.

*Loss from Operations.*   TheCompany’s loss from operations totaled $25.9 million in the year ended December 31,2005, compared to a loss of $28.1 million in 2004. The 2005 loss before incometaxes, excluding the special items noted above, net interest and the loss oninvestments, totaled $3.6 million and was comprised of: a loss of $9.2 millionin the Commercial business, profit of $2.6 million in the Federal business andprofit of $3.0 million in Chimes. This compares to a loss before income taxes,excluding the special items noted above and net interest income, of $3.2million in 2004 and is comprised of: a loss of $7.3 million in theCommercial business, profit of $4.7 million in the Federal business and a lossof $0.6 million in Chimes. The consolidated loss before income taxes,excluding all special items, was 1.4% of revenue for the year ended December 31,2005, as compared to a loss of 1.2% in the comparable period of 2004.

*Other Income/(Expense).*   Otherexpense was $0.4 million in 2005, comprised of a loss on the sale of SERPinvestments of $1.2 million, partially offset by net interest income of $0.8million. Other income in 2004, comprised of net interest income, totaled $0.2million.

*Provision for IncomeTaxes.*   The effective tax rate for Federal, stateand local income taxes was a tax expense of 76.8% for the year ended December 31,2005 compared with 9.7% benefit for the year ended December 31, 2004. Theprimary reasons for the change in the effective tax rate were charges forchange of control payments which did not give rise to tax benefits and anincrease in the valuation allowance on deferred tax assets. In prior yearsmanagement relied primarily on future projected income in assessing therealizability of deferred tax assets resulting from federal net operating losscarryforwards and other deductible temporary differences. As of December 31,2005 it was determined that because of continued losses through the fourthquarter of the current year, it was no longer appropriate to rely on futureprojected income until sustained profitability has been achieved. Accordingly,the Company recorded a full valuation allowance on its remaining net deferredtax assets of $19.5 million in the fourth quarter of 2005. (see Note 7 ofthe Notes to Consolidated Financial Statements contained elsewhere in this Form 10-K).

*Net Loss.**  *For the year ended December 31, 2005, the netloss was $46.4 million, or $1.48 loss per share, compared to a net loss of$25.2 million, or $0.82 loss per share for the year ended December 31,2004. The effect of the change of control charges, special charges/(credits),restructuring charges, loss on sale of investments, amortization expense and increasein the deferred tax valuation allowance amounted to $1.33 loss per share in2005. The effect of restructuring charges, goodwill impairment, amortizationexpense, write-off of assets, and special credit for an insurance refundamounted to $0.68 loss per share in 2004.

24

----

**YearEnded December 31, 2004 Compared to Year Ended December 31, 2003**

*Revenues.*   Consolidatedrevenue increased to $262.5 million in the year ended December 31, 2004from $245.2 million in the year ended December 31, 2003, an increase of$17 million or 7%.

Commercial revenuesdecreased to $191.1 million in the year ended December 31, 2004 from$207.0 million in the year ended December 31, 2003, a decrease of$15.9 million or 8%. This decrease in Commercial revenues is attributable tocontinued decreases in the demand for temporary technology workers, the trendof companies to outsource technology jobs offshore and the impact of pricingdecreases by clients. 

Federal revenues increasedto $48.3 million in the year ended December 31, 2004 from $18.2 million inthe year ended December 31, 2003, an increase of $30.1 million or 165%.  This increase is attributable to the expansion in theCompany’s Federal government practice, including the July 2003 acquisitionof RGII and the April 2004 acquisition, by RGII, of AIM. 

Chimes revenue increasedto $23.1 million in the year ended December 31, 2004, from $20.0 millionin the year ended December 31, 2003, an increase of $3.1 million or 15.4%.This increase was primarily due to an expansion of managed spend at existingclients, with less than 1% of the increase attributable to new clients startedin 2004.

*Direct Costs.*   Directcosts increased to $180.6 million in the year ended December 31, 2004 from$173.2 million in the year ended December 31, 2003. Consolidated grossmargin, revenue less direct costs, increased to 31.2% for the year ended December 31,2004 from 29.4% in the same period of 2003. In the Company’s Commercialbusiness, gross profit decreased to $38.0 million, or 19.9% as a result of anincrease in Commercial revenue being transacted through Vendor Managed Serviceproviders (18% in 2004 vs. 14% in 2003). Federal business gross marginincreased in 2004 to 46%, from 43% in 2003, primarily due to the acquisition ofAIM in April 2004. Gross margin in the Company’s Chimes segment stayedrelatively flat at 94.0% for 2004 and 2003.

The Company’s consolidatedgross margin improvement is primarily attributable to the increases in revenuefrom the Company’s higher margin Federal business and Chimes, partially offsetby gross margin declines in the Commercial segment. For the year ended December 31,2004, the Federal business and Chimes revenue totaled 27.0% of consolidatedrevenue, compared to 16.0% of consolidated revenue for the comparable period in2003.

*Selling, general andadministrative expenses.**  *Selling, general and administrative (“SG&A”)expenses increased to $85.1 million in the year ended December 31, 2004from $80.6 million for the comparable period of 2003. As a percentage ofrevenue, the Company’s SG&A expenses decreased to 32.4% in the year ended December 31,2004 from 32.9% in the year ended December 31, 2003. The expenses in 2003included a bad debt charge of $3.1 million related to the write-off of asub-contract with ATEB, a privately held company, which the Company voluntarilyterminated for financial reasons. ATEB was the primary contractor to develop anew pharmacy system for Royal Ahold. The Company is continuing recovery effortsfor this receivable.

Excluding the $3.1 millionATEB write-off in 2003, SG&A expenses would have increased by $7.6 millionin 2004 in comparison to the prior year. This increase is primarilyattributable to the July 2003 acquisition of RGII, and the April 2004acquisition, by RGII, of AIM (which yielded incremental SG&A expense ofapproximately $9.6 million); costs related to Sarbanes-Oxley activities ofapproximately $1.2 million, and approximately $590,000 pertaining toprofessional fees for the restatement of financials associated with a previouslyannounced accounting error.

*Amortization ofIntangibles.**  *Duringthe year ended December 31, 2004, the Company recorded $1.7 millionof amortization expense related to the 2003 acquisition of intangibles for RGIIand Xpress Software. The increase in 2004 is attributable to intangibles forthe AIM acquisition completed in April 2004 by RGII.

25

----

*Restructuring charges/(credits).*   Forthe year ended December 31, 2004, the Company recorded restructuringcharges of $2.9 million. During the fourth quarter of 2004, the Companycompleted its realignment initiatives whereby the Company’s business model hasbeen realigned, effective January 1, 2005, around its three distinctsegments of clients: Commercial, Federal Government (RGII) and VendorManagement Services (Chimes). In connection with the realignment, the Companyrecorded a $2.9 million restructuring charge, comprised of approximately$2.8 million in severance costs and $0.1 million in lease obligationcosts. As a result of this restructuring, the Company is expecting anapproximate $5 million reduction in its annual costs, which will bepredominantly reflected in the Commercial business, designed to deliverimproved operational performance. During the year ended December 31, 2003,the Company recorded restructuring charges of $3.3 million pertaining toterminated leases ($1.4 million), severance ($1.6 million) andgeneral office closure expenses ($330,000) relating primarily to the closing offacilities in Canada and the United Kingdom.  In 2003, the office closingswere made to eliminate the infrastructure costs related to having offices incertain areas. The Company did not eliminate marketing efforts or business inthese areas, but rather turned these areas into virtual marketplaces wherebysales personnel work from their homes.

*Special charges/(credits).*   Forthe year ended December 31, 2004, the Company recorded a special credit of$0.9 million related to an insurance refund.  For the year ended December 31, 2003, theCompany incurred special charges of $10.1 million consisting of a severancepackage for the Company’s former CEO and expenses related to the unilateralacquisition proposal and activities of Aquent LLC. The separation package ofthe former CEO included a $3.5 million severance payment and $200,000 incontinued medical coverage. The remaining $6.4 million of the expense pertainedto the unilateral acquisition proposal and activities of Aquent LLC. Thisexpense is primarily attributable to approximately $3.4 million of legal fees,$1.8 million in financial advisor fees and $1.2 million of proxy solicitationand other fees. As management considers these special items to be infrequentand material in nature, the Company has reported the expenses on a separateline for full disclosure purposes, however, the amounts are reported withinoperating income.

*Goodwill impairment.**  *As of December 31, 2004, basedon a valuation completed by an independent appraisal firm, it was determinedthat the indicated fair value for the Commercial Solutions business unit wasbelow the carrying value of the entity’s equity. Because of a reduction inprojected future cash flows, primarily resulting from significant revenuedeclines in 2004, the Company determined that the Commercial Solutions goodwillwas impaired and recorded a non-cash goodwill impairment charge of $20.3 million.There was no income tax effect on the impairment charge as the related goodwillwas primarily attributable to acquisitions which yielded no tax basis for theCompany.

*Write-off of assets.*   Forthe year ended December 31, 2004, the Company recorded a write-off ofassets approximating $0.9 million. This charge pertained to the write-off of asecurity deposit in connection with an escrow agreement of a previously soldsubsidiary and a write-off of fixed assets related to previously closedoffices.

*Loss from Operations.*   TheCompany’s loss from operations totaled $28.1 million in the year ended December 31,2004, an increased loss of $5.0 million, from a loss of $23.1 millionin the year ended December 31, 2003. As discussed above, the loss fromoperations in 2004 included goodwill impairment of $20.3 million, restructuringcharges of $2.9 million, amortization of intangibles of $1.7 million,$0.9 million pertaining to the write-off of assets, and a special creditof $0.9 million related to an insurance refund. The loss from operationsin 2003 included special charges of $10.1 million, restructuring chargesof $3.3 million, amortization of intangibles of $1.1 million and aspecial bad debt charge (recorded in SG&A expense) of $3.1 million dueto the write-off of a terminated contract with a client for financial reasons.The 2004 loss before income taxes, excluding the special items noted above andnet interest income, totaled $3.2 million and was comprised of: a loss of$7.3 million in the Commercial business, profit of $4.7 million inthe Federal business and a loss of $0.6 million in Chimes. This comparesto the loss before income taxes of 

26

----

$5.6 million,excluding the special items noted above and loss on sale of assets, net loss oninvestments and net interest income and was comprised of: $2.5 millionloss in the Commercial business, profit of $0.9 million in the Federalbusiness and a loss of $4.0 million in Chimes. The consolidated lossbefore income taxes, excluding all special items, was a loss of 1.2% of revenuefor the year ended December 31, 2004 as compared to a loss of 2.3% in thecomparable period of 2003.

*Other Income/(Expense).*   Otherincome was $234,000 in the year ended December 31, 2004, compared to otherexpense of $378,000 in the comparable period of 2003. This difference wasprimarily due to the loss on sale of assets and loss on investments in 2003.

*Provision for Income Taxes.*   Theeffective tax rate for Federal, state and local income taxes was a tax benefitof 9.7% for the year ended December 31, 2004 compared with 27.3% benefitfor the year ended December 31, 2003. The primary reasons for the decreasein the effective tax rate were goodwill impairment charges which did not giverise to a tax benefit and increases in the valuation allowance for certainFederal and state deferred tax assets. A review of all available positive andnegative evidence was conducted by the Company, including the Company’s past,current and projected operating performance, the market environment in whichthe company operates and the length of carryback and carryforward periods.

*Net Loss.*   Forthe year ended December 31, 2004, the net loss was $25.2 million, or $0.82loss per share, compared to a net loss of $17.2 million, or $0.56 loss pershare for the year ended December 31, 2003. The effect of restructuringcharges, goodwill impairment, amortization expense, write-off of assets,professional fees for the restatement of financials associated with apreviously announced accounting error, and special credit for an insurancerefund amounted to $0.75 loss per share, net of taxes, in 2004. The effect ofrestructuring charges, loss on sale of assets, loss on investments,amortization expense, write-off of terminated project and special chargesamounted to $0.45 loss per share, net of taxes, in 2003.

**Liquidityand Capital Resources**

Computer Horizons hashistorically financed its operations through cash generated from operations,borrowings against bank lines of credit and the public sale of its commonstock. At December 31, 2005, the Company had approximately $51.4 millionin working capital, of which $46.4 million was cash and cash equivalents. Cashand cash equivalents at December 31, 2005 and December 31, 2004includes approximately $29.4 million and $2.1 million of cash, respectively, tobe disbursed to Chimes vendors in accordance with the client payment terms.

Net cash provided/(usedin) by operating activities for the year ended December 31, 2005, December 31,2004 and December 31, 2003, totaled $7.3 million, $(1.4) million and$16.9 million, respectively. For the year ended December 31, 2005, thecash provided by operating activities is primarily attributable to deferredtaxes (non-cash valuation reserve), depreciation, amortization and othernon-cash expenses and increases in accounts payable (primarily Chimes vendorpayments), partially offset by the Company’s net loss, a reduction in accruedexpenses and payment of the Supplemental Executive Retirement Plan. For theyear ended December 31, 2004, the cash used in operating activities wasprimarily attributable to the net loss of $25.2 million, offset by non-cashcharges of $27.4 million and an increase in refundable income taxes of $4.1million. In 2003, the cash provided by operating activities was primarily dueto the Federal income tax refund received and a reduction in accountsreceivable partially offset by the Company’s net loss.

Net accounts receivabledecreased $3.2 million to $48.1 million at December 31, 2005 from$51.3 million at December 31, 2004. Accounts receivable days salesoutstanding (“DSO”) were 66 days at December 31, 2005 compared to 68 daysat December 31, 2004. The Company expects an increase in DSOs for thefirst quarter of 2006 attributable to the seasonal slowdown of payments fromclients, which historically occurs in the first quarter of each year.  All client receivable collectibility andbilling issues 

27

----

identifiedby management have been adequately reserved. For the period ended December 31,2005, there were no significant changes in credit terms, credit policies orcollection efforts.

Net cash provided byinvesting activities for the year ended December 31, 2005 was $2.0 million,consisting primarily of proceeds from sale of assets of $0.6 million andproceeds from the sale of SERP investments of $4.7 million, partiallyoffset by capital expenditures totaling $3.3 million. Net cash used in investingactivities was $19.2 million for the year ended December 31, 2004. Thiswas primarily attributable to the purchase of AIM by RGII in April 2004. Netcash used in investing activities was $23.5 million for the year ended December 31,2003, primarily due to the purchase of RGII.

For the year ended December 31,2005, net cash provided by financing activities was $3.1 million, consisting primarilyof proceeds from shares issued pursuant to the employee stock option plan of$2.4 million and $0.7 million from the employee stock purchase plan. Forthe year ended December 31, 2004, net cash provided by financingactivities was $1.4 million primarily consisting of proceeds from stock optionsexercised of $0.8 million and $0.6 million from stock issued through theemployee stock purchase plan. For the year ended December 31, 2003, netcash used in financing activities was $2.5 million, primarily from the pay offof the notes payable of $2.6 million related to the acquisition of RGII and$1.2 million used in the repurchase of the Company’s common stock.

The Company has a $40million line of credit facility with availability based primarily on eligibleclient receivables. Effective November 17, 2005, the interest rate iscalculated using the lesser of: Prime or LIBOR plus 2.5% based on unpaidprincipal. The minimum borrowing base threshold was eliminated as of November 17,2005. As of December 31, 2005, the Company had no outstanding loan balanceagainst the facility. Based on the Company’s eligible client receivables andcash balances, $8.3 million was available for borrowing as of December 31,2005. The fee for the unused portion of the line of credit is 0.375% per annumbased on $20 million, charged to the Company monthly. This charge, includingother associated fees, was approximately $136,000 and $99,000 for the yearsended December 31, 2005 and 2004, respectively. This line of creditincludes covenants relating to the maintenance of cash balances and providingfor limitations on incurring obligations and spending limits on capitalexpenditures.  As of December 31,2005, the Company was in compliance with the covenants. This credit facilitywill remain in effect until July 2006. The Company is currently indiscussions to extend the facility.

Pursuant to the terms ofthe Company’s acquisition of RGII, the seller of RGII may be entitled tocontingent payments based on RGII’s performance against profitabilityobjectives over three years ending June 30, 2006. The contingent paymentsare evidenced by a contingent note with a face value of $10 million thatis payable over three years only if certain financial performance objectivesare met. These financial performance objectives are based on earnings beforeinterest and taxes (“EBIT”) targets totaling $19.8 million over a three-yearperiod. The $10 million contingent note is collateralized by the assets ofRGII. There are no minimum or maximum payment obligations under the terms ofthe contingent note. The contingent payment will be reduced on a dollar fordollar basis for financial performance below EBIT targets and increased by 29cents ($0.29) for each dollar exceeding EBIT targets. In February 2004, apayment was made for the first six-month installment of approximately $631,000,pertaining to this contingent note. In February 2005, a payment ofapproximately $1.8 million was made representing the second installment of thecontingent note. EBIT targets were not achieved for the third installmentof the note for the period ending December 31, 2005 and no contingentpayment is due. If EBIT targets are not met at the expiration of the contingentearnout period (June 30, 2006), significant amounts previously paid are tobe repayable to the Company.

During the first quarterof 2004, the Company recorded a non-cash reduction in tax benefit reserves andan increase in additional paid-in capital of $19.9 million.

The Company believes thatits cash and cash equivalents, available borrowings and internally generatedfunds will be sufficient to meet its working capital needs through the next 12months.

28

----

**ContractualObligations and Commercial Commitments**

TheCompany does not utilize off balance sheet financing other than operating leasearrangements for office premises and related equipment. The following tablesummarizes all commitments under contractual obligations as of December 31,2005:

| ** **              | ** ** | **Obligation Due**              | ** ** |
|-------------------------|------------|--------------------------------------|------------|
| ** **              | ** ** | **Total  Amount**                    | ** ** | **1 Year** | ** ** | **2-3 Years** | ** ** | **4-5 Years** | ** ** | **Over  5 Years** | ** ** |
| ** **              | ** ** | **(dollars in thousands)** | ** ** |
| Operating Leases        |       | $                                    | 7,523      |   | $ | 4,072 |   |   | $ | 2,779 |   |   |   | $ | 544 |   |   | $ | 128 |   |
| RGII Contingent Notes*  |       | 7,596                                |       | 7,596 |   |   | — |   |   |   | — |   |   | — |   |
| Deferred Compensation   |       | 2,468                                |       | 891 |   |   | 22 |   |   |   | 11 |   |   | 1,544 |   |
| Retention Bonus         |       | 316                                  |       | 245 |   |   | 71 |   |   |   |   |   |   |   |   |
| Change of Control       |       | 3,412                                |       | 472 |   |   | — |   |   |   | — |   |   | 2,940 |   |
| Other                   |       | 673                                  |       | 673 |   |   | — |   |   |   | — |   |   | — |   |
| Total Cash  Obligations |       | $                                    | 21,988     |   | $ | 13,949 |   |   | $ | 2,872 |   |   |   | $ | 555 |   |   | $ | 4,612 |   |

----

*                    Paymentof this obligation is remote as it is only applicable if EBIT targets are met. IfEBIT targets are not met at the expiration of the contingent earnout period (June 30,2006), significant amounts previously paid are to be repayable to the Company. Anyrepayment will be recorded as a reduction of the goodwill pertaining to theFederal business.

**RecentAccounting Pronouncements**

In March 2004, theFinancial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF)released Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairmentand Its Application to Certain Investments” (EITF 03-1). EITF 03-1 provides guidancefor determining whether impairment for certain debt and equity investments isother-than-temporary and the measurement of an impaired loss. The recognitionand measurement requirements of EITF 03-1 were initially effective forreporting periods beginning after June 15, 2004. In September 2004,the FASB Staff issued FASB Staff Position (FSP) EITF 03-1-1 that delayedthe effective date for certain measurement and recognition guidance containedin EITF 03-1. The FSP requires that entities continue to apply previouslyexisting “other-than-temporary” guidance until a final consensus is reached.Management does not anticipate that issuance of a final consensus willmaterially impact the Company’s financial condition or results of operations.

In December 2004, theFASB issued Statement of Financial Accounting Standard No. 123 (revised2004), “Share-Based Payment” (FAS 123R). FAS 123R requires that compensationcost be recognized for new awards of equity instruments and unvested awards onthe adoption date. The SEC amended the effective dates of FAS 123R for publiccompanies in April 2005, which allows registrants to implement FAS 123R atthe beginning of their next fiscal year, instead of the next interim period,that begins after June 15, 2005. The SEC also issued Staff AccountingBulletin 107, “Share-Based Payment” (SAB 107), in April 2005, whichprovides the views of the SEC staff regarding certain aspects of theapplication of FAS 123R. SAB 107 assists issuers in their initialimplementation of FAS 123R and indicates that the staff’s understanding that,particularly in the period of initial implementation, issuers may reasonablyarrive at different estimates and option valuations in applying FAS 123R. Theprovisions of this statement are effective for the Company’s first quarterending March 31, 2006. Statement 123R requires compensation cost berecognized for new awards of equity instruments and unvested awards on theadoption date.

29

----

Statement 123(R)allows for two alternative transition methods. The first method is the modifiedprospective application whereby compensation cost for the portion of awards forwhich the requisite service has not yet been rendered that are outstanding asof the adoption date will be recognized over the remaining service period. Thecompensation cost for that portion of awards will be based on the grant-datefair value of those awards as calculated for pro forma disclosures underStatement 123, “Accounting for Stock-Based Compensation”, as originallyissued. All new awards and awards that are modified, repurchased or cancelledafter the adoption date will be accounted for under the provisions ofStatement 123(R). The second method is the modified retrospectiveapplication, which requires that the Company restates prior period financialstatements. The modified retrospective application may be applied either to allprior periods or only to prior interim periods in the year of adoption of thisstatement. The Company is currently determining which transition method it willadopt and is evaluating the impact Statement 123(R) will have on itsfinancial position, results of operations, EPS and cash flows when theStatement is adopted.

In December 2004, the FASB issued Statement ofFinancial Accounting Standard No. 153, “Exchanges of Nonmonetary Assets”(FAS 153) - an amendment of Accounting Principles Board Opinion No. 29(Opinion 29). The guidance in Opinion 29, “Accounting for NonmonetaryTransactions” is based on the underlying principle that the measurement ofexchanges of nonmonetary assets should be based on the fair value of the assetsexchanged. However, Opinion 29 included certain exceptions to that principle,including a requirement that exchanges of similar productive assets should berecorded at the carrying amount of the asset relinquished. FAS153 eliminatesthat exception and replaces it with a general exception for exchanges ofnonmonetary assets that lack commercial substance. Only nonmonetary exchangesin which an entity’s future cash flows are expected to significantly change asa result of the exchange will be considered to have commercial substance. FAS153 must be applied to nonmonetary asset exchanges occurring in fiscal periodsbeginning after June 15, 2005. The adoption of this statement did not havea material impact on the Company’s financial condition or results ofoperations.

In May 2005, the FASBissued Statement of Financial Accounting Standard No. 154, “AccountingChanges and Error Corrections” (FAS 154) , which changes the accounting andreporting requirements for the change in an accounting principle. AccountingPrinciples Board Opinion 20, “Accounting Changes” (Opinion 20), which issuperseded by FAS 154, required that most voluntary changes in accountingprinciple be recognized by including the cumulative effect of changing to thenew accounting principle as a component of net income in the period of thechange. FAS 154 instead requires retrospective application to prior periods’financial statements of changes in an accounting principle, unless it isimpracticable to do so. FAS 154 differentiates between “retrospectiveapplication” and “restatement”.  “Retrospectiveapplication” is defined as the application of a different accounting principleto prior accounting periods as if that principle had always been used or as theadjustment of previously issued financial statements to reflect a change in thereporting entity. In contrast, restatement is defined as the revising ofpreviously issued financial statements to reflect the correction of an error. FAS154 also requires that a change in depreciation, amortization, or depletionmethod for long-lived, nonfinancial assets be accounted for as a change inaccounting estimate effected by a change in accounting principle. The guidancecontained in Opinion 20 for reporting the corrections of errors in previouslyissued financial statements, and changes in accounting estimates is carriedforward to FAS 154 without change. Additionally, FAS 154 carries forward theguidance in Opinion 20 requiring justification of a change in accountingprinciple on the basis of preferability. FAS 154 is effective for accountingchanges and corrections of errors made in fiscal years beginning after December 15,2005. The Company does not anticipate that the adoption of this statement willhave a material impact on the Company’s financial condition or results ofoperations

30

----

**SavingsPlan and Other Retirement Plans**

The Company maintains a defined contribution savingsplan covering eligible employees. The Company makes contributions up to aspecific percentage of the participants’ contributions.

In 2004, the Company maintained a SupplementalExecutive Retirement Plan “SERP”, whereby key executives are entitled toreceive payments upon reaching the age of 65 and being in the employment of theCompany. Benefits accrue and vest based on a formula which includes total yearswith the Company and total years possible until age 65. In the event of achange of control, as defined in the Plan, this event would result in animmediate vesting of the retirement benefit. The Plan is nonqualified and notformally funded. Life insurance policies on the members are purchased to assistin funding the cost. The cumulative accrued liability for the SERP isdetermined based on the Unit Credit Method by using a discount rate of 9% untilage 65 for each participant. This plan was terminated as a result of the changeof control of the Company in October 2005, and the related payment of theexisting SERP assets to participants, in the fourth quarter of 2005.

The Company maintains adeferred compensation plan for key executives that permits the individuals todefer a portion of their salary/bonus. There is no effect on the Company’soperating results since all amounts deferred under the plan are expensed in theperiod incurred.

**Foreign CurrencyExposure**

The Company’sinternational operations expose it to translation risk when the local currencyfinancial statements are translated to U.S. dollars. As currency exchange ratesfluctuate, translation of the financial statements of international businessesinto U.S. dollars will affect the comparability of revenues and expensesbetween years. None of the components of the Company’s consolidated statementsof income was materially affected by exchange rate fluctuations in 2005, 2004or 2003. At December 31, 2005 the Company had approximately $1.9 millionin cash maintained in foreign financial institutions.

**Item7A.**                *Quantitative and Qualitative Disclosures about Market Risk*

**Market RiskExposure**

The Company has financialinstruments that are subject to interest rate risk. Historically, the Companyhas not experienced material gains or losses due to interest rate changes.Based on the current holdings, the exposure to interest rate risk is notmaterial. Additionally, at December 31, 2005 the Company was debt free.

31

----

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

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

Board of Directors and ShareholdersComputer Horizons Corp.

We have audited the accompanying consolidated balancesheets of Computer Horizons Corp. and Subsidiaries as of December 31, 2005and 2004, and the related consolidated statements of operations, shareholders’equity and cash flows for each of the three years in the period ended December 31,2005. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred toabove present fairly, in all material respects, the consolidated financialposition of Computer Horizons Corp. and Subsidiaries as of December 31,2005 and 2004 and the consolidated results of their operations and theirconsolidated cash flows for each of the three years in the period ended December 31,2005, in conformity with accounting principles generally accepted in the UnitedStates of America.

Wealso have audited, in accordance with the standards of the Public CompanyOversight Board (United States), the effectiveness of Computer Horizons Corp.and Subsidiaries’ internal control over financial reporting as of December 31,2005, based on criteria established in *Internal Control*—*Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission (the “COSO criteria”), and our reportdated March 14, 2006 expressed an unqualified opinion thereon.
| /s/ GRANT THORNTON LLP |   |   |
|------------------------|--------|--------|
| Grant Thornton  LLP    |   |   |
| Edison, New  Jersey    |   |   |
| March 14,  2006   |   |   |

 

32

----

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

Board of Directors and ShareholdersComputer Horizons Corp.

We have audited management’s assessment, included inthe accompanying Management Report on Internal Control Over FinancialReporting, that Computer Horizons Corp. and Subsidiaries maintained effectiveinternal control over financial reporting as of December 31, 2005, basedon criteria established in *Internal Control -Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission (the “COSO criteria”). The Company’smanagement is responsible for maintaining effective internal control overfinancial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting. Our responsibility is to express an opinionon management’s assessment and an opinion on the effectiveness of the Company’sinternal control over financial reporting based on our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, evaluatingmanagement’s assessment, testing and evaluating the design and operatingeffectiveness of internal control, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinion.

A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with accounting principles generally accepted in theUnited States of America. A company’s internal control over financial reportingincludes those policies and procedures that (1) pertain to the maintenanceof records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with accounting principlesgenerally accepted in the United States of America, and that receipts andexpenditures of the company are being made only in accordance withauthorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have amaterial effect on the financial statements.

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions, orthat the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that ComputerHorizons Corp. and Subsidiaries maintained effective internal control overfinancial reporting as of December 31, 2005, is fairly stated, in allmaterial respects, based on the COSO criteria. Also, in our opinion, theCompany maintained, in all material respects, effective internal control overfinancial reporting as of December 31, 2005, based on the COSO criteria.

We also have audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the consolidated balance sheets of Computer Horizons Corp. andSubsidiaries of December 31, 2005 and 2004, and the related consolidatedstatements of operations, shareholders’ equity and cash flows, for each of thethree years in the period ended December 31, 2005, and our report dated March 14,2006 expressed an unqualified opinion on those financial statements.
| /s/ GRANT THORNTON LLP |   |   |
|------------------------|--------|--------|
| Grant Thornton  LLP    |   |   |
| Edison, New  Jersey    |   |   |
| March 14,  2006   |   |   |

 

33

----

**ComputerHorizons Corp. and SubsidiariesCONSOLIDATED BALANCE SHEETS**

| ** **                             | ** ** | **December 31,**                                          | ** **  |
|----------------------------------------|------------|----------------------------------------------------------------|-------------|
| ** **                             | ** ** | **2005**                                                       | ** **  | **2004** | ** ** |
| ** **                             | ** ** | **(in thousands, except per  share data)** | ** **  |
| ASSETS                                 |       |                                                           |        |   |   |
| *Current assets:*                      |       |                                                           |        |   |   |
| Cash and cash  equivalents (Note 1)    | ** ** | **$**                                                          | **46,365**  | ** ** | **$** | **33,649** | ** ** |
| Accounts  receivable—net (Note 2) | ** ** | **48,124**                                                     | ** **  | **51,322** | ** ** |
| Deferred income  taxes (Note 7)        | ** ** | **—**                                                     | ** **  | **1,868** | ** ** |
| Refundable income  taxes (Note 7)      | ** ** | **6,430**                                                      | ** **  | **4,088** | ** ** |
| Other                                  | ** ** | **4,108**                                                      | ** **  | **5,550** | ** ** |
| Total current  assets                  | ** ** | **105,027**                                                    | ** **  | **96,477** | ** ** |
| *Property  and equipment:*             |       | ** **                                                     | ** **  | ** ** |   |
| Furniture,  equipment and other        | ** ** | **46,116**                                                     | ** **  | **42,810** | ** ** |
| Less: accumulated  depreciation        | ** ** | **41,051**                                                     | ** **  | **36,815** | ** ** |
|                                   | ** ** | **5,065**                                                      | ** **  | **5,995** | ** ** |
| *Other  assets—net:*              |       | ** **                                                     | ** **  | ** ** |   |
| Goodwill (Note 1)                      | ** ** | **27,625**                                                     | ** **  | **27,625** | ** ** |
| Intangibles (Note  1)                  | ** ** | **1,938**                                                      | ** **  | **3,253** | ** ** |
| Deferred income  taxes (Note 7)        | ** ** | **—**                                                     | ** **  | **17,698** | ** ** |
| Other                                  | ** ** | **3,687**                                                      | ** **  | **8,036** | ** ** |
| ** **                             | ** ** | **33,250**                                                     | ** **  | **56,612** | ** ** |
| Total Assets                           | ** ** | **$**                                                          | **143,342** | ** ** | **$** | **159,084** | ** ** |

 

The accompanying notes are an integral part of these statements.

34

----

**Computer Horizons Corp. and SubsidiariesCONSOLIDATED BALANCE SHEETS(continued)**

| ** **                                                                                                                                         | ** ** | **December 31,**                                          | ** **  |
|----------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------|-------------|
| ** **                                                                                                                                         | ** ** | **2005**                                                       | ** **  | **2004** | ** ** |
| ** **                                                                                                                                         | ** ** | **(in thousands, except per share  data)** | ** **  |
| LIABILITIES AND  SHAREHOLDERS’ EQUITY                                                                                                         |       |                                                           |        |   |   |
| *Current liabilities :*                                                                                                                            |       |                                                           |        |   |   |
| Accrued payroll,  payroll taxes and benefits                                                                                                       |       | **$**                                                          | **10,548**  | ** ** | **$** | **8,489** | ** ** |
| Accounts payable                                                                                                                                   |       | **36,252**                                                     | ** **  | **7,615** | ** ** |
| Restructuring  reserve (Note 13)                                                                                                                   |       | **1,668**                                                      | ** **  | **3,351** | ** ** |
| Income taxes  payable                                                                                                                              |       | **1,150**                                                      | ** **  | **1,377** | ** ** |
| RGII contingency payment (Note 15)                                                                                                                 |       | **—**                                                     | ** **  | **1,851** | ** ** |
| Other accrued  expenses                                                                                                                            |       | **4,005**                                                      | ** **  | **4,912** | ** ** |
| Total current  liabilities                                                                                                                         |       | **53,623**                                                     | ** **  | **27,595** | ** ** |
| Deferred  compensation (Note 10)                                                                                                                   |       | **2,468**                                                      | ** **  | **2,633** | ** ** |
| Change of control  payable                                                                                                                         |       | **2,938**                                                      | ** **  | **—** | ** ** |
| Supplemental  executive retirement plan (Note 10)                                                                                                  |       | **—**                                                     | ** **  | **2,162** | ** ** |
| Other liabilities                                                                                                                                  |       | **286**                                                        | ** **  | **913** | ** ** |
| Total liabilities                                                                                                                                  |       | **59,315**                                                     | ** **  | **33,303** | ** ** |
| Commitments and  Contingencies (Notes 4 and 11)                                                                                                    |       | ** **                                                     | ** **  | ** ** | ** ** |
| *Shareholders’  equity:*                                                                                                                      |       | ** **                                                     | ** **  | ** ** | ** ** |
| Preferred stock, $.10  par; authorized and unissued, 200,000 shares, including 50,000 Series A                                                |       | ** **                                                     | ** **  | ** ** | ** ** |
| Common stock,  $.10 par; authorized, 100,000,000 shares; issued 33,158,105 and 33,153,805  shares at December 31, 2005 and 2004, respectively |       | **3,315**                                                      | ** **  | **3,315** | ** ** |
| Additional  paid-in capital                                                                                                                        |       | **148,083**                                                    | ** **  | **151,281** | ** ** |
| Accumulated other  comprehensive loss                                                                                                              |       | **(643**                                                       | **)**       | **(2,200** | **)** |
| Retained deficit                                                                                                                                   |       | **(60,492**                                                    | **)**       | **(14,072** | **)** |
| ** **                                                                                                                                         |       | **90,263**                                                     | ** **  | **138,324** | ** ** |
| Less shares held  in treasury, at cost; 1,118,014 and 2,060,011 shares at December 31,  2005 and 2004, respectively                           |       | **(6,236**                                                     | **)**       | **(12,543** | **)** |
| Total  shareholders’ equity                                                                                                                   |       | **84,027**                                                     | ** **  | **125,781** | ** ** |
| Total Liabilities and  Shareholders’ Equity                                                                                                   |       | **$**                                                          | **143,342** | ** ** | **$** | **159,084** | ** ** |

 

35

----

**Computer Horizons Corp. and SubsidiariesCONSOLIDATED STATEMENTS OF OPERATIONS**

| ** **                                              | ** ** | **Year ended December 31,**                         | ** **  |
|---------------------------------------------------------|------------|--------------------------------------------------------------------|-------------|
| ** **                                              | ** ** | **2005**                                                           | ** **  | **2004** | ** ** | **2003** | ** ** |
| ** **                                              | ** ** | **(in thousands, except per share data)** | ** **  |
| Revenues                                                |       | **$**                                                              | **268,836** | ** ** | **$** | **262,527** | ** ** | **$** | **245,210** | ** ** |
| *Costs and expenses:*                                   |       | ** **                                                         | ** **  | ** ** | ** ** | ** ** | ** ** |
| Direct costs                                            |       | **184,159**                                                        | ** **  | **180,606** | ** ** | **173,198** | ** ** |
| Selling, general  and administrative                    |       | **88,341**                                                         | ** **  | **85,141** | ** ** | **80,634** | ** ** |
| Change of control  charges (Note 17)                    |       | **13,247**                                                         | ** **  | **—** | ** ** | **—** | ** ** |
| Amortization of  intangibles                            |       | **1,080**                                                          | ** **  | **1,695** | ** ** | **1,084** | ** ** |
| Restructuring  charges (Note 13)                        |       | **2,175**                                                          | ** **  | **2,859** | ** ** | **3,278** | ** ** |
| Special  charges/(credits) (Note 17)                    |       | **5,728**                                                          | ** **  | **(939** | **)** | **10,113** | ** ** |
| Goodwill  impairment                                    |       | **—**                                                         | ** **  | **20,306** | ** ** | **—** | ** ** |
| Write-off of  assets                                    |       | **—**                                                         | ** **  | **910** | ** ** | **—** | ** ** |
| ** **                                              |       | **294,730**                                                        | ** **  | **290,578** | ** ** | **268,307** | ** ** |
| Loss from  operations                                   |       | **(25,894**                                                        | **)**       | **(28,051** | **)** | **(23,097** | **)** |
| *Other  income/(expense):*                              |       | ** **                                                         | ** **  | ** ** | ** ** | ** ** | ** ** |
| Gain/(loss) on  sale of assets                          |       | **—**                                                         | ** **  | **—** | ** ** | **(424** | **)** |
| Net gain/(loss)  on investments                         |       | **(1,180**                                                         | **)**       | **—** | ** ** | **(432** | **)** |
| Interest income                                         |       | **849**                                                            | ** **  | **337** | ** ** | **529** | ** ** |
| Interest expense                                        |       | **(27**                                                            | **)**       | **(103** | **)** | **(51** | **)** |
| ** **                                              |       | **(358**                                                           | **)**       | **234** | ** ** | **(378** | **)** |
| Loss before  income taxes and minority interest         |       | **(26,252**                                                        | **)**       | **(27,817** | **)** | **(23,475** | **)** |
| *Income  taxes/(benefit) (Notes 1 and 7):*              |       | ** **                                                         | ** **  | ** ** | ** ** | ** ** | ** ** |
| Current                                                 |       | **602**                                                            | ** **  | **(1,436** | **)** | **341** | ** ** |
| Deferred                                                |       | **19,566**                                                         | ** **  | **(1,254** | **)** | **(6,750** | **)** |
| ** **                                              |       | **20,168**                                                         | ** **  | **(2,690** | **)** | **(6,409** | **)** |
| Loss before minority interest                           |       | **(46,420**                                                        | **)**       | **(25,127** | **)** | **(17,066** | **)** |
| Minority interest                                       |       | **—**                                                         | ** **  | **(45** | **)** | **(89** | **)** |
| Net Loss                                                |       | **$**                                                              | **(46,420** | **)** | **$** | **(25,172** | **)** | **$** | **(17,155** | **)** |
| Loss per share—Basic and  Diluted (Notes 1 and 8): |       | **$**                                                              | **(1.48**   | **)** | **$** | **(0.82** | **)** | **$** | **(0.56** | **)** |
| Weighted average number  of shares outstanding:         |       | ** **                                                         | ** **  | ** ** | ** ** | ** ** | ** ** |
| Basic and Diluted                                       |       | **31,399,000**                                                     | ** **  | **30,870,000** | ** ** | **30,455,000** | ** ** |

 

The accompanying notes are an integral part of these statements.

36

----

**CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITYYears ended December 31, 2005, 2004 and 2003**

| ** **                                     | ** ** | **Common Stock**                | ** ** | **Additional  Paid-in** | ** ** | **Accumulated  other  Comprehensive** | ** ** | **Retained  Earnings /** | ** ** | **Treasury Stock** | ** ** | ** ** | ** ** |
|------------------------------------------------|------------|--------------------------------------|------------|-------------------------|------------|---------------------------------------|------------|-------------------------------|------------|-------------------------|------------|------------|------------|
| ** **                                     | ** ** | **Shares**                           | ** ** | **Amount**              | ** ** | **Capital**                           | ** ** | **Income/(Loss)**             | ** ** | **(Deficit)**           | ** ** | **Shares** | ** ** | **Amount** | ** ** | **Total** | ** ** |
| ** **                                     | ** ** | **(dollars in thousands)** | ** ** |                    |
| Balance, December 31, 2002                |       | 33,153,107                           |       |                    | $          | 3,315                                 |       |                          |       | $                       | 133,518    |       |       |   | $ | (4,306 | ) |   |   | $ | 28,255 |   |   | 2,660,667 |   | $ | (14,927 | ) | $ | 145,855 |   |   |
| Net loss for the year                          |       |                                 |       |                    |       |                                  |       |                          |       |                    |       |       |       |   |   |   | (17,155 | ) |   |   |   |   |   | (17,155 | ) |   |
| Other comprehensive loss:                      |       |                                 |       |                    |       |                                  |       |                          |       |                    |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current year unrealized loss on investments    |       |                                 |       |                    |       |                                  |       |                          |       |                    |       |       | (489       | ) |   |   |   |   |   |   |   |   |   | (489 | ) |   |
| Foreign currency translation adjustments       |       |                                 |       |                    |       |                                  |       |                          |       |                    |       |       | 2,006      |   |   |   |   |   |   |   |   |   |   | 2,006 |   |   |
| Total comprehensive loss                       |       |                                 |       |                    |       |                                  |       |                          |       |                    |       |       |       |   |   |   |   |   |   |   |   |   |   | (15,638 | ) |   |
| Stock options exercised                        |       |                                 |       |                    |       |                                  |       |                          |       |                    |       |       |       |   |   |   |   |   |   | (361,410 | ) | 959 |   | 959 |   |   |
| Employee stock purchase program                |       |                                 |       |                    |       |                                  |       |                          | (472       | )                       |       |       |       |   |   |   |   |   |   | (153,765 | ) | 863 |   | 391 |   |   |
| Purchase of treasury shares                    |       |                                 |       |                    |       |                                  |       |                          |       |                    |       |       |       |   |   |   |   |   |   | 392,200 |   | (1,230 | ) | (1,230 | ) |   |
| Balance, December 31, 2003                |       | 33,153,107                           |       |                    | 3,315      |                                  |       |                          | 133,046    |                    |       |       | (2,789     | ) |   |   | 11,100 |   |   | 2,537,692 |   | (14,335 | ) | 130,337 |   |   |
| Net loss for the year                          |       |                                 |       |                    |       |                                  |       |                          |       |                    |       |       |       |   |   |   | (25,172 | ) |   |   |   |   |   | (25,172 | ) |   |
| Other comprehensive loss:                      |       |                                 |       |                    |       |                                  |       |                          |       |                    |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current year unrealized gain on investments    |       |                                 |       |                    |       |                                  |       |                          |       |                    |       |       | 325        |   |   |   |   |   |   |   |   |   |   | 325 |   |   |
| Foreign currency translation adjustments       |       |                                 |       |                    |       |                                  |       |                          |       |                    |       |       | 264        |   |   |   |   |   |   |   |   |   |   | 264 |   |   |
| Total comprehensive loss                       |       |                                 |       |                    |       |                                  |       |                          |       |                    |       |       |       |   |   |   |   |   |   |   |   |   |   | (24,583 | ) |   |
| Other issuance of common stock                 |       | 698                                  |       |                    |       |                                  |       |                          |       |                    |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock options exercised                        |       |                                 |       |                    |       |                                  |       |                          |       |                    |       |       |       |   |   |   |   |   |   | (306,460 | ) | 774 |   | 774 |   |   |
| Employee stock purchase program                |       |                                 |       |                    |       |                                  |       |                          | (395       | )                       |       |       |       |   |   |   |   |   |   | (171,221 | ) | 1,018 |   | 623 |   |   |
| Purchase  of treasury shares                   |       |                                 |       |                    |       |                                  |       |                          |       |                    |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tax benefits/other, net related to acquisition |       |                                 |       |                    |       |                                  |       |                          | 18,630     |                    |       |       |       |   |   |   |   |   |   |   |   |   |   | 18,630 |   |   |
| Balance, December 31, 2004                |       | 33,153,805                           |       |                    | 3,315      |                                  |       |                          | 151,281    |                    |       |       | (2,200     | ) |   |   | (14,072 | ) |   | 2,060,011 |   | (12,543 | ) | 125,781 |   |   |
| Net Loss for the year                          |       |                                 |       |                    |       |                                  |       |                          |       |                    |       |       |       |   |   |   | (46,420 | ) |   |   |   |   |   | (46,420 | ) |   |
| Other comprehensive Loss:                      |       |                                 |       |                    |       |                                  |       |                          |       |                    |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current year realized loss on investments      |       |                                 |       |                    |       |                                  |       |                          |       |                    |       |       | 1,180      |   |   |   |   |   |   |   |   |   |   | 1,180 |   |   |
| Current year unrealized gain on investments    |       |                                 |       |                    |       |                                  |       |                          |       |                    |       |       | 84         |   |   |   |   |   |   |   |   |   |   | 84 |   |   |
| Foreign currency translation adjustments       |       |                                 |       |                    |       |                                  |       |                          |       |                    |       |       | 293        |   |   |   |   |   |   |   |   |   |   | 293 |   |   |
| Total comprehensive loss                       |       |                                 |       |                    |       |                                  |       |                          |       |                    |       |       |       |   |   |   |   |   |   |   |   |   |   | (44,863 | ) |   |
| Other issuance of common  stock                |       |                                 |       |                    |       |                                  |       |                          |       |                    |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other issuance of common stock                 |       | 4,300                                |       |                    |       |                                  |       |                          |       |                    |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock options exercised                        |       |                                 |       |                    |       |                                  |       |                          |       |                    |       |       |       |   |   |   |   |   |   | (741,895 | ) | 2,441 |   | 2,441 |   |   |
| Treasury stock reclassification (Note 6)       |       |                                 |       |                    |       |                                  |       |                          | (2,657     | )                       |       |       |       |   |   |   |   |   |   |   |   | 2,657 |   |   |   |   |
| Employee stock purchase program                |       |                                 |       |                    |       |                                  |       |                          | (541       | )                       |       |       |       |   |   |   |   |   |   | (200,102 | ) | 1,209 |   | 668 |   |   |
| Balance,  December 31, 2005               |       | 33,158,105                           |       |                    | $          | 3,315                                 |       |                          |       | $                       | 148,083    |       |       |   | $ | (643 | ) |   |   | $ | (60,492 | ) |   | 1,118,014 |   | $ | (6,236 | ) | $ | 84,027 |   |   |

 

*Theaccompanying notes are an integral part of this statement.*

37

 

----

**Computer Horizons Corp. and SubsidiariesCONSOLIDATED STATEMENTS OF CASH FLOWS**
|                                                                                            | ** ** | **Year ended December 31,** | ** **  |
|--------------------------------------------------------------------------------------------|------------|--------------------------------------------|-------------|
| ** **                                                                                 | ** ** | **2005**                                   | ** **  | **2004** | ** ** | **2003** | ** ** |
| ** **                                                                                 | ** ** | **(in thousands)**                    | ** **  |
| ***Cash flows from operating  activities***                                                |       |                                       |        |   |   |   |   |
| Net loss                                                                                   | ** ** | **$**                                      | **(46,420** | **)** | **$** | **(25,172** | **)** | **$** | **(17,155** | **)** |
| Adjustments to reconcile net loss to net cash  provided by/(used in) operating activities: |       |                                       |        |   |   |   |   |
| Deferred taxes                                                                             | ** ** | **19,567**                                 | ** **  | **(1,254** | **)** | **(6,750** | **)** |
| Depreciation                                                                               | ** ** | **4,181**                                  | ** **  | **4,821** | ** ** | **5,336** | ** ** |
| Amortization of  intangibles                                                               | ** ** | **1,080**                                  | ** **  | **1,695** | ** ** | **1,084** | ** ** |
| Provision for bad debts                                                                    | ** ** | **1,632**                                  | ** **  | **969** | ** ** | **4,644** | ** ** |
| Loss /(gain) on sale of  assets                                                            | ** ** | **(327**                                   | **)**       | **—** | ** ** | **424** | ** ** |
| Loss on investments                                                                        | ** ** | **1,264**                                  | ** **  | **—** | ** ** | **432** | ** ** |
| Goodwill impairment                                                                        | ** ** | **—**                                 | ** **  | **20,306** | ** ** | **—** | ** ** |
| Write-off of assets                                                                        | ** ** | **—**                                 | ** **  | **910** | ** ** | **—** | ** ** |
| Changes in assets and liabilities, net of  acquisitions:                                   | ** ** | ** **                                 | ** **  | ** ** | ** ** | ** ** | ** ** |
| Accounts receivable                                                                        | ** ** | **1,566**                                  | ** **  | **(696** | **)** | **14,635** | ** ** |
| Prepaid expenses and  other current assets                                                 | ** ** | **(1)**                                    | ** **  | **254** | ** ** | **—** | ** ** |
| Other receivables                                                                          | ** ** | **1,443**                                  | ** **  | **(1,040** | **)** | **2,388** | ** ** |
| Other assets                                                                               | ** ** | **(357)**                                  | ** **  | **(245** | **)** | **(3,612** | **)** |
| Refundable income  taxes/benefit reserve                                                   | ** ** | **(2,342**                                 | **)**       | **(4,088** | **)** | **19,051** | ** ** |
| Accrued payroll, payroll  taxes and benefits                                               | ** ** | **2,060**                                  | ** **  | **(49** | **)** | **3,262** | ** ** |
| Accounts payable                                                                           | ** ** | **28,637**                                 | ** **  | **(1,072** | **)** | **(4,026** | **)** |
| Income taxes payable                                                                       | ** ** | **(227**                                   | **)**       | **134** | ** ** | **1,033** | ** ** |
| RGII contingency payment                                                                   | ** ** | **(1,851**                                 | **)**       | **1,221** | ** ** | **630** | ** ** |
| Other accrued expenses                                                                     | ** ** | **(2,590**                                 | **)**       | **582** | ** ** | **(2,303** | **)** |
| Change of Control payable                                                                  | ** ** | **2,938**                                  | ** **  | **—** | ** ** | **—** | ** ** |
| Deferred compensation                                                                      | ** ** | **(165**                                   | **)**       | **530** | ** ** | **747** | ** ** |
| Supplemental executive  retirement plan                                                    | ** ** | **(2,162**                                 | **)**       | **480** | ** ** | **117** | ** ** |
| Other liabilities                                                                          | ** ** | **(627**                                   | **)**       | **317** | ** ** | **(3,064** | **)** |
| **Net cash  provided by/(used in) operating activities**                                   | ** ** | **7,299**                                  | ** **  | **(1,397** | **)** | **16,873** | ** ** |
| ***Cash flows from investing  activities***                                                |       |                                       |        |   |   |   |   |
| Purchases of furniture  and equipment                                                      | ** ** | **(3,252**                                 | **)**       | **(2,050** | **)** | **(2,387** | **)** |
| Proceeds on sale of  investments                                                           | ** ** | **4,705**                                  | ** **  | **—** | ** ** | **2,517** | ** ** |
| Acquisitions, net of cash  received                                                        | ** ** | **—**                                 | ** **  | **(14,714** | **)** | **(22,178** | **)** |
| Proceeds received from  the sale of assets                                                 | ** ** | **562**                                    | ** **  | **—** | ** ** | **149** | ** ** |
| Acquisitions of  intangibles                                                               | ** ** | **—**                                 | ** **  | **—** | ** ** | **(566** | **)** |
| Acquisitions of goodwill                                                                   | ** ** | **—**                                 | ** **  | **(2,461** | **)** | **(1,057** | **)** |
| **Net cash  provided by/(used in) investing activities**                                   | ** ** | **2,015**                                  | ** **  | **(19,225** | **)** | **(23,522** | **)** |
| ***Cash flows from financing  activities***                                                |       |                                       |        |   |   |   |   |
| Payment of notes payable                                                                   | ** ** | **—**                                 | ** **  | **—** | ** ** | **(2,636** | **)** |
| Stock options exercised                                                                    | ** ** | **2,441**                                  | ** **  | **774** | ** ** | **959** | ** ** |
| Purchase of treasury  shares                                                               | ** ** | **—-**                                | ** **  | **—-** | ** ** | **(1,230** | **)** |
| Stock issued on employee  stock purchase plan                                              | ** ** | **668**                                    | ** **  | **623** | ** ** | **391** | ** ** |
| **Net cash  provided by/(used in) financing activities**                                   | ** ** | **3,109**                                  | ** **  | **1,397** | ** ** | **(2,516** | **)** |
| Effect of foreign  currency gains/(losses)                                                 | ** ** | **293**                                    | ** **  | **264** | ** ** | **2,006** | ** ** |
| **Net  increase/(decrease) in cash and cash equivalents**                                  | ** ** | **12,716**                                 | ** **  | **(18,961** | **)** | **(7,159** | **)** |
| **Cash and  cash equivalents at beginning of year**                                        | ** ** | **33,649**                                 | ** **  | **52,610** | ** ** | **59,769** | ** ** |
| **Cash and  cash equivalents at end of year**                                              | ** ** | **$**                                      | **46,365**  | ** ** | **$** | **33,649** | ** ** | **$** | **52,610** | ** ** |
| Supplemental disclosures of cash flow information:                                         |       |                                       |        |   |   |   |   |
| Cash paid/(received) during the year for:                                                  |       |                                       |        |   |   |   |   |
| Interest                                                                                   | ** ** | **$**                                      | **(822**    | **)** | **$** | **(224** | **)** | **$** | **(427** | **)** |
| Income taxes                                                                               | ** ** | **342**                                    | ** **  | **461** | ** ** | **(20,339** | **)** |
| Details of acquisition:                                                                    |       |                                       |        |   |   |   |   |
| Tangible assets acquired  **                                                               | ** ** | ** **                                 | ** **  | **$** | **4,613** | ** ** | **$** | **13,083** | ** ** |
| Liabilities assumed                                                                        | ** ** | ** **                                 | ** **  | **(2,523** | **)** | **(7,442** | **)** |
| Goodwill                                                                                   | ** ** | ** **                                 | ** **  | **11,252** | ** ** | **13,958** | ** ** |
| Intangibles                                                                                | ** ** | ** **                                 | ** **  | **2,540** | ** ** | **2,926** | ** ** |
| Cash paid                                                                                  | ** ** | ** **                                 | ** **  | **15,882** | ** ** | **22,525** | ** ** |
| Less: cash received in  acquisition                                                        | ** ** | ** **                                 | ** **  | **(1,168** | **)** | **(347** | **)** |
| Net cash paid *                                                                            | ** ** | ** **                                 | ** **  | **$** | **14,714** | ** ** | **$** | **22,178** | ** ** |
|                                                                                            |            |                                            |             |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

*                      2003 Included a $1.5 million note payment

**                 Excluding cash of $1,168 in 2004 for the AIMacquisition and $347 in 2003 for the RGII acquisition

***Non Cash Activities:***

During the first quarter of 2004, the Company recordeda reduction in tax benefit reserves and an increase in additional paid-incapital of $19.9 million. During the third quarter of 2004, the Companyrecorded a reduction in other assets and a reduction in additional paid-incapital of $1.2 million.

The accompanying notes are an integral part of these statements.

38

----

**ComputerHorizons Corp. and SubsidiariesNOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2005, 2004 and 2003**

**NOTE1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

*Description of Business*

Computer Horizons Corp. (“CHC”)is a strategic Information Technology solutions and professional servicescompany which does business principally in the United States and Canada. TheCompany enables its Global 2000 (which Forbes magazine defines as the biggestand most important companies as measured by sales, profits, assets and marketvalue) client base to realize competitive advantages through three businesssegments: Commercial, Federal Government (RGII) and Vender Management Services(Chimes). CHC’s Commercial Services business unit is organized into twolines of services: IT Services (IT staffing) and Solutions (project-based ITwork). The IT Services practice provides skilled technology personnel to meetclients’ temporary needs (including support personnel, programmers, architectsand project managers). The Solutions practice offers a very broad range oftechnical knowledge, focusing on application management and support,application development and software quality management. RGII Technologies, Inc.(Federal) provides enterprise management, network infrastructure, informationassurance and security, web development and integration, call management,engineering technology and technical services to Federal government agenciesand large prime contractors, both on and off site. Chimes, Inc., awholly-owned subsidiary of CHC (“Chimes”), provides workforce procurement andmanagement services to Global 2000 companies.

*Principles of Consolidation*

The consolidated financialstatements include the accounts of Computer Horizons Corp. and its wholly-ownedand majority-owned subsidiaries (the “Company”). All subsidiaries of theCompany have been consolidated into these financial statements. ISG - Canadareports their financials on a one-month lag. All material intercompanyaccounts and transactions have been eliminated.

*Revenue Recognition*

Approximately 95% and 94%of consolidated revenue in 2005 and 2004, respectively, was derived fromtime-and-material contracts.

The Company recognizesrevenues either on a time-and-materials basis or on a fixed fee basis. Under atypical time-and-materials billing arrangement, our customers are billed on aregularly scheduled basis, such as biweekly or monthly. At the end of eachaccounting period, revenue is estimated and accrued for services performedsince the last billing cycle. These unbilled amounts are billed the followingmonth.

For fixed fee contracts,revenue is recognized on the basis of the estimated percentage of completion. Eachfixed fee contract has different terms, milestones and deliverables. Themilestones and deliverables primarily relate to the work to be performed andthe timing of the billing. At the end of each reporting period an assessment ofrevenue recognized on the percentage of completion and milestones achievedcriteria is made. If it becomes apparent that estimated cost will be exceededor required milestones or deliverables will not have been obtained, anadjustment to revenue and/or costs will be made. The cumulative effect ofrevisions in estimated revenues and costs are recognized in the period in whichthe facts that give rise to the impact of any revisions become known.

Unbilled accountsreceivable represent amounts recognized as revenue based on services performedin advance of customer billings principally on a time-and-materials basis. Atthe end of each accounting period, revenue is accrued for services performedsince the last billing cycle. These unbilled amounts are 

39

----

billedthe following month. Costs and estimated earnings in excess of billings onfixed fee contracts arise when percentage of completion accounting is used. Suchamounts are billed at specific dates or at contract completion.

The Company’s Chimessubsidiary recognizes revenue on a transaction fee basis. The Chimes serviceoffering aggregates the suppliers of temporary workers to the customer andrenders one invoice to the customer. Upon payment from the customer, Chimesdeducts a transaction fee and remits the balance of the client payment to theapplicable vendor. Chimes recognizes only their fee for the service, not theaggregate billing to the customer. The gross amount of the customer invoicingis not considered revenue or a receivable to Chimes because there is noearnings process for the gross amount and by contract terms, Chimes is notobligated to pay the vendor until paid by the customer.

*Recruitment Costs*

Recruitment costs arecharged to operations as incurred.

*Advertising Costs*

The Company expenses alladvertising costs as incurred and classifies these costs under selling, generaland administrative expenses. Advertising costs for the years ended December 31,2005, 2004 and 2003 were $0.2 million.

*Research and Development Costs*

The Company charges allcosts incurred to establish the technological feasibility of software productsor product enhancements to research and development costs, which are includedin selling, general and administrative expenses and are primarily attributableto the Company’s Chimes subsidiary and RGII monument costs. Research andDevelopment costs for the years ended December 31, 2005, 2004 and 2003were approximately $2.2 million, $3.3 million and $3.8 million, respectively.

*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:

| ** **       | ** ** | **2005**              | ** ** | **2004** | ** ** |
|------------------|------------|-----------------------|------------|----------|------------|
| ** **       | ** ** | **in thousands** | ** ** |
| Cash             |       | $                     | 45,094     |     | $          | 25,456 |   |
| Commercial paper |       | 1,052                 |       | 8,002    |       |
| Restricted cash  |       | 219                   |       | 191      |       |
|             |       | $                     | 46,365     |     | $          | 33,649 |   |

 

Restricted cash representsfunds received by Chimes and held in client-specific bank accounts, to be usedto make payments to vendors of the applicable client. Cash and Accounts Payableat December 31, 2005 and 2004 also includes approximately $29.4 millionand $2.1 million, respectively, of cash to be disbursed to Chimes vendors inaccordance with the client payment terms.

*Investments*

The Company’s marketablesecurities are categorized as available-for-sale securities, as defined by theStatement of Financial Accounting Standards No. 115, “Accounting for CertainInvestments in Debt and Equity Securities.”  Unrealized gains and lossesare reflected as a net amount under the caption of accumulated othercomprehensive loss within the statement of shareholders’ equity. Realized gainsand 

40

----

lossesare recorded within the statement of income under the caption other income orexpenses. For the purposes of computing realized gains and losses, cost isidentified on a specific identification basis.

*Concentrations of Credit Risk*

Financial instruments,which potentially subject the Company to concentrations of credit risk,regardless of the degree of such risk, consist principally of cash and cashequivalents and trade accounts receivable. The Company invests the majority ofits excess cash in overnight commercial paper of high-credit, high quality,short-term money market instruments, high quality financial institutions orcompanies, with certain limitations as to the amount that can be invested inany one entity.

The Company maintains itscash balances principally in twelve financial institutions located in theUnited States, Canada, India, and Puerto Rico. The balances in U.S banks areinsured by the Federal Deposit Insurance Corporation up to $100,000 for eachentity at each institution. The balance in the Canadian bank is insured by theCanadian Deposit Insurance Corporation up to $60,000 Canadian (approximately$51,000 U.S.) per account. Of the balance held in the Indian bank,approximately $36,000 is held in U.S. dollars and is fully insured in (ExportEarners Foreign Currency Account) “EEFC”. The remaining balance is insured bythe Deposit Insurance and Credit Guarantee Corporation up to 100,000 Rupees(approximately $2,000 U.S.). There is no depository insurance in the UnitedKingdom. At December 31, 2005, uninsured amounts held by the Company atthese financial institutions total approximately $62 million. At December 31,2005, the Company had approximately $1.9 million in cash maintained in overseasfinancial institutions.

The Company’s clients aregenerally very large, Global 2000 companies in many industries and with widegeographic dispersion. For the years ended December 31, 2005, 2004, 2003,the Company’s ten largest clients accounted for approximately 32%, 24%, and 38%of its revenues, respectively, and no single client represents more than 6% ofannual revenues.

*Fair Value of Financial Instruments*

The carrying value offinancial instruments (principally consisting of cash and cash equivalents,accounts receivable and payable) approximates fair value because of their shortmaturities.

*Property and Equipment and Depreciation*

Property and equipment arestated at cost. Depreciation is computed using the straight-line method overthe estimated useful lives of the assets which range from three to seven years.

*Impairment of Long-Lived Assets and Long-Lived Assetsto be Disposed Of*

Up to and including theyear ended December 31, 2001, the Company evaluated its long-lived assetsand certain identifiable intangibles for impairment whenever events or changesin circumstances indicated that the carrying amount of such assets orintangibles may not be recoverable. Recoverability of assets to be held andused was measured by a comparison of the carrying amount of an asset to futurenet cash flows expected to be generated by the asset. If such an asset wasconsidered to be impaired, the impairment to be recognized was measured by theamount by which the carrying amount of the asset exceeded the fair value of theassets. Assets to be disposed of were reported at the lower of the carryingamount or fair value less costs to sell.

Effective on January 1,2002, the Company adopted Statement of Financial Accounting Standard No. 144“Accounting for the Impairment or Disposal of Long Lived Assets,” (“FAS 144”). Thissupersedes Statement of Financial Accounting Standard No. 121 “Accountingfor the Impairment of Long-Lived Assets and for Long-Lived Assets to BeDisposed Of” (“FAS 121”), while retaining many of the 

41

----

requirementsof such statement. The effect of the adoption of this statement was immaterialto the Company.

*Income Taxes*

The Company and itsdomestic subsidiaries file a consolidated Federal income tax return. Theforeign subsidiaries file in each of their local jurisdictions.

The Company follows theliability method of accounting for income taxes. Income taxes are provided forthe tax effects of transactions reported in the financial statements andconsist of taxes currently due plus deferred taxes. Deferred income taxes arerecognized for temporary differences between the financial statement carryingamounts and the tax bases of certain assets and liabilities. Temporarydifferences result primarily from net operating loss carryovers, amortizationof goodwill, allowance for doubtful accounts and certain accrued liabilitieswhich are deductible, for tax purposes, only when paid. The Company recordsdeferred tax assets for the future tax consequences attributable to differencesbetween the financial statement carrying amounts of existing assets and theirrespective tax bases, and operating loss carryforwards. Deferred tax assets arereduced by a valuation allowance if, based on available evidence, it is morelikely than not that some portion or all of the deferred tax assets will not berealized. In assessing the realizability of deferred tax assets, managementconsiders the scheduled reversal periods of the deferred tax assets, whethersustained profitability has been achieved and tax planning strategies.

Tax benefits from early dispositionof the stock by optionees under incentive stock options and from exercise ofnon-qualified options are credited to additional paid-in capital.

The Company providesUnited States income taxes on the earnings of foreign subsidiaries, unless theyare considered permanently invested outside the United States. As of December 31,2005, cumulative amount of foreign earnings on which United States income taxeshave not been provided is approximately $115,000.

*Loss Per Share*

Basic loss per share isbased on the weighted average number of common shares outstanding withoutconsideration of common stock equivalents. Diluted loss per share is based onthe weighted average number of common and common equivalent shares outstanding,except when the effect is anti-dilutive. The calculation takes into accountwhen dilutive, the shares that may be issued upon exercise of stock options,reduced by the shares that may be repurchased with the funds received from theexercise, based on the average price during the year. For all years presentedall stock options (See Note 8) were excluded for diluted loss per share becausethey were antidilutive.

*Use of Estimates in Financial Statements*

In preparing financialstatements in conformity with accounting principles generally accepted in theUnited States of America, management makes estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosures ofcontingent assets and liabilities at the date of the financial statements, aswell as the reported amounts of revenues and expenses during the reportingperiod. Actual results could differ from those estimates.

*Foreign Currency Translation*

For operations outside theUnited States that prepare financial statements in currencies other than theUnited States dollar (Canadian dollar, British pound, and Indian Rupee),results of operations and cash flows are translated at the average exchangerates during the period, and assets and liabilities are translated at end ofperiod exchange rates. Exchange amounts included in operations areincome/(loss) of 

42

----

$(23,000),$392,000 and nil for December 31, 2005, 2004 and 2003, respectively. Translationadjustments are included as a separate component of comprehensive income/(loss)within the statement of shareholders’ equity.

*Accounts Receivable*

Accounts receivable aregenerally due within 30 days and are stated at amounts due from clients net ofan allowance for doubtful accounts. Accounts outstanding longer than thecontractual payment terms are considered past due. The Company determines itsallowance by considering a number of factors, including the length of timetrade accounts receivable are past due, the Company’s previous loss history,the client’s current ability to pay its obligation to the Company and the conditionof the general economy and the industry as a whole. The Company writes offaccounts receivable when they become uncollectible, and payments subsequentlyreceived on such receivables are credited to income or the allowance fordoubtful accounts.

*Goodwill*

In June 2001, theFASB approved the issuance of Statement of Financial Accounting Standards No. 141“Business Combinations” (“FAS 141”), and in July 2001, FinancialAccounting Standards No. 142 “Goodwill and Other Intangible Assets” (“FAS142”). The new standards require that all business combinations initiated afterJune 30, 2001 must be accounted for under the purchase method. Inaddition, all intangible assets acquired that are obtained through contractualor legal right, or are capable of being separately sold, transferred, licensed,rented or exchanged are recognized as an asset apart from goodwill. Goodwilland intangibles with indefinite lives are no longer subject to amortization,but are subject to at least an annual assessment for impairment by applying afair value based test.

For the years ended December 31,2003 and 2002 the Company completed valuations of the carrying value of goodwilland it determined that no impairment had occurred.

For the year ended December 31,2004, the Company reassessed the carrying value of goodwill associated with itsCommercial Solutions Group using an evaluation prepared by an independentappraisal firm. Because of a reduction in projected future cash flows in theCommercial Solutions business unit, primarily resulting from significantrevenue declines in 2004, the Company determined that goodwill was impaired andrecorded a non-cash charge of $20.3 million, related to the write-off of theCommercial Solutions goodwill. There was no income tax effect on the impairmentcharge as the related goodwill was primarily attributable to acquisitions whichyielded no tax basis for the Company. The remaining goodwill of $27.6 million,as of December 31, 2004, is associated with the Company’s FederalGovernment segment.

For the year ended December 31,2005, using an evaluation prepared by an independent appraisal firm, theCompany completed an assessment of the fair value and carrying value of itsFederal Government segment. As of December 31, 2005, the indicated fairvalue of the Federal Government reporting unit exceeded the carrying value. Asa result, the Company concluded that the goodwill of approximately $27.6million is not impaired.

43

----

Thechanges in the carrying amount of goodwill for the years ended December 31,2005 and 2004, are as follows (in 000’s):

| **Reporting Units**                  | ** ** | ** ** | ** ** | **December 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|-------------------------------------------|------------|------------|------------|-----------------------------|------------|-----------------------------|------------|
| Balance as of January 1,             |       |       | $          | 27,625                      |       |                        |       | $ | 34,218 |   |   |
| Additions to  goodwill*                   |       |       | —-    |                        |       |                        | 13,713     |   |   |
| Impairment losses  (Commercial Solutions) |       |       | —-    |                        |       |                        | (20,306    | ) |   |
| Balance as of  December 31,          |       |       | $          | 27,625                      |       |                        |       | $ | 27,625 |   |   |

----

*                    Additionsto goodwill in 2004 recorded principally as a result of the acquisition of AIM($11.2 million) by RGII, and the contingent note paid on the EBIT target ofRGII ($1.8 million). Refer to Note 15 regarding repayment of contingentpayments pertaining to the RGII acquisition and the resulting reduction in thecarrying amount of goodwill.

As of December 31,2005 and 2004, the fair value of each of the reporting units was calculatedusing the following approaches (i) market approach and (ii) incomeapproach. The reporting units are equal to, or one level below, reportablesegments. Under the market approach, value is estimated by comparing theperformance fundamentals relating to similar public companies’ stock prices. Multiplesare then developed of the value of the publicly traded stock to variousmeasures and are then applied to each reporting unit to estimate the value ofits equity. Under the income approach, value was determined using the presentvalue of the projected future cash flows to be generated by the reporting unit.

The fair value conclusionof the reporting units reflects an appropriately weighted value of the marketmultiple approach and the income approach discussed above. An asset approachwas not used because the asset approach is most relevant for liquidationapproaches, investment company valuations and asset rich company valuations(i.e. real estate entities) and was not deemed relevant for manufacturing andservice company going-concern valuations.

*Intangible Assets*

Intangible assets are theresult of the acquisition, in July 2003, of certain assets and operationsof RGII, the acquisition of  Xpresssoftware from Commerce One and the acquisition of AIM, by RGII, in April 2004.Accordingly, the Company completed purchase price allocation reviews andaccording to FAS 142, assessed the useful lives of its acquired intangibleassets.

Thefollowing table summarizes the acquired intangible assets, the remaining componentsand the accumulated amortization as of December 31, 2005 (in thousands):

| ** **                         | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Carrying  Amount** | ** ** | **Weighted  Average  Amortization  Period** | ** ** |
|------------------------------------|------------|-----------------------------|------------|-------------------------------|------------|---------------------------|------------|---------------------------------------------|------------|
| Amortized intangible  assets:      |       |                        |       |                          |       |                      |       |                                        |       |   |   |   |   |   |   |   |   |
| Non-compete agreements             |       |                        | 410        |                          |       |                      | 145        |                                        |       |   | 265 |   |   |   | 6.2 yrs |   |   |
| RGII trademark                     |       |                        | 430        |                          |       |                      | 430        |                                        |       |   | 0 |   |   |   | 1 yr |   |   |
| RGII software                      |       |                        | 726        |                          |       |                      | 372        |                                        |       |   | 354 |   |   |   | 4.9 yrs |   |   |
| Client contracts                   |       |                        | 3,900      |                          |       |                      | 2,581      |                                        |       |   | 1,319 |   |   |   | 4.5 yrs |   |   |
| Xpress software—Sold  6/22/05 |       |                        | 566        |                          |       |                      | 566        |                                        |       |   | 0 |   |   |   | 3 yrs |   |   |
| Total                              |       |                        | $          | 6,032                         |       |                      |       | $                                           | 4,094      |   |   |   | $ | 1,938 |   |   |   | 3.7 yrs |   |   |
|                                    |            |                             |            |                               |            |                           |            |                                             |            |  |  |  |  |  |  |  |  |  |  |  |

 

Intangible assetsare being amortized over periods ranging from six months to seven years, basedon the estimated useful lives. The amortization expense on these intangibleassets for the year ended 

44

----

December 31,2005 was $1.1 million. The estimated remaining amortization expense for eachyear ending December 31, is as follows (in thousands):

| 2006  |   | $   | 928    |   |
|-------|--------|-----|--------|--------|
| 2007  |   | 641 |   |
| 2008  |   | 308 |   |
| 2009  |   | 44  |   |
| 2010  |   | 17  |   |
| Total |   | $   | 1,938  |   |

 

*Recent Accounting Pronouncements*

In January 2003, theFASB issued Financial Interpretation No. 46, “Consolidation of VariableInterest Entities” (“FIN 46”), which addresses consolidation by businessenterprises of variable interest entities (“VIEs”). The accounting provisionsand disclosure requirements of FIN 46 are effective immediately for VIEscreated after January 31, 2003, and are effective for the Company’s fiscalperiod ending March 31, 2004, for VIEs created prior to February 1,2003. In December 2003, the FASB published a revision to FIN 46 (“FIN 46R”)to clarify some of the provisions of the interpretation and to defer theeffective date of implementation for certain entities. Under the guidance ofFIN 46R, public companies that have interests in VIEs that are commonlyreferred to as special purpose entities are required to apply the provisions ofFIN 46R for periods ending after December 15, 2003. A public company thatdoes not have any interests in special purpose entities but does have avariable interest in a VIE created before February 1, 2003, must apply theprovisions of FIN 46R by the end of the first interim or annual reportingperiod ending after March 14, 2004. Adoption of FIN 46R did not have amaterial effect on the Company’s financial statements.

In March 2004, the FASBEmerging Issues Task Force (EITF) released Issue No. 03-1, “TheMeaning of Other-Than-Temporary Impairment and Its Application to CertainInvestments.” EITF 03-1 provides guidance for determining whetherimpairment for certain debt and equity investments is other-than-temporary andthe measurement of an impaired loss. The recognition and measurementrequirements of EITF 03-1 were initially effective for reporting periodsbeginning after June 15, 2004. In September 2004, the FASB Staffissued FASB Staff Position (“FSP”) EITF 03-1-1 that delayed theeffective date for certain measurement and recognition guidance contained inEITF 03-1. The FSP requires that entities continue to apply previouslyexisting “other-than-temporary” guidance until a final consensus is reached.Management does not anticipate that issuance of a final consensus willmaterially impact the Company’s financial condition or results of operations.

In December 2004, the FASBissued Statement of Financial Accounting Standard No. 123 (revised 2004), “Share-BasedPayment” (FAS 123R), FAS 123R requires that compensation cost berecognized for new awards of equity instruments and unvested awards on theadoption date. The SEC amended the effective dates of FAS 123R for publiccompanies in April 2005, which allows registrants to implementFAS 123R at the beginning of their next fiscal year, instead of the nextinterim period, that begins after June 15, 2005. The SEC also issued StaffAccounting Bulletin 107, “Share-Based Payment” (SAB 107), in April2005, which provides the views of the SEC staff regarding certain aspects ofthe application of FAS 123R. SAB 107 assists issuers in their initialimplementation of FAS 123R and indicates that the staff’s understandingthat, particularly in the period of initial implementation, issuers mayreasonably arrive at different estimates and option valuations in applyingFAS 123R. The provisions of this statement are effective for the Company’sfirst quarter ending March 31, 2006. Statement 123R requires compensationcost be recognized for new awards of equity instruments and unvested awards onthe adoption date. 

45

----

Statement 123(R) allows for two alternativetransition methods. The first method is the modified prospective applicationwhereby compensation cost for the portion of awards for which the requisiteservice has not yet been rendered that are outstanding as of the adoption datewill be recognized over the remaining service period. The compensation cost forthat portion of awards will be based on the grant-date fair value of thoseawards as calculated for pro forma disclosures under Statement 123, “Accountingfor Stock-Based Compensation”, as originally issued. All new awards and awardsthat are modified, repurchased or cancelled after the adoption date will beaccounted for under the provisions of Statement 123(R). The second methodis the modified retrospective application, which requires that the Companyrestates prior period financial statements. The modified retrospectiveapplication may be applied either to all prior periods or only to prior interimperiods in the year of adoption of this statement. The Company is currentlydetermining which transition method it will adopt and is evaluating the impactStatement 123(R) will have on its financial position, results ofoperations, EPS and cash flows when the Statement is adopted.

In December 2004, theFASB issued Statement of Financial Accounting Standard No. 153, “Exchangesof Nonmonetary Assets” (FAS 153) - an amendment of Accounting Principles BoardOpinion No. 29 (Opinion 29). The guidance in Opinion 29, “Accounting forNonmonetary Transactions” is based on the underlying principle that themeasurement of exchanges of nonmonetary assets should be based on the fairvalue of the assets exchanged. However, Opinion 29 included certain exceptionsto that principle, including a requirement that exchanges of similar productiveassets should be recorded at the carrying amount of the asset relinquished. FAS153eliminates that exception and replaces it with a general exception forexchanges of nonmonetary assets that lack commercial substance. Onlynonmonetary exchanges in which an entity’s future cash flows are expected tosignificantly change as a result of the exchange will be considered to havecommercial substance. FAS 153 must be applied to nonmonetary asset exchangesoccurring in fiscal periods beginning after June 15, 2005. The adoption ofthis statement did not have a material impact on the Company’s financialcondition or results of operations.

In May 2005, the FASBissued Statement of Financial Accounting Standard No. 154, “AccountingChanges and Error Corrections” (FAS 154) , which changes the accounting andreporting requirements for the change in an accounting principle. AccountingPrinciples Board Opinion 20, “Accounting Changes” (Opinion 20), which issuperseded by FAS 154, required that most voluntary changes in accountingprinciple be recognized by including the cumulative effect of changing to thenew accounting principle as a component of net income in the period of thechange. FAS 154 instead requires retrospective application to prior periods’financial statements of changes in an accounting principle, unless it isimpracticable to do so. FAS 154 differentiates between “retrospectiveapplication” and “restatement”.  “Retrospectiveapplication” is defined as the application of a different accounting principleto prior accounting periods as if that principle had always been used or as theadjustment of previously issued financial statements to reflect a change in thereporting entity. In contrast, restatement is defined as the revising ofpreviously issued financial statements to reflect the correction of an error. FAS154 also requires that a change in depreciation, amortization, or depletionmethod for long-lived, nonfinancial assets be accounted for as a change inaccounting estimate effected by a change in accounting principle. The guidancecontained in Opinion 20 for reporting the corrections of errors in previouslyissued financial statements, and changes in accounting estimates is carriedforward to FAS 154 without change. Additionally, FAS 154 carries forward theguidance in Opinion 20 requiring justification of a change in accounting principleon the basis of preferability. FAS 154 is effective for accounting changes andcorrections of errors made in fiscal years beginning after December 15,2005. The Company does not anticipate that the adoption of this statement willhave a material impact on the Company’s financial condition or results ofoperations

*Accounting for Stock Based Compensation*

In December 2002, theFASB approved the issuance of Statement of Financial Accounting Standards No. 148,“Accounting for Stock-Based Compensation—Translation and Disclosure” (“FAS 148”).This 

46

----

statementamends FAS 123, “Accounting for Stock-Based Compensation”, to providealternative methods of transition for a voluntary change to the fair valuebased method of accounting for stock-based employee compensation. In addition,this statement amended the disclosure requirements of FAS 123 to requireprominent disclosures in both annual and interim financial statements about themethod of accounting for stock-based employee compensation and the effect ofthe methods used on reported results. The Company adopted the disclosureprovisions as of December 31, 2002.

Theexercise price per share on all options granted may not be less than the fairvalue at the date of the option grant. The Company applies Accounting PrinciplesBoard Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”)as modified by Financial Interpretation No. 44 “Accounting for CertainTransactions Involving Stock Compensation” (“FIN 44”) in accounting forstock-based employee compensation, whereby no compensation cost had beenrecognized for the plans. Had compensation cost for the plans been determinedbased on the fair value of the options at the grant dates and been consistentwith the method of FAS 123, the Company’s net loss and loss per share wouldhave been reduced to the pro forma amounts indicated below:

| ** **                | ** ** | **2005**                                                                                                                                      | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| ** **                | ** ** | **(in thousands)**                                                                                                                       | ** ** |
| Net  loss                 |       | As reported                                                                                                                                   |       | $        | (46,420    | )        | $          | (25,172 | ) | $ | (17,155 | ) |
|                      |       | Deduct: Total  stock-based employee compensation expense determined under fair value based  method for all awards, net of related tax effects |       | (1,285   | )          | (1,754   | )          | (2,401 | ) |
|                      |       | Pro forma                                                                                                                                     |       | $        | (47,705    | )        | $          | (26,926 | ) | $ | (19,556 | ) |
| Loss  per share           |       |                                                                                                                                          |       |     |       |     |       |   |   |
| Basic &  Diluted |       | As reported                                                                                                                                   |       | $        | (1.48      | )        | $          | (0.82 | ) | $ | (0.56 | ) |
|                      |       | Pro forma                                                                                                                                     |       | (1.52    | )          | (0.87    | )          | (0.64 | ) |

 

The fair value of eachoption grant is estimated on the date of grant using the Black-Scholes optionspricing model with the following weighted-average assumptions used for grantsin 2005, 2004 and 2003, respectively:  expected volatility of 41%, 36% and62%;  risk-free interest rates of 4.39%,4.24% and 4.27%; and expected lives of 8.8, 6.1 and 7.8 years.

*Reclassifications*

Certain reclassificationshave been made to the 2004 and 2003 comparative financial statements to conformto the 2005 presentation.

**NOTE 2—ACCOUNTSRECEIVABLE**

Accounts receivable consist of the following at December 31:

| ** **                                  | ** ** | **2005**                | ** ** | **2004** | ** ** |
|---------------------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                                  | ** ** | **(in thousands)** | ** ** |
| Billed                                      |       | $                       | 45,388     |     | $          | 49,571 |   |
| Unbilled—primarily  scheduled billings |       | 7,390                   |       | 7,665    |       |
|                                        |       | 52,778                  |       | 57,236   |       |
| Less allowance  for doubtful accounts       |       | 4,654                   |       | 5,914    |       |
|                                        |       | $                       | 48,124     |     | $          | 51,322 |   |

 

Included in unbilled accounts receivable atDecember 31, 2005 and 2004 are amounts not yet billable to customers ofapproximately $447,000 and $390,000, respectively.

47

----

**NOTE 3—PROPERTY AND EQUIPMENT**

Property and equipment consist of the following:

| ** **                         | ** ** | **2005**                | ** ** | **2004** | ** ** |
|------------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                         | ** ** | **(in thousands)** | ** ** |
| Furniture, Fixtures and  Equipment |       | $                       | 39,412     |     | $          | 36,669 |   |
| Software                           |       | 3,580                   |       | 3,406    |       |
| Leasehold Improvements             |       | 3,124                   |       | 2,735    |       |
|                               |       | 46,116                  |       | 42,810   |       |
| Less : accumulated  depreciation   |       | 41,051                  |       | 36,815   |       |
|                               |       | $                       | 5,065      |     | $          | 5,995 |   |

 

Property and equipment are stated at cost. Depreciationis computed using the straight-line method over the estimated useful lives ofthe assets which range from three to seven years. Depreciation expense was $4.2million, $4.8 million and $5.3 million for the years ended December 31,2005, 2004 and 2003, respectively.

**NOTE4—ASSET-BASED LENDING FACILITY**

The Company has a $40million line of credit facility with availability based primarily on eligibleclient receivables. Since November 4, 2005, the interest rate has beencalculated using the lesser of: Prime or LIBOR plus 2.5% based on unpaidprincipal. The minimum borrowing base threshold has been eliminated as of November 4,2005. As of December 31, 2005, the Company had no outstanding loan balanceagainst the facility. Based on the Company’s eligible client receivables andcash balances, $8.3 million was available for borrowing as of December 31,2005. The fee for the unused portion of the line of credit is 0.375% per annumbased on $20 million, charged to the Company monthly. This charge, includingother associated fees, was approximately $136,000 and $99,000 for the yearsended December 31, 2005 and 2004, respectively. This line of creditincludes covenants relating to the maintenance of cash balances and providingfor limitations on incurring obligations and spending limits on capitalexpenditures. As of December 31, 2005, the Company was in compliance withthe covenants. This credit facility will remain in effect until July 2006and the Company is currently in discussions to extend the facility.

**NOTE5—PURCHASE OF TREASURY STOCK**

In April of 2001, theBoard of Directors approved the repurchase in the open market of up to 10% ofits common stock outstanding, or approximately 3.2 million shares. The Companydid not repurchase shares of its common stock during the year endedDecember 31, 2005 or 2004. For the year ended December 31, 2003, theCompany had repurchased, in the open market, 392,200 shares of its common stockat an average price of $3.08 per share for an aggregate purchase amount of $1.2million. For the year ended December 31, 2002, the Company hadrepurchased, in the open market, 1,611,700 shares of its common stock at anaverage price of $3.81 per share for an aggregate purchase amount of $6.1million. As of December 31, 2005 authorization for repurchase relates toapproximately 93,000 shares of common stock.

**NOTE 6—SHAREHOLDERS’ EQUITY**

*Stock Options*

In 1994, the Company adopted a stock option plan whichprovides for the granting of options, to officers and key employees, for thepurchase of a maximum of 7,594,000 shares of common stock and stockappreciation rights (“SARs”). Options and SARs generally expire ten years fromthe date of grant and become exercisable in specified amounts during the lifeof the respective options. No SARs have been granted as of December 31,2005. There were 2,427,000 shares available for option grants atDecember 31, 2003, and no shares available as of December 31, 2005 or2004 for the 1994 stock option plan.

48

----

In May 2004, the Company received shareholderapproval and adopted the 2004 Omnibus Incentive Compensation Plan (the “OmnibusPlan”). This plan replaced the 1994 Stock Option and Appreciation Plan andprovides for a maximum number of 3,500,000 shares of common stock issuableunder the plan. These awards may be stock options, stock appreciation rights,restricted stock or performance share awards. This Plan is scheduled to expireon May 19, 2014. As of December 31, 2005 and 2004, there were2,976,500 and 3,294,000 shares, respectively, available for awards under theOmnibus Plan, respectively.

The Company also has a non-qualified Directors’ stockoption plan (the “Directors’ Plan”). In 1998, the Company amended theDirectors’ Plan, providing that each new director of the Company who is not anemployee of the Company (i) shall immediately receive options to purchase10,000 shares of the Company’s common stock and (ii) shall receive annualgrants to purchase an additional 10,000 shares of its common stock. TheDirectors’ Plan originally was to expire on March 4, 2001 and was extendedby the Board of Directors and Shareholders through March 6, 2007. Therewere 74,000, 184,000 and 264,000 shares of common stock available for grant atDecember 31, 2005, 2004 and 2003, respectively, under the Directors’ Plan.

A summary of thestatus of all the Company’s stock option plans as of December 31, 2005,2004 and 2003, and changes during the years ending on those dates is presentedbelow:

| ** **                                                      | ** ** | **2005**                 | ** ** | **2004**                               | ** ** | **2003**                 | ** ** |
|-----------------------------------------------------------------|------------|--------------------------|------------|----------------------------------------|------------|--------------------------|------------|
| ** **                                                      | ** ** | **Shares  (000’s)** | ** ** | **Weighted  average  exercise  price** | ** ** | **Shares  (000’s)** | ** ** | **Weighted  average  exercise  price** | ** ** | **Shares  (000’s)** | ** ** | **Weighted  average  exercise  price** | ** ** |
| Outstanding—January 1                                 |       |                     | 3,656      |                                   |       |                     | $          | 4.23 |   |   |   | 3.845 |   |   |   | $ | 4.08 |   |   | 4,527 |   |   | $ | 7.93 |   |   |
| Granted                                                         |       |                     | 473        |                                   |       |                     | 3.88       |   |   |   | 276 |   |   |   | 3.88 |   |   | 1,527 |   |   | 3.76 |   |   |
| Exercised                                                       |       |                     | (729       | )                                      |       |                     | 3.17       |   |   |   | (321 | ) |   |   | 2.40 |   |   | (361 | ) |   | 2.66 |   |   |
| Canceled/forfeited/expired                                      |       |                     | (725       | )                                      |       |                     | 4.40       |   |   |   | (144 | ) |   |   | 3.68 |   |   | (1,848 | ) |   | 13.27 |   |   |
| Outstanding—December 31                               |       |                     | 2,675      |                                   |       |                     | 3.69       |   |   |   | 3,656 |   |   |   | 4.23 |   |   | 3,845 |   |   | 4.08 |   |   |
| Options  exercisable—December 31                      |       |                     | 2,500      |                                   |       |                     | 3.66       |   |   |   | 2,326 |   |   |   | 4.49 |   |   | 1,420 |   |   | 4.98 |   |   |
| Weighted average fair  value of options granted during the year |       |                     |       |                                   |       |                     | $          | 1.75 |   |   |   |   |   |   |   | $ | 1.68 |   |   |   |   |   | $ | 1.93 |   |   |

 

The followinginformation applies to options outstanding at December 31, 2005:

| **Range of exercise prices** | ** ** | ** ** | ** ** | **Outstanding as of  December 31,  2005  (000’s)** | ** ** | **Weighted  average  remaining  contractual life** | ** ** | **Weighted  average  exercise price** | ** ** | **Exercisable as  of December  31, 2005  (000’s)** | ** ** | **Weighted  average  exercise price** | ** ** |
|---------------------------------------------|------------|------------|------------|------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|--------------------------------------------|------------|------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| 0.00–4.55                              |       |       | 2,645      |                                                                   |       |                                                    | 6.0        |                                       |       |                                                                   | $          | 3.56                                       |       |   |   | 2,470 |   |   |   | $ | 3.51 |   |   |
| 4.55–9.10                              |       |       | 0          |                                                                   |       |                                                    | 0          |                                       |       |                                                                   | 0          |                                       |       |   | 0 |   |   |   | 0 |   |   |
| 9.10–13.65                             |       |       | 0          |                                                                   |       |                                                    | 0          |                                       |       |                                                                   | 0          |                                       |       |   | 0 |   |   |   | 0 |   |   |
| 13.65–18.20                            |       |       | 30         |                                                                   |       |                                                    | 3.7        |                                       |       |                                                                   | 15.52      |                                       |       |   | 30 |   |   |   | 15.52 |   |   |
| 18.20–22.75                            |       |       | 0          |                                                                   |       |                                                    | 0          |                                       |       |                                                                   | 0          |                                       |       |   | 0 |   |   |   | 0 |   |   |
| 22.75–27.30                            |       |       | 0          |                                                                   |       |                                                    | 0          |                                       |       |                                                                   | 0          |                                       |       |   | 0 |   |   |   | 0 |   |   |
|                                        |       |       | 2,675      |                                                                   |       |                                                    | 5.9        |                                       |       |                                                                   | $          | 3.69                                       |       |   |   | 2,500 |   |   |   | $ | 3.66 |   |   |

 

49

----

Prior to the adoption ofFIN 44 and the Sarbanes-Oxley Act of 2002, certain officers had the right toborrow from the Company against the exercise price of options exercised. As of December 31,2005 and 2004, total outstanding borrowings, pertaining to one officer,amounted to $100,000 which borrowings occurred in 1999.

The Company issued 150,001warrants in 2003 to one major shareholder to purchase shares of its commonstock. The exercise price of such warrants is $3.89, representing the fairvalue of the Company’s common stock at the date of grant. As of December 31,2003, 152,134 warrants were outstanding. There were no warrants exercised in2005 or 2004.

*Shareholder Rights Plan*

In July 1989, theBoard of Directors declared a dividend distribution of .131 preferred stockpurchase right on each outstanding share of common stock of the Company. Therights were amended on February 13, 1990. Each right will, under certaincircumstances, entitle the holder to buy one one-thousandth (1/1000) of a shareof Series A preferred stock at an exercise price of $90.00 per oneone-thousandth (1/1000) share, subject to adjustment. Each one one-thousandth(1/1000) of a share of Series A preferred stock has voting, dividend andliquidation rights and preferences substantively equivalent to one share ofcommon stock.

The rights will beexercisable and transferable separately from the common stock only if a personor group acquires 20% or more, subject to certain exceptions, of the Company’soutstanding common stock or announces a tender offer that would result in theownership of 20% or more of the common stock. If a person becomes the owner ofat least 20% of the Company’s common shares (an “Acquiring Person”), eachholder of a right other than the Acquiring Person is entitled, upon payment ofthe then current exercise price per right (the “Exercise Price”), to receiveshares of common stock (or common stock equivalents) having a market valueequal to twice the Exercise Price.

Additionally, if the Companysubsequently engages in a merger or other business combination with theAcquiring Person in which the Company is not the surviving corporation, or inwhich the outstanding shares of the Company’s common stock are changed orexchanged, or if more than 50% of the Company’s assets or earning power is soldor transferred, a right would entitle a Computer Horizon Corp. shareholder,other than the Acquiring Person and its affiliates, to purchase upon payment ofthe Exercise Price, shares of the Acquiring Person having a market value oftwice the Exercise Price. Prior to a person becoming an Acquiring Person, therights may be redeemed at a redemption price of one cent per right, subject toadjustment. The rights are subject to amendment by the Board. No shareholderrights have become exercisable. The rights originally would have expired on July 16,1999, however, the Board of Directors approved the adoption of a newShareholder Rights Plan to replace the existing plan. The terms of the newRights Plan are substantially the same as the original plan. The new rightswill expire on July 15, 2009.

*Stock Option Exchange Program*

On January 8, 2003,the Company commenced a tender offer to its employees to exchange stock optionsgranted under the Company’s 1994 Incentive Stock Option and Appreciation Planwith an exercise price of $10.01 or greater for new stock options with a newexercise price. The tender offer expired on February 10, 2003, and1,635,526 options were accepted for exchange. On August 13, 2003, 545,928options were issued for the exchange at an exercise price of $3.89 per share.

*Treasury Stock Reclassification*

The Company utilizes thecost method in the recording of treasury stock. During the fourth quarter of2005, the Company determined that the recording of the issuance of treasurystock pertaining to stock option exercises was not in accordance with GAAP. Asa result, the Company recorded a reclassification 

50

----

withinShareholders’ Equity of approximately $2.7 million, which decreased treasurystock and decreased additional paid-in capital. Due to the amount and nature ofthis reclassification within Shareholders’ Equity, the Company deemed thiscorrection to be immaterial.

**NOTE 7—INCOME TAXES**

Thefollowing is a geographical breakdown of the Company’s loss before taxes:

| ** ** | ** ** | **Year ended December 31,** | ** ** |
|------------|------------|--------------------------------------------|------------|
| ** ** | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** ** | ** ** | **(in thousands)**                    | ** ** |
| Domestic   |       | $                                          | (27,187    | ) | $ | (26,929 | ) | $ | (20,360 | ) |
| Foreign    |       | 935                                        |       | (888 | ) | (3,115 | ) |
|       |       | $                                          | (26,252    | ) | $ | (27,817 | ) | $ | (23,475 | ) |

 

Theprovision for income taxes/(benefit) consists of the following for the yearsended December 31:

| ** **     | ** ** | **2005**                | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------|------------|-------------------------|------------|----------|------------|----------|------------|
| ** **     | ** ** | **(in thousands)** | ** ** |
| Current        |       |                    |       |     |       |     |       |
| Federal        |       | $                       | (7         | )        | $          | (1,181   | )          | $ | 30 |   |
| State          |       | 570                     |       | (255     | )          | 311      |       |
| Foreign        |       | 39                      |       | —   |       | —   |       |
| Total current  |       | 602                     |       | (1,436   | )          | 341      |       |
| Deferred       |       |                    |       |     |       |     |       |
| Federal        |       | 18,766                  |       | (2,320   | )          | (6,750   | )          |
| State          |       | 800                     |       | 1,066    |       | —   |       |
| Foreign        |       | —                  |       | —   |       | —   |       |
| Total deferred |       | 19,566                  |       | (1,254   | )          | (6,750   | )          |
|           |       | $                       | 20,168     |     | $          | (2,690   | )          | $ | (6,409 | ) |

 

51

----

Deferredtax assets and liabilities consist of the following at December 31:

| ** **                                          | ** ** | **2005**                | ** ** | **2004** | ** ** |
|-----------------------------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                                          | ** ** | **(in thousands)** | ** ** |
| Deferred tax  liabilities                           |       |                    |       |     |       |
| Payroll credit  receivable, Foreign                 |       | (1,997                  | )          | (1,039   | )          |
| Amortization of  intangibles                        |       | (764                    | )          | (276     | )          |
| Prepaid insurance                                   |       | (506                    | )          | (372     | )          |
| Total deferred  tax liabilities                     |       | $                       | (3,267     | )        | $          | (1,687 | ) |
| Deferred tax assets                                 |       |                    |       |     |       |
| Federal and state  net operating losses             |       | 32,474                  |       | 24,336   |       |
| Foreign net  operating losses                       |       | 2,767                   |       | 2,654    |       |
| Capital losses                                      |       | 1,315                   |       | 1,222    |       |
| Depreciation                                        |       | 1,621                   |       | 522      |       |
| Amortization of  intangibles, Foreign               |       | 5,915                   |       | 5,729    |       |
| Accrued payroll  and benefits                       |       | 2,409                   |       | 2,431    |       |
| Allowance for  doubtful accounts                    |       | 1,081                   |       | 2,077    |       |
| Restructuring  charges                              |       | 257                     |       | 277      |       |
| Other                                               |       | 529                     |       | 984      |       |
| Net deferred tax  assets before valuation allowance |       | 45,101                  |       | 38,545   |       |
| Valuation  allowance                                |       | (45,101                 | )          | (18,979  | )          |
| Net deferred tax  assets                            |       | $                       | —     |     | $          | 19,566 |   |
| Current                                             |       | $                       | —     |     | $          | 1,868 |   |
| Non current                                         |       | —                  |       | 17,698   |       |
| Total                                               |       | $                       | —     |     | $          | 19,566 |   |

 

A reconciliation ofincome taxes/(benefit), as reflected in the accompanying statements, with thestatutory Federal income tax rate of 35% for the years ended December 31,2005, 2004 and 2003 is as follows:

| ** **                                                         | ** ** | **2005**                | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------------------------------|------------|-------------------------|------------|----------|------------|----------|------------|
| ** **                                                         | ** ** | **(in thousands)** | ** ** |
| Statutory Federal income taxes                                     |       | $                       | (9,188     | )        | $          | (9,736   | )          | $ | (8,217 | ) |
| State and local income taxes/(benefit), net of  Federal tax effect |       | (893                    | )          | (924     | )          | (351     | )          |
| Goodwill impairment                                                |       | —                  |       | 5,391    |       | —   |       |
| Change of control expenses                                         |       | 3,579                   |       | —   |       | —   |       |
| Change in valuation allowance                                      |       | 26,838                  |       | 3,632    |       | 1,646    |       |
| Other, net                                                         |       | (168                    | )          | (1,053   | )          | 513      |       |
|                                                               |       | $                       | 20,168     |     | $          | (2,690   | )          | $ | (6,409 | ) |

 

52

----

Thefollowing table summarizes the changes in the valuation allowance for the yearsended December 31, 2005, 2004 and 2003:

| ** **                                                             | ** ** | **2005**                | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------------------------------------------|------------|-------------------------|------------|----------|------------|----------|------------|
| ** **                                                             | ** ** | **(in thousands)** | ** ** |
| Valuation Allowance at beginning of year                               |       | 13,793                  |       | 11,612   |       | 10,289   |       |
| Reclassification to conform to 2005 presentation of  foreign tax items |       | 5,186                   |       | —   |       | —   |       |
| Adjusted valuation allowance at beginning of year                      |       | 18,979                  |       | 11,612   |       | 10,289   |       |
| Reserve on current year tax assets charged to  expense                 |       | 7,272                   |       | 2,852    |       | 1,646    |       |
| Reserve on prior year tax assets charged to expense                    |       | 19,566                  |       | 780      |       | —   |       |
| Changes in fully reserved assets and other                             |       | (716                    | )          | (1,451   | )          | (323     | )          |
| Valuation Allowance at  end of year                                    |       | 45,101                  |       | 13,793   |       | 11,612   |       |

 

The Company hassignificant deferred tax assets from federal, state, and foreign net operatingloss carryforwards and capital loss carryforwards. At December 31, 2005the Company had a Federal net operating loss carryforward of approximately$67.9 million; $11.4 million expires in 2022, $18.3 million expires in 2023,$18.6 million expires in 2024, and $19.6 million expires in 2025. The netoperating loss carryforwards include stock option deductions of approximately$1.0 million. The tax benefit related to the stock option deductions willbe a credit to additional paid-in capital when realized.

Full valuation allowanceswere provided on the future tax benefits related to capital losses, foreign netoperating losses, and most state net operating losses as of December 31,2002. These valuation allowances are appropriate because these deferred taxassets have relatively short carryforward periods and relate to taxingjurisdictions which do not allow the filing of consolidated tax returns.

At December 31, 2005,certain foreign subsidiaries of the Company had net operating losscarryforwards totaling approximately $8.1 million (including $6.7 million inCanada, $1.3 million in the United Kingdom, and $0.1 million in othercountries); $1.6 million expires in 2006, $1.1 million expires in 2007, $1.8million expires in 2008, $1.6 million expires in 2011, $0.6 million expires in2012, and the remainder has no expiration. A full valuation allowance has beenrecorded on the foreign taxes due to the uncertainty of the realization ofcertain tax benefits from these net operating loss carryforwards.

In prior years managementrelied primarily on future projected income in assessing the realizability ofdeferred tax assets resulting from federal net operating loss carryforwards andother deductible temporary differences. As of December 31, 2005 it wasdetermined that because of continued losses through the fourth quarter of thecurrent year, it was no longer appropriate to rely on future projected incomeuntil sustained profitability has been achieved. Accordingly, the Companyrecorded a full valuation allowance on its remaining net deferred tax assets of$19.5 million in the fourth quarter of 2005.

At December 31, 2005refundable income taxes consisted primarily of refundable payroll creditsclaimed on the Company’s Canadian income tax returns.

On March 9, 2002, theJob Creation and Worker Assistance Act of 2002 (the “Act”) was enacted into law.This Act contained many economic and tax incentives, including the extension ofthe carryback period for losses arising in years ending during 2001 and 2002 tofive years from the previous two year carryback rule. As a result, the Company’stax refund claim of approximately $10 million at December 31, 2001, whichwas received in April 2002, was increased to approximately $30 million. Theadditional refund amount of $20 million was received in January 2003.

In December 2003, theInternal Revenue Service examined the Company’s Federal income tax returns forthe years ended December 31, 2001 and 2000, along with its Federal refundclaims for the calendar years 1996 through 1999. The additional refund amountreceived in January 2003 was shown as a liability until the audit wascompleted. During the first quarter of 2004, the Internal Revenue Service andthe Joint 

53

----

Committeeon Taxation completed their examination of the Company’s Federal income taxreturns and Federal refund claims, and accepted them without change. Accordingly,the tax benefit was recorded as a decrease in tax benefit reserves of $19.6million, a decrease in other tax reserves of $0.3 million, and an increase inadditional paid-in capital of $19.9 million. There was no charge or credit toincome. The Company did not record deferred tax assets for the tax benefitsbeing carried forward due to remaining uncertainties. It is anticipated that adeferred tax asset, net of an appropriate valuation allowance, will be recordedwhen it is probable that the tax benefit will be realized. The tax benefit willbe reflected as an increase in additional paid-in capital.

The Company assesses thelikelihood of the ultimate determination of various contingent tax liabilitiesthat arise in many different taxing jurisdictions. These tax matters can becomplex in nature and uncertain as to the ultimate outcome. The Companyestablishes reserves for tax contingencies when it believes that an unfavorableoutcome is likely to occur and the liability can be reasonably estimated. Althoughthe Company believes these positions are fully supportable, the likelihood ofpotential challenges and sustainability of such challenges upon examination areconsidered. The Company had reserves for tax contingencies at December 31,2005 and December 31, 2004 of approximately $1.2 million and $1.3 million,respectively. Changes in the Company’s tax reserves have occurred and arelikely to continue to occur as changes occur in the current facts andcircumstances. The net impact of the reassessments of such changes resulted inthe recognition of income tax benefits of $0.1 million for the year ended December 31,2005, and income tax benefit of $1.5 million for the year ended December 31,2004. In addition, the Company’s Federal net operating loss carryforward at December 31,2005 of $67.9 million excludes deductions of approximately $14.4 million foruncertain tax positions relating to transactions occurring in the ordinarycourse of business.

**NOTE8—LOSS PER SHARE DISCLOSURES**

The computation of dilutedloss per share excludes all options because they are antidilutive. During 2005,there were 1,903,000 excluded options outstanding with a weighted averageexercise price of $2.45 per share at December 31, 2005.  During 2004, there were 3,656,000 excludedoptions outstanding with a weighted average exercise price of $4.23 per shareat December 31, 2004. During 2003, there were 3,854,000 excluded optionsoutstanding at December 31, 2003 with a weighted average exercise price of$4.08 per share.

**NOTE 9—SEGMENTINFORMATION**

During the fourth quarterof 2004, the Company completed a restructuring initiative whereby the Company’sbusiness model has been realigned, effective January 1, 2005, around itsthree distinct segments of clients: Commercial, Federal Government and VendorManagement services (Chimes).  Thisrealigned business model is designed to deliver improved operationalperformance for the Company and reduce annual operating costs. All prior yearamounts reported in this footnote have been changed to reflect the Company’srealigned business segment.

54

----

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 andgoodwill impairment. These exclusions total expense of $22.6 million, $24.6million and $18.0 million for the years ended December 31, 2005, 2004 and2003, respectively.  Long-term assetsinclude goodwill, intangibles and property, plant and equipment. Corporateservices, consisting of general and administrative services are provided to thesegments from a centralized location. Such costs are allocated to theapplicable segments receiving Corporate services based on revenue.

| **BY LINE OF BUSINESS**        | ** ** | ** **              | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------------------------|------------|-------------------------|------------|----------|------------|----------|------------|----------|------------|
| ** **                                    | ** ** | **(in thousands)** | ** ** |
| *Revenue:*                                    |       |                    |       |     |       |     |       |
| Commercial                                    |       | $                       | 195,435    |     | $          | 191,096  |       | $        | 206,972    |   |
| Federal                                       |       | 44,980                  |       | 48,339   |       | 18,220   |       |
| Chimes                                        |       | 28,421                  |       | 23,092   |       | 20,018   |       |
| Total revenue                                 |       | $                       | 268,836    |     | $          | 262,527  |       | $        | 245,210    |   |
| *Gross  Margin:*                              |       |                    |       |     |       |     |       |
| Commercial                                    |       | $                       | 36,786     |     | $          | 38,004   |       | $        | 45,484     |   |
| Federal                                       |       | 20,408                  |       | 22,221   |       | 7,902    |       |
| Chimes                                        |       | 27,483                  |       | 21,696   |       | 18,626   |       |
| Total gross margin                            |       | $                       | 84,677     |     | $          | 81,921   |       | $        | 72,012     |   |
| *Operating  income/(loss):*                   |       |                    |       |     |       |     |       |
| Commercial                                    |       | $                       | 8,155      |     | $          | 8,350    |       | $        | 15,609     |   |
| Federal                                       |       | 4,449                   |       | 6,468    |       | 1,702    |       |
| Chimes                                        |       | 5,801                   |       | 1,420    |       | (2,177   | )          |
| Total operating income/(loss)                 |       | $                       | 18,405     |     | $          | 16,238   |       | $        | 15,134     |   |
| *Corporate  Allocation:*                      |       |                    |       |     |       |     |       |
| Commercial                                    |       | $                       | 17,375     |     | $          | 15,600   |       | $        | 18,104     |   |
| Federal                                       |       | 1,846                   |       | 1,793    |       | 747      |       |
| Chimes                                        |       | 2,848                   |       | 2,065    |       | 1,841    |       |
| Total corporation allocation                  |       | $                       | 22,069     |     | $          | 19,458   |       | $        | 20,692     |   |
| *Income/(loss)  before income tax benefit:*   |       |                    |       |     |       |     |       |
| Commercial                                    |       | $                       | (9,220     | )        | $          | (7,250   | )          | $        | (2,495     | ) |
| Federal                                       |       | 2,603                   |       | 4,675    |       | 955      |       |
| Chimes                                        |       | 2,953                   |       | (645     | )          | (4,018   | )          |
| Total income/(loss) before income tax benefit |       | $                       | (3,664     | )        | $          | (3,220   | )          | $        | (5,558     | ) |
| *Assets:*                                     |       |                    |       |     |       |     |       |
| Commercial                                    |       | $                       | 59,758     |     | $          | 93,158   |       | $        | 134,589    |   |
| Federal                                       |       | 45,840                  |       | 53,179   |       | 30,306   |       |
| Chimes                                        |       | 37,745                  |       | 12,747   |       | 15,431   |       |
| Total assets                                  |       | $                       | 143,343    |     | $          | 159,084  |       | $        | 180,326    |   |
| *Depreciation  Expense:*                      |       |                    |       |     |       |     |       |
| Commercial                                    |       | $                       | 2,339      |     | $          | 2,858    |       | $        | 3,674      |   |
| Federal                                       |       | 909                     |       | 431      |       | 186      |       |
| Chimes                                        |       | 933                     |       | 1,532    |       | 1,476    |       |
| Total depreciation                            |       | $                       | 4,181      |     | $          | 4,821    |       | $        | 5,336      |   |

 

55

----

| **BY GEOGRAPHIC AREA *** | ** ** | ** **              | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------------------|------------|-------------------------|------------|----------|------------|----------|------------|----------|------------|
| ** **                              | ** ** | **(in thousands)** | ** ** |
| REVENUE                                 |       |                    |       |     |       |     |       |
| United States                           |       | $                       | 232,620    |     | $          | 234,525  |       | $        | 219,453    |   |
| Canada                                  |       | 35,614                  |       | 27,592   |       | 24,709   |       |
| Europe                                  |       | 262                     |       | 272      |       | 627      |       |
| India                                   |       | 236                     |       | 138      |       | 421      |       |
| Puerto Rico                             |       | 104                     |       | —   |       | —-  |       |
| Total Revenue                           |       | $                       | 268,836    |     | $          | 262,527  |       | $        | 245,210    |   |

 

----

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

| LONG-TERM ASSETS        |   |   |   |   |   |   |   |
|-------------------------|--------|--------|--------|--------|--------|--------|--------|
| United States           |   | $      | 32,670 |   | $      | 35,621 |   | $ | 45,191 |   |
| Canada                  |   | 1,915  |   | 1,211  |   | 705    |   |
| India                   |   | 46     |   | 41     |   | — |   |
| Total Long-Term  Assets |   | $      | 34,631 |   | $      | 36,873 |   | $ | 45,949 |   |

 

*Reconciliation of Segments Loss before Income TaxBenefit to Consolidated Loss Before Income Tax Benefit:*

| ** **                                     | ** ** | **2005**                | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------------------|------------|-------------------------|------------|----------|------------|----------|------------|
| ** **                                     | ** ** | **(in thousands)** | ** ** |
| Total segments  loss before income tax benefit |       | $                       | (3,664     | )        | $          | (3,220   | )          | $ | (5,558 | ) |
| Adjustments:                                   |       |                    |       |     |       |     |       |
| Change of Control charges                      |       | (13,247                 | )          |     |       |     |       |
| Special credits / (charges)                    |       | (5,728                  | )          | 939      |       | (10,113  | )          |
| Restructuring charges                          |       | (2,175                  | )          | (2,859   | )          | (3,278   | )          |
| Amortization of intangibles                    |       | (1,080                  | )          | (1,695   | )          | (1,084   | )          |
| Net gain/(loss) on investments                 |       | (1,180                  | )          | —-  |       | (432     | )          |
| Write-off of terminated project                |       | —-                 |       | —-  |       | (3,064   | )          |
| Loss on sale of assets                         |       | —-                 |       | —-  |       | (424     | )          |
| Interest income                                |       | 849                     |       | 337      |       | 529      |       |
| Interest expense                               |       | (27                     | )          | (103     | )          | (51      | )          |
| Goodwill impairment                            |       | —-                 |       | (20,306  | )          | —   |       |
| Write-off of assets                            |       | —-                 |       | (910     | )          | —   |       |
| Total Adjustments                              |       | (22,588                 | )          | (24,597  | )          | (17,917  | )          |
| Consolidated loss before  income taxes         |       | $                       | (26,252    | )        | $          | (27,817  | )          | $ | (23,475 | ) |

 

**NOTE10—SAVINGS PLAN AND OTHER RETIREMENT PLANS**

The Company maintains a defined contribution savingsplan covering eligible employees. The Company makes contributions up to aspecific percentage of participants’ contributions. The Company contributedapproximately $1.4M, $1.4M and $1.1M in 2005, 2004 and 2003, respectively.

In 2004, the Company maintained a SupplementalExecutive Retirement Plan (SERP), whereby key executives were entitled toreceive payments upon reaching the age of 65 and being in the employment of theCompany. Benefits accrue and vest based on a formula which includes total yearswith the Company and total years until age 65. In the event of a change ofcontrol, as defined in the SERP Plan, this event would result in an immediatevesting of the retirement benefit. The Plan is nonqualified and not formallyfunded. Life insurance policies on the members are purchased to assist infunding the cost. The cumulative accrued liability for the SERP is determinedbased on the Unit Credit Method by using a discount rate of 

56

----

9% until age 65 for eachparticipant. This plan was terminated as a result of the change of control ofthe Company in October 2005, and the related payment of all existing SERPassets to participants in the fourth quarter of 2005. The sale of the SERPinvestments generated approximately $4.7 million of proceeds and resultedin a loss on sale of approximately $1.2 million in the fourth quarter of2005. The SERP expense was charged to operations during the remaining servicelives of the members and was $79,000 in 2005, $480,000 in 2004 and $480,000 in2003.

In addition, the Company adopted a DeferredCompensation Plan for key executives that permits the individuals to defer aportion of their annual salary or bonus for a period of at least five years. Thereis no effect on the Company’s operating results since any amounts deferredunder the plan are expensed in the period incurred. Amounts deferred amountedto $2.5 million and $2.6 million as of December 31, 2005 and 2004,respectively.

Thefollowing represents the fair value (included in Other Non-current Assets) andunrealized gain/(loss) for the deferred compensation and SERP plans as of December 31,2005 and 2004 (amounts in thousands):

| ** **                                 | ** ** | **As of**              | ** ** | **For the years ended**                         | ** ** |
|--------------------------------------------|------------|-----------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                 | ** ** | **December 31,  2005** | ** ** | **December 31,  2004**                                    | ** ** | **December 31,  2005** | ** ** | **December 31,  2004** | ** ** |
| ** **                                 | ** ** | **Fair Value**         | ** ** | **Unrealized gain/(loss) on  SERP investments** | ** ** |
| Universal/Whole  Life insurance            |       |                        | $          | 880                                                            |       |   |   | $ | 645 |   |   |   | $ | —- |   |   |   | $ | —- |   |   |
| Money market  funds                        |       |                        | 365        |                                                           |       |   | 395 |   |   |   | —- |   |   |   | 96 |   |   |
| Debt securities  issued by the US Treasury |       |                        | 260        |                                                           |       |   | 367 |   |   |   | —- |   |   |   | (32 | ) |   |
| Corporate debt  securities                 |       |                        | —-    |                                                           |       |   | 148 |   |   |   | —- |   |   |   | (17 | ) |   |
| Mortgage-backed  securities                |       |                        | 270        |                                                           |       |   | 227 |   |   |   | —- |   |   |   | (16 | ) |   |
| Equity securities                          |       |                        | 685        |                                                           |       |   | 4,903 |   |   |   | —- |   |   |   | 294 |   |   |
| Other                                      |       |                        | 9          |                                                           |       |   | —- |   |   |   | —- |   |   |   | —- |   |   |
| Total                                      |       |                        | $          | 2,469                                                          |       |   |   | $ | 6,685 |   |   |   | $ |   |   |   |   | $ | 325 |   |   |

 

During 1999, the Company adopted an Employee Stock PurchasePlan to provide substantially all employees who have completed six months ofservice an opportunity to purchase shares of its common stock through payrolldeductions, up to 10 percent of eligible compensation. Quarterly, participantaccount balances are used to purchase shares of stock at 85 percent of its fairmarket value on either the first or last trading day of each calendar quarter. Atotal of 4 million shares were approved, with approximately 2.1 millionavailable for purchase under the plan at December 31, 2005. There were200,102, 171,222 and 153,765 shares purchased under the plan in 2005, 2004 and2003, respectively.

In December 2003, John Cassese, the former CEO ofComputer Horizons Corp., received a lump-sum payment of $1.3 million, net oftaxes from his deferred compensation plan account in accordance with hisseverance agreement. The Company redeemed insurance policies to fund thispayment and received approximately $2.5 million for the surrender values of thesplit dollar policies. The Company recorded a realized loss of approximately$432,000 on investments for these insurance policies, which had an originalcost of approximately $2.9 million.

57

----

**NOTE 11—COMMITMENTS**

**Leases**

TheCompany leases office space and equipment under long-term operating leasesexpiring through 2009. As of December 31, 2005, approximate minimum rentalcommitments were as follows:

| **Year ending** | ** ** | ** ** | ** ** | **(in thousands)** | ** ** |
|----------------------|------------|------------|------------|-------------------------|------------|
| 2006                 |       |       | $          | 4,072                   |       |   |
| 2007                 |       |       | 2,350      |                    |       |
| 2008                 |       |       | 429        |                    |       |
| 2009                 |       |       | 279        |                    |       |
| Thereafter           |       |       | 393        |                    |       |
|                 |       |       | $          | 7,523                   |       |   |

 

Office rentals are subjectto escalations based on increases in real estate taxes and operating expenses. Rentexpense, net of sublease income of approximately $ 16,000, $131,000 and$137,000 for December 31, 2005, 2004 and 2003, respectively, for operatingleases approximated $7.5 million, $5.7 million and $5.0 million in the yearsended December 31, 2005, 2004 and 2003, respectively.

**Other**

In 2003, the Companyentered into a separation package with the Company’s former CEO which containeda commitment for the Company to provide continued medical coverage until age75, with remaining payments totaling approximately $47,000 at December 31,2005.

**NOTE12—SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)**

Forthe years ended December 31, 2005 and 2004, selected quarterly financialdata is as follows:

| ** **                                     | ** ** | **Quarters**                                                       | ** ** |
|------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                     | ** ** | **First**                                                          | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
| ** **                                     | ** ** | **(in thousands, except per share data)** | ** ** |
| 2005                                           |       |                                                               |       |   |   |   |   |   |   |
| Revenues                                       |       | $                                                                  | 66,573     |   | $ | 69,065 |   | $ | 67,418 |   | $ | 65,780 |   |
| Direct costs                                   |       | 45,587                                                             |       | 47,764 |   | 45,640 |   | 45,169 |   |
| Gross profit                                   |       | 20,986                                                             |       | 21,301 |   | 21,778 |   | 20,611 |   |
| Selling, general  and administrative           |       | 20,977                                                             |       | 21,208 |   | 22,983 |   | 23,173 |   |
| Restructuring  charges                         |       | —                                                             |       | 142 |   | 574 |   | 1,459 |   |
| Change of Control  charges                     |       | —                                                             |       | — |   | — |   | 13,247 |   |
| Special  charges/(credits)                     |       | (675                                                               | )          | (252 | ) | 5,421 |   | 1,236 |   |
| Amortization of  intangibles                   |       | 350                                                                |       | 264 |   | 233 |   | 233 |   |
| Income/(Loss)  from operations                 |       | 334                                                                |       | (59 | ) | (7,433 | ) | (18,737 | ) |
| Loss on  Investments                           |       | —                                                             |       | — |   | — |   | (1,180 | ) |
| Interest  income/(expense)—net            |       | 175                                                                |       | 120 |   | 258 |   | 269 |   |
| (Loss)/profits  before income taxes            |       | 509                                                                |       | 61 |   | (7,175 | ) | (19,648 | ) |
| Income  taxes/(benefit)                        |       | 178                                                                |       | 22 |   | 163 |   | 19,808 |   |
| Net Income/(Loss)                              |       | $                                                                  | 331        |   | $ | 39 |   | $ | (7,338 | ) | $ | (39,456 | ) |
| Earnings/(Loss) per share (basic and diluted): |       | 0.01                                                               |       | 0.00 |   | (0.23 | ) | (1.24 | ) |

 

58

----

 

| ** **                                   | ** ** | **Quarters**                                                       | ** ** |
|----------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                   | ** ** | **First**                                                          | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
| ** **                                   | ** ** | **(in thousands, except per share data)** | ** ** |
| 2004                                         |       |                                                               |       |   |   |   |   |   |   |
| Revenues                                     |       | $                                                                  | 59,706     |   | $ | 65,790 |   | $ | 69,397 |   | $ | 67,634 |   |
| Direct costs                                 |       | 40,806                                                             |       | 44,507 |   | 47,880 |   | 47,413 |   |
| Gross profit                                 |       | 18,900                                                             |       | 21,283 |   | 21,517 |   | 20,221 |   |
| Selling, general  and administrative         |       | 19,587                                                             |       | 21,554 |   | 21,851 |   | 22,149 |   |
| Restructuring  charges                       |       | —                                                             |       | — |   | — |   | 2,859 |   |
| Goodwill  impairment                         |       | —                                                             |       | — |   | — |   | 20,306 |   |
| Write-off of  assets                         |       | —                                                             |       | — |   | — |   | 910 |   |
| Special (credits)                            |       | —                                                             |       | (939 | ) | — |   | — |   |
| Amortization of  intangibles                 |       | 208                                                                |       | 520 |   | 484 |   | 483 |   |
| (Loss)/profit  from operations               |       | (895                                                               | )          | 148 |   | (818 | ) | (26,486 | ) |
| Interest  income/(expense) - net             |       | 83                                                                 |       | 29 |   | 93 |   | 29 |   |
| Loss before  income taxes                    |       | (812                                                               | )          | 177 |   | (725 | ) | (26,457 | ) |
| Income taxes/(benefit)                       |       | (254                                                               | )          | 97 |   | (323 | ) | (2,210 | ) |
| Minority interest                            |       | (9                                                                 | )          | 45 |   | (58 | ) | (23 | ) |
| Net loss                                     |       | $                                                                  | (567       | ) | $ | 125 |   | $ | (460 | ) | $ | (24,270 | ) |
| Income/(Loss) per share (basic and diluted): |       |                                                               |       |   |   |   |   |   |   |
| Net loss                                     |       | $                                                                  | (0.02      | ) | $ | 0.00 |   | $ | (0.01 | ) | $ | (0.78 | ) |

 

**NOTE 13—RESTRUCTURING CHARGES**

During 2005, in connection with the reorganization ofthe Commercial Services Division, the Company recorded restructuring charges ofapproximately $2.2 million, comprised of $1.2 million in severance costs and$1.0 million pertaining to the closing/consolidation of office space in theUnited States. The lease obligation is calculated based on current rentcommitments, less a estimated sublease amount.

| ** **          | ** ** | **Recorded**                         | ** ** | **Paid** | ** ** | **Remaining at  December 31, 2005** | ** ** |
|---------------------|------------|--------------------------------------|------------|----------|------------|----------------------------------------------------|------------|
| ** **          | ** ** | **(dollars in thousands)** | ** ** |
| Severance:          |       |                                 |       |     |       |                                               |       |   |   |   |   |
| Canada              |       |                                 | $          | 535      |       |                                               | $          | (134 | ) |   | $ | 401 |   |   |
| United States       |       |                                 | 698        |     |       | (689                                               | )          |   | 9 |   |   |
| Total Severance     |       |                                 | $          | 1,233    |       |                                               | $          | (823 | ) |   | $ | 410 |   |   |
| Lease Obligations : |       |                                 |       |     |       |                                               |       |   |   |   |   |
| United States       |       |                                 | $          | 942      |       |                                               | $          | (412 | ) |   | $ | 530 |   |   |
| Total               |       |                                 | $          | 2,175    |       |                                               | $          | (1,235 | ) |   | $ | 940 |   |   |

 

59

----

During2004, in connection with the Company’s business model realignment, the Companyrecorded a restructuring charge of approximately $2.9 million comprised ofapproximately $2.8 million in severance costs and $0.1 million in leaseobligation costs. The lease obligation of $110,000 is calculated based oncurrent rent commitments less a calculated sublease amount based on currentmarket conditions.

| ** **               | ** ** | **Remaining at  December 31, 2004** | ** ** | **Paid** | ** ** | **Remaining at  December 31, 2005** | ** ** |
|--------------------------|------------|----------------------------------------------------|------------|----------|------------|----------------------------------------------------|------------|
| ** **               | ** ** | **(dollars in thousands)**               | ** ** |
| Severance:               |       |                                               |       |     |       |                                               |       |   |   |   |   |
| United States            |       |                                               | $          | 1,902    |       |                                               | $          | (1,795 | ) |   | $ | 107 |   |   |
| Canada                   |       |                                               | 535        |     |       | (152                                               | )          |   | 383 |   |   |
| United Kingdom           |       |                                               | 50         |     |       | (50                                                | )          |   | 0 |   |   |
| Total Severance          |       |                                               | $          | 2,487    |       |                                               | $          | (1,997 | ) |   | $ | 490 |   |   |
| Lease Obligations:       |       |                                               |       |     |       |                                               |       |   |   |   |   |
| United States            |       |                                               | $          | 377      |       |                                               | $          | (365 | ) |   | $ | 12 |   |   |
| United Kingdom           |       |                                               | 123        |     |       | (38                                                | )          |   | 85 |   |   |
| Canada                   |       |                                               | 319        |     |       | (178                                               | )          |   | 141 |   |   |
| Total Lease  Obligations |       |                                               | $          | 819      |       |                                               | $          | (581 | ) |   | $ | 238 |   |   |
| General Office Closure:  |       |                                               |       |     |       |                                               |       |   |   |   |   |
| United Kingdom           |       |                                               | $          | 45       |       |                                               | $          | (45 | ) |   | $ | 0 |   |   |
| Total                    |       |                                               | $          | 3,351    |       |                                               | $          | (2,623 | ) |   | $ | 728 |   |   |

 

During 2003, the Companyrecorded restructuring charges of approximately $3.3 million relating to theclosing of several offices in the United States, Canada and the United Kingdom,including the related severance costs. The severance costs approximated $1.5million and future lease obligation costs (less a calculated sublease amount),including office closure expenses, approximated $1.8 million, which were fullypaid by December 31, 2005.

**NOTE 14—MAJORITY-OWNED SUBSIDIARY**

On September 30, 2002, the Company announced thatit had joined its existing HIPAA compliance, healthcare information technologyand other compliance business practices with ZA Consulting LLC (ZAC) to formCHC Healthcare Solutions, LLC. Under the terms of the agreement, CHC had an 80%interest in the newly formed company.

On December 31, 2004, the Company acquired the20% minority interest owned by ZAC, in exchange for the forgiveness of a ZACnote obligation to the Company approximating $630,000.

60

----

**NOTE 15—ACQUISITIONS**

On April 1, 2004, RGII acquired AutomatedInformation Management, Inc. (“AIM”). The cash transaction was valued atapproximately $13.8 million plus an adjustment to purchase price for excessworking capital of approximately $2.0 million.

The Company purchased AIM to further its commitment todriving the growth potential that exists in the Federal government market andto expand RGII’s footprint, providing an entrance into certain governmentagencies, as well as strong relationships with large, prime contractors.

As a result of the integration of AIM into RGII, theCompany and the seller of RGII have agreed that the operating results of AIMshall remain separate from and not be included in the RGII EBIT targets relatedto contingent payments.  RGII, howevershall be permitted an intercompany charge to AIM for AIM’s share of combinedoperating overhead expenses.

On July 8, 2003, the Company acquired all of thestock of privately-held RGII Technologies, Inc. (“RGII”). The Companypurchased RGII because acquiring a platform company in the Federal governmentIT Services marketplace has been a priority for the Company. The purchase pricewas approximately $22.1 million including an up-front cash payment, acquisitionexpenses, working capital adjustment and the payoff of a note payable of $1.5million. In addition the Company paid off a RGII $665,000 note and a line ofcredit of approximately $2 million. In addition, the seller may be entitled tocontingent payments based on RGII’s performance against profitabilityobjectives over three years. The contingent payments are evidenced by acontingent note with a face value of $10 million that is payable over threeyears, only if certain financial performance objectives are met. Thesefinancial performance objectives are based on earnings before interest andtaxes (“EBIT”) targets totaling $19.8 million over a three-year period. Thereare no minimum or maximum payment obligations under the terms of the contingentnote. The contingent payment will be reduced on a dollar for dollar basis forfinancial performance below EBIT targets, and increased by 29 cents ($0.29) foreach dollar exceeding EBIT targets. For the years ended December 31, 2003and 2004, the seller received payments of $0.6 million and $1.8 million,respectively. EBIT targets were not achieved for the year ended December 31,2005, and no contingent payment is due. If EBIT targets are not met at theexpiration of the contingent earnout period (June 30, 2006), significantamounts previously paid will be repaid to the Company. The Company also enteredinto employment agreements with the former shareholder and key employees ofRGII and agreed to issue an aggregate of 600,000 options to purchase shares ofComputer Horizons stock over a three-year period.

The Company completed the allocation of the purchaseprice to assets and liabilities acquired utilizing outside valuationconsultants to assist in this process. Audited historical financial statementsof RGII together with applicable pro forma financial information were filedwith the SEC on September 19, 2003.

The acquisition was treated as a purchase of assetsfor tax purposes. Accordingly, goodwill is subject to amortization for taxpurposes over fifteen years.

On January 31, 2003,the Company acquired the IT Solutions operations of Global Business TechnologySolutions (GBTS), from Alea (Bermuda) Limited, a member of the Alea Group ofcompanies and Westfield Services, Inc., a subsidiary of WestfieldFinancial Corporation for $400,000. The outsourcing facility and its ITprofessionals are located in Chennai (Madras), India. This transaction wasaccounted for as a purchase and the entire purchase price was allocated togoodwill.

**NOTE 16—SALE OF SUBSIDIARIES**

On June 22, 2005, the Company sold their XpressSoftware Solution to Redtail Solutions Inc. for approximately $400,000 in cash.The gain from this transaction was approximately $327,000 and was recorded bythe Company in the second quarter of 2005.

61

----

On February 14, 2003,the Company sold the business and net assets of Computer Horizons e-Solutions(Europe) Limited, (“Solutions UK”) to Systems Associates Limited for 92,822British Pounds Sterling (approximately US$ 145,500). The loss from thetransaction was $272,000.

**NOTE17—CHANGE OF CONTROL AND OTHER SPECIAL CHARGES**

In the fourthquarter of 2005, the Company recorded a charge of approximately $13.2 millionrelated to the change of control resulting from the removal of the Company’sthen existing Board of Directors. The $13.2 million charge is comprised of thefollowing:

·       $9.7million charge for change of control payments resulting from provisions definedin the Company’s supplemental executive retirement plan (SERP);

·       $3.5million charge pertaining to employment agreements which contain change ofcontrol provisions requiring payments of specified amounts;

For fiscal year 2005, the Company recorded specialcharges/(credits) of $5.7 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.

For the year ended December 31, 2004, the Companyrecorded a special credit of $939,000 consisting of an insurance refund. Inaddition, as of December 31, 2004, the Company determined that goodwillpertaining to Commercial Solutions business unit was impaired and recorded anon-cash impairment charge of $20.3 million.  The Company also recorded a write-off ofassets in 2004 approximating $0.9 million relating to the write-off of asecurity deposit in connection with an escrow agreement of a previously soldsubsidiary and the write-off of fixed assets related to previously closedoffices.

During the year endedDecember 31, 2003, the Company incurred special charges of$10.1 million consisting of a severance package for the Company’s formerCEO and expenses related to the unilateral acquisition proposal and activitiesof Aquent LLC. The separation package of the Company’s former CEO, included a$3.5 million severance payment and $200,000 in continued medical coverage.In addition, $6.4 of the special charges pertained to the unilateralacquisition proposal and activities of Aquent LLC.

62

----

**NOTE 18—COMPREHENSIVE INCOME/(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 theyears ended December 31, 2005 and 2004 are as follows:

| ** **                                                          | ** ** | **Year Ended**                  | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                          | ** ** | **December 31,  2005**          | ** ** | **December 31,  2004** | ** ** |
| ** **                                                          | ** ** | **(dollars in thousands)** | ** ** |
| Comprehensive  Income/(Loss):                                       |       |                                 |       |   |   |   |   |   |   |
| Net Income/(Loss)                                                   |       |                                 | $          | (46,420 | ) |   |   | $ | (25,172 | ) |   |
| Other  comprehensive income/(loss)—foreign currency adjustment |       |                                 | 293        |   |   |   | 264 |   |   |
| Realized loss on  SERP investments                                  |       |                                 | 1,180      |   |   |   | — |   |   |
| Unrealized  gain/(loss) on SERP investments                         |       |                                 | 84         |   |   |   | 325 |   |   |
| Comprehensive  Income/(Loss)                                        |       |                                 | $          | (44,863 | ) |   |   | $ | (24,583 | ) |   |

 

Theaccumulated balances related to each component of other comprehensive income(loss) were as follows:

| ** **                         | ** ** | **Foreign  Currency  Translation**   | ** ** | **Unrealized  gain/(loss) on  Investments** | ** ** | **Accumulated  Other  Comprehensive  Income/Loss)** | ** ** |
|------------------------------------|------------|--------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                         | ** ** | **(dollars in thousands)** | ** ** |
| Balance at December 31, 2003  |       |                                 | (1,200     | )                                                |       |                                                | (1,589     | ) |   |   | (2,789 | ) |   |
| Other comprehensive income (loss)  |       |                                 | 264        |                                             |       |                                                | 325        |   |   |   | 589 |   |   |
| Balance at December 31, 2004  |       |                                 | (936       | )                                                |       |                                                | (1,264     | ) |   |   | (2,200 | ) |   |
| Other comprehensive income (loss)  |       |                                 | 293        |                                             |       |                                                | 1,264      |   |   |   | 1,557 |   |   |
| Balance at  December 31, 2005 |       |                                 | (643       | )                                                |       |                                                | —     |   |   |   | (643 | ) |   |

 

**NOTE 19—RESCISSION OFFER**

From April 2001 through January 2003, thesale of shares of the Company’s common stock pursuant to the Employee StockPurchase Plan were not exempt from registration or qualification under Federalsecurities laws. As a result, the Company may have failed to comply with theregistration or qualification requirements of Federal and applicable statesecurities laws because the Company did not register or qualify these stockissuances under either Federal or applicable state securities laws.

As a result, the Companymade a rescission offer, effective July 27, 2004, to all those persons whopurchased shares of common stock pursuant to the Employee Stock Purchase Planduring the affected periods. The rescission offer was made pursuant to a registrationstatement filed under the Securities Act and pursuant to applicable statesecurities laws. In this rescission offer, the Company offered to repurchasethe shares, subject to our rescission offer, for the price paid per share plusinterest from the date of purchase until the rescission offer expires, at thecurrent statutory rate per year mandated by the state in which the shares werepurchased. The rescission offer expired on August 27, 2004, with noindividuals accepting the rescission offer.

63

----

**NOTE 20—LEGAL MATTERS**

The Company is involved invarious and routine litigation matters, which arise through the normal courseof business. Management believes that the resolution of these matters will nothave a material adverse effect on the Company’s financial position or resultsof operations.

**Item 9.**                        *Changes in and Disagreements with Accountants on Accounting andFinancial Disclosures*

Not applicable.

**Item 9A.**                *Controls and Procedures*

Disclosure Controls andProcedures

**Evaluationof Disclosure Controls and Procedures**

The Company’s CEO and CFOhave evaluated the effectiveness of the Company’s disclosure controls andprocedures (as such term is defined in Rules 13a-15(e) underthe Securities Exchange Act of 1934, as amended) as of the end of the periodcovered by this report. Based upon such evaluation, the Company’s ChiefExecutive Officer and Chief Financial Officer have concluded that, as of theend of the period covered by this report, the Company’s disclosure controls andprocedures were effective in recording, processing, summarizing and reporting,on a timely basis, information required to be disclosed by the Company in thereports that it files or submits under the Securities Exchange Act of 1934, asamended.

**Management’sAnnual Report on Internal Control Over Financial Reporting**

The management ofthe Company 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) promulgatedunder the Securities Exchange Act of 1934 as a process designed by, or underthe supervision 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 themaintenance of records that in reasonable detail accurately and fairly reflectthe transactions and dispositions of assets of the Company;

2.                Provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the Company are being madeonly in accordance with authorizations of management and directors of theCompany; and

3.                Provide reasonableassurance regarding prevention or timely detection of unauthorized acquisition,use or disposition of the Company’s assets that could have a material effect onthe financial statements.

The Company’s management assessed the effectiveness ofthe Company’s internal control over financial reporting as of December 31,2005. In making this assessment, the Company’s management used the criteriaestablished in Internal Control—Integrated Framework issued by the Committee ofSponsoring Organization of the Treadway Commission.

Under the supervision and with the participation ofour management, including our Principal Executive Officer and PrincipalFinancial Officer, we conducted an evaluation of our internal control overfinancial reporting as prescribed above for the periods covered by this report.Based on our evaluation, our 

64

----

Principal ExecutiveOfficer and Principal Financial Officer concluded that the Company’s internalcontrol over financial reporting is effective.

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements. Projectionsof any evaluation of effectiveness to future periods are subject to the riskthat controls may become inadequate because of changes in conditions, or thatthe degree of compliance with the policies or procedures may deteriorate.

The Company’s independentauditors have attested to, and reported on, management’s evaluation of ourinternal control over financial reporting. This report is contained in thisAnnual Report on Form 10-K.

**Changes in Internal Controls**

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.

**Item 9B.**               *Other Information*

Not applicable.

65

----

**PART III**

**Item10.**                 *Directors and Executive Officers of the Registrant*

(a)          Theinformation called for by Item 10 with respect to identification of directorsof the Company is incorporated herein by reference to the material under thecaption “Election of Directors” in the Company’s Proxy Statement, pursuant toRegulation 14A, for its 2006 Annual Meeting of Shareholders which will be filedwith the Securities and Exchange Commission not later than 120 days after theend of the fiscal year covered by this Annual Report (the “2006 Proxy Statement”).

(b)         Theinformation called for by Item 10 with respect to executive officers of theCompany is incorporated herein by reference to the material under the caption“Executive Officers” in the 2006 Proxy Statement.

(c)          Theinformation called for by Item 10 with respect to compliance with Section 16(a) ofthe Securities Exchange Act of 1939 is incorporated herein by reference to thematerial under the caption “Compliance with Section 16(a) of theExchange Act” in the 2006 Proxy Statement.

**Code of Ethics**

Our executive officers are subject to a code of ethicsthat complies with standards mandated by the Sarbanes-Oxley Act of 2002. Thecomplete code of ethics is available on our website at www.computerhorizons.com.At any time it is not available on our website, we will provide a copy uponwritten request made to our Investor Relations Department, at 49 Old BloomfieldAvenue, Mountain Lakes, New Jersey 07046-1495. Information on our websiteis not part of this Annual Report. If we amend or grant any waiver from aprovision of our code of ethics that applies to our executive officers, we willpublicly disclose such amendment or waiver as required by applicable law,including by posting such amendment or waiver on our website atwww.computerhorizons.com or by filing a Current Report on Form 8-K.

**Item11.**                 *Executive Compensation*

The information called for by Item 11 with respect tomanagement remuneration and transactions is incorporated herein by reference tothe material under the caption “Executive Compensation” in the 2006 ProxyStatement.

**Item12.**                 *Security Ownership of Certain Beneficial Owners and Management andRelated Stockholder Matters*

The information called for by Item 12 with respect tosecurity ownership of certain beneficial owners and management and the equitycompensation plan information is incorporated herein by reference to thematerial under the caption “Security Ownership of Certain Beneficial Owners” inthe 2006 Proxy Statement.

**Item13.**                 *Certain Relationships and Related Transactions*

The information called for by Item 13 withrespect to certain relationships and related transactions is incorporatedherein by reference to the material under the caption “Certain Relationshipsand Related Transactions” in the 2006 Proxy Statement.

**Item14.**                 PrincipalAccountant Fees and Services 

The information called for by Item 14 with respect toPrincipal Accountant Fees and Services is incorporated herein by reference tothe material under the caption “Audit Fees” in the 2006 Proxy Statement.

66

----

**PART IV**

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

(a)          Financial Statements andFinancial Statement Schedules

1.                 Consolidatedfinancial statements

·       Reportof independent registered public accounting firm on the consolidated financialstatements

·       Reportof independent registered public accounting firm on internal controls

·       Consolidatedbalance sheets as of December 3l, 2005 and 2004

·       Consolidatedstatements of operations for each of the three years in the period ended December 31,2005

·       Consolidatedstatement of shareholders’ equity for each of the three years in the periodended December 31, 2005

·       Consolidatedstatements of cash flows for each of the three years in the period ended December 31,2005

·       Notesto consolidated financial statements

67

----

**2. Schedule II—Valuationand qualifying accounts for the years ended December 31, 2005, 2004 and2003.**

| ** **                         | ** ** | **Column B** | ** ** | **Column C**                              | ** ** | **Column D**                            | ** ** | **Column E**              | ** ** |
|------------------------------------|------------|-------------------|------------|------------------------------------------------|------------|----------------------------------------------|------------|--------------------------------|------------|
| **Column A**                  | ** ** | ** **        | ** ** | **Balance at  beginning  of period** | ** ** | **Charged to  cost  and expenses** | ** ** | **Deductions—  describe** | ** ** | **Balance at  end of  period** | ** ** |
| Description                        |       |              |       |                                           |       |                                         |       |                           |       |   |   |   |   |   |   |   |   |
| Year ended  December 31, 2005 |       |              |       |                                           |       |                                         |       |                           |       |   |   |   |   |   |   |   |   |
| Allowance for doubtful accounts    |       |              | $          | 5,914                                          |       |                                         |       | 1,632                          |       |   |   | 2,892 | (1) |   |   | $ | 4,654 |   |   |
| Deferred tax asset valuation       |       |              | $          | 13,793                                         |       |                                         |       | 31,308                         |       |   |   | — |   |   |   | $ | 45,101 |   |   |
| 2005 Restructure Reserve           |       |              | $          | —                                         |       |                                         |       | 2,175                          |       |   |   | 1,235 | (2) |   |   | $ | 940 |   |   |
| 2004 Restructure Reserve           |       |              | $          | 2,547                                          |       |                                         |       | —                         |       |   |   | 2,440 | (2) |   |   | $ | 107 |   |   |
| 2003 Restructure Reserve(3)        |       |              | $          | 804                                            |       |                                         |       | —                         |       |   |   | 183 | (2) |   |   | $ | 621 |   |   |
| Year ended  December 31, 2004 |       |              |       |                                           |       |                                         |       |                           |       |   |   |   |   |   |   |   |   |
| Allowance for doubtful accounts    |       |              | $          | 5,432                                          |       |                                         |       | 969                            |       |   |   | 487 | (1) |   |   | $ | 5,914 |   |   |
| Deferred tax asset valuation       |       |              | $          | 11,612                                         |       |                                         |       | 2,181                          |       |   |   | — |   |   |   | $ | 13,793 |   |   |
| 2004 Restructure Reserve           |       |              | $          | —                                         |       |                                         |       | 2,859                          |       |   |   | 312 | (2) |   |   | $ | 2,547 |   |   |
| 2003 Restructure Reserve           |       |              | $          | 1,075                                          |       |                                         |       | —                         |       |   |   | 538 | (2) |   |   | $ | 537 |   |   |
| 2002 Restructure Reserve           |       |              | $          | 1,159                                          |       |                                         |       | —                         |       |   |   | 1,018 | (2) |   |   | $ | 141 |   |   |
| 2000 Restructure Reserve           |       |              | $          | 78                                             |       |                                         |       | —                         |       |   |   | 78 | (2) |   |   | $ | — |   |   |
| 1999 Restructure Reserve           |       |              | $          | 308                                            |       |                                         |       | —                         |       |   |   | 182 | (2) |   |   | $ | 126 |   |   |
| Year ended  December 31, 2003 |       |              |       |                                           |       |                                         |       |                           |       |   |   |   |   |   |   |   |   |
| Allowance for doubtful accounts    |       |              | $          | 7,696                                          |       |                                         |       | 4,644                          |       |   |   | 6,908 | (1) |   |   | $ | 5,432 |   |   |
| Deferred tax asset valuation       |       |              | $          | 10,289                                         |       |                                         |       | 1,323                          |       |   |   | — |   |   |   | $ | 11,612 |   |   |
| 2003 Restructure Reserve           |       |              | $          | —                                         |       |                                         |       | 3,278                          |       |   |   | 2,203 | (2) |   |   | $ | 1,075 |   |   |
| 2002 Restructure Reserve           |       |              | $          | 2,483                                          |       |                                         |       | —                         |       |   |   | 1,324 | (2) |   |   | $ | 1,159 |   |   |
| 2000 Restructure Reserve           |       |              | $          | 295                                            |       |                                         |       | —                         |       |   |   | 217 | (2) |   |   | $ | 78 |   |   |
| 1999 Restructure  Reserve          |       |              | $          | 488                                            |       |                                         |       | —                         |       |   |   | 180 | (2) |   |   | $ | 308 |   |   |
|                                    |            |                   |            |                                                |            |                                              |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |

----

Notes

(1)          Uncollectible accountswritten off, net of recoveries.

(2)          Includes payments forseverance and lease obligation payments for closed offices.

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

68

----

**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON SCHEDULE II**

Board of Directors and ShareholdersComputer Horizons Corp.

Wehave audited in accordance with the standards of the Public Company AccountingOversight Board (United States) the consolidated financial statements ofComputer Horizons Corp. and Subsidiaries referred to in our report dated March 14,2006, which is included in the 2005 Annual Report on Form 10-K. Ouraudit was conducted for the purpose of forming an opinion on the basicfinancial statements taken as a whole. Schedule II is presented forpurposes of additional analysis and is not a required part of the basicfinancial statements. This schedule has been subjected to the auditingprocedures applied in the audit of the basic financial statements and, in ouropinion, is fairly stated in all material respects in relation to the basicfinancial statement taken as a whole.
| /s/  GRANT THORNTON LLP |   |   |
|-------------------------|--------|--------|
| Grant Thornton LLP      |   |   |
| Edison, New Jersey      |   |   |
| March 14, 2006     |   |   |

 

69

----

Report of independent registered public accountingfirm on the financial statements schedule.

All other schedules are omitted because they are notapplicable or the required information is shown in the consolidated financialstatements 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 Form 8-K dated  July 8, 2003.                                                                      |
| 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.                                        |

 

70

----

 

| Exhibit | ** ** | ** **                                                                                                                                                                | ** ** | **Description**                                                                                | ** ** | **Incorporated by Reference to** |
|---------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|----------------------------------|
| 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.           |
| 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. |

 

71

----

 

| Exhibit | ** ** | ** **                                                                                                                                                                  | ** ** | **Description**                                                                                             | ** ** | **Incorporated by Reference to** |
|---------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|----------------------------------|
| 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.              |
| 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  |

 

72

----

 

| Exhibit | ** ** | ** **                                                                                                                                            | ** ** | **Description**                                                                                           | ** ** | **Incorporated by Reference to** |
|---------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------|------------|----------------------------------|
| 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                               |
| 21      |       | List of  Subsidiaries.                                                                                                                                |       | Filed herewith                                                                                            |
| 23      |       | Consent of Grant  Thornton LLP, 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                                                                                            |

 

 

73

----

**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

|                                        |   | COMPUTER HORIZONS CORP.                              |
|----------------------------------------|--------|------------------------------------------------------|
| Date:    March 16, 2006 |   | By:                                                  | /s/ DENNIS J. CONROY |
|                                   |   | Dennis J. Conroy, President, CEO                     |
|                                   |   | (Principal Executive Officer)                        |
| Date:   March 16,  2006 |   | By:                                                  | /s/ MICHAEL J. SHEA |
|                                   |   | Michael J. Shea,                                     |
|                                   |   | Vice President and CFO                               |
|                                   |   | (Principal Financial Officer)                        |
| Date   March 16,  2006  |   | By:                                                  | /s/ MARCI BRAUNSTEIN |
|                                   |   | Marci Braunstein                                     |
|                                   |   | Corporate Controller  (Principal Accounting Officer) |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the dates indicated.

|                                        |   | COMPUTER HORIZONS CORP.                             |
|----------------------------------------|--------|-----------------------------------------------------|
| Date:    March 16, 2006 |   | By:                                                 | /s/ ERIC ROSENFELD |
|                                   |   | Eric Rosenfeld, Chairman of the Board  and Director |
| Date:    March 16, 2006 |   | By:                                                 | /s/ KARL L. MEYER |
|                                   |   | Karl L. Meyer, Director                             |
| Date:    March 16, 2006 |   | By:                                                 | /s/ FRANK J. TANKI |
|                                   |   | Frank J. Tanki, Director                            |
| Date:    March 16, 2006 |   | By:                                                 | /s/ WILLEM VAN RIJN |
|                                   |   | Willem van Rijn, Director                           |
| Date:    March 16, 2006 |   | By:                                                 | /s/ ROBERT F. WALTERS |
|                                   |   | Robert F. Walters, Director                         |

 

74

----

**Exhibit Index**

| 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 Form 8-K dated  July 8, 2003.                                                                      |
| 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.                                        |

 

75

----

 

| Exhibit | ** ** | ** **                                                                                                                                                                | ** ** | **Description**                                                                                | ** ** | **Incorporated by Reference to** |
|---------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|----------------------------------|
| 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.           |
| 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. |

 

76

----

 

| Exhibit | ** ** | ** **                                                                                                                                                                  | ** ** | **Description**                                                                                             | ** ** | **Incorporated by Reference to** |
|---------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|----------------------------------|
| 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.              |
| 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  |

 

77

----

 

| Exhibit | ** ** | ** **                                                                                                                                            | ** ** | **Description**                                                                                           | ** ** | **Incorporated by Reference to** |
|---------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------|------------|----------------------------------|
| 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                               |
| 21      |       | List of  Subsidiaries.                                                                                                                                |       | Filed herewith                                                                                            |
| 23      |       | Consent of Grant  Thornton LLP, 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                                                                                            |

 

78

----